Fair Trade - Frequently Asked Questions - FAQ
Prepared by Bob Thomson, Managing Director, Fair TradeMark Canada, October 1998.Introduction
Corporate social responsibility has become a major topic in the past several years. Craig Kielburger's challenge to Prime Minister Chretien to do something about child labour in Asia, Kathy Lee Gifford's tearful television promise to improve working conditions in Third World factories producing her designer clothing and Second Cup's choice of Foster Parents Plan to copy Starbucks' donations to CARE USA, are but a few examples of corporate responses to consumer demands for ethical marketing of everyday products.Where does fair trade fit into the issue of corporate responsibility
Or does it? Is it an entirely different issue, or an alternative economic model?
For years, consumer boycotts have been a major form of expression and protest against corporate irresponsibility. Now, a variety of corporate responsibility mechanisms have developed as companies realize that they ignore consumer demands at their peril. Codes of conduct, social auditing, cause related marketing, charitable donations and third party certification are several, often competing, means available to managers wanting to differentiate themselves from their competition, attract consumers and open niche markets where consumer ethics are a significant factor.
A small corporate responsibility "industry" is springing up, with academic specialists, investment screens, specialty magazines and a host of consultants and journalists clamoring for public and corporate attention in an effort to prove who has the most angels on the head of their pin.
Or which corporations haven't any!
Business, academics and activists are debating criteria, monitoring and the pace of implementation of change. The range of codes of conduct varies from simple "best practices" suggested by industry itself, to utopian high standards; from no monitoring to self monitoring, to partial and even full independent monitoring, as incorporated in the recent White House code of conduct on sweatshops. Some companies have agreed to draft frameworks for codes of conduct, only to be accused of merely buying time or seeking media kudos for good intentions, with no real plans to correct the practices which generated the need for changed behavior. Many companies, while sincerely wishing to make significant changes in their business practices, fear being squeezed out of the market if new conditions which may add to their costs are not applied across the market to all companies.Fair trade fits into this panoply of responses as an effort to help disadvantaged small producers, usually in the Third World, through better prices, credit at reasonable rates of interest and longer term direct and stable trading relationships.
Fairtrade Canada (originally Fair Trademark Canada), a non profit association of churches, unions and charities, but not a charity itself, is the Canadian affiliate of a mainly European fair trade label movement, FLO. We fit into this sector by offering licences for a consumer logo which independently certifies that commodities such as coffee, tea, cocoa, sugar, honey and bananas are fairly traded. Fair trade labels licensed sales of 24 million pounds of quality green coffee beans in Europe in 1995, sold under 130 commercial brand names through over 35,000 retail outlets.
What is Fair Trade?
Some progressive futurologists have called fair or alternative or ethical trade, the "fourth wave" of modern marketing, following consumer concerns over the past two decades, first for product safety, then for conservation and latterly for more wholly environmentally friendly products and production. Some of us prefer to think of fair trade as a bridge between southern producers and northern consumers; the thin edge of but one wedge in a multifacetted struggle for global justice and wholesale transformation of the current marketplace controlled by huge corporate interests - sustainable development versus the destruction of the environment and community.Wherever you fit into this ideological spectrum - reformist, radical or just uncomfortable about the status quo and unsure of what to do, I hope this brief introduction to fair trade issues will help you decide what you can do individually and collectively to change the way existing markets work.
Fair trade organizations can be roughly categorized as Alternative Trading Organizations (ATOs) or fair trade labels. Their criteria tend to favour small producers over large corporations - adding a few percent to the cost of goods but not promoting subsidies or inefficiency. Market forces are respected, or at least recognized, but fair trade does not accept "free trade" and the huge uneven playing field built up over the past several hundred years to the detriment of small disadvantaged producers or countries.
