Fair trade
Encyclopedia
Fair trade is an organized social movement
and market
-based approach that aims to help producers in developing countries make better trading conditions and promote sustainability
. The movement advocates the payment of a higher price to producers as well as higher social and environmental standards. It focuses in particular on exports from developing countries to developed countries, most notably handicrafts, coffee
, cocoa, sugar
, tea
, bananas, honey
, cotton
, wine
, fresh fruit
, chocolate
, flowers and gold
.
In 2008, products certified with FLO International's Fairtrade certification amounted to approximately US$4.98 billion (€3.4B) worldwide, a 22% year-to-year increase. While this represents a tiny fraction of world trade in physical merchandise, some fair trade products account for 20-50% of all sales in their product categories in individual countries. In June 2008, Fairtrade Labelling Organizations International estimated that over 7.5 million producers and their families were benefiting from fair trade funded infrastructure, technical assistance and community development
projects.
The response to fair trade has been mixed. Fair trade's increasing popularity has drawn criticism from both ends of the political spectrum
. Marc Sidwell sees "fair trade" as a type of subsidy or marketing ploy that impedes growth. Segments of the left
, such as French author Christian Jacquiau, criticize fair trade for not adequately challenging the current trading system.
, an informal association of four international fair trade networks (Fairtrade Labelling Organizations International
, World Fair Trade Organization
, Network of European Worldshops
and European Fair Trade Association
):
fair trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South. Fair trade organizations, backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade.
Fair trade products are traded and marketed either by an "MEDC supply chain" whereby products are imported and/or distributed by fair trade organizations (commonly referred to as alternative trading organization
s) or by "product certification" whereby products complying with fair trade specifications are certified by them indicating that they have been produced, traded, processed and packaged in accordance with the standards.
In 1998, these four federations created together FINE
, an informal association whose goal is to harmonize fair trade standards and guidelines, increase the quality and efficiency of fair trade monitoring systems, and advocate fair trade politically.
Student groups have also been increasingly active in the past years promoting fair trade products. Although hundreds of independent student organizations are active worldwide, most groups in North America are either affiliated with United Students for Fair Trade (USA) or the Canadian Student Fair Trade Network (Canada).
, 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. 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.
The current fair trade movement was shaped in Europe in the 1960s. Fair trade during that period was often seen as a political gesture against neo-imperialism: radical student movements began targeting multinational corporations and concerns that traditional business models were fundamentally flawed started to emerge. The slogan at the time, "Trade not Aid", gained international recognition in 1968 when it was adopted by the United Nations Conference on Trade and Development
(UNCTAD) to put the emphasis on the establishment of fair trade relations with the developing world.
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.
By 1968, the oversized newsprint publication, the Whole Earth Catalog
, was connecting thousands of specialized merchants, artisans, and scientists directly with consumers who were interested in supporting independent producers, with the goal of bypassing corporate retail and department stores. The Whole Earth Catalog sought to balance the international free market by allowing direct purchasing of goods produced primarily in America and Canada, but also in Latin America and South America.
In 1969, the first worldshop
opened its doors in the Netherlands
. The initiative aimed at bringing the principles of fair trade to the retail sector by selling almost exclusively goods produced under fair trade terms in "underdeveloped regions". The first shop was run by volunteers and was so successful that dozens of similar shops soon went into business in the Benelux
countries, Germany
, and in other Western European countries.
Throughout the 1960s and 1970s, important segments of the fair trade movement worked to find markets for products from countries that were excluded from the mainstream trading channels for political reasons. Thousands of volunteers sold coffee from Angola
and Nicaragua
in worldshops, in the back of churches, from their homes, and from stands in public places, using the products as a vehicle to deliver their message: give disadvantaged producers in developing countries a fair chance on the world’s market, and support their self-determined sustainable development. The alternative trade movement blossomed, if not in sales, then at least in terms of dozens of ATOs
being established on both sides of the Atlantic, of scores of worldshops being set up, and of well-organized actions and campaigns attacking exploitation and foreign domination, and promoting the ideals of Nelson Mandela
, Julius Nyerere
, and the Nicaraguan Sandinistas: the right to independence and self-determination, to equitable access to the world’s markets and consumers.
prices. Many then believed it was the movement's responsibility to address the issue and to find innovative remedies to react to the ongoing crisis in the industry.
In the subsequent years, fair trade agricultural commodities played an important role in the growth of many ATOs: successful on the market, they offered a much-needed, renewable source of income for producers and provided Alternative Trading Organizations a perfect complement to the handicrafts market. The first fair trade agricultural products were tea
and coffee
, quickly followed by dried fruits, cocoa, sugar, fruit juices, rice
, spices, and nuts
. While in 1992, a sales value ratio of 80% handcrafts to 20% agricultural goods was the norm, in 2002 handcrafts amounted to 25.4% of fair trade sales while commodity food lines were up at 69.4%.
. 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. The problem was to find a way to expand distribution without compromising consumer trust in fair trade products and in their origins.
A solution was found in 1988, when the first Fairtrade certification initiative, Max Havelaar
, was created in the Netherlands under the initiative of Nico Roozen
, Frans Van Der Hoff
, and Dutch development NGO Solidaridad
. The independent certification allowed the goods to be sold outside the worldshops and into the mainstream, reaching a larger consumer segment and boosting fair trade sales significantly. The labeling initiative
also allowed customers and distributors alike to track the origin of the goods to confirm that the products were really benefiting the producers at the end of the supply chain
.
The concept caught on: in the ensuing years, similar non-profit Fairtrade labelling organizations were set up in other European countries and North America. In 1997, a process of convergence among labelling organizations – or "LIs" (for "Labeling Initiatives") – led to the creation of Fairtrade Labelling Organizations International
(FLO). FLO is an umbrella organization whose mission is to set the Fairtrade standards, support, inspect and certify disadvantaged producers, and harmonize the Fairtrade message across the movement.
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
, banana
s, mangoes, cocoa, cotton
, sugar
, honey
, fruit juices, nuts
, fresh fruit
, quinoa
, herbs and spices, wine
, footballs
, etc.
Fairtrade labelling (usually simply Fairtrade or Fair Trade Certified
in the United States
) is a certification system designed to allow consumers to identify goods which meet agreed standards. Overseen by a standard-setting body (FLO International) and a certification body (FLO-CERT), the system involves independent auditing of producers and traders to ensure the agreed standards are met.
For a product to carry either the International Fairtrade Certification Mark
or the Fair Trade Certified Mark
, it must come from FLO-CERT inspected and certified producer organizations. The crops must be grown and harvested in accordance with the international Fair trade standards set by FLO International. The supply chain
must also have been monitored by FLO-CERT, to ensure the integrity of labelled prod
Fairtrade certification purports to guarantee not only fair prices, but also the principles of ethical purchasing. These principles include adherence to ILO agreements such as those banning child and slave labour, guaranteeing a safe workplace and the right to unionise, adherence to the United Nations
charter of human rights
, a fair price that covers the cost of production and facilitates social development, and protection and conservation of the environment. The Fairtrade certification system also attempts to promote long-term business relationships between buyers and sellers, crop prefinancing, and greater transparency throughout the supply chain and more.
There have been some claims that adherence to fair trade standards by producers has been poor. In 2006, a Financial Times
journalist for example found that ten out of ten mills visited had sold uncertified coffee to co-operatives as certified. It reported that "The FT was also handed evidence of at least one coffee association that received Fairtrade certification despite illegally growing some 20 per cent of its coffee in protected national forest land," but the FLO has since set standards to bar such practices. Enforcement of fair trade standards (such as through involuntary decertification) and handling of complaints from producers by certification bodies have not been publicized. However, fair trade principles (such as those regarding long term contracts and physical traceability for which adherence is optional) are stricter than fair trade rules.
The Fairtrade certification system covers a growing range of products, including banana
s, 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 the United States). The Fair Trade Certified Mark
is still used to identify Fairtrade goods in United States.
(WFTO) launched in 2004 a new Mark to identify fair trade organizations (as opposed to products in the case of FLO International and Fairtrade). Called the FTO Mark, it allows consumers to recognize registered Fair Trade Organizations worldwide and guarantees that standards are being implemented regarding working conditions, wages, child labour, and the environment. The FTO Mark gave for the first time all Fair Trade Organizations (including handcrafts producers) definable recognition amongst consumers, existing and new business partners, governments, and donors.
An alternative trading organization (ATO) is usually a non-governmental organization
(NGO) or mission-driven business aligned with the Fair trade movement, aiming "to contribute to the alleviation of poverty in developing regions of the world by establishing a system of trade that allows marginalized producers in developing regions to gain access to developed markets".
Alternative trading organizations have Fair Trade at the core of their mission and activities, using it as a development tool to support disadvantaged producers and to reduce poverty, and combine their marketing with awareness-raising and campaigning.
Alternative trading organizations are often, but not always, based in political and religious groups, though their secular purpose precludes sectarian identification and evangelical activity. Philosophically, the grassroots political-action agenda of these organizations associates them with progressive political causes active since the 1960s: foremost, a belief in collective action
and commitment to moral principles based on social, economic and trade justice
.
According to the European Fair Trade Association
(EFTA), the defining characteristic of alternative trading organizations is that of equal partnership and respect - partnership between the developing region producers and importers, shops, labelling organizations, and consumers. Alternative trade "humanizes" the trade process - making the producer-consumer chain as short as possible so that consumers become aware of the culture, identity, and conditions in which producers live. All actors are committed to the principle of alternative trade, the need for advocacy in their working relations and the importance of awareness-raising and advocacy work.
