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Journal of Business Ethics (2009) 86:127149 DOI 10.


Springer 2008

Assessing the Impact of Fair Trade Coffee: Towards an Integrative Framework

Karla Utting

ABSTRACT. This article presents an impact assessment framework that allows for the evaluation of positive and negative local-level impacts that have resulted from responsible trade interventions such as fair trade and ethical trade. The framework investigates impact relating to (1) livelihood impacts on primary stakeholders; (2) socio-economic impacts on communities; (3) organizational impacts; (4) environmental impacts; (5) policies and institutional impacts; and (6) future prospects. It identifies relevant local-level stakeholders and facilitates the analysis of conflicting interests. The framework was developed in the context of, and is applied in this article to, the fair trade coffee industry in northern Nicaragua. It was designed, however, so that it can be applied across commodity sectors and responsible trade initiatives. It is able to do this by accommodating for differences in the social, environmental, political and institutional contexts of different areas, and by taking into account the distinct nature of an initiatives overall objectives, different levels of intervention, and the full range of stakeholders involved. KEY WORDS: impact assessment, responsible trade, ethical trade, fair trade, livelihoods, conicts of interest, smallholders, coffee, Nicaragua

n ABBREVIATIONS: ATC: Asociacio de Trabajadores del Campo (Association of Rural Workers); CAFENICA: Asociacion de Cooperativas de Pequenos Productores de Cafe en Nicaragua (Association of Co-operatives of Small Coffee Producers of Nicaragua); CECOCAFEN: Cooperativas Cafetaleras del Norte (Coffee Co-operatives Central in the Northern Region); COSATIN: Cooperativa de Servicios Agropecuarios Tierra Nueva (New Earth Farmers Co-operative); DFID: Department for International Development; FAO: Food and Agriculture Organization; FTO: Fairtrade Labelling Organization International; PRODECOOP: Promotora de Desarollo Cooperativo de Las Segovias (Promoters of Cooperative Development); PROCOCER: La Cooperativa Multi sectorial de Productores de Cafe Organico Certicado (Co-operative Producers of Certied Organic Coffee); SL: sustainable livelihoods; SOPPEXCCA: Sociedad de Pequenos Productores, Exportadores y Compradores de Cafe (Society of Small Coffee Producers, Exporters and Buyers); SWOT: strengths, weaknesses, opportunities, and threats analysis; TNC: transnational corporation; UNDP: United Nations Development Programme; WB: World Bank; WCED: World Commission on Environment and Development

Karla Utting is a PhD candidate at the School of Earth and Environment, University of Leeds, and a member of the Sustainability Research Institute (SRI). Her thesis focusses on the development of an impact assessment framework that aims to explore livelihood and development impacts resulting from responsible trade initiatives. Her research involves two case studies that examine fair trade coffee production and the production of speciality coffee veried by the CAFE practice programme of Starbucks, in Northern Nicaragua. The empirical foundation consists of information on a diverse range of local level impacts and draws on the perspectives of multiple local-level stakeholders including smallholders, community members, producer organizations, government ofcials, NGOs and other key informants.

Alternative trade and responsible business initiatives have become an important part of a sustainable globalization movement that currently challenges the practices of conventional value chains and the increasing power of global transnational corporations (TNCs). Fair trade and ethical trade initiatives have arisen in the context of economic globalization. In recent years, they have acquired considerable prominence due to an increasing public acknowledgement that international trade actors have moral obligations to address issues of poverty, sustainable livelihoods, environmental assets and sustainable


Karla Utting and positive local-level sustainability impacts of responsible trade initiatives. The article also applies this framework to a specic case in Nicaragua. The rest of the article is divided into two main sections. The rst section elaborates the assessment framework, including its stages, objectives, characteristics, functions and components. The second section applies the framework to a coffee-producing region in northern Nicaragua and assesses the changes (or impacts) promoted by a fair trade intervention. This includes: (1) an analysis of the context; (2) assessing different areas of impact; (3) identifying conicts of interest between the stakeholders and potential tradeoffs; and (4) a discussion of the local-level changes. Impact assessment framework The impact assessment framework that has been developed aims to facilitate the gathering of comprehensive evidence on the sustainability claims of the growing number of ethical and fair trade initiatives. This section presents the design of the framework (see Figure 1), which was initially developed by drawing upon the secondary literature and other frameworks and methodologies particularly the Sustainable Livelihoods Framework and the Stakeholder Analysis methodology developed by the U.K.s Department for International Development (DFID) (1999) and using these to combine different component parts of previous research studies on fair trade and ethical trade initiatives.2 The framework was later rened after a testing period of eight months in coffee producing areas of northern Nicaragua (Departments of Jinotega and Matagalpa). The integrity of the framework is particularly important given the growing number of researchers using formal frameworks to support and manage their investigations (DFID, 2002). Framework stages and components Stage one vulnerability contextualization There are four main stages in the structure of the impact assessment framework.3 The rst is an in situ vulnerability contextualization that is derived from the Sustainable Livelihood Framework, which initiates studies by framing the external environment in which people exist (DFID, 1999, Section 2.2). This enables one to understand why development

development in general. The increased visibility of these responsible trade models for international trade is in part also the result of a widespread recognition of the signicant contribution they can have in the battle against some of the harmful effects of economic globalization, particularly in developing countries (Broad, 2002; Curtis, 2001).1 The proliferation of supporters of responsible trade initiatives, however, has been accompanied by the growth of a band of strong critics and sceptics. The latter point to what they see as potentially insurmountable challenges to fair trade and ethical trade, such as their limited potential to expand market growth, to ensure sustainability and to create longterm benets for Third World producers and their communities. According to some researchers (Moore, 2003; Raynolds, 2002; Tallontire, 2001), crucial stakeholders, particularly consumers, are increasingly concerned about the effectiveness of these initiatives. While some of these concerns involve the inability of consumers to adequately distinguish the increasing number of such initiatives, others relate to a lack of empirical evidence concerning their effectiveness and the resulting inability of stakeholders to evaluate the ethical claims of responsible trade initiatives. Such criticism has led to a growing and widespread credibility decit surrounding these initiatives. At issue in the case of fair trade is the extent to which companies are adhering to the standards that are laid out in the guidelines and the degree to which the intended beneciaries small producers are actually better off as a result of the higher price charged to consumers for fair trade products. If no concrete evidence is available to back up the claims of these initiatives, critics can and will continue to denigrate them and consumers and donor organizations will withhold their support. The concerns mentioned in the literature highlight two important issues. First, there is a need for greater ongoing empirical data and analysis to address the widespread credibility concerns surrounding responsible trade initiatives, particularly at the local-level where the initiatives operate. Second, there is not an adequate and consolidated framework to support critical ground-level research of the impact of fair trade and ethical trade. This article seeks to address the latter problem by presenting a exible impact assessment framework that can be used by researchers to carry out a systematic evaluation of both negative

Assessing the Impact of Fair Trade Coffee


Figure 1. Impact assessment framework for responsible trade initiatives.

initiatives such as fair trade have been adopted in those areas. The frameworks vulnerability stage also incorporates a stakeholder identication process, whereby the different stakeholders involved are identied and their response to a crisis is documented. This rst stage of the research framework encourages the researcher from the beginning to identify and develop contacts and networks. Stage two impact assessments This stage, drawing upon the sustainable livelihoods and development literature, entails the multidimensional assessment of impacts of responsible trade interventions. These impacts can be categorized under three main avenues. Impacts avenue I livelihood impact on primary stakeholders. Given that the values espoused by ethical trade initiatives are all elements of sustainability

(Carney, 1998, p. 107), this section aims to link livelihood changes with sustainability by exploring the extent to which compliance with ethical codes of conduct and fair trade standards is leading to the achievement of sustainable livelihoods (SL)4 by the intended beneciaries (the primary stakeholders). This section uses the asset analysis (livelihood platform) of the SL framework (Scoones, 1998) as a way to conceptualize rural peoples livelihoods and incorporates the concept of sustainable livelihoods proposed by Chambers and Conway (1992).5 The core of this framework is based on ve assets or types of capital social, human, nancial, physical and natural (see Table I) which can be employed in rural settings to generate sustainable livelihoods (Scoones, 1998). Barney et al. (2001) suggest that in order to achieve sustainable livelihoods there must be access by all people to a balance of these capital assets.6 Despite certain limitations (e.g. Carney, 1998), particularly


