Fair trade explained

Fair trade is an organized social movement and market-based approach that aims to help producers in developing countries to make better trading conditions and promote sustainability. The movement advocates the payment of a higher price to exporters as well as higher social and environmental standards. It focuses in particular on exports from developing countries to developed countries, most notably handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, wine,[1] fresh fruit, chocolate, flowers, and gold.[2] Fair trade is also associated with the trade justice movement, which advocates for Fair Trade public policies.

In 2008, products certified with FLO International's Fairtrade certification amounted to approximately US$4.98 billion (€3.4B) worldwide, a 22% year-to-year increase.[3] While this represents a tiny fraction of world trade in physical merchandise,[4] some fair trade products account for 20-50% of all sales in their product categories in individual countries.[3] In June 2008, Fairtrade Labelling Organizations International estimated that over 7.5 million producers and their families were benefiting from fair trade funded infrastructure, technical assistance and community development projects.[5] Fairtrade branding has extended beyond food and fibre, a development that has been particularly vibrant in the UK where there are 500 Fairtrade Towns, 118 Fairtrade universities, over 6000 Fairtrade churches, and over 4000 UK schools registered in the Fairtrade Schools Scheme.[6]

Definition

Although no universally accepted definition of fair trade exists, fair trade labeling organizations most commonly refer to a definition developed by FINE, an informal association of four international fair trade networks (Fairtrade Labelling Organizations International, World Fair Trade Organization (WFTO), Network of European Worldshops and European Fair Trade Association (EFTA)):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 South. Fair trade organizations, backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade.[7]

Key principles

Fair trade products are traded and marketed either by an "MEDC supply chain" whereby products are imported and/or distributed by fair trade organizations (commonly referred to as alternative trading organizations or ATOs) or by "product certification" whereby products complying with fair trade specifications are certified by them indicating that they have been produced, traded, processed and packaged in accordance with the standards.[8]

Fairtrade is the best known of the many businesses that consider themselves Fair Trade. It charges companies in rich countries, such as supermarkets or coffee packers, a fee for using its brand ‘Fairtrade’. The companies typically print the Fairtrade logo next to their own brand. The companies can charge a higher price for goods with this brand, they expect a higher turnover, and they can persuade customers that they are ethical traders. Most of the income of national Fairtrade organizations comes from this licence fee, though there is also income from donations and government grants. Most of the income is spent on marketing the brand in the country. Some goes to the international umbrella organization, the Fairtrade Labelling Organizations International, which spends it on administration of the organization and the administration and control of standards, though some small amount may go to the Third World. The available accounts do not state what happens to the money.

The money intended for the Third World does not pass through Fairtrade. The licensees must use the brand only on products produced by Fairtrade-certified producers: for most products they must be members of marketing cooperatives. The producers and cooperatives must meet a range of political standards, and pay Fairtrade Labelling Organizations International a fee for certification. The importer must pay the exporter a higher price if the product is certified. For coffee, the best known Fairtrade product, producers sell to a primary cooperative, which sells to secondary or tertiary cooperatives which do the exporting. The importer must pay a minimum price for coffee at times when the world price collapses, and at all times must pay 10c per pound above the world price for any coffee it intends to sell as Fairtrade, but does not have to pay above the market price for coffee that it intends to sell without this brand, even if it is produced to Fairtrade standards. The higher price goes to the exporter and there is no guarantee that any reaches the farmer. The higher price is called the ‘social premium’ and the exporting cooperatives and primary cooperatives use it on business expenses and on the costs of reaching Fairtrade standards and getting certification. The exporting cooperatives and primary cooperatives also use it on social projects in education, health or recreation for instance. A few pass it on as a higher price to members of the cooperative. The detail of the system varies from product to product. No information exists on how much extra money reaches the Third World in this way, or what happens to it there.

The retailers and distributors in the rich countries can charge whatever extra price they like for Fairtrade products, and they keep anything above this 10c per pound for themselves. Fairtrade does not monitor the extra price charged or profit made, and no other information exists.

General structure of the movement

Most fair trade import organizations are members of, or certified by one of several national or international federations. These federations coordinate, promote, and facilitate the work of fair trade organizations. The following are some of the largest:

In 1998, these four federations created together FINE, an informal association whose goal is to harmonize fair trade standards and guidelines, increase the quality and efficiency of fair trade monitoring systems, and advocate fair trade politically.

Student groups have also been increasingly active in the past years promoting fair trade products. Although hundreds of independent student organizations are active worldwide, most groups in North America are either affiliated with United Students for Fair Trade (USA) or the Canadian Student Fair Trade Network (Canada).

