Fair Trade

Market-Driven Ethical Consumption

Alex Nicholls, Charlotte Opal

• Publisher: SAGE Publications Ltd
• Year: 2005
• Print ISBN: 9781412901055, 9781412901048
• eBook ISBN: 9781446233351
• Edition: 1
• Topic: Business
• Subtopic: International Business
• Index: Business

?Today, Fair Trade finds itself at a crucial point in its evolution from alternative trading mechanism to a mainstream economic model. As the only certifier in the largest Fair Trade market in the world, TransFair USA has observed the explosive growth in consumer awareness and business interest in Fair Trade certification. New research into the progress of Fair Trade to date and, crucially, its key future directions is urgently needed. Fair Trade is therefore a valuable and timely contribution.The range and depth of the book is considerable. It is international in outlook and engages with a broad spectrum of theory and thinking. Its style is approachable yet rigorous. I would strongly recommend it to industry, academics, students, policy-makers and the interested reader in general?

- Paul Rice, CEO, TransFair USA

?This work - a powerful study of the maelstrom of issues and cross currents in the Fair Trade and Development movements is long overdue. Through case studies, quantative analysis and reasoned arguement, this work makes its case with cogent force?

- Hamish Renton, Product Manager Food You Can Trust, Tesco

?With the fair trade sector growing rapidly, it is vital that the concept is understood properly and the future potential mapped out. Fair Trade provides a comprehensive guide to all aspects of fair trade which make it a "must read" for everyone from casual buyer right through to seasoned producer. Here?s your chance to see how you can easily change the world for the better?

- Mel Young, editor-in-chief, New Consumer, Britain?s only fair trade magazine, www.newconsumer.org.

Fair Trade is at a crucial moment in its evolution from alternative trading mechanism to mainstream economic model. This timely and thoughtful book looks at the strategic future for Fair Trade.

Each chapter spearheads a key area of Fair Trade thinking and theory and the political, legal and economic context of Fair Trade is given careful scrutiny. Difficult questions are tackled such as `What is the role and value of corporate social responsibility?? and `What is the brand meaning of Fair Trade??

Throughout, readers are supported by:

- Revealing case studies and useful data analysis;

- Concise histories of different Fair Trade organisations;

- Chapter summaries and conclusions.

PART ONE

The Rise of Fair Trade

Introduction

Fair Trade is …

More Money to the World’s Poor

I used to live in a thatch hut with a mud floor. Now I have two concrete houses. And I have been able to educate my children. Sophia is at university in Belmopan and Laurence is a teacher. They had to work in a shrimp farm when they were younger, but my children now only go to school. We don’t need them to work.

Jeronimo Tush, Cocoa Grower, Belize (Sutcliffe, 2004: 20)

A Success Story

I am enormously pleased with the way things have gone in the past five years, because more and more organizations across the world have come forward and identified themselves as being Fair Trade organizations … and I think that indicates the degree of interest that there is in this rather special kind of trade that deliberately sets out to make a difference to the lives of marginalized people.

Carol Wills, The International Federation of Alternative
Trade (Interview, 2004)

A Rethinking of Global Trade

In the end, what Fair Trade is about is working with marginalized producers – people on the edge of the international trading system. It’s bringing them in and building their sustainability, their understanding of selling and trading and allowing them to survive often in situations where they probably wouldn’t. What Fair Trade brings is a long-term relationship and the ability to plan ahead. So it’s about empowerment and the growth of output and quality for the groups and to get to a point where they no longer need to engage with the Fair Trade relationship.

Diana Gayle, The Fairtrade Foundation (2003)

A Market Opportunity

We wouldn’t be selling this stuff if there wasn’t something in it for us in the context of sales benefits, the halo of Fair Trade, and brand benefits. So we started to get interested in it and we felt, frankly, that it was a sector that was ripe for something to happen. Growth is really fast – it is basically a start-up in food terms – it’s not explosive growth, but it is rapid.

