What is Fair Trade?

Fair trade is market-based approach to alleviating poverty and promoting sustainability through ethical practices. It aims to educate and empower disadvantaged producers in the developing world and connect them to a market, so they too can participate in global trade. Fair Trade encompasses principles such as:

  • Anti-slave, anti-child labor.
  • Environmentally friendly processes & application of reasonable methods of production.
  • A respectful relationship between producers and buyers
  • A fair wage for the producers in local context.
  • A safe & healthy working environment for producers in the regional context.
  • Gender equality with respects to wages and working conditions.
  • The development of communities for self-sustainability in terms of social, economic,
  • environmental well-being & capacity building.
  • Creating opportunities for economically disadvantaged or marginalized producers.
  • Preserving the culture & traditional skills of the artisans.

As per IFAT (The international Fair Trade Association):-

“Fair trade is a trading partnership, based on dialogue, transparency and respect, which seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South. Fair trade organizations (backed by consumers) are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade.”

Fair trade is more than just trading .It proves that greater justice in world trade is possible .It highlights the need for change in the rules and practice of conventional trade and shows how a successful business can also put people first.

Purpose of Fair Trade

Fair trade exists to give a chance to small farmers, artisans and workers around the world, so they can also benefit from globalization. This philosophy provides a platform that enables these disadvantaged people to rise above poverty and improve their standard of living.

Beyond fair wages

Fair trade is much more than just setting a fair price of goods or creating a safe & healthy working environment. Here are some of the benefits that fair trade offers producers to help them develop their communities:

  • Advanced payments or access to credit: wholesalers or retailers who work directly with artisans try to pay them in advance for the products if required. This makes sure the artisans or farmers have money to buy the resources they need to make products or grow crops, and at the same time feed their children, invest in their communities, etc. Small artisans and farmers are also referred to micro-credit companies who will help them get started as well. Either way, it’s a little push that gets artisans and farmers on their feet so they can start making a living.
  • Education: many retailers and wholesalers educate the producers they work with. They give them market and fashion information so that artisans can create functional, trendy goods that will sell in international market. They can also educate them so that farmers and artisans improve their business practices or become more efficient. They help in capacity building & self sustainability of the producers.
  • Development projects: artisans are given help so that they can develop their communities. SETU –The Bridge To Artisans, for example, is trying to provide health insurance to the artisans, install solar panels for electricity in 2 villages, provide aid to underprivileged children & children with special needs and giving scholarships for vocational education, among other projects. These projects give the artisans or farmers a basic level of development that allows them to lead a better lifestyle, and facilitates the arrival of aid and trade.
  • Opportunities for women and minorities: Fair Trade aims to empower everyone without discrimination. This creates an environment where women and minorities can participate in this alternative trading system. This also ensures equal employment opportunities for the disadvantaged & underprivileged people. They then become self-sustainable, decision makers in their communities. This is especially important in the crafts industry, where 70% of producers are women (according to the Fair Trade Federation).

Globalization

  • Globalization implies that the world is becoming smaller and more interconnected. It is applied to many subjects: the economy, communications, politics, trade, technology, information, ethics, language, ecology, and many others. When it comes to Fair Trade, though, it mainly revolves around politics, trade and the global economy.

Globalization has been very helpful to people of developed nations such as the US, Canada, Western Europe and Japan. However, people in less fortunate countries do not fare as well. While globalization has opened the doors for different countries to communicate, share ideas and engage in trade that should ultimately develop the world, in many situations it has also opened the door to exploitation. Many third world countries do not have the resources to compete equally with developed nations. In cases like these, the powerful corporations in these nations set up a factory, a plantation or a mine in the poor countries under the pretense that they will pay the workers a salary (which is better than no salary), pay taxes, and improve the local economy. Even though it is true that the people in the poor countries want a job and opportunities, the ones offered by multinational corporations are far from ideal. What ends up happening is that people are overworked and are not compensated for all the sacrifices they make (their health, their family, their dignity). There is nothing the disadvantaged workers, farmers or miners can do, because they have no access to information, education, resources, credit, or many of the other privileges that the corporations from the developed world have ready access to.

