The Peruvian guerilla movement called "Sendero Luminoso" was founded as a maoist organization with the aim of capturing power in the name of the millions of poor in the country. Sendero's strategy was to stimulate the misery and despair of the poor to the point which they would rise up and, together with the guerilla, overthrow the country's government. Sendero had the habit of regularly announcing which people and organizations it planned to attack next in its underground bulletin - and then generally succeeded in doing so quite effectively. In early 1992, Sendero published a damning article on popular organizations which it saw as ,counterrevolutionary" because they gave the poor hope and the prospect of a better life. Figuring prominently in the article which amounted to a death warrant were Peru's fair trade organizations, the most well-known, MINKA, heading the list. Because its leader was captured just a few months later, Sendero never got around to attacking MINKA. But the published article stands as an - albeit cynical - recognition of the importance of fair trade in supporting the poor in the South.
In 1994, Northern importers purchased fairly traded products from Southern producers to an estimated total value of about 50 million ECU FOB. Compared to the South's exports as a whole, this amount is negligible. For the producer organisations selling under fair trade conditions, however, its impact is significant. Even though most of these organisations only sell part of their total production to Northern fair trade importers (a conscious policy to avoid producer dependence on the overseas fair trade market) - the rest being sold domestically or exported under regular commercial conditions -, the higher fair trade price often means the difference between producing to survive, and progressively establishing as a solid and stable production enterprise. Most producer organizations pass part of the higher fair trade price on to the individual producers, investing the other part in the enterprise itself. For the producer and his/her family, the extra earnings may be used to pay fees to send children to school, to pay for health care, or to build a better house or dwelling. The organization may use the surplus payment as working capital, to buy new equipment, build storage facilities or to computerize management and bookkeeping.
Moreover, many producer enterprises use the connection with Northern fair traders and the experience gained in exporting to gain a foothold on mainstream commercial markets in the North. They may (alone, or with others) have a stand at Northern trade fairs, edit and distribute wholesale catalogues and/or make marketing tours of Europe.
Mention should also be made of the networks, associations and federations which fair trade producer enterprises often establish in their region. Those allow producers to keep each other informed on the activities of government, the banks and the trading middlemen, the going prices and the latest political developments. This increases each producent's ability to stand up in a difficult, sometimes hostile environment. (No government or big-time enterpreneur likes it when the small folks unite). Moreover, networking allows them to further these of common interests. Whereas in the 70s and early 80s such networks were high on political ideology, today they are much more pragmatically oriented. The oldest and currently largest network is the Frente Solidario de Peque¤os Cafetaleros de America Latina which includes over 200.000 small coffee farmers in Latin America. The Frente has sections in most coffee-producing countries of Latin America, each section in turn containing from several to dozens of coffee cooperatives.
The most far-reaching impact of fair trade in the South is seldom recognised in the North. It is the fact that fair tarde often drives up the prices for all producers in a particular area. Consider, for example, the thousands of small honey producers in Chiapas in southern Mexico. Many of them belong to one of the dozen cooperatives in the area which buy and sell `fair trade'. Usually a honey producer sells part of his honey to commercial traders who visit him and part of the honey to the local coop. The traders pay a lower price but pay on the spot whereas the coop only pays after it has sold the honey but pays a better price. In recent years, thanks to rising fair trade sales in Europe, the coops are buying increasing amounts of honey, and the small producers are increasingly selling to them instead of to the commercial traders.
The result is that for the traders to still get the honey they want, they have to increase their purchasing price - a phenomenon which benefits all honey producers in the region. The same upward pressure in prices price-updriving effect has been witnessed in the production areas of brazil nuts in Peru, of cocoa in Bolivia, and for many other products in dozens of other regions. Although rarely studied or analyzed, it might be this Southern impact which confers on fair trade its most important raison d'ˆtre.
The global aim of fair trade is the empowerment of the world's weakest producers, those who need some external support in order to develop into solid autonomous economic actors.
Each year, hundreds of producer organisations all over the world contact fair trade organisations and ask them to buy from them. As buying directly from producers is the first condition of fair trade, the first thing to be examined is whether the new contact is indeed a producer organisation, or an organisation exporting for producers who have direct influence on the marketing and exporting of their product. Next, it is ascertained that the producers are among the poorest in socially, or in other words, whether they have `arrears of development'. The third question to be answered is whether there (potentially) is a market for the products that are offered. There must be a (potential) demand for the product in the area where the fair trade organisation operates, the product must be able to satisfy the high quality norms of Northern markets, its price must be acceptable to Northern customers, and it must (potentially) fit in with trends and fashions. Other questions fair trade organisations ask is whether producers are working towards ecologically sustainable production and, in the case of enterprises, whether producers are paid enough to enable them and their families to earn an adequate living and whether the circumstances of production do not harm the well-being the producer.
