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Definition of fair trade
Fair trade vs. unfair trade Implicit and often explicit in fair trade is a criticism of the current organisation of international trade as being "unfair". Fair trade advocates often justify the need for fair trade by mentioning the microeconomic market failures of our system and the current commodity crisis and its impact on developing country producers. Free trade and market failures While the vast majority of fair trade advocates support the principles of unhindered free trade, many point out that the "key conditions on which classical and neo-liberal trade theories are based are notably absent in rural agricultural societies in many developing countries." Perfect market information, perfect access to markets and credit, and the ability to switch production techniques and outputs in response to market information are fundamental assumptions which "are fallacious in the context of agricultural producers and workers in developing countries". The absence of these microeconomic conditions can nullify or even reverse the potential gains to producers from trade. While fair trade supporters agree that the win-win situation for all actors involved may be broadly correct in some markets, nevertheless, "within developing countries market conditions are not such that producers can unambiguously be declared to be better off through trade." These market failures severely question the ability of trade to lift them out of poverty. Fair trade is seen as an attempt to address these market failures by providing producers a stable price for their crop, business support, access to premium Northern markets and better general trading conditions. The commodity crisis Fair trade advocates also often point out that unregulated competition in global commodity markets ever since the 1970s and 1980s has encouraged a price "race to the bottom". During the 1970-2000 period, prices for many of the main agricultural exports of developing countries, such as sugar, cotton, cocoa and coffee, fell by 30 to 60 percent. According to the European Commission, “the abandonment of international intervention policies at the end of the 1980s and the commodity market reforms of the 1990s in the developing countries left the commodity sectors, and in particular small producers, largely to themselves in their struggle with the demands of the markets”. Today, “producers… live an unpredictable existence because the prices for a wide range of commodities are very volatile and in addition follow a declining long-term trend”. The total loss for developing countries due to falling commodity prices has been estimated by the Food and Agricultural Organisation (FAO) to total almost $250 billion during the 1980-2002 period. Millions of poor farmers are dependent on commodities and on the price they receive for their harvest. In about 50 developing countries, three or less primary commodity exports constitute the bulk of export revenue. Many farmers, often without other means of subsistance, are obliged to produce more and more, no matter how low the prices are. Research has shown that those who suffer most from declines in commodity prices are the rural poor — i.e. the majority of people living in developing countries. Basic agriculture employs over 50% of the people in developing countries, and accounts for 33% of their GDP. Fair trade supporters believe current market prices do not properly reflect the true costs associated with production; they believe only a well-managed stable minimum price system can cover environmental and social production costs. Key fair trade principles Fair trade advocates generally support the following principles and practices in trading relationships: Creating opportunities for economically disadvantaged producers Fair trade is a strategy for poverty alleviation and sustainable development. Its purpose is to create opportunities for producers who have been economically disadvantaged or marginalized by the conventional trading system. Transparency and accountability Fair trade involves transparent management and commercial relations to deal fairly and respectfully with trading partners. Capacity building Fair trade is a means to develop producers’ independence. Fair trade relationships provide continuity, during which producers and their marketing organizations can improve their management skills and their access to new markets. Payment of a fair price A fair price in the regional or local context is one that has been agreed through dialogue and participation. It covers not only the costs of production but enables production which is socially just and environmentally sound. It provides fair pay to the producers and takes into account the principle of equal pay for equal work by women and men. Fairtraders ensure prompt payment to their partners and, whenever possible, help producers with access to pre-harvest or pre-production financing. Gender equity Fair trade means that women’s work is properly valued and rewarded. Women are always paid for their contribution to the production process and are empowered in their organizations. Working conditions Fair trade means a safe and healthy working environment for producers. The participation of children (if any) does not adversely affect their well-being, security, educational requirements and need for play and conforms to the UN Convention on the Rights of the Child as well as the law and norms in the local context. Environment Fair trade actively encourages better environmental practices and the application of responsible methods of production. General structure of the movement
