Published on March 16, 2014
1. Introduction to Fair Trade The Fair Trade movement shares a vision of a world in which justice and sustainable development are at the heart of trade structures and practices so that everyone, through their work, can maintain a decent and dignified livelihood and develop their full human potential. The Fair Trade movement believes that trade can be a fundamental driver of poverty reduction and greater sustainable development, but only if it is managed for that purpose, with greater equity and transparency than is currently the norm. We believe that the marginalized and disadvantaged can develop the capacity to take more control over their work and their lives if they are better organized, resourced and supported, and can secure access to mainstream markets under fair trading conditions. Fair Trade connects the aims of those in the developed world who seek greater sustainability and justice with the needs of those in the South who most need those changes. It enables citizens to make a difference to producers through their actions and choices as consumers. Demand for Fair Trade products enables Fair Trade Organizations and others who adopt Fair Trade practices to extend the reach and impacts of their work, as well as visibly demonstrating and articulating public support for changes in international trade rules to governments and policy makers. The currently accepted definition of Fair Trade is as follows: “Fair Trade is a trading partnership, based on dialogue, transparency and respect that seek 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.” 2. Core Principles of Fair Trade The principles of Fair Trade are based on the practical and shared experience of Fair Trade Organizations over many years and reflect the diversity of Fair Trade relationships. The most important of these are unique to Fair Trade and are integral to its developmental objectives. These include: 1. Market access for marginalized producers Many producers are excluded from mainstream and added-value markets, or only access them via lengthy and inefficient trading chains. Fair Trade helps producers realise the social benefits to their communities of traditional forms of production. By promoting these values (that are not generally recognized in conventional markets) it enables buyers to trade with producers who would otherwise be excluded from these markets. It also helps shorten trade chains so that producers receive more from the final selling price of their goods than is the norm in conventional trade via multiple intermediaries. 2. Sustainable and equitable trading relationships The economic basis of transactions within Fair Trade relationships takes account of all costs of production, both direct and indirect, including the safeguarding of natural resources and meeting future investment needs. Trading terms offered by Fair Trade buyers enable 1 | P a g e
producers and workers to maintain a sustainable livelihood; that is one that not only meets day-to-day needs for economic, social and environmental well-being but that also enables improved conditions in the future. Prices and payment terms (including prepayment where required) are determined by assessment of these factors rather than just reference to current market conditions. There is a commitment to a long-term trading partnership that enables both sides to co-operate through information sharing and planning, and the importance of these factors in ensuring decent working conditions is recognized. 3. Capacity building & empowerment Fair Trade relationships assist producer organisations to understand more about market conditions and trends and to develop knowledge, skills and resources to exert more control and influence over their lives. 4. Consumer awareness raising & advocacy Fair Trade relationships provide the basis for connecting producers with consumers and for informing consumers of the need for social justice and the opportunities for change. Consumer support enables Fair Trade Organizations to be advocates and campaigners for wider reform of international trading rules, to achieve the ultimate goal of a just and equitable global trading system. 5. Fair trade as a “social contract” Application of these core principles depends on a commitment to a long-term trading partnership with producers based on dialogue, transparency and respect. Fair Trade transactions exist within an implicit “social contract” in which buyers (including final consumers) agree to do more than is expected by the conventional market, such as paying fair prices, providing pre-finance and offering support for capacity building. In return for this, producers use the benefits of Fair Trade to improve their social and economic conditions, especially among the most disadvantaged members of their organization. In this way, Fair Trade is not charity but a partnership for change and development through trade. 3. Approaches to Fair Trade Fair Trade products are goods and services that are produced, traded and sold in accordance with these Fair Trade principles and, wherever possible, verified by credible, independent assurance systems such as those operated by FLO (“Fair-trade-Certified”) and wfto (Sustainable Fair Trade Management System). All Fair Trade products originate from producers and workers committed to Fair Trade principles. However, in the subsequent supply chain, Fair Trade products are traded and marketed through two distinct but complementary channels: 1. The integrated supply chain route whereby products are imported and/or distributed by organizations that 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. 2. The product certification route whereby products complying with international standards are certified indicating that they have been produced, traded, processed and packaged in accordance with the specific requirements of those international standards. 2 | P a g e
4. Benefits from Fair Trade 1. Farmers receive a fair and stable price for their products A main objective of Fairtrade is to increase producer incomes. This is achieved by payment of a guaranteed, fair price and by reducing the number of intermediaries in the supply chain so that the growers get a larger share of the export price. The Fairtrade minimum price is calculated to cover the costs of sustainable production and a sustainable livelihood. All stakeholders, including producers and traders, are consulted in the price-setting process. There is an additional premium for investment in social, commercial or environmental development projects. 