Fairtrade will raise its Minimum Price for coffee in an effort to strengthen protections for coffee farmers around the world amid the intensifying impacts of climate change and growing global economic volatility, the social justice organisation today confirmed.
The new Fairtrade prices, which come into effect for contracts signed as of 1 August 2023, will increase the baseline price by 19 percent and 29 percent for Fairtrade certified Robusta and Arabica coffee, respectively.
This will provide farmers with significant price risk management support in times of wild market fluctuation, inflation in their home countries and substantial additional costs due to climate change adaption.
“Despite the recent spikes in global coffee prices, coffee farmers are struggling with inflation, skyrocketing production costs, and crop loss due to the effects of climate change. Many coffee farmers are abandoning their farms in search of opportunities elsewhere and young people today in coffee-growing communities struggle to see a future in coffee. The fact that farmers cannot make a living in coffee is a tragic commentary for the industry and a huge risk for the future of the global coffee sector as a whole,” says Monika Firl, Senior Manager for Coffee at Fairtrade International.
From an Australia/New Zealand perspective, the increase in the Fairtrade Minimum Price ensures that the producers they deal with in the Pacific have a pricing safety net that helps them deal with the uncertainty in the market and the environment.
“What’s important about the Minimum Price is that it’s a floor price which allows producers to plan knowing the lowest amount they will receive for their coffee. We continue to work with the farmers in Timor-Leste and PNG to increase coffee quality and processes so that their coffee is in demand and gets higher than the Minimum Price,” says Virginia Jones, Head of Communications at Fairtrade Australia New Zealand (ANZ).
Fairtrade’s global coffee network is vast and diverse, comprising nearly 900,000 certified coffee farmers in over 650 producer organisations spanning 31 countries. Fairtrade coffee sold in Australia and New Zealand is sourced from nearby neighbours like PNG but also from a wide range of coffee producing countries further afield including Peru, Brazil and Ethiopia.
In addition to the protective support of the Fairtrade Minimum Price, Fairtrade-certified farmers also receive a Premium – an additional sum of money that is paid into a community fund and invested in projects to improve productivity, climate adaptation, quality, infrastructure, and basic community services identified as priorities by the farmers themselves. Since 2017, Fairtrade certified coffee producer organisations earned more than $400 million USD in Premium.
Nevertheless, coffee farmers continue to face dramatic challenges – smallholder farmers produce 60 percent of the world’s coffee yet nearly half of those smallholder farmers are living in poverty; nearly a quarter of them live in extreme poverty. And although coffee prices in 2022 were relatively high, profits ultimately failed to trickle down to the farmers themselves. Studies, in fact, have shown that producers typically retain around 1 percent of the retail coffee price which, for a $4 USD cup of coffee, equals around $0.04 USD per cup.
“The reality is that coffee farmers should not be subsidising the lifestyle of people in developed countries so that we can all enjoy our daily coffee,” says Ms Jones.
“If we actually want to tackle global poverty then everyone in the supply chain – from consumers to retailers to traders – must do their part and pay farmers their fair share.”
Going beyond the mandatory Fairtrade Minimum Price, the organisation has also developed Living Income Reference Prices for some countries, indicating what farmers would need to receive to be able to earn a living income from their coffee, given certain parameters. Buyers are encouraged to pay these prices on a voluntary basis and support farmers to make progress toward living incomes as part of a holistic strategy. The new Fairtrade Minimum Price and organic differential combined have reached the export-equivalent values of the Living Income Reference Prices in two of the four coffee origins for which Fairtrade has set the reference prices: Colombia and Uganda, both for organic Arabica. For the other two origins, the new Fairtrade Minimum Price and organic differential will close the gap to the respective Living Income Reference Prices by 45 percent (Indonesia’s Aceh region) and 46 percent (Honduras), respectively. In addition to being paid the references prices, farmers need to also reach other parameters that are part of the living income equation, such as a sustainable yield.
To stay abreast of changes across all origins, Fairtrade periodically reviews the Minimum Price’s relevance in direct and open consultations with the farmers themselves through their producer organisations. The Fairtrade Standards Committee, which evaluates Minimum Price revisions, is comprised of three producer representatives, one trade union (worker) representative, three national Fairtrade organisation representatives, and one trader representative. Every Standard and Pricing decision goes before the Committee for approval. Members of the Committee will regularly push for changes or seek clarification to assure sound decision-making, and the strong voice of farmers in the Fairtrade system ensures pricing decisions are relevant to them.
To achieve the new Minimum Price, Fairtrade conducted a cost of production analysis as well as a three-month consultation process with key stakeholders. More than 540 participants – 86 percent of whom were farmers – from 40 countries provided critical inputs ultimately resulting in Fairtrade’s proposal to the Fairtrade Standards Committee and the decision to raise the Minimum Price.
Virginia Jones, Head of Communications at Fairtrade ANZ explains that increasing the Minimum Price is just one part of the picture.
“This new Fairtrade Minimum Price is an important step but even this increase does not address the ongoing issues faced by producers like climate change and deforestation. The whole industry needs to stop and look at how we can ensure a future for this industry – it’s not something Fairtrade can do alone,” she says.