Coffee with the aroma of coops

These coffee coops were born with the revolution, gaining access to land but being limited by war. They now have three decades under their belt, two working in alliance with Fair Trade organizations and cultivating ties with private enterprise. They have had to swim against the tide of adverse governments between 1990 and 2006 and against the tide of a favorable government in both the revolutionary years and now. Today, their challenge is to reinvent themselves and take advantage of the opportunity afforded them by the crisis in the Fair Trade movement. If they succeed, they’ll have staged their own revolution.

René Mendoza Vidaurre

When in 1761 Scottish workers organized the first cooperative, selling oatmeal at discount prices and later including credit, savings, migration and education services, no one imagined that 250 years later the cooperative movement would reach a trillion members worldwide and the United Nations would declare 2012 the International Year of Cooperatives. Nor did Sandino, when he founded a peasant cooperative in Wiwilí in 1934, imagine that 76 years later Nicaragua would have more cooperatives than any other country in Central America.

Of the 8,282 cooperatives that exist in our region, 3,410 (41%) are duly registered in Nicaragua, with 188,000 members, 34% of them women. Today, one of every thirty Nicaraguans is a cooperative member, a true record. Many of these cooperatives were born in the revolutionary decade of the eighties.

In just three decades

The numbers and weight of cooperatives in Nicaragua’s economy are a reality of the past 30 years. Of the 3,410 that exist today, 821, maybe even more, are agricultural cooperatives. Of those, we estimate that 180 are first-tier coffee cooperatives (their members are individuals) and 18 are second-tier (their members are other cooperatives). According to data from the National Agricultural Census, Nicaragua has 33,000 coffee producers, 90% of whom (29,700) are small farmers. We estimate that 14,000 of those (47%) belong to cooperatives.

These numbers were forged in just three decades. Most of the first-tier cooperatives were born in the eighties, when they were given access to land and began to farm. The second-tier cooperatives were born in the nineties: they formed to process and export coffee. In the first decade of the new millennium cooperatives began to take part in promotional events and compete in the Cup of Excellence, gaining political influence in our country and abroad.

Acute inequality in land tenure had contributed to the revolts against the Somoza dictatorship from 1950 onwards and to its overthrow in 1979. One of the revolution’s early measures was thus to decree an agrarian reform in 1981. But as it was state controlled and collectivist, the peasantry split, with one sector joining the counterrevolutionary war and the other continuing to work with the revolution, but also pushing for real land reform, which began in 1985. The cooperatives represented organized peasants eager to free themselves of domination by the landowning elites who concentrated land, capital and labor. Credit and savings unions with this same spirit were born throughout Latin America.

Orphans of the paternalistic state

The electoral defeat of the revolution in 1990 ushered in structural adjustment and economic stabilization policies, which meant liberalizing the market, reducing the State and its social programs and privatizing many public services. Cooperatives became orphans without the support of Daddy State: no credit, no technical support, no markets and no political direction. To meet the new re-centralizing of power and its re-concentration in the hands of a few, many of the coffee-growing coops distributed the land among their members and sought individual deeds. They simultaneously made the leap to form second-tier cooperatives that initially served as umbrellas for 120 coffee coops, developing coffee processing and export services, exporting coffee to different markets and organizing credit and technical assistance services for their members.

In the next decade, now in the new millennium, there was a crisis in the coffee market brought on largely by the Vietnam’s entry into the market with huge quantities of robusta coffee, the stronger and cheaper of the two basic commercialized species. In response Nicaragua’s coffee cooperatives opted to compete in the market for quality arabica coffee. To achieve this, the second-tier coops promoted the production of organic coffee and offered technical assistance services and credit to ensure the coffee harvest and collection. Today, 85% of Nicaragua’s exported organic coffee comes from cooperatives. They also reorganized the coffee chain, making major investments in their own dry mills, collection centers, tasting laboratories, coffee bars and composting to control the quality of the coffee. They began taking part in the Cup of Excellence competition and in the eight years since then coffee from their cooperatives was chosen 41 times among the 261 selections of the best quality coffee produced in Nicaragua. They also diversified their markets, continually focused on improving the quality, and formed third-tier cooperatives, creating the Federation of Agro-industrial Cooperatives of Nicaragua (FENIAGRO) and the Association of Cooperatives of Small Coffee Farmers in Nicaragua (CAFENICA), with NGO status as “process facilitator.” By 2007 they even began to influence public policy with the appearance of the Institute for Cooperative Development (INFOCOOP) and the National Council of Cooperatives (CONACOOP).