Worldshops or fair trade shops are specialized retail outlets offering and promoting fair trade products. Worldshops also typically organize various educational fair trade activities and play an active role in trade justice
and other North-South political campaigns.
Worldshops are often not-for-profit organizations and run by locally based volunteer networks.
Although the movement emerged in Europe
and a vast majority of worldshops are still based on the continent, worldshops can also be found today in North America
, Australia
and New Zealand
.
Worldshops' aim is to make trade as direct and fair with the trading partners as possible. Usually, this means a producer in a developing country
and consumers in industrialized
countries. The worldshops' target is to pay the producers a fair price that guarantees substinence and guarantees positive social development. They often cut out any intermediaries in the import chain.
A web movement has recently begun to provide fair trade items at fair prices to the consumers. One popular one is Fair Trade a Day where a different fair trade item is featured each day.
The Fairtrade Foundation does not monitor how much of the extra money paid to the exporting cooperatives reaches the farmer. The cooperatives incur costs in reaching the Fairtrade political standards, and these are incurred on all production, even if only a small amount is sold at Fairtrade prices. The most successful cooperatives appear to spend a third of the extra price received on this: some less successful cooperatives spend more than they gain.
There is no evidence that Fairtrade farmers get higher prices on average. Anecdotes state that farmers were paid more, or less, by traders than by Fairtrade cooperatives. Few of these anecdotes address the problems of price reporting in Third World markets, and few address the complexity of the different price packages (which may or may not include credit, harvesting labour, spray application, transport and processing for instance). Cooperatives typically average prices over the year, so they pay less than traders at some times, more at others. Bassett (2009) is able to compare prices accurately where Fairtrade and non-Fairtrade farmers have to sell cotton to the same monopsonistic ginneries. Fairtrade encouraged Nicaraguan farmers to switch to organic coffee, which resulted in a higher price per pound, but a lower net income because of higher costs and lower yields.
Between the years of 2004 and 2006 Africa quickly expanded their number of FLO certified producer groups, rising from 78
to 171; nearly half of which reside in Kenya, following closely behind are Tanzania and South Africa.
The FLO products Africa is known for are tea, cocoa, flowers and wine.
In Africa there are smallholder cooperatives and plantations which produce Fair Trade certified tea.
Studies in the early 2000’s show that the income, education and health of coffee producers involved with Fair Trade in Latin America were improved, versus producers who were not participating.
Nicaragua, Peru and Guatemala, having the biggest population of coffee producers, make use of some of the most substantial land for coffee production in Latin America and do so by taking part in Fair Trade.
In 1994, the European Commission prepared the "Memo on alternative trade" in which it declared its support for strengthening Fair Trade in the South and North and its intention to establish an EC Working Group on Fair Trade. Furthermore, the same year, the European Parliament
adopted the "Resolution on promoting fairness and solidarity in North South trade" (OJ C 44, 14.2.1994), a resolution voicing its support for fair trade.
In 1996, the Economic and Social Committee
adopted an "Opinion on the European 'Fair Trade' marking movement". A year later, in 1997, the document was followed by a resolution adopted by the European Parliament, calling on the Commission
to support Fair Trade banana
operators. The same year, the European Commission published a survey on "Attitudes of EU consumers to Fair Trade bananas", concluding that Fair Trade bananas would be commercially viable in several EU Member States.
In 1998, the European Parliament adopted the "Resolution on Fair Trade" (OJ C 226/73, 20.07.1998), which was followed by the Commission in 1999 that adopted the "Communication from the Commission to the Council on 'Fair Trade'" COM(1999) 619 final, 29.11.1999.
In 2000, public institutions in Europe started purchasing Fairtrade Certified coffee and tea. Furthermore, that year, the Cotonou Agreement
made specific reference to the promotion of Fair Trade in article 23 g) and in the Compendium. The European Parliament and Council Directive 2000/36/EC also suggested promoting Fair Trade.
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".
And finally, on July 6 in 2006, the European Parliament unanimously adopted a resolution on fair trade, recognizing the benefits achieved by the Fair Trade movement, suggesting the development of an EU-wide policy on Fair Trade, defining criteria that need to be fulfilled under fair trade to protect it from abuse and calling for greater support to Fair Trade (EP resolution "Fair Trade and development", 6 July 2006). "This resolution responds to the impressive growth of Fair Trade, showing the increasing interest of European consumers in responsible purchasing," said Green
MEP Frithjof Schmidt
during the plenary debate. Peter Mandelson
, EU Commissioner for External Trade, responded that the resolution will be well-received at the Commission
. "Fair Trade makes the consumers think and therefore it is even more valuable. We need to develop a coherent policy framework and this resolution will help us."
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).
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.
lawmakers started debating how to introduce a law on fair trade in Parliament
. A consultation process involving a wide range of stakeholders was launched in early October. A common definition of fair trade was most notably developed. However, its adoption is still pending as the efforts were stalled by the 2008 Italian political crisis
.
was sued in 2007 by coffee supplier Douwe Egberts
for explicitly requiring its coffee suppliers to meet fair trade criteria, most notably the payment of a minimum price and a development premium to producer cooperatives. Douwe Egberts, which sells a number of coffee brands under self-developed ethical criteria, believed the requirements were discriminatory. After several months of discussions and legal challenges, the province of Groningen prevailed in a well-publicized judgement. Coen de Ruiter, director of the Max Havelaar Foundation
, called the victory a landmark event: "it provides governmental institutions the freedom in their purchasing policy to require suppliers to provide coffee that bears the fair trade criteria, so that a substantial and meaningful contribution is made in the fight against poverty through the daily cup of coffee".
producers. According to Fair Trade umbrella organisations FLO International and WFTO: "Fair Trade is, fundamentally, a response to the failure of conventional trade to deliver sustainable livelihoods and development opportunities to people in the poorest countries of the world. Poverty and hardship limit people’s choices while market forces tend to further marginalise and exclude them. This makes them vulnerable to exploitation, whether as farmers and artisans in family-based production units or as hired workers within larger businesses.”
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
." 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".
The example of coffee is particularly telling: "since it takes from three to four years for a coffee plant to produce significant quantities of coffee, and up to seven years before the plant reaches peak productivity, it is difficult for coffee farmers to react quickly to price fluctuations. As a result, coffee supply often increases even as market prices plummet. Further, this leads to a collective action problem, where each farmer has an incentive to increase production as price falls in order to reduce per unit cost and increase his or her margins. In aggregate, this activity creates a positive feedback loop and further depresses the world price."
Market power
is also commonly mentioned as one of the most important market failures cited for agricultural markets. Consolidation and increased concentration in the food industry have been carefully documented for both the U.S. and Europe. From early days, observations on market structure downstream from agricultural production have motivated empirical and theoretical attention to the issue of market power in agriculture. In addition to market structure concerns, Sexton and Rogers argue that several typical characteristics of raw agricultural commodity markets should make the analysis of imperfect competition in these markets routine. These characteristics include the bulky and perishable nature of agricultural products, producers’ geographic immobility, and the sunk cost aspect of specialized crops. This is not to say that market power should be presumed in these markets. Rather, the point made by Sexton and Rogers is that policy for and analyses of agricultural markets must establish something about competition: In brief, that "imperfect competition matters to agricultural economists". Notably, imperfect competition consistently figures in any discussion of the crisis facing coffee producers.
According to Oxford University's Alex Nicholls
, market failures such as these clearly shows how the absence of perfect 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." The existence of these market failure
s lessens the capacity trade has to lift developing countries out of poverty.
These conclusions were corroborated by a 2006 World Bank
Policy Research Working Paper written by Loraine Ronchi, which found that "the failure of market power and low producer capacity in coffee markets in LDCs are identified as underlying causes of the low share of coffee returns faced by producers".
Fair trade is seen as an attempt to address these purported market failures by providing producers a stable price for their crop, business support, access to premium Northern markets, and better general trading conditions. According to the 2006 World Bank
study, Fair Trade seems to succeed in its aims: "in these respects at least, the role of Fairtrade is effective. Its support for cooperatives in mitigating market power is found not to be misplaced in Costa Rica
. Fairtrade mills also improve the returns to farmers through the improved efficiency of their organizations".
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. 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". 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.
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.
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.
. Some economists and 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.
claim that 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.
In 2003, the 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. Lindsey's comments echo the main criticisms of Fair Trade, claiming that it "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. Economic theory suggests that when prices are low due to surplus production, adding a subsidy or otherwise artificially raising prices will only exacerbate the problem by encouraging more supply and also encouraging workers into unproductive activities.
Several academics, including Hayes, Becchetti, and Rosati identify two counterarguments to this criticism.
s per day ($3) as opposed to 8 soles per day made on non fair trade farms. This higher wage was still less than the legal minimum wage of 11 soles (16 soles less 5 soles for room and board) in 4 out of the 5 farms visited, and violated Fairtrade’s standards.
The Adam Smith Institute
claimed in 2008 that Fair trade has had little effect on the decreasing percentage of final sale value ending up with the producers as only a fraction of fair trade premiums reach producers. This claim is based on a calculation that only 10% of the fair trade premium for a cup of coffee at a popular London chain goes to purchase fair trade coffee beans instead of standard beans. This situation has led Tom Clougherty
of the Adam Smith Institute, to describe Fair Trade as little more than a marketing
ploy.
