Fair trade

For other uses, see Fair trade (disambiguation).

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,^[1] fresh fruit, chocolate, flowers and gold.^[2]

In 2008, products certified with FLO International's Fairtrade certification amounted to approximately US$4.98 billion (€3.4B) worldwide, a 22% year-to-year increase.^[3] While this represents a tiny fraction of world trade in physical merchandise,^[4] some fair trade products account for 20-50% of all sales in their product categories in individual countries.^[3] In June 2008, Fairtrade Labelling Organizations International estimated that over 7.5 million producers and their families were benefiting from fair trade funded infrastructure, technical assistance and community development projects.^[5]

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.^[6] Segments of the left, such as French author Christian Jacquiau, criticize fair trade for not adequately challenging the current trading system.^[7]

Definition

Although no universally accepted definition of fair trade exists, fair trade labeling organizations most commonly refer to a definition developed by FINE, an informal association of four international fair trade networks (Fairtrade Labelling Organizations International, World Fair Trade Organization, 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.^[8]

Key principles

See also: Development economics

Sorting and pulping coffee beans at a fair trade cooperative in Guatemala

Fair trade products are traded and marketed either by an "MEDC supply chain" whereby products are imported and/or distributed by fair trade organizations (commonly referred to as alternative trading organizations) or 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.^[9]

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 International (FLO), created in 1997, is an association of three producer networks and twenty national labeling initiatives that promote and market the Fair trade Certification Mark 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 Africa, Asia, and Latin America.^[10] However, only products from certain developing countries are eligible for certification, and must be from cooperatives.^[11]
• The World Fair Trade Organization (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 Worldshops (NEWS!), created in 1994, is the umbrella network of 15 national worldshop associations in 13 different countries all over Europe.

• The European Fair Trade Association (EFTA), created in 1990, is a network of European alternative trading organizations 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, an informal association whose goal is to harmonize fair trade standards and guidelines, increase the quality and efficiency of fair trade monitoring systems, and advocate fair trade politically.

• The Fair Trade Federation (FTF), 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 Towns 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

Main article: History of fair trade

The first attempts to commercialize fair trade goods in Northern markets were initiated in the 1940s and 1950s by religious groups and various politically oriented non-governmental organizations (NGOs). Ten Thousand Villages, an NGO within the Mennonite Central Committee (MCC) and SERRV International were the first, in 1946 and 1949 respectively, to develop fair trade supply chains in developing countries.^[12] 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.^[13]

Solidarity trade

Fair trade goods sold in worldshops

The current fair trade movement was shaped in Europe in the 1960s. Fair trade during that period was often seen as a political gesture against neo-imperialism: radical student movements began targeting multinational corporations and concerns that traditional business models were fundamentally flawed started to emerge. The slogan at the time, "Trade not Aid", gained international recognition in 1968 when it was adopted by the United Nations Conference on Trade and Development (UNCTAD) to put the emphasis on the establishment of fair trade relations with the developing world.^[14]

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.^[15]

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

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

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

Handicrafts vs. agricultural goods

In the early 1980s, Alternative Trading Organizations faced major challenges: the novelty of some fair trade products began to wear off, demand reached a plateau, and some handicrafts began to look "tired and old fashioned" in the marketplace.^[16] The decline of segments of the handicrafts market forced fair trade supporters to rethink their business model and their goals. Moreover, fair trade supporters during this period became increasingly worried by the impact on small farmers of structural reforms in the agricultural sector as well as the fall in commodity prices. Many then believed it was the movement's responsibility to address the issue and to find innovative remedies to react to the ongoing crisis in the industry.