Fighting big capital for land

The progress of these cooperative organizations has had important economic meaning: they have altered the export monopoly on coffee, introduced organic coffee and raised international coffee prices. Before 1995, two companies—CISA and Atlantic—controlled over 80% of all Nicaraguan coffee exports. By the 2006-2007 cycle, those two companies were down to 66% and by 2010-2011 to only 50%. Small and medium-sized businesses controlled 30% of exports in that cycle, with the other 20% controlled by the coops themselves.

The cooperatives increased their weight in coffee exports very gradually, climbing from 2% in 1990-91 to the 20% in 2010-2011. In addition they obtained between US$15 and US$40 more per hundredweight in export prices in different cycles than CISA and Atlantic thanks to opting for quality, conquering several markets, acquiring various seals (Fair Trade, Rainforest Alliance, CAFE Practices), shedding the routine logic of “coffee is coffee” and adopting the path of differentiated coffee with the “coffee is more than caffeine” logic.

The second-tier cooperatives mainly took the lead in this entire process. They invested in facilities and human resources, obtained international coop funding and developed cooperative thinking. They started with the dry mills, followed that by outfitting offices with conditions for executing projects and organizing exports, then invested in organic composting, tasting labs and coffee bars. Simultaneously, they increased their technical, administrative and managerial staff; today each second-tier cooperative has between 15 and 50 professionals. Finally, they’ve become the main gateway for international cooperation seeking to direct its resources to small farmers.

An unwritten idea in this model has been that the life of small farmers, members of the first-tier cooperatives, should improve to the same degree that everything else improves in the second-tier cooperatives. One of the managers, convinced that the first-tier cooperative will be stronger if the second-tier one is strengthened, put it like this: “The stronger the parents, the stronger the children,” Another said it a little differently: “With 40 to 70 containers we can find good markets and risk failing with one or two containers, while the odds of a first-tier cooperative obtaining a good market with only one to three containers are minimal. It’s like playing the lottery: you can come up with the prize once, but not two or three times in succession.”

There has been progress, but on reviewing the current model internally, we found that the increase in the volume of coffee exported owes more to the entry of new organizations to the exporters’ club. Traditional export cooperatives grow slowly, with the exception of CECOCAFEN, which boomed in the 2008-2009 and 2009-2010 cycles due to Nicaragua’s new access to the Venezuelan market. The increasing number of cooperatives involved in exports is also due to the entry of new first- and second-tier organizations and federations. Just over half of the export cooperatives in 2010-2011 (15 out of 28) were first-tier ones.

The Fair Trade movement grew with coffee

The increasing weight of cooperatives in coffee exports also has to do with global growth of the Fair Trade (FT) move¬ment, born in 1964 in the context of the United Nations Conference on Trade and Development (UNCTAD). That year several European countries began promoted the UNCTAD shops as a place to sell products from third world countries that could enter without import duties. Later on, the first “solidarity” retail chains were set up in the Netherlands. Subsequently, they began to appear in Germany, Switzerland, Austria, France, Sweden, Great Britain and Belgium. In 1967, the Catholic organization SOS Wereldhandel of the Netherlands began importing handicrafts from countries in the South with a system of catalog sales.

In 1973 sales of FT coffee started within the fair trade system. It was produced by Guatemalan cooperatives with the “Indio Solidarity Coffee” brand. The introduction of coffee gave the Fair Trade system a big impetus.

The volume of products increased along with their quality and design in the eighties. World shops sold coffee blends, tea, honey, sugar, cocoa, nuts, bananas and flowers. The emergence of seals gave a lot more impetus to the system. The first one—”Fair Labeling”—appeared in 1988 in the Netherlands. In 1997, several organizations formed the Fairtrade Labeling Organizations International (FLO).

A critical debate in the Fair Trade movement

Tensions have not been lacking in the Fair Trade movement. In 2002, a big debate started on whether large coffee plantations should be included; it is an important debate because coffee represents 70% of all products marketed as “Fair Trade.” Last year the FLO finally made the decision not to include the coffee plantations of large producers. In reaction, Fair Trade USA, the main promoter of including them, decided on the last day of the year to withdraw from the FLO and opt for what it called “fair trade for all.”

It argued that including large producers would increase the volume of coffee exports and help the workers on their plantations also benefit from fair trade. FLO’s counter-argument was that the entry of large producers would affect the market share gained by small farmers. In addition, large plantations already have enough resources to improve their workers’ lives. As FLO saw it, the only ones to benefit from the inclusion of large producers would be the big buyers—Green Mountain and Starbucks—and the minimum fair trade price paid would fall because large producers have lower production costs.

