(Redirected from Fair Trade)
'Fair trade' is an organized
social movement which promotes standards for international
labor,
environmentalism, and social policy in areas related to production of
Fairtrade labeled and unlabeled
goods. The movement focuses in particular on exports from developing countries to developed countries.
Fair trade's strategic intent is to deliberately work with marginalised producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency. It also aims at empowering them to become stakeholders in their own organizations and actively play a wider role in the global arena to achieve greater equity in
international trade.
Fair trade proponents include a wide array of international religious, development aid, social and environmental organizations such as
Oxfam,
Amnesty International, and
Caritas International.
As have most
developmental efforts, fair trade has proved itself controversial and has drawn criticism from both ends of the
political spectrum. Some economists and conservative
think tanks see fair trade as a type of
subsidy that impedes growth. Segments of the
left criticize fair trade for not adequately challenging the current trading system.
In
2006,
Fairtrade certified sales amounted to approximately €1.6 billion worldwide, a 41% year-to-year increase.
[1] While this represents less than one hundredth of a percentage point of world trade in physical merchandise,
[2] fair trade products generally account for 0.5-5% of all sales in their product categories in Europe and North America.
[3] In October 2006, over 1.5 million disadvantaged producers worldwide were directly benefiting from fair trade while an additional 5 million benefited from fair trade funded infrastructure and community development projects.
Definition of fair trade
The most widely recognized definition of fair trade was created by
FINE, an informal Association of the four main fair trade networks (
Fairtrade Labelling Organizations International,
International Fair Trade Association,
Network of European Worldshops and
European Fair Trade Association):
[4]
Key fair trade principles
Workers sorting and pulping
coffee beans on a fair trade plantation in
Guatemala
Fair trade advocates generally support the following principles and practices in trading relationships:
[5]
;Creating opportunities for economically disadvantaged producers
:Fair trade is a strategy for poverty alleviation and
sustainable development. Its purpose is to create opportunities for producers who have been economically disadvantaged or marginalized by the conventional trading system.
;
Transparency and accountability
:Fair trade involves transparent management and commercial relations to deal fairly and respectfully with trading partners.
;Capacity building
:Fair trade is a means to develop producers’ independence. Fair trade relationships provide continuity, during which producers and their marketing organizations can improve their management skills and their access to new markets.
;Payment of a fair price
:A fair price in the regional or local context is one that has been agreed through dialogue and participation. It covers not only the costs of production but enables production which is socially just and environmentally sound. It provides fair pay to the producers and takes into account the principle of equal pay for equal work by women and men. Fairtraders ensure prompt payment to their partners and, whenever possible, help producers with access to pre-harvest or pre-production financing.
;
Gender equity
:Fair trade means that the work of men and women is properly valued and rewarded. Each person is always paid for their contribution to the production process and are empowered in their organizations, regardless of gender.
;Working conditions
:Fair trade means a safe and healthy working environment for producers. The participation of children (if any) does not adversely affect their well-being, security, educational requirements and need for play and conforms to the
UN Convention on the Rights of the Child as well as the law and norms in the local context.
;
Environmental protection
:Fair trade actively encourages better environmental practices and the application of responsible methods of production.
General structure of the movement
Most fair trade import organizations are members or certified by one or several national or international federations. These federations coordinate, promote and facilitate the work of fair trade organizations. The following are the largest and most influential:
★ The
Fairtrade Labelling Organizations International (FLO), created in
1997, is an association of 3 producer networks and 20 national labelling initiatives that promote and market the Fairtrade Certification Mark in their countries. The FLO labelling system is the largest and most widely recognized standard setting and certification body for
labelled Fairtrade. It regularly inspects and certifies producer organizations in more than 50 countries in
Africa,
Asia and
Latin America, encompassing approximately one million families of farmers and workers.
★ The
International Fair Trade Association (IFAT) is a global association created in 1989 of fairtrade producer cooperatives and associations, export marketing companies, importers, retailers, national and regional fair trade networks and fair trade support organizations. In
2004 IFAT launched the FTO Mark which identifies registered Fair Trade Organizations (as opposed to the
FLO system, which labels products).