Karla Utting
TABLE I Description of capital making up livelihoods

Capital Human Financial Physical Social Natural

Examples Represents skills, knowledge, ability, labour, empowerment, and good health Denotes the nancial resources used to support livelihood objectives objectives (e.g. wages, credit, remittances, savings, etc.) Basic infrastructure and producer goods (i.e. tools & equipment) Networks, participation and decision-making, connectedness, membership in groups, social safety nets Natural resource stocks from which ows and services are delivered

the frameworks explicit focus on assets and little attention to commercial factors, it is generally agreed that the existing literature shows that the sustainable livelihoods framework has on balance proven useful. Some have argued that it generates important useful insights on trade matters by integrating social, environmental, economic or productive factors into the analysis of how people make a living (Mayoux, 2001a, b; Parrish et al., 2005; Tallontire, 2001). Socio-economic conditions of community stakeholders. This component examines the broad socio-economic impacts of fair trade and ethical trade on communities and their various local stakeholders. Its goals are to map the main positive and negative changes (impacts) and to determine how, and the extent to which, responsible trade initiatives have played a role in generating these changes. Impacts avenue II impact on organizations. The nature and success of fair trade and ethical trade are largely determined by the organizations e.g. alternative trade organizations 7 (ATOs) implementing the fair trade standard or ethical trade principles/codes. Their organizational culture, policies and structures largely determine their ability and inclination to generate organizational success and balance this with larger development and social goals (Ronchi, 2002a; Tallontire, 2001; Mayoux, 2001a, b). Therefore, assessing organizational capacity is crucial in determining the extent to which organizations can positively support livelihoods of primary stakeholders and go beyond standards and codes to encourage sustainable development in local areas. Impact on environment. The aim of this component is, rst, to identify the most relevant environmental issues, and second, to establish whether responsible

trade initiatives are having a direct impact on the protection of environmental resources. Have the environmental standards of the initiatives been conducive to environmentally sound production? Are fair trade organizations implementing the initiative involved in any other environmental projects? Impacts avenue III policy and institutional impacts. The Sustainable Livelihood framework developed by DFID, called The Transforming Structure and Processes Component (DFID, 1999, Section 2.3), is adopted in this section to answer two main questions. First, to what extent do policies, laws and institutions in the area help to create an overall enabling environment for sustainable livelihoods within the context of responsible trade? Second, what impacts have fair trade and ethical trade initiatives had on policies and institutions at the local level over time? Future issues. This component seeks to identify relevant future limitations and opportunities for fair trade and ethical trade as initiatives for development and poverty alleviation. What are the prospects of survival of these initiatives? Can they continue to produce the same development impacts and improvements in the local conditions and well-being of communities and small producers or workers? Stage three conicting interests and trade-offs This third impacts avenue explores signicant locallevel conicts and tradeoffs among different local stakeholders where the ethical and fair trade interventions operate (Grimble, 1998). How do the different conicts of interest between stakeholders at the local level contribute to or limit the impacts on sustainable livelihoods and development? Assessing the respective interests of key stakeholders gives

Assessing the Impact of Fair Trade Coffee

Focus Observation group analysis


Secondary Published Close-ended Open-ended Structured Semi- Unstructured Rapid sources summaries of surveys surveys interviews structured rural organization appraisal

Stage four discussion of local level changes The nal stage of the framework involves a discussion of the results of the collected data in terms of the main local-level changes from the chosen avenues of impacts. Moreover, it concludes the research by identifying potential areas for innovation and practical improvements to the initiatives to reduce stakeholder conict and to better achieve their stated objectives. Objectives and methods
Research methods used during the testing period

p p

p p

p p

p p

Objectives The impact assessment framework for responsible trade initiatives has three main objectives: rst, to explore changes in livelihood systems, standards of living and sustainable development; second, to identify conicts of interests and trade-offs between different local stakeholders; and third, to identify any potential for innovation and practical improvement of responsible trade initiatives. For example, could the support given by fair trade and ethical trade be directed to a wider range of stakeholders and provide benets to a wider range of people within the communities where these interventions operate? Research methods During the testing period, various quantitative and qualitative research methods were used by the researcher (see Table II) to effectively generate information reecting livelihood and development impacts of fair trade on a range of different stakeholders. The framework does not seek to investigate everything related to the impact of these initiatives at the local level; rather it proposes crucial areas of inquiry that can show the most important aspects of the changing situation in relation to livelihoods, poverty and development. Functions of the framework There are two main ways in which the framework can be applied for the purpose of research. First, it

p p p

p p


Vulnerability context Impact assessment Livelihood impact Socio-economic impact on communities Organizational impact Policy and institutional impact Future impacts Conicts of interests & tradeoffs


p p

p p

considerable value to any research study to prevent non-co-operation and even opposition from different stakeholders, who, directly or indirectly, would be affected by change (Grimble, 1998).


Karla Utting Characteristics of the framework The framework was initially designed to enable it to be used to make comprehensive impact assessments in different areas of research involving responsible trade initiatives. Although distinctly different in their objectives, responsible trade initiatives share a similar rationale for managing the supply chain in a socially responsible manner and, in some cases, in adopting similar approaches for shaping behaviour within those chains (Bloweld, 2003). Still, research has shown that, despite the characteristics shared between different codes and standards, the experience of every initiative will be different for each location. Therefore, the application of a common framework will have to take into consideration

can help researchers explore livelihood and development changes at the local level in areas where one responsible trade initiative operates (see Figure 2). Second, it can be applied to investigate local-level changes in two or more areas where responsible trade initiatives have been implemented, in order to gain a balanced view of the differences in impacts (see Figure 3). However, given the distinct nature of the overall objectives of different initiatives, the range of different levels of intervention, and the number of different stakeholders involved (Mayoux, 2001a, b), the impact assessment framework cannot be facilely used to compare different initiatives and conclude that any one approach (e.g. fair trade versus ethical trade) has a greater development impact (see Figure 3).

Livelihood and development changes


One case study research

(e.g. alternative or mainstream trade)

Conflicts & tradeoffs between different stakeholders Innovation and improvement of initiatives

Figure 2. Framework application 1.

Figure 3. Framework application 2.

Assessing the Impact of Fair Trade Coffee the differences in the social, environmental, political and institutional context of each area in which it is applied, the distinct nature of the initiatives objectives, and the number of different stakeholders involved (Mayoux, 2001a, b). The framework has a number of characteristics that would give it the potential to facilitate data collection and be applied across different contexts. These include the following. First, it is comprehensive and systematic, which enables it to determine a range of impacts associated with the implementation of formal standards guiding the environmental and social dimensions of trade in relation to a number of key stakeholders (Barrientos, 2003; Nelson et al., 2002). Second, it is dynamic, which allows it to examine change in impacts over time as a result of both external uctuations and internal conicts and to contribute to ongoing reforms of standards and implementation. Third, it is innovative and adaptable so that it can apply a variety of qualitative, quantitative and participatory research techniques to take account of both: (a) intended changes as a result of implementation of the initiative standards and codes of conduct, and ones that are associated with the multi-dimensional impacts on primary stakeholders (that is, the intended beneciaries); and (b) unintended changes as a result of implementation of the initiative standards and codes of conduct, and that are associated with the multi-dimensional impacts on other stakeholders that do not directly correspond to explicitly identied project objectives.


about real improvements and long-term stability in the social well-being and livelihoods of small producers and other local stakeholders. During the impact assessment, conicts of interest between different stakeholders and actual potential tradeoffs were also documented. Before any evaluation of impacts, it is important to examine the vulnerability context to understand reasons why these initiatives came into existence, the environment in which they operate, and the different stakeholders or actors involved in the setting.

Stage one: vulnerability context The Nicaraguan coffee crisis The Nicaraguan coffee industry, despite a recent rise in coffee prices, can be said to be in crisis. This most current crisis can be dated back to a sharp drop in coffee prices in 19992000. The background to this crisis, and to the rise of the fair trade coffee industry in Nicaragua, goes back a bit earlier, however, to the late 1980s and early 1990s. The increasing popularity of neo-liberal trade and economic policies in the 1980s led to, among other things, the 1989 disintegration of the international coffee agreement. This move, along with a range of other factors including increasing corporate consolidation (Ponte cited in Bacon, 2005a), the establishment of a new coffee industry in Vietnam in the early 1990s8 and the expansion of coffee production in Brazil (Bendana and Allgood, 2001; Ponte, 2002) would eventually lead to a major drop in prices internationally by the end of the decade and, more generally, to increasing price volatility (International Coffee Organization, 2006) (see Figure 4). In Nicaragua, the coffee crisis took the form of a 70% drop in the wholesale price for green coffee9 over a four-year period, from USD $1.44 per lb. in 1999 to less than $0.50 per lb. in 2002 (CEPAL, 2002). This was devastating for the economy. The price drop resulted in an immediate loss of employment and increased migration to urban areas for thousands of Nicaraguan coffee producers and workers, as well as the threat of property foreclosure for many coffee plantations and small farms alike. To date, ve banks that had invested in the coffee sector have folded.10 Other national banks, exporters and rural coffee co-operatives and unions also incurred