The involvement of church organizations has been and continues to be an integral part of the Fair Trade movement:

History

See main article: History of fair trade. The first attempts to commercialize fair trade goods in Northern markets were initiated in the 1940s and 1950s by religious groups and various politically oriented non-governmental organizations (NGOs). Ten Thousand Villages, an NGO within the Mennonite Central Committee (MCC) and SERRV International were the first, in 1946 and 1949 respectively, to develop fair trade supply chains in developing countries.[16] The products, almost exclusively handicrafts ranging from jute goods to cross-stitch work, were mostly sold in churches or fairs. The goods themselves had often no other function than to indicate that a donation had been made.[17]

Solidarity trade

The current fair trade movement was shaped in Europe in the 1960s. Fair trade during that period was often seen as a political gesture against neo-imperialism: radical student movements began targeting multinational corporations and concerns that traditional business models were fundamentally flawed started to emerge. The slogan at the time, "Trade not Aid", gained international recognition in 1968 when it was adopted by the United Nations Conference on Trade and Development (UNCTAD) to put the emphasis on the establishment of fair trade relations with the developing world.[18]

The year 1965 saw the creation of the first Alternative Trading Organization (ATO): that year, British NGO Oxfam launched "Helping-by-Selling", a program which sold imported handicrafts in Oxfam stores in the UK and from mail-order catalogues.[19]

By 1968, the oversized newsprint publication, the Whole Earth Catalog, was connecting thousands of specialized merchants, artisans, and scientists directly with consumers who were interested in supporting independent producers, with the goal of bypassing corporate retail and department stores. The Whole Earth Catalog sought to balance the international free market by allowing direct purchasing of goods produced primarily in America and Canada, but also in Latin America and South America.

In 1969, the first worldshop opened its doors in the Netherlands. The initiative aimed at bringing the principles of fair trade to the retail sector by selling almost exclusively goods produced under fair trade terms in "underdeveloped regions". The first shop was run by volunteers and was so successful that dozens of similar shops soon went into business in the Benelux countries, Germany, and in other Western European countries.

Throughout the 1960s and 1970s, important segments of the fair trade movement worked to find markets for products from countries that were excluded from the mainstream trading channels for political reasons. Thousands of volunteers sold coffee from Angola and Nicaragua in worldshops, in the back of churches, from their homes, and from stands in public places, using the products as a vehicle to deliver their message: give disadvantaged producers in developing countries a fair chance on the world’s market, and support their self-determined sustainable development. The alternative trade movement blossomed, if not in sales, then at least in terms of dozens of ATOs being established on both sides of the Atlantic, of scores of worldshops being set up, and of well-organized actions and campaigns attacking exploitation and foreign domination, and promoting the ideals of Nelson Mandela, Julius Nyerere, and the Nicaraguan Sandinistas: the right to independence and self-determination, to equitable access to the world’s markets and consumers.

Handicrafts vs. agricultural goods

In the early 1980s, Alternative Trading Organizations faced major challenges: the novelty of some fair trade products began to wear off, demand reached a plateau, and some handicrafts began to look "tired and old fashioned" in the marketplace.[20] The decline of segments of the handicrafts market forced fair trade supporters to rethink their business model and their goals. Moreover, fair trade supporters during this period became increasingly worried by the impact on small farmers of structural reforms in the agricultural sector as well as the fall in commodity prices. Many then believed it was the movement's responsibility to address the issue and to find innovative remedies to react to the ongoing crisis in the industry.

In the subsequent years, fair trade agricultural commodities played an important role in the growth of many ATOs: successful on the market, they offered a much-needed, renewable source of income for producers and provided Alternative Trading Organizations a perfect complement to the handicrafts market. The first fair trade agricultural products were tea and coffee, quickly followed by: dried fruits, cocoa, sugar, fruit juices, rice, spices and nuts. While in 1992, a sales value ratio of 80% handcrafts to 20% agricultural goods was the norm, in 2002 handcrafts amounted to 25.4% of fair trade sales while commodity food lines were up at 69.4%.[21]

Rise of labeling initiatives

Sales of fair trade products only really took off with the arrival of the first Fairtrade certification initiatives. Although buoyed by ever growing sales, fair trade had been generally contained to relatively small worldshops scattered across Europe and to a lesser extent, North America. Some felt that these shops were too disconnected from the rhythm and the lifestyle of contemporary developed societies. The inconvenience of going to them to buy only a product or two was too high even for the most dedicated customers. The only way to increase sale opportunities was to start offering fair trade products where consumers normally shop, in large distribution channels.[22] The problem was to find a way to expand distribution without compromising consumer trust in fair trade products and in their origins.

A solution was found in 1988, when the first Fairtrade certification initiative, Max Havelaar, was created in the Netherlands under the initiative of Nico Roozen, Frans Van Der Hoff, and Dutch development NGO Solidaridad. The independent certification allowed the goods to be sold outside the worldshops and into the mainstream, reaching a larger consumer segment and boosting fair trade sales significantly. The labeling initiative also allowed customers and distributors alike to track the origin of the goods to confirm that the products were really benefiting the producers at the end of the supply chain.[23]

The concept caught on: in the ensuing years, similar non-profit Fairtrade labelling organizations were set up in other European countries and North America. In 1997, a process of convergence among labelling organizations – or "LIs" (for "Labeling Initiatives") – led to the creation of Fairtrade Labelling Organizations International (FLO). FLO is an umbrella organization whose mission is to set the Fairtrade standards, support, inspect and certify disadvantaged producers, and harmonize the Fairtrade message across the movement.[24]

In 2002, FLO launched for the first time an International Fairtrade Certification Mark. The goals of the launch were to improve the visibility of the Mark on supermarket shelves, facilitate cross border trade, and simplify procedures for both producers and importers. At present, the certification mark is used in over 50 countries and on dozens of different products, based on FLO’s certification for coffee, tea, rice, bananas, mangoes, cocoa, cotton, sugar, honey, fruit juices, nuts, fresh fruit, quinoa, herbs and spices, wine, footballs, etc.