IFAT has nearly 300 member organizations in over 60 countries.
★ The
Network of European Worldshops (NEWS), created in
1994, is the umbrella network of 15 national
Worldshop associations in 13 different countries all over
Europe.
★ The
European Fair Trade Association (EFTA), created in
1990, is a network of European fair trade organisations which import products from some 400 economically disadvantaged producer groups in Africa, Asia and Latin America. EFTA's goal is to promote fair trade and to make fair trade importing more efficient and effective. The organization also published yearly various publications on the evolution of the fair trade market. EFTA currently has eleven members in nine different countries.
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.
★ The
Fair Trade Federation (FTF) is an association of Canadian and American fair trade wholesalers, importers and retailers. The organization links its members to fair trade producer groups while acting as a clearinghouse for information on fair trade and providing resources and networking opportunities to its members.
Student groups have also been increasingly active in the past years promoting fair trade products both on their campuses and their communities. 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).
History
Main articles: 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.
[6] 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.
[7]
Solidarity trade
Fair Trade goods sold in Worldshops
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
UNCTAD (
United Nations Conference on Trade and Development) to put the emphasis on the establishment of fair trade relations with the developing world.
[8]
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.
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 you 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.
Handcrafts vs. agricultural goods
In the early 1980s, Alternative Trading Organizations faced a major challenge: the novelty of some fair trade products started wearing off, demand reached a plateau and some handicrafts began to look “tired and old fashioned” in the marketplace.
[9]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 of the fall of agricultural
commodity prices on poor producers. 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 alternative to the stagnating 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 sales while commodity food lines were up at 69.4 %.
[10]
Rise of labelling initiatives
Early Fairtrade Certifications Marks
Sales of fair trade products however only really took off with the arrival of the first
Fairtrade labelling 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.
[11] 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 labelling initiative,
Stichting Max Havelaar, was created 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.
[12]
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 “Labelling Initiatives”) – led to the creation of
Fairtrade Labelling Organizations International.
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.
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 and
footballs etc.
Fair trade today
Global fair trade sales have soared over the past decade. The increase has been particularly spectacular among Fairtrade labelled goods: in
2006, these sales amounted to approximately €1.6 billion worldwide, a 41 % year-to-year increase.
[1] As per
December 2006, 569 producer organizations in 58 developing countries were
FLO-CERT Fairtrade certified and over 150 were
IFAT registered..
[1][15]
Fairtrade certification and labelling
Main articles: Fairtrade certification
Fairtrade Labelling Organizations (FLO) product certification
''Note: Customary spelling of Fairtrade is one word when referring to the FLO product labelling system''
Fairtrade labelling (usually simply Fairtrade or
Fair Trade Certified in the
US) 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 Fairtrade standards set by
FLO International. The
supply chain must also have been monitored by
FLO-CERT, to ensure the integrity of labelled products.
Fairtrade certification guarantees 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 promotes long-term business relationships between buyers and sellers, crop prefinancing and greater transparency throughout the supply chain.
The
Fairtrade certification system covers a growing range of products, including
bananas,
honey,
coffee,
oranges,
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 Canada and the United States).
The
Fair Trade Certified Mark, used in Canada and in the United States, also still identifies Fairtrade goods in both countries. Full transition to the new Mark should become reality in the future as it gradually replaces the old Certification Marks in both countries.
IFAT Fair Trade Organization certification
In an effort to complement the Fairtrade product certification system and allow most notably handcraft producers to also sell their products outside
worldshops, the
International Fair Trade Association (IFAT) 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.
Fair trade impact studies
Several independent studies have recently measured the impact of fair trade on disadvantaged farmers and workers.
In 2002, Loraine Ronchi of the Poverty Research Unit at the
University of Sussex studied the impact of fair trade on the Coocafe cooperative in
Costa Rica. Ronchi found that fair trade strengthened producer organizations and concluded that "in light of the coffee crisis of the early
1990s, fair trade can be said to have accomplished its goal of improving the returns to small producers and positively affecting their quality of life and the health of the organisations that represent them locally, nationally and beyond".
