Nvate Ndepth: How Fair is Fair Trade? Part I

By Carolina Luna

Chances are you’ve probably purchased a “Fair Trade” product. This social movement and international certification process aims to promote sustainable farming practices, improved social conditions, and increases wages among the poor farms that provide much of the world with its food. But what, exactly, lies behind the good intentions of the fair trade system?

Advocates claim the fair trade system offers these smaller-scale farmers a more direct, environmentally responsible, and socially just trade relation between them and the consumers in wealthier countries. But how much is the fair-trade system benefiting the farmers by providing them with better prices and social justice? Or is it as critics claim: a niche market that benefits some and exclude others? As more consumers continue to demand organic and sustainable products, is the fair-trade movement ready to cope with its demand and its transition into mainstream America?

The Beginning of Fair Trade

Coffee became the first commodity to be certified by a third-party, and it continues to be the largest certified fair-trade product due to its importance in the global market; according to the National Coffee Association, the U.S. alone spends about $40 billion on coffee each year.

By the early 1990s, national fair-trade certification emblems began to appear all across Western Europe and in North America with the help of non-profit fair trade labelling organizations such as Max Havelaar and the Fair Trade Foundation.

fair trade foundation logo

Fair Trade Foundation Logo

But it was not until 1997, when 17 European national fair trade initiatives joined together and formed the global umbrella organization, Fairtrade Labelling Organizations International (FLO), based in Bonn, Germany.

Currently, the FLO International is split into two independent organizations: FLO which lays down the Fairtrade Standards, supports disadvantaged producers, and coordinates the development of global strategy on Fairtrade, and FLO-CERT, which ensures that social and environmental standards are met and that producers receive the Fairtrade Minimum Price and a premium for their products.

The minimum prices are set by the FLO International to protect and lessen the risks for producers in the event that market prices fall. The premium is an additional sum given not to the farmer but to its community for development projects. Supporters of fair trade argue that both the minimum prices and the premium is what makes the movement a success and transforms the lives of producers.

Who Benefits from Fair Trade?

To bring order to the fair trade movement in 2001, the four main fair trade networks came together and agreed on a general definition for it: “Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers—especially in the “Global South.”

The Global South, in the fair trade movement, refers to three developing regions: Africa, Asia, and Latin America. FLO international has estimated that there are more than 1.2 million workers and farmers from these regions participating in the fair-trade system. Producers that participate in it export a wide range of commodities like cocoa, honey, tea, (especially) coffee, bananas, sugar, herbs, to non-foodstuffs such as flowers, soccer balls, and cotton.

As stated by FINE, the body representing the four main fair trade networks, fair trade ensures a both fairer and shorter supply chain between the producers and the consumers by eliminating the middlemen, importers, and various other brokers.

Fair trade networks claim this shorter supply chain trade gives producers more access to the consumer’s purchase price. Professor Daniel Jaffee of Washington State University argues that fair-trade organizations Equal Exchange and Fair Trade USA make big promises about the benefit they offer producers.

“These advocates,” points out Jaffee, “assert that fair trade not only results in more just prices or living wages, ends rural poverty, fosters sustainable farming, empowers poor people and women, and enhances food security, but also creates a fundamentally more equitable international marketplace.”

In the U.S. about 9,500 products are sold in over 60,000 retail locations. Fair Trade USA, the leading third-party commodity certifier in the U.S., argues their certified program “enables sustainable development and community empowerment by cultivating a more equitable global trade model that benefits farmers, workers, consumers, industry and the earth.”

Fair trade networks insist that their system works because producers are given a minimum price for their crops (regardless if the market price has fallen), plus they are given a premium to help their communities. Fair Trade buyers are required to pay the minimum price, which is the lowest starting point for price negotiations, according to the Fair Trade standards. But if the market price is higher than the minimum price, buyers must pay the higher market price.

Depending on the commodities the minimum prices range from $0.03 to a couple hundred dollars; just like all business, it depends on the quantity and quality of the product. For example, coffee farmers receive a minimum price of $1.05 per pound and a premium of $.20 per pound. If the coffee is certified organic, producers receive an extra $.30 for it. Many South American small producers and hired laborers receive $6.39 per 18 kilograms of bananas, a premium of $1.00.

Fair Trade USA said that in 2010 its 732 business partners helped producers invest over $14 million in community development such as clean water, job training, education, housing, health care, and micro-finance. According to the Fair Trade Standards, cooperative farmers democratically decide on what community development projects they wanted to spend their premium funds on. For example, small-scale sugarcane farmers from cooperatives in Paraguay have used their premiums to invest in tractors and in organic certification.

To receive the benefits of the fair trade movement, producers are required to be part of an association or a cooperative. Both farmers and farm workers must form councils or joint bodies to manage the premium funds democratically. Farmers are also required to use environmentally sustainable farming methods. Namely, they are not allowed to use GMOs (Genetically Modified Organisms) or toxic agrochemicals. Hired laborers are protected under the Fair Trade standards. Child labor, forced labor, and work-place discrimination are prohibited.

Buyers, too, must followed a set of standards to be granted permission to use the Fair Trade Certification mark on their products. Products must be carefully tracked – excluding cocoa, cane sugar, fruit juice, and tea because they lose their physical traceability. They must sign a binding purchase contract with producers stating the quantity, quality, price, payment terms, and delivery conditions. Prices must be fixed by mutual agreement and buyers must provide financial assistance such as pre-payments, advance-payments, or crop finance to help producers during the harvest (buyers are allowed to charge interest on the pre-finance payments).

Supporters of fair trade claim that the movement is a global effort by activists and NGOs to advocate for the exploited workers and farmers in lesser developed countries, and publicized case studies by scholars confirmed that fair trade does make a difference on small-scale farmers.

The catch? Those same studies indicate that Fair Trade alone can’t lift farmers from poverty. One caveat: it’s hard to verify this by FINE’s own numbers, because although fair trade networks provide annual reports in regards of their profits and how much farmers received throughout the year these annual reports do not tell how much one cooperative or farmer received

Regardless, fair trade provides producers with “higher household incomes and lower rates of indebtedness, greater food security, improved housing, higher rates of educational attainment and greater use of environmentally sound agricultural practices,” says Jaffee.

Continue reading with “How Fair is Fair Trade Part II”

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