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

posted in: Syndicated | 10
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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David Tribe is an applied geneticist, teaching graduate/undergrad courses in food science, food safety, biotechnology and microbiology at the University of Melbourne.