Santiago Paz Lopez Presentation on Fair Trade

My name is Santiago Paz Lopez represents a producer cooperative in Northern Peru called CEPICAFE.  This group represents 7000 small-scale farmers. The coop has seen tremendous growth since its creation.  We formed in 1995, at which time we exported our first half container of coffee. Every year after that we increased our sales, to one and a half containers the next year, then 4, then 10, 20, 40, etc until last year where we exported 110 containers. We are also increasing our percent of sales to the Fair Trade market...starting out at around 10% to Fair Trade, and now around 70-80%.

Fair Trade has not had a little impact. Its impact is something that is quite significant.  I do not like to speak of Fair Trade in terms of a clinic or a school that was built, because Fair Trade goes far beyond that.  When you build a school, that’s good, but in order to keep it running, you need supplies, teachers, and so forth, which is not always easy.  Once funding runs out, that project often stop running as well. Life will continue in that village in the same way that it always has. Nothing will really have changed. They will not have been lifted out of poverty from these projects.

Fair Trade is larger than this because it changes the entire community. There are now regions of our coop where there is full employment.  Anyone who wants to work can work.  There is gainful employment available to everyone who wants it, whether it is working in the field, in the warehouse, processing, wherever. Before, where someone would work very hard and make 1$ a day, they now make 4 to 5$.  Not only this, but before, not everyone could find a job that would pay 1$ a day. Four of five may not sound like a lot, but for these communities it has made a huge impact.

With this increased level of profitable employment, there are effects on the rest of the community, in a kind of trickle down effect. Restaurants, hotels, so forth are all able to find business. A region of CEPICAFE now has its first hotel. It may not be to the standards that we are used to here in the west, but it is considered a great success.

Prices paid have gone up due to Fair Trade. Before, producing coffee was not a profitable business, people would lose money growing coffee.  This caused urbanization, as farmers moved to the city in search of a better life.  However, they only found more troubles there as they relied on a system that has already been stretched to its limits. Now, they can live from their work.

Thanks to Fair Trade, we have been diversifying our economy. Here are other projects that we are working on:

Cacao: Another lovely project that we are working on.  We brought a cacao consultant to look at our cacao production.  From this consultant we learned that the cacao in their region is of a remarkable quality, called white cacao, cacao porcelano. It is a variety that is extremely rare and valued by cacao traders.  It is grown and sold in Venezuela, where it is sold for 25$ a quintal.  Before they knew this, CEPICAFE farmers had been selling their cacao for 4$ a quintal.  They are now selling it for a price close to the renowned Venezuelan variety.

Marmalade: These are jams that we are making from the fruits of trees in the shade grown plots of coffee farms.  They are working on different recipes and year by year they are increasing the exports of these products.  They are currently selling them exclusively in France.

Panela (cane sugar).  Another great project.  Before this project, before this project, sugar cane was seen as a useless, worthless crop.  They have worked a lot on the quality to make it an exportable product. They have gotten the strong support of a company in France, Ethiquable, that have provided them with a lot of financing to invest the necessary funds to get the equipment necessary, and to work with them on quality.  This company in France is now selling their panela in many grocery stores. However, there was a problem when a customer found a shard of metal in one of their packages and complained to the store. As a result of this incident they have had to install a metal detector in their production for 100,000$. However, they are moving forward, improving quality, and continuing to export this product.

The other effect is a reduction of alcoholism. Sugar cane is used locally to make alcohol, and farmers often had their own plot of sugar cane, from which to make this cana de pena…However, now that there is an alternative use to this crop, farmers either find it more worthwhile to produce for sale to the panela coop, or they are too busy working to start drinking, but there has been a strong impact.  People still drink, but not to the same extent.  Santiago finds this important, and more sustainable, since they are not lecturing people that drinking is bad for you, but people stop drinking of their own volition.

Eco-tourism. They are working on an eco-tourism project.  Northern Peru has not traditionally been a site with a lot of tourism attractions, but they have set up a hostel for tourists.  Guests can tour the coffee farms and participate in the harvesting of coffee cherries. Also, they have created alliances with producer groups close to the coast, where they grow mangoes and other fruits, where tourists can also go visit.