The Latin American Small Farmers Fair Trade Coordinator (CLAC), Africa Fair Trade and the Network of Asian Producers played a key role in FLO’s decision. Since this debate the correlation of forces has changed: from a FLO controlled by 21 national brands including Fair Trade USA, to one where 50% of the votes is controlled by these three umbrella organizations representing more than 800 organizations and a million small-scale producers from 60 countries in Africa, Asia and Latin America. The remaining national brands control the other 50%.

In Latin America fair trade
has the aroma of coffee

The weight of Latin America’s cooperatives in inter¬national fair trade has been felt. According to FLO’s 2011 records, 533 organizations from Latin America belong to this movement, the vast majority of them organizations of small farmers, with the exception of those who produce bananas, tea and flowers, items in which FLO allows large producers to participate, given that in the case of flowers the production is intensive and in small areas.

Of those 533 member organizations, 284 belong to small-scale coffee farmers, who grow 70% of the coffee produced in Latin America. Latin American fair trade thus has the aroma of coffee and comes to those who savor it largely from the hands of organized small-scale farmers.

And Nicaragua has weight in this Latin American concert. We have the fourth largest number of cooperatives participating in fair trade after Peru, Colombia and Mexico and the largest number of fair trade cooperatives relative to total population. CLAC, which had a decisive influence in favor of small farmers, is currently chaired by Nicaraguan coffee cooperatives.

Their strategy was to opt for quality coffee

We’ve met with members of different coffee cooperatives in dozens of workshops reflecting on their strategic commitment. They list off economic diversification, sustainability based on productivity and quality, saving, investing in their farms, capitalizing on land, getting cheap credit and improving the prices for their coffee… Women members speak of getting their contribution to the national economy recognized and improving their families’ living conditions.

The leaders of first-tier cooperatives speak of a sustainability in which second-tier cooperatives accompany rather than replace them. They mention the importance of having their own identity to secure the loyalty of their members and of the second-tier cooperatives. They aspire to gain access to cheap long-term credit and to technical assistance near the farm by having their sons and daughters become technical promoters. They dream of a cooperative that drives their communities’ development.

Leaders of second-tier cooperatives mention the strategy of moving forward with differentiated coffees and markets and on that basis reorganizing the entire chain (investment, traceability, quality control, tasters, training technicians, changes on the farm) and of being able to influence public policy to eradicate poverty. They also talk about the need to learn from private sector technology for dry mills, tasting laboratories and to organize management systems for collection and trade, capitalization with their own resources and management of international cooperation resources.

Strategic perspectives vary. The farmers’ vision is focused on their farms and that of first-tier cooperatives on their community, while that of second-tier cooperatives is more regional. Farmers who aspire to a farm dedicated to various crops and economic activities argue that their identity and their vision is diversification. First-tier cooperatives, with their identity more linked to their community, aspire to offer services that respond to their members’ diversification strategy. The second-tier ones already aspire to markets, investment, services, capitalization and advocacy.

Despite differences and disputes, the cooperative sector and the export private sector use each other. The latter was surprised when it began to lose its monopoly on the coffee export market and has had to adapt. For their part, cooperatives have also used the private sector to process and export their coffee while gaining experience. The growing force of cooperatives and fair trade organizations in questioning the practices of corporations and the shocking increase in world poverty have influenced a number of large companies to take up the Corporate Social Responsibility banner by improving the environmental conditions on their farms and their workers’ social conditions.

Cooperatives have experienced
innovations and great changes

What innovations have emerged in these thirty years of cooperatives? Following the idea of “creative destruction” (destroying what’s become inefficient and inadequate and replacing it with what’s new), changes involved moving on from traditional conventional coffee to organic coffee and quality coffee, to gourmet coffee. Cooperative leaders also mention replacing the “coyotes network,” moving into a new direct producer-buyer relationship.

With the idea of innovation as “adaptation,” the producers mention organic coffee and practices adopted between the private sector and the cooperatives. And with the idea of innovation as “creating links” and new networks, they are starting to include women and young people, which has led to the emergence of the “Coffee Flowers” women’s movement. They are also diversifying their economic activity, making alliances among cooperatives and private companies and organizations to influence public policy. They also talk about the formation of the second- and third-tier organi¬zations, CAFENICA for example, which is a horizontal organization that facilitates processes rather than a trade organization with a vertical structure. The cooperatives’ advocacy work and their historical development have been actively accompanied by some cooperation agencies, mostly from Sweden, Denmark and Norway.