Origins The first attempts to commercialize fair trade goods in Northern markets were initiated in the 1940s and 1950s by religious groups and various politically oriented non-governmental organizations (NGOs). The Mennonite Central Committee (MCC) and the Church of the Brethren were the first, in 1946 and 1949 respectively, to develop fair trade supply chains in Third World countries. The products, almost exclusively handicrafts ranging from jute goods to cross-stitch work, were mostly sold in Worldshops. The goods themselves had often no other function than to indicate that a donation had been made. Solidarity trade The current fair trade movement was shaped in Europe in the 1960s. Fair trade during that period was often seen as a political gesture against neo-imperialism: radical student movements began targeting multinational corporations and concerns that traditional business models were fundamentally flawed started to emerge. The global free market economic model came under attack during that period and fair trade ideals, built on a Post Keynesian economics approach to economics where price is directly linked to the actual production costs and where all producers are given fair and equal access to the markets, gained in popularity. The slogan at the time, “Trade not Aid”, gained international recognition in 1968 when it was adopted by the UNCTAD (United Nations Conference on Trade and Development) to put the emphasis on the establishment of fair trade relations with the developing world. The year 1965 saw the creation of the first Alternative Trading Organization (ATO): that year, British NGO Oxfam launched "Helping-by-Selling", a program which later developed into Bridge. The scheme sold imported handicrafts in Oxfam stores in the UK and from mail-order catalogues with a circulation of almost 100,000 copies. The program was created to support the work of cooperatives and community enterprises in the developing world. The program was highly successful: it remained one of the largest and most influential in the sector until it was shut down in 2002. In 1969, the first Worldshop opened its doors in the Netherlands. The initiative aimed at bringing the principles of fair trade to the retail sector by selling almost exclusively goods produced under fair trade terms in “underdeveloped regions”. The first shop was run by volunteers and was so successful that dozens of similar shops soon went into business in the Benelux countries, Germany and in other Western European countries. It is worth mentioning however that the overwhelming majority of fair trade goods sold at the time in Worldshops remained handicrafts. Throughout the 1960s and 1970s, important segments of the fair trade movement worked to find markets for products from countries that were excluded from the mainstream trading channels for political reasons. Thousands of volunteers sold coffee from Angola and Nicaragua in Worldshops, in the back of churches, from their homes and from stands in public places, using the products as a vehicle to deliver their message: give disadvantaged producers in developing countries a fair chance on the world’s market, and you support their self-determined sustainable development. The alternative trade movement blossomed, if not in sales, then at least in terms of dozens of ATOs being established on both sides of the Atlantic, of scores of Worldshops being set up, and of well-organized actions and campaigns attacking exploitation and foreign domination, and promoting the ideals of Nelson Mandela, Julius Nyerere and the Nicaraguan Sandinistas: the right to independence and self-determination, to equitable access to the world’s markets and consumers. Handcrafts vs. agricultural goods In the early 1980s, alternative trading organizations faced a major challenge: the novelty of some fair trade products started wearing off, demand reached a plateau and some handicrafts began to look “tired and old fashioned” in the marketplace.The decline of segments of the handicrafts market forced fair trade supporters to rethink their business model and their goals. Moreover, fair trade supporters during this period became increasingly worried by the impact of the fall of agricultural commodity prices on poor producers. Many then believed it was the movement's responsibility to address the issue and to find innovative remedies to address the ongoing crisis in the