[16]
In 2003, the Fair Trade Research Group at
Colorado State University conducted seven case studies of Latin American Fairtrade coffee producers (UCIRI, CEPCO, Majomut, Las Colinas & El Sincuyo
La Selva, Tzotzilotic and La Voz) and concluded that Fair Trade has "in a short time greatly improved the well-being of small-scale coffee farmers and their families"
[17] The various case studies most notably found that producers had under Fair Trade greater access to credit and external development funding.
[18] The studies also found that Fair Trade producers had, compared to conventional coffee producers, greater access to training and enhanced ability to improve the quality of their coffee.
[19]. Families of Fair Trade producers were also said to be more stable and children had better access to education than in families growing conventional coffee.
[20]
A case study of Bolivian coffee Fair Trade producers published by Nicolas Eberhart for French NGO
Agronomes et Vétérinaires sans frontières in 2005 concluded that Fair Trade certification has had in the
Yungas a positive impact on local coffee prices, thus economically benefiting all coffee producers (Fairtrade certified or not). Fair Trade was also said to have strengthened producer organizations and increased their political influence.
[21]
An econometric analysis conducted by Becchetti and Costantino (2006) verified the impact of Fair Trade affiliation on monetary and non monetary measures of well-being on a sample of
Kenyan farmers. The researchers compared a
control sample group of farmers to
Fair trade certified groups and Meru herbs farmers. Becchetti and Costantino documented the following: during the same period, Fair trade farmers were more successful in diversifying their production, experienced a significant drop in child mortality, improvements in terms of monthly household food consumption, greater satisfaction in terms of prices obtained for their crop, living conditions etc. Methodological problems such as the relative contribution of Fair Trade and Meru herbs farmers, control sample bias, Fair trade and Meru Herb selection biases are discussed and addressed showing that ex ante selection of Meru members contributes to explain some but not all the results of the study.
[22]
A sociological research published by Virginie Diaz Pedregal (2006) analyzes practices of exchange and the effects of « fair division » in coffee organizations using fair trade in the Andean context (Peru, Ecuador and Bolivia). The study deals with the way beneficiaries perceive fair trade, and its importance within the communities. Positive and negative effects of fair trade are discussed.
[23]
Michigan State University assistant professor
Daniel Jaffee conducted a four year study of the impact of fair trade on Michiza cooperative coffee producers, in
Oaxaca,
Mexico. Jaffee's findings, published in the 2007 book "Brewing Justice: Fair Trade Coffee, Sustainability, and Survival", provide a nuanced view of fair trade: "Fair trade's higher prices increase gross household income - although, because most fair trade coffee is also certified organic, producers have higher costs of production as well. Participation in fair trade reduces households' debt and enhances their economic options, affording them the possibility of better feeding and educating their children. Fair trade affords peasant farmers partial protection from some of the worst aspects of commodity crises and in many cases allows them the breathing room needed to engage in more sustainable agricultural practices. Furthermore, the extra capital from fair trade can generate important economic ripple effects within communities, providing additional employment even for nonparticipating families. However, fair trade is not a panacea, and it does not bring the majority of participants out of poverty. (...) Demand for fair trade products must increase dramatically in order to augment the economic benefits for such small farmer families and allow the system to include many more producers of coffee and other commodities around the world."
[24]
Fair trade and politics
European politics
As early as
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.
[25]
In
1998, the European Parliament adopted the “Resolution on Fair Trade” (OJ C 226/73, 20.07.1998), which was followed by the European Commission|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.
25
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”.
25
And finally, on
July 6,
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."
[26]
French politics
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).
[27]
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.
British politics
In 2007, both Scottish and Welsh governments were actively attempting to become the "world's first fair trade country". In Wales, the campaign to make Wales the world’s first Fair Trade country was launched in 2004 by the
National Assembly for Wales.
[28] In Scotland, First Minister
Jack McConnell pledged that Scotland would become a "Fair Trade Nation" in 2006.
