Fair Trade vs. Direct Trade

We’re heading to Ecuador and Peru next week for a sourcing trip, so this seems like a good time to talk about how we buy our cacao beans.

You’ll often see two terms describing how chocolate makers buy their beans: “Fair Trade” and “direct trade.” There’s a lot of confusion about what these terms mean, and for good reason – it’s a bit complicated.

These two buying methods may sound similar, but they’re very different. Fair Trade means the producer (such as a farmer or cooperative) has paid an up-front fee, and continues to pay annual fees, to a for-profit entity to obtain a Fair Trade certification. This certification is meant to act as an assurance to buyers that the labor practices of the producer are ethical (such as free from child labor) and that other labor standards are met (such as paying a fair wage).

In theory, the producer will recoup the cost of the certification by charging a higher price for their beans, and the chocolate maker has an assurance that the labor practices of the producer are equitable.

The reality, not surprisingly, is a bit more complicated. For one thing, many small farmers and cooperatives can’t afford the fees required to obtain Fair Trade certification. For another, questions have been raised about whether Fair Trade certification guarantees good labor practices. Journalists and researchers have documented instances where Fair Trade certified producers are engaged in unsavory labor practices, such as not paying a fair wage or using child labor. Granted, these instances occurred in West Africa, but it shows that monitoring and enforcement of these certifications may not be adequate.

One other aspect of Fair Trade that is particularly relevant to single origin chocolate makers is that it isn’t a guarantee of quality – if a farmer has poor quality beans but can afford Fair Trade certification, he’s incentivized to get it because he may be able to obtain a higher price for those beans.

Direct trade, on the other hand, isn’t a certification but instead a description of the relationship between the buyer and the producer. While the term is applied broadly, a true direct trade relationship is when the buyer works directly with the producer to determine a fair price to pay, and buys directly from the producer. This approach cuts out the middleman, such as a broker, who takes a percentage of the profit. Often implied, but not always the case, is that the buyer has a reasonable assurance from the producer that their labor practices are fair. Direct Trade can also mean that the buyer has a relationship with the producer that goes beyond simply purchasing their product.

While we’re open to working with producers who are Fair Trade certified, we prefer to buy our cacao using the direct trade model. We strive for as true a direct trade relationship as possible, although in some cases there’s still a middleman (more on that later).

So, what does direct trade mean to us? It means we visit the farms and meet the farmers who supply each of our origins. We spend time discussing their approach to farming, and make sure we’re satisfied that it’s sustainable. We also discuss their labor practices, and meet with the people who are growing, harvesting, fermenting and drying the cacao. We negotiate the price directly with the farmers and cooperatives or with the organization working with them to bring their cacao to market. In some cases, such as with our Almendra Blanca bean, we go so far as to have the beans picked up at the farm and brought directly to our door. Can’t get more direct trade than that.

In addition, to us direct trade means we have a stake in the long-term success of each of the growers we work with. We’re in touch with them on a regular basis, and do our best to help with challenges they may encounter. For example, the San Juan Chivite villagers needed a full-time manager to oversee their post harvest processing (fermentation and drying), so we contributed toward a salary for that person. We believe that long-term, sustainable relationships that benefit both parties are the essence of direct trade.

In some instances, though, direct trade can be a bit less direct. For example, with our El Carmen bean the producer uses a cacao broker known as ECOM to ship the beans to the United States. While we negotiate the price with the producer, we pay ECOM. So, why would the producer want this?

There are usually two reasons a producer works with a broker – economics and convenience. The least expensive way to get a significant amount of cacao from a producer is usually by container ship. Each container can fit about fifteen tons of cacao beans, and the most cost-effective approach is to fill the container completely.

Now, most small chocolate makers, ourselves included, don’t need anywhere near fifteen tons of cacao beans in a year, and many producers aren’t making even close to that much. This is where brokers like ECOM come in. They group together beans from various producers into containers, and the economies of scale they realize allow chocolate makers to buy those beans for less than if they had to pay the full freight themselves. Since there’s a limit to what craft chocolate makers can sustainably pay this means less money is being paid by the buyer for shipping and more is going to the producer.

In the case of the El Carmen bean, although ECOM is taking a percentage for their services the producer prefers to use them rather than deal with the costly logistics of international shipping, plus he’s able to get what he feels is a fair price since neither he nor the buyer is paying an exorbitant amount in freight charges.

Where the term “direct trade” sometimes gets stretched is when chocolate makers buy beans from ECOM, or another broker, but don’t have a relationship with the producer. Often a broker will buy beans from a producer even with no buyer lined up, and store the beans in their warehouse until they’re purchased. When this happens the broker negotiates the price with the producer, and the chocolate maker is simply buying beans from the broker based on what’s in stock in their warehouses, often without having any contact with the producer. This is more of an arm’s length transaction and it’s something of a stretch to say the purchase was truly direct trade.

While we’ll always prefer the true direct trade model an argument can be made that the broker model can have some advantages for both producers and buyers. Ideally there should be another term that describes this model, as it’s neither true direct trade, nor Fair Trade. I would suggest Directish Trade. If you start seeing that popping up on chocolate bars remember you read it here first.

If you’ve made it this far congratulations on reading an incredibly long blog post! We hope we were able to shed some light on the meaning of Fair Trade versus direct trade.

Once we’re back from our South America sourcing trip we’ll talk a bit more about the relationships between producers and chocolate makers, since those relationships probably have the biggest impact on the quality of the chocolate you’re eating, and also on the sustainability of the market for fine flavor cacao. In the meantime be sure to like us on Instagram as we’ll be posting lots of pictures during our trip!

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