The Real Cost of A Cheap Cuppa

The global price of tea has dropped by nearly a half in real terms since the 1970s, according to the latest research from the Fairtrade Foundation released to mark World Fair Trade Day on 17 May.

This is causing extreme hardship throughout the industry with wages being hit and many smaller businesses going to the wall. In India, for example, up to 65,000 plantation workers have seen their livelihoods destroyed as their estates have been abandoned because low prices have made them unprofitable. A further 20,000 have not been paid for up to 20 months.

And things are set to get worse. UN Food and Agriculture Organization projections predict that prices will remain depressed with growth in tea production continuing at a higher rate than consumption. The stark reality is that world supply has exceeded demand since 1993. The surplus in 2001 stood at around 120,000 tonnes, or 5.7% of demand.

Fairtrade Foundation Director Harriet Lamb said: "Low prices may seem great for shoppers, but all too often someone is paying the price – usually the farmers at the end of the supply chain. Producers are frequently faced with the stark choice between facing ruin or selling their product at any price."

Growers have tried to compensate for price losses by reducing costs and expanding production. World tea output tripled over the past forty years. But this has created the vicious circle of overproduction, putting further downward pressure on prices.

Moreover, increasing output comes at a cost, such as the intensive use of fertilisers or pesticides. These costs have generally not seen such drastic falls in real terms as tea prices. The World Bank calculates that average fertiliser prices remained roughly stable in real terms between 1970 and 2001, compared to the fall in real average tea prices of 44% over the same period. Thus, producer margins have been eroded and it is not uncommon for tea to be auctioned at prices below production costs. Central Bank of Sri Lanka statistics show that auction prices were well below average production costs for an astonishing five years running in the 1990s.

All too often this puts immense pressure to cut back on overheads such as wages, although they only represent a small fraction of the price of a cup of tea. Around 15% of the retail price goes to the plantation and processing factory and 0.3% to the auction broker, while an estimated 80% of the price is added in high-cost operations further along the supply chain and accrues to the exporter, trader and/or manufacturer.

Largely because of the surplus, competition has become increasingly fierce. While the big producers can cut costs by integrating the various stages of production, independent estates and smallholders are rarely able to make these economies of scale and will typically have to sell their tea for whatever price they can get – frequently for less than it cost to produce.

"This is a problem across the commodity board," said Ms Lamb. "In bananas, coffee and cocoa we see thousands in poverty."

Between 1994 and 2002 the price of a pound of robusta beans (used chiefly in instant coffee) fell from around 180 cents to just 17 cents. The concern is that the tea industry could face a similar situation in the long-term.

There are no simple solutions, although the UN FAO Intergovernmental Group on Tea has recommended an action plan for long-term structural adjustments that could eventually provide some relief.

But consumers are increasingly doing it for themselves by buying Fairtrade. They are making a direct difference to the livelihoods of Fairtrade producers who can invest the benefits of a fair deal back in to their communities.

Fairtrade is a truly positive alternative and it is catching on fast. Over the past three years consumption of Fairtrade foods in the UK has more than doubled. The British public now drinks 1.7 million cups of Fairtrade tea, coffee and cocoa each day and eats 1.5 million Fairtrade bananas a week.

The Kayonza tea-processing factory in Uganda is collectively owned by some 3,100 smallholders. Together they cultivate 1,300 ha of tea but most work very small plots of land. They took over the factory after it was privatised by the government and paid for it through price deductions from the green leaf they deliver there for processing. Kayonza is so remote that pregnant women had to walk 5-7 days to deliver their babies at the nearest maternity centre.

In 1998, the farmers joined the Fairtrade scheme and by the middle of 2001 they had received nearly $50,000 in premium funds. Even this relatively modest sum has made a real impact on farmers’ lives. One of the first tasks they set themselves was to construct a maternity health centre close to Kayonza. The majority of growers’ homes are relatively near to the factory, which has electricity and water, and hence was an ideal site for the new health centre. The centre services an area of 600 square km and the premium funds alone are not enough to run it – other funders have assisted – but they have made a significant contribution. The premium funds have also been invested in communications and e-mail facilities, as local people previously had to walk 100 km to make a phone call. Additionally, a 4km road has been constructed to save some farmers a tough five-hour walk to take their green leaf to the collection point. These farmers can now spend more time on their land. The Fairtrade premium has even allowed 10 new primary schools to be set up in the area.

