Fair trade or a trade fare?

Understanding the complexities of “Fair Trade” on Starbucks’ sourcing of Ethiopian coffee beans.

The topic of business and morality is always going to be a slippery slope. On the one hand, a corporation, for all practical intents and purposes, has an obligation to its shareholders to make every last cent possible. On the other hand, how much are we as a society willing to let corporations bend the social fabric of morality to meet those obligations?

We often throw the phrase “immoral” around to describe a company which has questionable business practices. However, calling a corporation immoral is placing a human emotion on a non-human entity. The proper term, in this case, would be amoral. It is not that a corporation has an anti-social complex, rather, they have no moral obligation either way in a natural business setting.

Of course in today’s world, this “natural business setting” is seemingly non-existent. Companies today cannot avoid at least some degree of corporate social responsibility (CSR), as to avoid doing so would be destructive to the bottom line.

When Oxfam accused Starbucks of financially wounding Ethiopian coffee farmers, the coffee giant certainly did not take this accusation lightly. Specifically, Oxfam stated that Starbucks is depriving Ethiopian farmers of $88 Million a year by depriving the Ethiopian government of trademarking a number of their local coffee beans. Starbucks however, says that Oxfam’s claims are extremely misleading at best, and wishes they would stop deceiving the public.

The truth of the matter is, both sides have some validity in their arguments. It is essential to look at this issue objectively to have a greater understanding of the key issues. For one, we have the problem of volume. The demand for Starbucks coffee dramatically exceeds the supply of fair trade coffee available. While the supply and demand issue may not seem too relevant an argument, as Starbucks can make efforts to purchase fair trade where possible (which they do), the underlying problem is with the fair trade brand.

As a society, we often look for quick-fix solutions to complex problems, and when we find them, we rely too heavily on them as an optimal solution. While the idea behind fair trade is a noble one, the implementation and nuances of such a plan make it a difficult one to analyze by a busy consumer adequately. There are many arguments both for and against fair trade; however, the greatest one seems to stem from the regulatory aspect. That is, it is not always easy to track the chain of custody regarding where the profits from such policies go. The regulation of fair trade comes with many miscellaneous fees (certification, inspection, marketing, to name a few) thus, less of the money goes to the actual farmer.

Perhaps a more significant conflict with fair trade is the speculation that there is little evidence of it having an impact. While there have not been substantial studies regarding the net impact of fair trade, the few studies that did make positive claims had severe methodological flaws. It seems that while fair trade sounds good on paper, it may be nothing more than a marketing ploy offered to ease consumer guilt at best. At worst, it is a system that exploits regulatory red tape and aggravates corruption.

While Oxfam is pushing for a trademark agreement for these Ethiopian coffee beans, Starbucks feels it is doing its fair share concerning CSR. For one, as mentioned, they buy fair trade where available. The more significant portion of its CSR, Starbucks claims, is how it paid premium prices for Ethiopian coffee; prices which were significantly higher than the stock market value. In this situation, an ideal solution would be to ease the transition between the corporation and the farmer.

Given the political environment of Ethiopia, the trademark agreement and fair trade policies may have uncertain outcomes due to the significant amount of corruption within the country. An ideal solution then would be to have the farmers produce directly for Starbucks. Given Starbucks’ global brand, it would not be too complicated for them to set up a subsidiary within the country. Once established, farmers can produce directly for Starbucks at the prices they would have sold under fair trade. This solution allows Starbucks to generously fulfill its CSR goals while ensuring the farmer is not cut out of profits via erroneous government regulations and bureaucratic procedures. Granted this solution will give Starbucks an advantage via a monopoly on Ethiopian coffee, not all farmers will have to opt into this model, and those who do produce for Starbucks will still have the option to export some of their crops via the traditional channels.

While this procedure does not meet the specific requirements for fair trade, nor Oxfam’s initial suggestion, it does fit the ultimate goal of both strategies. If Oxfam took a role in monitoring the relationship between Starbucks and the Ethiopian farmers to ensure fair business practices are followed between the two, it would be a more efficient use of its time and resources.

Of course, such strategies do not come without potential blowback. An obvious problem with such a solution is government interference within Ethiopia. Specifically, government sectors who would be adversely affected by such an implementation may not take kindly to such an agreement. In order to mitigate the potential conflict from the Ethiopian government, specific policies can be implemented, ensuring Ethiopia as a country benefits from such a relationship. Perhaps Starbucks could agree to employ a certain number of locals within the satellite locations, ensuring a symbiotic relationship between the farmers, the country, and its citizens.

This, of course, does not address the obvious corruption angle. However, it would be in bad taste to suggest ways on how corrupt officials could still skim off a piece of the pie. An issue such as internal corruption must be dealt with separately via more diplomatic means. Involving the WTO in such a situation may be one angle Oxfam could take, ensuring policymakers within Ethiopia are in line with what is best for the economy of the country. While there is no optimal solution for such a problem, the measures above could ensure a best fit policy for all parties involved.