Discussion on the Feasibility of Fair Trade in Yunnan Coffee

Discussion on the Feasibility of Fair Trade in Yunnan Coffee

Author: Chen Cheng

Abstract this paper adopts the concept of fair trade, which is different from the fair trade policy in the WTO rules, but a non-traditional trade mode that improves the living conditions of small-scale producers and provides sustainable development opportunities for vulnerable producers in a short period of time. In recent years, the fair trade system has been gradually improved, forming a production operation mode with the organic combination of producers, certification bodies, purchasers, sellers and end consumers. Yunnan small-grain coffee has unique resource advantages and is currently facing complex international trade environment and domestic trade policy. according to the definition of fair trade, this paper puts forward a tentative idea of the development of Yunnan coffee industrialization.

"key words" Fair Trade Coffee industrialization in Yunnan

I. Overview of Fair Trade

(1) the meaning of fair trade the World Fair Trade Organization (World Fair Trade Organization) defines fair trade as a trade partnership based on dialogue, transparency and respect to seek fairer international trade. Achieve sustainable development by providing better terms of trade for marginal producers and workers in the southern hemisphere and ensuring their own rights.

Different from the earliest cooperative movement, the current fair trade advocates the reform of existing trade practices (especially the exchange of goods and services between one country or region and another country or region under the WTO framework of the World Trade Organization). On the other hand, fair trade also includes encouraging consumers to actively participate in the consumption of fair trade goods, raising people's awareness of responsible consumption, and cultivating corporate social and economic responsibility, so as to exert pressure on the relevant producers. In some developed countries, goods with fair trade certification labels have occupied a certain market share, in addition to ordinary goods, capable consumers have more choices, in this category of goods, coffee products are the most famous.

More specifically, Fair Trade is a movement with clear goals, targeting vulnerable producers, including women and children. In the process of fair trade, indigenous people, such as children and women, will be economically protected. In addition, by strengthening the communication between producers and the market, improving the organizational capacity of producers, purchasing from producers with compensation premium, and providing producers with long-term and stable trade partnerships, a series of ways and means to improve their living conditions and provide sustainable development opportunities. Take high transparency and fair dialogue as an opportunity to conduct fair trade negotiations with producers, establish correct trade cooperation relations, and at the same time let consumers understand the negative impact of traditional international trade on vulnerable producers and indirectly help vulnerable groups from another point of view.

(2) the development of fair trade industry chain Fair Trade has experienced development and expansion, and has formed an industrialization chain, including production system, procurement system and certification system. It can be said that the fair trade environment has been initially formed.

Among them, the certification system jointly formed by a number of organizations has reached a certain scale, and all certified goods can get the logo of fair trade. It is sold all over the world, most of which are mainly consumers from developed countries in the northern hemisphere.

The development status of the fair trade industry chain is as follows: 1 according to the World Development report released by the World Bank in 2008, the coffee export income of developing countries was about US $12 billion in the 1980s, but in 2003, although these countries export more coffee, their income has dropped to US $5.5 billion, less than half of what it used to be.

In Nicaragua, for example, the price crisis took the form of a 70% drop in the price of coffee, from $1.44 per pound in 1999 to $0.50 per pound in 2002. The result of the decline is direct unemployment and the influx of large-scale coffee producers to the cities, and the value of coffee plantations is seriously threatened. During the price crisis, small-scale producers were forced to sell coffee regardless of cost and could not even guarantee their minimum standard of living, and after participating in fair trade, the situation improved, selling products at above-market prices, including a premium of US $0.05 per pound, the livelihood problem was resolved. Of course, growers who participate in and benefit from Fairtrade are not limited to this.

Regional purchasers and importer sellers A few years ago, some of the world's largest coffee sellers began selling Fairtrade coffee and included this practice in the broader corporate social responsibility CSR. Fair traders generally believe that such a corporate social responsibility scheme is praiseworthy, the important thing is that corporate social responsibility has undergone a qualitative change, compared with the traditional "money-driven", more inclined to "mission-driven". Today, there are many multinational companies that attach importance to corporate social responsibility, such as Nestl é, Procter & Gamble, Coca-Cola, and Starbucks. The most representative seller should be Starbucks, an American-German coffee chain. As the world's largest coffee roaster and buyer, its coffee sales account for 1% to 2% of the total certified Fairtrade coffee.