When cooperatives get involved in trade and head down the path of quality aimed at differentiated markets and products, an immediate and urgent need arises to reorganize the entire chain. This particular innovation was born of such need: investing in processing facilities and human capital, creating production chains, capitalizing… At the same time, various innovative instruments appear to correct and accompany the problems of cooperatives that fall into administrative problems and crisis.

Given the increasing centralization of second-tier cooperatives in coffee exports under the “I’ll buy your coffee to sell it” and “You get on with the farming and I’ll give you credit” model, first-tier cooperatives challenged that dominant cooperative model by breaking into the international trade scene. This has been the case of both the José Alfredo Zeledón and Solidarity cooperatives.

Two cooperatives that broke several myths

The José Alfredo Zeledon cooperative, located in the municipality of San Juan del Rio Coco, belongs to PRODECOOP, a second-tier cooperative, and has 170 partners. When they began in 1995, they produced 300 quintals, or hundredweight; now in 2011-2012 they produced 5,000. It’s the only cooperative that has won the Cup of Excellence five times.

It has several success indicators. Its loan portfolio for its members has $250,000, 50.3% of which comes from its own members’ dues. It funds the majority of their needs with this portfolio and maintains a zero default rate. Its membership is growing and now includes women and youth, with a strategy of bequeathing land to them. Improvements in the members’ lives are visible on their farms, their means of transport, everything. Motivated by a strategy of “thinking of the family,” they don’t only seek productivity from their coffee, but are also diversifying their coffee plantations as well as expanding the area devoted to coffee and abandoning the use of chemicals. In doing so they have broken the myth that the first-tier cooperative’s loyalty to the second-tier one is just for the credit it offers. This cooperative shows that the more diversity there is in links with different organizations and the more services that are developed, the better their members’ living standard.

The second case is that of the Solidarity cooperative, located in the Aranjuez community of Matagalpa. Members of this cooperative are surrounded by large coffee growers whose techniques in managing their own coffee plantations offer valuable lessons. The coop produces quality coffee on diversified farms in a favorable agro-ecological area. It has been growing gradually and improving its organization thanks to these advantages and its strong collective leadership. It maintains a good working relationship with CECOCAFEN (a second-tier cooperative) and is learning how to negotiate with it on a level playing field with regard to marketing and processing its coffee. It sets up its own links with financial institutions such as Root Capital and now directly exports special coffees. In the 2010-2011 cycle it entered the exporters club with 1,650 hundredweight.

This broke several myths. By doing some of its own exporting without breaking its relationship with CECOCAFEN, from whom it receives processing services, the cooperative puts the lie to the idea that “you can only export through the door of the second-tier cooperative.” And its members are viable as peasant farmers; they aren’t being swept away by the big coffee growers, breaking with the age-old idea that “it’s better to be a worker for a large landowner,” translated these days as “it’s better to join the modern business chains than hold on to your own farm, even if it’s diversified.”

All these innovations express a change in mentality. We’re probably already witnessing a change in the cooperative model and seeing a new type of farmer: ones concerned about the quality of their coffee and about the environment, who draw up a work plan, study their investments, keep a payroll and have a family that increases their self-esteem with sons and daughters studying at university. And as an effect of all these innovations there are also unexpected impacts: a private sector that assumes less negative policies and practices toward farmers and their workers. Innovations in the international arena help tip the scales too, as happened with the FLO’s decision to continue only with small farmers. Are all big developments.

Why they had to evolve

“Fish swim in water and their movement depends on the water’s quality.” What changes in the context, in the quality of the “water” have favored the innovations experienced by these cooperatives?

To this question farming families respond again and again by recalling the adverse history that pushed them to innovate. Three periods are ringed with fire in their collective memory. In the 1980s, when cooperatives first appeared, they were restricted by the war. Between 1990 and 2006, all three governments used both the “stick” on the cooperatives (adverse laws, the privatization of banks and consequent cutting of financing, indebtedness, refusal to recognize agrarian reform land titles…) and the “carrot” (donations tied to specific strategies, projects that encouraged other types of cooperatives…). In 2007, the new FSLN government inaugurated another stage. While the co-operatives were controlled “from “above” in the eighties, the political-military (self-defense) cooperatives from those times evolved, some more than others becoming cooperative businesses with a large degree of autonomy. This evolution took place in a context that climaxed around the mid-nineties when two realities collided: a Nicaragua with a reputation for poor quality coffee and cooperatives that were in crisis. This forced the cooperatives to start producing quality coffee and inspired international initiatives for a new kind of solidarity with impoverished countries. One of the pioneers was a group of small roasters in the United States with links to the Fair Trade movement.

