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Fair Trade Overview
Free Trade recap
As pointed out in earlier talks, Free Trade is based on premise that once barriers totrade are lifted, everyone will benefit.
Historically a country’s import quotas and tariffs were tools to ensure fair pricesfor a country’s products (agriculture and industry), limiting cheaper imports fromother countries. (Think Mexico and corn, Mali and cotton).
Free trade is a removal of the import quotas and tariffs. It occurs between countries,and in regions (as NAFTA and the European Union). Free trade principles are alsoused by global institutions as the International Monetary Fund, as conditions for countries when they accept loans. (Details will differ on individual loans).
Is Free Trade viable? Can it or will it work?
Some say we can’t tell because the effects of Free Trade cannot be separatedfrom other factors (climate changes, regional and international economic fluctuations(recession, depression, increases in agricultural/industrial production, corrupt govts in the South)
Some may say it is too soon to tell, or it’s not universal (many separate agreements between/among countries may be impeding “progress)
Free trade does not exist (subsidies in countries with higher GDPs, still some tariffs in place)
This is not the right time for free trade, only the multinationals are profiting..
Free trade is about free flow of goods/services, not free flow of people (immigration/emigration)..beyond that…is it disrupting community? Exasperating materialism? bringing out the worstin capitalism?? Treating people as little more than the commodities they produce??
One answer to that is….if trade is going to be based on justice…ultimately the producers must be empowered and seen as partners, not suppliers
Fair Trade (alternative to Free Trade focused on stabilizing markets at community level in developing counntries
Definition
Relationship between developing country producers and their buyers in which payment is based not only a fair price but social and environmental standards. It is not only market-based but is also a social movement. It goal is to work with marginalized producers and workers so that they can be self sufficient and ultimately be on equal footing with all involved in international trade.
Another way to think about this…
Fair trade is a production chain created by importers, distributors, and retailers of food and handmade products. This chain not only includes prevailing market costs, but “hidden costs” that affect producer.
These “hidden” costs are costs to environment, costs to producer that has no reserves or access to reserves (i.e. multinational corporations). Fair and just cost of products need to be more centered on poor farmers in global product markets. They go beyond exchange of money…true cost of products.
How does it do this?
Poor farmers can be empowered or included (not patronized or given handouts) through a package of benefits.
These benefits usually include one or more of the following
- anti-cyclical mark-ups on prices (means to pay producer fair cost, regardless of what current market price is)
- long-term relationships between producers and buyers
- credit facilities
- consultancy to build producers’ capacity (think agricultural extension)
In summary, fair trade is basically about skill advancement and progressive independence of the producer from the fair trader. It’s about working with people so they are increasingly on the same economic footing as corporations.
Short History
Basically started in the 1940’s and 1950’s with religious groups and non-governmental organizations.One example- Ten thousandvillages (affiliated with Mennonites) that sold handicrafts mostly in churches or fairs.
Current fair trade began in Europe in the 60’s as gesture against neo-imperialism (radical student movements against multinational corporations and business models that were unfair to developing world). Began with handicrafts sold outside of mainstream business (homes, churches, etc)
Evolved to include agricultural products…which are presently about 70% of fair trade products)
Presently products are largely handicrafts,coffee, cocoa, sugar, tea, bananas, honey, cotton, wine, fresh fruit, and flowers
supporters include Oxfam, Amnesty International, Catholic Relief Services, and Caritas International(coalition of Catholic org working to eradicate poverty and social injustice —> as(Catholic Charities USA (CCUSA), Catholic Campaign for Human Development (CCHD), Catholic Relief Services (CRS))
Principles
- Market Access for Marginalized Producers
Fair trade enables buyers to trade with producers that may otherwise be excluded from the market (physically [maybe roads] or small volume/producer). It also shortens the trade chain (producer to consumer), so producers get more of the final selling price
- Sustainable and equitable trading relationships
Fair price is based on all costs of production, both direct costs and indirect (as safeguarding natural resources and improved conditions for the future). It is a commitment to not only present, but future. Prices and payment terms (including prepayment where required) are not only based on day-to-day needs, but also improved conditions for the future
- Capacity building and empowerment
To improve conditions for future, fair trade may involve: upgrading technical skills, education about market conditions/trends, financial stability (for example credit unions whch act as a local “buffer”…), finance services to stabilize prices (as crop insurance)[Note, fair trade does not necessarily mean organic]
- Consumer awareness raising and advocacy
Fair trade not only increases awareness of consumer with working/living conditions of producers in developing world, but also informs consumers of the need for social justice and opportunities for change…Fair trade organizations, thru consumersupport are able to advocate for reforming international trade for a more just and equitable global trading system
(Where is input of producers???