Product certification

See main article: Fair trade certification. Note: Customary spelling of Fairtrade is one word when referring to the FLO product labeling system, see Fairtrade certification

Fairtrade labelling (usually simply Fairtrade or Fair Trade Certified in the United States) is a certification system designed to allow consumers to identify goods which meet agreed standards. Overseen by a standard-setting body (FLO International) and a certification body (FLO-CERT), the system involves independent auditing of producers and traders to ensure the agreed standards are met.

For a product to carry either the International Fairtrade Certification Mark or the Fair Trade Certified Mark, it must come from FLO-CERT inspected and certified producer organizations. The crops must be grown and harvested in accordance with the international Fair trade standards set by FLO International. The supply chain must also have been monitored by FLO-CERT, to ensure the integrity of labelled prod

Fairtrade certification purports to guarantee not only fair prices, but also the principles of ethical purchasing. These principles include adherence to ILO agreements such as those banning child and slave labour, guaranteeing a safe workplace and the right to unionise, adherence to the United Nations charter of human rights, a fair price that covers the cost of production and facilitates social development, and protection and conservation of the environment. The Fairtrade certification system also attempts to promote long-term business relationships between buyers and sellers, crop prefinancing, and greater transparency throughout the supply chain and more. These claims have been challenged by critics,

The Fairtrade certification system covers a growing range of products, including bananas, honey, coffee, oranges, Cocoa bean|cocoa, cotton, dried and fresh fruits and vegetables, juices, nuts and oil seeds, quinoa, rice, spices, sugar, tea, and wine. Companies offering products that meet the Fairtrade standards may apply for licences to use one of the Fairtrade Certification Marks for those products.

The International Fairtrade Certification Mark was launched in 2002 by FLO, and replaced twelve Marks used by various Fairtrade labelling initiatives. The new Certification Mark is currently used worldwide (with the exception of the United States). The Fair Trade Certified Mark is still used to identify Fairtrade goods in the United States.

WFTO Fair Trade Organization membership

In an effort to complement the Fairtrade product certification system and allow most notably handcraft producers to also sell their products outside worldshops, the World Fair Trade Organization (WFTO) launched in 2004 a new Mark to identify fair trade organizations (as opposed to products in the case of FLO International and Fairtrade). Called the FTO Mark, it allows consumers to recognize registered Fair Trade Organizations worldwide and guarantees that standards are being implemented regarding working conditions, wages, child labour, and the environment. The FTO Mark gave for the first time all Fair Trade Organizations (including handcrafts producers) definable recognition amongst consumers, existing and new business partners, governments, and donors.

Alternative trading organizations

See main article: Alternative trading organization. An alternative trading organization (ATO) is usually a non-governmental organization (NGO) or mission-driven business aligned with the Fair trade movement, aiming "to contribute to the alleviation of poverty in developing regions of the world by establishing a system of trade that allows marginalized producers in developing regions to gain access to developed markets".[25]

Alternative trading organizations have Fair Trade at the core of their mission and activities, using it as a development tool to support disadvantaged producers and to reduce poverty, and combine their marketing with awareness-raising and campaigning.

Alternative trading organizations are often, but not always, based in political and religious groups, though their secular purpose precludes sectarian identification and evangelical activity. Philosophically, the grassroots political-action agenda of these organizations associates them with progressive political causes active since the 1960s: foremost, a belief in collective action and commitment to moral principles based on social, economic and trade justice.

According to EFTA, the defining characteristic of alternative trading organizations is that of equal partnership and respect - partnership between the developing region producers and importers, shops, labelling organizations, and consumers. Alternative trade "humanizes" the trade process - making the producer-consumer chain as short as possible so that consumers become aware of the culture, identity, and conditions in which producers live. All actors are committed to the principle of alternative trade, the need for advocacy in their working relations and the importance of awareness-raising and advocacy work.[25]

Worldshops

See main article: Worldshop. Worldshops or fair trade shops are specialized retail outlets offering and promoting fair trade products. Worldshops also typically organize various educational fair trade activities and play an active role in trade justice and other North-South political campaigns.

Worldshops are often not-for-profit organizations and run by locally based volunteer networks.

Although the movement emerged in Europe and a vast majority of worldshops are still based on the continent, worldshops can also be found today in North America, Australia and New Zealand.

Worldshops' aim is to make trade as direct and fair with the trading partners as possible. Usually, this means a producer in a developing country and consumers in industrialized countries. The worldshops' target is to pay the producers a fair price that guarantees substinence and guarantees positive social development. They often cut out any intermediaries in the import chain.