2. Extra income for farmers and estate workers to improve their lives The Fairtrade premium is paid into the bank account of an elected committee set up specifically to administer the premium fund. The fund is reserved for investment in projects that are decided on with the agreement of coop members (or following consultation with the workforce in the case of plantations). The committee must produce an annual premium plan and budget which is available for scrutiny by the beneficiaries and FLO. The premium is invested in social projects such as building schools, clinics and community centers; funding scholarships; installation of electricity; and low-interest loan funds to improve housing or pay school or medical bills. Estate workers have used loans to start up small income-generating enterprises such as rearing animals and growing crops to sell meat, eggs, milk, vegetables, fruit and spices to local markets or traders. Co-ops have used the premium for environmental protection or to strengthen their businesses by financing organic conversion or quality improvement programmes. Others have built processing facilities or cupping laboratories which enable them improve the quality of their coffee and hold coffee tasting sessions for buyers. These measures allow growers to add value to a raw commodity product. 3. Greater respect for the environment Environmental protection and sustainability must be included in producer organisations’ management policies. They must comply with national and international legislation on protection of the environment (natural waters, virgin forest and other ecosystems of high ecological value), erosion, waste management and the use and handling of hazardous chemicals. The use of agrochemicals is minimised and reduced through the implementation of an Integrated Crop Management system and gradually replaced with organic fertilisers and biological disease control. Producers are encouraged to work towards organic practices where practical. 4. Small farmers have a stronger position in world markets Fairtrade strengthens producer organisations - by dealing directly with Fairtrade partners and buyers, farmers’ organisations gain crucial technical information and market knowledge that can also help them get better prices in the conventional market. 3 | P a g e
Table 1: Top countries in number of fair trade farmers and workers Country 2010 2011 % change Kenya 151200 173800 13 Tanzania 151900 169100 10.17 India 94400 121400 22.24 Ethiopia 89500 106900 16.27 Ghana 79100 78300 -1.02 Columbia 54900 55900 1.78 Peru 52900 52600 -0.5 Nicaragua 32100 34400 6.68 Mexico 27600 29600 6.75 Source: Fair trade annual reports (2012) 5. Closer link between consumers and producers Fairtrade is a grassroots consumer choice movement that empowers consumers to take responsibility for the role they play when they buy products from developing countries. When shoppers check out a roduct carrying the FAIRTRADE Mark they are the most important link in the supply chain to the producers; this act of solidarity ensures that producers receive extra income through the guaranteed price and additional premium to improve their businesses and develop their communities. It proves that consumers are willing to buy into a fairer model of trade but also sends out a wider signal in support of trade justice on a global level. Fig. 1: Value of fair trade sales year over year 5. Fair Trade Premium 4 | P a g e
The Fairtrade Premium is just one of the many benefits farmers receive from participating in Fairtrade. The Fairtrade Premium is an additional sum of money paid to farmers on top of the agreed price. It is used for the improvement of their social, economic and environmental conditions. The amount of the Fairtrade Premium is set by the FLO Standards Unit and remains the same, even if the producer is paid above the Minimum Price for the product. The Fairtrade Premium is intended to be a flexible support that farmers and workers can use to meet their specific needs and those of their communities. Accordingly, Fairtrade farmers and workers use the Fairtrade Premium in hundreds of different ways. Main areas of investment include Community, Education, Environment, Health, Gender Equity Programs and Investment in Business Development. Table 2: Top fair trade premium receiving countries Country 2009- 10 2010- 11 % change Peru 5.9 8.2 28.04 Dominican Republic 4.9 6.3 22.22 Colombia 4.8 5.9 18.64 Kenya 5.4 4.3 -25.58 Belize 3.2 3.2 0 India 1.8 2.7 33.33 Ecuador 2.3 2.7 14.81 Ghana 2.5 2.5 0 Source: Fair trade annual reports (2012) Fig. 2: Fair trade premium usage in 2010-11 6. History of Fair Trade 194 6 Edna Ruth Byler imports needlecrafts from low-income women in Puerto Rico, and displaced in Europe, laying the groundwork for Ten Thousand Villages, North 5 | P a g e
America’s first fair trade organization 194 8 Church of the Brethren establishes SERRV, North America’s second fair trade organization, to import wooden clocks from German refugees of WWII 196 8 United Nations Conference on Aid and Development (UNCTAD) embraces “Trade not Aid” concept, bringing fair trade into development policy 196 9 Oxfam and other European humanitarian organizations open the first World Shop in the Netherlands to sell crafts, build awareness and campaign for trade reform 197 2 Ten Thousand Villages opens their store, the first fair trade retail outlet in North America 198 6 Equal Exchange is established as the first fair trade cooperative in North America, importing coffee from Nicaragua as a way to make a political statement with a high- quality, household item 198 8 Farmers and activists launch the first fair trade certification system, Max Havelaar, in the Netherlands to offer third-party recognition and a label for fair trade products 198 9 International Fair Trade Association (IFTA), now WFTO, is established by fair trade pioneers as the first global fair trade network 199 4 Fair Trade Federation is formed as the first network of fair trade organizations in North America 199 7 Fairtrade Labeling Organization (FLO) is formed 199 9 TransFair USA begins certifying fair trade coffee using the TransFair USA label 200 2 FLO launches the international “FairTrade” certification mark 200 4 Producers form national and regional fair trade associations across Asia, Latin America and Africa 200 6 The Institute for Marketecology (IMO) begins their “Fair for Life” certification program 200 7 Fair trade retail sales top $1 billion in the U.S. And $2.5 billion worldwide 201 0 Organic Consumers Association (OCA) launches Fair World Project, the first fair trade consumer organization, to promote and protect the integrity of the fair trade movement 7. Key Players in Fair Trade Agents who buy Fairtrade products are obliged to pay at least a minimum price for the goods. The aim of this price floor is to cover the costs of sustainable production. They also need to pay what is called the Fairtrade premium. This premium is not paid directly to producers and workers, but to governing organizations or joint bodies. Buyers of Fairtrade must also provide long term sourcing plans so producers can predict more accurate which volumes they might want to buy. They are also obliged to provide pre-finance for 60% of the contract value on the producers’ request, in addition to some other requirements concerning traceability and documentation. 6 | P a g e