April 2000. Starbucks signed an agreement with the Fair Trade Organization of the United States to start selling whole packets of Fairtrade coffee in North America. After entering the Fairtrade network, Starbucks has constantly adjusted its coffee supply chain and announced that coffee drinks in the UK and Ireland will also join Fairtrade by 2009, a move that will help 100000 farmers in Latin America, Asia and Africa.

3 Certification bodies and organizations the vast majority of fair trade purchasers and sellers belong to one or more fair trade alliances, whose function is to coordinate and promote the work of fair trade organizations. so far, there are several very influential organizations in the world: the International Fair Trade labelling Organization (Fairtrade Labeling Organizations International, referred to as FLO), which was founded in 1997. Is the organization that establishes global fair trade standards and certification, responsible for commodity label certification (Fairtrade Certification Mark), in order to facilitate consumers to better identify products that meet the standards. At the same time, production organizations are regularly inspected and certified in more than 50 countries in Asia, Africa and Latin America, including about 1 million agricultural working families. The International Fair Trade Organization (World Fair Trade Organization, referred to as WFTO), formerly known as the International Fair Trade Association (Intemational Fair Trade Association, referred to as IFAT), was founded in 1989 to establish market access through policy, publicity, marketing and monitoring, and is the only global network that represents the fair trade chain from production to sales. Is a global association of Fairtrade production companies and associations, export companies, importers, retailers, national and regional Fairtrade fronts and pro-Fairtrade groups. In 21304, its predecessor, IFAT, created the Fair Trade Organization tag (FTO Mark) to identify those Fairtrade organizations (as opposed to the FLO system, FLO is a certified product).

In addition to the above two organizations, there are the European World Store Link (NEWS), which serves Europe, and the European Fair Trade Association (European Fair Trade Association, EF3 "A). The four of them formed the informal Fair Trade Network Alliance (FINE) in 1998 to coordinate the advocacy activities of Fairtrade supporters, aimed at strengthening public support and calling for trade justice.

The Feasibility Analysis of Fair Trade of Coffee in Yunnan

(1) Yunnan has obvious advantages in coffee production, which is located in the southwestern border of China. Yunnan is located in the "coffee planting belt" (Coffee Zone) of the earth, with a land area of 394000 square kilometers, of which the northern tropics and south subtropics have a land area of 81100 square kilometers, accounting for 21.9% of the province's land area and 16.9% of the total hot areas of the country, involving 15 prefectures and cities, 85 counties and cities in the province. Among them, the land resources available for the development of coffee cultivation are about 26700 square meters, accounting for 33% of the total hot area in Yunnan. Dehong, Wenshan, Simao, Honghe and Xishuangbanna, which are distributed in the south and southwest of Yunnan, are suitable for coffee planting.

In addition to the superior geographical quality, Yunnan also has good climatic conditions. Due to the blocking of high mountains, it is not directly attacked by the cold current of the north in winter, which can effectively avoid the cold damage of tropical crops, there is no typhoon in summer and autumn, and the vegetation is not easy to be damaged. In addition, it also has advantages such as altitude, temperature and rainfall suitable for growing coffee. In many areas, Dehong and Jamaica are at the same latitude and have a similar climate, and there is also an altitude suitable for growing coffee at an altitude of 800mur1800 meters.

According to the above characteristics of geographical and climatic resources, it can be found that Yunnan is very suitable for growing high-quality mellow coffee, namely Arabica small-grain coffee (Coffee Arabica), which is of commercial value and similar in quality to Colombian small-grain coffee. At present, nearly 350000 mu of coffee is planted in Yunnan, with an annual output of 30, 000 tons and a total output value of nearly 600 million yuan.

For many years, although Yunnan coffee is famous in the world, the poverty of Yunnan producers still exists. The Engel coefficient of rural households is 49%. The per capita net income of farmers is 3103 yuan, which is lower than the national level. Yunnan is a province with 26 ethnic minorities. because it is located in remote mountainous areas, sparsely populated, backward infrastructure, poor living conditions and low social and cultural level, as of 2005, Yunnan still has 7.378 million people living in poverty, with the incidence of poverty reaching 20.05%. The total number of poor people in rural areas still accounts for more than 10% of the country, ranking second; low-income people account for more than 20% of the country, ranking first. Thus it can be seen that there are a large number of poor people in Yunnan, the degree of poverty is deep, and the problem of food and clothing of the absolutely poor people in poor areas is extremely serious.