[29]
In June 2007, a
parliamentary committee published the report
Fair Trade and Development, criticising the government for "failing to adequately support fair trade despite having said it wanted to help poor countries trade their way out of poverty". The MPs, led by Gordon MP
Malcolm Bruce, said the
Department for International Development "had not kept pace with growing support for fair trade among the public and retailers".
The committee report examined several ethical trading schemes and concluded that fair trade was "gold standard in terms of trading relations with producers". It called for greater support both domestically and internationally of fair trade organisations and recommended making a senior official responsible for fair trade within the government. The report also suggested to commission research on the feasibility of a labelling scheme which will force all retailers to show how much they paid farmers and workers in the developing world for each particular product.
[30]
Italian politics
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 early October.
[31]
Belgian politics
Belgian lawmakers have started discussing in
2006 a possible legislation on fair trade.
[32]
Common justifications for fair trade
Implicit and often explicit in fair trade is a criticism of the current organization of international trade as being "unfair". Fair trade advocates argue in favor of the need for fair trade by mentioning the proported
microeconomic market failures of the current system and an alleged commodity crisis and its impact on
developing country producers.
Free trade and market failures
All
FINE members and fair trade federations support in theory the principles of unhindered
free trade. However, as
Alex Nicholls, social entrepreneurship professor at
Oxford University, states, the "key conditions on which
classical and
neo-liberal trade theories are based are notably absent in
rural agricultural societies in many
developing countries."
[33] Perfect market information, perfect access to markets and
credit, and the ability to switch production techniques and outputs in response to market information are fundamental assumptions which "are fallacious in the context of agricultural producers and workers in developing countries".
33
According to Fair trade proponents, the absence of these microeconomic conditions can nullify or even reverse the potential gains to producers from
trade. While
Nicholls agrees that the win-win situation for all actors involved may be broadly correct in some markets, nevertheless, "within developing countries market conditions are not such that producers can unambiguously be declared to be better off through trade."
33 The existence of these
market failures lessens the capacity trade has to lift developing countries out of
poverty.
Fair trade is seen as an attempt to address these proported market failures by providing producers a stable price for their crop, business support, access to premium Northern markets and better general trading conditions.
The commodity crisis
Fair trade advocates also often point out that unregulated competition in global commodity markets ever since the
1970s and
1980s has encouraged a price "
race to the bottom". During the
1970-
2000 period, prices for many of the main agricultural exports of developing countries, such as
sugar,
cotton,
cocoa and
coffee, fell by 30 to 60 percent.
[34] According to the
European Commission, “the abandonment of international
intervention policies at the end of the 1980s and the commodity market reforms of the
1990s in the developing countries left the commodity sectors, and in particular small producers, largely to themselves in their struggle with the demands of the markets”. Today, “producers… live an unpredictable existence because the prices for a wide range of commodities are very volatile and in addition follow a declining long-term trend”.
[34] The total loss for developing countries due to falling commodity prices has been estimated by the
Food and Agricultural Organisation (FAO) to total almost $250 billion during the
1980-
2002 period.
25
Millions of poor farmers are dependent on commodities and on the price they receive for their
harvest. In about 50 developing countries, three or fewer primary commodity exports constitute the bulk of export revenue.
Many farmers, often without other means of subsistence, are obliged to produce more and more, no matter how low the prices are. Research has shown that those who suffer most from declines in commodity prices are the rural poor — i.e. the majority of people living in developing countries. Basic
agriculture employs over 50% of the people in developing countries, and accounts for 33% of their GDP.
[36]
Fair trade supporters believe current market prices do not properly reflect the true costs associated with production; they believe only a well-managed stable minimum price system can cover environmental and
social production costs.
Criticism
Main articles: Fair trade debate
Fair trade's increasing popularity has drawn criticism from both ends of the
political spectrum. Different arguments are used by those who favour and by those who oppose fair trade, or feel that more strict standards and higher fair trade prices are needed. These arguments can be divided into five broad categories:
★ The 'price distortion' argument, advocated by the
Adam Smith Institute[37] and ''
The Economist'' magazine
[38] calling fair trade a "misguided attempt to make up for market failures" encouraging market inefficiencies and overproduction.