FLO allows no discrimination of members or potential members regarding the right to participate, vote, get elected, get access to markets and get technical support or any other benefits membership in the producer organization may yield. The anti-discrimination standards also apply for workers being hired by the producer organization or its members. The producer organizations receive the Fairtrade premium from traders. This income and its use are accounted for in accounts separate from other income. The Fairtrade premium income is to be used for “investments in the social, economic and environmentally-sustainable development of the organization and its members and through them, their families, workers and the surrounding community.” Fig. 3: Number of fair trade producer organizations year over year FLO also has standards concerning the use of agrochemicals, waste management, soil and water pollution and GMO’s, to secure an environmentally sustainable production. When hiring workers, producer organizations and its members must as far as possible meet ILO conditions, and must heed the workers’ right to collective bargaining, freedom from discrimination and freedom of labour. They must not use child labour, pay an at least regional average wage and secure a safe working environment. 8. Fair trade value chain 1. Producers and producer organizations 7 | P a g e
Fairtrade products start with producers in the south, who “have been economically disadvantaged or marginalized by the conventional trading system.” Producers who want to sell their products wearing the Fairtrade label need to form a producer organization. These are usually cooperatives, but can also be other types of organizations or associations. The producer organization collaborates in the bargaining with traders. To become and stay certified, producer organizations pay fees to FLO based on their number of members and products. They also need to comply with the standards described by FLO. This enables them to sell products carrying the Fairtrade label when they reach retailers in the north. However, being Fairtrade certified does not guarantee that all products can be sold as Fairtrade goods. This means that in some cases only 25-30% of the goods produced in a Fairtrade organization are sold as Fairtrade certified, even though all products must be produced according to Fairtrade standards. The rest are sold in the same markets as conventional goods. 2. Traders Fairtrade traders are typically brand owners who after refining and packaging the products sell it to retailers. As an example, the Norwegian coffee roaster “Kaffehuset Friele” imports Fairtrade coffee beans from cooperatives in Guatemala, which is then refined, packaged and sold to Norwegian supermarkets. 3. Retailers Fairtrade products are sold to customers either via supermarkets, or other retailers selling Fairtrade goods alongside conventional goods, or in so-called worldshops, non-profit outlets that specializes in Fairtrade products. In Norway there is only one worldshop, called “Friends Fair Trade”, so the bulk of Fairtrade products are sold via the mainstream supermarkets. In other countries there is a bigger share of worldshops, with Germany in the lead with 836 Fairtrade outlets. In addition to purchasing Fairtrade certified products from brand owners and traders, worldshops also trade directly with Fairtrade producer organizations. The Norwegian worldshop, for example, is a certified trader of Sports balls. 4. Consumers The fair trade movement was spawned by concerned consumers in the US and in Europe. They felt that conventional trade was unfair, and thus wanted a fair alternative. This preference for ethical goods is often described as a "warm glow effect" (Chau, et al., 2009, p. 4) which increases the utility of the good. Just knowing the good you are consuming is produced and traded in an ethical way gives you some extra utility. Maseland & de Vaal (2002) split the arguments for trading Fairtrade goods into two crude categories, based on information from Fairtrade brochures and web pages. The first type of argument is concern for the conditions for trade, and the conditions under which production of the goods take place. For example, consumers may object to child labor being used or workers handling pesticides without safety gear. In the other group are arguments regarding which consequences trade has. It is unfair, the advocates for Fairtrade says, that trade rewards differently not based on effort, but based on social and natural differences. 8 | P a g e
Consumers only concerned with the first group of arguments would find Fairtrade goods to be morally superior, and thus be willing to pay a premium, regardless of which consequences Fairtrade may have on the monetary welfare of producers and their communities. The other group will want to know what effect paying a Fairtrade premium will have on stakeholders in the south. Of course, most consumers will probably belong to both groups to different degrees. Either way, the result is an extra willingness to pay for ethical goods. A 2005 Harvard study conducted by Professor of Government Michael J. Hiscox found that marking towels and candles as Fairtrade certified increased sales even when prices went up 10 percent, and even more when prices went up 20 percent. Fig 4: Fair Trade value chain 9 | P a g e
Fig. 5: Fair trade coffee supply chain 9. Fair Trade standards Fairtrade International (FLO) sets and maintains the Fairtrade standards that producers and trading relationships must meet. FLO is owned jointly by 21 national labelling initiatives covering 22 countries and producer networks. These networks represent certified farmers and worker organisations across Asia, Africa, Latin America and the Caribbean. FLO sets standards and works with farmers and workers to help them meet the requirements; a separate certification company (FLO-CERT) regularly inspects and certifies producers against these standards. All producers, processors and exporters in the producer country are certified by FLO-CERT. The products of importers and companies in the supply chain outside of the producer country are certified either by FLO-CERT or by the local labelling Initiative. Fair trade standards are not just a list of requirements for farmers and traders to farm and trade responsibly. They go further to support disadvantaged small-scale farmers and plantation workers. Fairtrade standards cover three areas: social development, economic development and environmental development. Fair trade standards Ensure producers get a guaranteed Fairtrade Minimum Price to cover their costs Provide the additional Fairtrade Premium for farmers to invest in projects to benefit their communities and businesses Enable payment of contracts in advance if farmers need them 10 | P a g e