With changes in Nicaragua and in
the relationship with the private sector

To this context that favored innovations must also be added the relationship between companies and cooperatives. With a philosophy of “marketing but not buying coffee,” Atlantic today offers processing, export, collection, certification, transportation, credit and technical assistance services to farmers and cooperatives. In the 2010-2011 cycle, it worked in partnership with 21 farmers’ organizations, mostly cooperatives and almost all of them first-tier, selling them service agreements for several years that involved more than just buying their coffee.

In addition, medium-sized companies, which export between 20,000 and 100,000 hundredweight of green coffee beans, have allied with some of the cooperatives for processing and collecting coffee. We estimate that some 40 first-tier cooperatives work with export-oriented private companies, which reveals the interesting relationships between the cooperative and private sectors developed over the last 20 years.

Some of the first-tier cooperatives that have made forays into direct exports are linked to private companies in order to gain access to several of their services. The companies benefit from having cooperatives among their customers, which gives them the advantage of working with small farmers, organic coffee and fair trade. For some, these alliances signify a greater threat to second-tier cooperatives. For others, they’re a school where cooperatives learn about the coffee business.

Changes in the community
help change the cooperatives

The community environment has also influenced the changes experienced by cooperatives. Most of their members are over 50 years old and have little formal education. Their age reveals the reluctance of cooperatives to include young people as members.

Nicaragua has evolved in the past three decades: we are still a mostly young country but have a higher life expectancy: 72 years. We are also still a very patriarchal society, but women’s weight in the economy is starting to show: 37% of urban households and 30% of the rural ones are headed by single women. From being a rural country (only 35% urban population in 1950) we’ve become a country with a majority urban population (54.7% in 2000). And from being a country with strong internal migration we’ve become a country of emigrants, leaving mainly for Costa Rica and the United States. All these changes have meant a greater information flow and accordingly a greater stimulus for change in the organization and management of cooperatives.

What limits the innovations?
Religion, corruption, leadership . . .

To paraphrase Marx, cooperatives make their history, but they make it under certain circumstances that sometimes help and sometimes hinder. The biggest obstacle has to do with power relationships. Although there are good policies and good laws, their implementation is always mediated by current power relationships. In Nicaragua the laws against deforestation are clear, but those who have power twist them to their favor, faithful to the saying that “the rich man represents God, so don’t touch him; the laws are to apply to godless little people.” This idea, rooted in a religious culture based on resignation, reproduces the idea that “only God innovates, nobody else,” limiting innovations and the development of cooperatives’ capacities.

Another obstacle is the administrative crises that have plagued many cooperatives. The first corruption crises began with the second-tier coffee exporting cooperatives JIPROCOOP and ECOOCONIC in the nineties. They were followed year after year by other cooperatives, including first-tier cooperatives. Even though institutions such as INFOCOOP and CONAACOOP have been around since 2007 and CAFENICA since 2003 to prevent problems and accompany cooperatives’ prosperity, coops continue to fall into various types of leadership and administrative crises.

The cooperatives themselves are aware of this problem. They describe it in baseball jargon: The field’s the same, only the positions change, referring to the fact that the cooperative leaders don’t change. It has become common for managers and technicians to replace the leaders, representing cooperatives in different national and international bodies. Even some first-tier cooperatives, although autonomous by law, require permission from some management figures in their second-tier organizations to meet with other organizations. The president of a second-tier cooperative lamented: “The members come and look for the manager. We, the leaders, are here to support them, but the members don’t look for us.”

Another limiting factor is the lack of working capital. The hostility of the three governments prior to the current FSLN one was expressed in the closing of the state development bank and privatization of the national banks, which then did not provide the small growers or cooperatives credit or technical assistance. The harvesting and collecting of coffee is only guaranteed by providing credit. With the growth of cooperatives, the volume collected in 2010-2011 doubled that collected in 2006-2007, which means they needed double the capital. In the absence of credit and thus of liquidity, farmers with greater economic difficulties tend to sell their coffee at any price to buyers from markets outside the cooperatives, often even before it’s harvested.

Very few first-tier cooperatives manage credit services. As one cooperative leader commented, “In the best cases, many are intermediaries instead of cooperatives and in the worst ones they’re just figureheads.” The culture that loans are gifts, nourished by the State in the eighties and by a large segment of international cooperation in the nineties, as well as the belief that solutions are to be found outside the cooperatives, continue to this day.

