Posted by: bklunk | December 11, 2006

They Serve "Fair Trade” Coffee at the Summit

E-Lam offers this for our consideration. Many NGOs and others actively promote the Fair Trade movement and I am actually drinking what is supposed to be Fair Trade coffee as I write this post. Is this a useful way to improve the status for agricultural workers in the Global South?

Fair Trade

What is Fair Trade?

The people over at the International Trade Centre have recently examined the topic of fair trade. Fair trade has become a bigger issue among developing countries because of their economic woes, specifically with agriculture. On a global level, the only thing that the developing countries can offer is their agriculture. But larger countries don’t look to these countries for food and instead but from within their boundaries. Farmers from these smaller countries have to sell their products at low prices and make pennies whereas larger countries can make larger comparatively. The economies in these smaller countries can fluctuate and instability in the nation. Many of these nations are a part free trade agreements around the world, but they are not engaged in fair trade. But, what is fair trade?

The following is taken from to the International Trade Centre

Fair trade organizations use five tools to promote fairness:

  • Price Premiums- Fair trade products are sometimes priced higher than others. Part of
    the difference is ploughed back into producer communities in order to
    improve working conditions.
  • Certification and Labeling- Standards aim to improve product quality, working conditions,
    environmental sustainability, business development and training. Labels
    in Europe (Max Havelaar, TransFair, Fairtrade Mark and Rättvisemärkt)
    are coordinated by FLO.
  • Microcredit- helps small-scale producers get started on fair trade projects.
  • Technical- support includes business development, trade information, advice on quality standards, training in new techniques, etc.
  • Advocacy- is an important element in fair trade marketing,
    with the branding and fair trade message found on virtually every
    package. But not only the fair trade organizations benefit.
    Supermarkets find the fair trade label useful for marketing to niche
    consumers who are willing to pay extra for coffee that guarantees
    producers a fair price, for example.

Pros and Cons

  • Producers get a decent living, gain necessary skills and
    knowledge, obtain access to credit, find technical assistance and
    market information, learn about trade and acquire experience in
    exporting.
  • Better prices for farmers do not increase
    consumer costs, since the fair trade organizations cut out
    intermediaries by handling all the operations between production and
    retailing themselves.
  • Consumers get an educational tool promoting thoughtful consumerism.
  • Market share is much too small to have a major impact on
    general living standards in developing countries. Even if it expands
    significantly, only 20% of consumers at a maximum seem ready to pay
    more for fair trade products. This limits possible expansion.
  • Producing
    more low-priced commodities for over-supplied markets postpones what is
    really needed for development: diversifying exports and adding value,
    rather than depending on commodities and crafts. Or finding new social
    solutions for upland communities whose economic viability remains in
    doubt.
  • Rich markets can do more for poor countries by allowing bigger quantities of normally priced products in their markets.
  • Labeling
    organizations may cut out middle traders, but they may not return the
    full savings back to the farmers. Fair trade is an expensive niche
    market to maintain, because it needs constant promotion and requires
    educated consumers. High marketing costs are one reason why all those
    fair trade premiums don’t make it back to the producers.
  • Retailers
    may take advantage of consumers’ social conscience. After looking at
    prices in his local coffee bar where fair trade cups of coffee are sold
    at a premium, Tim Harford, a World Bank economist, concluded in The Undercover Economist:
    “Charging an extra ten pence gave a misleading impression of how much
    it really cost to get hold of that fair trade coffee.” Doubling a
    producer’s family income should add less than one penny to the price of
    a cup in a UK coffee shop, he observes. The coffee shop later dropped
    the price differential.
  • There are many different standards
    and criteria, and little discussion outside the organizations
    themselves. So consumers cannot decide whether the trade really is
    fair. Not all fair-traders are members of FLO, e.g., Rugmark and the
    Clean Clothes Campaign. The standards themselves can cover working
    conditions and environmental measures (or not) as well as stable
    pricing.

Challenges

  • Fair trade organizations need to identify further sources of
    growth, gain credibility with consumers through better quality
    monitoring and find the balance between business and advocacy in their
    operations.
  • Importing organizations need to build greater
    brand loyalty in the face of competition, identify new sources of
    growth outside the supermarkets and cooperate more with each other.
  • Labeling organizations need to manage their fast growth, since this is likely to
    continue. They need to find innovative ways to cooperate with
    multinationals, in view of these companies’ close interest in fair
    trade labeling, while remaining critical of standard trading
    practices. They also need to find a balance between standardization and
    over-regulation by fair trade’s official bodies.

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