Alternative Trading Organizations (ATOs)
The history of fair trade began in Europe in the 1960's with the establishment of alternative trading organizations (ATOs) such as Oxfam Trading and Third World shops. Many organizations started with informal sales of products from groups which they supported in their project programmes. The ATO movement now boasts sales in excess of $200 million worldwide and a substantial group of both ATO marketing companies and producer groups are organized in the International Federation for Alternative Trade (IFAT)Most of the larger ATOs are associated with non-governmental organizations (NGOs) which are engaged in international development programming and raise funds from the public as "charities". Many have sprung from small sales of craft imports in community based Third World resource centres. The majority of ATOs see trade as a development or cooperation activity in its own right, prefering to pay higher prices to producers over making profits. Others use profits to raise funds for the programmes of their associated charities. ATOs are not charities however, being forced to at least break even in their trading activities in order to demonstrate that fair trade is an alternative model in the real world.
Because some ATOs transfer profits to their "parent" organizations, there is potential for controversy over just what level of profit and what standards exist to define "fair" trade. Is it acceptable to pay one group of producers a lower price in order to make a profit to invest in programmes for another group in the south? At what point do increased sales and economies of scale cross the fuzzy line between more income and benefits for producers, to dependency on mainstream markets and potential loss of the cutting edge in challenging unjust world trade relations.
The fair trade movement is not homogenous.* Some Northern trading companies in the movement are not-for-profit trading offshoots of NGOs working in conventional development cooperation, such as Bridgehead which is a division of Oxfam Canada. Others are now self-standing trading units, such as the Fair Trade Organisatie in the Netherlands - which also has a producer development arm, Fair Trade Assistance. Some have Christian roots and principles: Traidcraft Plc (UK), SERRV and Selfhelp (USA), for example. Twin Trading (UK) was established by the Greater London Council, and has a sister non-profit charity, TWIN (Third World Information Network), that engages in research, publication, and commodity trade development. Alter Trade in Japan, and CTM in Italy have their origins and client networks in the consumer and worker co-operative movements.
The Southern trading partners in the movement are also varied. Most have some explicit community orientation, but with many different organisational forms and traditions. Some are co-operatives, such as the Tabora Beekeepers Co-operative in Tanzania; some are community owned organisations, such as the trading associations of the "\D1ah\F1u" in Mexico; some are parts of the government, such as Tanzania's coffee parastatal, TANICA; others are traditional communal arrangements, such as the Ejidos in Mexico which date from the revolution, or new forms entirely, based on a mix of modern business and village or indigenous traditions such as cocoa farmer organisations Kuapa Kokoo in Ghana and El Ceibo in Bolivia.
There are even some southern fair trade partners which have decided to participate in capitalist markets such as fair trade which offer a lower extraction of "surplus value", in an effort to accumulate sufficent "capital" of their own to break completely with capitalist markets and export commodity production in favour of automous local control and independent communities.
"The heterogeneity of the movement makes it difficult to reach general conclusions of fair trade's effectiveness in offering a 'good deal' to Southern producers. There is no single or commonly agreed set of measurable criteria against which the quality of all trade can be assessed, although there is a Code of Practice which has been subscribed to by all members of the International Federation for Alternative Trade (IFAT), which was founded in 1989 and aims to provide a forum for Southern producers and Northern importers (IFAT, 1993)." [Pauline Tiffen & Simon Zadek, "Dealing With And In The Global Economy: Fairer Trade In Latin America", Sustainable Agricultural and Development Experiences, Kamurian Press, 1998]
IFAT is a federation of some 60 alternative trading organizations or ATOs and producer groups from Africa, Asia and Latin America. Prior to 1989, members of the European Fair Trade Association (EFTA), a grouping of northern marketing organizations, had met regularly and cooperated in various forms, including meetings which brought southern producer representatives to their meetings.
IFAT's main activities are the hosting of biennial conferences of producers and marketers, an information service and the informal co-ordination of activities among members. Conferences have been held in Holland in 1989, in Ireland in 1991, the Philippines in 1993, the USA in 1995 and India in May 1997.