Lessons that will not be forgotten

The result of this entire process is lessons that, like first love, aren’t forgotten or stop being appreciated. The lessons of 30 years of cooperativism won’t be forgotten in the next 30. Each lesson was learned by organizations that in 1990 were left orphaned and drowning in an adverse environment yet gradually managed to change the national coffee map, fighting over capital with national and transnational business sectors, and playing a decisive role in the international coffee map.

Some of these lessons, as expressed by the farmers and leaders themselves, sound like this:
* If I join a cooperative and manage my resources well, I can increase my production and improve my family’s lives.

* Even the most serious problems can be resolved if the cooperative responds to farmers with a “tailor-made” solution designed for their needs and capabilities and if the cooperative works like “a family.”

* The more the transparency, the greater the loyalty. The more the secrecy, the more there is for people to talk about and in the long run it undermines the organization. If the accounts aren’t clear it generates mistrust and conflict.

* If as a second-tier organization you distance yourself from grassroots cooperatives, the entire cooperative chain can become quite disjointed and that’s when “the wolf gobbles up the farmer.”

* When the organization gives opportunities to people who we believe aren’t going to advance economically and it turns out that they do, it means that even the smallest people can advance when there are opportunities.

* Cooperatives married to fair trade keep the poor from falling into more poverty.

The challenge of reinventing themselves

In these 30 years, the cooperatives have learned that the first step must be taken on the farm, working with their own family to diversify crops. The second is taken with first-tier cooperatives that link farms and families. The third links producers and organizations with forms of territorial organization to organize coffee exports, which is how second-tier cooperatives arose. The fourth is to organize federations as business partners for the State and international cooperation agencies. This is the level at which the cooperatives defined the National Rural Bank (CARUNA) as their credit provider. With these four steps the strategic circle would be closed: production, processing, exportation and financing.

In this entire structure the logic has been to help farmers market what they produce. However, this logic got distorted along the way: the search for markets and resources led second-tier cooperatives to centralize resources and forget about the territory’s productive capacity and organizational and institutional changes; at the same time CARUNA received a huge injection of money from Venezuela and clearly became an instrument supporting the FSLN’s political project.

The logic was changing from “I’ll finance you so you can sell me your product and I’ll export it,” a modernized version of the enabling system prevailing since the colonial era, to “I’ll pay you now in June so that your coffee is mine in December.” Although that still exists, these days we also have cooperatives that cultivated their own autonomy and conquered the world of trade and finance. They’ve done it swimming against the tide and their achievements raise the possibility of cooperativism reinventing itself.

Using the image of the “big-headed dwarf with feet of clay,” these days there are big-headed second-tier cooperatives in Nicaragua that centralize physical investment and human and financial resources, whose feet of clay are their increasing distance from the first-tier cooperatives and their members. This model is threatened by the competition that that is attracting a significant number of cooperatives; it collects coffee from the same members of historical cooperatives and is a reference point for emerging first-tier cooperatives. It’s also threatened by the sustainability of first-tier cooperatives that have made inroads in exporting, albeit still with low volumes, while other cooperatives that work with private companies run the risk of being co-opted.

This latter is a somewhat dispersed, aging cooperative model threatened by an atmosphere of competitiveness with the rise of medium-sized export companies and the growing capture of cooperatives and international cooperation resources by the two large traditional companies. It catalyzes the “disorderly” incursion of first-tier cooperatives into conquering markets, an incursion that causes doubts at the same time that it infects other cooperatives. It’s also a model that captures less than 50% of what its members produce.

Your heart is where your cooperative is

The two cases of successful first-tier cooperatives indicate what the cooperative model should shift to, managing to make an organization its partners will own, one that fulfills what Jesus of Nazareth said: Where your treasure is, there is your heart. If the members contribute to the cooperative and put their heart into it, they’ll be more interested in seeing that its resources are properly managed.

This approach also makes it necessary to redefine the role of second-tier cooperatives to specializing in coffee processing and export and advancing in their domination of market intelligence. Such cooperatives could generate valuable information in their laboratories that would serve as a basis for technological development on farms. Likewise, it would be innovative to see first-tier cooperatives producing and collecting honey and second-tier cooperatives exporting it as well as supplying consumer products and tools to distributors whose owners are first-tier cooperatives.