A web movement has recently begun to provide fair trade items at fair prices to the consumers. One popular one is Fair Trade a Day[26] where a different fair trade item is featured each day.

World wide

International

Every year the sales of Fair Trade products grow close to 30% and in 2004 were worth over 500 million US. In the case of coffee, sales grow nearly 50% per year in certain countries.[27] In 2002, 16 000 tons of Fair Trade Coffee was purchased by consumers in 17 countries.[27] “Fair trade coffee is currently produced in 24 countries in Latin America, Africa and Asia”.[27] The 165 FLO associations in Latin America and Caribbean are located in 14 countries and together export over 85% of the world’s Fair Trade coffee.[27]

Africa

Africa’s exports come from places such as South Africa, Ghana, Uganda, Tanzania and Kenya, these exports are valued at 24 million dollars US.[28] Between the years of 2004 and 2006 Africa quickly expanded their number of FLO certified producer groups, rising from 78to 171; nearly half of which reside in Kenya, following closely behind are Tanzania and South Africa.[28] The FLO products Africa is known for are tea, cocoa, flowers and wine.[28] In Africa there are smallholder cooperatives and plantations which produce Fair Trade certified tea.[28]

Latin America

Latin America is known for producing the majority of certified organic coffee.[29] Studies in the early 2000s show that the income, education and health of coffee producers involved with Fair Trade in Latin America were improved, versus producers who were not participating.[29] Nicaragua, Peru and Guatemala, having the biggest population of coffee producers, make use of some of the most substantial land for coffee production in Latin America and do so by taking part in Fair Trade.[29]

Bali, Indonesia

Bali, an Indonesian island with a strong clothing manufacturing sector does not yet have a fair trade charter in place.

Politics

See also: Protectionism and Dumping (pricing policy).

European Union

In 1994, the European Commission prepared the "Memo on alternative trade" in which it declared its support for strengthening Fair Trade in the South and North and its intention to establish an EC Working Group on Fair Trade. Furthermore, the same year, the European Parliament adopted the "Resolution on promoting fairness and solidarity in North South trade" (OJ C 44, 14.2.1994), a resolution voicing its support for fair trade.

In 1996, the Economic and Social Committee adopted an "Opinion on the European 'Fair Trade' marking movement". A year later, in 1997, the document was followed by a resolution adopted by the European Parliament, calling on the Commission to support Fair Trade banana operators. The same year, the European Commission published a survey on "Attitudes of EU consumers to Fair Trade bananas", concluding that Fair Trade bananas would be commercially viable in several EU Member States.[30]

In 1998, the European Parliament adopted the "Resolution on Fair Trade" (OJ C 226/73, 20.07.1998), which was followed by the Commission in 1999 that adopted the "Communication from the Commission to the Council on 'Fair Trade'" COM(1999) 619 final, 29.11.1999.

In 2000, public institutions in Europe started purchasing Fairtrade Certified coffee and tea. Furthermore, that year, the Cotonou Agreement made specific reference to the promotion of Fair Trade in article 23 g) and in the Compendium. The European Parliament and Council Directive 2000/36/EC also suggested promoting Fair Trade.[30]

In 2001 and 2002, several other EU papers explicitly mentioned fair trade, most notably the 2001 Green Paper on Corporate Social Responsibility and the 2002 Communication on Trade and Development.

In 2004, the European Union adopted the "Agricultural Commodity Chains, Dependence and Poverty – A proposal for an EU Action Plan", with a specific reference to the Fair Trade movement which has "been setting the trend for a more socio-economically responsible trade." (COM(2004)0089).

In 2005, in the European Commission communication "Policy Coherence for Development – Accelerating progress towards attaining the Millennium Development Goals", (COM(2005) 134 final, 12.04.2005), fair trade is mentioned as "a tool for poverty reduction and sustainable development".[30]

And finally, on July 6 in 2006, the European Parliament unanimously adopted a resolution on fair trade, recognizing the benefits achieved by the Fair Trade movement, suggesting the development of an EU-wide policy on Fair Trade, defining criteria that need to be fulfilled under fair trade to protect it from abuse and calling for greater support to Fair Trade (EP resolution "Fair Trade and development", 6 July 2006). "This resolution responds to the impressive growth of Fair Trade, showing the increasing interest of European consumers in responsible purchasing," said Green MEP Frithjof Schmidt during the plenary debate. Peter Mandelson, EU Commissioner for External Trade, responded that the resolution will be well-received at the Commission. "Fair Trade makes the consumers think and therefore it is even more valuable. We need to develop a coherent policy framework and this resolution will help us."[31]

France

In 2005, French parliament member Antoine Herth issued the report "40 proposals to sustain the development of Fair Trade". The report was followed the same year by a law, proposing to establish a commission to recognize fair trade Organisations (article 60 of law no. 2005-882, Small and Medium Enterprises, 2 August 2005).[30]

In parallel to the legislative developments, also in 2006, the French chapter of ISO (AFNOR) adopted a reference document on Fair Trade after five years of discussion.