Fair trade impact assessment In an impact assessment methodology, impacts can be found at different levels depending on the objectives of the study, research questions, or hypotheses. The researcher must distinguish what are the priority impacts she wishes to evaluate according to her chosen unit of analysis. The following case study investigates fair trade impacts in the coffee producing regions of Jinotega and Matagalpa, northern Nicaragua. The framework elaborated above will now be employed to examine three layers of impacts in the region, including: (1) livelihood impacts; (2) organizational impacts; and (3) policy and institutional impacts. These three impacts have been chosen in order to explore the extent to which fair trade has brought


Karla Utting

Figure 4. International price of coffee. Source: Average yearly prices for Arabica coffee beans (19842005): International Coffee Organization (2006).

huge debts, much of which still remains to be repaid (Bacon, 2005a, b). The fall in prices also had immediate and severe consequences for the social and economic conditions of coffee workers and small producers and their families in Nicaragua (Bendana and Allgood, 2001). Some coffee-growing countries, however, weathered the storm better than Nicaragua. Why was Nicaragua so severely affected? Events at the local and nation level come into play. At the national level, a series of events and situations has led to institutional instability in the coffee industry. This includes political dictatorships (pre-1979), revolutionary government and political-military interference by the United States (1980s) and the transition to liberal democracy and neo-liberalism (1990s) (Mendoza-Vidaurre, 2002). Moreover, the lack of government investment in public infrastructure in coffee areas, nancial corruption in the government of former president Arnoldo Aleman (19952000) and a weak legal system that often excludes the interests of the marginalized, all contributed signicantly to the coffee crisis in Nicaragua. At the local level, factors that affected coffee producers included: climatic changes and natural disasters such as hurricane Mitch (1998); producers lack of diversication; producers inability to afford expensive inputs for coffee production, which meant that land was becoming more and more degraded;

increasing debts; and the lack of access to stable markets at the international level. These various factors may help to account for the fact that the coffee crisis seems to have continued into 2005, even despite the fact that the price in international markets rose to $1.25 per lb. According to the Association of Rural Workers (ATC), a national organization that defends agricultural workers rights, price instability and generally low prices over the years have signicantly lowered the production capacity of coffee farms. The bad harvest of 2005 and the fact that national exports have dropped signicantly provide evidence that the crisis is still being felt today, despite the recent rise in the prices. Stakeholders The coffee industry in Nicaragua is composed of large, medium and small producers, landless workers, producer co-operatives, unions and associations of co-operatives, and coffee-exporting and processing companies (benecios), as well as the technical organizations and non-governmental agencies (NGOs) which support production. Amongst all these groups, the 40,000 small producers and workers are the most vulnerable (CEPAL, 2002). During a crisis, the livelihoods of these two groups in particular are put at risk. During a price crisis, small producers are forced to sell their coffee at prices that do not cover

Assessing the Impact of Fair Trade Coffee production costs. 11 This practice may result in them pulling their children out of school and not being able to afford farm inputs, basic medicines and food supplies eliminating some essential elements of their everyday diet (Utting-Chamorro, 2005). Landless farmworkers are usually even worse off. Thousands of seasonal and permanent farmworkers working on the countrys largest plantations are made redundant as large farms seek to cut costs. In 2003, for example, thousands of coffee workers (36,000 unemployed at the national level) and their families were grouped together in what they called plantones in the mountains north of Matagalpa (Utting-Chamorro, 2005). These people were living under black plastic covers in miserable conditions along roadsides for months, demanding help and solidarity from both the government and passers-by. Interviews held with members of the plantones during a 2003 study recorded their lack of adequate homes, land, jobs, and seeds for planting. They could not send their children to school or buy medicines even though they were suffering from all sorts of diseases caused by malnutrition (ibid). In 2005, however, the government partially complied with the 2000 Tuna Agreement that had promised all landless coffee workers 1.4 hectares (two manzanas 12 of land in return for payments for a period of 30 years. According to the ATC, land was only given to 700 of the 2,000 families demanding help, and the conict with government ofcials over compliance with what was promised continues. Despite some advances, the coffee crisis is still affecting the sector as many permanent workers have become seasonal workers and many are still without jobs, in particular due to the instability in world prices and political conicts at the national level. Research results show two very different types of responses to the coffee crisis on the part of the most marginalized and vulnerable groups. Rural landless workers waited a number of years for the government to comply with their promise to support them by giving them land and seeds, waiting until it became a serious national problem due to critical hunger levels. Small producers with legal holdings, on the other hand, adopted more effective coping strategies and mobilized themselves to seek new market opportunities through alternative channels. Evidence shows that since the beginning of the coffee crisis in 2000, an increasing number of small producers have accessed new markets through ATOs.


This link provides them with better prices and a social premium to improve their local social conditions and also demonstrates to them the importance of enhancing their social capital13 for surviving times of crisis (Bacon, 2005b; Mendez, 2002). Emergence of fair trade in Nicaragua The 1999 coffee crisis in Nicaragua played a signicant role in the emergence of unions of co-operative organizations accessing alternative markets in developed countries, including the Society of Small Producers for Coffee Export (SOPPEXCCA, in Jinotega), the Coffee Co-operatives Central in the Northern Region (CECOCAFEN, Matagalpa), the Promoters of Co-operative Development (PRODECOOP, Estel), New Earth Farmers Co-operative (COSATIN R.L., Boaco), and Co-operative Producers of Certied Organic Coffee (PROCOCER R.L., Nueva Segovia), as well as ve others that form part of the umbrella organization called the Association of Co-operatives of Small Coffee Producers of Nicaragua (CAFENICA). These organizations have helped to reduce the vulnerability of small coffee producers by providing access to niche markets in the North which guarantee them higher and more stable prices at the farm gate (Bacon, 2005a). The adoption of fair trade in various regions of Nicaragua was particularly important in the context of the coffee crisis and the level of poverty of marginalized coffee producers and workers and their families, who were unable to earn a livelihood through conventional trade. Since 1997, fair trade has been particularly attractive to co-operatives in Jinotega, as it is a market-based intervention strategy that helps smallholders to capture value previously appropriated by traders and others in the marketing chain. Stage two: impact assessments This section aims to investigate the livelihood changes that have occurred for the intended beneciaries of fair trade.14 The intended beneciaries in this context are smallholders (one to 25 hectares of land) who constitute the primary stakeholders in the fair trade movement, and who are afliates of the fair trade co-operative organization Soppexcca, a second order co-operative (a co-operative of co-operatives) with 650 member producers located in Jinotega, northern Nicaragua and


Karla Utting their own product before their involvement with the fair trade system. This may be because they were not aware of the information that cupping could provide, or how that information could be valuable to them. Now, half of the interviewees claim to have professionally tasted their nished product by having access to Soppexccas cupping laboratory. Gender is a crucial aspect of livelihood analysis, particularly changes in human capital that relate to gender equity and the role of rural women in fair trade activities. The extent to which fair trade promotes the empowerment of women in rural areas is extremely important, as this is one of the Fairtrade Labelling Organizations (FLO) objectives for fair trade certication, and it is also increasingly recognized in the new development discourse (Barrientos, 2005; Mayoux, 2003; Pearson, 2005). In Nicaragua, women occupy a subordinate position in rural areas. Signicant changes were witnessed in this regard, with women moving from a situation of not having any involvement in coffee production to having more input in generating household income. Also, an increase in mens role in domestic housework and a signicant decrease in the number of cases of women being abused in the community were reported by the majority of the interviewees. Soppexccas organizational gender focus has also been successful in allowing women to gain the necessary skills and knowledge to produce an own brand mark for their coffee, and to enhance their condence and skills to produce good quality coffee. Soppexccas Cafe de las Mujeres (Womens Coffee) is now successfully commercialized by a womens co-operative afliated to Soppexcca and sold as fair trade organic coffee to the North American market. Social capital. Changes in social capital in this study were explored by taking into account criteria such as social recreation, levels of migration, and participation and decision-making within the co-operative and at the community level. Studies have shown that coffee farm households use multiple relationships at the level of the farm, family network, and co-operative organization to respond to a crisis (Bacon, 2005a). This represents a process of empowerment, whereby people or groups struggle to achieve their dened goals by enhancing their social capital base through mobilization of resources, becoming more connected to networks, or increasing participation (Bacon, 2005b).