(2) Coffee trade in Yunnan is facing challenges the global financial storm caused by the US subprime mortgage crisis in 2008, no matter in terms of the fluctuations in the global capital market or the changes in the US real economy, its linkage impact in the United States and even around the world can not be seen. The global recession caused by the subprime mortgage crisis has had a great impact on China's exports and industries. In addition to the export slowdown under the general trend and the decline in export volume, there are other problems that can not be ignored.

For example, the problems of high tariffs and trade barriers in China's agricultural products export.

First of all, from the perspective of the trade environment faced by the coffee industry in Yunnan, the export of agricultural products in China has frequently encountered foreign non-tariff trade barriers and suffered huge losses. Because of the strong concealment and discrimination of technical non-tariff barriers to trade, it has become the most important and effective means for developed countries to implement agricultural protection. In particular, the export of agricultural products is seriously restricted and restricted. According to a survey conducted by the Ministry of Commerce, about 90% of China's agricultural and food enterprises are affected by foreign trade technical barriers, resulting in annual losses of nearly 10 billion US dollars. In addition, the export of China's agricultural products is faced with the problem of high tariffs, which is the result of the protection of their own agriculture by developed countries, which has seriously damaged the interests of developing countries.

Secondly, specific to the coffee market, in recent years, due to overproduction, the price of coffee in the international market has been falling, once falling below $60 per bag, and the price per bag of coffee fluctuates between $60 and $70. The main reason for the oversupply in the international coffee market for several consecutive years is that world coffee consumption is growing at an annual rate of 1.5%. On the other hand, the production of roasted coffee and coffee powder has increased by 8%, and the consumption is much lower than that of coffee production. In addition, Brazil, the world's largest coffee producer and exporter, produces a large number of coffee, while Vietnam, the second largest coffee producer, has dumped a large number of coffee at low prices, increasing the burden of coffee consumption and keeping coffee prices in the doldrums. as a result, small and medium-sized producers who grow coffee for a living are faced with the plight of a substantial reduction in coffee export income.

For a long time, Yunnan's coffee exports are mainly raw materials and coffee products. More than 90% of Yunnan's coffee output needs to be digested in the international market and has cooperative relations with countries such as Japan, Europe, the United States, and Singapore. The European Union, Belgium, Italy and Germany have become an emerging market for Yunnan exports. At present, 30% of the products are mainly sold at home, and 70% are sold to major foreign coffee consuming countries. 98% of China's coffee raw materials come from Yunnan, and well-known companies such as Nestl é, Starbucks, McDonnell and Shangdao have come to Yunnan to purchase coffee beans.

However, the resource advantage of Yunnan coffee has not been transformed into economic advantage. To correct the reasons, in addition to the global economic depression, fluctuations in international market demand and prices for primary products, backward culture and education, inconvenient resource conditions, low productivity and other factors, it also has something to do with the fact that Yunnan coffee industry has not formed an effective industrial chain. As a long-term supply of Starbucks and Nestle coffee raw materials, Yunnan well-known coffee acquisition and processing enterprise Hougu Company has a relatively mature operation and management system, but it is still in the stage of raw material supply and does not create its own brand. The biggest disadvantage is that the market price and quality of coffee beans are most controlled by international buyers. On the other hand, coffee farmers, as raw material producers, have no way to share the average profits of processing and circulation, because they do not have sufficient sources of information and corresponding scientific and cultural knowledge, they are unable to grasp the changes in the market. when the price of coffee dumped at low prices in other coffee-producing countries in the world leads to a lack of purchasing capacity, they are faced with a more passive situation. For example, of the 1 1500 tons of coffee beans produced in 2001, except for some purchased by Nestl é and Yunnan Coffee Factory, about 8000 tons of small-grain coffee with shell was acquired by neighboring Vietnam. Vietnam will sell it to the international market after initial processing and matching its low-price medium-grain coffee, seizing China's international market share, so it is extremely disadvantageous to the development of Yunnan coffee industry and the increase of farmers' income in the short term and in the long run.

