Fair-trade organic coffee certification does not benefit the poor in Nicaragua

Coffee anatomy by Eric Lewis via Flickr.

Updated  prelude:
Fair-trade coffee producers often end up poorer

Lawrence Solomon  FP Comment May 14, 2011 – 8:00 AM ET | Last Updated: May 14, 2011 12:10 PM ET
Coffee is one of our guilty pleasures, and not only because of the calories that can be packed into a double latte. Many of us feel guilty that our pleasure is coming at the expense of the Third World coffee farmer, so much so that we gladly pay more for “fair-trade” coffee, which certifies that farmers receive more revenue for their crop.
Saturday, on World Fair Trade Day, we have something else to feel guilty about. That fair-trade cup of coffee we savour may not only fail to ease the lot of poor farmers, it may actually help to impoverish them, according to a study out recently from Germany’s University of Hohenheim.
The study, which followed hundreds of Nicaraguan coffee farmers over a decade, concluded that farmers producing for the fair-trade market “are more often found below the absolute poverty line than conventional producers.
“Over a period of 10 years, our analysis shows that organic and organic-fair trade farmers have become poorer relative to conventional producers.”…continue at FP

The study referred to is:
Tina D. Beuchelt , Manfred Zeller. Profits and poverty: Certification’s troubled link for Nicaragua’s organic and fairtrade coffee producers. Ecological Economics 70 (2011) 1316–1324.
Both of the researchers are from the Department of Agricultural Economics and Social Sciences in the Tropics and Subtropics at the University of Hohenheim, Germany.
Governments, donors and NGOs have promoted environmental and social certification schemes for coffee producers as certified market channels are assumed to offer higher prices and better incomes. Additionally, it is presumed that these certifications contribute to poverty reduction of smallholders. Yet, gross margins, profits and poverty levels of certified smallholder coffee producers have not yet been quantitatively analyzed applying random sampling techniques. Our quantitative household survey of 327 randomly selected members of conventional, organic and organic-fairtrade certified cooperatives in Nicaragua is  complemented by over a hundred qualitative in-depth interviews. The results show that although farm-gate prices of certified coffees are higher than of conventional coffees, the profitability of certified coffee production and its subsequent effect on poverty levels is not clear-cut. Per capita net coffee incomes are insufficient to cover basic needs of all coffee producing households. Certified producers are more often found below the absolute poverty line than conventional producers. Over a period of ten years, our analysis shows that organic and organic-fairtrade farmers have become poorer relative to conventional producers. We conclude that coffee yield levels, profitability and efficiency need to be increased, because prices for certified coffee cannot compensate for low productivity, land or labor constraints.
Some key statements:

Analyzing data from several countries in Central America, Kilian et al. (2006) show small to large price differentials for organic and fairtrade coffee for the 2002/03 harvest. In some occasions, fairtrade farm-gate prices were much lower than conventional prices, for example when existing cooperative debts needed to be paid (Bacon, 2005; Utting-Chamorro, 2005). According to Arnould et al. (2009) and Valkila (2009), the positive farm-gate price differences of organic and fairtrade coffee continue after the crisis in Guatemala, Nicaragua, and Peruwhile Philpott et al. (2007) do not locate premiums in Mexico…
…Conventional and organic-fairtrade certified coffee yields are more than 50% below national average, and yields from organic coffee on average are 43% lower (Table 2). The qualitative interviews indicated that the main reasons for these differences are poorly managed plantations, insufficient fertilization and low planting densities…
…Due to the different yield levels, the revenue is significantly higher for the organic farmers while organic-fairtrade certified producers have only slightly higher revenues than their conventional colleagues. The certified coffee farmers know this problem as one organic-fairtrade certified producer explained “[The price] is really good but more in our case it is not the price it is the yield we have per manzana,7 we don’t have a good yield” (organic-fairtrade producer in a focus group interview, 7 April 2008).
We assumed that organic coffee production involves lower expenditures for purchased inputs (Hypothesis 1). This cannot be confirmed because total input costs do not differ significantly between the groups, although the mean input expenditures for organic and organic-fairtrade producerswere lower than for conventional producers (Table 2).Many of the organic production processes are more laborious as shown by the significant differences in total person-days per hectare in comparison to conventional production. The higher labor intensity was also frequently mentioned by farmers in the qualitative interviews.
One organic-fairtrade producer explained that “on the one hand, the organic [coffee] is [cheaper] because one spends less but as it was said there is more work, one has to work more because one has to make these compost heaps” (focus group interview, 16 April 2008)…
…The net income for the whole coffee area is highest for conventional farmers, followed by organic-fairtrade certified farmers and lowest for organic farmers (Table 3). The per capita net coffee income follows the same order. Net coffee income for the whole area and per capita is not significantly different between the three producer groups. The per capita net coffee income in all producer groups is not high enough to enable farm households to meet all basic needs since per capita coffee incomes are below the national and the international ‘$2-a-day’ poverty line. As an organic-fairtrade producer puts it:
“We have many years working organic […] we know that until now we have not, how to say it, better economic resources” (focus group interview, 7 April 2008).
Therefore, we anticipate the rejection of our hypothesis (2b) regarding per capita net coffee income.
[Hypothesis 2. a. Prices at farm-gate are higher in certified than in conventional market channels. b. These higher prices are sufficient to cover additional costs of participation and lead to net increases in per hectare and per capita coffee income as compared to conventional producers.]
That certified farmers do not have higher net coffee incomes for the whole coffee area and per capita can be
explained by their higher labor requirements due to organic production, and thus costs,which offset saved input costs. This is especially relevant for organic-fairtrade producers compared to conventional farmers. That organic producers fare slightly worse than conventional farmers can be additionally explained by their smaller coffee area…
…The mean poverty index for conventional producers was 0.25571 ± 1.36924, for organic producers−0.10180 ± 0.82492 and for organic-fairtrade producers −0.01082 ± 0.84238. Post-hoc tests show that organic farmers are relatively poorer than conventional farmers at p less than 0.05. There is no significant difference between the other producer groups.
The classification of conventional, organic and organic-fairtrade certified households in the three poverty groups, poorest, less poor and least poor, shows that more organic and organic-fairtrade certified households are in the poorest group than conventional households….
…organic-fairtrade certified farmers are predominately found in the poorest poverty group. They are relatively poorer than conventional farmers but not at statistically significant levels (Table 6). The hypothesis (3) that relative poverty levels of households participating in organic and organic fairtrade certification schemes developed more positively than the conventional producers has to be rejected. While not being free of potential selection bias,we see the result as a challenge to conventional assumptions and as an interesting starting point for further research on long-term poverty effects of certification.

