Coffee, Co-operatives and Competition: The Impact of Fair Trade

Coffee is one of the most important Third World export commodities, and 70% of the producers are small-scale farmers. Coffee producers are often poor and marginalised, and their situation is aggravated by fluctuating market prices and collusive behaviour among intermediary coffee purchasers. Coffee co-operatives may potentially increase the incomes of these farmers by distributing a larger share of the final price to the co-operative members. Co-operatives can also have a pro-competitive effect on imperfect market situations, and thereby increase income levels also for non members. Moreover, they have the potential to educate and empower marginalised farmers. However, lack of finance and problems with free riding, costs of control and a too short time horizon are problems faced by co-operatives. Because of that, benevolent governments or NGOs have tried to support co-operatives with finance and expertise, but often with an unsuccessful outcome. The Fair Trade system distributes money to smallscale coffee producers via carefully selected co-operatives. The study of Fair Trade co-operatives in Chiapas shows that they are successfully functioning organisations, and that they do seem to have a pro-competitive effect on an imperfect market situation. But the co-operatives also have many disadvantages compared to their private competitors. This means that they could probably not have reached their level of success without the premium received from the alternative markets (Fair Trade and organic). Thus, the support from the Fair Trade system seems to strengthen agricultural co-operatives