Fair trade organisations import from about 800 trading partners in 45 Southern countries. Most of these `partners' are associations of cooperatives, workshops and small factories as well as a growing number of private enterprises. By a very rough estimate, these partners encompass about 800.000 producer (families or about 5 million persons). (In many Southern countries the woman, man and sometimes their children and members of the extended family divide the production-work among themselves.) They include small- and medium-scale farmers, handicraft artisans, people who weave, knit and sew, and workers operate machines or work on production lines.
Of course, there are many more Southern producers who satisfy fair trade characteristics than the 800.000 just mentioned. This is especially so in the production of commodities such as coffee, cocoa, tea and honey. These producers are still waiting for a purchaser willing to pay a fair price...
Although a fair price is the cornerstone of fair trade, many producers attach more importance to the more or less stable relationship with overseas purchasers that fair trade implies. Small-scale producers all over the world can tell many stories about their bad treatment by commercial traders who cannot be counted on from one year to the next, who may place big orders and never show up again, who may refuse to pay the agreed price, or who may refuse to pay at all because the merchandise supposedly did not reach them in good order or on time. In contrast, in fair trade a stable relationship based on trust is viewed as the best guarantee for mutual profits for many years. Once - usually after a trial period - such a relationship is established, both partners commit themselves to sticking together through good times and bad, sometimes foregoing short-term higher profits in favour of long-term benefits. The producer-fair trader relationships usually go beyond just selling and buying, and can include the joint development of new products or product lines, the adaptation of products to European fashions, gaining access to new marketing channels, raising investment or working capital and strengthening or expanding the producer organisation. Instead of abandoning a producer when his products no longer sell, the European organisations constantly transmit information on the evolution of European tastes and tendencies to their manufacturing counterparts who are then assisted in meeting changing consumer demands.
Some European fair trade organisations have set up separate organisations to provide producers with comprehensive development assistance. Their producer support covers the broad spectrum from arranging for a local expert to provide assistance to a cooperative with the installation of a new ceramics oven to acting as a consultant in the multimillion ECU overhaul of a factory producing instant coffee. Although losing the ad hoc help is still available, assistance has over the last few years tended to become more systematic. Producer requests for assistance often lead to a generally modest feasibility study and a proposal for assistance which might differ from what was originally request. Besides supporting production and product innovation and improving craftsmanship and the quality of products, training is also given to strengthen management and increase know-how in bookkeeping, administration, cost calculations and marketing. Assistance is also aimed at improving producer access to national and international markets, both the `alternative' fair trade market and the mainstream commercial market.
Most fair trade assistance organisations are funded from the `profits' made by the trading organisations to whichthey are affiliated to. Contributions are also made by the producers themselves, by donations and loans from private persons, and by external grants. The Norwegian Stiftelsen AH, for example, receives grants from the Norwegian Ministry of Development Cooperation.
Besides this recent tendency towards more comprehensive forms of assistance - which generally include drawing up short- and longer-term business plans -, another trend is the increase of credit facilities which the Northern assistance organisations offer producers. This trend is logical. As producer organisations grow, their need for investment and working capital, for example to develop new products or buy raw materials for larger orders, increases as well. As the advance payments (which most fair trade organisations make on product orders) and the increasing cash flow (due to increasing turnover) are usually insufficient to cover the need for extra funding, external capital has to be found. Many domestic banks refuse to led to fair trade producers, because the producers do not have enough collateral and because the banks don't like to deal with organisations like cooperatives. Where the regular banking system fails, assistance organisations can often help because the durable relationship reduces the risk of repayment default, and because the loan administration costs are often covered by external grants. Repayment is often made in the form of products ordered by the fair trade organisation to which the assistance organisation is affiliated. As a matter of principle, so as not to disturb the trading relationship, only loans are given not donations.
Some critics see the assisting of producers without having them pay the full cost of the assistance as proof that fair trade has more to do with development aid than with trade. But then it is forgotten that producing and trading enterprises in the North as well regularly profit from external (state) assistance - in the form of investment subsidies, tax breaks and export aid (e.g. EU subsidizing of agricultural exports). Such support is useful at times and often literally 'pays off', as long as it helps enterprises to fend for themselves and doesn't erode this capacity.