Encourage partnerships between trade partners Set up mutually beneficial long-term trading relationships Set clear criteria to ensure that products are produced and traded under fair and environmentally responsible conditions How do Fair Trade standards work? Producer organisations have to meet minimum requirements in order to be certified and then, over time, they must meet more requirements which demonstrate permanent improvement. For example, a minimum requirement is a ban on the use of agrochemicals in the FLO list of prohibited materials. A progress requirement is to keep reducing permitted agrochemicals. In this way, the standards enable poorer, more vulnerable farmers to enter the system, while supporting them to gradually improve their practices. Fairtrade recognises that progress depends on the economic benefits the organisation receives from Fairtrade and on the specific situation of each organisation. Who must meet Fair Trade standards? Producers and their organisations must meet Fairtrade standards, Generic Producer Standards and Product Specific Standards. Traders who deal with Fairtrade products must meet Trade Standards, Product Specific Standards and the Foundation's Fairtrade Standards. Generic producer standards Fairtrade works with two main types of producer organisations: small farmers’ organisations and commercial farms and other companies that permanently employ Hired Labour. FLO has developed distinct standards for each group that relate to their different ownership structures and other characteristics. The standards cover the aims of Fairtrade and set out in detail the criteria producers must meet to participate in Fairtrade. They also explain how Fairtrade relates to other internationally recognised standards and conventions, particularly those of the International Labour Organization (ILO), and that all producer organisations must also comply with national legislation. Where there are different values, the higher of FLO standards and national legislation takes precedence. Fairtrade Standards for Small Farmers’ Organisations Coffee, cocoa, cotton and rice are among the many products that are grown by independent small farmers who work their own land and market their produce through a local co- operative. These producers want a fair and stable price for their crop, improved and long-term market access, and payment in advance when required. The Generic Fairtrade Standards for Small Farmers’ Organisations apply to small-scale farmers who are organised into co-operatives or other associations which are organised democratically with transparent administration. 11 | P a g e
The structure of these organisations varies: while one co-operative might have 50 farmers from the same village with very small plots of land, a bigger co-operative union might include twenty member co-operatives representing several village co-ops and thousands of individual farmers. The size of land owned by individual members can vary according to membership rules, cultural norms and other factors. Fairtrade Standards for Hired Labour Tea, bananas, grapes and flowers are among the many products grown on commercial farms. Workers can participate in Fairtrade if they are organized (normally into trade unions) and if the company that they work for is prepared to promote its workers’ development and to share with them the additional revenues generated by Fairtrade. The standard covers all workers including migrant, temporary, seasonal, sub-contracted and permanent workers. The term worker is limited to those who can be unionised and therefore excludes middle and senior management. Companies working with hired labour can be certified if they comply with the requirements of the standards to pay decent wages, guarantee the right to join a trade union, ensure health and safety standards, and provide adequate housing and other social provision where relevant. Eligible companies include commercial or privately-owned farms, estates, plantations, and sportsball stitching centres. The standard also applies to processing factories located on tea estates and flower farms. The priorities for the workers (or hired labour) employed by these companies are generally decent wages and working conditions. In the Hired Labour standards, the social development criteria are intended to ensure that companies recognize and support Fairtrade as a means to increase the empowerment and well-being of their workers. They protect workers’ basic rights as defined in the conventions of the International Labour Organization (ILO) relating to: Freedom from discrimination (on the grounds of race, religion, gender, politics, and ethnic or social origin) Freedom of association (the right to join a trade union) and collective bargaining Fair conditions of employment (wages, working hours, overtime, sick pay, leave etc) No forced or child labour (minimum age of 15 years) Occupational health and safety (a safe working environment). The economic development criteria ensure the use of the Fairtrade premium for the social and economic benefit of the workers, their families and their communities. The premium cannot be used for the benefit of the company owners. A Joint Body is set up, comprising elected worker representatives and a minority of management representatives whose role is to assist and support the Joint Body in the management of the premium fund. The premium is invested in projects agreed by the Joint Body following consultation with the workforce. Workers’ representatives receive appropriate training in areas such as finance, record keeping, and administration in order to build their capacity and ability to deal with their additional Joint Body responsibilities. 12 | P a g e
Beside the premium administration it is expected that the establishment of Joint Bodies will have other positive outcomes such as the development of good working relationships between the management and workers; the empowerment of members through the process of working with Fairtrade; the acquisition of skills in leadership and communication, project planning and project management necessary to function effectively; developing the capacity to operate without further assistance. Product specific standards As well as the generic standards, producers must also meet any relevant product specific standards. These standards include additional social, economic and environmental criteria, related to a specific product, which must also be met over time. For example in the case of dried fruit produced by small farmers, the product specific standard requires that appropriate measures are being taken over time to increase the percentage of registered women growers and to promote their active role in decision-making processes (including participation at members’ meetings and establishment of a women’s subcommittees). Also, in the case of women growers and drier operators, it has to be ensured that payments are given to the woman directly and not to the husband. 10. Impact studies 1. In 2003 Fair Trade Research Group conducted case studies on Latin American Fair trade coffee producers A. Beneﬁts to Individual Producers The higher price paid for Fair Trade coffee is the most direct beneﬁt to the small-scale farmer. Fair Trade coffee receives a minimum US $1.26 per pound (including the ﬁve cent social premium) and an additional US $0.15 if it is certiﬁed organic. The precise amount of direct additional income a farmer receives through Fair Trade is difficult to calculate, primarily because payments vary according to the cooperatives’ handling of debt servicing, cooperative expenses, distribution of Fair Trade social premiums, etc. Secondly, most cooperatives cannot sell all their members’ coffee through Fair Trade channels, and so sell the remainder at regular prices. But payments to farmers for sales of Fair Trade and non-Fair Trade coffee are often pooled into a single payment. Field observations in several case studies found the revenues for Fair Trade coffee to be twice the street price for conventional coffee, even after deductions were made for cooperative management and other expenses. For example, Majomut cooperative members harvest an average of 1,500 pounds, for which farmers earned US $1,700 for organic Fair Trade certiﬁed coffee, compared to the local “street” price of US $550. With coffee production representing roughly 80 percent of Majomut family incomes, Fair Trade certiﬁcation represents a dramatic increase in their livelihoods. The range of less visible beneﬁts is even more impressive. For example, participation in Fair Trade provides individual producers with greater access to credit to cover harvest expenses and other costs than their conventional farmer counterparts. This is largely due to the requirement within Fair Trade standards that importers offer producer cooperatives pre-ﬁ 13 | P a g e
