January 1998
Brid Bowen
"Many consumers in Western countries are aware that the world's wealth is distributed in a very unequal manner, and that the products offered are much too cheap to ensure a decent living to producers in the developing countries. They would like to contribute to a change in this situation, but do not know how to go about it". Fair trade offers to consumers, businesses, citizens and decision-makers a concrete, simple method to act to improve the situation of producers in the South.
The unprecedented increase in international trade of goods and services over the last fifty years has resulted in considerable growth in income for a large number of people in many countries, North and South. However, the tendency towards unbridled globalisation and market liberalisation, particularly in the last 20 years or so, has also wreaked havoc on the lives of the poorest people throughout the world.
Through the awareness-raising work of many NGOs, fair trade organisations, trade unions, environmental movements, journalists and others in both the North and the South, there is an increasing number of people in developed countries who recognise - as the quote above notes - that goods are offered too cheaply to ensure a decent return to producers in developing countries. However, by and large, they are unsure what they can do to redress this situation. According to Pierre Calame, the most threatening element (to change) is precisely this widespread sense of impotence.
Fair trade offers a direct, simple method to improve the situation of producers in developing countries. By purchasing a fair trade product or by stocking and promoting fair trade product lines, consumers and businesses can play a significant role in improving the balance of global wealth and power in a simple day-to-day transaction. By joining awareness-raising campaigns organised by fair trade organisations, citizens can pressure businesses to act responsibly towards all those who have a stake in their operations - from producers to consumers, thus ensuring socially, economically and environmentally sustainable production and trade. Through fair trade campaigns, citizens can also encourage political decision-makers to introduce measures in international legislation governing production and trade to ensure a more human-centred, equitable world trade order.
Fair Trade aims to contribute to the alleviation of poverty in the South through establishing a system of trade that allows marginalised producers in the South to gain access to Northern markets. This alternative trade builds on the producers' skills and enables communities to play an active part in their own development, while at the same time satisfying a consumer demand in the North The fundamental characteristic of fair trade is that of equal partnership and respect - partnership between the Southern producers and Northern importers, fair trade shops, labelling organisations and consumers. Fair trade "humanises" 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 fair trade, the need for transparency in their working relations and the importance of awareness-raising and advocacy work. The idea of the "invisible hand" has given way to the idea of working "hand in hand", with the market regulated by democratic authorities.
Thus, in a spirit of partnership, certain guiding principles, or criteria, are agreed by both sides. As a minimum, southern producers commit themselves to democratic functioning and decision-making procedures within their organisations
In addition to these basic elements of the partnership, several other issues are usually agreed. The activity of the Southern partners must be sustainable (economically, environmentally and socially), must provide acceptable working conditions, and must contribute to the development of the community, creating jobs where possible. In the case of plantations or industrial production units, at least the basic ILO (International Labour Organisation) standards must be respected. Much emphasis is put on the fact that the development of an export product must not jeopardise local food security. Also, producers should seek to establish a balance between accessing a local market and an export market (fair trade or otherwise) for their products. It is also underlined that producers should aim to process the product as far as possible before it is exported, thus obtaining a higher return on sales and gaining additional technical skills. Alternative trading organisations in the North also take on board additional principles. They agree to provide regular feedback to producers on market trends, fashions, and health and safety regulations so that producers may adapt production. They provide finance and training to build up the management capacity of the producer group; to improve production techniques, and to train producers in new product lines if necessary. They agree to respect the European code of conduct of NGOs on the image of producers presented. It is also a fundamental element of alternative trading organisations' work that they should take part in education and advocacy campaigns to promote fair trade and the creation of an international trade structure that benefits producers.
Special emphasis is put on the role of women in the decision-making process both within the Southern producer groups and within the Northern fair trade organisations. Likewise, a respect for the cultural identity of all partners is expected throughout the movement.
