Fairtrade = Good, right?

Fairtrade logo

I know that Fairtrade equals good, but i’m not sure that I totally understand why it is good or what it is really setting out to do. So I am going to write a couple of blogs delving into the real meaning of fair trade and the impact that it is having on development.

As my first point of call I’ve looked at the Fairtrade International and Fairtrade Australia & New Zealand websites which have a wealth of information that isn’t always the easiest to find, and plenty of exceedingly long reports looking at progress and impact.

Top lessons so far:

Fairtrade is working to create “Better prices, decent working conditions, local sustainability, fair terms of trade for farmers and workers in the developing world” – all sounds good to me.

So how does it work? Well, Fairtrade international has a set of standards which aim to ensure fair price for producers (to cover average cost of sustainable production), provide a Fairtrade premium (more on this later), provide pre-financing for producers (i.e. loans to develop businesses), provide longer term trading partnerships (producer control increases) and to set conditions of production of trade (e.g. socially, economically fair and environmentally responsible). I hope you’re nodding – good isn’t it.

But what does all that really mean? Let’s break it down.

A fair price for producers.

Fairtrade international have a minimum price and premium for all certified products. This means that if the market value is lower than the Fairtrade minimum price the producer receives at least the minimum price. If it is higher, the producer receives the going rate. It is worth noting here that the ‘producer’ in this instance is either a consortium of farmers or a company who hires workers.

Fairtrade does not guarantee that the worker themselves receive a higher than usual wage, or a living wage. I touched on this briefly in last week’s blog A fair price for Coffee? This is because the money that goes to the consortium doesn’t necessarily get passed on to the farmer (although, in theory it really should). There is also the issue about the pricing structure for fair trade – the current Fairtrade minimum prices are set by the Fairtrade organisation (they can be found here if you’re interested). I think it’s noteworthy how so many of the prices appear to not have increased over the past seven years – raising the question of whether the aim of ‘sustainable production’ is the same as a ‘fair living wage’.

When we look at the impact of fair trade on wages, a Fairtrade report looking at the Banana Plantations in the Dominican Republic showed that Fairtrade actually had no direct impact on wages. However, it did find that the Fairtrade Premium brought about an increase to in kind benefits for staff, so there was a clear benefit. This brings us on to the Fairtrade Premium.

Fairtrade Premium

The Fairtrade Premium is a set amount of money that goes to the consortium / cooperative / employer to be used for specific projects. In some instances the nature of the projects are defined (for example for Cereals, at least 30% of it has to be reinvested in to environmental sustainability schemes), but elsewhere it is up to the workers union to decide how they want to invest the money. In the Banana plantation of the Dominican republic it was found that the workers received subsidised food, housing, transport, health and education all of which heavily contributed to increasing the standard of living for the community. In Uganda it was found that Fairtrade Coffee had increased the living standards of farmers by 30% and had decreased the existence of poverty.

Pre-financing for producers

Pretty self explanatory – if you provide opportunity for loans then individuals can set up businesses / expand their existing businesses to become more efficient or effective and increase their outputs, thus increasing their potential to earn. In a lot of places financing might be associated with high rates of return, putting intense pressure on individual businesses and farmers. This requirement of Fairtrade producers reduces that risk and enables easier access to funds for development.

Longer term trading partnerships

Because of the nature of the business and the nature of companies interested in participating, Fairtrade is able to couple producers with suppliers and encourage the creation longer lasting, mutually beneficial partnerships. Thus bringing a sense of stability and security to the producers.

Set conditions of production of trade

I like this one – it’s the rule that basically says don’t employ kids, don’t enslave people, provide basic working conditions and standards including health, be aware of your environment and try to stay away from too many hazardous chemicals (whilst not necessarily being organic) and generally try to be a good citizen employer. It was noted in the 2016 Fairtrade progress report that working conditions in Fairtrade plantations have been seen to improve, partly as a result of Fairtrade’s requirement for companies to allow collective bargaining and dialogue.

Fairtrade certainly can be seen to bring about some positive change in developing countries. It is certainly a way to ensure that more money gets to the producer, and perhaps even to bring about change in working practices in the producing countries, be that through greater workers rights or opportunity to have dialogue with plantation owners or trade consortium (businesses who represent small scale farmers and provide a platform for their coffee for example). There is a lot more to Fairtrade than meets the little logo on the supermarket shelf. Next Fairtrade blog I’m going to look at whether Fairtrade is creating a change in terms of providing opportunity for economic development for the producers themselves.

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