A photo shoot featuring the Mad Hatter and Alice symbolising Tea Prices in Wonderland will be held at Clerkenwell Green at 11.30 am on Friday the 16th of May.

For more information, contact The Fairtrade Foundation Press Office on 020 7405 5942 or mobile 07770 957 451 – or see www.fairtrade.org.uk .

Fairtrade is a trading partnership that seeks greater equity in international trade by offering better trading conditions to, and securing the rights of, marginalised farmers and workers in the developing world. Inspection and audit ensures the producers meet the Fairtrade standards of a democratic and participative structure where Fairtrade premiums are used to improve social conditions or the economic infrastructure.

More than 130 retail products now carry the FAIRTRADE Mark, including coffee, tea, cocoa, chocolate, snacks and biscuits, sugar, honey, fruit juice and fresh fruit. Fairtrade products are also offered by more than 25 catering suppliers nation wide.

The Fairtrade Foundation certifies and promotes Fairtrade. It was set up in the early 1990s by agencies including Cafod, Christian Aid, Oxfam, Traidcraft Exchange and the World Development Movement to respond to the human consequences of collapsing world commodity prices. The first FAIRTRADE Mark product, Green and Black’s Maya Gold Chocolate, appeared on supermarket shelves in 1994; Cafédirect Coffee and Clipper Tea followed soon after.

Fairtrade products have won a number of awards for quality. These include: a Q award at the Quality Food & Drink Awards 2002 for Sainsbury’s own-label Fairtrade Tea; Best Organic Coffee for Percol Guatemala Fairtrade Ground Coffee at the Soil Association Organic Food Awards 2002; and in the first Bolivian coffee cupping competition, three of the ten finalists were Fairtrade registered producer groups.

The FAIRTRADE Mark is available on the following retail products:

• AgroFair Fairtrade Bananas, Mangoes and Pineapples
• Brian Wogan Fairtrade Ground Coffee
• Cafédirect 5065, Organic Decaffeinated Freeze Dried and Fresh Ground Coffees
• Cocodirect Drinking Chocolate
• Co-op Own Brand Fair Trade Coffee, Instant Coffee Granules, Chocolate Bars, Bananas, Mangoes and Chocolate Cake
• Clipper Fairtrade Teas
• Cotswold Fairtrade Honeys
• The Day Chocolate Company’s Divine Milk Chocolate, Darkly Divine Plain Chocolate, Divine Milk Chocolate with Hazelnuts, Divine White Chocolate and Dubble Milk Chocolate Crispy Crunch Bar
• Equal Exchange Organic Coffees, Teas, Cocoa, Chocolate Brazil Nuts, Honey and Sugar
• Essential Fairtrade Coffees
• Fairtrade Bananas (Co-op, Sainsbury’s, Safeway, Asda, Tesco, Somerfield, Budgens, Morrisons, Waitrose)
• Fruit Passion Orange, Breakfast and Tropical Juice
• Green & Black's Maya Gold and Cocoa
• Hampstead Tea & Coffee Company Teas
• Johnsons Costa Rica Blend Coffee
• Morrisons Own Brand Fairtrade Tea
• Oxfam Organic Cocoa and Fair Trade Chocolates
• Percol Fairtrade Coffees
• Pret A Manger Fairtrade Filter Coffee
• Rombouts Fairtrade Coffees
• Sainsbury's Own Brand Fairtrade Tea, Coffee, Bananas, Chocolate and Drinking Chocolate
• Starbucks Own Brand Fairtrade Coffee and Fairtrade Coffee Beans
• Suma Fairtrade Teas and Coffees
• Teadirect Tea, Organic Earl Grey Tea, Organic Green Tea with Lemon Grass or Cinnamon
• Themis Fairtrade Teas
• Traidcraft Geobars, Teas, Coffees, Organic Chocolate bars, Chocolate Beans, Chocolate Brazil Nuts, Chocolate Ginger, Chocolate Honeycomb, Chocolate Peanuts, Chocolate Raisins, Chocolate Mini Eggs, Sugar and Cookies
• Tropical Wholefoods Fairtrade Snack Bars
• Union Coffee Roasters Fairtrade Coffee
• Village Bakery Organic Christmas Pudding, Christmas Cake, Brandy Butter Shortbread, Fireside Cookies

Fairtrade products are also offered by more than 30 catering suppliers nation wide. For more information visit www.fairtrade.org.uk/suppliers_caterers.htm