The IFAT Secretariat and budget are monitored by an international Committee consisting of members from northern marketing ATO's and producer groups in Latin America, Asia and Africa. IFAT is incorporated in Holland as a non-profit society and its accounts are audited annually. The Secretariat's work is currently located in Oxford UK. Working Groups co-ordinate work between conferences in the areas of Information and Communications, Code of Conduct and Advocacy.
IFAT conferences provide a valuable venue for discussion of alternative trade issues, as well as a marketplace for producers and buyers to share information, samples and ideas. Very different perspectives come together in a forum in which the northern buyers do not hold the power of the chequebook which often dominates bilateral buyer/seller relations, despite all the goodwill that exists in our efforts to be "alternatives".
The difficulties of global communications between conferences, the diversions of daily individual struggles for survival on the part of both ATOs and producers, and a lack of resources have prevented IFAT from growing as quickly as it might into a strong representative body for the fair trade "movement". The richness of the global forum however generates contacts and friendships which are maintained through bilateral trading and other relationships between conferences.
Fair Trade Labels
Fair trademarks or labels set the standards for prices and working conditions of products bought and sold with a concern for justice. By their acceptance in mainstream markets, these labels provide expanded outlets for the sales of small producers who otherwise lack the market leverage and advertising resources of large scale traders. They do this through the licensing of a fair trade mark or label to those products, brands or companies which meet the criteria and standards of an independent and credible fair trademark organization.Market research has shown that 30% of consumers say they are willing to pay extra to ensure justice for producers, but that only 5% will actually do so, paying 20-25% above ordinary retail prices. Before buying however, these consumers want certain conditions met: 1) there is no compromise on product quality, 2) easy availability, ie. no extra trips to special stores and 3) an independent guarantee that fair trade conditions are really being met and are not just marketing hype. This 5% however is a large enough market share to convince manufacturers and retaillers to pay a license fee to cover the costs of independent monitoring of fair trade conditions.
The first fair trade mark was established for coffee by the Max Havelaar Foundation in Holland in 1989 which now licenses some 2.5% of Dutch coffee sales through private roasters and supermarket chains. It was developed as a response to the impact of the collapse of world coffee prices on small farmers following the failure of the International Coffee Agreement, an international supply manangement system which attempted to moderate coffee prices through quotas and buffer stocks.
Coffee with the Max Havelaar label is now available in large numbers of Dutch grocery stores and provides a source of fair income for thousands of small coffee growers in Latin America and Africa. Max Havelaar was the protagonist in a 19th century novel which criticized Dutch colonial exploitation of small farmers in Indonesia. The label and what it stands for is recognized by an amazing 73% of Dutch consumers. The Max Havelaar label has also become established in Switzerland, Belgium, France and Denmark.
TransFair International, another fair trade label organization founded in 1992, has members in Germany, Austria, Luxembourg, Italy, Japan, Canada and the United States. The Fairtrade Foundation labels fairly traded products in the UK and other labels cover the Swedish, Irish, Norwegan and Finnish markets. All these national label initiatives are working to achieve commercial acceptance for fair trademarked coffee and have developed detailed criteria for other products, including honey, cocoa, sugar and tea, with standards for orange juice concentrate under consideration. Studies have been undertaken for textiles, flowers, sesame seeds and even handicrafts, although these products have presented dificulties which have prevented the development of label criteria to-date.
In April 1997, the TransFair, Max Havelaar and other national fair trade label initiatives came together to form FLO, Fairtrade Labelling Organizations International, which from January 1998 has established an office in Bonn, Germany to co-ordinate product Register work, monitoring and promotion of fair trade labels.
The criteria for fairly traded coffee, the first and most successful fairly labelled product to-date, have four components: 1) a minimum price; 2) purchase of beans from democratically organized small growers 3) provision of pre-harvest credit and 4) agreement to purchase on a long-term, not one time, basis.
