Coffee break

Fair trade for the farmer. Published in California Monthly magazine.

When Alfred Peet opened Peet’s Coffee and Tea on the corner of Vine and Walnut in Berkeley in 1966, he was on a mission: “I couldn’t understand why, in the richest country in the world, they were drinking such poor quality coffee,” said the Dutchman. He eventually succeeded in educating the American public about the pleasures of the bean, and in the process sowed the seeds of the gourmet coffee revolution.

Now, another coffee revolution is brewing in Berkeley. Thirty years after Peet opened his shop, Paul Rice, MBA ’96, graduated from Cal with a mission of his own—to improve the quality of life of those who grow the coffee. As founder and executive director of Transfair USA, Rice is promoting the idea of “fair trade,” a system which promises to pay farmers a fair price for their produce. “Bringing fair trade to the U.S. was a dream of mine for a long time,” says Rice.

Rice began working with coffee farmers in Nicaragua on a fair-trade cooperative called PRODECOOP in 1990, which in four years had grown from 20 families to 3,000, and had become a $2-million-a-year business. Rice realized that if he was going to continue advising farmers on how to run a large coffee-export business, he would need training himself, so in 1994 he left to enroll in business school at Cal. It was the natural place to go. At Berkeley, Rice says, he could learn the language of business in an environment where people understood the meaning of social responsibility. And since Cal has one of the strongest programs in nonprofit management, Rice adds, he would also be on his way to realizing his dream of starting a fair-trade organization in the U.S.

The idea had its origins in the Netherlands, where in 1988 a fair-trade seal started to appear on packets of coffee. The label guaranteed consumers that the farmers who grew the coffee had been paid a fair price for it. In the ’90s fair trade spread throughout Europe, but never quite made it across the Atlantic—until Rice came along.

He had seen firsthand the power of fair trade. When he organized PRODECOOP in 1990, it was a time of desperately low prices; local middlemen—known as “coyotes”—were offering farmers barely 20 cents per pound for their coffee. A couple of months after opening, the co-op became fair-trade certified, and the farmers found they could sell their coffee directly to socially conscious consumers in Europe for about a dollar a pound. It wasn’t much, but it was enough to survive when many were fleeing the countryside for the shanty towns of Managua. “Here we were in the midst of an economic disaster, creating an island of hope,” recalls Rice with satisfaction. “It made a true believer out of me.”

Immediately upon finishing his MBA, he set to work writing the business plan for a national organization which would certify importers, roasters, and retailers, and at last bring the fair-trade label to American supermarket shelves. Transfair USA opened in Oakland two years later—and not a moment too soon. In 1997, coffee prices had gone into free fall and farmers once again were faced with ruin. Prices have continued to plummet since then, reaching a low of 42 cents per pound last year and, says Rice, making the need for fair trade greater than ever. “To say that the coffee industry is in crisis is really an understatement. Coffee prices are now at their lowest point—in real terms—in recorded history.”

Most of the world’s coffee is grown by small family farmers in developing countries, but most of it is consumed in developed countries (20 percent of it in the United States), where it is big business. The world market for coffee is around $80 billion, and it is the second most heavily traded commodity, after oil. Trading takes place on the floor of the New York Coffee, Sugar and Cocoa Exchange, where prices can go up or down, moment to moment. Last month, the New York price for coffee was just 46 cents per pound. The fair-trade price, on the other hand, is $1.26 per pound—a price based on the actual cost of living and one that is not vulnerable to sudden fluctuations. “It acts as a kind of minimum wage—it’s a guarantee that farmers will make at least enough to provide a decent living for their families,” explains Rice.

The fair-trade system bypasses New York traders and local coyotes alike, allowing farmers to sell their beans straight to importers and roasters in consuming countries. “For me, fair trade in essence is direct trade,” says Rice. “It helps farmers get organized and develop the business skills to jump over the middlemen and to take their product directly to the U.S. market. This allows farmers to capture a greater portion of the profits and bootstrap their way out of poverty.”

Rice emphasizes that fair trade isn’t only about putting more money into farmers’ pockets; it’s also about bringing lasting improvements to their communities. Cooperatives typically use their income from fair trade to invest in education, health, sanitation, roads—whatever their community needs. And history has shown that these farmer-led initiatives can make a difference.

In one Costa Rican cooperative, for example, where ten years ago children rarely went to school past the age of 12, now there are 264 children attending high school and nine in college, thanks to scholarships paid for out of the proceeds from fair trade. But unlike charitable aid, farmers don’t have to worry about the money running out—as long as there is a demand for fair-trade coffee, they can continue to send their children to school.

