By CHRISTIANE BARRO

A consumer group has accused cafes of using fair trade logos to lift sales, but short-changing small-scale coffee farmers in impoverished communities. 

Consumer advocacy group Choice has reported some retailers are using the fair trade label to market their products, but they are pocketing a premium that should be passed on to farmers.  

Australian Catholic University sociologist Dr Tim Scrase said the fair trade system relied too heavily on trust between consumers, producers and retailers. 

The premium, he said, was not paid to producers at the point of retail sale, but at the point of wholesale purchase, which meant cafés would often deliberately underestimate the premium. 

Global fair trade retail sales were €5.5 billion (AU$8.9 billion) in 2013, Choice said, with €86 million (AU$139 million) – just 1.5 per cent – in premium payments being distributed between 1210 co-ops.

Dr Scrase, who joined with Choice to investigate fair trade practices, found retailers increased the price of fair trade products, taking advantage of consumers who believed the mark-up would be passed on to the farmer. 

“Fair trade coffee could sell at one retailer for $6, and the same product for $8 at another retailer. So, as you can see, the retailer benefits by the price markups, not the producers or consumers,” Dr Scrase said. 

He also accused corporations such as Cadbury of “greenwashing” where they “rig markets to their advantage” by labeling their products fair trade when they weren’t completely fair trade sourced. 

“Cadbury claim to use fair trade cocoa in their chocolate, but it is only a very small percentage,” he said. Under current rules, once a certain minimum amount has been bought, the fair trade logo can be used even if not all the product is fair trade. 

Monash University Department of Econometrics and Business Statistics Prof Brett Inder said many retailers did the bare minimum to comply with fair trade requirements to put the logo on their coffee cups.  

“Much fair trade is practiced by commercial operators as a means of sounding ethical, and they just do the minimum to comply with fair trade requirements,” he said.

But consumers weren’t willing to pay extra for a cup of coffee, he said, because they could not verify if the premium would actually go to farmers.

Fair trade coffee needs to meet the standards set by FLO-CERT, which provides certification. 

It aims to ensure small-scale farmers, who are often from disadvantaged ethnic minorities that are limited in economic resources, are given a fair cut of the retail price.

Around 25 million small-scale farmers produce more than 80 per cent of global coffee supply. 

Brazil is the biggest coffee exporter, with 13.6 per cent of global exports last year, ahead of Vietnam at 9.3 per cent, and Germany at 6.4 per cent. 

It’s the second-most exported product from developing nations, and Australia imports about 48,800 tons of coffee each year. 

But coffee growers are often underpaid for their crops, according to a Fairtrade Foundation report, receiving less than 7-10 per cent of the retail price. 

Most coffee farmers receive the same income as sweatshop workers, according to Organic Consumers Organisation. In Guatemala, coffee suppliers must harvest a minimum of 100 pounds – about 45kg – of coffee beans each day for less than $3. 

The fair trade model – launched by Max Havelaar in 1988 – was used across Europe and North America. But a fair trade labeling organisation that provides an international set of standards was only established in 1997. 

Under the fair trade model, coffee is sold for a minimum of $3.80/kg, but may vary to as low as $3.50/kg in other countries. Consumers are charged the minimum price for raw coffee, plus an additional premium, which is allocated to a fund for the farmer’s community. 

Producers receive a minimum price for coffee beans and, according to Fair Trade International, up to 60 per cent of the retail earnings should return to the farmer if they request it. 

An additional 25c/kg  is allocated to a collective fund for investing in their community’s social, economic and environmental development. 

Coffee farmers are free to determine the most effective use of that money, including if it should be invested in education, improve healthcare facilities, local infrastructure, or even their own business. 

According to Fairtrade International, companies are recognising the benefits of the worldwide collective fund, and 11 new companies raised $1.7 million last year.

Gregg Modlin, owner of 2Pocket, a Melbourne espresso bar and fair trade store, said he promoted fair trade practice as a sustainable means to reducing poverty in poor farming communities. 

“For [donations] to be sustainable, you’ve got to continually have donations and fundraisers to keep that going,” he said. 

“So, in essence, you’re not having to rattle the tin and pass around the hat every week just to keep a project going.”

His store also sells fair trade chocolates, handmade paper, organic beauty products and other food, which costs around 10 per cent more than local competitors.

“Most aid in the world is what we like to call, ‘one pocket aid’, which is like giving a man a fish. Sure, it feeds him for a day, but how about tomorrow, and the next day and the next day,” the 2Pocket website states.  

“It can often create higher barriers for actually getting out of poverty and truly being empowered.”

The business adheres to a “two pocket” method, where money goes to both a business and the supplier, establishing an economic cycle for reducing poverty among famers. 

Mr Modlin has seen first-hand how micro-enterprise projects – such as the fair trade model – help families in developing countries work their way out of poverty.

While volunteering with Kokonut Pacific Solomon Islands – an organisation that provides organic certification and training – he saw how village farmers could be empowered to grow their own produce, developing the local economy. 

He said once they were helped in getting “their business up and going” they were able to “fix their own roofs, put in their own water supplies, fix up their own clinics”. 

Direct trade is an alternative to fair trade. Cafes directly purchase coffee beans from individual producers, offering a collaborative relationship that enables the pair to negotiate a price. 

Through direct communication between buyers and farmers, it reduces miscommunication on quality that can lead to farmers receiving a lower price.

If consumers wish to buy fair trade that ensures coffee farmers are receiving a fair cut, Prof Inder said, they should seek out suppliers with strong links to producers.