which sells directly to the fair trade markets in the North. There are three main areas of impact. Livelihood impacts on small producers There are ve livelihood impacts that will be analyzed. These are addressed in turn. Human capital. Human capital in this analysis is about capacity building and capabilities, that is, enhancing the ability of small producers to sustain and improve their livelihoods by equipping them with the understanding, skills and access to information, knowledge and [technical] training that enables them to perform effectively (Urban Capacity Building Network, 2005). Human capital also involves education and good health for the successful pursuit of different livelihood strategies (Scoones, 1998). Fair trade is generally having a positive impact on the human capital of small producers in Jinotega. Capacity building of small producers is being achieved with the technical support provided by their organization, Soppexcca, which promotes quality improvement by encouraging farmers to improve the environmental and physical conditions of their farms, by leading them towards organic production, and by showing them how to treat plant diseases. Also, there are signs that better managerial skills are being developed as the majority of producers are expanding their coffee farms and employing more farm workers. Although only four agronomists were available to assist the 650 members of Soppexcca, the majority of the interviewees had received technical support either by participating in workshops or through direct personal assistance. Soppexcca frequently organizes workshops by grouping co-operatives according to their year of establishment and encourages the participation of all members. All interviewees considered technical support and training as an opportunity for them to both adequately access the fair trade market and obtain a better premium price, and to reduce the penalty fee charged for the percentage of coffee delivered that is classied as low or medium quality. Capacity building is also shown by the increased interest of farmers in cupping their own coffee.15 The initiative to make quality control an integral part of farmers production systems is an important indicator that demonstrates producers willingness to acquire the tools of trade (Bacon, 2001). Many interviewees stated their lack of interest in tasting

Assessing the Impact of Fair Trade Coffee This research found evidence of small producers households moving social assets to cope with the declining quality of life produced by the coffee crisis. This is an empowering approach to reduce vulnerability promoted by fair trades certication standards. The fact that small producers experienced little, if no, ruralurban migration suggests that producers were nding other coping mechanisms to survive the crisis, rather than traditional means. If we take the recent conclusions elaborated by Bacon (2005b) in his study of empowerment in fair trade co-operatives, in which he states that different organizing practices can have more inuence on livelihood outcomes than farm-gate coffee prices or traditional coping mechanisms such as migration and pulling children out of school, then participation becomes crucial to the process and outcome of smallholders empowerment. Soppexccas organizational objectives succeeded in opening up spaces for the empowerment of their members, encouraging producers to take part in events and making them feel part of a system that is owned by them, and establishing closer relations with the general manager of the organization as well as between buyers and co-operative members. The participation of small producers increased once they became part of a fair trade system, not only in events organized by their co-operative, but also at the community level; in interactions with development, health and peace committees; in sports activities and parents committees at school; and with national or international development NGOs operating in their communities. The increased participation by women was particularly signicant, suggesting progress is being made in terms of womens empowerment or gender equity. Participation of women before fair trade consisted solely of their sporadic attendance at mass. At the co-operative level, nine of the 12 co-operative groups studied experienced a substantial increase in the number of members accessing the fair trade market. However, it was also found that the remaining co-operatives experienced a drop in the number of members. These three co-operatives had been established for over 20 years, and were associated with Soppexcca from its founding in 1997. This indicates a trend of older co-operatives taking the initiative to divide their members into those who believe in the fair trade system and those


sceptical of the benets provided by this market system and unwilling to be part of it. Results also show increased involvement in the co-operative, with half of the interviewees responding that they had increased their participation in the decisionmaking process of their co-operatives. This was attributed to the fact that many members found that it was becoming easier to take part in meetings, which was due in part to a learning process occurring in the organization as members, opinions were being taken into account. Participation of women increased in every single co-operative group, suggesting that fair trade plays a signicant role in encouraging women to take part in a male-dominated system. Physical capital. This section examines the impact of fair trade on the physical capital of small producers. The Sustainable Livelihoods Framework describes physical capital as comprising the basic infrastructure and producer goods needed to support livelihoods (DFID, 1999). An analysis was carried out on the use of the fair trade premium (USD $0.05 per lb.) by co-operative members as income bonuses to enable producers and their families to either improve the conditions of their home or their coffee farms, or community members to improve community infrastructure or services including water, electricity, roads and paths and transport links and communications. Soppexcca aims to improve the standard of living of their members and achieve sustainable development in their communities. A number of producers claim to have improved the conditions of their home. Improvement consisted mainly of expanding the number of rooms in the house (from an average of 1.6 to 2.4 rooms) and of improving toilet facilities (going from having no outside toilet or a shared one to making ones own). Little evidence was found of improvements to the physical structure, including the walls and roof of their homes, even though most interviewees described the poor condition of their homes and their desire to reinforce them with concrete walls and a more solid roof. Whether producers can earn enough money to make adequate improvements to their home has to do with how much of the premium given to producer co-operatives is distributed to producers and


Karla Utting Natural capital. Natural capital is the natural resource stock (soil, water, air, genetic resources, etc.) and environmental services (hydrological cycle, pollution sinks, etc.) from which resource ows and services useful for livelihoods are derived (Scoones, 1998). A strong commitment to environmental sustainability was demonstrated by the fair trade producers, as they were aware of the importance of conserving their natural resources and were beginning to think with a long-term vision. Their co-operative union, Soppexcca, promotes the principles of sustainable development through environmental workshops. It also encourages producer members to move towards organic production by applying organic farm inputs and promotes the participation of young people in environmental activities within their communities. Small producers associated with the fair trade system in Jinotega saw various benets from environmental conservation. They associate environmental protection with improved soil conditions, increased yield and the conservation of a healthy water cycle and precipitation levels, in part through the prevention of deforestation, and so a decrease in the risk of drought and rivers drying out. Maintaining the water supply is important to retain soil moisture, and it is equally important to not exhaust and burn soil and to work towards quality coffee production. According to small producers, environmental protection also has health benets; small farmers were interested in conservation to allow their children to breathe cleaner air. Before being associated with fair trade, small producers used the environment without much consideration for its natural value. Since their association with fair trade, environmental workshops carried out by Soppexcca show them, for example, how to make use of coffee residues (the pulp that is removed from the bean during processing) without contaminating the soil and other environmental resources. The majority of small producers interviewed claimed to have changed from having no environmental awareness to becoming very environmentally sound in their production practices. Financial capital. This section outlines the nancial resources used to support livelihood (Scoones, 1998), and examines how fair trade producers nancial assets have changed through time. Extensive groundlevel research with a number of stakeholders shows

how much of it is allocated to community work.16 Producers can make use of the credit services provided by Soppexcca. However, only producers who have been involved in fair trade for longer periods (four or more years) can make use of the credit service to make personal investments to repair their homes or improve the conditions of their farms. The continuous running of fair trade workshops by Soppexcca is benecial particularly to the new entrants into the fair trade movement, as they act as catalysts for learning how to improve living standards by improving the state of their homes and dietary conditions, as well as helping them to identify ways to diversify their economic activities. There were small improvements in the state of the communitys basic services thanks to investments by co-operatives. Co-operatives had allocated funds in different areas, for example, to build a baseball eld and provide baseball equipment for children and to improve the physical conditions of schools. As Parrish et al. (2005) claim, however, using funds for disjointed, ad hoc projects may not have optimized the potential benet of such funds. The problem, as explained by Soppexccas social project co-ordinator, is that funds provided by the premium price are too small to consider larger community development work such as improving road infrastructure and water and electricity services. Government support to these marginalized areas is at best very limited or non-existent according to all small producers interviewed and Soppexccas agricultural assistants. There are still a number of physical services, for example communication and electricity, which are still not accessible for most rural communities in Jinotega. Communication between communities high in the mountains and Soppexcca, which is located from 40 to 140 km away, depending on the community in question, is either through the radio (on which Soppexcca announces meetings on a sporadic basis) or through paper leaets sent by bus and delivered to the communities. Nevertheless, it is important to note a leverage role played by Soppexcca, which takes on the task of helping rural communities acquire from international agencies or buyer companies the funding they need as a way to complement the fair trade premium and to achieve greater change within fair trade communities.

