Fair-Trade Coffee Wins Over Starbucks, Keurig, but Fails Coffee Producers

NEW YORK (TheStreet) -- Back in the 1960s, the concept of fair-trade coffee was confined to do-gooder churches and charity shops, which believed that the poor would benefit from it. Today, fair trade wears the garb of an opportunistic culture that several corporate bellwethers, including Starbucks (SBUX), Whole Foods Market (WFM) and Keurig Green Mountain,  (GMCR) are embracing.

The strategic positioning of fair-trade-certified products has catalyzed a wave of stupendous marketing success that has big-league retailers jostling one another to get a piece of the pie. There's only one problem. The fair-trade program, originally designed to help 1.24 million farmers around the world, now fails to provide them any deliverance from the shackles of poverty.

For every dollar spent by an American consumer to purchase a fair-trade product, only 3 cents is transferred to the producer in the country it came from. That is the calculation of Senegalese development economist and former Fair Trade International employee Ndongo Samba Sylla, in his book Fair Trade Scandal: Marketing Poverty to Benefit the Rich. The remaining 97 cents either flows into the pockets of the big-brand retailers or ends up in the hands of the wrong country.

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While fair-trade practices in the U.S. have expanded to accommodate a suite of products, including chocolate, tea, sugar, flowers, spices, mangoes and wine, coffee currently accounts for 80% of all fair-trade premiums, with a sales volume of $30.8 million. These premiums are supposed to be transferred directly to farmers. But that clearly isn't happening.

A groundbreaking body of research evidence from a U.K. government-sponsored study conducted by SOAS, University of London, (formerly known as the School of Oriental and African Studies) found that coffee growers in Ethiopia and Uganda, which are among the world's leading coffee export markets, continued to earn meager wages in spite of fair-trade certified exports. The research also found that these agricultural workers were more impoverished than producers who worked in sites that were not fair-trade certified.

Producers in countries like Mexico are getting record lows of 56 cents for every pound of coffee they export. Jeremy Simer of Fair Trade USA says that these farmers in some cases receive a scanty 20 to 30 cents per pound of coffee.

Given the increased efforts at marketing fair-trade coffee, revenue has escalated significantly in recent years. Sales of products carrying fair-trade labels in key markets across the U.K. and Western Europe rose from $1.1 billion to $6.6 billion.

In the U.S., products that won Fair Trade USA's seal of approval for meeting requisite ethical, environmental and sustainability standards, saw a sales jump of 75% last year over the first quarter of 2011, according to a report by SPINS, a retail research firm based in Illinois.

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Mary Jo Cook, a chief impact officer at Fair Trade USA, emphasizes that the entry of big brands into the fair-trade market has been attributable to increased consumer interest and the ensuing sales jump.

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