nancing at world market rates. In El Salvador, the Las Colinas cooperative receives up to 60% pre-ﬁnancing for its Fair Trade coffee at half the interest rates of national banks. The combination of the Fair Trade price guarantee and increased access to credit has contributed to greater economic and social stability for coffee farmers. Because farmers participating in Fair Trade registered cooperatives can count on receiving a set price for their crop, they report being able to better plan for their coffee production, as well as for personal, family and community needs. Producers from many of the cooperatives noted another important, non-monetary beneﬁt from participating in Fair Trade: access to training and enhanced ability to improve the quality of their coffee. Most small-scale coffee farmers have limited access to training, and an even more limited understanding of what the Northern consumer, and the international coffee market more generally, expect of coffee producers. Another beneﬁt of Fair Trade is the development of new networks of contacts among participants. In El Salvador, Fair Trade has facilitated the building of social networks and collective action that are essential for local actors to build and move forward their own development processes. The majority of the case studies found that Fair Trade makes possible exchanges of information between producers and buyers that create new commercial opportunities for producers. La Voz members in Guatemala, for example, spoke of participating in exchanges of visits with other producer groups that bring new information and provide incentives to undertake similar efforts. B. Beneﬁts to Families Fair Trade participation provides families with access to a diverse range of projects sponsored by their cooperatives. For example, Majomut member families improved their access to food through participation in organic gardening and subsistence supply projects, in part supported by Fair Trade returns. Timely Fair Trade payments in La Selva have helped cover immediate family expenses for medicines and ceremonies. Similarly, in Oaxaca, Fair Trade has funded a small credit program that helps pay for a variety of family emergencies. Training provided by the Fair Trade cooperatives has also allowed families to diversify their incomes. In Oaxaca, Chiapas and El Salvador, Fair Trade cooperatives have provided training and marketing assistance to families to develop alternative income sources. Expanded economic activities include the production and marketing of artisanry, the establishment of community stores, the development of bakeries, improved production of basic grains, and other enterprises. Enhanced family stability through additional employment represents another important beneﬁt of Fair Trade participation. Throughout conventional coffee growing regions families are being broken apart as heads-of-households migrate out of impoverished communities to seek employment. In communities where Fair Trade cooperatives exist, families more frequently remain intact. Fair Trade-sponsored organic production helps generate sufﬁcient additional income and labor opportunities that allow more family members to remain in coffee production. Though Fair Trade organic production alone cannot reverse migration trends, in some areas, emigration is lower among families involved in organic production. In Oaxaca, participation in the fair-trade market has allowed [CEPCO member families] to continue growing coffee while many other farmers have abandoned coffee production, 14 | P a g e
moving to the cities or transforming their land to other uses…with dire consequences in social and ecological terms. C. Beneﬁts to Communities One of the most visible community beneﬁ ts has come through the social premium (US$ .05 per pound) paid by Fair Trade buyers to the cooperatives. As discussed in Section V below, the use of this premium is evolving, and consequently so is its impact. In some cases, the Fair Trade social premium has ﬁ nanced the cooperatives’ technical and other organizational support of coffee producers’ activities. In the past, the premium was often distributed among members after administrative costs were discounted as part of individual income. More recently, FLO has encouraged organizations participating in Fair Trade to direct the premium toward social projects. While it is still evolving, the social premium attached to the Fair Trade coffee price has potential to deepen and strengthen community ties. Fair Trade has helped families ﬁ nd work in their communities rather than migrating. Organic coffee production promoted by Fair Trade (which requires nearly twice the work days in relation to conventional production) has signiﬁ cantly increased opportunities for family labor in a number of the cooperatives. In 2001, Majomut members had nearly 2,000 hectares under organic production, representing approximately 180,000 additional work-days each year. According to several case studies, Fair Trade has contributed to cultural revival among indigenous communities. La Voz members in Guatemala spoke of the recuperation of ancestral farming practices. Other cooperatives, such as CEPCO, have supported artisanal and other income generating activities with the assistance of Fair Trade ﬁnanced training and technical assistance. Fair Trade has improved the natural environment in participating communities. Fair Trade’s organic emphasis has promoted improved soil conservation and water management practices as well as the increased consciousness about the importance of conservation in general. Majomut’s technical team reports that the soil conservation measures of its organic coffee production program, supported in part by Fair Trade returns, has helped reduce soil loss from erosion by 3,800 tons per year. D. Organizational Beneﬁts One of the most far-reaching effects of Fair Trade is its support for the organizational capacity of participating farmers. Participation in Fair Trade provides farmers’ organizations with beneﬁts that have signiﬁcant multiplier effects among the individuals, families and communities they serve. Moreover, Fair Trade certiﬁcation requires the democratic organization of participants. While there remain signiﬁcant problems in some cooperatives with the degree of democracy, transparency, participation, etc., Fair Trade has fostered democratic institutions and organizational empowerment throughout the coffee growing region. Participation in Fair Trade has strengthened the overall ability of the organizations to serve their members. The process of applying for certiﬁcation and undergoing periodic compliance audits pushes organizations to improve their administrative capacity. Moreover, Fair Trade encourages a shift toward organic production, where rigorous technical and administrative certiﬁcation requirements further strengthen organizational capacity and promote producer participation. The Las Colinas cooperative in El Salvador reports that Fair Trade certiﬁcation has left them better prepared to pursue organic certiﬁcation. 15 | P a g e
