The Difference Between Direct Trade and Fair Trade
If you are regularly searching for coffee beans, or have spent any time in the coffee industry, you have likely heard the terms “Fair Trade” and “Direct Trade” thrown around. It’s easy to see these words printed on the side of your coffee bag and feel good about your purchase, but what does it really mean? Are they the same thing? Is one better than the other? The world of ethically sourced coffee doesn’t need to be complicated. Here’s a quick guide into the world of ethical and sustainable coffee sourcing.
The Fair Trade system, as we know it today, began in the Netherlands as a response to the global coffee crisis. Coffee was being traded at extremely low prices which kept coffee farmers living in poverty and resorting to using forced and child labour to reduce their costs. The low income of farmers and even lower income of their employees meant that the communities they lived in were being kept in an impoverished state with little hope of improvement.
The World Fair Trade Organization has put strict guidelines in place for trading coffee in order to combat these issues. They determine fair trading prices and ensure that the farmers they source their coffee from are being paid enough to both survive and better their farm as well as paying their workers living wages. Fair Trade also puts a lot of effort and resources into closely monitoring and prohibiting the use of child and forced labour.
In order for this system to work there are lots of people involved to facilitate and regulate trades. The first tier is known as Fair Trade International. This is the company that is in charge of regulating all the systems in place and ensuring that they are beneficial to everyone involved.
Next come the importers. Fair Trade importers must register with Fair Trade International and pay a registration fee. They are also required to pay a minimum fee to exporting companies in order to ensure that the producers are receiving a fair price for their coffee.
Exporters work closely with importers and represent the farmers when trading coffee. Exporters have been called “the weakest part of the Fair Trade system” as they often incur losses rather than profits due to a combination of fees and issues with low-demand. These losses result in farmers being paid less for their crop.
Over the years there has been growing concern over the Fair Trade system. One of the biggest concerns is the fact that Fair Trade International is a large corporation and therefore are not overly transparent about their operations. The Fair Trade system also has no regulations in place for quality control. This means that farmers are paid the same for both their high and low quality crops and therefore have more incentive to pay more attention to volume rather than quality. This results in lower quality coffee being traded. Fair Trade International is looking for ways to implement systems for quality control but those results won’t be seen for years to come. The amount of fees involved in registering with Fair Trade International and the amount of people being paid in this system is also a call for concern. With the money being split by so many people it means that less money is going directly to the farmers themselves.
While Fair Trade is governed by a large company, direct trade is more of a concept or an ideology. This method of trade came into place in an attempt to combat the gaps and issues in the Fair Trade model. In short, the farmers and the roasters develop a relationship and trade directly rather than using importers. In many cases the roaster has actually been to the farm they are buying from.
By cultivating interpersonal relationships, roasters and farmers are better able to negotiate prices. Farmers are able to outline their expenses and receive a fair price in order to run their farm and pay their workers fair, living wages. Roasters are also able to better outline what they are looking for in their coffee and are able to ensure a higher level of quality in the product they are receiving. This system aims to be mutually beneficial to both parties.
The direct trading model also means there is more money in the farmers pockets because of the lack of extra expenses. There are no registration fees or exporter fees, meaning that the money the farmers are paid for their crop is going directly to them and their employees. Farmers are also often paid a higher price for high quality crops; in some cases as high as 25% more than the Fair Trade price.
The biggest issue with direct trade is the lack of standardization. This means that direct trade can mean entirely different things depending on where you go. Some roasters have shaken hands with the people farming their beans while others may buy from arbiters who have been to the farms. Since there is no governing body that dictates what direct trade is, this form of coffee buying lacks the uniformity and accountability that fair trade provides.
Though these methods of trade have their differences, at their core they are aiming for the same thing: to alleviate poverty in farming communities by ensuring farmers are paid a fair wage for the crop and work they provide. The higher price tag on the coffee being bought means that farmers are able to grow their farms and improve on farming techniques, as well as pay their employees a living wage. This increase in wages contributes to better health care and more accessibility to education, which overall has massive, positive impacts on the community and the people who live there.
So Which is Better?
When it comes to choosing the “best system” there is no clear winner or loser. The existence of these two systems means that each continues to challenge one another, forcing each system to find ways to improve.
The strict regulation and clear outline of terms involved in becoming Fair Trade Certified has been pushing the direct trade system to become more organized and aim to create clear guidelines for more uniformity within the system.
The transparency and relational aspects of the direct trade system are making the fair trade system become more transparent about where the money goes and how much of it goes to farmers. The high level of quality sourced using the direct trade system is influencing Fair Trade International to look at implementing a grading scale into their system in order to stay competitive in terms of both ethics and quality.
Fair Trade’s vast knowledge of poverty alleviation and sustainability in pricing are incredibly vital to improving the coffee industry as is the focus on transparency, relationship and quality that is found in the direct trade model. The existence of both systems provides a sense of hope for the future of both the coffee industry and the farming communities that make the industry possible.
Fair Trade VS Direct Trade Coffee: Which Is Better For Coffee Sustainability? (n.d.). Retrieved from https://www.javapresse.com/blogs/buying-coffee/fair-trade-vs-direct-trade-coffee
Fair Trade vs Direct Trade Coffee: The Jargon of Sustainability. (2020, June 16). Retrieved from https://www.roastycoffee.com/fair-trade-vs-direct-trade-coffee/
Mehta, A., & Chavas, J. (2008). Responding to the coffee crisis: What can we learn from price dynamics? Journal of Development Economics, 85(1-2), 282-311. doi:10.1016/j.jdeveco.2006.07.006
S, M. (2018, November 29). History of Fair Trade. Retrieved from https://wfto.com/about-us/history-wfto/history-fair-trade