In the nineties it was crucial to create second-tier cooperatives to gain access to markets, credit and technical assistance. Having already achieved this, what’s important now is for the first-tier cooperatives to improve and invigorate their economies on the ground. The president of the José Alfredo Zeledón cooperative puts it this way: “If father and mother debunk the myth that ‘the pig sweats lard until it dies’ and in life mom and dad ‘sweat lard’ to bequeath something to their children, then the children will work well. If they have any doubts about how to manage the farm they’ll ask their living parents. The stronger the children, the stronger the parents. It’s the same with cooperatives: the stronger the grassroots cooperative, the stronger the second-tier cooperative will be.”

With private companies
and financing institutions

There are others the cooperatives need in their own territory. The cooperatives’ history is closely linked to export companies and financial institutions. Some cooperatives buy processing services from private companies which in turn provide them credit and buy their coffee. Both of them are found at events held by international cooperation organizations.

The “inclusive business” framework in which private companies move requires a territorial perspective; to consider cooperatives as anchors for energizing their territories. The private company-cooperative duality is not only mediated by asymmetrical relationships, but also leaves extensive areas uncovered: coffee-growing families who aren’t members, which private companies usually reach through “the window” of cooperatives and exiting through “their own door,” capturing high quality organic and gourmet coffees.

As regards financing, the financial deficit of farmers and cooperatives is obvious and has led them to continually sell their coffee crop before it’s harvested, necessarily at a lower price, since there is a risk to the buyer. Given that micro-financing institutions have capital and know how to work with credit, and coops have “private” information on their members and thus can achieve zero default, an alliance between the two types of organizations is more than necessary. Such links improve competitiveness, which is accompanied by greater competitiveness, better and fairer prices, better weights and measurements of moisture and, hence, higher quality coffee.

Only small farmers or large ones too?

“Behind every adversity is an opportunity,” goes an old adage. The current crisis in the international Fair Trade movement could be such an opportunity.

The question pondered by Paul Rice, manager of Fair Trade USA, in The New York Times was “do we want small, pure fair trade or do we want fair trade for all?” Rice wants larger producers included so that the volume of coffee sold is double that sold in 2015 and its impact is greater “for all,” including “the poorest, who are the workers on large plantations.” He re-emphasized this thinking in The Los Angeles Times; “The change is necessary to reach a large number of coffee workers who do not have land and are the poorest of the poor.” The response of Dean Cycon, founder of Dean’s Beans Organic Coffee Company in Massachusetts, was dramatic: “Starbucks, Green Mountain and other coffee companies will become 100% of fair trade, not because they have changed one iota in their business practices, but because Fair Trade USA changed the rules of the game.”

Nicaragua’s experience has much to teach

Nicaragua’s experience calls Rice’s theory into question. There’s another way to get bigger volumes of coffee: get small farmers who are cooperative members to deliver 100% of their production. At the moment they only deliver 50%. If 70% of the total coffee production in Latin America comes from small farmers and fair trade up till now only captures 15% of that total, the volume of coffee exported under the fair trade brand would double by capturing only 15% more. And if it were to capture 60%, fair trade would take giant steps. Why, then, include large growers who only produce 30% of Latin America’s coffee?

If Rice believes that cooperatives would find it hard to increase their volume of coffee sold through fair trade, the Nicaraguan case demonstrates that our cooperatives conquered 20% of the country’s total coffee exports in 20 years. If this trend continues and something similar happens in other Latin American countries, Paul Rice’s argument evaporates.

If the goal is to influence large plantations and cause changes in big business, that has been happening in Nicaragua due to the growing weight of both cooperatives and international fair trade. Large companies are now working to produce high quality coffee and assume standards of corporate social responsibility by giving the environment and their workers a better deal.

If, on the other hand, the main objective is to reduce poverty, there’s no evidence that small farmers associated with fair trade are substantially less poor. So then, how does Rice and Fair Trade USA think that working with large producers and big companies could further reduce poverty? As big producers’ production costs are lower, all that would happen is that their inclusion would force down the price to farmers. Instead of reducing poverty, Fair Trade USA’s “solution” would create the conditions to increase it.

Finally, if the objective is to incorporate more workers and we know that 70% of coffee is produced by small farmers, it suggests that the biggest challenges continue to be in working with small farmers. If the treatment of workers on small farms improves, it will force the large companies to change in order to retain their workforce. This is the path followed by Reynaldo Mairena, chairman of the Solidarity cooperative: “My workers are my neighbors, my friends; they sit at my table and eat what I eat. In contrast, the big companies buy the worst beans to give their workers. They give a party at the end of the year and it’s the only time they give them meat. I give my workers meat two or three times a week. Because of their stinginess, big companies find it hard to get workers.”