Another intriguing organizational beneﬁt is the support for entry of other groups into Fair Trade networks and other specialty markets provided by existing Fair Trade registered cooperatives. In Mexico, Fair Trade coffee production has expanded largely through the collaborative efforts of producer groups. Many groups learn about Fair Trade from other producer organizations and, in some cases, receive assistance from these other groups. For example, the Fair Trade pioneer UCIRI helped draw La Selva into the Fair Trade coffee market in 1990. La Selva in turn facilitated Majomut’s entry into Fair Trade in 1993-1994. Majomut then assisted Tzotzilotic in selling Fair Trade coffee for the ﬁrst time in 2001. Farmers and cooperative leaders report that their organizations found it easier to gain access to other opportunities once they had become organized through the Fair Trade process. In El Salvador, Las Colinas cooperative members were able to gain quick access to earthquake relief funds in 2001 through the Fair Trade organization APECAFE, while less well organized communities and individuals were left with more limited resources and opportunities. Organizational through Fair Trade has also created capacities to negotiate with new clients. For example, CEPCO, UCIRI, Majomut and other producer organizations are promoting a new Fair Trade coffee market within Mexico and have created a new entity, Agromercados, to coordinate the commercialization of a range of Fair Trade commodities. These opportunities were beyond the reach prior to the Fair Trade certiﬁcation process. A number of cooperatives also report that participation in Fair Trade can increase an organization’s credibility among government and other external institutions, such as banks and development agencies. In the La Voz case, cooperatives that participate in Fair Trade networks have a demonstrated increased ability to secure loans from lending institutions on the basis of their perceived secure market future. 2. A case study of Bolivian coffee Fair Trade producers in 2005 Capacity building Fair Trade producers seem to have a broader knowledge of coffee production processes and the coffee market than producers from both firms. They were able to give detailed explanations on each production step, from washing the berries to the principles of organic production. This was confirmed for both men and women and can be explained as follows: First, Fair Trade producers deliver parchment coffee, which is coffee in an advanced stage of processing, as opposed to stewed corn for Copacabana and berries for Anditrade. Once the parchment coffee has been delivered, the cooperative processes the coffee into Golden coffee for export. Put differently, except for roasting, the production process is dealt with and owned by the producers of the cooperative, which is key for capacity building. Second, cooperatives regularly offer training courses on topics that are relevant to Fair Trade producers (coffee market, organic production and environmental issues, administrative and financial management etc.), which allows them to continuously improve the quality of their coffee as well as their overall efficiency as a cooperative. In the case of Mejillones for example, the fact that producers have a broader understanding of coffee issues is positively related to above average efficiency levels. Whilst this does not by itself explain their higher efficiency, it can be seen as an interesting indicator. 16 | P a g e
Fair Trade-producers have higher incomes from selling coffee than non-Fair Trade producers. Fair Trade cooperatives have high efficiency levels; producers can significantly increase their revenues and consequently provide a better living to their families. Fair Trade producers have enough income to provide their families with a decent living, whereas this number is smaller in the case of Anditrade and Copacabana. Another compelling fact is that the number of producers involved in other income-generating activities, such as taxi driving for example is higher for non-Fair Trade producers. As regards crop diversification, our data shows that Fair Trade producers are indeed diversified, producing and selling crops such as citrus fruits and vegetables. Diversification is in fact strongly advocated by FLO to avoid reliance on a single crop such as coffee with its history of excess supply and volatile prices. Pre-financing facilities In Bolivia, access to credit is constrained by high interest rates and a lack of policies acting as incentives for the promotion of business activities. Producers of both Coaine and Mejillones mentioned that they enjoy easier access to financing because of cooperative membership (77% and 100% respectively). On the other hand, neither Anditrade nor Copacabana seem to facilitate financing for their producers. Physical capital Living conditions 40% of Mejillones producers (men and women) state that with the profits from Fair Trade they have been able to improve their dwellings, buy new clothes and better food, and send their children to school. As regards electricity for example, families from Mejillones are significantly better off than all others with 70% having electricity in their houses and access to potable water. The same however is not true for Coaine producers, whose living conditions remain far more rudimentary with only 12.5% having access to potable water. While none of the producers officially have ‘regular’ electricity, 27.5% get electricity from solar panels. In comparison, Anditrade producers fare better in terms of potable water with 42.5% and 19% respectively. In comparison, only 19% of Copacabana families have access to potable water and 14% have electricity in their houses. Infrastructure The positive impact of Fair Trade on infrastructure could stem from the utilisation of the social premium. the social premium has largely been invested to improve production facilities, notably through the acquisition of pre-benefit and benefit plants. Both Coaine and Mejillones producers have mentioned these plants when asked about major improvements in their villages. While this is doubtlessly positive in terms of capacity building and quality improvement, it remains debatable whether this has ‘improved their livelihood’ as such. According to FLO standards ‘Premium money in this sense is meant to improve the situation of local communities in health, education, environment, economy etc.’, which means in other terms that it is up to producers’ organisations to allocate the money accordingly. The only requirement put forward by FLO is that the premium be managed transparently and that ‘decisions on its use are taken democratically by the members of the cooperative’.137 17 | P a g e