Another important aspect that needs to be considered is that culturally, farmers in Peru are perceived as having little value relative to the rest of society.  Coffee producers, who mostly live in the most marginalized regions of the country, in the most remote mountains, are seen as the worst of the worst.  They are nothing, of no value to society.  This is largely due to the fact that this industry has not been profitable. This societal disregard caused low self-esteem on the part of producers. Coupled with the unliveable wage, many producers turned to alcohol.  Cana de pena is made locally, and many would spend their days drinking. Now they have hope and activity to spend their efforts on. Now that there is work available, they are busy and can survive off their work; this is a superior incentive. There is money coming in and so they can invest in their farm, buy more land, renovate their fields and their trees, think about fixing up their house, repairing the roof, improving the sanitation of their bathroom, sending their kids to school.  They can plan for their future as they have a stable income. Not only that, but their view of their work has improved.  They are producing a product that is being exported internationally, to Europe, the US, Canada, New Zealand. It is a high quality product, has organic and Fair Trade certification.  This is something that they can feel proud of, to know that they are producing something of value, and challenge the generally held view that they are not useful to society.

Forming the coop and exporting has also allowed them to improve the quality of their product. This is something that is very important to them. Before coffee from Peru was not considered to be anything of note, but now it is recognized as a highly distinguished coffee.  This change in quality profile can largely be attributed to the Fair Trade movement, who invested the time and energy to help coops form the necessary quality control.

Thus, the coop runs workshops on quality control and productivity of crop.  They also have workshops and seminars on the other issues that address the community, like how to make appropriate renovations to your house, to your field, how to invest money.  Another very important service of the coop is to offer financing.  This is something that conventional trade does not allow, but that is crucial to the survival of communities. They offer small loans to members of their coop through their own operation. This is made possible by the pre-financing that they themselves receive.

All of this is done through their own governing structure. It has caused empowerment. They are most interested in capacity building.  This is what truly works if your goal is the development of a region.

A strong example of this is the improvement of bargaining power in regards to the Peruvian government.  Typically, the government focuses their investment, time and resources in the regions that have the greatest economic and voting power.  This means that mainly focus around Lima, the capital, and the surrounding regions.  They have essentially ignored the most marginalized regions of their country, those coffee growing communities of the mountainous regions. Their view of these communities is that they are hopeless, impossible to develop, regions of extreme poverty.  Their thought that nothing could be done to help, so why bother investing there.  It did not make political sense. However, with Fair Trade, the region has developed, there is full employment, and changes are starting to be seen. It started out with just a few producer cooperatives, but every year there are more, until today when there are about thirty coops in Peru.  They have formed an association together, and they are currently the largest producer organisation in all of Peru. They are bigger than maize, or sugar, or anything else.  Thus, they represent an important faction of the population, and this power allows them to have face to face communication with some of the highest levels of government in Peru, where they can ask and negotiate for grants and investments.

Now the government is starting to provide assistance in terms of funds and resources (money to build roads and other infrastructure) which before they felt it was not worthwhile to invest. They now see that these farmers are organised and capable, that they are exporting to many international markets, and that positive changes can be successfully brought to those areas.

This is a significant impact of Fair Trade, much more important than the building of one school or one clinic. It is completely changing the fate of these communities.  It is done sustainably, because communities are improving their own capacity, not being told what to do from the top down, or from grant money from some NGO, which will eventually run out. Now we can make those changes for ourselves.

Using our own decision-making is also a much more effective way to develop the community as well.  We have seen many examples where groups have gone into a community and identified a project that they want to work on which has not been identified as a project of strong need by the community. One example I have seen is a group that saw a village, saw that it did not have indoor plumbing, and felt it was necessary to install a bathroom in every household. They then spend a lot of money putting them in, but of course the community never use them as they are used to using the outhouses they have always used, and did not have a need to replace them. However, if that same money had been used to, say build new roads, then the impact could have been significant. Thus communities know how to appropriately use funds in their community to make an impact.

All of these things is what makes development happen.  Clearly, it is a lot more than just money that will lead to the development of a region.  For example, one can go into the coca growing regions of Peru, and those communities bring in more money than coffee farmers, but there are other problems which impede the development of the region: violence, drug addiction, alcoholism.  Thus, money is not enough.  The producer cooperatives build capacity and create empowerment of the communities.