Hamish Renton, Tesco UK (2003)

Consumer Empowerment

People see it as charity, but it is not, it is justice. We have to get rid of the charity way of thinking. I see Fair Trade as doing two things: one, it is helping people immediately and changing their lives; then, there is the bigger picture where it is a protest tool, a way of registering your vote. But now we are not boycotting something, we are supporting something positive.

Bruce Crowther, Fair Trade Towns Co-ordinator,
Fairtrade Foundation (2003)

Producer Empowerment

Fair Trade farmers will say that because they now have a prestige product in the market … when they now go knocking on somebody else’s door, whether or not it is a Fair Trade importer, they get received, whereas in the past they did not.

Kimberly Easson, TransFair USA (2003)

PREFACE

The world is changing fast. Perhaps never before in human history has the pace of technological and economic advances been so rapid. During the past thirty years the interconnectedness of the ‘global village’ has become more and more apparent as the communications revolution and cheaper air travel have linked communities around the world. Mass migration and the increasing integration of previous generations of immigrants are changing the concept of nationality in many countries. Cultures have clashed, blended, and been synthesized into rich new combinations, and global brands have emerged to draw disparate consumers into common aspirations (see further Gabriel and Lang, 1995). The collapse of the ‘Second World’ planned economies in eastern Europe and the Soviet Union has also led to an increasing consensus over economic and political norms based around the US model of free market democracy and neo-liberal economics (the so-called ‘Washington Consensus’). Some have referred to this trend towards global homogenization as ‘the end of history’ (Fukuyama, 1992).

Paralleling the cultural and technological innovations of recent times has been the development of global business on a scale undreamt of even at the height of the European imperial age during the eighteenth and nineteenth centuries. Today’s corporations span the globe with interests across many nation states and supply chains that encircle the planet. The largest of these multinationals have turnovers equivalent to small independent countries. For example, WalMart – the world’s largest company by market capitalization in 2003 – had a turnover in 2002 greater than the gross domestic product (GDP) of Turkey, Denmark, South Africa and many other countries (Young and Welford, 2002). As a result of this huge increase in the scope and influence of global corporations, consumers in the developed world have never before been offered such a range of products sourced from so many distant lands, and the profitability growth of many businesses is now increasingly driven by opportunities to seek out cheaper source materials and labour from around the global marketplace.

These dramatic changes have benefited many, both in the developing and developed worlds. However, the relentless onward march of globalization has also generated problems. In tandem with the retreat by government in many countries from traditional social welfare agendas, the growing economic muscle of multinationals has created losers as well as winners (Klein, 2000; Singer, 2002; Stiglitz, 2002). Whilst increases in overall global trade, global GDP, and foreign direct investment (FDI) have all helped improve life expectancies and the overall standard of living for many in developing countries, global inequality has also grown. Clearly, some in this global revolution are benefiting more than others. Indeed, many are not benefiting at all.

As protestors in Seattle, Doha, and Genoa have drawn attention to some Western consumers’ growing disillusionment with the progress of development through global trade, Fair Trade has emerged as the most important market-based mechanism to improve the lives of producers in developing countries. Sales of Fair Trade products in Europe, North America and Japan have grown exponentially in recent years. Fair Trade bananas have a 50 per cent market share in Switzerland (AgroFair, 2004), and global sales of all Fair Trade products amounted to approximately £500m ($895m) in 2003 (Vidal, 2004), up from an estimated £335m ($600m) in 2002 (Leatherhead Food International, 2003). Fair Trade coffee is the fastest-growing segment of the speciality coffee industry in the USA and the UK (McCarthy, 2004). To date, these figures include the initially small, but rapidly growing, US market. If US market development follows the pattern of European markets – and there is evidence to believe that it may be moving even faster – global sales of Fair Trade will increase by a factor of 10–15 in the next few years. Therefore, it is far from fanciful to assume that global Fair Trade sales will top £1 billion ($1.8 billion) by 2007 (Demetriou, 2003).

