Reference no: EM131380773

Equal Exchange Strives for Equality through Fair Trade
When you sip your cup of morning coffee-whether it's in your dorm room or in the trendy coffee shop down the street-you probably don't think about where it came from. Even if you're familiar with the jargon-arabica beans, varietals, dark roast-and even if you can name the major coffee-producing countries, such as Costa Rica and Colombia, you probably aren't thinking about the people who grow the beans thousands of miles away. But, the coffee-growing business is so important in Central and South America that it provides many jobs for people who otherwise would be unemployed. When you buy a pound of gourmet coffee at $8 to $9 per pound, about 40 cents actually reaches the farmers who grew it. Where does the rest of the money go?

To agents who offer the lowest possible price to buyers who then put their own brand labels on the coffee. The 20 million coffee farmers who are left in poverty call these middlemen "coyotes" because they are perceived to be preying on the poor. Equal Exchange, Inc., a gourmet coffee company founded in 1986 in Canton, Massachusetts, is working to change these practices by engaging in its own ethically and socially responsible way of doing business. By adopting the concept of "fair trade," Equal Exchange buys coffee directly from the growers themselves, eliminating the middlemen.

As a result, the growers gain as much as 50 cents more per pound. Because coffee is the leading source of foreign currency in Latin America, this arrangement is significant to the economy of the region. It is also significant to each individual coffee farmer. "We used to live in houses made of corn husks," recalls Don Miguel Sifontes, who operates a farm in El Salvador. "Now we have better work, better schools, homes of adobe, and a greater brotherhood of decision makers." The concept of fair trade, first adopted in Europe about 15 years ago, illustrates the idea that businesses are responsible and accountable to their employees, their customers, and the general public.

Equal Exchange growers receive better prices under exclusive agreements with farming cooperatives, customers are guaranteed high-quality coffee at fair prices, and the general public in the growers' regions benefits from projects that the farm cooperatives have undertaken with the additional income they make. Typical projects are reforestation programs, training for doctors and nurses, and the building of new schools. Equal Exchange follows a strict set of fair trade guidelines in its purchase of coffee

• Buy directly from small farmer cooperatives.These cooperatives are owned and run by the farmers themselves. Each cooperative governs the even distribution of income and services, such as education and healthcare. Buying direct means that profits go to the farmers rather than agents or other middlemen, reducing the need for growers to engage in more profitable activities, such as growing marijuana and other illegal endeavors, in order to survive.

• Pay a fair price. Equal Exchange pays a guaranteed minimum price for its coffee, regardless of how low the coffee market itself may drop.This price assures that farmers will be able to make a living wage during downturns. Of course, the price rises as the market rises.

• Provide advance credit to growers. Equal Exchange makes credit available to its farmers. Historically, credit was unavailable or offered only at extremely high rates,trapping farmers in debt."When we sign a contract with producers, we pay up to 60 percent of the contract six months in advance," notes marketing manager Erbin Crowell."If a hurricane hits, we share the risk." In fact, several years ago, a hurricane did hit-"Mitch" slammed into Nicaragua, causing deaths, injuries, and millions of dollars in damage. Equal Exchange worked with Lutheran World Relief to raise funds for residents who suffered because of the hurricane.

• Encourage ecologically sustainable farming practices. Equal Exchange helps growers use environmentally friendly farming methods, protecting both the local environment and consumers from toxic chemicals. In this way, the company demonstrates social responsibility not only to the health of workers and consumers but also to the local environment. The company pays a premium price for certified organic and shade-grown coffee, both of which are better for the environment.

Not surprisingly, Equal Exchange is also ethical in its conduct toward competitors. Recently, when specialty coffee giants Starbucks and Green Mountain announced that they were entering into fair trade agreements with farmers, Equal Exchange publicly congratulated them. "Believe it or not, we want more, not less competition," says Equal Exchange cofounder and coexecutive director Rink Dickinson.

"That's because we know these farmers and their struggles. They urgently need more importers to pay a just price. So we encourage our fellow roasters to expand on the modest fair trade programs they've announced so far." With this statement, Dickinson raised the bar of ethical standards in the coffee business-knowing that his company can clear it with ease.

Question
1. Is Equal Exchange trying to contravene the effect of market forces? Is it likely to succeed in the longer term?

2. Suppose Dickinson discovered that one of Equal Exchange's cooperatives was growing illegal products, selling coffee to competitors, or not paying fair wages to workers. What do you think he should do?

3. Visit Equal Exchange's Web site at https://www.equalexchange.com to learn about the company. What characteristics of the company do you think are most appealing to consumers?