Italy

In 2006, Italian lawmakers started debating how to introduce a law on fair trade in Parliament. A consultation process involving a wide range of stakeholders was launched in early October.[32] A common definition of fair trade was most notably developed. However, its adoption is still pending as the efforts were stalled by the 2008 Italian political crisis.

Netherlands

The Dutch province of Groningen was sued in 2007 by coffee supplier Douwe Egberts for explicitly requiring its coffee suppliers to meet fair trade criteria, most notably the payment of a minimum price and a development premium to producer cooperatives. Douwe Egberts, which sells a number of coffee brands under self-developed ethical criteria, believed the requirements were discriminatory. After several months of discussions and legal challenges, the province of Groningen prevailed in a well-publicized judgement. Coen de Ruiter, director of the Max Havelaar Foundation, called the victory a landmark event: "it provides governmental institutions the freedom in their purchasing policy to require suppliers to provide coffee that bears the fair trade criteria, so that a substantial and meaningful contribution is made in the fight against poverty through the daily cup of coffee".[33]

Criticism

Ethical basis of criticisms

Consumers are willing to pay more for Fairtrade products in the belief that this helps the very poor.[34] The main ethical criterion of critics of Fairtrade is that this money is diverted from the very poor farmers to businesses in rich countries, to moderately poor farmers, to employees of cooperatives or are used for unnecessary expenses, so there is inevitably an increase in death and destitution. This informs criticisms that there is reason to doubt that much of the extra money paid reaches farmers, and that there is reason to believe that Fairtrade harms non-Fairtrade farmers. There are criticisms of what is designated Unfair Trading under EU law. There are also criticisms using many other criteria.[35]

Unnecessarily Expensive Retail Pricing

Paying a Fair price directly to producers should not translate into higher retail prices. This fair price is paid directly to the producer as a way to eliminate exploitative middlemen and sweatshop labor. However, working directly with the producers also eliminates the profit margins of those middlemen. Many Fair Trade retailers insist on charging a premium because of their philanthropic motives. While an altruistic shopper with unlimited spendable income may be inclined to spend more, the average shopper simply wants a competitive price for products they want to buy. If Fair Trade companies could keep prices lower than non-Fair Trade substitutes, consumers will ALWAYS make the ethical choice to help people through Fair Trade if it it cheaper to do so. The future of Fair Trade cannot depend on the good will of a select few...the future of Fair Trade must depend on competitive positioning within the general market.[36]

What happens to the money

Little money reaches the Third World

The evidence is that little of the extra money paid by consumers reaches the farmers. The Fairtrade Foundation does not monitor how much extra retailers charge for Fairtrade goods, and retailers almost never sell identical Fairtrade and non-Fairtrade lines side by side, so it is rarely possible to determine how much extra is charged or how much reaches the producers, in spite of the Unfair Trading legislation. In four cases it has been possible to find out. One British café chain was passing on less than one percent of the extra charged to the exporting cooperative;[37] in Finland, Valkila, Haaparanta and Niemi[38] found that consumers paid much more for Fairtrade, and that only 11.5% reached the exporter. Kilian, Jones, Pratt and Villalobos[39] talk of US Fairtrade coffee getting $5 per lb extra at retail, of which the exporter would have received only 2%. Mendoza and Bastiaensen[40] calculated that in the UK only 1.6% to 18% of the extra charged for one product line reached the farmer. All these studies assume that the importers paid the full Fairtrade price, which is not necessarily the case.[41]

Less money reaches farmers

The Fairtrade Foundation does not monitor how much of the extra money paid to the exporting cooperatives reaches the farmer. The cooperatives incur costs in reaching the Fairtrade political standards, and these are incurred on all production, even if only a small amount is sold at Fairtrade prices. The most successful cooperatives appear to spend a third of the extra price received on this: some less successful cooperatives spend more than they gain. While this appears to be agreed by proponents and critics of Fairtrade,[42] there is a dearth of economic studies setting out the actual revenues and what the money was spent on. FLO figures[43] are that 40% of the money reaching the Third World is spent on ‘business and production’ which would include these costs, as well as costs incurred by any inefficiency and corruption in the cooperative or the marketing system. The rest is stated to be spent on social projects, rather than being passed on to farmers.There is no evidence that Fairtrade farmers get higher prices on average. Anecdotes state that farmers were paid more or less by traders than by Fairtrade cooperatives. Few of these anecdotes address the problems of price reporting in Third World markets,[44] and few appreciate the complexity of the different price packages which may or may not include credit, harvesting, transport, processing, etc. Cooperatives typically average prices over the year, so they pay less than traders at some times, more at others. Bassett (2009) [45] is able to compare prices only where Fairtrade and non-Fairtrade farmers have to sell cotton to the same monopsonistic ginneries which pay low prices. Prices would have to be higher to compensate farmers for the increased costs they incur to produce Fairtrade. For instance, Fairtrade encouraged Nicaraguan farmers to switch to organic coffee, which resulted in a higher price per pound, but a lower net income because of higher costs and lower yields.[46]

Lack of evidence of impact

There have been very few attempts at fair trade impact studies. It would be methodologically and logically incorrect to use these attempts to conclude that Fairtrade in general does or does not have a positive impact.[47] Griffiths (2011)[37] argues that few of these attempts meet the normal standards for an impact study, such as comparing the before and after situation, having meaningful control groups, allowing for the fact that Fairtrade recruits farmers who are already better off, allowing for the fact that a Fairtrade cooperative receives aid from a dozen other organizations – Government Departments, Aid Agencies, donor countries, and NGOs, and allowing for the fact that Fairtrade may harm other farmers. Serious methodological problems arise in sampling, in comparing prices, and from the fact that the social projects of Fairtrade do not usually aim to produce economic benefits.