In the subsequent years, fair trade agricultural commodities played an important role in the growth of many ATOs: successful on the market, they offered a much-needed, renewable source of income for producers and provided Alternative Trading Organizations a perfect complement to the handicrafts market. The first fair trade agricultural products were tea and coffee, quickly followed by dried fruits, cocoa, sugar, fruit juices, rice, spices, and nuts. While in 1992, a sales value ratio of 80% handcrafts to 20% agricultural goods was the norm, in 2002 handcrafts amounted to 25.4% of fair trade sales while commodity food lines were up at 69.4%.^[17]

Rise of labeling initiatives

Early Fairtrade Certifications Marks

Sales of fair trade products only really took off with the arrival of the first Fairtrade certification initiatives. Although buoyed by ever growing sales, fair trade had been generally contained to relatively small worldshops scattered across Europe and to a lesser extent, North America. Some felt that these shops were too disconnected from the rhythm and the lifestyle of contemporary developed societies. The inconvenience of going to them to buy only a product or two was too high even for the most dedicated customers. The only way to increase sale opportunities was to start offering fair trade products where consumers normally shop, in large distribution channels.^[18] 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.^[19]

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.^[20]

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

Product certification

Main article: Fair trade certification

Note: Customary spelling of Fairtrade is one word when referring to the FLO product labeling system, see Fairtrade certification

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

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

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

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.^[21] 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.^[22]

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

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

• 

  International Fairtrade Certification Mark

• 

  WFTO Fair Trade Organization Mark

WFTO Fair Trade Organization membership

In an effort to complement the Fairtrade product certification system and allow most notably handcraft producers to also sell their products outside worldshops, the World Fair Trade Organization (WFTO) launched in 2004 a new Mark to identify fair trade organizations (as opposed to products in the case of FLO International and Fairtrade). Called the FTO Mark, it allows consumers to recognize registered Fair Trade Organizations worldwide and guarantees^{[dubious – discuss]} 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

Main article: Alternative trading organization

Cafedirect coffee shop on Regent Street, in central London

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".^[23]

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.^[23]

Worldshops

Main article: Worldshop

Oxfam shop on Drury Lane in Covent Garden, London

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^[24] where a different fair trade item is featured each day.

Impact studies

Main article: Fair trade 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.^[25] 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;^[26] in Finland, Valkila, Haaparanta and Niemi^[27] found that consumers paid much more for Fairtrade, and that only 11.5% reached the exporter. Kilian, Jones, Pratt and Villalobos^[28] talk of US Fairtrade coffee getting $5 per lb extra at retail, of which the exporter would have received only 2%. Mendoza and Bastiaensen^[29] 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.^[30]

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.^[31]

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,^[32] 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) ^[33] 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.^[34]

World wide

International

Every year the sales of Fair Trade products grow close to 30% and in 2004 were worth over 500 million US. In the case of coffee, sales grow nearly 50% per year in certain countries. ^[35]. In 2002, 16 000 tons of Fair Trade Coffee was purchased by consumers in 17 countries. ^[36]. “Fair trade coffee is currently produced in 24 countries in Latin America, Africa and Asia” ^[37]. 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. ^[38].

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. ^[39] 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.^[40] The FLO products Africa is known for are tea, cocoa, flowers and wine.^[41] In Africa there are smallholder cooperatives and plantations which produce Fair Trade certified tea. ^[42]

Latin America

Latin America is known for producing the majority of certified organic coffee. ^[43] 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. ^[44] 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. ^[45]

Politics

See also: Protectionism and Dumping (pricing policy)

European Union

Display of Fairtrade products at the Derbyshire County Council head office

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.^[46]

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.^[46]

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".^[46]

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."^[47]

France

In 2005, French parliament member Antoine Herth issued the report "40 proposals to sustain the development of Fair Trade". The report was followed the same year by a law, proposing to establish a commission to recognize fair trade Organisations (article 60 of law no. 2005-882, Small and Medium Enterprises, 2 August 2005).^[46]

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

Italy

In 2006, Italian lawmakers started debating how to introduce a law on fair trade in Parliament. A consultation process involving a wide range of stakeholders was launched in early October.^[48] A common definition of fair trade was most notably developed. However, its adoption is still pending as the efforts were stalled by the 2008 Italian political crisis.

