The following post was written by Daniel Fireside, Equal Exchange Capital Coordinator
What do interest rates have to do with the price of coffee? Why do we care and who decides these things anyway?
As many of you know, coffee is a commodity and as such, is traded on the stock market. The Fair Trade system broke from the New York “C” market and set up its own, higher prices. Direct relationships allow producers to negotiate contract prices with their buyers.
When Equal Exchange bought our headquarters and roasting facility about a dozen years ago, we took out a mortgage with one of those big banks you’ve likely heard of, and they set our interest rate based on something called the London Interbank Offered Rate, or LIBOR.
At the ten year mark, however, we had a chance to refinance the loan and shop for a new lender. We found a social lender very much aligned with our cooperative and Fair Trade values, the nonprofit RSF Social Finance. Several years ago, RSF broke with lending orthodoxy and decided that it wouldn’t use the LIBOR to set their interest rates. This was a prescient move, as there was a global scandal brewing which involved financial traders from major banks colluding to manipulate the interest rates for their own profits.
RSF began a more holistic process to determine interest rates that considers the needs and resources of all of its stakeholders. Rather than just plug in another abstract formula, RSF staff get input from actual stakeholders by holding meetings between groups of borrowers and lenders and then sets their interest rate accordingly.
Last year, Equal Exchange was asked to host one of those meetings at our headquarters. We gave a tour of our roasters, packing lines, offices, and warehouse with its thousands of pounds of Fair Trade organic coffee to a group of about two dozen mission-driven business leaders, individual and institutional lenders, and a few RSF staff that came out from the West Coast to facilitate. We all had a chance to make a case for what the interest payments meant to us. Each person present was asked to consider what it would mean for everyone if their base rate went up or down. Even the RSF considered how they could lower their fees without impacting their ability to carry out their work. The feedback was taken back to RSF headquarters and provided to the loan committee.
John Bloom, VP of Organizational Culture at RSF, wrote a fascinating article that goes deeper into why the lender goes to these extraordinary lengths to set something so mundane, yet so important, as an interest rate.
For Equal Exchange, this is an important part of our approach to finance and everything we do here– one that involves transparency and consideration for the well-being of every stakeholder on all sides of an economic transaction.
Read the full article on the Huffington Post here.
May 23, 2016