- Updated Mar 26, 2020
- Writen by Robert Smith
Direct Trade vs. Fair Trade Coffee: Which One is Better?
- Updated Nov 18, 2019
- Writen by Robert Smith
If you are an avid coffee drinker or are just passionate about the beverage and like to know more about it, the chances are that you have already heard about direct trade and fair trade coffee.
While the two aim to protect farmers from exploitation by middlemen and corporations and work with the coffee farmers to improve the process of producing and selling coffee for the benefit of all stakeholders, they are not the same.
Direct trade and fair trade aim to improve the quality of coffee and farmer's well-being but do it differently. And the process used by each is also different from the way coffee is sourced to how it is certified and sold.
In this piece, we provide more information on the two to help ensure you know what you are buying the next time you see direct trade or fair trade written on your coffee bag.
Direct Trade Coffee Overview
What Is It?
Direct trade, just as the name implies, is a coffee buying model whereby the roasters buy their coffee directly from the producers which in this case are the farmers.
With the direct trade model, the traditional middlemen buyers and sellers and organizations for controlling certification such as the Fairtrade International are cut out from the coffee buying chain.
How it Works
With this model, the roasters can build direct and mutually beneficial relationships with the coffee farmers, and one of their key aims is to give coffee producers better prices than they would get with middlemen and certification organizations.
Many roasters will use the direct trade model because they are not satisfied with the quality and prices they get from middlemen and also want to be in more control of different elements like coffee quality, environmental issues and even social wellbeing of the farmers.
Because there are no certification organizations in the process, there will be no license fees required which reduce the cost for both farmer and roaster. Many roasters will make frequent trips to the coffee farms to ensure the standards are being met and will also be more transparent with the buying process to give consumers some quality assurances.
But lack of a third-party certification organization means there is little standardization, which means the coffee quality varies greatly from one direct trade arrangement to the other.
And in many instances, this model is highly reliant on the honesty and ethics of both the roaster and coffee producers.
Fair Trade Coffee Overview
What Is It?
Fair trade is the other common coffee buying model that also looks out for the interest of the coffee farmers given that most are from poor third world countries. Besides helping address the disparities in coffee production, fair trade also helps to promote fair trade practices.
With this model, there is a fair trade certification that promises that the coffee producers will receive fair wages, there will be no child labor, the entire supply chain will be ethical and that international and local labor laws will be adhered to.
There will also be equality in the coffee trade chain with this model, which ensures farmers are treated equally in all the growing areas under the fair trade model.
Also, the model will allow for a set of standards meant to ensure ethical business strategies and environmentally sustainable farming practices
How it Works
Unlike direct trade where coffee is purchased directly from the coffee farmer, with the fair trade model, coffee is bought from cooperatives and other middlemen and undergoes a strict certification process to ensure the highest quality standards.
But to get into the fair trade model or for the coffee to be certified as fair trade, the producer has to apply for certification which will require you to pay a fee that in some instances runs into thousands of dollars.
Once all the steps are complete, the producer is allowed to display the fair trade logo on their coffee. The importers are also required to register with the Fairtrade International by paying the required fee.
The license fees are one of the main shortcomings with this model as it can lock out smaller farmers and cooperatives unable to afford the fees.
Also, there are too many middlemen in the fair trade arrangement, which is often detrimental to the coffee farmer.
Direct Trade Coffee
Fair Trade Coffee
What Is It?
More of an ideology/method
Who is Involved?
Farmers and roasters
Fairtrade International, farmers, importers and exporters
Improve farmer’s coffee quality
Improve farmer’s well-being
No certification process
Certification by a fair trade association
Direct Trade vs. Fair Trade Coffee
Here is an overview of how these two coffee buying models and arrangements will differ.
1. Who is Involved?
There are different players that will be involved in both the direct and fair trade models and each has an integral role to play. The number of players in the system varies greatly between these two models.
Because direct trade is a more direct approach to coffee buying, there are only two key players involved in the process, and these are the farmers who are the producers of the coffee and roasters who are its distributors.