In fact, this is what fair trade in the South is all about: giving marginalized and underprivileged producers a fair chance to fend for themselves. Experience shows that most of them know how to make excellent use of this opportunity.
Fair trading conditions |
What is a fair price |
In South-North commercial trading relationships, the Northern buyers usually have the power to fix the conditions under which the Southern producers sell to them. The capitalist system inclines the buyer to look for the best deal, which of course includes the lowest possible purchasing price. More often than not, Southern producers find themselves selling their products for a price that, after all production costs are deducted, hardly leaves them enough to lead anything approaching a decent life. Fair trade organisations are `alternative' in that they want to purchase goods at a price that covers both production costs and at least the producers' basic needs. This `fair price' can be up to 70% higher than offered by mainstream commercial buyers. In some cases, the `fair price' is determined on the basis of internationally established standards - such as the minimum fair trade price for coffee: 120 US$ per 100 lbs., being the minimum price paid to coffee exporters fixed in the International Coffee Agreements until the last ICA collapsed in 1989. In other cases, fair trade organisations respect what their produce partners themselves they consider to be a fair price. And in still other cases, the producers and overseas buyers sit down together to determine the `fair price'. This third possibility especially applies when fair trade organisations wish to buy a product from a certain producer, but the price is so high that it would make its retail price in Europe uncompetitive; the search is then on to reduce production costs or to adapt the product so that it justifies the higher price.
While paying a fair price is ethically commendable, liberal economists will be quick to point out that paying more than the going price for a product, determined by the mechanics of supply and demand, is either economically unsustainable because it is reducing the products competitiveness on the market or because its perturbs the market in the sense that it leads to overproduction.
If this reasoning in terms of market mechanisms is correct, paying a fair price would be economic suicide. How then do we explain fair trade's 30-year existence, its 1994 retail turnover in Europe of more than 200 million ECU and its steady growth? Economic theory itself provides the explanation. Simply said, markets don't only function on the basis of prices, but also - increasingly so - on the basis of products' characteristics: its features, its quality, its design/appearance, and - a crucial characteristic for fair trade - its non-material aspects. In other words, fair traders can pay producers a higher price and keep earning a healthy profit because consumers are willing to pay more for the higher ethical value of a fair trade product.
As to the fear that a fair price perturbs the market and stimulates overproduction: it is true that a higher price incites a producer to stick to the product and might tempt him to increase his production. In practice, however, almost 30 years of fair trade shows relatively few instances of producers significantly increasing their production because they are encouraged to do so by the higher price they receive. The fact is that lack of land, limited manpower and/or limited investment capital usually prove to be unsurmountable obstacles. What does happen is that producers seize the opportunity offered by a bit more money to invest in the diversification of their production: developing ways to produce a larger variety of products and reduce dependence on the cash cow.
Finally, the whole debate about the supposed negative economic influences of paying a higher price to producers should be put in perspective - the perspective of the general poverty in the South. In Guatemala, a small farmer rarely has more than 2 hectares of land, which might earn him a yearly income of 500 US$. Even if a receiving a `fair price' might earn him 50% more, it only increases his average weekly income from 10 to 15 US dollars a week, or about what an unskilled worker in Europe earn in an hour...
Palam Rural Centre, India |
In India, your social destiny is determined at birth by the caste of your parents. The higher your caste, the more rights you have. Because the dividing lines between castes are strict, it is impossible to change your caste. The worst off are those without a caste: as they do the dirty work no one else wants to do, they are the harijans or "untouchables" for the higher-caste Indians. As the Hindu religion considers the contact with skins of dead animals especially impure, the harijan also work with leather are condemned to lifelong social marginalization. They generally work under almost inhuman conditions for a high-caste boss, often as so-called 'bonded laborers' because the boss is the legal owner of his workforce so long as they have not paid back any loan which he has given them.
28 years ago, the local Lutheran Church in Tirupur in Southern India helped 72 harijan-families to defy the caste-system by doing the hitherto 'not-done'. They set up a leather factory of their own. the People's Association for Leather and Allied Manufacturing or 'PALAM'. Palam Rural Centre started producing sandals, bags and belts. Because domestic sales were hampered by caste-traders who refused to buy from the Center, Palam's breakthrough came when, in 1979, it started exporting to overseas fair trade organisations. Thanks to their thriving overseas fair trade market, Palam's families received a new lease on life: they moved from slum dwellings into permanent housing on the Centre's compound, they started earning enough to send their children to school, and they invested in the factory's expansion and improvement, setting up their own leather tannery. Palam, in short, became one of fair trade's success stories.
