Case 13 Corporate Social Responsibility and the Fair-Trade Movement: How Fair Is Fair Trade? AUTHOR BIOGRAPHIES Pamela J. Rands holds an MBA from Western Illinois University with a focus in finance. She is the coauthor of numerous encyclopedia articles and was the research assistant for the second edition of the book, Affluenza: The All-Consuming Epidemic. Her research interests include corporate social responsibility and personal responsibility for social action. Gordon P. Rands is a professor of management and former department chair at Western Illinois University, is a past chair of the Organizations and the Natural Environment division of the Academy of Management, and is a past president of the International Association for Business and Society. His research interests focus on environmental sustainability, corporate social performance, and various institutions’ responsibilities for solving social problems. OVERVIEW Fair trade is a concept that generally aims to help producers in developing countries receive a fair price for their products, thus reducing poverty; it also usually implies ethical treatment of workers and support of environmentally sustainable practices. The fair-trade movement has increasingly captured the hearts and purse strings of consumers in developed nations who are seeking to “do the right thing.” But does purchasing products with a fair-trade label actually produce the good they think it will? THE FAIR-TRADE DILEMMA Crystal Kepple, general manager of the Macomb [IL] Food Co-op, sighed and leaned back in her chair as she worked on completing the co-op’s next food order from United Natural Foods, Inc. (UNFI). What quantities of various fair-trade products should she order for the small consumer-owned co-op? Fair-trade chocolate, tea, and coffee from Equal Exchange—itself a worker-owned cooperative based in Massachusetts—were all popular with co-op shoppers. So was Runa, a “clean energy” drink made from leaves of the guayusa tree, a species of holly native to the Amazon rainforest.1 Crystal and many Macomb Co-op shoppers shared the fair-trade ideals of environmental sustainability and economic justice. But she had begun to wonder about traceability. Could she guarantee to customers that all the ingredients in the products the Co-op sold had been produced in an environmentally sound manner and that the workers who grew and harvested the plants really were receiving better wages for their efforts than those who provided non–fair-trade ingredients? p.450 Furthermore, the chairman of the co-op’s board of directors, himself an ardent fan of fair trade, had just mentioned some articles he found online that questioned whether fair trade was having the desirable effects its proponents claimed, and posited that the movement might even be leaving workers worse off. “No time to figure this all out now,” Crystal thought, as she turned back to the computer, “but I have to before next month’s order.” With that, she reordered the sam ...

1. Case 13
Corporate Social Responsibility and the Fair-Trade Movement:
How Fair Is Fair Trade?
AUTHOR BIOGRAPHIES
Pamela J. Rands holds an MBA from Western Illinois
University with a focus in finance. She is the coauthor of
numerous encyclopedia articles and was the research assistant
for the second edition of the book, Affluenza: The All-
Consuming Epidemic. Her research interests include corporate
social responsibility and personal responsibility for social
action.
Gordon P. Rands is a professor of management and former
department chair at Western Illinois University, is a past chair
of the Organizations and the Natural Environment division of
the Academy of Management, and is a past president of the
International Association for Business and Society. His research
interests focus on environmental sustainability, corporate social
performance, and various institutions’ responsibilities for
solving social problems.
OVERVIEW
Fair trade is a concept that generally aims to help producers in
developing countries receive a fair price for their products, thus
reducing poverty; it also usually implies ethical treatment of
workers and support of environmentally sustainable practices.
The fair-trade movement has increasingly captured the hearts
and purse strings of consumers in developed nations who are
seeking to “do the right thing.” But does purchasing products
with a fair-trade label actually produce the good they think it
will?
THE FAIR-TRADE DILEMMA
Crystal Kepple, general manager of the Macomb [IL] Food Co-
op, sighed and leaned back in her chair as she worked on
completing the co-op’s next food order from United Natural
Foods, Inc. (UNFI). What quantities of various fair-trade

2. products should she order for the small consumer-owned co-op?
Fair-trade chocolate, tea, and coffee from Equal Exchange—
itself a worker-owned cooperative based in Massachusetts —
were all popular with co-op shoppers. So was Runa, a “clean
energy” drink made from leaves of the guayusa tree, a species
of holly native to the Amazon rainforest.1 Crystal and many
Macomb Co-op shoppers shared the fair-trade ideals of
environmental sustainability and economic justice. But she had
begun to wonder about traceability. Could she guarantee to
customers that all the ingredients in the products the Co-op sold
had been produced in an environmentally sound manner and that
the workers who grew and harvested the plants really were
receiving better wages for their efforts than those who provided
non–fair-trade ingredients?
p.450
Furthermore, the chairman of the co-op’s board of directors,
himself an ardent fan of fair trade, had just mentioned some
articles he found online that questioned whether fair trade was
having the desirable effects its proponents claimed, and posited
that the movement might even be leaving workers worse off.
“No time to figure this all out now,” Crystal thought, as she
turned back to the computer, “but I have to before next month’s
order.” With that, she reordered the same quantity of fair -trade
products as last month, but no new ones.
ORIGINS OF FAIR TRADE
According to Professor Colleen Haight,
Like many economic and political movements, the fair-trade
movement arose to address the perceived failure of the market
and remedy important social issues. As the name implies, fair
trade has sought not only to protect farmers but also to correct
the legacy of the colonial mercantilist system and the kind of
crony capitalism where large businesses obtain special
privileges from local governments, preventing small businesses
from competing and flourishing.2
Fair-trade principles often involve worker cooperatives:
democratically controlled organizations that serve their