Although not completely dismissing the particular stance taken by Tom Clougherty
of the Adam Smith Institute
, Fairtrade supporters including UK charity the Lorna Young Foundation and Fair Trade entrepreneurs Jurang, argue that such a stance although true to some extent does not do justice to the fair trade movement as a whole and instead arguably exemplifies how Fairtrade as a brand, currently represented by the FLO International mark is not what Fair Trade is about.
Social movement
Social movements are a type of group action. They are large informal groupings of individuals or organizations focused on specific political or social issues, in other words, on carrying out, resisting or undoing a social change....
and market
Market
A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers...
-based approach that aims to help producers in developing countries make better trading conditions and promote sustainability
Sustainability
Sustainability is the capacity to endure. For humans, sustainability is the long-term maintenance of well being, which has environmental, economic, and social dimensions, and encompasses the concept of union, an interdependent relationship and mutual responsible position with all living and non...
. The movement advocates the payment of a higher price to producers as well as higher social and environmental standards. It focuses in particular on exports from developing countries to developed countries, most notably handicrafts, coffee
Coffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
, cocoa, sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
, tea
Tea
Tea is an aromatic beverage prepared by adding cured leaves of the Camellia sinensis plant to hot water. The term also refers to the plant itself. After water, tea is the most widely consumed beverage in the world...
, bananas, honey
Honey
Honey is a sweet food made by bees using nectar from flowers. The variety produced by honey bees is the one most commonly referred to and is the type of honey collected by beekeepers and consumed by humans...
, cotton
Cotton
Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....
, wine
Wine
Wine is an alcoholic beverage, made of fermented fruit juice, usually from grapes. The natural chemical balance of grapes lets them ferment without the addition of sugars, acids, enzymes, or other nutrients. Grape wine is produced by fermenting crushed grapes using various types of yeast. Yeast...
, fresh fruit
Fruit
In broad terms, a fruit is a structure of a plant that contains its seeds.The term has different meanings dependent on context. In non-technical usage, such as food preparation, fruit normally means the fleshy seed-associated structures of certain plants that are sweet and edible in the raw state,...
, chocolate
Chocolate
Chocolate is a raw or processed food produced from the seed of the tropical Theobroma cacao tree. Cacao has been cultivated for at least three millennia in Mexico, Central and South America. Its earliest documented use is around 1100 BC...
, flowers and gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
.
In 2008, products certified with FLO International's Fairtrade certification amounted to approximately US$4.98 billion (€3.4B) worldwide, a 22% year-to-year increase. While this represents a tiny fraction of world trade in physical merchandise, some fair trade products account for 20-50% of all sales in their product categories in individual countries. In June 2008, Fairtrade Labelling Organizations International estimated that over 7.5 million producers and their families were benefiting from fair trade funded infrastructure, technical assistance and community development
Community development
Community development is a broad term applied to the practices and academic disciplines of civic leaders, activists, involved citizens and professionals to improve various aspects of local communities....
projects.
The response to fair trade has been mixed. Fair trade's increasing popularity has drawn criticism from both ends of the political spectrum
Political spectrum
A political spectrum is a way of modeling different political positions by placing them upon one or more geometric axes symbolizing independent political dimensions....
. Marc Sidwell sees "fair trade" as a type of subsidy or marketing ploy that impedes growth. Segments of the left
Left-wing politics
In politics, Left, left-wing and leftist generally refer to support for social change to create a more egalitarian society...
, such as French author Christian Jacquiau, criticize fair trade for not adequately challenging the current trading system.
Definition
Although no universally accepted definition of fair trade exists, fair trade labeling organizations most commonly refer to a definition developed by FINEFINE
FINE was created in 1998 and is an informal association of the four main fair trade networks:*F Fairtrade Labelling Organizations International *I International Fair Trade Association, now the World Fair Trade Organization...
, an informal association of four international fair trade networks (Fairtrade Labelling Organizations International
Fairtrade Labelling Organizations International
Fairtrade International was established in 1997, and is an association of 3 producer networks, 19 national labelling initiatives and 3 marketing organizations that promote and market the Fairtrade Certification Mark in their countries Fairtrade labelling organizations exist in 18 European...
, World Fair Trade Organization
World Fair Trade Organization
The World Fair Trade Organization , formerly the International Fair Trade Association , was created in 1989 and is a global association of 324 organizations in over 70 countries...
, Network of European Worldshops
Network of European Worldshops
The Network of European Worldshops was established in 1994 and coordinates the cooperation between Worldshops in Europe. It is a network of national associations of Worldshops representing 2,500 shops in 13 member countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,...
and European Fair Trade Association
European Fair Trade Association
The European Fair Trade Association is a Dutch association established informally in 1987. It gained formal status in 1990. It regroups 11 fair trade importers in 9 European countries: Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Switzerland and the United Kingdom. EFTA members...
):
fair trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South. Fair trade organizations, backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade.
Key principles
Alternative trading organization
An alternative trading organization is usually a non-governmental organization or mission-driven business aligned with the Fair trade movement, aiming "to contribute to the alleviation of poverty in developing regions of the world by establishing a system of trade that allows marginalized...
s) or by "product certification" whereby products complying with fair trade specifications are certified by them indicating that they have been produced, traded, processed and packaged in accordance with the standards.
General structure of the movement
Most fair trade import organizations are members of, or certified by one of several national or international federations. These federations coordinate, promote, and facilitate the work of fair trade organizations. The following are some of the largest:- The Fairtrade Labelling Organizations InternationalFairtrade Labelling Organizations InternationalFairtrade International was established in 1997, and is an association of 3 producer networks, 19 national labelling initiatives and 3 marketing organizations that promote and market the Fairtrade Certification Mark in their countries Fairtrade labelling organizations exist in 18 European...
(FLO), created in 1997, is an association of three producer networks and twenty national labeling initiatives that promote and market the Fair trade Certification MarkInternational Fairtrade Certification MarkThe International FAIRTRADE Certification Mark is an independent certification mark used in over 50 countries. It appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal....
in their countries. The FLO labeling system is the largest and most widely recognized standard setting and certification body for labeled Fair trade. It regularly inspects and certifies producer organizations in more than 50 countries in AfricaAfricaAfrica is the world's second largest and second most populous continent, after Asia. At about 30.2 million km² including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area...
, AsiaAsiaAsia is the world's largest and most populous continent, located primarily in the eastern and northern hemispheres. It covers 8.7% of the Earth's total surface area and with approximately 3.879 billion people, it hosts 60% of the world's current human population...
, and Latin AmericaLatin AmericaLatin America is a region of the Americas where Romance languages – particularly Spanish and Portuguese, and variably French – are primarily spoken. Latin America has an area of approximately 21,069,500 km² , almost 3.9% of the Earth's surface or 14.1% of its land surface area...
. However, only products from certain developing countries are eligible for certification, and must be from cooperatives. - The World Fair Trade OrganizationWorld Fair Trade OrganizationThe World Fair Trade Organization , formerly the International Fair Trade Association , was created in 1989 and is a global association of 324 organizations in over 70 countries...
(formerly the International Fair Trade Association) is a global association created in 1989 of fair trade producer cooperatives and associations, export marketing companies, importers, retailers, national, and regional fair trade networks and fair trade support organizations. In 2004 WFTO launched the FTO Mark which identifies registered fair trade organizations (as opposed to the FLO system, which labels products).
- The Network of European WorldshopsNetwork of European WorldshopsThe Network of European Worldshops was established in 1994 and coordinates the cooperation between Worldshops in Europe. It is a network of national associations of Worldshops representing 2,500 shops in 13 member countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy,...
(NEWS!), created in 1994, is the umbrella network of 15 national worldshopWorldshopWorldshops, world shops or Fair Trade Shops are specialized retail outlets offering and promoting Fair Trade products. Worldshops also typically organize various educational Fair Trade activities and play an active role in trade justice and other North-South political campaigns.Worldshops are...
associations in 13 different countries all over EuropeEuropeEurope is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
.
- The European Fair Trade AssociationEuropean Fair Trade AssociationThe European Fair Trade Association is a Dutch association established informally in 1987. It gained formal status in 1990. It regroups 11 fair trade importers in 9 European countries: Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Switzerland and the United Kingdom. EFTA members...
(EFTA), created in 1990, is a network of European alternative trading organizationAlternative trading organizationAn alternative trading organization is usually a non-governmental organization or mission-driven business aligned with the Fair trade movement, aiming "to contribute to the alleviation of poverty in developing regions of the world by establishing a system of trade that allows marginalized...
s 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 publishes 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
FINE
FINE was created in 1998 and is an informal association of the four main fair trade networks:*F Fairtrade Labelling Organizations International *I International Fair Trade Association, now the World Fair Trade Organization...
, 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 FederationFair Trade FederationThe Fair Trade Federation is a Washington DC-based nonprofit trade association that provides support to and promotes North American businesses that they identify as being fully committed to the principles of fair trade...
(FTF), created in 1994, 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.
- The Fair Trade Action Network, created in 2007, is an international fair trade volunteer web-based network. The association links volunteers from a dozen of European and North American countries, actively supports Fair Trade TownsFairtrade TownFairtrade Town is a status awarded by a recognized Fairtrade certification body describing an area which is committed to the promotion of Fairtrade certified goods...
initiatives and encourages grassroots networking at the international level.