Inefficient marketing system

One reason for low prices is that Fairtrade farmers are forced to sell through a monopsonist cooperative, which may be inefficient or corrupt – certainly some private traders are more efficient than some cooperatives. They cannot choose the buyer who offers the best price, or switch when their cooperative is going bankrupt.[48] There are also complaints that Fairtrade deviates from the free market ideal of some economists. Brink calls fair trade a "misguided attempt to make up for market failures" encouraging market inefficiencies and overproduction.[49]

Corruption

Low prices may also occur because the Fair Trade marketing system provides more opportunities for corruption than the normal marketing system, and less possibility of, or incentive for, controlling it. Corruption has been noted in false labelling of coffee as Fairtrade by retailers and by packers in the developing countries,[50] paying exporters less than the Fairtrade price for Fairtrade coffee (kickbacks)[51] failure to provide the credit and other services specified[52] theft or preferential treatment for ruling elites of cooperatives [53] not paying laborers the specified minimum wage [54]

Fairtrade harms other farmers

Overproduction argument

Critics argue that Fairtrade harms all non-Fairtrade farmers. Fairtrade claims that its farmers are paid higher prices and are given special advice on increasing yields and quality. Economists[49] [55] [56] [57] [58] [59] state that, if this is indeed so, Fairtrade farmers will increase production. As the demand for coffee is highly inelastic, a small increase in supply means a large fall in market price, so perhaps a million Fairtrade farmers get a higher price and 24 million others get a substantially lower price. Critics quote the example of farmers in Vietnam being paid over the world price in the 1980s, planting lots of coffee, then flooding the world market in the 1990s. The Fairtrade minimum price means that when the world market price collapses, it is the non-Fairtrade farmers, particularly the poorest, who have to cut down their coffee trees. This argument is supported by mainstream economists, not just free marketers.This argument falls away if, as critics and FLO state, farmers do not get a higher price.

Diverting aid from other farmers

Fairtrade supporters boast of ‘The Honeypot Effect’ – that cooperatives which become Fairtrade members then attract additional aid from other NGO charities, government and international donors as a result of their membership.[60] Typically there are now six to twelve other donors. Critics point out that this inevitably means that resources are being removed from other, poorer, farmers. It also makes it impossible to argue that any positive or negative changes in the living standards of farmers are due to Fairtrade rather than to one of the other donors.

Other ethical issues

Secretiveness

Under EU law (Directive 2005/29/EC on Unfair Commercial Practices) the criminal offence of Unfair Trading is committed if (a) ‘it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct’, (b) ‘it omits material information that the average consumer needs . . . and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise’ or (c) ‘fails to identify the commercial intent of the commercial practice . . . [which] causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.’ Griffiths (2011) [61] points to false claims that Fairtrade producers get higher prices, the almost universal failure to disclose the extra price charged for Fairtrade products, to disclose how much of this actually reaches the Third World, to disclose what this is spent on in the Third World, to disclose how much, if any, reaches farmers, and to disclose the harm that Fairtrade does to non-Fairtrade farmers. He also points to the failure to disclose when ‘the primary commercial intent’ is to make money for retailers and distributors in rich countries.

Imposing politics

The Fairtrade criteria are essentially political, and critics state that it is unethical to bribe Third World producers to adopt a set of political views that they may not agree with, and the donors providing the money may not agree with. In addition many of the failures of Fairtrade derive from these political views, such as the unorthodox marketing system imposed.[62] Boersma (2002, 2009) [63] the founder of Fairtrade, and like minded people[64] are aiming at a new, non-capitalist way of running the market and the economy. This may not tie in with the objectives of producers, consumers, importers or retailers.

Unethical selling techniques

Booth says that the selling techniques used by some sellers and some supporters of Fairtrade are bullying, misleading, and unethical.[65] There are problems with the use of boycott campaigns and other pressure to force sellers to stock a product they think ethically suspect. However, the opposite has been argued, that a more participatory and multi-stakeholder approach to auditing might improve the quality of the process.[66] Some people argue that these practices are justifiable: that strategic use of labeling may help embarrass (or encourage) major suppliers into changing their practices. They may make transparent corporate vulnerabilities that activists can exploit. Or they may encourage ordinary people to get involved with broader projects of social change.[67]

Misleading volunteers

A lot of people volunteer to work to support Fairtrade. They may do unpaid work for firms, or market Fairtrade in schools, universities, local governments, or parliament. Crane and Davies’[68] study shows that distributors in developed countries make ‘considerable use of unpaid volunteer workers for routine tasks, many of whom seemed to be under the (false) impression that they were helping out a charity.’