- The Farmers
The farmers will meet directly with the roasters and interact with them to negotiate for better prices for their coffee while also striving to provide the best coffee quality.
- The Roasters
Roasters, in this chain, will forego buying from the importers that themselves bought from an exporter that hard initially bought from a cooperative selling on behalf of the farmer.
Doing this allows the roaster to control both coffee prices and quality. And this, in turn, leads to an overall increase in sustainability for both coffee farmer and roaster.
- The Fair Trade Organization
The key player here is Fairtrade International and a few other organizations in charge of ensuring fair trade in the business. The organization provides and regulates the policies which affect everyone else on the chain.
And they will execute these policies using different sub-organizations such as Flo-Cert that takes care of the enforcement of the certifications and standards.
- The Farmers
Farmers are another key player in the chain, and their role is to produce the coffee, and they must apply for certification by paying a fee to the fair trade organization after which they receive a license. And sometimes the fair trade organization will provide some financial assistance to farmers.
- The Importer
Like coffee producers, the importers also need to register with the fair trade organization and pay the required fees. Also, they will be required to pay a certain minimum price to the exporter when buying the coffee. And these prices will be adjusted to ensure coffee producers get fair prices.
- The Exporter
Exporters are another player in the chain, but they are perhaps the weakest link since they often incur losses when dealing with fair trade organizations due to the extra cost and fees. And in many instances, the exporters in this setup will be a coffee cooperative that exports produce from hundreds or thousands of farmers.
2. License Fees
For direct trade, there are no licenses required since the farmer will deal directly with the roaster, and hence there will be no fees required from either player.
There is no extra cost for the farmer in the direct trade model as the roasters only aim to build strong and mutually beneficial relationships with the farmers.
With the fair trade model, both the farmers and importer have to pay license fees. For farmers, the annual certification fees can sometimes be upwards of $10,000 which is an extra cost that some cannot afford.
However, this model also comes with some financial incentives as some fair trade organizations often provide some financial assistance for farmers in poor countries to increase productivity and improve their overall wellbeing.
3. End Goals
The main objective of direct trade is to improve the overall quality of the coffee, and this is why it is designed to give roasters direct interaction with the farmers.
However, in the process, direct trade will also improve the lives of the farmer by giving them better coffee prices, and with their commitment to high-quality coffee production.
Summary of Direct Trade Goals and Objectives
- Eliminate coffee certification fees
- Payer farmers higher premiums
- Allow smaller farmers and roasters participate in the coffee distribution system
- Promoter personal relationships between farmers and roasters to for increased supply chain transparency and trust
Fairtrade arose as a result of a need to protect the interests of the farmer from exploitation by middlemen and the highly volatile forces of supply and demand in the coffee sector.
Hence, the main goal of this model is to improve coffee farmer's lives, but in the process, they also end up leading to the production of high-quality coffee.
Summary of Fair Trade Goals and Objectives
- Promote equality in international coffee trading engagements
- Offer better trading conditions for sustainable development
- Secure the rights of marginalized coffee producers and workers in coffee producing countries
Certification always gives coffee consumers some confidence that whatever they are using is the best quality. But, certification is also one of the key points of departures between these two coffee buying models.
Fairtrade coffee brands will come with a logo on the packaging as an indication that the coffee is sourced through fair trade practices. And any coffee that does not have this logo will not be fair trade regardless of the brand or organization it is sourced through.
Direct trade does not have any certification, and so you should not expect to get an official direct trade certification or logo on the pack. However, many brands will indicate that their coffee is a direct trade product.
Both direct and fair trade have been designed to meet the needs of those they are intended to serve, and so it will be inaccurate to say one is better than the other. Also, each has its fair share of pros and cons.
But while fair trade is always striving to cater to the needs of needy farmers and improve their wellbeing, direct trade has played a crucial role in ensuring that coffee quality is improved and maintained across the world.
Both coffee models have their place in society, and so it will be up to you as a coffee producer, importer, exporter or roaster to decide which model best suits your particular situation.