As a result, addressing Fair Trade issues is now part of the agenda for most major European retailers, including Monoprix, Tesco, Migros, and Carrefour. Moreover, Fair Trade is now the subject of hundreds of global media stories each year and also forms an important part of both the taught programmes and research literature of several distinct academic disciplines, including development economics, finance, accounting, business ethics, marketing, buying, and retail operations. National governments and supra-national organizations, such as the United Nations and the European Commission, are also recognizing this important new model of trade.

Fair Trade attempts to address some of the key problems in the increasingly deregulated global marketplace by addressing the producers’ needs, as well as those of consumers, big corporations and their shareholders. Fair Trade represents a new way to do business that looks holistically at the supply chain to address market failures and their social impacts at source, but which still acknowledges the need for profitability. Fair Trade is not about aid, charity, or just ‘doing good’: it is about recognizing the global community as having rights and responsibilities that extend across all of its stakeholders. Public demonstrations against perceived misuse of power by multinational corporations are now commonplace, and the public mood generally is clearly shifting towards a demand for more transparency and fairness in all areas of business activity. The rise of Corporate Social Responsibility (CSR) as a boardroom-level topic for discussion reflects this change in consumer sentiment and – in the wake of the Enron accounting scandal – seems unlikely to prove to be a flash in the pan (see further, Hilton and Gibbons, 2002). Furthermore, the exponential growth in sales of Fair Trade products across several countries also demonstrates the commercial viability and consumer appeal of a fairer approach to business activities. Thus, it is reasonable to say that the time has now come for a serious discussion of Fair Trade’s development and future prospects.

WHAT IS FAIR TRADE?

The aim of Fair Trade is to offer the most disadvantaged producers in developing countries the opportunity to move out of extreme poverty through creating market access (typically to Northern consumers) under beneficial rather than exploitative terms. The objective is to empower producers to develop their own businesses and wider communities through international trade. Fair Trade offers a new model of the producer-consumer relationship that reconnects production and consumption via an innovative supply chain model which distributes its economic benefits more fairly between all stakeholders. Fair Trade attempts to address the gross imbalances in information and power that typify North-South supplier-buyer relationships by countering the current failures evident in many global markets.

The Fair Trade model thus operates in stark contrast to the conventional international supplier-buyer transactional relationship that aims to maximize return to the institutional buyer through the establishment of a power imbalance in favour of the purchaser (though not always the end-consumer). This may be done through controlling information flows, thus exerting the influence of scale or scope, or via exclusive deals with wholesalers. Fair Trade’s proposition to consumers is that setting producer prices at a level where the producer can not only reach a basic standard of living, but also develop, is the only truly ‘fair’ way to operate. Thus, trade becomes a developmental tool with many positive externalities.

In operational terms, Fair Trade is specifically defined by several key practices:

• Agreed minimum prices, usually set ahead of market minimums. Fair Trade prices are set taking account of local economic conditions to allow producers a living wage from their work. In the case of small-scale commodity production, the Fairtrade Labelling Organizations International (FLO) calculates a Fair Trade floor price, which covers the cost of production and provision for family members and farm improvements. If the world market price for a particular commodity (for example, coffee or cocoa) falls below this, Fair Trade importers pay the floor price, or otherwise the world market price. By guaranteeing a price above the cost of production, Fair Trade allows producers to plan ahead and invest in the future of their businesses. For estate-farm worker models of production (for example, tea, some kinds of fruit), the Fair Trade guarantee is that farm workers are being paid the legal minimum wage and that International Labour Organization (ILO) standards are followed. For other Fair Trade goods such as handicrafts or textiles that lack a certification process, the price is determined as ‘fair’ in a regional or local context through agreement, dialogue, and participation between wholesale buyers and producers. The price covers not only the costs of production but enables that production to be socially just and environmentally sound.
• Focus on development and technical assistance via the payment to suppliers of an agreed social premium (often 10 per cent or more of the cost price of goods). The social premium paid to smallholder producers and farm workers on top of the Fair Trade price for their goods allows them collectively to implement larger development projects, such as building schools or sinking new wells. Small-scale farmers are usually organized into democratic co-operatives that decide how the Fair Trade premia are to be spent, for example, on community projects, or else retained for co-operative business investments such as milling facilities, trade show participation, or new product development. Farm workers must form an association that receives the social premium and votes on how to use it, for example as regards housing, pension funds, or in other social investments. Thus, Fair Trade ensures that producers move out of subsistence poverty through trade rather than aid, an approach that is more sustainable and maintains the dignity of producers.
• Direct purchasing from producers. Fair Trade aims to lessen the influence of brokers, consolidators and other agents in global supply chains and thereby to increase efficiency, reducing the number of margins within a value chain. This ensures more of the final price of the goods can return to the producer.
• Transparent and long-term trading partnerships. For many small producers consistency of income is vital for survival. Fair Trade ensures that importers sign long-term contracts so that producers do not suffer from the effects of buyers’ short-term bias. This allows them to plan ahead and invest in new technology or planting that should ultimately increase their income and help them to develop their businesses.
• Co-operative, not competitive, dealings. Fair Trade fosters buyer-producer relationships built on mutual respect. This can ultimately be a more efficient way of delivering value to the consumer as it leads to a higher quality product and consistency of supply. It also provides an important element in the ethical positioning of Fair Trade products that has helped to drive their extraordinary sales growth.
• Provision of credit when requested. As importers generally have much easier access to credit than do developing country producers, importers are required to pre-finance up to 60 per cent of the total purchase of seasonal crops. This enables farmers to receive an advance for their crop even before it is exported, which will smooth their income streams.
• Provision of market information to producers. Fair Trade transactions acknowledge the market price of the goods in question and keep producers informed about market movements. As Fair Trade producers still typically sell the bulk of their produce to non-Fair Trade buyers, this is especially useful in their wider negotiations.
• Farmers and workers are organized democratically. Small-scale farmers must belong to a co-operative that is democratically organized and which practises one-farmer, one-vote systems. On Fair Trade estates and plantations, farm workers form democratically-controlled groups that manage the disbursement of the Fair Trade social premia.
• Sustainable production is practised. All farms and co-operatives must have resource management plans in place. Certain pesticides are prohibited on all farms. Many farms use Fair Trade premia to invest in organic certification, which demands a higher Fair Trade floor price.
• No labour abuses occurred during the production process. In all cases, child and slave labour abuses are prohibited and workers must be allowed to unionize.

In simple terms, then, Fair Trade represents a new approach to the buyer-supplier transaction which aims at equality of exchange within a partnership approach, underpinned by a developmental, rather than confrontational, agenda. Fair Trade recognizes the power discrepancy between the developing and developed worlds (Strong, 1996) and aims to forge long-term partnership relationships (Tallontire, 2000). A firm focus on the producer, rather than the consumer, has been central to Fair Trade – contracts aim to maximize returns to suppliers rather than buyer margins, within an agreed developmental structure (Barratt Brown, 1993). Furthermore, it appears to be working. As sales continue to grow, Fair Trade’s dual aims of immediate poverty alleviation and more long-term producer development are having a measurable impact. As Carol Wills, Executive Director of the International Federation of Alternative Trade (IFAT) noted:

From my own experience, particularly in places like Bangladesh, you can...

Table of contents

• Cover Page
• Title
• Copyright
• Dedication
• Contents
• About the Authors
• Acknowledgements
• Abbreviations
• Part One: The Rise of Fair Trade
• Part Two: Fair Trade Operations
• Part Three: The Impact of Fair Trade
• References
• Index