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  1. This is merely a new bit piece in the ongoing scandal of organic partisans ripping off farmers in the developing world. It’s truly ugly. See the text at links below.
    It’s things like this which morally require condemnation of organic agriculture, until they can prove that it truly benefits the neediest. And look at the people so busy to make sure modern tech doesn’t reach the neediest. Those who don’t experience a sense of outrage at this stuff should check their conscience for signs of atrophy.

  2. I’m not going to buy the article, but does anyone know if they did anything to bar self selection? I would imagine that a coffee grower who was doing well would be less likely to go the certification rout than one that wasn’t making it and had to change something.

  3. The last bit of the abstract (I’m in Emerson’s boat in that I’m not shelling out cash for the article) causes me a little worry:-

    because prices for certified coffee cannot compensate for low productivity, land or labor constraints.

    What are the labor constraints? My gut feel (unlike Sagan I do a lot of thinking with my gut, which may explain my GI doc bills…) is that in operations where you can’t exploit workers you’re not going to be as profitable – however part of fair trade is… not exploiting workers – if this means having the same income (and the above quote block seems to suggest that although there is a trend towards more poverty in the certified group that it isn’t a statistically significant difference – which kinda suggests that they would like the difference to be there but can’t make the math say it is – I’m always wary when folk find trends in their data) but exploiting workers less then I’m all for it (does the survey, for instance, look at the economic effects on non-farmers working the plantations (assuming there are any)?)

  4. I’m not surprised by these researcher’s findings. Coffee industry insiders have been telling me this for a long time. Even in the US and Canada it is the folks downstream from the farmers who make the most off of Organic because they don’t bear the weather and pest risks and still get to charge a premium. It is sad that people who spend all that extra money with very good intentions are not really helping farmers.

  5. Spot one! To quote from the paper itself: “We cannot rule out the possibility that the results are influenced by selection bias [of many types including the propensity for less productive farmers to seek certification despite the guesses of the authors that everyone started off equal]. This paper does not provide for a causal econometric impact analysis and s…uch studies are strongly suggested for further research to [rigerously] test the claims that certified coffee production contributes to poverty reduction”.

  6. My brother is an economic consultant, he once wanted to build his own fair trade brand because the provit you get is huge. However, after further study about how to build such org., he cancelled the idea because certification does not help the products of poor farmers directly to the market, but it’s on the opposite, it’s adding another step of bureaucracy. To my point of view, why it is wrong having more intermedier/distributors after all? It creates jobs! On the other side, this trade fair want to handle and decide everything from the source, marketing, deciding the price, until the choice of format delivering guilts to the consumers…to me it’s more like a monopoli during colonial time to make sure the flow of the best quality products to the rich countries. Ok, now, you may say that fair trade have raised few poor farmers etc, but that’s like with most of the asiatic people who were proud with their colonial time and saying “we are blessed by british colonialism, without them we would never have a rail road, it’s colonial gifts”. To me this fairtrade is all over again the same concept of monopoli but in a new cover.