3. members, who are the producers of the goods in question.
Although the fair-trade specifics may differ from one definition
to another, it is useful to consider fair trade in the context of
three beliefs:
• Producers have the power to express unity with consumers.
• World trade practices that currently exist promote the
unequal distribution of wealth between nations.
• Buying products from producers in developing countries at a
fair price is a more efficient way of promoting sustainable
development than traditional charity and aid.3
From a historical perspective, in the 19th century, arguments
that capitalism and colonialism were unfair to laborers were
widespread, and particularly emphasized by religious groups
such as the Quakers. Much of this early attention, beginning in
the 1800s, was focused on labor within domestic markets;
concern about the wages earned by workers growing and
producing imported goods began primarily after World War
II.4 Members of the Mennonite community along with Oxfam, a
British-based nongovernmental organization (NGO), began to
buy goods directly from craftspeople in poor nations rather than
through middlemen and to sell them in European and North
American outlets, which were originally called Oxfam-
Worldshops. This resulted in craftspeople being paid higher
prices than they customarily received from brokers. Even
though sales were relatively low, volunteer staffers enabled the
Worldshops to hang on. The fair-trade movement really began
to grow, however, when the focus shifted from handicrafts to
foods such as coffee.
The fair-trade coffee movement began in 1985 with a Dutch
priest, Frans van der Hoff, who was serving in a parish in
Oaxaca, Mexico. He became familiar with the problems small
coffee growers faced and sought a way to help them. For coffee,
as with all agricultural commodities, most of the profits accrue
to processors, brokers, and shippers, rather than to growers.
Even when world coffee prices were high, growers often
benefited little from those higher prices. Back in the

4. Netherlands, van der Hoff became acquainted with Nicco
Roozen. Together, they conceived the notion of buying coffee
directly from Mexican producer cooperatives at a price premium
and selling it in the Netherlands.5 The cooperatives could use
the additional funds to purchase equipment and facilities that
benefited all members of the cooperative, as well as the
community at large. Roozen and van der Hoff created a label
named after a fictional character from an anti-colonialist 19th-
century Dutch novel, Max Havelaar, and the brand became
popular.6
p.451
At about the same time, tensions between the U.S. government
and the Sandinista-led Nicaraguan government led to import
restrictions on products from Nicaraguan coffee farms. Many of
these farms had recently come under the control of worker
cooperatives after the Sandinista government expropriated land
from owners and redistributed it to workers. The import
restrictions led a few U.S. coffee-shop owners,7 as well as a
newly formed Equal Exchange, a workers’ cooperative broker,
to purchase Nicaraguan coffee beans from Canada and donate a
certain amount per pound to the Nicaraguan workers.
Economic conditions for coffee growers deteriorated greatly
following the end of the Cold War. The United States dropped
import restrictions on coffee grown in places such as Cuba,
which had helped keep Latin American coffee prices high, to
reduce the appeal of communism in the region. This drop was
accompanied by a collapse in the International Coffee
Agreement that had served to restrict production.8 In the early
1990s, various fair-trade brands emerged in different nations,
each adhering to somewhat different standards. In 1997, the
Fairtrade Labeling Organization (FLO)—now known as
Fairtrade International, although it still uses the FLO
acronym—was created to unite the various national
organizations and bring about some harmony in fair-trade
standards and certification procedures, as well as to introduce a
unifying fair-trade symbol for marketing purposes.9

5. STANDARDS AND CERTIFICATION
At the heart of the fair-trade movement are two concepts: that
small producers deserve higher prices than they typically
receive for their goods and that producers who meet high ethical
standards in environmental or labor practices should receive a
price that compensates for the additional expenses they may
incur. Standards exist for both “smallholders” (independent
farmers who often affiliate in producer cooperatives) and for
large producers who employ workers. Higher prices for living
up to these standards can be delivered either by eliminating the
middleman and buying directly from the producer, or by paying
a price premium to a broker that is then passed on to the
producer—a more common approach. A “ fairtrade minimum
price” is set each year by the FLO; for coffee, that minimum is
$0.20 per pound above the price for commodity coffee. If
commodity coffee prices rise, so does the fairtrade minimum
price. The intent is to ensure that producers can cover their
production costs, even if there is an oversupply and prices fall.
In addition, a $0.20 per pound “ fairtrade premium” is paid to
the producer cooperative. The farmers in a cooperative, or all of
the workers on a plantation, democratically determine the ways
this premium is spent. The fair-trade goal is that it be spent in
ways that improve the social or economic conditions of the
small farmers or the workers—improving education, health care,
or farm and processing facilities.10
With the potential to receive higher prices, however, comes an
incentive for producers to cheat by engaging in suboptimal
practices while claiming to follow more stringent ones. As a
result, fair-trade organizations have developed certification
procedures designed to ensure that the agreed-upon practices
are in fact being followed. Fairtrade Labelling Organization
Certification (FLOCERT), formerly a part of the FLO but now a
subsidiary entity, hires and trains auditors who visit and audit
producers or brokers who have applied to be certified as
following fair-trade standards. After an initial successful audit,
parties are visited at least twice more in a 3-year period for