Failure to monitor standards

There are complaints that the standards are inappropriate and may harm producers, sometimes making them work several months more for little return.[69] [70] [71] [72]

There have been claims that adherence to fair trade standards by producers has been poor and that enforcement of standards by Fairtrade is very weak. Notably by Christian Jacquiau [73] and by Paola Ghillani, who spent four years as president of Fairtrade Labelling Organizations[73] There are many complaints of poor enforcement problems: labourers on Fairtrade farms in Peru are paid less than the minimum wage;[74] some non-Fairtrade coffee is sold as Fairtrade[75] ‘the standards are not very strict in the case of seasonally hired labour in coffee production.’[76] ‘some fair trade standards are not strictly enforced’[77] supermarkets avoid their responsibility.[78] In 2006, a Financial Times journalist found that ten out of ten mills visited had sold uncertified coffee to co-operatives as certified. It reported that "The FT was also handed evidence of at least one coffee association that received Fairtrade certification despite illegally growing some 20 per cent of its coffee in protected national forest land.[79]

Trade justice and fair trade

Segments of the trade justice movement have also criticized fair trade in the past years for allegedly focusing too much on individual small producer groups while stopping short of advocating immediate trade policy changes that would have a larger impact on disadvantaged producers' lives. French author and RFI correspondent Jean-Pierre Boris championed this view in his 2005 book Commerce inéquitable.[80]

Political objections

There have been largely political criticisms of Fairtrade from the left and the right. Some believe the fair trade system is not radical enough. French author Christian Jacquiau, in his book Les coulisses du commerce équitable, calls for stricter fair trade standards and criticizes the fair trade movement for working within the current system (i.e., partnerships with mass retailers, multinational corporations, etc.) rather than establishing a new fairer, fully autonomous trading system. Jacquiau is also a staunch supporter of significantly higher fair trade prices in order to maximize the impact, as most producers only sell a portion of their crop under fair trade terms.[81] It has been argued that the approach of the FairTrade system is too rooted in a Northern consumerist view of justice which Southern producers do not participate in setting. "A key issue is therefore to make explicit who possesses the power to define the terms of Fairtrade, that is who possesses the power to determine the need of an ethic in the first instance, and subsequently command a particular ethical vision as the truth."[82] Some of the criticisms of Fairtrade from the free market approach to economics appear to be linked to right wing political approaches, but this does not necessarily mean that their analysis in this particular case is unacceptable to mainstream economists.