  7. In previous years I spent several months researching the coffee market in Nicaragua, concluding with a trip to Matagalpa; visiting several fincas with the intent of relocating to Nicaragua, purchasing and running my own organic, fairtrade finca.
    My idealistic vision was a personal lifestyle transformation while helping poor communites develop a sustainable business that could help lift them out of poverty.
    It must be made clear that the fairtrade-direct trade movement is absolutely rooted in the noble cause of helping poor farmers around world by connecting them to consumers who will come to know and appreciate the source of their food. The social and moral implications of this movement can not be understated because the intent is to help all of us live in peace and dignity on a more just and sustainable planet. That is an infallible universal truth of the movement that shoud not be short changed. We say: People over profits.
    Having first hand experience on the ground, I can tell all of you that this study does not paint the entire picture of what is happening in Nicaragua. This is very troubling because it demonstrates how even respectable studies, albiet with limited scope, can be used to distort reality and shape public opinion.
    The problem with the conclusion in this study, not readily apparent to the casual reader, is the microeconomic landscape of the region. The conclusion is in fact a false positive.
    For example, unless you initimately understand what’s happening on the ground, you would not consider that the reason that the ‘poorest’ farmers are also ‘organic farmers’ is because they are simply too poor to even buy fertilizer! These poorest would otherwise be unemployed or underemployed if it wasn’t for organic fairtrade-direct trade. So they are organic farmers not based on principal, a luxury we enjoy in North America, they don’t have any other choice. Fertilizer is expensive commodity, made and sold by foreign corporations.
    The correct way to interpret this study would be to ask if the poorest organic fairtrade famers are better off being seasonally employed by larger farms or commerical operations, often without any safety nets like minimum wage, healthcare or even shelter, or are they better off trying to work a small microlot of land that is their own; organically (by default), as nature intended? This is similar to mom and pop stores in middle America being closed down and being forced to go work fie Walmart in order to survive.
    This is a more complex question that the study can not answer because it does’t paint the entire picture. Which makes me think that whoever spun this story has a hidden agenda.
    If it wasn’t for organic fairtrade, it is likely that commercial operators would take over everything and farmers wages would be at the sole discretion of the wealthy landowners and commercial operators (aka the 1%). Granted, starving by your own hand or by someone else’s is not much of a choice. But the moral implications of the world that we live in are clear: slave wages have not benefited the farmers and have kept them in poverty. Fairtrade said: it is time to try a new approach as fragile as it may be.
    Until fairtrade these ‘poorest’ farmers would otherwise be only employed temporarily during harvest seasons, and unemployed the rest of the year, possibly in destitue, without food or shelter. This situation hit catostrophic levels when the global price of coffee collapsed some years ago due to new producers coming on the market from Asia. This resulted in the fair trade movement, as wealthy landowners cut back operations and hunkered down, while farm wokers were laid off and with no way to survive.
    Today at least they can attempt to make it on their own will, if the alcohol abuse doesn’t get them first.
    For anyone interested in this subject I would highly recommend a trip. Bring your children, and you will teach them a valuable life lesson; to appreciate all the things we take for granted in our glass houses. Some people who are doing wonderful work in this region can be found at fincaesperanzaverde dot com. I am not affiliated with this group, but have visited their wonderful organic coffee farm.

  8. That is a very sensitive and carefully written response Vadim.
    But a question for you: Why do you only consider two options for the farmers — A) Fair trade or B) Employment in large company. Why not C) Better methods for smallholders that make good use of diverse, appropriate technology access.D)…other good options on the table.

  9. Vadim, I am not surprised by your contention of organic by default. Seems reasonable that things could work out that way. By all means invest down there. Perhaps someone with some capital could make a difference. Start a fertilizer company. See if you can supply the fert more cost effectively than those “foreign corporations” What concerns me is thoughts like “people over profits” People lose their land and can’t feed their children without profits. “glass houses” , alchol abuse doesn’t get them first” Your agenda is not hidden. Please look at David’s C suggestion and consider it without the near leftist bias. You may well be successful that way.

  10. Writing about marginal poor coffee farmers. What is the role of cooperatives in Nicaragua to organize small farmers. At least they can then try to get the most out of the local part of the value chain from ex farmgate to FOB export sale. We all know that value added in the downstream market is 4-5 times the FOB value of non mainstream coffee. That is a whole other problem. Of course: a coffee marketer downstream will try to get more margin out of organic/certified coffee he/she sells probably much more than the 20$cts/lb. premium the coop/farmer gets for organic. Do we promote organic certification because we want to help the farmer or because society=demand is there. Can coops improve the market power of the small marginal farmer is the first question we have to answer. PJK

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