Assessing the Impact of Fair Trade Coffee that fair trade has the potential to contribute to sustainable livelihoods in the coffee industry because of its unique access to a market that both pays the highest prices at the global level and is not determined by a boom and bust international commodity price system. In a context where Nicaraguan-based exporters are competing for quality coffee, the high price offered by fair trade buyers and the fact that they offer smallholders a stable price system and access to credit services for co-operative members becomes crucial for sustainable livelihoods. However, unlike local exporters, fair trade organizations do not offer immediate payment for each sack of coffee delivered because buyers pay upon delivery of the supply of coffee, which may take up to three to four months, and Soppexcca does not have the nancial capability, like big coffee suppliers, to offer immediate payment. This creates the risk that some producers will not honour contracts, particularly when the international price of coffee is similar to the fair trade price agreed upon when the contract was signed. For example, in 2005 when international coffee prices rose to $1.30 per lb., many small producers began to sell their coffee to the local market or to export companies, which offered them instant cash for their coffee, rather than to their own co-operative. In 2005, 20% of the 650 small farmers afliated with Soppexcca breached their contract, even though they were penalized at a rate of $0.05 per lb. This practice jeopardizes the co-operatives relationships with buyers in the international level. It is important to note that fair trade farmers do not receive the total market price (in 2005, $1.21 per lb.) plus a $0.05 per lb. premium at the farm gate as suggested by the fair trade standard. Deducted from the price paid by buyers in the North for their fair trade coffee are many costs: export, transportation, processing, taxes (1% municipal), and more recently, certication and storage, as well as costs specic to Soppexcca (for example, debt repayment or eco-


tourist investment). Table III shows how much fair trade producers were paid compared to producers selling to the conventional market.17 Results show that although almost half (in 2004) of the fair trade price was retained at the co-operative level, fair trade can still have a signicant impact on the nancial capital of small producers. Table IV shows that on average small producers are now receiving 4.5 times more for their coffee than they were before they joined the fair trade system. Reasons for this have to do with the prolonged coffee crisis that signicantly decreased prices paid to conventional coffee farmers. Money is being spent mainly on food and education and also on their farms, but there were no signicant visible results in improvement in the physical condition of the home. According to an agronomist working with small producers in Soppexcca,
the change in living conditions will not be immediately obvious to you for a number of reasons. For example, apart from it being difcult for producers to manage the liquidated money from their total production for a whole year, producers do not have a savings culture, where you see producers keeping their money for future investment.

The majority of the small producers interviewed claimed to have accessed credit for investment for the rst time by getting it through their co-operative. The longer they have been part of the fair trade system, the more money they are likely to borrow for improvement. Impact on organizations In Nicaragua, small coffee producers accessing the fair trade market are usually organized into primary-level production co-operatives composed of between 10 and 80 smallholders. These co-operatives then form secondary unions of co-operatives (80 to 600 members), or tertiary associations of

TABLE III Fair trade price compared to conventional price of coffee Year Conventional (gold coffee) $47 $90 Fair trade (gold coffee) $65 $109 Difference Fair trade organic (gold coffee) $85.50 $134.00 Difference

2004 2005

$18 $19

$37.50 $34.00


Karla Utting
TABLE IV Average annual income made from coffee, other products and all products by a small producer

Product sold Coffee production Other productsa (not coffee) All products

Income (2001) $5180.00 69.80 587.80

Income (2005) $2,480.00 109.20 2589.20

Difference $4.79 1.56 4.40

unions of co-operatives (600-plus members). The secondary and tertiary associations help primarylevel co-operatives to sell their coffee directly to buyers in developed countries, bypassing the need for intermediaries in the value chain (see Figure 5). CAFENICA, an umbrella organization for all fair trade unions and associations of co-operatives, represents 6,300 smallholders producing coffee for alternative trade markets. The ten organizations comprising CAFENICA are spread throughout the different coffee-producing departments of Nicaragua. The analysis here examines the impacts of fair trade on Soppexcca, which provides us with a best practice example of how the fair trade standard is managed at the local-level. Soppexccas governance structure consists of a general assembly and a board of directors made up of producer members. Normally, the organizations plans are debated in the general assembly, and nal decisions are made by the board of directors. Generally, in meetings with assembly members, community and organizational problems are put forward in the presence of the oversight ofcers, which are positions within the board of directors. When consensus is achieved on priority areas, the oversight ofcers take the proposals for community projects and organizational activities to the members of the

board of directors, including Soppexccas general manager. The board members then look into the extent of the problem and what sort of action is required. Funding is then found to nance projects and solutions as required, from both external sources and from the co-operatives afliated to Soppexcca. Arguably, the alternative trade organization has more legitimacy when producers are placed at the centre of decision-making, when all operations are transparent, and when producers are given more responsibility to implement the fair trade standard that best addresses their needs, ensuring that the main beneciary is the producer. However, a weakness of this organizational structure mentioned by the president of Soppexcca is the high levels of illiteracy of the majority of the members, the low education levels of the representatives on the board and the lack of knowledge about how to manage legal, commercial, organizational and fair trade requirements. Also, the problem of the inefciency of many primary-level co-operatives is linked to the low levels of nancial resources making producers unable to deal with radical changes. The poor understanding of the nature of fair trade, the lack of knowledge about the international coffee market and the low capacity to interpret its trends are also due to a lack of education. This reduces the positive

Figure 5. Fair trade value chain.

Assessing the Impact of Fair Trade Coffee impact that fair trade aims to have on the families and communities of small producers. Many of the benets acquired from fair trade certication in Jinotega can be linked to Soppexccas management structure, its leadership skills, and its style of working as a secondary union of co-operatives. In Soppexcca, self sustainability is being achieved by balancing nancial and human capacity (personnel, project execution, skills, administrative work, etc.). The slow but consistent growth planned by the organization is based on its reluctance to accept new members into the fair trade system unless these two aspects are well balanced and they have the capacity to support new participants. Producer members trust and believe in the organizations services and projects because of the respect it has given them, placing them at the forefront of decision-making, and also because they have a general manager as a leader who personally attends to their interests and deals with the problems of each individual member. Soppexccas organizational structure, however, also has its weaknesses. These include, for example: inadequate administration and accountancy due to a lack of computing competency; a low capacity to generate new projects (that require external funding); and an unbalanced distribution of responsibilities, especially in the area of commercialization. There is still a need to dene the responsibilities of each working group and increase the number of agronomists to support the increasing number of members. According to the organizations members, fair trade has helped considerably to improve relations between Soppexcca and other local development organizations and governmental agencies, to increase its credibility at the departmental and national levels, and to maintain good relations with international partners and supporters. The increased credibility has allowed Soppexcca to attract further funding from key organizations such as Christian Aid, Lutheran World Relief, the European Union, Global Exchange, ACRA/SOLIDARIDAD, and some alternative commercial buyers like Heidelberger Partnerschaftskaffee in Germany. Fair trade has created a culture of high-quality coffee which has resulted in good commercial relations with foreign buyers in the United States and Europe and, at the local level, increased the organizations prestige. Fair trade has helped to


establish relationships with buyers not only because of quality, but also because Soppexcca has made fair trade an attractive alternative initiative to support. In a context where there is a risk of the fair trade market closing down or stagnating in the medium term,18 Soppexcca has created a good platform for export and commercialization and has the opportunity to offer large quantities of high quality coffee to new markets. However, the highly competitive nature of the quality coffee business makes it more and more difcult for Soppexcca to establish itself in speciality markets. Policy and institutional impact While Fair trade coffee is just one of many development and livelihood options within the Department of Jinotega, it is particularly important. Coffee is not only the motor of Jinotegas local economy, but it is also important at the national level, accounting for almost 60% of national agricultural production.19 Thus support to this production sector is crucial, considering the prolonged and devastating effects of the coffee crisis and the lack of public investment in these marginalized areas described earlier. The absence of government support to coffee areas is considered a problem not only by smallholders and large producers, but also by many local organizations. The newly appointed mayor believes the problem to be the result of a lack of organization and bad management of funds by the previous local administration. Moreover, he suggests that the problems of the coffee sector have always been considered at the national level, with the responsibility for resolving these issues falling on the central government. It is believed that the previous conservative council was opposed to the work of many local organizations, including Soppexcca, because of the political stance of these organizations (which involved support for the Sandinista movement).20 Rural development projects in coffee-producing areas of Jinotega have been managed and supported primarily by non-governmental organizations, which include local organizations (such as FUNJIDEZ, La Culcumeca, Aldea Global and Soppexcca), national organizations (such as ATC), and international organizations (such as Christian Aid and Lutheran World Relief). Although relationships between local institutions are ones of mutual respect, co-ordination of development projects is weak.


Karla Utting comply with the new requirements and took away their exibility. Concern was also expressed by small producers and their organizational representatives around opening spaces for big producers to work with co-operatives and allowing them to benet from tax avoidance. It is feared that dilution of the fair trade brand will occur if big producers are allowed to become part of fair trade, as they have the ability to manipulate higher level institutions, particularly regarding the environmental laws under the jurisdiction of the Environment Agency in Nicaragua. Many in Soppexcca describe how large and medium-sized coffee producers are usually the most environmentally destructive because they do not have any incentive to protect the environment and are renowned for being able to avoid paying for breaches of environmental law. A small producer is more conscious of protecting natural resources partly because they are less able to avoid nes for negligence from MARENA, Nicaraguas environment agency. Policy changes which impact on the nature of co-operative organizations can have major implications for fair trade. If, for example, the new requirements of the co-operative law are not adapted to t the conditions of these organizations, co-operative groups may be adversely affected and fair trades impact will be diminished. Good institutional relations are important in uniting local organizations and in having greater inuence on the law-making process at the national level.