Netherlands

The Dutch province of Groningen was sued in 2007 by coffee supplier Douwe Egberts for explicitly requiring its coffee suppliers to meet fair trade criteria, most notably the payment of a minimum price and a development premium to producer cooperatives. Douwe Egberts, which sells a number of coffee brands under self-developed ethical criteria, believed the requirements were discriminatory. After several months of discussions and legal challenges, the province of Groningen prevailed in a well-publicized judgement. Coen de Ruiter, director of the Max Havelaar Foundation, called the victory a landmark event: "it provides governmental institutions the freedom in their purchasing policy to require suppliers to provide coffee that bears the fair trade criteria, so that a substantial and meaningful contribution is made in the fight against poverty through the daily cup of coffee".^[49]

Common justifications

Fairtrade Certified Rice Producer in Thailand

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 country 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.”^[50]

Market failures

All FINE members and fair trade federations support in theory the principles of unhindered free trade. However, as Alex Nicholls, social entrepreneurship professor at Oxford University, states, the "key conditions on which classical and neo-liberal trade theories are based are notably absent in rural agricultural societies in many developing countries."^[51] 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".^[51]

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."^[52]

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.^[53] 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.^[54] 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".^[53] 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."^[51] The existence of these market failures 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".^[55]

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".^[55]

The commodity crisis

Fair trade advocates^[who?] also often point out that unregulated competition in global commodity markets ever since the 1970s and 1980s has encouraged a price "race to the bottom". During the 1970-2000 period, prices for many of the main agricultural exports of developing countries, such as sugar, cotton, cocoa, and coffee, fell by 30 to 60 percent.^[56] 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".^[56] 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.^[46]

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.^{[citation needed]}

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^{[citation needed]} 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.^[57]

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^{[citation needed]}.

Criticism

Main article: Fair trade debate

Fair trade's increasing popularity has drawn criticism from both ends of the political spectrum. 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.^{[citation needed]}

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.^{[citation needed]}

Price distortion argument

Effects of a Price Floor

Fair trade opponents such as the Adam Smith Institute 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.^[58] Through the laws of supply and demand, excess supply can lead to lower prices in the non-Fair Trade market.^[58]

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.^[59] 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^[60] and also encouraging workers into unproductive activities.^[61]

Several academics, including Hayes,^[62] Becchetti, and Rosati^[63] identify two counterarguments to this criticism.

1. First, in many cases the exchange between producers and intermediaries does not occur in a competitive framework.^[63] In such case the market price is a distortion because it does not reflect the productivity of producers but their lower market power.^[64]
2. Second, the price distortion argument does not take into account the principles of product differentiation. Coffee, for example, cannot be compared to other commodities such as oil: there is not one single type of coffee but instead many different coffees that are differentiated from one another in terms of production techniques,^[65] 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.^[63] 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.^[63]

Insufficiently aggressive

In 2006, the Financial Times reported that some wage workers hired by fair trade producers in Peru were making 10 soles 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.^[21]

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.^[66][67] 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.^[68] This situation has led Tom Clougherty of the Adam Smith Institute, to describe Fair Trade as little more than a marketing ploy.^{[citation needed]}

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.^{[citation needed]}

See also

• Ethical consumerism
• Free produce movement
• GxP
• South-South Cooperation
• UTZ Certified

