The concept behind Fair Trade (FT) is to alleviate poverty by ensuring that farmers get a realistic price for their crop. In addition there is a consumer premium of around 20% which is given to provide funding for ‘community development projects’ to enhance the lives of the locals. The sale of Fair Trade goods is growing year on year. It is a lovely idea and perhaps that is why so many people in the developed world are purchasing Fair Trade crops. But is it just another money grabbing exercise.
There is a general consensus that there is insufficient study and thus data of how the system operates in practice. What studies have been carried out are highly critical and suggest that little or no benefit accrues to the poor of the region.
The present system is a development of an earlier church and charity initiative and emanates from Europe. The basic principle was to establish cooperatives’ in areas where small individual farmers could pool their crop before selling it on and getting a better return. The cooperative would act on their behalf and the Fair Trade body would assist in marketing and ensure the premium is forwarded. A bale of cotton with a wholesale value of £100 would receive £120; the cooperative then decides how the extra income will be spent.
A weakness arises almost immediately as there are a number of bodies who oversee the implementation of the process. Four main bodies: Fairtrade International, IMO, Eco-Social and Fair Trade USA, who broke away from Fairtrade International in 1997, to become independent. All are entitled to give certification to the cooperatives. The question is, if all are doing the same job why the duplication, why all this extra bureaucracy? Why this waste of resources and money which could be spent more wisely! Is this more to do with egos than the poor?
One of the major criticisms is the over bureaucratic nature of the business. To be certified as a producer/cooperative you must agree to the political agenda set out by FLO-CERT, the European centre for the trade and issuing of certificates. The programme includes: not employing children or slave labour and paying a minimum wage. A further list deals with environmental issues, how the crop can be sown and the measures to be employed in harvesting. To comply with the degree of paper work some cooperatives have had to establish offices and employ staff.
Another problem is that the Fair Trade does not take the farmers’ entire crop which has led to suggestions that the system is open to abuse.
A farmer has two bags of coffee one bag is high quality the other of a lower quality bean. One gets sold as FT and gains the premium; the other is sold on the open market. If the farmer sells the lower standard crop as Fairtrade he gets his premium and the high quality one gets a good price on the open market. The farmer takes a double profit but the consumer is treated shoddily.
Moreover, all coffee goes through the same processing in the consumer nations, e.g. same packers, same import and retail companies. If not inspected regularly and thoroughly, the consumer is reliant on the honesty of the businesses involved. To emphasise the point the Financial Times reported in 2006 that of ten mills visited, all ten did not differentiate between coffee beans. There is no guarantee that the consumer is getting the coffee they paid for. Also, “packers and retailers can charge as much as they want for the coffee”. But the farmers don’t share in that mark-up!
When it’s considered that coffee is the second most valuable export from developing countries – petrochemical is number one – the price the farmer gets is essential to their survival. However, it has been pointed out that some small farmers have become reliant on the premium payment to the extent that they continue to grow coffee rather than a more suitable crop for the land. (C Haigh ibid) Philip Booth writing in the Catholic Herald states, which many other writers support, “…I would just like to say that fairtrade is not a model for long-term development”. We must note that Booth is an advocate of free trade.
In the USA coffee is a $40bn industry, of which actual coffee accounts for $14bn. Of the latter figure Fair Trade achieves 4% of the market, which is not much. It is generally accepted that FT only makes up a very small percentage of the global market for all products. This may give credence to the argument put forward by Philip Booth. FT also tries to operate outside of the capitalist system and to utilise the market benefits of the system at the same time. The setting up of cooperatives and its bureaucratic strangle hold, whilst utilising the marketing skills of traders’.
It may be wrong to surmise but are the proponents of FT trying to hold back the tide of capitalism. In doing so are they not chaining the small farmer ever tighter to a set way of life with little opportunity of change, to suit their own political agenda? There is an assumption in that theory that the farmer has no desire for change or development.
Battle lines have been drawn since the early days between those in the Left corner and those on the Right. “Even the incomes of growers of fair trade coffee beans depend on the market value of the coffee where it is consumed, so farmers of fair trade coffee do not necessarily live above the poverty line or get completely fair prices for their commodity”. David Ransom 2001 cited Wikipedia ibid. Other studies carried out in Latin America say quite the opposite. However, more recent studies on the subject of FT tend to support the view expressed by Ransom.
Those in receipt of the FT premium also benefit from grants from at least twelve (12) charitable bodies and are therefore seen to be creaming-off the available money. (Wikipedia)The view sits well with Sam Bowman, “…Fair Trade products can deprive the world’s poorest farmers of their income in favour of relatively well-off ones”. He supports his analysis by suggesting that money is more likely (women farming)to go to Latin America than to Africa where deprivation is greater. Other combatants in the debate are the economist Dr Peter Griffiths and Alistair Smith an advocate of Fairtrade. The difference in opinion is much too long and holds too much conductivity to be outlined here.
Critics of the Fair Trade system are of the opinion that it fails to work for the benefit of small farmers but generates more money for the big boys. “The evidence available suggests that little of the extra money paid by consumers actually reaches the farmers”. (Wikipedia ibid) This view is in line with that expressed by Tim Worstall, “Fairtrade is simply a vastly inefficient method of making the lives of the poorest people in the world better”.
Evidence from academic studies has proven quite critical of Fair Trade. One study carried out by Colleen Haight in Costa Rica notes that there are 31 pages of standards that must be met to gain certification. Her study discovered that farmers in Costa Rica were using migrant labour to harvest the crop in contradiction of the guidelines, especially in terms of working conditions and minimum wage.
Haight noticed that the small farmers were at the mercy of the market price for survival. This is backed up by Dr Peter Griffiths who has noted that a 1% increase in production can lead to a 4% or 5% fall in price. The Economist magazine weighs in with its analysis, “The effectiveness of Fairtrade is questionable; workers in Fairtrade farms have a lower standard of living than on similar farms outside the Fairtrade system”. Wikipedia ibid
Of course it depends on where in the world the report was written, and the factor of time, in terms of what year. If it was written in the early days of FT then improvements over the years may have changed the plight of the farmers. It is probably true to say that many who are not in favour of FT are advocates of free trade. However, this does not necessarily mean that their conclusions are inaccurate.
The crunch point for me was the reading of a report of a group of academics from the University of London who carried out a four (4) year study in Ethiopia and Uganda. They were surprised to find children at work in places but the real surprise was,
“We also knew that Fairtrade Standards for tea and coffee have always been far more concerned with the incomes of producers than the wage workers’ earnings. What did surprise us is how wages are typically lower, and on the whole conditions worse, for workers in areas with Fairtrade organisations than those in other areas”.
They noted that the consumer premium was not being used wisely:
- In one area the premium was used to build modern toilets – but that they were used exclusively by senior coop managers.
- Children were turned away from a Fairtrade supported school because they owed fees. The premium was used to build houses for the teachers!
- They found that workers could earn more and have more regular hours of work working for large farmers outside the Fairtrade.
The findings noted above give credence to the analysis of Philp Booth when he writes about the cooperative movement:
“…well known to be inefficient, prone to capture and prone to corruption. It also discriminates against poor, small independent farmers”. Ibid
It really is soul destroying to read that organisations set up for the betterment of the poorest people are not doing their job. Meanwhile ordinary Joes’ in the developed world are being duped into paying a higher price, in some cases 20% higher, in the belief that their money was being put to a good use. Once again the only people making the big bucks are the big boys! However, this time I can’t blame the big bad wolves; it’s the good Samaritans of the Left in politics who must shoulder my enmity!
Greed, it makes the world go round but it doesn’t make for a decent journey.