Sometimes three or four similar projects are operating in the same rural communities without any co-ordination. When two organizations work in similar areas or towards the same goal (e.g. poverty alleviation or sustainable development) but do not co-ordinate with each other, then valuable resources can be wasted. The project co-ordinator of a local NGO, la Culcumeca, argues that there is more dialogue emerging between certain organizations and the different components are being kept exible so that activities can be more complementary. Thus, the social project mandate of fair trade must itself be exible and must consider the work of other organizations if it is to become a useful and respected initiative. Good relations and dialogue between the different organizations at the local level is crucial if development projects for poverty alleviation and sustainable development are to be signicant for the region as a whole. In many cases, Soppexcca has gone beyond its organizational scope and assumed responsibility for development issues ignored by the local administration in Jinotega (e.g. by building schools, paying teachers, organizing adults, young people and children, mobilizing communities by proposing various social activities and inuencing legislation). Arguably, fair trade has helped to create a competitive environment within the world of development at the local level. Different local organizations are now designing their development projects and component parts in a way that demands greater efciency. We also see more focus on the three core elements of sustainable development environmental, social and economic rather than on specic issues such as environmental management or economic diversication. Policy changes can cause signicant impacts on the implementation of fair trade by co-operatives in Nicaragua. For example, when the co-operative law that provides the legal structure for all cooperatives in Nicaragua was modied, beginning 2005, to improve the conditions and efciency of co-operatives at the grass-roots level, it was done without consultation of grass-roots organizations and co-operatives. Many in Jinotega pointed out the difculties placed upon poorer co-operatives in adjusting to the new law as it gave them little time to

Stage three: conicting interest and tradeoffs Insofar as fair trade was founded to help marginalized small producers, it is almost natural to assume these small producers to be the primary stakeholders. They are, however, not the only actors involved in fair trade production. Small producers can (and do) hire landless peasants to work for them. This group is not only directly involved in fair trade, but is even more marginalized that the small producers involved with fair trade. There are also other stakeholders involved in fair trade at the local level. These would include FLO representatives and other organizations that provide support for fair trade production.

Assessing the Impact of Fair Trade Coffee In addition to those actors already involved in fair trade, there are others who could be involved. There are, for example, a large number of small producers who have not yet been incorporated into fair trade production. The formal criterion for them to become involved is to be organized into co-operatives. More practical restrictions on their involvement include levels of material and organizational resources that they possess and the limited extent of the fair trade market. Another group that could possibly become involved in fair trade is comprised of medium and large coffee producers. Under FLO rules they currently are not eligible, however, because in the coffee sector only co-operatives comprised of small producers can be certied. In other sectors, however, such as bananas, FLO does certify plantation production (Bloweld and Gallat, 1998; Murray and Raynolds, 2000). Many medium and large producers would like to see this possibility in the coffee sector. These different groups have different interests in how the fair trade market in Nicaragua develops. This means that there will inevitably be trade-offs between different strategies for developing the fair trade market. At issue in these discussions are the strength of the claims of different stakeholder groups and the nature of the risks involved in pursuing different strategies. With regard to the issue of the claims of different groups, there would seem to be a prima facie reason to prioritize the interests of small producers. Insofar as fair trade was established to support them (and consumers and others support fair trade on this basis) and insofar as they are a marginalized group, there would seem to be solid grounds for giving preference to their claims. There are, however, two groups of small producers, those that are already involved in fair trade and those that are not. Those that are already involved can make claims on the basis of the efforts that they have already undertaken to organize themselves. Small producers not currently active in fair trade would also seem to have some claims, however. As part of the primary target group, they would seem to have some claims on FLO to facilitate their participation in fair trade. Moreover, to the extent that fair trade emphasizes the importance of bonds of solidarity, it could be argued that they can also make some claims on other small producers who have already had some success in fair trade to reach out and support their participation.


Landless workers, especially those involved in fair trade, would also appear to have a strong case for support. Not only are they as, if not more, marginalized than small producers, but they also play a role, albeit a smaller role, in the success of fair trade. An important question is whether landless workers not involved in fair trade have any specic claims on fair trade. Stated another way, should fair trade seek to include greater numbers of landless workers by certifying plantations, or is this an endeavor that is best left to a separate organization? The group with the weakest claims, it would seem, would be medium and large producers. They were not a target group of fair trade. They have been certied in some product markets, but not out of a specic interest in their plight. They have been certied primarily as a way to help landless workers (and to help grow fair trade). Any claims that they might have to participate in fair trade would seem to be largely derivative. With respect to risks (and trade-offs), two broad concerns arise when it comes to expanding the participation in fair trade by other local actors. The rst concern is that any expansion of participation, especially a rapid one, might undermine the success that fair trade has already had. The basic risk is that incorporating a larger number of actors into a market that is not growing at a proportionate rate will reduce the level of benets that everyone receives. The level of benets that small producers receive from fair trade must meet some minimum threshold if they are going to be able to develop their productive capacity (both in terms of sustainable livelihoods and organizational levels). The failure to meet threshold levels could undermine the success of fair trade. An additional risk relates specically to the inclusion of medium and large producers in fair trade. There is the possibility that these actors, if admitted, may be able to outcompete small producers (and their organizations) and squeeze them out of the market. This leads to a second major risk. The inclusion of large and medium producers has the potential to undermine the original mandate of fair trade, which was to support small producers. Incorporating large and medium sized producers might adversely affect the fair trade brand. One concern widely raised in this regard was the behaviour of these actors (especially their attempts to inuence policy and avoid regulations).21 More


Karla Utting ducers to join other certication standards, which do admit plantation production, such as those of Utz Certied and the Rain Forest Alliance. There are, however, also limitations to this solution. From the producers perspective, these programmes are less attractive insofar as they do not offer price premiums. They may have some potential to address some of the concerns of plantation workers, however, especially around issues of labour standards. Another concern that exists is that these labels compete with fair trade and may also function to reduce the demand for fair trade coffee. One could, of course, challenge the premise that small producers should have a priority over other stakeholders. This is clearly not the view of the small producers themselves and the local FLO representatives. One could pursue such a challenge on moral grounds or on more classical utilitarian grounds. On moral grounds, one would need to show that it is the responsibility of FLO and existing small producers to change the nature of their organization to give primacy to landless peasants. In terms of pursing a utilitarian analysis, one would have to be able to show that incorporating medium and large plantations would generate benets to landless peasants that outweigh those that small producers receive under the current system. Such an argument would ultimately need to hang upon empirical studies. My empirical work, meanwhile, grounded in the impact assessment framework developed above, has shown that the fair trade system, as it currently works in Jinotega, has provided important benets for small producers in the form of more sustainable livelihoods (due to increases in the ve capital assets), increased organizational capacity at the level of rst and second order co-operatives, and increased capacity to network with other organizations and to engage in public policy debates.22 With respect to livelihoods, the assessment framework was found to be useful because the distinction of different types of assets particularly the nancial capital impact (including improved prices and revenues), human capital (education and training) and social capital (including empowerment and rights) was key to showing more specically how fair trade contributes to the promotion of pro-poor development.23 The distinction and analysis of these different types of assets highlights the fact that development is not just as a matter of income

generally, there is some concern that fair trade will lose support from consumers if it incorporates plantation production. On the other hand, incorporating these producers does hold some potential for helping landless peasants. This would depend in large part on the extent of the market.

Stage four: discussion of local-level changes If one starts from the premise that small producers are the primary stakeholders of fair trade, then the analysis of how to promote the growth of fair trade in Nicaragua would seem to be relatively straightforward. First, in order to maintain the benets of fair trade to small producers, it would be important to manage the entry of new actors into the market. The fair trade coffee market can only absorb so much production, so new entrants must be admitted with an eye to the growth of the market. The new entrants would, in the rst instance, be new groups of small producers. Existing producers, along with FLO, should provide support to emerging small producer groups to facilitate their entry into the market, to the degree this is feasible. On the demand side, they should also participate in whatever ways they can to promote the demand for fair trade coffee. Second, obligations are owed to landless workers engaged in fair trade. What these are should be spelled out more clearly by FLO and monitored more closely. For their part, small producer organizations should also take a more active role in ensuring more fair treatment of the landless workers that they employ. Third, with respect to large and medium sided producers, there are two strategies that might be followed. On the one hand, a longer-term strategy could be developed to incorporate these actors as the fair trade coffee market grows. Golding and Peattie (2005) highlight the potential of social marketing techniques to increase fair trade sales and maintain fair trades distinctive nature. Signicant expansion of the fair trade market would be needed, however, if it is to be an inclusive system. Even so, there would still be concerns surrounding such a strategy, as noted above. These include the possibility that they might squeeze small producers out of the market and that they would change the mandate of fair trade and diminish the worth of the brand. The second strategy would be to encourage these pro-