Student groups have also been increasingly active in the past years promoting fair trade products. Although hundreds of independent student organizations are active worldwide, most groups in North America are either affiliated with United Students for Fair Trade (USA) or the Canadian Student Fair Trade Network (Canada).
History
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 VillagesTen Thousand Villages
Ten Thousand Villages is a nonprofit fair trade organization that markets handcrafted products made by disadvantaged artisans from more than 120 artisan groups in more than 38 countries....
, an NGO within the Mennonite Central Committee
Mennonite Central Committee
The Mennonite Central Committee is a relief, service, and peace agency representing 15 Mennonite, Brethren in Christ and Amish bodies in North America. The U.S. headquarters are in Akron, Pennsylvania, the Canadian in Winnipeg, Manitoba.-History:...
(MCC) and SERRV International
SERRV International
SERRV International is a 501 nonprofit, alternative trading organization operating in the United States, Africa, Asia and Latin America. The organization is credited to be one of the first fair trade initiatives worldwide, with imports as early as 1949. In 2006, it was one of the country's largest ...
were the first, in 1946 and 1949 respectively, to develop fair trade supply chains in developing countries. The products, almost exclusively handicrafts ranging from jute
Jute
Jute is a long, soft, shiny vegetable fibre that can be spun into coarse, strong threads. It is produced from plants in the genus Corchorus, which has been classified in the family Tiliaceae, or more recently in Malvaceae....
goods to cross-stitch
Cross-stitch
Cross-stitch is a popular form of counted-thread embroidery in which X-shaped stitches in a tiled, raster-like pattern are used to form a picture. Cross-stitch is often executed on easily countable evenweave fabric called aida cloth. The stitcher counts the threads in each direction so that the...
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.
Solidarity trade
United Nations Conference on Trade and Development
The United Nations Conference on Trade and Development was established in 1964 as a permanent intergovernmental body. It is the principal organ of the United Nations General Assembly dealing with trade, investment, and development issues....
(UNCTAD) to put the emphasis on the establishment of fair trade relations with the developing world.
The year 1965 saw the creation of the first Alternative Trading Organization
Alternative trading organization
An alternative trading organization is usually a non-governmental organization or mission-driven business aligned with the Fair trade movement, aiming "to contribute to the alleviation of poverty in developing regions of the world by establishing a system of trade that allows marginalized...
(ATO): that year, British
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
NGO Oxfam
Oxfam
Oxfam is an international confederation of 15 organizations working in 98 countries worldwide to find lasting solutions to poverty and related injustice around the world. In all Oxfam’s actions, the ultimate goal is to enable people to exercise their rights and manage their own lives...
launched "Helping-by-Selling", a program which sold imported handicrafts in Oxfam stores in the UK
United Kingdom
The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...
and from mail-order catalogues.
By 1968, the oversized newsprint publication, the Whole Earth Catalog
Whole Earth Catalog
The Whole Earth Catalog was an American counterculture catalog published by Stewart Brand between 1968 and 1972, and occasionally thereafter, until 1998...
, was connecting thousands of specialized merchants, artisans, and scientists directly with consumers who were interested in supporting independent producers, with the goal of bypassing corporate retail and department stores. The Whole Earth Catalog sought to balance the international free market by allowing direct purchasing of goods produced primarily in America and Canada, but also in Latin America and South America.
In 1969, the first worldshop
Worldshop
Worldshops, world shops or Fair Trade Shops are specialized retail outlets offering and promoting Fair Trade products. Worldshops also typically organize various educational Fair Trade activities and play an active role in trade justice and other North-South political campaigns.Worldshops are...
opened its doors in the Netherlands
Netherlands
The Netherlands is a constituent country of the Kingdom of the Netherlands, located mainly in North-West Europe and with several islands in the Caribbean. Mainland Netherlands borders the North Sea to the north and west, Belgium to the south, and Germany to the east, and shares maritime borders...
. 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
Benelux
The Benelux is an economic union in Western Europe comprising three neighbouring countries, Belgium, the Netherlands, and Luxembourg. These countries are located in northwestern Europe between France and Germany...
countries, Germany
Germany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
, 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
Angola
Angola, officially the Republic of Angola , is a country in south-central Africa bordered by Namibia on the south, the Democratic Republic of the Congo on the north, and Zambia on the east; its west coast is on the Atlantic Ocean with Luanda as its capital city...
and Nicaragua
Nicaragua
Nicaragua is the largest country in the Central American American isthmus, bordered by Honduras to the north and Costa Rica to the south. The country is situated between 11 and 14 degrees north of the Equator in the Northern Hemisphere, which places it entirely within the tropics. The Pacific Ocean...
in worldshops, in the back of churches, from their homes, and from stands in public places, using the products as a vehicle to deliver their message: give disadvantaged producers in developing countries a fair chance on the world’s market, and support their self-determined sustainable development. The alternative trade movement blossomed, if not in sales, then at least in terms of dozens of ATOs
Alternative trading organization
An alternative trading organization is usually a non-governmental organization or mission-driven business aligned with the Fair trade movement, aiming "to contribute to the alleviation of poverty in developing regions of the world by establishing a system of trade that allows marginalized...
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
Nelson Mandela
Nelson Rolihlahla Mandela served as President of South Africa from 1994 to 1999, and was the first South African president to be elected in a fully representative democratic election. Before his presidency, Mandela was an anti-apartheid activist, and the leader of Umkhonto we Sizwe, the armed wing...
, Julius Nyerere
Julius Nyerere
Julius Kambarage Nyerere was a Tanzanian politician who served as the first President of Tanzania and previously Tanganyika, from the country's founding in 1961 until his retirement in 1985....
, and the Nicaraguan Sandinistas: the right to independence and self-determination, to equitable access to the world’s markets and consumers.
Handicrafts vs. agricultural goods
In the early 1980s, Alternative Trading Organizations faced major challenges: the novelty of some fair trade products began to wear off, demand reached a plateau, and some handicrafts began to look "tired and old fashioned" in the marketplace. The decline of segments of the handicrafts market forced fair trade supporters to rethink their business model and their goals. Moreover, fair trade supporters during this period became increasingly worried by the impact on small farmers of structural reforms in the agricultural sector as well as the fall in commodityCommodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
prices. Many then believed it was the movement's responsibility to address the issue and to find innovative remedies to react to the ongoing crisis in the industry.
In the subsequent years, fair trade agricultural commodities played an important role in the growth of many ATOs: successful on the market, they offered a much-needed, renewable source of income for producers and provided Alternative Trading Organizations a perfect complement to the handicrafts market. The first fair trade agricultural products were tea
Tea
Tea is an aromatic beverage prepared by adding cured leaves of the Camellia sinensis plant to hot water. The term also refers to the plant itself. After water, tea is the most widely consumed beverage in the world...
and coffee
Coffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
, quickly followed by dried fruits, cocoa, sugar, fruit juices, rice
Rice
Rice is the seed of the monocot plants Oryza sativa or Oryza glaberrima . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East Asia, Southeast Asia, South Asia, the Middle East, and the West Indies...
, spices, and nuts
Nut (fruit)
A nut is a hard-shelled fruit of some plants having an indehiscent seed. While a wide variety of dried seeds and fruits are called nuts in English, only a certain number of them are considered by biologists to be true nuts...
. While in 1992, a sales value ratio of 80% handcrafts to 20% agricultural goods was the norm, in 2002 handcrafts amounted to 25.4% of fair trade sales while commodity food lines were up at 69.4%.
Rise of labeling initiatives
Sales of fair trade products only really took off with the arrival of the first Fairtrade certification initiatives. Although buoyed by ever growing sales, fair trade had been generally contained to relatively small worldshops scattered across Europe and to a lesser extent, North AmericaNorth America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
. 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. The problem was to find a way to expand distribution without compromising consumer trust in fair trade products and in their origins.
A solution was found in 1988, when the first Fairtrade certification initiative, Max Havelaar
Stichting Max Havelaar
Stichting Max Havelaar is the Dutch member of FLO International, which unites 23 Fairtrade producer and labelling initiatives across Europe, Asia, Latin America, North America, Africa, Australia and New Zealand. Several of these corresponding organizations in other European countries also use the...
, was created in the Netherlands under the initiative of Nico Roozen
Nico Roozen
Nico Roozen is a Dutch economist who, in collaboration with Frans van der Hoff and ecumenical development agency Solidaridad, launched Max Havelaar, the first Fairtrade certification initiative in 1988. Roozen played a key role in convincing several major Dutch retailers to offer Fairtrade goods,...
, Frans Van Der Hoff
Frans van der Hoff
Frans van der Hoff , or Francisco VanderHoff Boersma as he is called in Latin America, is a Dutch missionary who, in collaboration with Nico Roozen and ecumenical development agency Solidaridad, launched Max Havelaar, the first Fairtrade label in 1988...
, and Dutch development NGO Solidaridad
Solidaridad
Solidaridad is a Dutch ecumenical development agency founded in 1969. Its main objective is the promotion of social justice, for which it runs three programs:*Fairtrade, for economic justice, with coffee, tropical fruits and cotton/textiles as sub-programs;...
. 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
Fairtrade labelling
Fairtrade certification is a product certification system designed to allow people to identify products that meet agreed environmental, labour and developmental standards. Overseen by a standard-setting body, Fairtrade International , and a certification body, FLO-CERT, the system involves...