Notes and references

1. ^ Moseley, W.G. 2008. “Fair Trade Wine: South Africa’s Post Apartheid Vineyards and the Global Economy.” Globalizations, 5(2):291-304.
2. ^ Brough, David. Briton finds ethical jewellery good as gold. Reuters Canada. January 10, 2008.
3. ^ ^{a b} Fair Trade Labelling Organizations International (2009). Global Fairtrade sales increase yearly by 22%. URL accessed on January 3, 2010.
4. ^ [1] p. 3, The World Trade Organization publishes annual figures on the world trade of goods and services.
5. ^ Fairtrade Labelling Organizations International (2008).FLO International: Annual Report 2007. URL accessed on June 16, 2008.
6. ^ Sidwell, M. (2008). Unfair Trade. London: Adam Smith Institute. Accessed 6 May 2011 /www.adamsmith.org/images/pdf/unfair_trade.pdf
7. ^ Jacquiau, C. ( 2006 ). Les Coulisees du Commerce Équitable. Paris: Mille et Une Nuits: Jacquiau, C. (2007, September). Max Havelaar ou les ambiguïtés du commerce équitable: Pourquoi le Sud rue dans les brancards. Monde Diplomatique .
8. ^ European Fair Trade Association. (2009). [2] URL accessed on May 4, 2009.
9. ^ "Independent Appeal: Ecuador's yellow revolution"
10. ^ FLO-CERT (2008). FLO-CERT. URL accessed on August 1, 2008.
11. ^ http://www.fairtrade.net/generic_standards.html
12. ^ International Fair Trade Association. (2005).Crafts and Food. URL accessed on August 2, 2006.
13. ^ Hockerts, K. (2005). The Fair Trade Story. p1
14. ^ "Where did it all begin?". WFTO. 7 June 2009. http://www.wfto.com/index.php?option=com_content&task=view&id=10&Itemid=17&limit=1&limitstart=1. Retrieved 24 June 2009. 
15. ^ Fair trade history (Scott, Roy)
16. ^ Redfern A. & Snedker P. (2002) Creating Market Opportunities for Small Enterprises: Experiences of the Fair Trade Movement. International Labor Office. p6
17. ^ Nicholls, A. & Opal, C. (2004). Fair Trade: Market-Driven Ethical Consumption. London: Sage Publications.
18. ^ Renard, M.-C. (2003). "Fair Trade: quality, market and conventions". Journal of Rural Studies 19: 87–96. doi:10.1016/S0743-0167(02)00051-7. 
19. ^ Redfern A. & Snedker P. (2002) Creating Market Opportunities for Small Enterprises: Experiences of the Fair Trade Movement. International Labor Office. p7
20. ^ "FLO International: FLO's Main Tasks". FLO. 2006. http://www.fairtrade.net/tasks.html. Retrieved 27 January 2009. 
21. ^ ^{a b} "FT.com / Americas - The bitter cost of 'fair trade' coffee". http://www.ft.com/cms/s/2/d191adbc-3f4d-11db-a37c-0000779e2340.html. 
22. ^ http://www.fairtrade.net/fileadmin/user_upload/content/GTS_Aug09_EN.pdf
23. ^ ^{a b} European Fair Trade Association (1998). Fair Trade Yearbook: Towards 2000. p.23 & 25
24. ^ http://FairTradeaDay.com
25. ^
    • Griffiths, Peter. “Ethical Objections to Fairtrade”. http://www.griffithsspeaker.com/Fairtrade/why_fair_trade_isn.htm, accessed 13 April 2011;
    • Griffiths, Peter, ‘Lack of rigour in defending Fairtrade: a reply to Alistair Smith, Economic Affairs 30 (2) 40-96, June 2010;
    • Griffiths, Peter, ‘Lack of rigour in defending Fairtrade: a rejoinder to Alistair Smith’, Economic Affairs, 31(1) Pp 103-4 March 2011.
26. ^ Griffiths, Peter. “Ethical Objections to Fairtrade”. http://www.griffithsspeaker.com/Fairtrade/why_fair_trade_isn.htm, accessed 13 April 2011
27. ^ Valkila, J., Haaparanta, P., & Niemi, N. (2010). “Empowering Coffee Traders? The Coffee Value Chain from Nicaraguan Fair Trade Farmers to Finnish Consumers.” Journal of Business Ethics , 97:257-270.
28. ^ Kilian, B., Jones, C., Pratt, L., & Villalobos, A. (2006). “Is Sustainable Agriculture a Viable Strategy to Improve Farm Income in Central America? A Case Study on Coffee”. Journal of Business Research , 59(3), 322–330.
29. ^ Mendoza, R., & J. Bastiaensen, J. (2003). “Fair Trade and the Coffee Crisis in the Nicaraguan Segovias.” Small Enterprise Development , 14(2), 36–46.