Failure to meet all or most of these standards from the outset does not disqualify a Southern producer group from becoming a fair trade partner. The diversity of the production groups, the products and the economic and social realities in which they operate necessitates that each producer group be treated on a case by case basis. It is more important in the selection procedure that the producer group be attempting to reach these standards and that the Northern partner be willing to assist in this evolution, than that the group has already reached an optimal position. On the other hand, by their very nature, fair trade labelling initiatives must guarantee to the consumer that the agreed criteria have been respected. While some degree of flexibility is possible to reflect the specificity of a product, once the criteria are agreed, the producer must reach all of them without exception.
Fair trade producer groups vary greatly from one region to another, and from one product to another. Groups include federations of producers, co-operatives, family units, workshops for handicapped people, state organisations, private companies, and, increasingly, Northern groups producing goods in the context of the social economy. The size of these groups can vary - the largest network currently exporting fair trade goods is the Frente Solidario de Pequeħos Cafetaleros de America Latina which represents over 200,000 coffee producers. On the other hand in Burkina Faso, the fair trade handicraft partner Gorom-Gorom is a workshop of approximately 20 people.
However, what all these groups have in common is that they are "marginalised". Whether because of economic or geographic factors, lack of experience or available resources, without the help of fair trade organisations, they would not be able to gain direct access to a market, either locally or abroad. Any group which seeks to support sustainable development in its group and community, to provide regular income to its members, to encourage democratic participation and to respect other mutually-agreed criteria such as the empowerment of women, respect for human rights, the environment and indigenous culture, is a potential partner of the fair trade movement. However, in order that the producer group be accepted as a trading partner, it must be able to produce (perhaps after some assistance) a marketable product. It must be able to supply the product at a reasonable price and in sufficient quantities within specific time periods.
Fair Trade Organisations currently import products from approximately 800 trading partners in 45 different countries in the South. This represents 800,000 producer families or approximately five million people.
There is no doubt that fair trade holds many and varied benefits for the producer partners. First and foremost producers are given direct access to a market that would not otherwise have been accessible. In gaining direct access to the European fair trade market, producers frequently also build up outlets in mainstream European trade by attending business fairs in Europe and visiting commercial traders. This is very much encouraged to avoid an over-dependence on the fair trade system.
Producers are guaranteed a fair price and decide themselves how the extra premium paid by fair trade should be distributed in the best interests of their communities. Many invest in product improvement, building up the financial, technical or managerial capacity of their organisations, or improving farms or buildings. Others use it for education, health care, housing, and other social obligations. Sometimes, if the market has been particularly depressed, the fair trade premium makes the difference between whether or not the producer family goes hungry, or whether or not they migrate from the land to the city.
Most producers only sell a small part of their total production to the fair trade market. The rest is sold under the usual conditions to the mainstream market. However, by paying a fair price for even a small part of production, there is often a snowball effect on prices paid for the rest of production. As alternative trade organisations (ATOs) buy up part of production at a higher price, this reduces the availability of products to middlemen who are then forced to offer higher prices to obtain sufficient quantities. This effect has been experienced in the case of honey sales in Chiapas in Mexico, brazil nuts in Peru, cocoa in Bolivia, and tea in Zimbabwe. This means that not only is it possible for producers who are lucky enough to have made contact with fair trade outlets to sell all their product at better prices, but other producers in the region, often equally marginalised, benefit too.
But, surprising as it may seem, for many producers the fair price is not the most important part of the fair trading relationship. Fair trade organisations pay part of the price in advance. This is crucial for small-scale producers because it means that they can buy inputs for production and survive the season without having to go to money lenders - a step which usually spells a never-ending spiral of crippling indebtedness. Likewise, the guarantee of payment is of great value whether in advance or promptly on delivery of the goods. Most small-scale producers have experienced middlemen who place orders and never claim the finished product, or who refuse to pay the agreed price. The stability of production and hence of income, and the guarantee of a long-term relationship is a major benefit to producers and allows them to make some provision for the future. The benefit of these additional aspects of fair trade to producers is shown by the fact that, even when prices rise (as they have done recently for coffee), and middlemen offer higher prices than the co-operatives can afford, most producers prefer to stay with the co-operative if at all possible. They know that when next the coffee market slumps the middlemen and speculators will offer no support.
