The challenge of fair-trade chocolate

Then, as world chocolate prices plummeted in the 1990s, CONACADO moved into the emerging organic market, where prices were substantially higher. By historical artifact, Dominican cacao farmers were perfectly positioned to enter the new niche market. Relatively poor, they had never adopted the pesticide- and fertilizer-intensive methods of modern agriculture. To go organic, they didn’t have to radically alter their farming practices, says Raynolds. Initially, they profited from being the first in the organic market, but as competitors emerged, CONACADO needed a new edge.

Already organized as a cooperative, CONACADO found its new advantage in fair trade – by definition off limits to large commercial producers. The idea behind fair trade: Buyers in the developed world agree to pay at least a guaranteed minimum price to small producers of coffee, bananas, and other exports from the developing world. The built-in floor to prices theoretically protects farmers from being wiped out by major market fluctuations.

Depending on the market, the fair-trade guarantees can translate to substantially higher-than-market selling prices. In 2001, for example, a ton of fair-trade cacao, which has a floor price of $1,600, fetched nearly double the market average of $894.

“That’s an effect that you recycle,” says Abel Fernandez, CONACADO’s export manager. “You make investments, improve your quality. You have a greater volume of higher-quality stuff. And you make more investments.”

Fair trade also includes a social premium: $150 extra per ton earmarked for investment in social infrastructure. In the past eight years, CONACADO has put $500,000 annually toward schools, medical clinics, wells, and plumbing.

“You can imagine what a difference that makes,” says Mr. Fernandez.

Fair-trade labels first began appearing in the late 1980s, when plummeting commodities prices were wreaking havoc in developing economies. Although still a small portion of the overall market, the fair-trade sector has grown rapidly. Fairtrade Labeling Organizations International (FLO) certified more than $3.62 billion worth of products in 2007, a 47 percent increase over 2006. But continued success even in the fair-trade marketplace isn’t guaranteed, says Raynolds. The mainstreaming of a niche market can change it dramatically. In the organic banana market, for example – the Dominican Republic is also the world’s largest single producer of organic bananas – the mainstream acceptance of organic bananas has, paradoxically, made life more difficult for small producers. Mainstream consumers are less tolerant of blemishes, and they want uniform size, qualities not easily achieved by many small farmers.

Critics charge that, besides pushing onto farmers an agenda whose effectiveness is questionable – namely, cooperatives – fair trade’s price guarantees distort the market. Like subsidies for corn growers in the US, guaranteed prices will cause a glut of producers – more than that warranted by demand, they say. Increased supply into a market with fixed demand could bring down prices everywhere, ultimately hurting many more poor farmers than it helps, says Peter Griffiths, a freelance marketing economist in Edinburgh, Scotland, with experience in the developing world.

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