30. ^
    • Raynolds, L. T. (2009). Mainstreaming Fair Trade Coffee: from Partnership to Traceability. World Development , 37 (6) 1083-1093, p. 1089)
    • Valkila, J., Haaparanta, P., & Niemi, N. (2010). Empowering Coffee Traders? The Coffee Value Chain from Nicaraguan Fair Trade Farmers to Finnish Consumers. Journal of Business Ethics , 97:257-270 p. 264)
    • Valkila, J. (2009). Fair Trade organic coffee production in Nicaragua - Sustainable development or a poverty trap? Ecological Economics , 68 3018-3025, pp. 3022-3)
    • Reed, D. (2009). What do Corporations have to do with Fair Trade? Positive and normative analysis from a value chain perspective. Journal of Business Ethics , 86:3-26, , p. 12)
    • Barrientos, S., Conroy, M. E., & Jones, E. (2007). Northern Social Movements and Fair Trade. In L. Raynolds, D. D. Murray, & J. Wilkinson, Fair Trade: The Challenges of Transforming Globalization (pp. 51–62). London and New York: Routledge.
    Quoted by Reed (2009, p. 21).
31. ^ While this appears to be agreed by proponents and critics of Fairtrade (e.g. Utting-Chamorro, K (2005). Does Fairtrade make a difference? The case of small coffee producers in Nicaragua. Development in Practice, Volume 15, Numbers 3 and 4, June 2005, Berndt, C. E. (2007). Is Fair Trade in coffee production fair and useful? Evidence from Costa Rica and Guatemala and implications for policy. Washington DC.: Mercatus 65 Policy Series, Policy Comment 11, Mercatus Centre, George Mason University.), there is a dearth of economic studies setting out the actual revenues and what the money was spent on.
32. ^ See Bowbrick, P, “Are price reporting systems of any use?”, British Food Journal. 90(2) 65-69 March/April. 1988. Current international research on Third World market information systems is given at http://www.sim2g.org/.
33. ^ Bassett, T. (2009). Slim pickings: Fairtrade cotton in West Africa. Geoforum.
34. ^ Kilian, B., Jones, C., Pratt, L., & Villalobos, A. (2006). “Is Sustainable Agriculture a Viable Strategy to Improve Farm Income in Central America? A Case Study on Coffee”. Journal of Business Research , 59(3), 322–330.; Valkila, J. (2009). Fair Trade organic coffee production in Nicaragua - Sustainable development or a poverty trap? Ecological Economics , 68 3018-3025;Wilson, B. R. (2009). Indebted to Fair Trade? Coffee and Crisis in Nicaragua. Geoforum.
35. ^ Raynolds, Laura T., Douglas Murray, and Peter Leigh Taylor. "Fair Trade Coffee: Building Producers Capacity Via Global Networks." Journal of International Development (2004): 1109-121. Print.
36. ^ Raynolds, Laura T., Douglas Murray, and Peter Leigh Taylor. "Fair Trade Coffee: Building Producers Capacity Via Global Networks." Journal of International Development (2004): 1109-121. Print.
37. ^ Raynolds, Laura T., Douglas Murray, and Peter Leigh Taylor. "Fair Trade Coffee: Building Producers Capacity Via Global Networks." Journal of International Development (2004): 1109-121. Print.
38. ^ Raynolds, Laura T., Douglas Murray, and Peter Leigh Taylor. "Fair Trade Coffee: Building Producers Capacity Via Global Networks." Journal of International Development (2004): 1109-121. Print.
39. ^ Raynolds, Laura T., and Siphelo Unathi Ngcwangu. "Fair Trade Rooibos Tea: Connecting South African Producers and American Consumer Markets." Geoforum (2009): 74-83. Print.
40. ^ Raynolds, Laura T., and Siphelo Unathi Ngcwangu. "Fair Trade Rooibos Tea: Connecting South African Producers and American Consumer Markets." Geoforum (2009): 74-83. Print.
41. ^ Raynolds, Laura T., and Siphelo Unathi Ngcwangu. "Fair Trade Rooibos Tea: Connecting South African Producers and American Consumer Markets." Geoforum (2009): 74-83. Print.