The fair trade crisis
has created an opportunity

We must recognize that the division in FLO created by the withdrawal of Fair Trade USA could have a devastating impact on small farmers and the majority of coffee workers. All of what has been achieved so far by the growing force of organized small-scale farmers could be lost and there would no longer be pressure to bring about more changes. Even worse: all the efforts of small farmers and their allies—consumers and volunteers—who made the Fair Trade brand grow, will benefit the big growers and the big buyers: Green Mountain and Starbucks.

By asking whether we want small, pure fair trade or fair trade for all, Rice is asking the wrong question. The real question is whether we want fair trade to reduce inequality and thus help eradicate poverty. His formulation expresses the neoliberal view that poverty and inequality are reduced by trickle-down, a theory that argues that the more the economy grows to benefit big producers, the more the profits trickle down to the poor. Rice would add that the more opportunities we give the big ones, the more will trickle down to their workers. This dogma dominated the world in the nineties and the early years of the new millennium, years in which poverty and the unequal distribution of wealth in the world rose dramatically. Even the IMF and the World Bank now admit that it was mistaken.

Recognizing the strength of cooperatives, the UN declared 2012 as International Year of Cooperatives. Doing so creates a contradiction with Fair Trade USA, which is taking the side of the large producers, roasters and distributors, all adversaries of cooperatives.

Whether Fair Trade USA has definitely left FLO or will recognize its flawed thinking and return, this crisis should be seen as a great opportunity for all fair trade organizations, from grassroots cooperatives up to FLO’s board of directors. It is a chance for them to become accountable, not only to their own boards but also to the entire chain of organizations and even to the grassroots cooperatives, to the million members who already have fair trade. FLO is a collective asset and should not be privatized by a few.

Fair trade: A common asset of
small farmers and consumers

It’s time now to move on to the second generation of fair trade: cooperatives should become shareholders of the companies that distribute coffee to the final consumer. It’s the way to get FLO back as a collective asset. Many coffee cooperatives already include medium-sized farmers and in time many of those will become big farmers. Most members employ temporary workers and even permanent ones in production and dry milling, in roasting and in the distribution of instant and ground coffee in Europe or the United States. How many improvements have the workers in fair trade organizations and businesses experienced?

Assuming this agenda of changes would truly be “fair trade for all” and not just “fair trade for the big ones in the hope that some trickles down to some of their workers.” We’re in favor of a fair trade that opens paths and grows, that offers a vision of a world with justice and carries in its soul the sense of diversified and sustainable peasant farms. We’re not for a fair trade co-opted by large buyers and large growers who have historically become large by stripping peasant and indigenous families of their lands and the value of their crops, turning them into a proletariat so that afterwards they have no choice but to come begging to be “their” workers. Fair Trade is a shared asset of small farmers, consumers and North-South solidarity organizations. And it should remain so.

The pending revolution

A paradox we’re seeing in Latin America is that grassroots organizations improve under adverse governments and worsen under governments that claim to support the grassroots sectors. Coffee cooperatives in Nicaragua, born under a revolutionary people’s government, already have a 20-year history of working in alliance with fair trade organizations, cultivating ties with private companies and “swimming against the tide” of adverse governments (1990-2006) and favorable ones (1979-1989, 2007-2012).

The first generation only gained access to the land, the second one conquered markets. It falls to the third, the current one, to reinvent itself in the face of great challenges, and move towards territorial development. If it succeeds, coffee cooperatives in Nicaragua could become a benchmark for cooperatives in Latin America, where a large number are prisoners of local political bosses, some fell to siren songs and others prefer to survive as bonsai: nice but tiny.

The model we propose would replace the current one (“I’ll buy your coffee to sell it”) with another (“I’ll support you to you market your excellent coffee”). This model builds self-identity in a third economic and political sector, the cooperative sector, and puts it on a par with the state-public sector and the private sector.

It would change the perspective: coffee cooperatives would tie themselves to each other, as Odysseus did in the Greek myth so as not to be seduced by the sirens’ song; by doing so they would help make possible the principles of the cooperative movement, help themselves continue to grow collectively, under both adverse governments and favorable ones, and help international fair trade grow as a strategy to enable families to climb out of the pit of poverty and discover infinite futures. It would be a whole revolution.

René Mendoza V. is a researcher and facilitator of innovative organizational processes. Merling Preza, Martha Estela Gutiérrez and Edgar Fernández took part in the research that served as the basis for this text.

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