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
Supply chain
A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...
.
The concept caught on: in the ensuing years, similar non-profit Fairtrade labelling organizations were set up in other European countries and North America. In 1997, a process of convergence among labelling organizations – or "LIs" (for "Labeling Initiatives") – led to the creation of Fairtrade Labelling Organizations International
Fairtrade Labelling Organizations International
Fairtrade International was established in 1997, and is an association of 3 producer networks, 19 national labelling initiatives and 3 marketing organizations that promote and market the Fairtrade Certification Mark in their countries Fairtrade labelling organizations exist in 18 European...
(FLO). FLO is an umbrella organization whose mission is to set the Fairtrade standards, support, inspect and certify disadvantaged producers, and harmonize the Fairtrade message across the movement.
In 2002, FLO launched for the first time an International Fairtrade Certification Mark
International Fairtrade Certification Mark
The International FAIRTRADE Certification Mark is an independent certification mark used in over 50 countries. It appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal....
. 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
Coffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
, tea
Tea
Tea is an aromatic beverage prepared by adding cured leaves of the Camellia sinensis plant to hot water. The term also refers to the plant itself. After water, tea is the most widely consumed beverage in the world...
, rice
Rice
Rice is the seed of the monocot plants Oryza sativa or Oryza glaberrima . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East Asia, Southeast Asia, South Asia, the Middle East, and the West Indies...
, banana
Banana
Banana is the common name for herbaceous plants of the genus Musa and for the fruit they produce. Bananas come in a variety of sizes and colors when ripe, including yellow, purple, and red....
s, mangoes, cocoa, cotton
Cotton
Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....
, sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
, honey
Honey
Honey is a sweet food made by bees using nectar from flowers. The variety produced by honey bees is the one most commonly referred to and is the type of honey collected by beekeepers and consumed by humans...
, fruit juices, nuts
Nut (fruit)
A nut is a hard-shelled fruit of some plants having an indehiscent seed. While a wide variety of dried seeds and fruits are called nuts in English, only a certain number of them are considered by biologists to be true nuts...
, fresh fruit
Fruit
In broad terms, a fruit is a structure of a plant that contains its seeds.The term has different meanings dependent on context. In non-technical usage, such as food preparation, fruit normally means the fleshy seed-associated structures of certain plants that are sweet and edible in the raw state,...
, quinoa
Quinoa
Quinoa , a species of goosefoot , is a grain-like crop grown primarily for its edible seeds. It is a pseudocereal rather than a true cereal, or grain, as it is not a member of the grass family...
, herbs and spices, wine
Wine
Wine is an alcoholic beverage, made of fermented fruit juice, usually from grapes. The natural chemical balance of grapes lets them ferment without the addition of sugars, acids, enzymes, or other nutrients. Grape wine is produced by fermenting crushed grapes using various types of yeast. Yeast...
, footballs
Football (ball)
A football is an inflated ball used to play one of the various sports known as football.The first balls were made of natural materials, such as an inflated pig bladder, sometimes inside a leather cover...
, etc.
Product certification
Note: Customary spelling of Fairtrade is one word when referring to the FLO product labeling system, see Fairtrade certificationFairtrade labelling (usually simply Fairtrade or Fair Trade Certified
Fair Trade Certified Mark
The Fair Trade Certified Mark is a fair trade certification mark used in Canada and in the United States. It appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal...
in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
) 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
International Fairtrade Certification Mark
The International FAIRTRADE Certification Mark is an independent certification mark used in over 50 countries. It appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal....
or the Fair Trade Certified Mark
Fair Trade Certified Mark
The Fair Trade Certified Mark is a fair trade certification mark used in Canada and in the United States. It appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal...
, it must come from FLO-CERT inspected and certified producer organizations. The crops must be grown and harvested in accordance with the international Fair trade standards set by FLO International. The supply chain
Supply chain
A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to...
must also have been monitored by FLO-CERT, to ensure the integrity of labelled prod
Fairtrade certification purports to guarantee not only fair prices, but also the principles of ethical purchasing. These principles include adherence to ILO agreements such as those banning child and slave labour, guaranteeing a safe workplace and the right to unionise, adherence to the United Nations
United Nations
The United Nations is an international organization whose stated aims are facilitating cooperation in international law, international security, economic development, social progress, human rights, and achievement of world peace...
charter of human rights
Human rights
Human rights are "commonly understood as inalienable fundamental rights to which a person is inherently entitled simply because she or he is a human being." Human rights are thus conceived as universal and egalitarian . These rights may exist as natural rights or as legal rights, in both national...
, a fair price that covers the cost of production and facilitates social development, and protection and conservation of the environment. The Fairtrade certification system also attempts to promote long-term business relationships between buyers and sellers, crop prefinancing, and greater transparency throughout the supply chain and more.
There have been some claims that adherence to fair trade standards by producers has been poor. In 2006, a Financial Times
Financial Times
The Financial Times is an international business newspaper. It is a morning daily newspaper published in London and printed in 24 cities around the world. Its primary rival is the Wall Street Journal, published in New York City....
journalist for example found that ten out of ten mills visited had sold uncertified coffee to co-operatives as certified. It reported that "The FT was also handed evidence of at least one coffee association that received Fairtrade certification despite illegally growing some 20 per cent of its coffee in protected national forest land," but the FLO has since set standards to bar such practices. Enforcement of fair trade standards (such as through involuntary decertification) and handling of complaints from producers by certification bodies have not been publicized. However, fair trade principles (such as those regarding long term contracts and physical traceability for which adherence is optional) are stricter than fair trade rules.
The Fairtrade certification system covers a growing range of products, including banana
Banana
Banana is the common name for herbaceous plants of the genus Musa and for the fruit they produce. Bananas come in a variety of sizes and colors when ripe, including yellow, purple, and red....
s, honey
Honey
Honey is a sweet food made by bees using nectar from flowers. The variety produced by honey bees is the one most commonly referred to and is the type of honey collected by beekeepers and consumed by humans...
, coffee
Coffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
, oranges
Orange (fruit)
An orange—specifically, the sweet orange—is the citrus Citrus × sinensis and its fruit. It is the most commonly grown tree fruit in the world....
, cocoa, cotton
Cotton
Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....
, dried and fresh fruits and vegetables, juices, nuts and oil seeds, quinoa
Quinoa
Quinoa , a species of goosefoot , is a grain-like crop grown primarily for its edible seeds. It is a pseudocereal rather than a true cereal, or grain, as it is not a member of the grass family...
, rice
Rice
Rice is the seed of the monocot plants Oryza sativa or Oryza glaberrima . As a cereal grain, it is the most important staple food for a large part of the world's human population, especially in East Asia, Southeast Asia, South Asia, the Middle East, and the West Indies...
, spices, sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
, tea
Tea
Tea is an aromatic beverage prepared by adding cured leaves of the Camellia sinensis plant to hot water. The term also refers to the plant itself. After water, tea is the most widely consumed beverage in the world...
, and wine
Wine
Wine is an alcoholic beverage, made of fermented fruit juice, usually from grapes. The natural chemical balance of grapes lets them ferment without the addition of sugars, acids, enzymes, or other nutrients. Grape wine is produced by fermenting crushed grapes using various types of yeast. Yeast...
. 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
International Fairtrade Certification Mark
The International FAIRTRADE Certification Mark is an independent certification mark used in over 50 countries. It appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal....
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 the United States). The Fair Trade Certified Mark
Fair Trade Certified Mark
The Fair Trade Certified Mark is a fair trade certification mark used in Canada and in the United States. It appears on products as an independent guarantee that disadvantaged producers in the developing world are getting a better deal...
is still used to identify Fairtrade goods in United States.
WFTO Fair Trade Organization membership
In an effort to complement the Fairtrade product certification system and allow most notably handcraft producers to also sell their products outside worldshops, the World Fair Trade OrganizationWorld Fair Trade Organization
The World Fair Trade Organization , formerly the International Fair Trade Association , was created in 1989 and is a global association of 324 organizations in over 70 countries...
(WFTO) launched in 2004 a new Mark to identify fair trade organizations (as opposed to products in the case of FLO International and Fairtrade). Called the FTO Mark, it allows consumers to recognize registered Fair Trade Organizations worldwide and guarantees that standards are being implemented regarding working conditions, wages, child labour, and the environment. The FTO Mark gave for the first time all Fair Trade Organizations (including handcrafts producers) definable recognition amongst consumers, existing and new business partners, governments, and donors.
Alternative trading organizations
Non-governmental organization
A non-governmental organization is a legally constituted organization created by natural or legal persons that operates independently from any government. The term originated from the United Nations , and is normally used to refer to organizations that do not form part of the government and are...
(NGO) or mission-driven business aligned with the Fair trade movement, aiming "to contribute to the alleviation of poverty in developing regions of the world by establishing a system of trade that allows marginalized producers in developing regions to gain access to developed markets".
Alternative trading organizations have Fair Trade at the core of their mission and activities, using it as a development tool to support disadvantaged producers and to reduce poverty, and combine their marketing with awareness-raising and campaigning.