III. Ways to realize Fair Trade in Coffee in Yunnan

The terms of international trade in developing countries are usually unfair. 20 per cent of coffee worth 1 yuan belongs to retailers, 25 per cent to processors and wholesalers, 28 per cent to traders and transporters, 19 per cent to producing countries, and only 8 per cent to producers. The income of farmers under the fair trade system has increased because the number of middlemen has been reduced in the course of trade, which maximizes farmers' income.

Specific to the fair trade industry chain, whether it is producers, purchasers, sellers or certification agencies, each effective factor in this industry chain has its own different functions and responsibilities.

(1) rational organization of production as far as producers are concerned, small-scale producers are the beneficiaries of the fair trade system. Through the cultivation and sale of coffee raw materials, in addition to obtaining a certain level of income to compensate for the cost of planting management, you can also get an additional fee, that is, the fair trade premium. Coffee growers can use the premium to pay or offset the cost of living and production, and production organizations can use all the premium to carry out new project plans, such as entering a high-quality market environment while improving product quality. or invest in expanding and developing communications projects.

(2) to strengthen the links between regional purchasers and importer sellers, both of them need to abide by the strict standards of the industrialization system, both of which are indispensable. In addition to the corresponding purchase fees paid by regional purchasers to coffee producers under the Fair Trade Premium system, which should be sufficient to ensure the basic standard of production and living of farmers, the total cost should also include the costs that can be used by small-scale producers for a new round of cultivation and production or related costs for improving planting conditions. Sellers are no exception. Sellers directly face consumers of Fairtrade goods, that is, consumers of coffee. Whether the consumers here are the ultimate consumers of coffee or not, they represent the acceptance of the price and concept of Fairtrade products. It can be said that sales is an important link in the realization of the whole fair trade industrial chain, and sellers in importing countries need to have a reasonable pricing mechanism to ensure that the income of most commodities can replenish the input of producers in the case of balanced supply and demand. rather than in the traditional unfair trade link, sellers get the most profits and harm the interests of producers. However, in order to realize the sales link, sellers should cultivate the fair trade consumer market in their own country, so that the public can deeply understand the significance of fair trade and realize the importance of personal social responsibility. in order to achieve real responsible consumption.

(3) perfecting the certification body from the perspective of the certification body, although its main responsibility is the certification of fair trade goods and middlemen, certification bodies like FLO always run through the whole industry chain and play an important role that can not be ignored. Certification bodies supervise and ensure the quality and quality of Fairtrade goods, examine the qualifications of buyers and sellers, and promote Fairtrade consumption.

The fair trade system has a unique premium pricing mechanism, that is, fair trade price = NYSE price + premium. For example, when Arabica coffee on the New York Mercantile Exchange is 121 cents per pound, the Fairtrade price is 121 cents plus a 10-cent premium, resulting in a total gain of 131 cents. In 2008, FLO introduced a new minimum purchase price mechanism for Arabica coffee, protecting small-scale producers from concerns about volatility and strong price fluctuations in the coffee market and enabling them to carry out production plans. In addition, FLO announced that the price of Arabica coffee will increase by $0.050 per pound from June 2008. Producers certified by Fair Trade Organization can continue to receive an additional fee of at least $0.02 per pound. All producers can get a market discount of $0.1 per pound.

At present, there is no fair trade certification body in China, and all certification procedures need to go through relevant foreign institutions. If the authorities can strengthen their cooperation with international certification bodies, they will certainly be able to reduce various obstacles to unofficial actions and save most unreasonable costs in commodity trade links, thus forming a more complete and sound domestic certification system, and ultimately promoting the development of the whole fair trade movement.

It can be said that the coffee trade in Yunnan is characterized by a complex situation, the lack of industrial production and not a broad market, which is extremely disadvantageous to small-scale producers who grow coffee for a living. According to economic theory, trade itself will not make everyone better off, but the gainers can compensate the losers, and fair trade is the best embodiment, allowing consumers to exert the power of purchase and improve the treatment of producers in remote areas. for China, a big agricultural country, fair trade is one of the ways to increase farmers' income and narrow the gap between the rich and the poor.

If the fair trade system can be integrated with the small-scale production of coffee in Yunnan, it will gradually reduce the pressure on farmers' production and planting, help them carry out equal exchange, so that commodities can reflect their value base, and cultivate the production and operation capacity of small-scale producers. It can be said that the Fair Trade Movement not only created a more socially and economically responsible trade, but also a supportive trade that could benefit the people in the mountain areas.

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