It is no one’s fault that this system started, since people were just following the economic theories they knew. However, we are at a point where we realize that this is an unethical way of doing business. That is why people from both developed and developing nations have created the system of Fair Trade. It aims to empower the artisans, farmers and miners with education, access to credit, and information about the markets and communications tools so they can compete in the globalized economy. In the end, Fair Traders hope to create a system where the artisans and farmers become independent and self-sustainable. That is why Fair Trade exists: to create justice, to empower people, to break the poverty cycle, and ultimately so everyone can produce and buy products that are healthy for the people and the planet.

Who benefits from Fair Trade?

Everyone in the “value chain” benefits from fair trade. Here is a breakdown of the benefactors:

Producers:

Producers become partners with retailers or wholesalers, and stop being “assets” of corporations. They are paid a fair wage for their work and work in a safe environment. They are encouraged to be proud of what they do, and are treated with respect and honesty.

In addition, artisans and farmers are educated about the international markets and trends. This helps them understand what they are doing and why they are doing it. They are able to make products that align with the taste of the end-consumers in affluent international market. Eventually, they are able to become self-sustainable and can grow their partner/customer base. They are also able to enhance their capabilities.

Moreover, they benefit from the development help that some wholesalers and retailers give them. The disadvantaged and artisans & farmers are aided with advanced payments, access to micro-credit, health insurance or other social projects, so that they have a basic level of development. This provides them with a platform from which they can improve their lifestyle and rise above poverty. At the same time, it makes them more efficient, and it empowers them so that they can participate in global trade without worrying too much about their financial security, health or safety.

Conscious Middlemen:

Sales of Eco-friendly and fairly traded products are growing in the United States, Europe & affluent Asian countries as consumers begin to ask where their products are coming from, what types of materials they are made out of, their impact on environment and whether their purchases are making a difference in the world. This increase in demand of socially and environmentally responsible products benefits wholesalers and retailers of fair trade. Many of these companies (for-profit and non-profit) have experienced growth, even in times of recession.

At the same time, wholesalers and retailers have a chance to participate in a market-based solution to poverty. They develop meaningful relationships with producers and customers, which allows them to feel a sense of self-realization and peace of mind.

Finally, retailers and wholesalers who participate in the fair trade or green industries benefit from a positive image. This helps increase customer loyalty and draws positive attention from the public and the press, further increasing the popularity of the fair trade movement.

End-Customers:

End-customers can find satisfaction in fair trade products across different dimensions. The first is by feeling the gratification of participating in a movement where every money spent counts as a vote. This vote reflects the customers’ choice to support ethical companies and make a difference in the life of a farmer or an artisan.

Secondly, customers are able to get a unique item. The handmade nature of many crafts, either ornamental or functional (like a laptop bag) make them different from anything else. At the same time, the manufactured goods can be of great quality, since artisans make them in favorable conditions, motivating them to give it their best effort.

Moreover, natural and recycled materials are used, making many products environmentally friendly and safe to use. And finally, they contribute in a greener & safe environment for themselves and generations to come.

Does Fair Trade cost more than regular products?

Fairly traded crafts and products generally do not cost more than conventionally traded goods. This is because there are only 1 to 2 intermediaries between the end-customer and the producer/farmer as against the commercial trade systems which are formed by long intermediary chains. In the fair trade product life cycle, many middlemen are cut, since wholesalers and even some retailers work directly with the producers. This enables the cost of the product to stay the same, while re-distributing the amount of money that goes to the producer.

In the end, fair trade is not about setting mindless or irresponsible price floors. A fair price for goods is calculated based on the effort and raw materials put into making a product or growing produce, and based on other factors such as the estimated living wage in different regions of the world. Nevertheless, you shouldn’t expect to pay much more for fair trade products. (But every conscious buyer should be sure before buying a low-priced product that it has not been a result of comprises on artisan fair wages or quality standards).

