The news follows the recent move by Nescafe into ethical marketing, with the announcement last week that it is to launch a fair trade coffee brand.
Oxfam hopes Progreso will close the gap between coffee growers and coffee lovers on the high street.
The chain will have a strong emphasis on fair trade, guaranteeing a fair price for producers and will be launched in partnership with Matthew Algie, the UK's largest independent coffee roaster.
The new chain's espresso will be a premium quality fair trade blend of coffee beans from three cooperatives in Honduras, Ethiopia and Indonesia, who will also have partial ownership of the venture.
Cooperatives will own 25% of the firm's shares and 25% are being held in a trust for projects in the wider grower community. Oxfam will own the remaining 50% of Progreso, which will be a standalone operation. Fair trade food, such as biscuits and cakes, will also be sold.
By the end of this year, Oxfam says it hopes to have three shops, with one in London and one in Glasgow, and this will rise to 20 by 2007. Concession partners able to provide suitable locations within existing retail operations, such as large bookstores, are also being sought.
Although Oxfam maintains that it has no intention of challenging the multinationals such as Starbucks and Costa, consumers in some areas will inevitably have to make a choice.
The news that Nescafe is launching a fair trade brand caused controversy last week. A 2002 report from Oxfam, entitled 'Mugged: Poverty in your Coffee Cup', condemned Nestle as one of the big four coffee companies exploiting growers.
Chris Coe, Oxfam's trading director, said: "Coffee growers will win three times with Progreso. They'll be selling their coffee at a fair trade price; they'll share directly in the profits and will also showcase their coffee to the UK."
Fair trade coffee is the fastest growing sector of the UK coffee market. In 2003, consumers purchased 2,083 tonnes of fair trade coffee from shops and supermarkets, an increase of 42% from 2002.
Coffee shops sold 385 tonnes of fair trade coffee during the same period -- an annual increase of 67%. However, coffee growers around the world are suffering through low prices that have fallen 70% since 1997.
David Williamson, managing director of Matthew Algie, said: "Although we are entering a competitive arena, fair trade coffee is developing faster than any other part of the market and in the right locations, coffee bars can be very profitable. We're committed to fair trade because we care about growers and supplying the finest coffee to consumers. "
Oxfam was one of the joint founders of Cafedirect; the UK's largest fair trade hot drinks company.
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