An article in the Washington Post describes how Wal-Mart, hoping to polish its image and appeal to socially conscious consumers, is revamping its sales of Fair Trade coffee. P&G-owned Millstone's Fair Trade coffees may be on the chopping block as Wal-Mart starts dealing with Brazilian company Bom Dia. The article provides an interesting look at the coffee market, from the mega-retailer to an individual farmer whose life will be dramatically improved if the deal succeeds.
Overall, I think it is a positive development. It will certainly be good for the farmers who gain access to a Fair Trade buyer. And it might be good for specialty coffee, too, if it introduces consumers to the idea of paying a premium for coffee that tastes better and is labeled by origin. But there are some criticisms to keep in mind.
Some of the criticisms are silly, like this one:
Supporting fair trade presents a paradox for Wal-Mart. It is a tacit admission that there is a point at which no more efficiencies can be squeezed out of the system without harming the people who make it work. Fair-trade beans are sold at a minimum of $1.26 per pound, compared with the world average last month of 90 cents. But Wal-Mart is still determined not to pay more than it must.
That statement comes just after the article describes that part of Bom Dia's appeal comes from the fact that it acts as roaster and green bean buyer, cutting out a middleman. It comes just before a quote from a Sam's Club executive about Bom Dia providing coffee at much lower cost than Millstone. Wal-Mart is squeezing all sorts of inefficiencies out of the system to make this Fair Trade deal work. And ultimately, if its customers don't buy the Fair Trade beans, Wal-Mart will go right back to selling regular beans bought at the international commodity price, "tacit admission" or no.
A second, though minor, flaw in the article is that it portrays the Fair Trade program as misleadingly "direct to the farmer." It would be more accurate to call it "direct to the co-op." As Kerry Howley explained in Reason a few months ago, this has its drawbacks, such as a sometimes lack of transparency in co-op operations and an inability for individual farmers to get price signals reflecting the quality of their beans. Fair Trade is ok, but it's not the only or even the best way to get higher returns to farmers. But as described in the WaPo piece, the farmers in this co-op are doing well so far with the Fair Trade deal.
The biggest problem with Wal-Mart's foray into Fair Trade is that it only communicates part of the idea behind specialty coffee. Teaching customers that good coffee comes at a premium price and should be labeled by origin is important. But it's equally important to treat coffee as a perishable good, not as a product with an unlimited shelf life. It appears from the article that Bom Dia does its roasting in Brazil. How many months, I wonder, pass between the time of roasting to the time the beans hit store shelves in the US? If the beans aren't fresh, customers won't see the link between higher prices and better coffee, and they might just decide that the premium coffee movement is just a marketing ploy. That would be bad for coffee and for the long term prospects of Fair Trade.
Yet all things considered, if customers like the Bom Dia coffee this should be a good arrangement for everyone involved. (Except for Millstone, but who cares about them?) Wal-Mart isn't going to suddenly start selling relationship coffee labeled by individual farm or lot with the roast date printed on the bag, so it's better to accept this for now. Baby steps.
[Via The Morning News.]