In addition to these criteria for fairly traded coffee, there is a wider discussion/debate going on to define "sustainable" coffee. Many coffee companies, particularly in the U.S.A., have developed "bird friendly", "shade" and "eco" coffees in response to consumer demands and environmental concerns. Efforts to merge the environmental, economic and even political/ policy components of "sustainablility" have so far foundered on the inability of these many "communities" of interests to agree on criteria, an inability fostered by many specialty coffee companies which do not wish to see the cost of their basic raw material increased, despite their awareness of the plight of small coffee farmers in Africa and Latin America!
Criteria for products other than coffee are more complex. While a lot of coffee is grown by small farmers, many of whom are members of co-operatives or other democratic forms of organization, tea is grown largely on estates owned by private individuals who hire workers. Fair trade prices for tea revolve around wages and working conditions, and cannot be as easily synthesized in a price per pound as for coffee beans. A producer register for tea therefore involves not only identifying estates which pay decent wages and provide adequate working and living conditions, but whose owners are also willing to permit unions or worker associations which can channel premiums for fairly traded tea into programmes for workers.
For handcrafts, the diversity, complexity and scope of products is such that income levels, rather than prices must form the basis for fair trade standards. The difficulty of monitoring and regulating these diverse and complex factors makes the establishment of a fair trade label for crafts a daunting task. Add to this the fact that many craft producers are only part time workers and live in such poverty that they often require additional support in the form of technical assistance and "business" development. The volumes of production required to meet "mainstream" craft market needs are likely to favour more organized producer groups over the very poor.
One approach to the "labelling" of handicrafts led by EFTA and NEWS, is the accreditation of fair trade craft importers according to a set of product and producer criteria.
By taking fair trade into the mainstream, fair trademarking puts these issues before a much larger number of consumers than ATOs have ever been able to reach, and holds the promise of generating resources for political action which can change overall trade relations over time and thus benefit even small and unorganized producers.
There are many potentially controversial issues about what constitutes "fair" trade. In addition to the difficulties of organizing an international coalition of ATOs and fair trade labels , there are also the differences inherent in setting higher or lower criteria within a grouping of highly committed activists with widely varying perspectives on the need to be "utopian" or "pragmatic". On top of that, there are many complexities which flow from the small business issues faced by most "fair traders" - working capital, market access, distribution, business skills, competition, etc.
Some issues that have been debated recently within the fair trade community are:
- How important are medium and long term markets as compared to higher prices?
- Do larger ATOs, which purchase higher volumes of goods to sell in many stores or in mail order catalogues, simply create "professional" exporting elites among the many southern groups who desperately need the income that alternative trade brings?
- Are craft exports really a sustainable alternative for the majority of the south's poor or should ATOs focus on other products which are more strategic in the transformation of unjust world trade relations?
- What blend of advocacy (for changes in legislation and power relations) and concrete buying and selling activities is appropriate for the community of people involved in each ATO?
- Should producers have a say in the governing structures of ATOs which make decisions about margins and profits and the investment of resources in advocacy, retained earnings (for working capital and expanded sales) or special non-trade related programmes for producers?
- What roles and power should customers, staff, investors and producers have as stakeholders in an ATO company?
I offer the following quotations to put both fair trade and corporate social responsibility in perspective. Not to discourage anyone, but to highlight the realities of the struggle we face.
Paul Hawken "A declaration of sustainability", Sept/Oct 1993 Utne Reader
"Ben and Jerry's and the roughly 2,000 other committed companies in the social responsibility movement here and abroad have combined annual sales of approximately $2 billion, or one-hundredth of one percent of the $20 trillion sales garnered by the estimated 80 million to 100 million enterprises worldwide."
"If every company on the planet were to adopt the environmental and social practices of the best companies - of say, the Body Shop, Patagonia, and Ben and Jerry's - the world would still be moving toward environmental degradation and collapse. In other words, if we analyze environmental effects and create an input-output model of resources and energy, the results do not even approximate a tolerable or sustainable future. If a tiny fraction of the world's most intelligent companies cannot model a sustainable world, then that tells us that being socially responsible is only one part of an overall solution, and that what we have is not a management problem but a design problem."
"People must feel subjectively the injustice and unsustainability before they will" ..... act
