Long Term and Stable Relationship
Buyers and sellers will establish a long-term and stable relationship in which the rights and interests of both are mutually respected. Buyer and seller will sign contractual agreements for the first part of the season and a letter of intent for the rest of the season, to be confirmed by purchase contracts as the harvest progresses, which stipulate basic conditions such as: volume, quality, procedures to establish differentials and fix prices, shipment schedules, etc.
Pricing and Premium
• Buyers shall pay producer organizations at least the fair trade minimum price as set by FLO. The fair trade minimum prices vary according to the type and origin of the coffee.
• In addition to the fair trade minimum price the buyers shall pay a fair trade premium as set by FLO at five cents per pound of coffee.
• For certified organic coffee an additional premium of 15 cents per pound of green coffee will be due, on top of the fair trade minimum price or the market reference price.
• If the market price is higher than the fair trade minimum price, the market price shall apply. The fair trade premium is paid on top of the market price. For arabicas the reference market price shall be based on the New York C contract. The price shall be established in U.S.-cents per pound, plus or minus the prevailing differential for the relevant quality, basis freight-on-board (FOB) origin, net shipped weight. For robustas the reference market price shall be based on the London LCE contract. The price shall be established in U.S.dollars per metric tonne, plus or minus the prevailing differential for the relevant quality, basis FOB origin, net shipped weight. When by legal regulation, all coffee has to be passed through the auction, importer and exporter will agree upon a reasonable margin for the exporter to cover his costs.
Prefinancing/Credit
• In the case of contracts with fixed prices the buyer shall make available up to 60 percent of the contract value, on the request of the seller.
• In the case of unfixed prices the buyer shall make available up to 60 percent of the estimated contract value on request of the seller, as long as buyer and seller agree upon a mechanism that guarantees the contract values will cover the pre-financing, e.g. by a “stop/loss” clause. In the absence of such a mechanism, seller is entitled only to request pre-financing of up to 60 percent of the FLO International minimum price.
• Pre-finance must allow access for producer organizations to cash in order to buy from their members. The payment instruments will be arranged in the contract, by mutual agreement.
• In case of several shipments the spread of the pre-finance must be fixed in the contracts. It is not always necessary to pre-finance the whole amount before the first shipment. Pre-finance must be adapted to the real needs of the producer organization.
Source: Fairtrade Labelling Organizations International—
Fairtrade Standards for Coffee, available at www.fairtrade.net
