Answer to Question #207105 in Management for Pearl

Question

3. Fairtrade in coffee

Fairtrade tries to address a number of issues. Explain three of these issues.

a.What is meant by a Fairtrade Minimum Price (floor price) for coffee beans?

b.How did the fixing of a Fairtrade Minimum Price lead to unethical practices by coffee farmers?

C.Added to the Fairtrade Minimum Price, coffee bean buyers must also pay a

fixed premium. What should this premium be used for?

D.Explain what was found when researchers tried to establish how the premiums were used. Not everybody is convinced that Fairtrade is working and achieving its

objectives. Explain two reasons why people feel this way.

Discuss how the following alternatives to Fairtrade works, and how it is different from the principles followed by Fairtrade.

SPP-coop

Equal Exchange

Coffee and farmer equity

 

Answer 1

Q207105

a. What is meant by a Fairtrade Minimum Price (floor price) for coffee beans?

A FMP is the amount of money that buyers pay for Fairtrade certified coffee beans or products, which covers the producer's average cost of production. The general intended effect is that the producer does not suffer losses when the market price of the coffee beans is lower than their costs of production and access to the market.

b. How did the fixing of a Fairtrade Minimum Price lead to unethical practices by coffee farmers?

The FMP is linked to the costs of production of coffee farmers so that they can benefit from it. Some coffee farmers opted to lie about their costs of production. For example some would overstate the amount of money that went into producing coffee beans. Others would lie about the quality of products that they used, while in reality they used much cheaper ones of a lower quality. The outcome was that they would make a lot more money at the expense of consumers.

C. Added to the Fairtrade Minimum Price, coffee bean buyers must also pay a

fixed premium. What should this premium be used for?

This fixed premium is also referred to as community development or social premium. As the latter terms suggest, this premium is meant to benefit the communities that host Fairtrade coffee farmers. This is achieved in two ways. First is by enhancing democracy and co-operation among the coffee farmers because they are tasked with determining how the premium should be used in the community. Second is in how the premium is used through the actual investments made in the community in the form of projects such as building crop storage facilities, training of community members on sustainable farming methods, and switching to organic production techniques such as green manure and compost as opposed to artificial fertilizers.