For the two cooperatives under study, most of the money seems to have been invested into a common fund that is used for improving production facilities or serves to pay off the debts of the cooperative.138 On the basis of the number of exported containers, we have calculated the estimated amount of the Premium that the two cooperatives are likely to receive each year. As Coaine exports only 4 containers to Fair Trade markets, it receives revenue of $8642 from the social premium at cooperative level, which divided by its 370 producers’ results in an average of $23.36 per producer. Not surprisingly, given its higher productivity levels, Mejillones gets a total of $17,284 which represents an average of $135 per producer. 3. An investigation into the impact of fairtrade in South Africa The overriding benefits of Fairtrade in the study are developmental projects that were invested in using Fairtrade premiums. In most cases, the premiums were used to finance potential local public goods, where there were no cases of excludability and free riding on the goods. The projects invested in fall into the following categories: education and training, infrastructure development, production projects, environment, health and security, investment in production and processing inputs, investment in material goods, and investment in sport and leisure. Through these development projects, Fairtrade has contributed towards strengthening relationships and providing services that would otherwise not be accessible to individuals and communities. Thus, Fairtrade has significantly contributed towards economic and social development in the country. Using the results on how the Fairtrade premium is passed on to the beneficiaries, the study challenges the criticism that was presented by Sidwell (2008). The paper advocates direct donations to charities as compared to Fairtrade premium, based on the argument that only ―10% of the Fairtrade premiums paid by consumers reach producers (Sidwell, 2008: 11).‖ On the contrary, the research analysis has shown that the Fairtrade organization is transparent with how the Fairtrade premium is calculated, and participants have not reported any cases where they received lower premiums than they expected. In addition, the results show that the way in which the Fairtrade premium is passed on to the beneficiaries in a commercial farm setup is effective. The premium is directed into the Joint Body‘s account, thus, leaving no chance of the Fairtrade premium being manipulated by the farm owner, whose monetary gains are received from Fairtrade minimum prices. Apart from the premium, Fairtrade brings about other benefits to Fairtrade producers. Both commercial and small-scale farmers are allowed access to a market that offers stable prices, which are always at least as high as, and often higher than market prices. Even commercial farmers, although are not primary beneficiaries of Fairtrade, benefit from Fairtrade in this way. Fairtrade minimum prices were more than twice the market price for commodities such as litchis, plums, organic table grapes and rooibos tea in 2010. These Fairtrade minimum prices, unlike in conventional markets, remain stable for a relatively longer period, despite changes in global market competition. Thus, even if global market prices drop, Fairtrade producers are assured of getting a higher price for their produce than market prices. Moreover, once producers gain access to the Fairtrade market, they continue supplying the market for a relatively longer period because the Fairtrade organization encourages long-term relationships within the supply chain. These relationships have further contributed towards building a link between Fairtrade consumers in the North and producers in South Africa. 18 | P a g e
In the case of small-scale farmers, Fairtrade has allowed them to expand their business opportunities to export markets. Before they were engaged with Fairtrade, they sold their produce locally through middlemen. When they changed from local marketing to international marketing, they managed to reduce the number of middlemen who siphoned off part of the producers‘incomes along the supply chain. Thus, Fairtrade has opened up opportunities (among the small-scale farmers) for relatively direct trade. As a result, small- scale farmers enjoy an increase in income due to an increase in the share of export price. Nevertheless, these increased opportunities for small-scale producers came along with more responsibilities in terms of farm and group management. In Coop 1, where members had problems in totally embracing the concept of group and conflict management, the cooperative was decertified from Fairtrade. Fairtrade has also contributed towards producer empowerment, particularly among small- scale farmers and farm workers. Training small-scale farmers in organic production improved the inherent capabilities of this group of farmers that was not being used to full potential. After training, they managed to increase production. In addition, cooperative members acquired exporting knowledge by participating in Fairtrade markets. Through this exposure to export markets, small-scale farmers in the study are now better informed of market requirements. As such, supplying export markets is a step towards career development among small-scale farmers, considering that they were historically denied direct access to both local and international markets. Among the farm workers, Fairtrade provided a learning platform in a number of areas ranging from production to social issues. Farm workers, especially those owning majority shares on a farm (for example Farm 8), or in part-ownership arrangements with their employers, learnt to manage farms. Training in areas such as computer skills, group management and project management equipped them in carrying out management tasks. Farm workers were also left to manage social premium funds, where they were required to decide on which social projects to invest in. The projects that they invested in helped address issues related to unemployment, food security, education, poverty and HIV/AIDS. By investing in these projects, Fairtrade has contributed towards social and economic development in local communities and in South Africa in general. 19 | P a g e
0.00 40.00 80.00 120.00 160.00 200.00 240.00 280.00 320.00 UScents/lb Fairtrade New York Jan 1989 Feb 2005July 1994 May 1997 © Fairtrade Foundation The Arabica Coffee Market 1989-2005: Comparison of Fairtrade and New York Exchange Prices October 2001 30-year- low of 45 cents/lb Jan 2001 1997 Drought in Brazil Fig. 6: American Coffee market 1989-2005: Comparison of Fair-trade and New York Exchange prices 20 | P a g e