In the late 80s Palam's traditional leather products went out of fashion. Within a few years sales sank so low as to imperil Palam's existence. The Centre and the Northern fair trade organisations developed a plan for the complete overhaul of the leather factory, to be financed jointly by Palam and the Dutch Fair Trade Assistance. In 1991, a Palam delegation made a marketing tour of Europe and spent several months in a Dutch leather factory learning new production techniques. A year later, a Dutch leather specialist traveled to Tirupur to assist Palam in developing new product lines. To improve product quality, it was necessary install leather processing machines. To pay for these machines, Palam had to borrow money from a local bank - at a steep 18.75% annual interest. In order to avoid collapsing under the burden of the interest of the loan, Palam sought and obtained a back-up loan from Fair Trade Assistance at 'softer' conditions. Palam is currently looking to cut costs by improving production management. With an up-to-date product line, better production techniques and efficient management, Palam will be well equipped to face the challenges of demanding markets in Europe as well as in India. As it grows, it will be able to offer more and more harijan families the perspective of a prospect future.
Dezign Inc., Zimbabwe |
Just minutes away from Harare's trendy tourist and business center lie the capital's black townships of Mbara and Glen Norah, providing grim proof of the fact that even though apartheid has been officially abolished for fifteen years in Zimbabwe, most black Zimbabweans continue to live under scandalous circumstances. `Townships' is the African euphemism for urban areas with cramped barracks, and where electricity, telephone and tarred roads are still a luxury, and were, if sewers exist, they are open drains.
Juliet Chisamba, widowed mother of four, is one of the hundred or so people in Mbara and Glen Norah who have the good fortune to work at Dezign Inc. Dezign Inc. is one of the very few companies in the country that pursues an active policy of racial integration and equitable distribution of income. Both blacks and women enjoy the company's preferential treatment as they are encouraged to qualify stimulated in qualifying for management positions and are offered management posts whenever possible.
Dezign Inc. produces Africa's most beautiful T-shirts. It invites artists from all over the continent to draw and paint motifs inspired by traditional African art. The motifs are screen-printed on T-shirts and other clothing, on fabrics, rucksacks, postcards, wrapping paper, rugs and carpets. 95% of all materials used are Zimbabwean. Dezign Inc. only uses imported production inputs when they are not available domestically. Dezign is `green': the ink used is water-based, all paper is 100% recycled, the cotton is chlorine-free- or unbleached, and the entire production process is ecologically harmless -which in the printing business is quite a feat.
Dezign Inc's employment policy is established jointly by the company's owners and its Workers Committee. Because Zimbabwe's minimum wage is considered too low to sustain a decent living, Dezign Inc.'s wages are 50% higher. In contrast to most other companies in the country, Dezign Inc. has a pension fund, a broad medical insurance system, a credit scheme, and a system of sharing the annual company profit between the owners and the employees. Workers and owners together also decided to donate 5% of the turnover of Dezign Inc.'s `conscience clothing' product line - carrying the Zimbabwean ECO-label - to environmental NGOs active in advocacy work and lobbying for environmentally sustainable political policies and organic agriculture. One of these NGOs, the Environment 2000 Foundation, has set up reserves for rhinoceros and other threatened species. Sales of clothing carrying the 'Mashaiubauzou' label contribute to an organisation called Mashaiubauzou which cares for women and childeren with HIV and AIDS at its daycare centre and hospice, as well as providing home care and a general AIDS awareness programme in the wider community. About half of Dezign Inc's production is sold locally, the other half is exported to other African countries and overseas. Dezign Inc. prefers to sell to fair trade organisations, not so much because they pay a higher price, but because they provide a stable long-term trading relationship.
What makes Dezign Inc. `fair'? Essentially it is the fact that it enables producers and their families to earn an adequate living, that it considers the production circumstances first and foremost a matter for the producers themselves, and that it goes to great lengths to ensure the ecological sustainability of its enterprise. Dezign Inc. is typical of the `fair' small- and medium-scale enterprises whose owners understand that the well-being of producers and respect for the environment are, in the long run, beneficial to all.