industry. In the subsequent years, fair trade agricultural commodities played an important role in the growth of many ATOs: successful on the market, they offered a renewable source of income for producers and provided alternative trading organizations the perfect substitute to the declining handicrafts market. The first fair trade agricultural products were tea and coffee, quickly followed by dried fruits, cocoa, sugar, fruit juices, rice, spices and nuts. Coffee quickly became the main growth engine behind fair trade: between 25 to 50 % of the total alternative trading organization turnover in 2005 came from coffee sales. The transition to agricultural commodities was further highlighted in 2002, when Oxfam decided to abandon its loss-making handcrafts trading program after 27 years of existence. Oxfam’s move had significant consequences on the entire fair trade movement. Some ATOs saw this as an opportunity to restructure and partner up with mainstream businesses in an effort to find economic efficiencies and broaden their appeal, while others (such as Bridgehead in Canada and Alternativ Handel in Norway), unable to adjust to the market and plagued by financial difficulties, were forced to close. Today, many ATOs still sell exclusively handcrafts - which they judge culturally and economically preferable to agricultural commodities. While these are still considered fair trade flagship products, academics have described them as a niche market that now only appeals to relatively small segments of the population, mostly fair trade core supporters who buy products on the basis of the story behind the product. Rise of labelling initiatives
Fair trade today Global fair trade sales have boomed over the past decade. FINE estimated that in 2000, sales of Fair Trade products (labelled and non-labelled) in Europe amounted to approximately €260 million; in 2005, the figure was estimated at €660 million, a 154% jump, representing a sustained annual increase of about 20% a year. Similar sales patterns have emerged in the Americas and the Pacific Rim, as Fair Trade sales in both regions have jumped from $291 million in 2003 to $376 million in 2004. Fairtrade certification and labelling
Fair trade impact studies Several independent studies have recently measured the impact of fair trade on disadvantaged farmers and workers. In 2002, Loraine Ronchi of the Poverty Research Unit at the University of Sussex studied the impact of fair trade on the Coocafe cooperative in Costa Rica. Ronchi found that fair trade strengthened producer organizations and concluded that "in light of the coffee crisis of the early 1990s, fair trade can be said to have accomplished its goal of improving the returns to small producers and positively affecting their quality of life and the health of the organisations that represent them locally, nationally and beyond". In 2003, the Fair Trade Research Group at Colorado State University conducted seven case studies of Latin American Fairtrade coffee producers (UCIRI, CEPCO, Majomut, Las Colinas & El Sincuyo La Selva, Tzotzilotic and La Voz) and concluded that Fair Trade has "in a short time greatly improved the well-being of small-scale coffee farmers and their families" The various case studies most notably found that producers had under Fair Trade greater access to credit and external development funding. The studies also found that Fair Trade producers had, compared to conventional coffee producers, greater access to training and enhanced ability to improve the quality of their coffee.. Families of Fair Trade producers were also said to be more stable and children had better access to education than in families growing conventional coffee. A case study of Bolivian coffee Fair Trade producers published by Nicolas Eberhart for French NGO Agronomes et Vétérinaires sans frontières in 2005 concluded that Fair Trade certification has had in the Yungas a positive impact on local coffee prices, thus economically benefiting all coffee producers (Fairtrade certified or not). Fair Trade was also said to have strengthened producer organizations and increased their political influence. European politics As early as 1994, the European Commission prepared the “Memo on alternative trade” in which it declared its support for strengthening Fair Trade in the South and North and its intention to establish an EC Working Group on Fair Trade. Furthermore, the same year, the European Parliament adopted the “Resolution on promoting fairness and solidarity in North South trade” (OJ C 44, 14.2.1994), a resolution voicing its support for fair trade. In 1996, the Economic and Social Committee adopted an “Opinion on the European “Fair Trade” marking movement”. A year later, in 1997, the document was followed by a resolution adopted by the European Parliament, calling on the Commission to support Fair Trade banana operators. The same year, the European Commission published a survey on “Attitudes of EU consumers to Fair Trade bananas”, concluding that Fair Trade bananas would be