83 well, I have come up with a better solution (I think and hope). It still uses the collar and special bedrooms but it has something a lot nicer in addition to it.
First off, the steam cooking thing will be unknown to the werecats, secondly the real purpose of the collar should be as much of a secret as possible. Instead, have the werecats believe it is to allow the fairies to more easily spot who is missing in case of an accident or something like that.
Now, why would you remove fear you might ask. Let me answer it for you.
First, you need to remember that the current werecats are poor, even for the ones that aren't enslaved and still live near the oasis's. It really doesn't take much to make their life's better.
Second thing you need to remember, a fairy is small a werecat is pretty big. They already proven to be able to sustain each other through farming, now, how much extra food would an fairy city need?
You may already see where I am going with this, if not well here it is.
The fairies don't treat the werecat slaves the same as humans did to their slaves. Instead, they make sure the werecats have a better life as "slaves" then when they are free. This doesn't take much because of how poor they are in their home land. Even the hard work they need to do is that much of a setback to archive that better life as in their home world they also had to work hard in order to keep alive.
It also wouldn't cost the fairies much as the fairies need a lot less then what a single werecat could produce. Think about it, a werecat can farm much more land then a single fairy ever could and this difference could thus pretty easily overcome the extra cost of making sure both the fairy that guards the werecat and the werecat have a good place to live.
The belt and steam chambers can then just be used as last resort to make sure that if one goes on a rampage it won't totally wreck everything.
As for why the slavery is still seen as cruel, the elves don't have this benefit of height and as such probably will need to result to how humans handled their slaves. Additionally, the fairies have all reason to make sure the werecats that are being transported think it will be just as bad if not worse. Having slaves be disappointed because the stories they heard about how awesome it is to be a slave for the fairies could very easily interfere with the point of improving their life's.
As for how it did not get leaked? Its hard for stories to spread far without Internet or other forms of long range communications. Additionally, there isn't exactly a lot of tourism to the fairy city from the elves for obvious reasons and the fairies also have all reasons and means to sink unknown ships from far away when they get near the docks thus even an elf pirate would know its suicide. Heck, even the cross breed probably knows better then to try and attack the docks of the fairies for a "rescue" mission.