Alternative trading organizations are often, but not always, based in political and religious groups, though their secular purpose precludes sectarian identification and evangelical activity. Philosophically, the grassroots political-action agenda of these organizations associates them with progressive political causes active since the 1960s: foremost, a belief in collective action
Collective action
Collective action is the pursuit of a goal or set of goals by more than one person. It is a term which has formulations and theories in many areas of the social sciences.-In sociology:...
and commitment to moral principles based on social, economic and trade justice
Trade justice
Trade justice is a campaign by non-governmental organisations lobbying for changes to the rules and practices of world trade so that poor people and the environment benefit...
.
According to the European Fair Trade Association
European Fair Trade Association
The European Fair Trade Association is a Dutch association established informally in 1987. It gained formal status in 1990. It regroups 11 fair trade importers in 9 European countries: Austria, Belgium, France, Germany, Italy, Netherlands, Spain, Switzerland and the United Kingdom. EFTA members...
(EFTA), the defining characteristic of alternative trading organizations is that of equal partnership and respect - partnership between the developing region producers and importers, shops, labelling organizations, and consumers. Alternative trade "humanizes" the trade process - making the producer-consumer chain as short as possible so that consumers become aware of the culture, identity, and conditions in which producers live. All actors are committed to the principle of alternative trade, the need for advocacy in their working relations and the importance of awareness-raising and advocacy work.
Worldshops
Trade justice
Trade justice is a campaign by non-governmental organisations lobbying for changes to the rules and practices of world trade so that poor people and the environment benefit...
and other North-South political campaigns.
Worldshops are often not-for-profit organizations and run by locally based volunteer networks.
Although the movement emerged in Europe
Europe
Europe is, by convention, one of the world's seven continents. Comprising the westernmost peninsula of Eurasia, Europe is generally 'divided' from Asia to its east by the watershed divides of the Ural and Caucasus Mountains, the Ural River, the Caspian and Black Seas, and the waterways connecting...
and a vast majority of worldshops are still based on the continent, worldshops can also be found today in North America
North America
North America is a continent wholly within the Northern Hemisphere and almost wholly within the Western Hemisphere. It is also considered a northern subcontinent of the Americas...
, Australia
Australia
Australia , officially the Commonwealth of Australia, is a country in the Southern Hemisphere comprising the mainland of the Australian continent, the island of Tasmania, and numerous smaller islands in the Indian and Pacific Oceans. It is the world's sixth-largest country by total area...
and New Zealand
New Zealand
New Zealand is an island country in the south-western Pacific Ocean comprising two main landmasses and numerous smaller islands. The country is situated some east of Australia across the Tasman Sea, and roughly south of the Pacific island nations of New Caledonia, Fiji, and Tonga...
.
Worldshops' aim is to make trade as direct and fair with the trading partners as possible. Usually, this means a producer in a developing country
Developing country
A developing country, also known as a less-developed country, is a nation with a low level of material well-being. Since no single definition of the term developing country is recognized internationally, the levels of development may vary widely within so-called developing countries...
and consumers in industrialized
Industrialisation
Industrialization is the process of social and economic change that transforms a human group from an agrarian society into an industrial one...
countries. The worldshops' target is to pay the producers a fair price that guarantees substinence and guarantees positive social development. They often cut out any intermediaries in the import chain.
A web movement has recently begun to provide fair trade items at fair prices to the consumers. One popular one is Fair Trade a Day where a different fair trade item is featured each day.
Impact studies
There are almost no formal impact studies attempting to measure impacts on Fairtrade farmers and a control of matched non-Fairtrade farmers, covering the period before and after the introduction of Fairtrade. And there appear to be none assessing which of the many aid organizations involved is responsible for any changes observed. Several independent studies have recently attempted to measure the impact of fair trade on participating farmers and workers.What proportion of the money reaches the farmers?
The Fairtrade Foundation does not monitor how much extra retailers charge for Fairtrade goods, and retailers almost never sell identical Fairtrade and non-Fairtrade lines side by side, so it is rarely possible to determine how much extra is charged or how much reaches the producers. In four cases it has been possible to find out. One British café chain was passing on less than one percent of the extra charged to the exporting cooperative; in Finland, Valkila, Haaparanta and Niemi found that consumers paid much more for Fairtrade, and that only 11.5% reached the exporter. Kilian, Jones, Pratt and Villalobos talk of US Fairtrade coffee getting $5 per lb extra at retail, of which the exporter would have received only 2%. Mendoza and Bastiaensen calculated that in the UK only 1.6% to 18% of the extra charged for one product line reached the farmer. All these studies assume that the importers paid the full Fairtrade price, which is not necessarily the case.The Fairtrade Foundation does not monitor how much of the extra money paid to the exporting cooperatives reaches the farmer. The cooperatives incur costs in reaching the Fairtrade political standards, and these are incurred on all production, even if only a small amount is sold at Fairtrade prices. The most successful cooperatives appear to spend a third of the extra price received on this: some less successful cooperatives spend more than they gain.
There is no evidence that Fairtrade farmers get higher prices on average. Anecdotes state that farmers were paid more, or less, by traders than by Fairtrade cooperatives. Few of these anecdotes address the problems of price reporting in Third World markets, and few address the complexity of the different price packages (which may or may not include credit, harvesting labour, spray application, transport and processing for instance). Cooperatives typically average prices over the year, so they pay less than traders at some times, more at others. Bassett (2009) is able to compare prices accurately where Fairtrade and non-Fairtrade farmers have to sell cotton to the same monopsonistic ginneries. Fairtrade encouraged Nicaraguan farmers to switch to organic coffee, which resulted in a higher price per pound, but a lower net income because of higher costs and lower yields.
International
Every year the sales of Fair Trade products grow close to 30% and in 2004 were worth over 500 million US. In the case of coffee, sales grow nearly 50% per year in certain countries. . In 2002, 16 000 tons of Fair Trade Coffee was purchased by consumers in 17 countries. . “Fair trade coffee is currently produced in 24 countries in Latin America, Africa and Asia” . The 165 FLO associations in Latin America and Caribbean are located in 14 countries and together export over 85% of the world’s Fair Trade coffee. .Africa
Africa’s exports come from places such as South Africa, Ghana, Uganda, Tanzania and Kenya, these exports are valued at 24 million dollars US.Between the years of 2004 and 2006 Africa quickly expanded their number of FLO certified producer groups, rising from 78
to 171; nearly half of which reside in Kenya, following closely behind are Tanzania and South Africa.
The FLO products Africa is known for are tea, cocoa, flowers and wine.
In Africa there are smallholder cooperatives and plantations which produce Fair Trade certified tea.
Latin America
Latin America is known for producing the majority of certified organic coffee.Studies in the early 2000’s show that the income, education and health of coffee producers involved with Fair Trade in Latin America were improved, versus producers who were not participating.
Nicaragua, Peru and Guatemala, having the biggest population of coffee producers, make use of some of the most substantial land for coffee production in Latin America and do so by taking part in Fair Trade.
European Union
European Parliament
The European Parliament is the directly elected parliamentary institution of the European Union . Together with the Council of the European Union and the Commission, it exercises the legislative function of the EU and it has been described as one of the most powerful legislatures in the world...
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
Economic and Social Committee
The European Economic and Social Committee is a body of the European Union established in 1958. It is a consultative assembly composed of employers , employees and representatives of various other interests...
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
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
to support Fair Trade banana
Banana
Banana is the common name for herbaceous plants of the genus Musa and for the fruit they produce. Bananas come in a variety of sizes and colors when ripe, including yellow, purple, and red....
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.
In 1998, the European Parliament adopted the "Resolution on Fair Trade" (OJ C 226/73, 20.07.1998), which was followed by the Commission in 1999 that adopted the "Communication from the Commission to the Council on 'Fair Trade'" COM(1999) 619 final, 29.11.1999.
In 2000, public institutions in Europe started purchasing Fairtrade Certified coffee and tea. Furthermore, that year, the Cotonou Agreement
Cotonou Agreement
The Cotonou Agreement is a treaty between the European Union and the African, Caribbean and Pacific Group of States . It was signed in June 2000 in Cotonou, the largest city in Benin, by 78 ACP countries and the then fifteen Member States of the European Union...
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.
In 2001 and 2002, several other EU papers explicitly mentioned fair trade, most notably the 2001 Green Paper on Corporate Social Responsibility
Corporate social responsibility
Corporate social responsibility is a form of corporate self-regulation integrated into a business model...
and the 2002 Communication on Trade and Development.
In 2004, the European Union
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
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".
And finally, on July 6 in 2006, the European Parliament unanimously adopted a resolution on fair trade, recognizing the benefits achieved by the Fair Trade movement, suggesting the development of an EU-wide policy on Fair Trade, defining criteria that need to be fulfilled under fair trade to protect it from abuse and calling for greater support to Fair Trade (EP resolution "Fair Trade and development", 6 July 2006). "This resolution responds to the impressive growth of Fair Trade, showing the increasing interest of European consumers in responsible purchasing," said Green
European Green Party
The European Green Party is the Green political party at European level. As such it is a federation of green parties in Europe.-History:...
MEP Frithjof Schmidt
Frithjof Schmidt
Frithjof Schmidt is a German politician and Member of the European Parliament for Alliance '90/The Greens, part of the European Greens.-References:...
during the plenary debate. Peter Mandelson
Peter Mandelson
Peter Benjamin Mandelson, Baron Mandelson, PC is a British Labour Party politician, who was the Member of Parliament for Hartlepool from 1992 to 2004, served in a number of Cabinet positions under both Tony Blair and Gordon Brown, and was a European Commissioner...