See also

Notes and References

  1. Moseley, W.G. 2008. “Fair Trade Wine: South Africa’s Post Apartheid Vineyards and the Global Economy.” Globalizations, 5(2):291-304.
  2. Brough, David. Briton finds ethical jewellery good as gold. Reuters Canada. January 10, 2008.
  3. Fair Trade Labelling Organizations International (2009). Global Fairtrade sales increase yearly by 22%. URL accessed on January 3, 2010.
  4. http://www.wto.org/english/res_e/statis_e/its2006_e/its06_general_overview_e.pdf
  5. Fairtrade Labelling Organizations International (2008).FLO International: Annual Report 2007. URL accessed on June 16, 2008.
  6. Paull, John (2011) "The Fairtrade movement: Six lessons for the organics sector", Proceedings of the Third Scientific Conference of ISOFAR, v.2, pp. 317-320.
  7. European Fair Trade Association. (2009). http://www.european-fair-trade-association.org/efta/Doc/What.pdf URL accessed on May 4, 2009.
  8. http://www.independent.co.uk/news/appeals/indy-appeal/independent-appeal-ecuadors-yellow-revolution-1840962.html "Independent Appeal: Ecuador's yellow revolution"
  9. FLO-CERT (2008). FLO-CERT. URL accessed on August 1, 2008.
  10. http://www.fairtrade.net/generic_standards.html
  11. http://www.tenthousandvillages.com/about-history/
  12. http://www.serrv.org/category/our-story
  13. http://www.villagemarkets.org/mission/about
  14. http://www.thelutheran.org/article/article.cfm?article_id=10300&key=106089998
  15. http://www.crsfairtrade.org/about/
  16. International Fair Trade Association. (2005).Crafts and Food. URL accessed on August 2, 2006.
  17. Hockerts, K. (2005). The Fair Trade Story. p1
  18. Web site: Where did it all begin?. 24 June 2009. 7 June 2009. WFTO.
  19. http://onevillage.org/fairtrade-history.htm Fair trade history (Scott, Roy)
  20. Redfern A. & Snedker P. (2002) Creating Market Opportunities for Small Enterprises: Experiences of the Fair Trade Movement. International Labor Office. p6
  21. Nicholls, A. & Opal, C. (2004). Fair Trade: Market-Driven Ethical Consumption. London: Sage Publications.
  22. 10.1016/S0743-0167(02)00051-7. Renard. M.-C.. 2003. Fair Trade: quality, market and conventions. Journal of Rural Studies. 19. 87–96.
  23. Redfern A. & Snedker P. (2002) Creating Market Opportunities for Small Enterprises: Experiences of the Fair Trade Movement. International Labor Office. p7
  24. Web site: FLO International: FLO's Main Tasks. 27 January 2009. 2006. FLO.
  25. European Fair Trade Association (1998). Fair Trade Yearbook: Towards 2000. p.23 & 25
  26. http://FairTradeaDay.com
  27. Raynolds, Laura T., Douglas Murray, and Peter Leigh Taylor. "Fair Trade Coffee: Building Producers Capacity Via Global Networks." Journal of International Development (2004): 1109-121. Print.
  28. Raynolds, Laura T., and Siphelo Unathi Ngcwangu. "Fair Trade Rooibos Tea: Connecting South African Producers and American Consumer Markets." Geoforum (2009): 74-83. Print.
  29. Geiger-Onteo, Stephanie, and Eric J. Arnould. "Alternative Trade Organization and Subjective Quality of Life: The Case of Latin American Coffee Producers." Journal of Macromarketing (2011): 276-290. Print.
  30. FINE (2006). Business Unusual. Brussels: Fair Trade Advocacy Office
  31. Frithjof Schmidt MEP (2006). Parliament in support of Fair Trade URL accessed on August 2, 2006.
  32. Nembri, Antonietta (October 4, 2006) Equo e solidale: un convegno sul futuro normativo. URL accessed on October 28, 2006.
  33. Max Havelaar Foundation (2007). [85.82.218.199/fileadmin/Bruger_filer/Dokument_database/IKAvaerktoej/EU_siden/Max_Havalaar.pdf Dutch Province of Groningen wins summary brought by Doug Egberts and can continue specifying fair trade coffee]
  34. See for example Costa. (2010). Costa Coffee Hosts National 'Foundation Day' To Encourage Ethical Coffee Consumption. Retrieved from http://www.franchising.com/news/20080612_costa_coffee_hosts_national_foundation_day_to_enco.html ; Niemi, N. (2010). “Empowering Coffee Traders? The Coffee Value Chain from Nicaraguan Fair Trade Farmers to Finnish Consumers.” Journal of Business Ethics, 97:257-270; Trudel, R., & Cotte, J. (2009). Does it pay to be good? MIT Sloan Management Review., Winter; Arnot, C., Boxall, P., & Cash, S. (2006). Do ethical consumers care about price? A revealed preference analysis of Fair Trade coffee purchases. Canadian Journal of Agricultural Economics, 54: 555-565.
  35. Booth, Philip “Don’t bully the faithful into buying Fairtrade", The Catholic Herald, 20 February 2009; Booth, P. and L. Whetstone (2007) ‘Half a Cheer for Fair Trade’, Economic Affairs, 27, 2, 29–36; Griffiths, P., ‘Ethical objections to Fairtrade’ Journal of Business Ethics July 2011 (DOI) 10.1007/s10551-011-0972-0 www.springerlink.com Accessed at http://www.griffithsspeaker.com/Fairtrade/why_fair_trade_isn.htmCarimentrand, A., & Ballet, J. (2010). When Fair Trade increases unfairness: The case of quinoa from Bolivia. http://ethique.perso.sfr.fr/Working%20paper%20FREE-Cahier%20FREE%20n%B05-2010.pdf: Working paper FREE-Cahier FREE n°5-2010; Doppler, F., & Cabañas, A. A. (2006). Fair Trade: Benefits and Drawbacks for Producers. Puente @ Europa -, Año IV, Número 2 - Junio 2006, 53-56.
  36. http://www.villagemarkets.org/mission/is-it-more-expensive
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  38. Valkila, J., Haaparanta, P., & Niemi, N. (2010). “Empowering Coffee Traders? The Coffee Value Chain from Nicaraguan Fair Trade Farmers to Finnish Consumers.” Journal of Business Ethics, 97:257-270.
  39. Kilian, B., Jones, C., Pratt, L., & Villalobos, A. (2006). “Is Sustainable Agriculture a Viable Strategy to Improve Farm Income in Central America? A Case Study on Coffee”. Journal of Business Research, 59(3), 322–330.
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  42. e.g. Utting-Chamorro, K (2005). Does Fairtrade make a difference? The case of small coffee producers in Nicaragua. Development in Practice, Volume 15, Numbers 3 and 4, June 2005, Berndt, C. E. (2007). Is Fair Trade in coffee production fair and useful? Evidence from Costa Rica and Guatemala and implications for policy. Washington DC.: Mercatus 65 Policy Series, Policy Comment 11, Mercatus Centre, George Mason University.
  43. Fairtrade Labelling Organizations International.: 2010, Annual Report 2009-2010. Retrieved May 27, 2011, from http://www.fairtrade.net/fileadmin/user_upload/content/2009/resources/FLO_Annual-Report-2009_komplett_double_web.pdf
  44. See Bowbrick, P, “Are price reporting systems of any use?”, British Food Journal. 90(2) 65-69 March/April. 1988. Current international research on Third World market information systems is given at http://www.sim2g.org/.
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  49. Brink, Lindsey. (2004). Grounds for Complaint. URL accessed on September 25, 2006.
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