What is the difference between direct trade and fair trade?
I wish there was a simple answer to this question that I commonly get asked – well, fair trade is this and direct trade is that – but of course, it is not that easy. It is an important question, though, with both sides sometimes getting a little contentious with the other. I’m going to do my best to give a little insight into these two trade mechanisms.
Direct trade is basically a trade agreement between the roaster/retailer and the coffee producer. This cuts out all the middlemen which frees up some money, so that coffee producer can be paid more for his/her product.
Fair Trade is a certification program. A producer or cooperative of producers can have their farm and operations certified as “Fair Trade” meaning they meet all of the requirements of the certification which includes things like paying their farm workers well, providing health and safety guidelines, and no child labor. The farm cooperative pays for the inspector and audit of the farm to ensure that the requirements are met, so there is that added cost. It is not a direct relationship with a retailer, but all of their coffee is labeled as “Fair Trade” and therefore gets a higher premium when sold.
So which one is better? (That’s always the next question.)
I gave my quick explanation of the difference between the two to a friend the other day, who then said – “Great, I can feel good about getting my coffee from the shop on the corner that does direct trade because that’s the best one”….Wait – not so fast. There are, of course, pros and cons of both.
The reason that certifications, like Fair Trade, were developed was to recognize farmers for their business practices and provide a financial incentive, but also to give consumers a third-party verified, transparent way of knowing how their coffee was grown. With direct trade, there is no one else verifying that the farm actually does all the things it is touted to like – the farm workers are paid well, toxic chemicals aren’t used, there are shade trees and good habitat for wildlife. Not that it doesn’t do or have those things – but you have no way of knowing.
On the other hand, with Fair Trade, because there are so many people to pay along the supply chain, not too much of that money actually makes it back down to the farmer cooperatives. Rumor has it that the retailers get the most financial benefits out of the “Fair Trade” label. It is an imperfect system – however it is third-party verified so you know that the coffee is grown on lands that promote good practices.
I, personally, like the idea of a direct relationship with the farmer/farm community and if you know the roaster/retailer and trust their claims, then it is great that the farmer can make more money. My concern, I guess, is that what if a lot more retailers/roasters start doing only direct trade and abandoning certifications. You can’t keep track of all of them and trust that all the claims are true. So then there will be no checks and balances and a certification will have to be created to verify all of this marketing…and then we are back to where we started.