, EU Commissioner for External Trade, responded that the resolution will be well-received at the Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
. "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."
France
In 2005, FrenchFrance
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
parliament
French National Assembly
The French National Assembly is the lower house of the bicameral Parliament of France under the Fifth Republic. The upper house is the Senate ....
member Antoine Herth
Antoine Herth
Antoine Herth is a member of the National Assembly of France. He represents the Bas-Rhin department, and is a member of the Union for a Popular Movement.-References:...
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).
In parallel to the legislative developments, also in 2006, the French
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
chapter of ISO
International Organization for Standardization
The International Organization for Standardization , widely known as ISO, is an international standard-setting body composed of representatives from various national standards organizations. Founded on February 23, 1947, the organization promulgates worldwide proprietary, industrial and commercial...
(AFNOR) adopted a reference document on Fair Trade after five years of discussion.
Italy
In 2006, ItalianItaly
Italy , officially the Italian Republic languages]] under the European Charter for Regional or Minority Languages. In each of these, Italy's official name is as follows:;;;;;;;;), is a unitary parliamentary republic in South-Central Europe. To the north it borders France, Switzerland, Austria and...
lawmakers started debating how to introduce a law on fair trade in Parliament
Parliament of Italy
The Parliament of Italy is the national parliament of Italy. It is a bicameral legislature with 945 elected members . The Chamber of Deputies, with 630 members is the lower house. The Senate of the Republic is the upper house and has 315 members .Since 2005, a party list electoral law is being...
. A consultation process involving a wide range of stakeholders was launched in early October. A common definition of fair trade was most notably developed. However, its adoption is still pending as the efforts were stalled by the 2008 Italian political crisis
2008 Italian political crisis
On 24 January 2008 Prime Minister of Italy Romano Prodi lost a vote of confidence in the Senate by a vote of 161 to 156 votes, causing the downfall of his government. Prodi's resignation led President Giorgio Napolitano to request the president of the Senate, Franco Marini, to assess the...
.
Netherlands
The Dutch province of GroningenGroningen (province)
Groningen [] is the northeasternmost province of the Netherlands. In the east it borders the German state of Niedersachsen , in the south Drenthe, in the west Friesland and in the north the Wadden Sea...
was sued in 2007 by coffee supplier Douwe Egberts
Douwe Egberts
Douwe Egberts is a Dutch corporation that processes and trades coffee, tea, and other groceries. Its full name is Douwe Egberts Koninklijke Tabaksfabriek-Koffiebranderijen-Theehandel NV, which translates as "Douwe Egberts Royal Tobacco Factory - Coffee Roasters - Tea Traders, Plc."...
for explicitly requiring its coffee suppliers to meet fair trade criteria, most notably the payment of a minimum price and a development premium to producer cooperatives. Douwe Egberts, which sells a number of coffee brands under self-developed ethical criteria, believed the requirements were discriminatory. After several months of discussions and legal challenges, the province of Groningen prevailed in a well-publicized judgement. Coen de Ruiter, director of the Max Havelaar Foundation
Stichting Max Havelaar
Stichting Max Havelaar is the Dutch member of FLO International, which unites 23 Fairtrade producer and labelling initiatives across Europe, Asia, Latin America, North America, Africa, Australia and New Zealand. Several of these corresponding organizations in other European countries also use the...
, called the victory a landmark event: "it provides governmental institutions the freedom in their purchasing policy to require suppliers to provide coffee that bears the fair trade criteria, so that a substantial and meaningful contribution is made in the fight against poverty through the daily cup of coffee".
Common justifications
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 microeconomic market failures of the current system and the commodity crisis and its impact on developing countryDeveloping country
A developing country, also known as a less-developed country, is a nation with a low level of material well-being. Since no single definition of the term developing country is recognized internationally, the levels of development may vary widely within so-called developing countries...
producers. According to Fair Trade umbrella organisations FLO International and WFTO: "Fair Trade is, fundamentally, a response to the failure of conventional trade to deliver sustainable livelihoods and development opportunities to people in the poorest countries of the world. Poverty and hardship limit people’s choices while market forces tend to further marginalise and exclude them. This makes them vulnerable to exploitation, whether as farmers and artisans in family-based production units or as hired workers within larger businesses.”
Market failures
All FINEFINE
FINE was created in 1998 and is an informal association of the four main fair trade networks:*F Fairtrade Labelling Organizations International *I International Fair Trade Association, now the World Fair Trade Organization...
members and fair trade federations support in theory the principles of unhindered free trade. However, as Alex Nicholls
Alex Nicholls (academic)
Dr Alex Nicholls MBA is the first lecturer in social entrepreneurship appointed at the University of Oxford and was the first staff member of the Skoll Centre for Social Entrepreneurship....
, social entrepreneurship professor at Oxford University, states, the "key conditions on which classical
Classical liberalism
Classical liberalism is the philosophy committed to the ideal of limited government, constitutionalism, rule of law, due process, and liberty of individuals including freedom of religion, speech, press, assembly, and free markets....
and neo-liberal
Neoliberalism
Neoliberalism is a market-driven approach to economic and social policy based on neoclassical theories of economics that emphasizes the efficiency of private enterprise, liberalized trade and relatively open markets, and therefore seeks to maximize the role of the private sector in determining the...
trade theories are based are notably absent in rural agricultural societies in many developing countries
Developing country
A developing country, also known as a less-developed country, is a nation with a low level of material well-being. Since no single definition of the term developing country is recognized internationally, the levels of development may vary widely within so-called developing countries...
." Perfect market information, perfect access to markets and credit
Credit (finance)
Credit is the trust which allows one party to provide resources to another party where that second party does not reimburse the first party immediately , but instead arranges either to repay or return those resources at a later date. The resources provided may be financial Credit is the trust...
, 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".
The example of coffee is particularly telling: "since it takes from three to four years for a coffee plant to produce significant quantities of coffee, and up to seven years before the plant reaches peak productivity, it is difficult for coffee farmers to react quickly to price fluctuations. As a result, coffee supply often increases even as market prices plummet. Further, this leads to a collective action problem, where each farmer has an incentive to increase production as price falls in order to reduce per unit cost and increase his or her margins. In aggregate, this activity creates a positive feedback loop and further depresses the world price."
Market power
Market power
In economics, market power is the ability of a firm to alter the market price of a good or service. In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors...
is also commonly mentioned as one of the most important market failures cited for agricultural markets. Consolidation and increased concentration in the food industry have been carefully documented for both the U.S. and Europe. From early days, observations on market structure downstream from agricultural production have motivated empirical and theoretical attention to the issue of market power in agriculture. In addition to market structure concerns, Sexton and Rogers argue that several typical characteristics of raw agricultural commodity markets should make the analysis of imperfect competition in these markets routine. These characteristics include the bulky and perishable nature of agricultural products, producers’ geographic immobility, and the sunk cost aspect of specialized crops. This is not to say that market power should be presumed in these markets. Rather, the point made by Sexton and Rogers is that policy for and analyses of agricultural markets must establish something about competition: In brief, that "imperfect competition matters to agricultural economists". Notably, imperfect competition consistently figures in any discussion of the crisis facing coffee producers.
According to Oxford University's Alex Nicholls
Alex Nicholls (academic)
Dr Alex Nicholls MBA is the first lecturer in social entrepreneurship appointed at the University of Oxford and was the first staff member of the Skoll Centre for Social Entrepreneurship....
, market failures such as these clearly shows how the absence of perfect microeconomic conditions can nullify or even reverse the potential gains to producers from trade
Trade
Trade is the transfer of ownership of goods and services from one person or entity to another. Trade is sometimes loosely called commerce or financial transaction or barter. A network that allows trade is called a market. The original form of trade was barter, the direct exchange of goods and...
. While Nicholls
Alex Nicholls (academic)
Dr Alex Nicholls MBA is the first lecturer in social entrepreneurship appointed at the University of Oxford and was the first staff member of the Skoll Centre for Social Entrepreneurship....
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." The existence of these market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...
s lessens the capacity trade has to lift developing countries out of poverty.
These conclusions were corroborated by a 2006 World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
Policy Research Working Paper written by Loraine Ronchi, which found that "the failure of market power and low producer capacity in coffee markets in LDCs are identified as underlying causes of the low share of coffee returns faced by producers".
Fair trade is seen as an attempt to address these purported market failures by providing producers a stable price for their crop, business support, access to premium Northern markets, and better general trading conditions. According to the 2006 World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
study, Fair Trade seems to succeed in its aims: "in these respects at least, the role of Fairtrade is effective. Its support for cooperatives in mitigating market power is found not to be misplaced in Costa Rica
Costa Rica
Costa Rica , officially the Republic of Costa Rica is a multilingual, multiethnic and multicultural country in Central America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east....
. Fairtrade mills also improve the returns to farmers through the improved efficiency of their organizations".
The commodity crisis
Fair trade advocates also often point out that unregulated competition in global commodityCommodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
markets ever since the 1970s and 1980s has encouraged a price "race to the bottom
Race to the bottom
A race to the bottom is a socio-economic concept that is argued to occur between countries as an outcome of regulatory competition, progressive taxation policies and social welfare spending...
". During the 1970-2000 period, prices for many of the main agricultural exports of developing countries, such as sugar
Sugar
Sugar is a class of edible crystalline carbohydrates, mainly sucrose, lactose, and fructose, characterized by a sweet flavor.Sucrose in its refined form primarily comes from sugar cane and sugar beet...