Assessing the Impact of Fair Trade Coffee generation, but also of the empowerment of local actors. The issue of empowerment of small producers is directly related to the role of producer organizations. The analysis of social capital revealed greater participation by producers in their co-operatives, organizations and communities from the outset of the initiative. On the other hand, the analysis also revealed that strong leadership skills of the general manager played a crucial role in the success of the organization. Moreover, a strong correlation was found between the move to the development of more sustainable livelihoods and the transparency and management structure of the organization implementing the fair trade initiative. Overall, the assessment framework was helpful in demonstrating a clear symbiotic relationship between development of the capital assets and organizational capacity building. The assessment framework also provided data that demonstrated the importance of institutional relations at the local level. There is a signicant number and range of development organizations in rural areas which do not always co-ordinate their activities with each other. My analysis showed that good relations and support between different organizations and the local government is crucial in order to prevent resources from being wasted, to have a greater inuence on legislation, and to promote sustainable development for the region as a whole. Results show that Soppexccas engagement in fair trade enabled it to positively inuence other local development organizations and to exert some inuence on the local administration as well as on other institutions which had neglected coffee growing regions in Nicaragua. Due to the benets that fair trade has been able to provide, any changes to the current practice of fair trade must be undertaken cautiously. While there are other stakeholders whose interests must be addressed in order to more effectively promote development, most notably landless peasants, it is not clear that signicantly changing the practice of fair trade is the best way to do so.


their claims that they can and do make a signicant difference in the lives of small producers. In order to address this problem, in the rst half of this article I developed an impact assessment framework by drawing upon work in the area of sustainable livelihoods and development theory more generally. The use of these sources has allowed for the incorporation of a range of potential impacts that fair trade might generate. I have highlighted six main areas of impact: sustainable livelihoods (and ve different forms of capital); socio-economic impact on communities; organizational impacts; environmental impacts; policy and institutional impacts; and future issues. Incorporating this variety of impacts is important not only for demonstrating the results of fair trade and related initiatives. It also allows us to see the interaction between these different impacts and thereby to understand not only what these initiatives do, but how they are able to achieve what they do achieve. In the second part of the article, I employed this impact assessment framework to analyze the production of fair trade coffee in the Departments of Jinotega in northern Nicaragua. The results showed that fair trade production, while not without some difculties and set-backs, has indeed contributed to sustainable livelihoods, the development of organizational capacity and the generation of greater policy and institutional impacts. It was demonstrated that these effects tended to be mutually reinforcing. The results generated also allowed for the analysis of conicting interests among different stakeholder groups and provided the basis for developing policy proposals. The nature of the results of this study indicate that it should be possible to employ the impact assessment framework developed here in other contexts, both in other countries and across different responsible trade initiatives. It is extremely important to continue to document changes promoted by responsible trade initiatives and to understand how these changes occur. Only in this way can the credibility concerns about the impact of responsible trade initiatives on poverty reduction and development be effectively addressed. Notes
In this article, responsible trade will be used as a generic term covering a variety of distinct approaches that seek to make global trade whether alternative

Conclusion Fair trade and other responsible trade initiatives suffer a credibility gap due to the fact that there is not sufcient generation and dissemination of data to support


Karla Utting
products to various alternative markets, including ecofriendly, bird-friendly, as well as the conventional fair trade market. 8 In the early 1990s, the WB invested heavily in developing a coffee industry for Vietnam so that it could have an export cash-crop. Now Vietnam has become the second-highest producer of coffee in the world (Greeneld, 2002). 9 The commodity of green coffee is obtained after the raw fruit the cherry of the coffee plant has gone through a conversion process. The cherry has the fruit or pulp removed leaving the seed or bean which is then dried (International Coffee Organization 2007a, b). 10 The banks that collapsed during the coffee crisis included Interbank, Banco del Cafe, Banco del Campo, Banco Mercantil, and Banic. This information was provided by Carlos Javier Mejia, president of Esperanza Coffee Group. 11 Varagis et al. (2003) suggests that Nicaraguas average cost of production for a quintal (100 pounds) of conventional coffee is USD $67.00. 12 Manzana is the Nicaraguan measurement of land area equivalent to 0.7 hectares. 13 For literature on the importance of social capital in surviving crisis conditions, see Bebbington (2000), Mendez (2002), and Bacon (2005a, b). 14 Data was collected using a quantitative survey involving a time dimension that explored changes in the livelihood strategies of primary producers both before and after their involvement with fair trade. Unstructured qualitative questions were also used to understand how fair trade interfered with the asset choices available to smallholders. 15 Cupping refers to a process that identies in great detail the defects in the coffee beans, including unripeness, poor fermentation, etc. It also helps to produce a detailed description of the coffee to enable it to be marketed better to roasters by listing details such as acidity levels, body, avour, odour, etc. 16 According to Soppexccas management, fair trade co-operatives have the right to decide what portion of the premium will be kept for the cooperative and what portion will be allocated to each producer. 17 Data obtained from the credit administrator of Soppexcca, April 2005. 18 Taken from a SWOT (Strength, Weakness, Opportunities and Threats) analysis produced by Soppexcca. 19 Personal communication with Eugenio Lopez Lopez, mayor of Jinotega, May 2005. 20 Personal communication with Victor Gonzalez, ex vice-president of Soppexcca, April 2005. 21 Personal communication with Alquiles Castillo, Soppexcca oversight ofcer, 15 February 2005.

(e.g. fair trade) or mainstream (e.g. ethical trade) benecial (or at least not harmful) to disadvantaged producers and workers by managing the environmental, social, and nancial aspects of trade in goods and services (Bloweld, 2003). 2 For example, Carney (1998), Mayoux (2001a, b, 2003), Ronchi (2002a, b), Grimble (1998), Nelson et al. (2002a, b), Hopkins (2000), Burns and Bloweld (2000), Meinzen-Dick and Adato (2001), Bird (2002), DFID (2002), Barrientos (2005). 3 Impact Assessment has been dened by Roche as the systematic analysis of the lasting or signicant changes positive or negative, intended or not in peoples lives brought about by a given action or series of actions (1999, p. 21). 4 The term sustainable livelihoods (SL) was rst acknowledged as a development concept in the Food 2000 publication produced by an advisory panel of the World Commission on Environment and Development (WCED) in 1987 (WCED, 1987). However, much of the literature emerging in the 1990s adapts Chambers and Conways (1992) denition of Sustainable Livelihoods (see endnote 4). New discourses on poverty, livelihoods, sustainability, and diversity led to the formalization of the concept into different SL approaches. These approaches were used as a tool for rural development research and practice, planning interventions, reviewing and evaluating projects, and policy analysis. Some important approaches were developed by the Department for International Development (DFID), the United Nations Development Programme (UNDP), the United Nations Food and Agriculture Organization (FAO), and the World Bank (WB). 5 Chambers and Conways denition of SL includes the following: A livelihood comprises the capabilities, assets (including both material and social resources) and activities required for a means of living. A livelihood is sustainable when it can cope with and recover from stresses and shocks and maintain or enhance its capabilities and assets both now and in the future, while not undermining the natural resource base (Carney 1998, p. 4 summarizing Chambers and Conway, 1992). 6 However, the framework is criticized by some who argue that it restricts the scope of analysis by assuming that the poor always make rational choices in the construction of livelihoods set within the limits of ve capital choices (Odero, 2003, private conversation with M. Bloweld). The critical review of the SL framework by DFID in 1999 was the result of the misuse or abuse of the framework (see DFID, 1999). 7 I call them alternative trade organizations (ATOs) rather than fair trade organizations (FTOs) because they could be involved in commercializing

Assessing the Impact of Fair Trade Coffee



This is not to say that there where not tensions involved. Interviews held with the board of directors of Aldea Global, a local producers organization in Jinotega, suggested that some small producers are not happy with the role of the management of the co-operatives involved in fair trade. They believe that there needs to be more direct relations between the farm gate and the buyers in the North. Others, however, have suggested that the process of direct farm-gate-buyer links may ignore some essential market functions and the importance of a commercialized organization. 23 There was of course a time lag in the generation of results. The analysis showed an adaptation period of four to ve years before producers began to see discernible benets and once factors such as debts and legal and organizational management constraints were overcome.

I would like to thank the School of Earth and Environment at the University of Leeds, U.K., for providing me with the necessary funds to undertake this research project.