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Transfair USA may have come late into the game, and Rice saw that late start as an opportunity to reinvent the fair-trade model to make it more effective. “There are some folks who see fair trade as a partnership between farmers and consumers, with industry merely a necessary evil. But I see industry as an essential partner in this model,” says Rice. “If industry wins, it will drive the growth of fair trade out of enlightened self-interest, rather than pity for farmers; and ultimately that’s much more sustainable.”

Fair-trade coffee is now the industry’s fastest-growing niche market. And after hearing from Transfair USA how their business could benefit from fair trade, last year both Starbucks and Peets began offering it in their stores, closely followed by smaller gourmet coffee chains. Now, Transfair USA has its sights set on the mainstream market, and has so far persuaded Safeway and Sara Lee to offer their own lines of fair-trade coffee. (Transfair’s counterparts in Europe had been attempting, unsuccessfully, to establish a partnership with Sara Lee for 14 years.)

Transfair USA is also tailoring fair trade for the American market. While in Europe the focus has largely been on the social benefits of fair trade, Transfair USA has also been emphasizing its environmental benefits, in order to build on the already strong market for organics. “The consumer profile for someone who purchases organic products or is concerned about the environment is identical to the consumer profile of someone who is interested in social issues,” says Rice. Fair-trade cooperatives are made up of small coffee farmers, whose traditional methods preserve the rainforest canopy and the birds that nest in it. But right now the concerned consumer is faced with a bewildering array of labels—“fair trade,” “organic,” “shade grown,” “bird friendly”—and Rice has been trying to get retailers to consolidate all these features into one product. As a result, 80 percent of the coffee certified by Transfair USA as fair trade has also been certified as organic. “It makes more sense if you look at the issue of sustainability more holistically; sustainability isn’t just about social issues, it’s about social, economic, and environmental issues.”

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Fair trade is becoming increasingly popular on university campuses across the country, including Berkeley. After hearing Rice give a talk at Haas, Adam Berman, MBA ’01, set about persuading the cafe at the business school to switch to organic, fair-trade coffee. “We stood in the courtyard at Haas and gave away 800 cups of fair-trade coffee, and in the process had students sign a petition,” recalls Berman. Within a week, three-quarters of the school had signed the petition and, by the time he graduated, the cafe had replaced all of its coffee with the fair-trade alternative. “We had to be really, really persistent, but in the end it worked,” Berman says.

Around the same time, Nancy Jurich, head of Cal’s dining and catering services, also began to hear the buzz about fair trade. In September 2000, with the support of students, she switched all Berkeley campus residence halls to fair-trade coffee and made it available in all campus restaurants. Rice is impressed: “Berkeley is one of the few campuses in the entire country I know of that has fair-trade coffee in virtually 100 percent of its outlets, and that is a result of student activism.”

Senior Michelle Michalek is another who has been taking up the cause. Currently an intern with Transfair USA, she is encouraging cafes beyond the campus borders to offer fair trade, starting with International House. “When we talk to students about fair trade, most ask, ‘Does I-House have it?’” says Michalek. “It seems like a natural match.”

Fair trade is even making its way to Washington, D.C. Last November, with the help of Congressman Sherrod Brown of Ohio, Transfair USA persuaded the dining halls of Capitol Hill to conduct a taste test of fair-trade coffee. Eighty percent said they preferred both the beverage and the concept, so at the end of January the dining halls began serving the socially conscious alternative.

Meanwhile, the coffee industry seems to be warming to the idea of fair trade; last July, the Specialty Coffee Association of America (SCAA) gave its full endorsement. “I don’t know of any other industry association that has gone so far as to sign an agreement endorsing and supporting a concept like fair trade,” says Rice. “If you look at the way the garment industry has responded to the anti-sweat shop movement, for instance, you find a lot of resistance. So this is truly unprecedented.” Rice hopes that fair trade might eventually find its way to industries other than coffee. “You could call fair trade a model for social responsibility in business,” he says.

The success of Rice’s innovative approach has been drawing praise from all quarters. Last year, Rice was made a fellow of the Ashoka Foundation, which recognizes social entrepreneurs. Then he was named as a “luminary” of the SCAA. And most recently he was honored by the Schwab Foundation for Social Entrepreneurship, an initiative of the World Economic Forum, which invited him to speak at its annual meeting at the end of January. The meeting was scheduled to be attended by many of the world’s business and political leaders, including President George W. Bush.

All of this is a far cry from the coffee fields of Nicaragua. While Rice plans to continue as executive director of Transfair USA for the time being, he hopes to eventually return to Nicaragua with his wife and children (all of whom were born there). “What I’m really passionate about is working with farmers and helping empower them,” he says. “My plan has always been to go back.”