Fair Trade Label requirements
To obtain the ‘‘fair trade’’ label, these prod-ucts need to comply with the following requirements, defined by the Fairtrade LabellingOrganization (FLO) (Fair Trade Advocacy, 2005a) and hence must:
(i) pay a fair wage(price) in the local context;
(ii) stabilize price fluctuations;
(iii) offer employees opportuni-ties for advancement (including investment in local public goods);
(iv) provide equal employ-ment opportunities for all, particularly the most disadvantaged;
(v) engage in environmentallysustainable practices;
(vi) be open to public accountability;
(vii) build long-term trade relationships;
(viii) provide healthy and safe working conditions within the local context;
(ix)provide technical and financial assistance (price stabilization insurance services and anticipatedfinancing arrangements which reduce financial
constraints) to producers whenever possible.
How/where to buy
Direct— The chain from producer to consumer is entirely by organizations having Fair Trade as part of their mission, as…
Indirect – “product certification route” products complying with international standards are certified, they have met requirements in the following areas: production, trading, processing, and packaging (Increasingly products are not in stores not soley fair trade based)
Certificaition may be made by one or several national or international federations
Currently four federations are the largest and most influential (2 are European based, 2 are international). These four have joined together to create an informal association to harmonize fair trade standard & guidelines, increase quality and efficiency of fair trade monitoringsystems, and advocate fair trade politically.
Currently, fair trade agricultural products are best identified by the Fair Trade Certified Label. It identifies products inspected and certified byan international certification body (part of one of the largest international free trade federations – FLO (Fair Trade Labelling Organization)
Fair trade agricultural products may be found in stores as: Kroger’s, Meijer’s, Golden Eagle, Claudia’s, Phoenix Cop-op, Fresh Foods
Fair trade “handicrafts” may be found at the Happy Badger in B
Pros/cons of each,comparison
–Opponents of fair trade argue that the ‘‘fair price’’ is a distortion of market prices and provides mistaken incentives to affiliated farmers,
increasing their dependence on products which are overproduced in the market.
Fair trade advocates counter this argument by pointing out that the fair price should not be considered as a price distortion since transactions between first-level producers and intermediaries often do not occur in a competitive framework but rather in a monopsonistic (oligopsonistic) one where producer prices fall below the marginal value of the product.
A second criticism of the above argument is that the food industry has historically produced highly differentiated products with continuous waves of innovation, creating new varieties. Fair trade continues this tradition; there is not one coffee but many different varieties of coffee products, each differentiated by varying combinations of quality, blends, packaging, and now also ‘‘social responsibility’’ features.Each of these products has a specific and different market price that is influenced by consumer tastes according to the particular coffee variety. In creating a new range of products, fair trade is an innovation in the food industry.
The literature on FT impact analyses is surprisingly scarce, given the importance of evaluating claims that participation in the FT chain brings advantages to producers. (the two that use statistics are coffee related – Costa rica & Guatamala)At least 4 others have very good descriptive studies, but no quantitative (statistical) components)(oxfam, cocoa in ecuador)
However one study..on FT impact on Kenyan farmers…Our descriptive and econometric findings document significant differences in terms of varieties of products sold, price satisfaction, monthly household food consumption, (self declared) satisfaction with living conditions, dietary quality, and child mortality for affiliates of fair trade and Meru Herbs (first-level local producer organization) with respect to a control sample….In Section 4 our econometric analysis highlights the following main results: Meru Herbs members with access to the FT channel have a more diversified product portfolio, relatively higher price and living condition satisfaction, spend significantly more on food consumption, higher nutritional standards and have relatively fewer episodes of infant mortality in their households.
Fair trade and Meru Herbs affiliates also have higher price satisfaction, food consumption expenditure, and dietary quality. Another nteresting result is the remarkable difference between fair trade affiliated and control farmers in terms of income satisfaction. Such difference is not only due to the higher earned income, but also to a relatively lower desired income which is likely to be determined by a higher supply of complimentary (or cheaper) goods, services, lower trade risk, and technical assistance.
Next time?
–More info on fair trade organizations (their reports, how they are meeting their goals)
–How it is really affecting producers
–Dangers of romanticizing fair trade and the producer
Thought…
Is fair trade and agribusiness subsidies more closely related than first appearance…both are driven by consumers wanting a product…at a cost that free trade or free market cannot sustain
1.Becchetti, L., & Costantino, M. (2008). The Effects of Fair Trade on Affiliated Producers: An Impact Analysis on Kenyan Farmers. World Development, 36(5), 823-842.
2. Fair trade (Wikipedia article) http://en.wikipediaorg/wiki/Fair_Trade
3. Weyer, MV. (2005). Can Free Trade Be Fair Trade? New Statesman, 28 February 2005, 22-25. (Full text is found in archive section at http://www.newstatesman.com)
4. Jaffee, Daniel (2007). Brewing Justice: Fair Trade Coffee, Sustainability, and Survival. Univ. of California Press.