History of Fair Trade

The fair trade concept can be traced back to the beginning of last century, when religious groups and politically oriented NGOs decided to help poor communities around the world by incorporating them into the global trading system. This concept took a formal shape in Europe in the 1960s, gaining international recognition when the slogan at the time, “Trade not Aid”, was adopted by the UNCTAD (United Nations Conference on Trade and Development) to promote fair trade relations with the developing world.

In the beginning, fair trade was almost exclusively about handicrafts such as jute bags. During the 1980s, however, these products lost their innovation and appeal, and fair trade organizations decided to move towards agricultural products. This is because many countries depended on the export of three or less key agricultural products, many of which were facing plummeting prices. Although in 1992 80% of the fair traded goods were still handcrafts, by 2002 food products comprised almost 70% of the fair trade market. (Nicholls, A. & Opal, C. (2004).Fair Trade: Market-Driven Ethical Consumption. London: Sage Publications.)

Another challenge that fair trade faced during the 1980s was the reduction in demand of the products within the “World Shops”, where products were usually found. Non-profit organizations and NGOs started an informal labeling process, with the hopes that they could sell fairly traded goods in mainstream shops and retail locations, and still carry the humanitarian appeal with them. This solution proved successful, and in 1997, fifteen European countries, the US, Canada, Japan, Australia and New Zealand decided to converge all of their labeling organizations under one umbrella called FLO International (Fair trade Labeling Organizations International).

In 1989 the IFAT (International Fair Trade Association, now known as the World Fair Trade Organization) was created to unite producers, wholesalers, retailers and consumers involved in fair trade in Asia, Africa, Europe and Latin America. This provided a networking organization for the exchange of ideas and for the promotion of fair trade commerce. As of today, all members of IFAT/WFTO can display a new mark to be identified with fair trade worldwide

Today, the fair trade market is still mostly developed in Europe. According to FLO International:

“In 2005, UNCTAD Fair trade sales http://www.fairtrade.net/ amounted to approximately €1.1 billion worldwide, a 37 % year-to-year increase over 2004. As per December 2005, 508 Certified Producer Organizations in 58 developing countries were Fair trade Certified. That represents more than one million producers and five million people, including dependents, benefiting directly from Fair trade.”

Nevertheless, it is gaining popularity in North America, as consumers begin to ask where their products come from, what they are made of, and if their purchases will make a difference in the world. This behavior has been named by some as “social consumerism”, where people look to buy products from ethical companies and want to support good causes. The growing popularity of fair trade gave rise to the creation of Trans fair USA (the only certifying organization of fair trade produce and flowers in North America), and the Fair Trade Federation.

The Fair Trade Federation traces its roots to the late 1970s when individual alternative trade organizations began holding yearly conferences for groups working in fair trade. In 1994, the group incorporated formally as the North American

Alterative Trade Organization (NAATO); and, the following year, changed its named to the Fair Trade Federation. Since then, FTF has focused on supporting fully committed businesses in order to expand markets for artisans and farmers around the world. (directly quoted from the Fair Trade Federation website). Trans fair USA started slightly later, in 1998, and began certifying coffee in 1999. They have since grown to certify bananas, chocolate, flowers and other produce.

Difference between Fair Trade and Conventional Trade

Free-trade is a theory that makes a lot of sense in paper. One group of people can make something more efficiently than another, and they will trade this for something they lack. However, in practice this theory doesn’t play out too well. This system would be fair if everyone playing in it had the same opportunities: access to credit, education, access to resources, and access to information. Fair Trade aims to empower disadvantaged producers and farmers around the world so that they can participate in “free-trade”. However, there are more specific differences between the two systems.