There are also other advantages in being part of the fair trade relationship. For example, many ATOs offer assistance of the following kinds to the producers.
As production expands, increased investment and working capital is necessary. Advance payments often do not provide the required amount, and banks frequently consider marginalised producers to be a "bad risk" and refuse to lend money. This is where ATOs step in. The long-term, personalised relationship reduces the risk of default on a loan and the possibility of repayment with products makes it attractive to both sides.
Perhaps one of the main benefits of the partnership approach of fair trade is the confidence it gives producers to approach a trading system perceived to be too complicated and too distant to understand. The example of the Kagera Co-operative underlines how farmers in villages now speak of the international coffee price and the London commodity exchange with a real understanding of the impact it has on their lives and livelihoods. It also portrays how the co-operative now feels confident enough to enter the coffee auctions and bid against the giant trans-national companies (TNCs). Similarly, the following example shows how an understanding and knowledge of information technology such as the internet can change the balance of power still further between small producers and TNCs:
"A small community news service in the Philippines published an article saying that research was needed to find out if a certain pesticide was causing health problems in a local village. They received a threat from a German transnational chemical company. Via the internet they got free advice from a US environmental lawyer and asked a German environmental network to write to the company. The threat was withdrawn within a week".
Another positive result of co-operation within the fair trade system is the contact it creates between Southern producers. For example, in February 1995 the European Fair Trade Association (EFTA) organised a meeting of 24 African producers and 19 people from northern fair trade organisations. This gave Southern producers the chance to learn from each others' experiences. Another example of the potential of South-South contact is demonstrated by an experiment carried out by Oxfam UK regional fair trade organisations. The Philippines office decided to try to sell Philippine crafts in an Oxfam-supported shop in Bangkok - with extremely positive results. As in the North, so in the South "people in many countries prefer the exotic to the familiar and I think there is tremendous potential for South/South trade".
A report adopted by the Development Committee of the European Parliament in November 1993 stated that "Surprising though it may seem ..., there are a few niches within the jungle of world trade where justice and solidarity prevail. Fair trade...is still very much overshadowed by the mainstream economy....".
One of the most pressing needs facing Southern producers is to expand the fair trade market in Europe, both to accommodate a greater proportion of their production, and also to give access to other fair trade producers in the South, who, because of the limited market, have yet to be included in this system.
Expanding the European market has always posed problems such as:
However, expanding the European market has become even more challenging of late:
During the last ten years or so, and even since the adoption of the above-mentioned report only four years ago, impressive strides forward have been made in this area. Much of the progress made in the recent past can be attributed to two complementary developments - the professionalisation of the fair trade movement, and the emergence of a strong European dimension.
Professionalisation of the fair trade movement has taken place at several levels. Much effort has been invested in building up the production and managerial capacity of Southern producer groups. This has led to a vast improvement in the quality and choice of products on offer, and also in the efficiency of production. Likewise, importing organisations have restructured to ensure a greater efficiency in the use of their own resources. They have implemented staff training, computerisation, and consultation with fashion designers to ensure that fair trade products reflect market trends. ATO catalogues and magazines are prepared stylishly and distributed efficiently and widely. Use is made of the media - press, radio, and even television where possible, particularly in the launch of new products. World shops have also changed - they are now found in busy shopping centres rather than in obscure corners. There is an increasing number with at least some paid staff allowing for longer opening hours and better management. With the establishment of national associations of shops in most countries there is increasing support for individual shops in terms of window dressing, interior layout, staff training and so on. Reflecting trends in mainstream business, the image of fair trade has also changed. Increasingly the fair trade shops in each country and even across Europe are adopting common names, logos, and styles to make them recognisable to the public. Attractive packaging has been designed for the products and information labels added. Promotional events, seasonal markets, and so on are all utilised to the best advantage.
National initiatives to professionalise and hence expand the fair trade market have been reinforced by the establishment of European Fair Trade networks. In response to the increasing centralisation of decision-making on legislation, trade, and production at a European level, and in recognition of the increasingly competitive retail market, the importing organisations, shops and labelling organisations decided to establish their own European co-ordination to meet the new challenges.