0 500 1000 1500 2000 2500 3000 US$pertonne The Cocoa Market 1994 - 2005: Comparison of Fairtrade & New York Exchange Prices April 1994 Jan 2005June 1997 New York Fairtrade NB Fairtrade minimum price = $1600/tonne + $150 premium. When the New York price is $1600 or above, then the Fairtrade price = New York price + $150 premium. © Fairtrade Foundation Nov 2000 27-year low of $714 Oct 2002 16-year high of $2,335 Nov 2001May 1999 Fig. 7: American Cocoa market 1994-2005: Comparison of Fair-trade and New York Exchange prices 11. Fair Trade Movement in India Fair Trade Forum – India was registered as a national NGO under the Societies Registration Act 1860. At present FTF-I is working with more than 60000 producers including artisans and farmers through its 43 member organizations. These producers are associated with more than 3000 producer groups functioning under various member organizations of FTF-I. Most of the member organizations are into handicrafts. Eight among these member organizations are into food products. Most of the members are into export market & some are into domestic marketingFair Trade Shops in Bangalore- Indus Tree Craft foundation (Koramangala) & Shilpa (Manjunathanagar) History of fair trade in India 200 0 Launching of the National Network Fair Trade Forum – India, Kolkata (supported by Sasha) 200 1 Established National Secretariate (NS) at Chennai Start-up funds from Oxfam 2nd National Convention with Union Minister of Rural Development Regional programmes initiated 200 2 World Fair Trade Day celebrated 3rd National Convention at Kolkata 21 | P a g e
New Committee elected & agreed to shift the NS to New Delhi Participated in the Social Development Fair at New Delhi 200 3 NS established at New Delhi with a small staff team (Supported by Tara Projects) 4th National Convention at New Delhi Started participating in Indian Handicrafts & Gift Fairs (IHGF) Organized World Fair Trade celebrations in four regions 200 4 Coordinated and facilitated participation of the global fair trade fraternity in the World Social Forum 2004 held at Mumbai Hosted the launch of the Global Journey of Fair Trade Mark at Mumbai, which coincided with the World Social Forum 2004 5th National Convention at Bangalore Launch of EU-India SHARE in December Organized World Fair Trade celebrations in four regions 200 5 Facilitated member’s participation in IHGF (Spring) 2005/ IHGF (Autumn) 2005 Social Development Fair organized in Kolkata Facilitated members participation in the Fair Trade Fair at Hong Kong 6th National Convention at Kolkata Developed product catalogue of members Organized fair trade food workshop in four regions Organized World Fair Trade celebrations in four regions 200 6 Became IFAT member Organized fair trade food workshop in four regions Coordinated 10 pilot projects and Marketing & Logistic trips to EU countries as part of the EU-India SHARE project Taken part in the consultation on 11th 5-year plan approach paper by the Planning Commission Table 3: Number of FLO certified producer organizations in India 2011 Commodities No. of certified producer organizations Coffee 11 Tea 28 Sugar 1 Cotton 18 Cocoa 2 Others 11 Total 71 Source: Fair trade annual reports (2012) 22 | P a g e
Table 4: Major Fair trade certified commodities in India 2012 Commodity Quantity Coffee 16400 Tea 47700 Organic tea 4600 Sugar 2200 Source: Monitoring Fair trade annual reports (2012) 12. Indian cases Putharjhora Tea Garden The tea garden was established in 1887. At present it has 1055 workers and a production capacity of 300000MT Putharjora sets up a high school and several community centres in tea garden to carry cultural activities. It also contributes to Women and children health- care schemes. Recently, the Fair trade Premium paid for the Hepatitis B vaccination for all the children of the workers in the plantation. From the Fair Trade premium, mosquito nets were distributed which helped in reducing the instance of Malaria. Small credit funds for workers and small tea farmer schemes. Conservation of natural fuel resources by introducing pressure cookers and cooking gas, solar lights in the homes of the workers SUNSTAR - Federation of Small Farmers of the Khaddar Region The federation was established in 2001. At present there are about 900 farmer members in it. The federation produces Brown Unpolished Basmati, White Polished Basmati. The annual production of about 2200 MT. The federation focuses on increasing educational opportunities to women and children and improving access to health care. It runs agricultural training for disadvantaged women, facilitates self-help groups, and provides family planning programs. It also develops sustainable farming systems based on local needs, provides training for farmers on organic agricultural practices, and grants loans for agricultural improvements. It also funds and facilitates the organic certification process. Sunstar farmers build raised roads and bridges to lessen the impact of annual flooding. 13. Challenges to fair trade Market share is too small Extent of potential contribution to development Lack of agreement about what fair trade really means Uneven awareness and availability across different areas 23 | P a g e
Producing more low priced commodities for over supplied markets Absence of official regulation Entire savings made by removing middleman may not reach to the producer Expensive niche market to maintain Retailers may take advantage of consumers social conscience 14. Conclusions Fair Trade has become part of both the policy and market place toolkit geared towards poverty alleviation Fair Trade strengthens the capacity of producer organizations Fair Trade initiatives improve the transparency with which the markets and producer organizations operate Fair trade encourages a diversity in competitive marketing Fair trade can provide a solid platform for innovative producers Successful capacity building, organizational development and marketing support are provided by the ATO’s to the producer organizations. 15. References ANONYMOUS, January 2009, A charter of fair trade principles, World Fair Trade Organization and Fairtrade Labelling Organizations International. ANONYMOUS, 2012, Monitoring the scope and benefits of fair-trade, Fourth edition, : Fairtrade Labelling Organizations ANONYMOUS, 2013, Annual report 2012-13, Fairtrade Labelling Organizations DOUGLAS L. MURRAY, LAURA T. RAYNOLDS, AND PETER L. TAYLOR, March 2003, One cup at a time: Poverty alleviation and fair trade coffee in Latin America, Colorado State University. SANDRA IMHOF, ANDREW LEE, June 2007, Assessing the Potential of Fair Trade for Poverty Reduction and Conflict Prevention: A Case Study of Bolivian Coffee Producers, Swisspeace. 24 | P a g e
JARI, BRIDGET, 2012, An investigation into the impact of fairtrade in South Africa. PhD thesis, Rhodes University. Websites: http://www.fairworldproject.org/overview/fair-trade/history.html http://www.fairtrade.org.uk/what_is_fairtrade/fairtrade_certification_and_the_fairtrade_mark /fairtrade_standards.aspx http://www.fairtrade.net/standards.html 25 | P a g e
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