Bacon, C.: 2001, Cupping What You Grow: The Story of Nicaraguas Quality Improvement Project (Draft Project Evaluation, USAID/Thanksgiving Coffee Company, Santa Cruz). Bacon, C.: 2005a, Confronting the Coffee Crisis: Can Fair Trade, Organic and Speciality Coffees Reduce Small-Scale Farmer Vulnerability in Northern Nicaragua, World Development 33, 497511. Bacon, C.: 2005b, From Coffee Crisis and Vulnerability Toward Empowerment? Nicaraguan Smallholders use Cooperative, Fair Trade and Organic Coffee Networks to Sustain Rural Livelihoods (Department for Environmental Studies, University of California Santa Cruz, Santa Cruz). Bandana, R. and R. Allgood: 2001, Nicaraguan Coffee: The Sustainable Crop, Managua, Unpublished Paper. Barney, I., A. B. Ota, B. Pandey and R. Puranik: 2001, Engaging Stakeholders: Lessons from Three Eastern India Business Case Studies, Issue Paper 1 (Resource Centre for the Social Dimensions of Business Practice, London). Barrientos, S.: 2003, Labour Impact Assessment: Challenges and Opportunities of a Learning Approach, Paper Presented at the EDIAIS Conference at the University of Manchester, November 2003.

Barrientos, S.: 2005, Impact Assessment and Labour: Developing a Learning Approach, Journal of International Development 17(2), 259270. Bebbinton, A.: 2000, Re-Encountering Development: Livelihood Transitions and Place Transformations in the Andes, Annals of the Association of American Geographers 90(3), 495520. Bird, P.: 2002, Learning Together: An Exploration of Market Access and Livelihoods by Tradecraft and DFIDs Sustainable Livelihoods Support Ofce (Department for International Development, London). Bloweld, M.: 2003, Ethical Trade: The Negotiation of a Global Ethic, Thesis, DPhil (International Relations, University of Sussex, Sussex). Bloweld, M. and S. Gallat: 1998, Volta River Estates Fairtrade Bananas Case Study (Natural Resources Institute, London). Broad, R.: 2002, Global Backlash: Citizen Initiatives for a Global Economy (Rowman and Littleeld, Lanham, Md). Burns, M. and M. Bloweld: 2000, Approaches to Ethical Trade: Impact and Lessons Learned (Natural Resources Institute, Chatam). Carney, D. (ed.): 1998, Sustainable Rural Livelihoods: What Contribution can We Make?, Paper Presented at the DFID Natural Resources Advisers Conference, July 1998, London. Chambers, R. and G. Conway: 1992, Sustainable Rural Livelihoods: Practical Concepts for the 21st Century, IDS Discussion Paper 296 (IDS, Brighton). Comision Economica para America Latina y el Caribe (CEPAL): 2002, Centroamerica: el impacto de la caldea de los precios del cafe, LC/MEXL.517 (CEPAL, Mexico DF). Curtis, M.: 2001, Trade for Life: Making Trade Work for Poor People (Christian Aid, London). Department for International Development (DFID): 1999, Sustainable Livelihood Guidance Sheet (DFID, London). Department for International Development (DFID): 2002, The Challenges of Assessing the Poverty Impact of Ethical Trading: What can be Learnt from Fair Trade Initiatives and the Sustainable Livelihoods Approach? (DFID, London). Golding, K. and K. Peattie: 2005, In Search of a Golden Blend: Perspectives on the Marketing of Fair Trade Coffee, Sustainable Development 13, 154165. Greeneld, G.: 2002, Vietnam and the World Coffee Crisis: Local Coffee Riots in a Global Context, available online at: http://www.vicofa.org.vn. Accessed on 18 December 2005. Grimble, R.: 1998, Stakeholder Methodologies in Natural Resource Management: Socio-Economic Methodologies


Karla Utting
Nelson, V., A. Martin and J. Ewert: 2002, Methodological Challenges for Assessing the Social Impact of Codes of Practice (Warwick Annual Conference on Corporate Social Citizenship, Warwick). Odero, K.: 2003, Extending the Sustainable Livelihood Framework (Department of Rural and Urban Planning, University of Zimbabwe, Harare). Parrish, B., V. Luzadis and W. Bentley: 2005, What Tanzanias Coffee Farmers can Teach the World: A Performance-Based Look at the Fair Trade-Free Trade Debate, Sustainable Development Journal 13, 177189. Pearson, R.: 2005, The Social is Political: Towards the Re-Politicising of Feminist Analysis of the Global Economy (Centre for Development Studies, POLIS, University of Leeds, Leeds). Ponte, S.: 2002, Standards, Trade and Equity: Lessons from the Specialty Coffee Industry (Centre for Development Research, Copenhagen). Raynolds, L.T.: 2002, Consumer/Producer Links in Fair Trade Coffee Networks, Sociologia Ruralis 42, 389409. Roche, C.: 1999, Impact Assessment for Development Agencies, Learning to Value Change (Oxfam and Novib, Oxford). Ronchi, L.: 2002a, The Impact of Fair Trade on Producers and Their Organizations: A Case Study with Coocafe in Costa Rica, PRUS Working Paper 11 (Poverty Research Unit at Sussex, Sussex). Ronchi, L.: 2002b, Monitoring Impact of Fair Trade Initiatives: A Case Study of Kuapa Kokoo and the Day Chocolate Company (Twin, London), available online at: http://www.twin.org.uk/resources.html. Accessed on 20 June 2007. Scoones, I.: 1998, Sustainable Rural Livelihoods: A Framework for Analysis, Working Paper 72 (Institute of Development Studies, University of Sussex, Brighton), available online at: http://www.ntd.co.uk/ idsbookshop/details.asp?id=419. Accessed 20 June 2007. Tallontire, A.: 2001, Challenges Facing Fair Trade: Which Way Now? (Natural Resources and Ethical Trade Programme, Natural Resources Institute, London). Urban Capacity Building Network: 2005, Dening Capacity Building, available online at: http://www. gdrc.org/uem/capacity-dene.html. Accessed on 3 September 2005. Utting-Chamorro, K.: 2005, Does Fair Trade Make a Difference: The Case of Small Coffee Producers in Nicaragua, Development in Practice 15, 584599. Varagis, P., P. Siegel, D. Giovannucci and B. Lewin: 2003, Dealing with the Coffee Crisis in Central America: Impacts and Strategies, World Bank Policy Research Working Paper 2993 (World Bank, Washington, DC).

Best Practice Guidelines (Natural Resource Institute, Chatham). Hopkins, R.: 2000, Impact Assessment Study of Oxfam Fair Trade, Final Report (Oxfam, Oxford). International Coffee Organization (ICO): 2006, Coffee Prices, available online at: www.ico.org/coffee_ prices.asp. Accessed on 25 July 2006. International Coffee Organization (ICO): 2007a, Field Processing, available online at: www.ico.org/eld_ processing.asp. Accessed on 20 June 2007. International Coffee Organization (ICO): 2007b, Industry Processing: Roasting, available online at: http://www.ico.org/roasting.asp. Accessed on 20 June 2007. Mayoux, L.: 2001a, Impact Assessment of Fair Trade and Ethical Enterprise Development (DFID Enterprise Development Impact Assessment Information Service [EDIAIS], Manchester), available online at: http://www. enterprise-impact.org.uk/word-les/IAofFairTrade-1Contents SummaryandIntroduction.doc. Accessed on 7 May 2006. Mayoux, L.: 2001b, Participatory Methods, available online at: www.enterprise-impact.org.uk. Accessed on 1 July 2005. Mayoux, L.: 2003, Trickle-Down, Trickle-Up or Puddle? Participatory Value Chain, (DFID Enterprise Development Impact Assessment Information Service [EDIAIS]), available online at: http:// www.enterprise-impact.org.uk/informationresources/ toolbox/valuechainsanalysis.shtml. Accessed on 18 December 2005. Meinzen-Dick, R. and M. Adato: 2001, Applying the Sustainable Livelihoods Framework to Impact Assessment in Integrated Natural resource Management (International Food Policy Research Institute [IFPRI], Washington, DC). Mendez, E.: 2002, Fair Trade Networks in Two Coffee Cooperatives of Western El Salvador: An Analysis of Insertion Through a Second Level Organization, available online at: http://www.colostate.edu/ Depts/Sociology/FairTradeResearchGroup/doc/elsal. pdf. Accessed on 18 December 2005. Mendoza-Vidaurre, R.: 2002, La paradoja del cafe: el gran negocio mundial y la peor crisis campesina (La Ed, Managua and Nitlapan). Moore, G.: 2003, The Fair Trade Movement: Parameters, Issues and Future Research, Working Paper, available online at: http://www.fairtraderesource.org. Accessed 23 July 2004. Murray, D. and L. Raynolds: 2000, Alternative Trade in Bananas: Obstacles and Opportunities for Progressive Social Change in the Global Economy, Agriculture and Human Values 17, 6574.

Assessing the Impact of Fair Trade Coffee

World Commission on Environment and Development (WCED): 1987, Food 2000: Global Policies for Sustainable Agriculture. Report of the Advisory Panel on Food Security, Agriculture, Forestry and Environment to the World Commission on Environment and Development (London, Zed Books).


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