By capitalising on the specific advantages of each member, EFTA offers service to its members that reduce individual costs and hence increase their competitiveness. This has led to efficient product specialisation, development of new products and organic products, more harmonised producer assistance programmes, centralised market research, monitoring of changing norms, and distribution of information, along with joint seminars and training sessions. EFTA also co-founded the TransFair Fair Trade label in 1992.
The Network of European World Shops (NEWS!) has become an important centre in which member organisations exchange information on activities in various countries and gain from the experience of members in things like shop management, promotions, and media work. They can develop common educational materials, and increase awareness of the criteria of fair trade and World Shops.
The International Fair Trade Labelling Organisation (FLO) is still in its fledgling days. However, with a harmonisation of criteria, shared product registers, and exchange of information and experience, this organisation has the potential to significantly advance the concept of and market for fair trade products in mainstream business.
Professionalisation, increased efficiency, co-ordination at several levels leading to economies of scale, building on the variety of experiences and specialisation of each organisation, and the increasing harmonisation of the image presented to customers and business have yielded significant results. Fair trade is growing at an average rate of five percent per year, with Spain, France and Italy showing the most spectacular growth rates (see box "Fair Trade 1860 - 1998")
While the expansion of the fair trade market is encouraging, no matter how quickly it grows, it is not, and may never be, large enough to give access to the produce of the millions of small-scale farmers who work to develop their regions. Nor can the fair trade market improve the position of producers involved in industrial production or, in general, large scale plantation agriculture. Therefore, a key preoccupation of the fair trade movement is to raise awareness of the degrading conditions under which most international trade and production is carried out and to campaign for an improvement. Campaigns are directed towards mainstream business, and multinational companies in particular, to encourage a responsible attitude in international trade dealings, and also towards political institutions responsible for legislation regarding production and trade. Fair trade is presented as an operational model of an alternative system and a symbol of "best practice" towards mainstream trade.
The basic message of the fair trade movement is that mainstream business must take responsibility for the whole production and trade procedure, from producer to consumer. Both the economic effects and the social effects on each participant in the chain must be accounted for, as well as the ecological consequences. Having identified the positive and harmful effects of the production chain, companies must invest in improvements to guarantee a more sustainable process. The essence of the approach is to promote positive action by companies rather than to use boycotts which have sometimes proved to be well-meaning but disastrous for producers. Such a scheme could be voluntary - companies choose whether or not to participate - but "a clean bill of health" granted by an external social auditing company (explained below) could be of immeasurable marketing value. The enthusiasm for this concept is seen through the proliferation of campaigns such as the "Clean Clothes Campaign" and campaigns on sports-shoe production. Both of these encourage companies to sign a code of conduct that would enforce minimum ILO conditions in textile and sports-shoe production. The code should be open to external monitoring by an objective body which should include trade unions, NGOs, and commercial companies. Similarly, several campaigns have been launched against the exploitation of children in rug production in India and Pakistan, in toy production, and in the production of footballs.
The fair trade movement has itself initiated a system of such control over its own operations. The system is called "Social Auditing" and aims to:
The concept of responsible trade and social auditing is making significant progress in the mainstream. Several companies, political parties and institutions have asked fair trade organisations for advice on this subject. In the United States ten companies, including NIKE and Reebok, signed a code of conduct in 1997 (though GAP, the fashion company, is - as yet - the only company to agree to external monitoring). The ILO recently proposed awarding a social label to countries which undertake to respect basic workers' rights. The unprecedented success of fair trade "Ok" bananas which reached 10% of the Dutch market share within weeks of being launched at the end of 1996, and 13% of the Swiss market is also a measure of the public's interest and support.
Globalisation, market liberalisation and TNC concentration continue apace. However, regional trading blocs like the EU, US and Japan, and international trade organisations like the WTO (and to a lesser degree the UN conference on trade and development (UNCTAD) still retain the power to improve conditions of trade that would benefit marginalised producers and producing countries.
Among the areas requiring action are:
The fair trade movement has campaigned tirelessly for the introduction of fair trade principles into the legislation governing EU and Member State dealings with the South.