[39]
★ The 'creation of insider/outsider markets' argument, defended by the
Institute of Economic Affairs.
[40] This argument does not explicitly criticize the ideals behind fair trade, but rather current certification, production and pricing systems.
★ The 'trade justice' argument, championed by French author and broadcaster
Jean-Pierre Boris[41] criticizing fair trade for stopping short of actively advocating immediate trade policy changes that would have a larger impact on disadvantaged producers' lives.
★ The 'mainstreaming argument', defended by French author Christian Jacquiau, which criticizes the largest part of the fair trade movement for working within the current system (i.e. partnerships with mass retailers,
multinational corporations etc.) rather than establishing a fairer and fully autonomous trading system.
Price distortion argument
Effects of a Price Floor
Similar to other
farm subsidies, fair trade attempts to set a
price floor for a good that is in many cases above the
market price and therefore encourages existing producers to produce more and new producers to enter the market, leading to excess supply. Through the laws of
supply and demand, excess supply can lead to lower prices in the non-Fair Trade market.
According to Alex Singleton of the
Adam Smith Institute, while fair trade is based on "the best of intentions," it might in fact "make things worse."
[37] Singleton's comments echo the main criticisms of Fair Trade, that "it also leads fair trade producers to increase production." While benefiting a number of Fair Trade producers over the short run, fair trade critics worry about the impact on long run development and economic growth. The reason coffee prices are so low on the world markets is that there is too much production.
By encouraging even more supply of coffee, fair trade makes the world price fall further.
This makes the vast majority of coffee producers worse off. In 2003,
Cato Institute's vice president for research
Brink Lindsey referred to fair trade as a “well intentioned,
interventionist scheme...doomed to end in failure." Fair trade, according to Lindsey, is a misguided attempt to make up for
market failures in which one flawed pricing structure is replaced with another.
[39]
Several academics, including Hayes
[44], Becchetti and Rosati
, identify two counterarguments to this reasoning.
#First, in many cases the exchange between producers and intermediaries does not occur in a competitive framework.
In such case the market price is a distortion because it does not reflect the productivity of producers but their lower market power.
[45]
#Second, the food industry produces highly differentiated products with a continuous wave of innovations that create new varieties. There is not one single coffee but instead many different coffee products that are differentiated from one another in terms of quality, blends, packaging, and now also "social responsibility" features. For each of these products there exists a specific and different market price that is determined by consumer taste for that kind of product (which for fair trade coffees does not seem to be weak or declining).
In this sense, fair trade is an innovation in the food industry that creates a new range of products.
[46]
Beyond these elements, it is important to also take into account all the potential benefits of the fair trade value chain in terms of provision of local public goods, technical assistance that strengthens producers' market capabilities, democratization of markets through increasing consumer power, etc.
Fair trade organizations such as
FLO International also respond to the oversupply argument by claiming that fair trade is very much a market-responsive model of trade: the farmers receive the Fairtrade minimum prices and premiums only if they have a buyer willing to pay them, and many producer groups also sell in the conventional market. According to Luuk Zonneveld, Managing Director at FLO International, "our experience is that producers use their additional income from Fairtrade to improve their homes, send their children to school and improve the quality of their existing crop, rather than to increase production."
[47] Fair trade organizations have also long encouraged producers to invest in diversification and specialty crop development programs. Examples include coffee growers developing citrus or
macadamia nuts,
banana farmers moving into other premium tropical produce, or investment in alternative income-generation projects such as eco-tourism, or in community health and education programs.
[48]
Mainstreaming argument
On the other end of the spectrum, some believe a large part of 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 a segment of the fair trade movement, especially the French labelling organization
Max Havelaar France, 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. He defends in his book a minority of fair trade networks (such as ''Minga'' or ''Artisans du monde'' in France) that he believes have higher ethical value
[49].
References
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