42. ^ Raynolds, Laura T., and Siphelo Unathi Ngcwangu. "Fair Trade Rooibos Tea: Connecting South African Producers and American Consumer Markets." Geoforum (2009): 74-83. Print.
43. ^ Geiger-Onteo, Stephanie, and Eric J. Arnould. "Alternative Trade Organization and Subjective Quality of Life: The Case of Latin American Coffee Producers." Journal of Macromarketing (2011): 276-290. Print.
44. ^ Geiger-Onteo, Stephanie, and Eric J. Arnould. "Alternative Trade Organization and Subjective Quality of Life: The Case of Latin American Coffee Producers." Journal of Macromarketing (2011): 276-290. Print.
45. ^ Geiger-Onteo, Stephanie, and Eric J. Arnould. "Alternative Trade Organization and Subjective Quality of Life: The Case of Latin American Coffee Producers." Journal of Macromarketing (2011): 276-290. Print.
46. ^ ^{a b c d e} FINE (2006). Business Unusual. Brussels: Fair Trade Advocacy Office
47. ^ Frithjof Schmidt MEP (2006). Parliament in support of Fair Trade URL accessed on August 2, 2006.
48. ^ Nembri, Antonietta (October 4, 2006) Equo e solidale: un convegno sul futuro normativo. URL accessed on October 28, 2006.
49. ^ Max Havelaar Foundation (2007). [85.82.218.199/fileadmin/Bruger_filer/Dokument_database/IKAvaerktoej/EU_siden/Max_Havalaar.pdf Dutch Province of Groningen wins summary brought by Doug Egberts and can continue specifying fair trade coffee]
50. ^ Fairtrade Labelling Organizations International & International Fair Trade Association (2008). A Charter of Fair Trade Principles. URL accessed on August 2, 2006.
51. ^ ^{a b c} Nicholls, A. & Opal, C. (2004). Fair Trade: Market-Driven Ethical Consumption. London: Sage Publications. p17-19
52. ^ Grodnick A. & Conroy M. (2007). Fair Trade: The Challenges of transforming globalization. Routledge. p86
53. ^ ^{a b} McCorriston, S. 2002. "Why should imperfect competition matter to agricultural economists?"European Review of Agricultural Economics, 29:3, pp. 349-71.
54. ^ Rogers, R. T. and R. J. Sexton. 1994. "Assessing the Importance of Oligopsony Power in Agricultural Markets." American Journal of Agricultural Economics, 76, pp. 1143.
55. ^ ^{a b} Ronchi, L. 2006. "Fairtrade and Market Failures in Agricultural Commodity Markets". World Bank Policy Research Working Paper 4011, September 2006.
56. ^ ^{a b} Agricultural Commodity Chains, Dependence and Poverty. A proposal for an EU Action Plan. European Commission, 2004.
57. ^ UNCTAD Press Release, "UNCTAD Calls For Policy Changes to Avoid Throwing World Economy Into Recession," 25 August 1998.
58. ^ ^{a b} http://www.adamsmith.org/pdf/groundsforcomplaint.pdf
59. ^ Brink, Lindsey. (2004). Grounds for Complaint: Understanding the "Coffee Crisis". URL accessed on August 8, 2007.
60. ^ Milton Freidman, Free to Choose 1979
61. ^ Citizenship Foundation: 2006 entries Lakha
62. ^ Hayes, M. G. (2006). "On the efficiency of Fair Trade". Review of Social Economy 64 (4): 447–68. doi:10.1080/00346760601024419. 
63. ^ ^{a b c d} L.Becchetti F.C. Rosati, 2006, Globalisation and the death of distance in social preferences ad inequity aversion: empirical evidence from a pilot study on fair trade consumers, CEIS Working Paper, n.216 and World Economy (forth.)
64. ^ Hayes, M. G. and Moore, G. A. (2005)The Economics of Fair Trade:a guide in plain English
65. ^ http://www.coffeeresearch.org/agriculture/flavor.htm
66. ^ Gray, Richard (February 24, 2008). "Fairtrade fails to tackle poverty, report says - Telegraph". The Daily Telegraph (London). http://www.telegraph.co.uk/earth/earthnews/3326576/Fairtrade-fails-to-tackle-poverty-report-says.html. Retrieved May 2, 2010. 
67. ^ Sidwell, Marc (February 25, 2008). Unfair Trade. London. http://www.adamsmith.org/images/pdf/unfair_trade.pdf. Retrieved August 3, 2010. 
68. ^ http://sccs.swarthmore.edu/~cbr/news/2010-07-23.html