, cotton
Cotton
Cotton is a soft, fluffy staple fiber that grows in a boll, or protective capsule, around the seeds of cotton plants of the genus Gossypium. The fiber is almost pure cellulose. The botanical purpose of cotton fiber is to aid in seed dispersal....
, cocoa, and coffee
Coffee
Coffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
, fell by 30 to 60 percent. According to the European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....
, "the abandonment of international intervention policies
Economic interventionism
Economic interventionism is an action taken by a government in a market economy or market-oriented mixed economy, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy...
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". 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.
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.
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
Social cost
Social cost, in economics, is generally defined in opposition to "private cost". In economics, theorists model individual decision-making as measurement of costs and benefits...
production costs.
Criticism
Fair trade's increasing popularity has drawn criticism from both ends of the political spectrumPolitical spectrum
A political spectrum is a way of modeling different political positions by placing them upon one or more geometric axes symbolizing independent political dimensions....
. Some economists and think tanks see "fair trade" as a type of subsidy that impedes growth. Segments of the left
Left-wing politics
In politics, Left, left-wing and leftist generally refer to support for social change to create a more egalitarian society...
criticize fair trade for not adequately challenging the current trading system.
Agricultural economics and marketing criticisms
Griffith’s review of Fairtrade research from the agricultural economics and marketing perspective [1] argues that while it is very profitable for retailers, there is reason to doubt that much of the extra that consumers pay reaches the Third World, and to doubt that farmers get much if any of what does reach Third World exporters. There is no evidence that Fairtrade farmers generally get higher prices. There is no evidence that Fairtrade generally produces a positive economic impact on Fairtrade farmers, though it may harm non-Fairtrade farmers. There are almost no formal impact studies attempting to measure impacts on Fairtrade farmers and a control of matched non-Fairtrade farmers, covering the period before and after the introduction of Fairtrade. And there appear to be none assessing which of the many aid organizations involved is responsible for any changes observed.The failure of Fairtrade sellers to give relevant information on what happens to the extra payment appears to be ‘Unfair Trading’ in all EU countries under Directive 2005/29/EC on Unfair Commercial Practices and may be criminal. He concludes that Fairtrade is fundamentally unethical.Price distortion argument
Fair trade opponents such as the Adam Smith InstituteAdam Smith Institute
The Adam Smith Institute, abbreviated to ASI, is a think tank based in the United Kingdom, named after one of the founders of modern economics, Adam Smith. It espouses free market and classical liberal views, in particular by creating radical policy options in the light of public choice theory,...
claim that similar to other farm subsidies, fair trade attempts to set a price floor
Price floor
A price floor is a government- or group-imposed limit on how low a price can be charged for a product. For a price floor to be effective, it must be greater than the equilibrium price.-Effectiveness of price floors:...
for a good that is in many cases above the market price
Market price
In economics, market price is the economic price for which a good or service is offered in the marketplace. It is of interest mainly in the study of microeconomics...
and therefore encourages existing producers to produce
Produce
Produce is a generalized term for a group of farm-produced goods and, not limited to fruits and vegetables . More specifically, the term "produce" often implies that the products are fresh and generally in the same state as where they were harvested. In supermarkets the term is also used to refer...
more and new producers to enter the market, leading to excess supply. Through the laws of supply and demand
Supply and demand
Supply and demand is an economic model of price determination in a market. It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers will equal the quantity supplied by producers , resulting in an...
, excess supply can lead to lower prices in the non-Fair Trade market.
In 2003, the Cato Institute
Cato Institute
The Cato Institute is a libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Edward H. Crane, who remains president and CEO, and Charles Koch, chairman of the board and chief executive officer of the conglomerate Koch Industries, Inc., the largest privately held...
's vice president for research Brink Lindsey
Brink Lindsey
Brink Lindsey was the Cato Institute's vice president for research. He was also editor of , a monthly web magazine. From 1998 to 2004, he was director of Cato's , helping to make it a leading voice for free trade...
referred to fair trade as a "well intentioned, interventionist
Economic interventionism
Economic interventionism is an action taken by a government in a market economy or market-oriented mixed economy, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy...
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. Lindsey's comments echo the main criticisms of Fair Trade, claiming that it "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. Economic theory suggests that when prices are low due to surplus production, adding a subsidy or otherwise artificially raising prices will only exacerbate the problem by encouraging more supply and also encouraging workers into unproductive activities.
Several academics, including Hayes, Becchetti, and Rosati identify two counterarguments to this criticism.
- 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.
- Second, the price distortion argument does not take into account the principles of product differentiationProduct differentiationIn economics and marketing, product differentiation is the process of distinguishing a product or offering from others, to make it more attractive to a particular target market. This involves differentiating it from competitors' products as well as a firm's own product offerings...
. CoffeeCoffeeCoffee is a brewed beverage with a dark,init brooo acidic flavor prepared from the roasted seeds of the coffee plant, colloquially called coffee beans. The beans are found in coffee cherries, which grow on trees cultivated in over 70 countries, primarily in equatorial Latin America, Southeast Asia,...
, for example, cannot be compared to other commodities such as oilPetroleumPetroleum or crude oil is a naturally occurring, flammable liquid consisting of a complex mixture of hydrocarbons of various molecular weights and other liquid organic compounds, that are found in geologic formations beneath the Earth's surface. Petroleum is recovered mostly through oil drilling...
: there is not one single type of coffee but instead many different coffees that are differentiated from one another in terms of production techniques, seasonal or regional differences in quality, blending, packaging, handling, and now also "social responsibility" accounting. Consumer demand and taste define what different market prices are acceptable for each of these products. In this sense, fair trade can be considered as a market-driven innovation in the food industry that creates a new range of products for which a growing segment of consumers are willing to pay more based on environmental and social responsibility claims.
Insufficiently aggressive
In 2006, the Financial Times reported that some wage workers hired by fair trade producers in Peru were making 10 solePeruvian nuevo sol
The nuevo sol plural: nuevos soles; currency sign: S/.) is the currency of Peru. It is subdivided into 100 cents, called céntimos in Spanish. The ISO 4217 currency code is PEN. It is most commonly referred to just as sol...
s per day ($3) as opposed to 8 soles per day made on non fair trade farms. This higher wage was still less than the legal minimum wage of 11 soles (16 soles less 5 soles for room and board) in 4 out of the 5 farms visited, and violated Fairtrade’s standards.
The Adam Smith Institute
Adam Smith Institute
The Adam Smith Institute, abbreviated to ASI, is a think tank based in the United Kingdom, named after one of the founders of modern economics, Adam Smith. It espouses free market and classical liberal views, in particular by creating radical policy options in the light of public choice theory,...
claimed in 2008 that Fair trade has had little effect on the decreasing percentage of final sale value ending up with the producers as only a fraction of fair trade premiums reach producers. This claim is based on a calculation that only 10% of the fair trade premium for a cup of coffee at a popular London chain goes to purchase fair trade coffee beans instead of standard beans. This situation has led Tom Clougherty
Tom Clougherty
Tom Clougherty is the executive director of the Adam Smith Institute, a libertarian think-tank based in London, England. Clougherty has appeared regularly on the television network CNBC to discuss economic issues relevant to the United Kingdom...
of the Adam Smith Institute, to describe Fair Trade as little more than a marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...
ploy.
Although not completely dismissing the particular stance taken by Tom Clougherty
Tom Clougherty
Tom Clougherty is the executive director of the Adam Smith Institute, a libertarian think-tank based in London, England. Clougherty has appeared regularly on the television network CNBC to discuss economic issues relevant to the United Kingdom...
of the Adam Smith Institute
Adam Smith Institute
The Adam Smith Institute, abbreviated to ASI, is a think tank based in the United Kingdom, named after one of the founders of modern economics, Adam Smith. It espouses free market and classical liberal views, in particular by creating radical policy options in the light of public choice theory,...
, Fairtrade supporters including UK charity the Lorna Young Foundation and Fair Trade entrepreneurs Jurang, argue that such a stance although true to some extent does not do justice to the fair trade movement as a whole and instead arguably exemplifies how Fairtrade as a brand, currently represented by the FLO International mark is not what Fair Trade is about.
See also
- Ethical consumerismEthical consumerismEthical consumerism is the intentional purchase of products and services that the customer considers to be made ethically. This may mean with minimal harm to or exploitation of humans, animals and/or the natural environment...
- Free produce movementFree produce movementThe free produce movement was a boycott against goods produced by slave labor. It came about as a method to fight slavery by having consumers buy only produce derived from non-slave labor; labor from free men and women who were paid for their toil...
- GxPGxPGxP is a general term for Good Practice quality guidelines and regulations. These guidelines are used in many fields, including the pharmaceutical and food industries....
- South-South CooperationSouth-South CooperationSouth-South Cooperation is a term historically used by policymakers and academics to describe the exchange of resources, technology, and knowledge between developing countries, also known as countries of the global South.- History :...
- UTZ CertifiedUTZ CertifiedUTZ CERTIFIED is a certification program for agricultural products launched in 2002 which claims to be the largest coffee certifier in the world. It was formerly known as Utz Kapeh. On the 7th of March, 2007, the Utz Kapeh Foundation officially changed its name and logo to UTZ CERTIFIED 'Good Inside'...