The best way to showcase some of these differences has been done by Jacqueline DeCarlo, in her book “Fair Trade: A Beginners’ Guide”:

Fair Trade
Conventional Trade
Concerned about people, planer & profit Driven only by profit & adding value to shares
Advanced credit plus other benefits Payment after production, IF they like the products
Artisans or farmers, being partners, are given technical assistance, training, education, advancement Workers are seen as assents, and are just given training for mundane, repetitive job
Women & ethnic minorities made partners Look for lowest cost labor, & exploit the workers if necessary (Minorities, women & children are often victims of exploitation)
Aim to educate the consumer about what is good for them, the planer and the producers Create shallow needs and wants

”Free trade is a market model in which trade in goods and services between or within countries flow unhindered by government-imposed restrictions. Fair Trade is an organized social movement and market-based approach to alleviating global poverty and promoting sustainability. The Fair Trade movement promotes the payment of a fair price as well as social and environmental standards in areas related to the production of a wide variety of goods.”

”Fair Trade is not an attempt to erase all principles of Free Trade, or to reverse the global nature of the business environment today. A common misconception is that Fair Trade is the opposite of Free Trade, and the two are often confused. According to Paul Rice of TransFair USA, “Fair Trade makes globalization and ‘free trade’ work for the poor” (TransFair USA, 2005 Shareholder Report).”

Both systems can learn from each other and co-exist. However, how much one system is better than the other is up for debate. The only undeniable fact is that the current trading system is flawed and is hurting human lives and the environment. Fair Trade came along as a solution to these.

Facts and Figures

Fair trade Labeling has experienced very impressive growth rates over the last years, not only regarding the volume of sales worldwide but also in terms of the number of producer organizations which have joined the FLO system.

By the end of 2007, there were 632 Fair trade certified producer organizations in 58 producing countries, representing 1.5 million farmers and workers. With their families and dependents, FLO estimates that 7.5 million people directly benefit from Fair trade.

Growth of estimated retail value of Fair trade certified products from 2004 to 2007 (in millions of Euros)

The sales of Fair trade certified products have been growing on an average of 40% per year in the last five years. In 2007, Fair trade certified sales amounted to approximately €2.3 billion worldwide, a 47% year-to-year increase.

Fair Trade Resources

In 2006, the global market for fair trade certified products was $2.17 billion. This number is much larger if you include all the crafts and products that are not certified. These numbers were exposed by the World Fair Trade Organization

There was an amazing 47% increase in 2007, with WFTO members’ sales amounting to over $3.62 billion. You can read more information about these global figures in the Fair Trade Labeling International’s annual reports.

  • $160+ million is the amount of total FTF member sales in 2006, according to the Fair Trade Federation
  • In 2004 in North America, fair trade transactions amounted to only $359 million
  • For washed Arabica, the highest quality coffee, the Fair Trade minimum price is set at $1.25 per pound, plus an organic differential of $.20 if the coffee is certified organic, according to Transfair USA
  • 93% – the growth in the global fair trade cocoa sector in 2006, according to the FLO International. In 2006, coffee has also grown by 53%; tea by 41%; and, bananas by 31%.
  • 30% – women in non-agricultural conventional production in developing countries in 2004, according to the United Nations
  • 70% – women engaged in non-agricultural fair trade production in 2004, according to the Fair Trade Federation
  • Most fair trade consumers at this point are women ages 30-50 and college students.

For more resources, please visit the following websites:

Fair Trade FAQ

Does my purchase makes a difference?

Definitely. Every time you choose to purchase a fair trade item, you support a just and sustainable global economic system. Every purchase made is a step forward towards the eradication of global poverty.

Think of your purchasing power as a ‘vote’: you are voting in favor of a sustainable and respectful trading system, which fosters the creation of responsible businesses. At the same time, it pressures big corporations to adopt responsible business practices.

Does buying Fair Trade cost more than buying conventional products?

Not necessarily, because fair trade organizations work directly with producers, cutting out exploitative middlemen. This way, they keep products affordable for consumers and return a greater percentage of the price to the producers.

