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March 17, 2005

Fair Trade Coffee II

Part of the argument in favour of Fair Trade coffee as espoused by Owen:

Of the 2 pounds that you pay for a normal cappucino in London, the coffee producer may earn about 5p.

The farmer is getting 2.5% of the final retail price.

(Worth noting that there is VAT on hot beverages so the UK Govt is getting 35 p, seven times what the farmer is....at least I’m pretty sure there’s VAT on them....yes, consumed in store there would be at least.)

Using US numbers for bagels:
Wheat is around $190 per tonne, the conversion factor from flour to grain (odd, but that’s the one I found first) is flour x 1.37 equals grain equivalent. To make 12 bagels you need 4 cups of flour (or half a kilo).
Thus the farmer gets around 1 cent from each bagel. Cost of a bagel at Einstein Brothers? 69 cents. Thus the farmer gets 1.4% or so of the value of the product.

We thus need Fair Trade for wheat farmers.

Hey, wait, we do have Fair Trade for wheat farmers. CAP and the US Farm Bill. And we think they’re a major cause of poverty in the Third World.

We sure that Fair Trade is a good idea?

March 17, 2005 | Permalink


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» Progress vs regulated prices from The Globalization Institute Blog
As we in the UK have recently finished Fair Trade Fortnight perhaps this might be a good time to look... [Read More]

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I'd be interested to know what the relationship is between the $190 per tonne market price of wheat, and farmers' incomes.

As I understand it, three quarters of CAP spending is now direct payments (ie paid to farmers direct, not achieved by subsidising the price).

Also, the various mechanisms for subsidising farmers per tonne of output may not be reflected in the market price (and may even reduce it) - for example, export subsidies are obtained by sending the receipts for export sales off to MAFF (or one of its agencies) and receiving a cheque.

In other words, I suspect the farmer receives a good deal more than $190 per tonne of wheat, even if that is the market price.

But I readily admit that I don't know much about how these subsidies work, so I'd be interested to know if this is right.

Tim adds: That’s the current(ish) commodity market price. Certainly, farmers in the EU or US would get a number of further doses of help. Those in Brazil, Argentina, Australia etc. (the Cairns Group) would not.

Posted by: Owen Barder | Mar 17, 2005 6:46:11 PM

I have recently posted on fair trade coffee over at my blog, please check it out and let me know what you think, I would love to hear your opinion.

Posted by: Lee | Nov 13, 2005 2:25:33 AM