GLOBAL COFFEE PRICE RISES & THE FAIRTRADE MINIMUM
The baseline commodity price of green (unroasted) coffee beans is on the rise globally.
The Fairtrade Minimum Price for coffee has in turn also increased. The Fairtrade Minimum is simply the minimum amount producers are paid when selling their products through Fairtrade.
With the new minimum price, Fairtrade aims to support producers and ensure they can cover their production costs.
As of August 2023, the new Fairtrade Minimum Price for washed Arabica beans was set at $1.80 per pound, an increase of 40 cents or 29 percent over the previous price of $1.40 per pound.
Arabica pricing is particularly relevant in the context of Fair. coffee, as 100% of all Fair. Coffee is made from Arabica beans.
The Fairtrade Organic Differential has also been increased by a third, from 30 cents to 40 cents per pound.
Fortunately, despite these increases, the Fairtrade Premium (the additional amount paid on top of the minimum price that cooperatives choose how to invest back into their communities) has not been negatively affected, and remains the same despite the increases in minimum price.
This means that the farmers and growing communities behind your favourite coffee beans don’t have to make sacrifices in terms of what they can reinvest into their businesses and communities, despite these global price increases.
WHY ARE GLOBAL COFFEE PRICES INCREASING?
The global economic situation of High Inflation, combined with increasing Effects of Climate Change are the 2 main driving forces behind this increase in the Fairtrade Minimum.
In addition, Production Costs have increased over the past 12 years, which is in large part driving the urgency of the Fairtrade Minimum Price update.
In particular, Fertilizer, Fuel, Logistics, and Labour costs are behind the increased cost of production.
Coffee production has faced higher risk in recent years due to climate change, including weather events, and the spread of pests and plant disease like coffee leaf rust, something that affects organic production in particular. Costs are also involved to maintain organic certification and to meet the individual requirements of importing countries.
WHEN DO THE PRICE CHANGES TAKE EFFECT?
The last Fairtrade Minimum Review was conducted in 2022, with decisions made based on this review being announced more recently.
Companies sourcing coffee on Fairtrade terms will need to pay the new Fairtrade Minimum Price – or the relevant market price if it is higher – for all contracts signed on or after 1 August 2023.
All Fairtrade Certified Traders should charge their customers according to the prices they paid for that coffee. So, for a contract signed before the 1st of August 2023, the sales to onward customers should reflect the previous minimum price that they paid as stipulated in that contract.
The amount of time that a trader continues to offer previous Fairtrade Minimum prices will depend on their available stock purchased at those prices.
Once that stock is depleted and a new contract is entered into, the new Fairtrade Minimum Price will apply, and will in turn be reflected in the final price a trader sells to their customers for.
WHY WASN’T A PRICE REVIEW DONE EARLIER?
Since 2011, commodity market prices for green coffee beans have been below the Fairtrade Minimum 52% of the time. Farmers therefore did not support a price review for fear that any Fairtrade Minimum Price increase would result in a loss of sales.
However…
REALITY FOR FARMERS
In more recent consultation with coffee growing farmers, it was emphasized that despite the possible risk of losing sales volume, they needed a Fairtrade Minimum increase in price. It was becoming increasingly unfeasible to continue farming with prices that consistently failed to cover their real costs, especially in an increasingly volatile market and with changing climatic conditions.
Basically, the farmers still need to have this price safety net in order to sustain reasonable returns for their work and to maintain a fair standard of living for themselves, their families and their communities.
HOW DO COFFEE FARMERS BENEFIT FROM FAIRTRADE?
It’s all in the name.
The goal of Fairtrade is to ultimately progress towards prices that enable farmers to achieve a fair living income.
There are risks involved however, as Fairtrade farmers may lose business if we fail to gain market acceptance for higher prices. This is why we must continue to work with cooperatives and buyers to demonstrate the value of moving towards a living income in a responsible way.
We need to start talking about the true costs and the true value of quality coffee.
So while at the end of the day the price you pay for a pack of roasted beans, or for a cup of coffee at your local cafe may have gone up, the good news is the growers at the beginning of the supply chain are still being looked after under Fairtrade and Fair. Coffee.