All of these things is what makes me say that the impact of Fair Trade has not been small. It is a major impact that is revitalizing entire communities. It is more that a few extra cents a pound, and the building of a school.

Fair Trade has done a lot of good, but all of that good is being put at risk. We are very worried about the mainstreaming of Fair Trade. Micro-roasters 100% dedicated to Fair Trade are going through the same thing with Wal-mart, McDonalds and others being certified to sell Fair Trade products. They are thus able to compete with 100% fair traders on the same field as them, claiming to be selling as “fair” a product as they are, but for a lower price. They can afford this lower price through economies of scale, but also because they can afford a loss on it, or to just cover direct costs, since the sale of these products allows a makeover of their company.  It is a marketing tool more than anything else. However, over time the use of this marketing tool will 1) out-compete the fully dedicated fair traders, who can’t compete on price, 2) and slowly erode the confidence of consumers towards the concept of Fair Trade.

People know that Wal-mart is not a fair company, so how can they trust that the Fair Trade products they sell come from a system that is reputable and verifiable? The demand for Fair Trade may drop, or the only buyers of Fair Trade from producers will be the Wal-marts of the world, at which time they will be able to control how Fair Trade is done, and utterly erode the standards.

Fair Trade will crumble. New people will undoubtedly take up the mantle, and want to do fair, direct trade with producer groups, but they will have to start over from scratch. That is the risk that we are worried about.

The other side, parallel to the issues going on with roasters in the North, are the exporters in producer countries. CEPICAFE has recently been upset by the certification of a massive exporter in northern Peru, a known oppressor in the region.  The Fair Trade certification of the exporter is providing undue competition to producer cooperatives. Now that they are certified, they are offering Fair Trade prices.  For farmers, it is a lot easier for them to bring in their coffee to this exporter and get them same price, as opposed to bring it in to the coop, because the exporter does not require the same standards of quality, or require participation in a democratic cooperative. However, though in the short term, a producer might think it a better idea to bring in their coffee to this exporter, in the long run, all the advantages to the community wrought by the coop will disappear, and farmers will be in the same disadvantaged position that they used to be.

How can this exporter be certified, since it does not really function as a coop should.  Basically, a mix of corruption and the superficial meeting of criteria. This exporter has farmers organized into a kind of “coop” enough to satisfy the criteria demands of FLO. However, the coop does not provide the additional services (financing, etc) that a coop normally should.  It was not formed naturally, but imposed legally to meet the criteria.

Why would FLO want to certify them? I think it is from pressure of the large companies in the North who want to keep going through the same of exporters that they have always been using. Thus, Starbucks can keep selling the same coffee that they have always been buying, but now they can put a Fair Trade sticker on it.

Therefore, the current trend is to be certifying large companies in the North, who are buying their coffee from large exporters in the South, and hailing it as a success of Fair Trade growth.  But in doing so, they risk destroying the fully dedicated Fair Trade importers and roasters, and the producer cooperatives in the South.

We are very happy with the changes that the Fair Trade movement has made possible, which is why we are worried about where it is going. For us, we like to use this analogy that Fair Trade is a sinking ship that we are all trying to get off and find a rescue boat. It is a kind of cycle: we are started at the bottom, and since the creation of Fair Trade, it has been getting better and better, until we are now at the apex, but we are scared that we are going to start going back down and destroy all of the benefits that have been wrought until all of the impacts have disappeared.

To clarify, I think that growth is important, and that there is a role that these large companies can play in increasing awareness of Fair Trade, and in increasing the volumes of Fair Trade purchases from producers. Most coops do not sell 100% of their produce under the Fair Trade seal, thus there is room for the market to grow. However, this growth should be undertaken in an orderly fashion. Growth for growth’s sake does not result in development for producers. Simply claiming that more producers will be paid the Fair Trade price does not mean that they will be lifted out of poverty as they say (see coca industry as an example). Quite the contrary, if they are only supporting the large exporters, it might do the opposite.

How to grow sustainably? First, there should be a criteria that they only buy from true producer cooperatives that are making a difference in their community.  Second, there should be some sort of criteria that companies increase their purchases every year, say by 5% every year.

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