When it comes to coffee or cocoa, the social premium that is paid is not too high. According to Fairtrade Labeling Organization (FLO), on average, fair trade coffee farmers are paid:

  • 10 cents on top of the per kilo price for fair trade certified coffee.
  • 20 cents on top of the per kilo price for organic and fair trade certified.

How do I identify Fair Trade products?

Look for information attached to the product that explains why it is fair trade. Also, see if the company that sells the product is a member of the Fair Trade Federation, or, in the case of agricultural products, if it has the TransFair USA ‘Fair Trade Certified’ logo on it.

What is the difference between Fair Trade and Free Trade?

What we call “Free-trade” is the movement of goods between countries without government restrictions to improve efficiency. Unfortunately, this system has created a global “race to the bottom” as countries look to increase market share by lowering costs, wages, safety, and environmental regulations, among other standards. Fair Trade, on the other hand, is a “race to the top”: treating producers with respect, paying fair wages, fostering development, and upholding high environmental standards.

In the end, fair traders want to give disadvantaged producers and farmers an opportunity to participate in the world’s “free trade” environment.

Is a “fair wage” a mindless price floor?

Fair trade is not about setting mindless or irresponsible price floors. A fair price for goods is calculated based on the effort put into making a product or growing produce, and based on other factors such as the estimated living wage in different regions of the world. Even then, you shouldn’t expect to pay much more for fair trade products.

Fair Trade Controversies and Theories

Fair trade was supported by people who believed that there were inherent flaws in the capitalistic system and trading system around the world. In essence, this means that people in the geographic North have more resources and access to information, giving them a huge advantage over the people from the “South” of the globe when it comes to commerce. Therefore, the intention behind fair trade is to give cooperatives and independent producers (in the disadvantaged regions of the world) a better chance to participate in world trade.

Some economists believe that, in the long run, fair trade will make producers fail. While they agree that the current system is not perfect, some economists say that advocates of fair trade are replacing an inherent problem with another. They say that putting a price floor on products will encourage more players to enter the market and existing players to over-produce and bring the price of goods down. This will hurt everyone in the market, but it will hit non-certified fair trade farmers the most. This debate took on new popularity when an article against Fair Trade and Organic products was published in The Economist on December 7th, 2006, called “Buy Organic, Destroy the Rainforest”.

However, various organizations such as FLO International and Transfair USA say that, in their experience, the producers don’t increase production. This is because they still depend on the demand from buyers to purchase sustainable and ethical products, regardless of the price, so they know how to manage their production. In addition, the extra money these producers are making is being invested in improving their communities and giving their children a good level of education to break the poverty cycle surrounding them, not to over produce.

Another controversy surfaced when the Adam Smith Institute published, on February 25, 2008, a report called Un-fair Trade. This report was written by Marc Sidwell, and he argues that Fair Trade distorts local markets by fixing high prices for a small percentage of producers. According to him, this hurts the majority of artisans or farmers who are “excluded” from Fair Trade, or who are not certified. In addition, her argues that Fair Trade keeps the artisans or farmers doing the same work without diversifying or learning new skills, thus not solving their development problems and keeping them in poverty. Finally, he has the audacity to say that Fair Trade only helps “relatively prosperous countries” such as Mexico, while ignoring Africa.

The Fairtrade Foundation responded to these attacks on the movement by saying that, in the experience of thousands of fair traders, none of these claims are true. Many fair trade products are not more expensive than conventionally traded products, and in fact non-fair traders are now improving their products and working conditions to be able to compete with fair trade. Moreover, fair trade encourages wholesalers and retailers who work directly with producers to educate them, help them diversify their products, and foster development projects to alleviate poverty in their communities. This creates a great platform from which artisans and farmers can rise above poverty and become self-sustainable. Finally, they expose that fair trade is a global movement that helps different people in all the corners of the world.

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