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Co-operative or coyote? Choice of sales channel for small scale coffee producers in Central America

Researcher Anna Birgitte Milford has examined why some coffee farmers are still unwilling to join co-operatives which can provide them the Fairtrade label. 

Coffee farmer in Chiapas, Mexico

Many consumers are encouraged to buy Fairtrade products because this label is connected to an idea of social welfare and justice for developing countries’ producers. Nevertheless, a significant number of coffee farmers in Central America choose to market their products through private intermediaries known as “coyotes”, instead of marketing through co-operatives which will provide them the advantages of the Fairtrade label.

 

Anna Birgitte Milford’s[1] research examines what the causes are for producers preferring to market through private intermediaries, and whether coffee producers that receive the fair-trade label for their products really perceived this association as an advantage. The study is based on a 10 months field research in Chiapas, Mexico; and focuses specially on farmers of a very small scale.

 

The main advantage of being part of and selling coffee to a co-operative is that the price received for the product is usually higher than the price received when selling to a private intermediary. However, it is important to be aware of the fixed costs implied. Farmers belonging to a co-operative must pay association fees and spend time on meetings. This means that farmers whose major income comes from coffee production will receive more benefits from selling to a co-operative than farmers that have coffee production as a secondary economic activity.

 

Anna Birgitte Milford

Different results in previous studies of farmer’s decision making

Previous studies have reached to different findings with respect to the relationship between participation in co-operatives and main income activity. A study made in Paraguay found that farmers who have farming as the main income supplier were more likely to join co-operatives than those who produce below a certain level. On the contrary, a study from India found that participation in co-operatives depended on household’s agricultural land size and quality, land and animal ownership, and use of family labor. The smallest and the largest producers do not participate in co-operatives because this system mostly benefits the middle class.

 

In addition, there are some non-economic factors influencing the decision of joining a co-operative. Trust in other members of the co-operative, time spent on meetings, and the ideological associations connected to be a part of one co-operative are usually pondered by the farmers before taking a decision.

 

It is commonly believed that farmers do not enter certified co-operatives because these organizations require more work for the farmers. Several studies suggest that natural coffee production -where neither chemical inputs nor specific organic methods have been used- leads to the lowest yields in comparison to organic coffee production and chemical coffee production, the latter generating the highest yields. However, there are contradictory findings regarding the preferences of farmers to follow natural, organic or chemical methods of coffee production. One study made in Chiapas in 2006 found that smaller farmers are more likely to be organic and larger farmers are more likely to use chemical technology, since organic production is cash-cheap and labor intensive, something that cash-poor families have access to. Another study made in 2002 found that the average participant in organic co-operatives does not come from the cash-cheapest families, but from the middle stratum.

 

Milford’s case study from Chiapas on coffee co-operatives and membership

Milford’s results show that whereas Fairtrade labeling usually provides higher prices for the coffee in the market, it is not  always guaranteed that farmers will get a better price for their products. The prices for Fairtrade products are regulated by the Fairtrade Labelling Organization (FLO), and they demand a higher price in the market. Nevertheless, if no purchasers are willing to pay this price, then the co-operative is forced to sell the coffee at conventional prices.

 

The alternative for coffee farmers is to sell to private intermediaries or “coyotes”, who then will sell the coffee to large multinational exporters. These intermediaries are often territorial, not competing with each other in order to keep the prices low. They are also accused of cheat farmers on the weight and quality of their coffee.

 

Farmers are inclined to sell to co-operatives because of the higher prices, but also because of the risk aversion and expectancies of stable future income. In addition, members of co-operatives participate in different agricultural projects (not always related to coffee production) funded by the government, which is impossible to obtain when farmers are not associated. Other reasons influencing the farmers’ decision are ideological movements –based on solidarity, indigenous identity and political alignment-, environmental protection, work and democracy. 

 

Contrary to what it is commonly believed, entrance and yearly fees are not a deterring factor for joining the co-operatives. Milford’s interviewees rarely mentioned this as a cause for not joining the organizations. However, stakeholders mentioned that organic production requirements were costly (in cash and labor), and therefore it was not attractive to farmers.

 

There are some advantages of trading with private intermediaries. They pay as the coffee is handed over, and they give loans in advance to cover some of the production’s costs. This is very different from the customs of co-operatives, which pay after they have collected the money from the importers, and whose loans are often not large enough to compete with the private ones. In addition, farmers who do not trust the co-operatives’ leaders prefer to deal with private intermediaries because they receive the payments immediately, not exposing themselves to fraud, and investment losses.

 

 

Organic, Natural or Chemical Production?

According to Milford, farmers use twice as much work hours to produce organic coffee than to produce natural coffee. In the case of chemical coffee, they use 25% more of the work hours dedicated to natural coffee’s production.  Unlike previous studies, Milford has not found evidence that organic producers are more productive than natural producers, although the former spend more work-hours for production. Nevertheless, she clarifies, the lack of correlation could be explained by the nature of the activities organic farmers do, which are related to increasing the quality of the coffee or the long term sustainability of the coffee land, and not necessarily to increase production per se.   

 

Even though the main benefit of trading with a co-operative is still the higher price, Milford examines in the article to what extent the prices compensates for the extra work. Given the volatility of coffee prices in the international market, farmers never know whether the prices for the next harvest will cover all their costs, and sometimes they find better conditions with the private intermediaries.

 

Milford also analyses the characteristics of producers in order to know whether their choice of joining or not joining the co-operative depend on them. She includes factors as availability of free work force, which would increase the probability of joining the co-operative in cases where several family members of the household are willing or able to help with the coffee production process. Another factor is land size. In this respect, Milford has found that, given fixed costs of productions, among very small scale farmers, larger coffee plot size increases likelihood of being a member of the co-operative. Other conclusions might be drawn from an analysis of medium and large scale coffee farmers’ conditions, Milford clarifies.

 

Finally, non-economic factors are also placed under examination. The relation between politics and reasons for not joining a co-operative is one of them. Links between political parties and co-operatives are not uncommon, and even though there are rules against discrimination for political alignment within these organizations, these links remain strong enough to influence in farmer’s choices. Another factor is the farmers’ concern of falling under the control of corrupted co-operative leaders, which is unfortunately a concern based on some corruption cases within co-operatives reported in the media. Thus, Milford concludes that farmers do not only invoke economic reasons to not-joining co-operatives, but non-economic factors are also a main issue in their choice equation.

 

 



[1] Researcher at the Norwegian Agricultural Economics Research Institute.

 

Tags: Mexico By Leiry Cornejo Chavez
Published Dec. 16, 2011 10:50 AM - Last modified Oct. 25, 2013 4:39 PM