Coffee: Economics of Distribution

Is Fair Trade the Best Trade?
By Brooks Mattingley

The majority of large companies in the service industry usually have a complex supply chain in which there is a middleman who helps in distributing the product. This is not the case when it comes to the supply chain, which Starbucks puts into practice. In a Los Angeles Times article titled Direct-trade route pays off for Seattle’s Best Coffee (owned by Starbucks) founder., Allison, M., gives a detailed description of Seattle’s Best buying practices. Instead of using a middleman to distribute the coffee beans to the roasters, Seattle’s Best cuts out the middleman and sells directly to the roasters themselves. This process has become very popular and it has been coined as “direct-trade.” Direct-trade may prove to be the ideal route when it comes to distributing a product.
The direct-trade practice is thought to be more beneficial than fair trade because it allows farmers to make more money. “Many say direct-trade beats fair trade, a formal program that tries to ensure fair prices to farmers.” (Allison). I have no grudges held with fair trade but the process of actually being able to call your product “fair trade” is quite costly as opposed to that of direct-trade. “To slap a fair-trade label on coffee, you must pay fees to a certifying agency, something the informal direct-trade model does not require.”(Allison). The fair trade coffee movement has also caused many farmers to pay more for their coffee. In an article conveniently titled “The Problem with Fair Trade Coffee”, the author Colleen Haight, explains how farmers feel about this new practice and how fair trade has driven coffee prices through the roof. “For some cooperatives the Fair Trade price became the ceiling, not the floor. … Many Fair Trade buyers do not see a reason why they should pay any more than the fair trade price for the value that is Fair Trade,”(Haight). Direct-trade also allows for a large corporation to get higher quality coffee because the middleman is cut out of the picture. The practice of direct-trade gives owners of coffee businesses the opportunity to buy directly from coffee growers and sell directly to roasters. The owner is able to choose the coffee that he or she likes the most instead of buying from middlemen who have limited resources.
All in all I would say that Seattle’s Best has the right idea with direct trade. Fair trade is definitely still a great practice to employ but I believe that direct trade is more economical in the long run.

See Allison M.’s article “Direct-trade route pays off for Seattle’s Best Coffee Founder” (LAT, 4/25/2011)

See Colleen Haight’s article “The Problem With Fair Trade Coffee” (Stanfor Social Innovation Review 2011)

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Coffee: Economics of Distribution

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