How to Better Understand Fair Trade, Direct Trade & Transparent Trade

Editor’s note: In our effort to better understand cacao sourcing, we are looking at Fair Trade and Direct Trade. They may sound similar but there are some key differences. Knowing this allows consumers to better understand compensation in the supply chain. 

When chocolate products receive a Fair Trade designation this represents certification by a for-profit governing body that has specified certain standards of business operation. Certification implies that companies in developed countries pay fair prices to producers in developing countries. Fair Trade is also associated with safer and environmentally friendly working conditions plus improved worker rights. 

However, some chocolate makers are adopting Direct Trade practices in addition-or instead. They believe Fair Trade certification results in an absolute minimum payment to cacao suppliers, and minimum ethics standards. In addition, costs associated with upfront and annual Fair Trade certification fees for participating producer groups, exporters, importers, and chocolate makers, may be prohibitive and unsustainable especially for small producers. 

The Shortcomings of Fair Trade

According to Alex Whitmore, Founder and CEO of Taza Chocolate, in Somerville, Massachusetts, “Fair Trade labeling is designed to work well in a commodity situation—place an order and then it will arrive without the customer necessarily knowing who produced it,” Whitmore says.

“[Fair Trade] doesn’t necessarily improve the ‘take-home’ the farmer gets, while Direct Trade money goes to the farmers rather than to the labeling organization. Direct Trade typically includes higher quality de-commodified products with more money going directly to the farmer.

“In general, [Direct Trade] is about motivating and creating an incentive for better quality, connecting individual producers of specific quality items with specialty product consumers. And our price floor is higher than the Fair Trade price floor.”

Goodnow Farms Chocolate - Monica Rogan visits with cacao farmers. Photo by Tom Rogan

Tom Rogan, founder, and Head Chocolate Maker at Goodnow Farms Chocolate (Sudbury, Massachusetts) agrees. “Our payment to farmers is two to four times above the typical commodity price. We sometimes pre-pay too because some of our farmers have cash-flow problems. We also invest in infrastructure, so we donated money to help restore a bridge for cacao farmers.”

Another problem with Fair Trade? Among other things there is no one single set of standards or certification and some logos don’t even represent certification, just membership in an organization.

Transparent Trade

Emily Stone, co-founder/CEO of Uncommon Cacao, Inc. (Arvada, Colorado) a cacao bean wholesaler says her company doesn’t typically use the words "Direct Trade," because the term isn't clearly defined, and describes a wide variety of sourcing practices. 

 “Our partner evaluation system includes a lot of overlap [with Fair Trade] when it comes to human and child rights, working conditions, wages, the environment, traceability and transparency,” she says. “But we definitely have direct and close relationships with producer partners, too. We import cacao directly, and we pay more for cacao quality.

 “Our focus has always been on higher farmgate prices paid for higher quality cacao at the point of purchase, from the actual cacao producer. Farmers earning a net profit from cacao production is the critical foundation for building more equitable trade relationships, supporting producers in achieving a living income, and addressing key systemic problems such as deforestation and human rights violations.” 

What is Direct Trade?

Chocolate makers with a Direct Trade focus typically emphasize such mutually beneficial and transparent trade relationships, with no entity operating between buyer and supplier and onsite visits to see farmer partners. Direct Trade also implies the business’s frank communication with producers about farming to labor practices. It typically means that a company meets its workers at every stage of production, from growing and harvesting cacao to fermentation and drying.

“With cacao, how it is treated at origin has a huge impact on the resulting quality of chocolate,” Rogan says. “Being able to influence how that happens means we’re able to get a more consistent, higher quality product. We have visited each of the farms [we work with] personally. We stay in regular contact with producers at origin, and we work with them to develop their day-to-day operations.”

One challenge with Direct Trade? Chocolate is not often labeled as such.

Transparency

Broader Direct Trade practices including Transparent Trade are based on real relationships and trust between producers, exporters, and buyers. The Transparent Trade approach is important to chocolate makers as well as wholesalers. Fair Trade certified as a trader, the company sources multiple Fair Trade certified cacaos (ABOCFA Ghana, EcoCacao Ecuador, Alto Urubamba Chuncho Peru). 

The company sources high quality cacao from more than 7,000 smallholder producers across 14 countries, imports it to the U.S. and Europe, and distributes the cacao to hundreds of chocolate makers globally. 

But Stone says her company is also a ‘radically transparent’ cacao trader, publishing all prices and margins across its value chain. Uncommon Cacao’s partners get to see the price at which their cacao sells to chocolate makers. 

For instance, “We pay higher prices for better quality, and fully disclose the prices and margins across our value chain in an Annual Transparency Report. We spend time with real numbers, real names, and real stories of the human beings who grow, produce, and move the cacao that represents such a critically important part of the value of their products.” 

Askinosie Chocolate’s Transparency Reports compare prices they pay for cocoa beans against World Market Price, and Fair Trade pricing. On average, the company pays 25 percent more than Fair Trade prices. The company is also involved with every step of the chocolate-making process, from farm to bar.

“We clearly define the way we practice [Direct Trade] on our website, our packaging, our annual Transparency Reports, our book, and more, and we hold ourselves accountable,” says Lawren Askinosie, Marketing Officer and co-owner of Askinosie Chocolate, Springfield, Missouri. 

Taza Chocolate publishes its prices, volumes, and cocoa sources annually too, plus standards regarding the minimum price it will pay for cocoa beans at any given moment. 

“Chocolate and cocoa are historically very opaque markets,” Whitmore says. “Our goal is to change that by really creating awareness and visibility of where cocoa comes from. We are bean-to-bar makers, getting unique, specific cocoa to make our unique, specific cocoa products. I’m incredibly passionate about the cocoa supply chain and improving the quality and the supply chain at all levels-from farmer to consumer.”

Is Direct Trade Better?

Goodnow Farms Chocolate with Direct Trade label. Photo by Tom Rogan

Direct Trade waters may become a bit muddy for ‘small’ producers, whose crop yields aren’t sufficient for them to afford the export cost associated with solo use of shipping containers. In such situations, these suppliers may work with brokers who can group together beans from multiple producers before filling containers. 

This decreases costs for each individual producer, and for small batch chocolate makers. Unfortunately, use of brokers may short-circuit development of personal relationships between producers and chocolate makers – unless a chocolate company makes a special effort to maintain those relationships.

Although Direct Trade affords chocolate makers leeway in their individual efforts the downside may be that, without codified oversight, any company can add the ‘Direct Trade’ label to their products. But Whitmore says it’s rare to see a company that says they are Direct Trade and does nothing more than adopt the label.

“Direct Trade is certainly not cheaper, easier, or simpler, and it definitely doesn’t carry less financial risk for us,” Askinosie says. “But we think it’s the right way and the best way. You get better chocolate, it’s better ‘farmer-nomics,’ and we all get better communities.”

Stone agrees. “We know the quality and flavor of the cacao we offer is essential to ensure continued commercial success for our partners. Consumers may pick up a chocolate because of an ethical certification logo or an altruistic feeling once – but if the chocolate doesn’t taste amazing, it’s unlikely they will buy it again.”