commercially viable in several EU Member States. In 1998, the European Parliament adopted the “Resolution on Fair Trade” (OJ C 226/73, 20.07.1998), which was followed by the Commission in 1999 that adopted the “Communication from the Commission to the Council on “Fair Trade” COM(1999) 619 final, 29.11.1999. In 2000, public institutions in Europe started purchasing Fairtrade Certified coffee and tea. Furthermore, that year, the Cotonou Agreement made specific reference to the promotion of Fair Trade in article 23 g) and in the Compendium. The European Parliament and Council Directive 2000/36/EC also suggested promoting Fair Trade. In 2001 and 2002, several other EU papers explicitly mentioned fair trade, most notably the 2001 Green Paper on Corporate Social Responsibility and the 2002 Communication on Trade and Development. In 2004, the European Union adopted the “Agricultural Commodity Chains, Dependence and Poverty – A proposal for an EU Action Plan”, with a specific reference to the Fair Trade movement which has “been setting the trend for a more socio-economically responsible trade.” (COM(2004)0089). In 2005, in the European Commission communication “Policy Coherence for Development – Accelerating progress towards attaining the Millennium Development Goals”, (COM(2005) 134 final, 12.04.2005), Fair Trade is mentioned as “a tool for poverty reduction and sustainable development”. And finally, on July 6, 2006, the European Parliament unanimously adopted a resolution on Fair Trade, recognizing the benefits achieved by the Fair Trade movement, suggesting the development of an EU-wide policy on Fair Trade, defining criteria that need to be fulfilled under Fair Trade to protect it from abuse and calling for greater support to Fair Trade (EP resolution “Fair Trade and development”, 6 July 2006) "This resolution responds to the impressive growth of Fair Trade, showing the increasing interest of European consumers in responsible purchasing," said Green MEP Frithjof Schmidt during the plenary debate. Peter Mandelson, EU Commissioner for External Trade, responded that the resolution will be well-received at the Commission. "Fair Trade makes the consumers think and therefore it is even more valuable. We need to develop a coherent policy framework and this resolution will help us." French politics In 2005, French parliament member Antoine Herth issued the report “40 proposals to sustain the development of Fair Trade”. The report was followed the same year by a law, proposing to establish a Commission to recognize Fair Trade Organisations (article 60 of law no. 2005-882, Small and Medium Enterprises, 2 August 2005). In parallel to the legislative developments, also in 2006, the French chapter of ISO (AFNOR) adopted a reference document on Fair Trade after five years of discussion. Italian politics In 2006, Italian lawmakers started debating how to introduce a law on fair trade in Parliament. A consultation process involving a wide range of stakeholders was launched early October. Belgian politics Belgian lawmakers have started discussing in 2006 a possible legislation on fair trade. Criticism Fair trade's recent growth and notoriety has drawn criticism from both ends of the political spectrum. Many conservative and libertarian opponents argue that, despite individual success stories, an economy works best when prices are the direct reflection of supply and demand, not politically motivated and artificially determined. In 1991, the Cato Institute described fair trade as a trade barrier that “undermines the productivity of capital and labor throughout the economy.” Senior fellow Brink Lindsey then referred to fair trade as a “well intentioned, interventionist scheme...doomed to end in failure." Fair trade, according to free trade advocates, is a misguided attempt to make up for market failures in which one flawed pricing structure is replaced with another. Segments of the trade justice movement have also criticized fair trade in the past years for allegedly focusing too much on individual small producer groups while stopping short of advocating immediate trade policy changes that would have a larger impact on disadvantaged producers' lives. French author and RFI correspondent Jean-Pierre Boris championed this view in his 2005 book Commerce inéquitable. And finally, on the other end of the spectrum, many believe the fair trade system is not radical enough. French author Christian Jacquiau, in his book Les coulisses du commerce équitable, calls for stricter fair trade standards and criticizes the fair trade movement for working within the current system (i.e. partnerships with mass retailers, multinational corporations etc.) rather than establishing a new fairer, fully autonomous trading system. See also Further reading The Traidcraft Story. Lion Publishing Fairtrade advocacy International fairtrade organisations Fairtrade labelling organisations Alternative trade organisations (ATOs) Fairtrade networks | |||||||||||||||||
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