6. follow-up audits to ensure that they are still meeting the
standards.11 These auditors are usually based in the regions in
which they work. Costs of the certification are borne by the
party seeking certification. So long as its producers or brokers
are certified, a brand can display the fair-trade symbol on its
product.
ORGANIZATIONS AND PRODUCTS
As the concept of fair trade began to be understood, multiple
brands began to appear, not only for coffee, but for tea, sugar,
spices, and cocoa as well. Issues other than economic justice
also began to be targeted.
p.452
FIGURE 1 FAIR TRADE USA LOGO
Source: Retrieved from http://www.ethicalcoffee.net/fair.html.
When varieties of coffee that could thrive in full sunlight began
to be grown widely, some brands began to pay a premium for
shade-grown coffee. Coffee trees grow sporadically in the
understory of rainforests. Paying a premium for beans from
these trees would promote leaving rainforests in place rather
than cutting them down and replacing them with coffee
plantation monocultures. Although more economically efficient,
monoculture plantations offer far less habitat for insects, birds,
and other wildlife, and thus contribute to global biodiversity
loss.
Concern about the use of child labor in making rugs, soccer
balls, shoes, and sports apparel, which grew during the 1990s,
eventually led to publicity about the use of child labor —and
even slave labor—on cocoa plantations in West Africa. This
alarm and concern sparked growth in the market for fair-trade
chocolate products.
As consumer awareness and acceptance of fair trade has grown,
the kinds and number of fair-trade products available have
expanded significantly, as have the number of organizations
involved in the fair-trade movement around the globe. Over 350
organizations are members of the World Fair Trade

7. Organization, an association that promotes fair trade through
policy development, advocacy, monitoring, and awareness
raising.12 Fair Trade USA, another major certifier of fair-trade
goods (see Figure 1), lists 16 categories of fair-trade products,
including apparel, home goods, body care products, and sports
balls and 13 categories of foods and beverages.13 Fairtrade
International lists over 4,500 certified fair-trade products
available in the United Kingdom (see Figure 2).
CONSUMER AWARENESS AND RESPONSE
For many years, fair-trade products were much better known in
Europe than in the United States, but that changed after the
founding of TransFair USA, which was renamed Fair Trade
USA in 2010. In 2005, only 9 percent of American households
were aware of the fair-trade concept; by 2011, this figure had
grown to 50 percent. Since the beginning of the 21st century,
sales of organic foods in the United States have boomed. In
2005, organic food sales totaled $13.8 billion, or 2.5 percent of
U.S. grocery sales.14 Market share had nearly tripled by 2015,
when $39.7 billion worth of organic food, along with an
additional $3.6 billion in organic non-foods such as clothing
made with organically grown cotton, were sold in the United
States.15 This growth in organic sales occurred in tandem with
the increased number of retailers such as Whole Foods, Wild
Oats, and Trader Joe’s that emphasized organic and other
sustainably grown foods. In addition, more mainstream food
retailers such as Walmart, Kroger, Target, Aldi, and Costco
have increased their organic food offerings and sales. The past
decade has also seen a resurgence in the number of food
cooperatives nationwide. The number of such stores, typically
smaller than regular grocery stores and owned by consumers in
local communities, has grown significantly, with the Macomb
Food Co-op and 90 other new stores opening since 2006.16 As
consumers have increased their consumption of organic foods
based on environmental or health concerns, they have been
exposed more and more to fair-trade foods at many of these
outlets.

8. Sales of fair-trade products grew by an average of over 40
percent annually between 1999 and 2008, and by over 63
percent in 2011. In 2015, 260 million pounds of fair-trade food
were imported into the United States, up from 51 million
pounds in 2010.17 The attractiveness of the fair-trade concept
to consumers was demonstrated by a field experiment that found
that merely attaching a fair-trade label to two highly popular
brands of coffee increased their sales by over 10 percent.18
p.453
FIGURE 2 FAIRTRADE INTERNATIONAL LOGO
Source: Retrieved from http://www.ethicalcoffee.net/fair.html.
STARBUCKS AND FAIR-TRADE COFFEE
Growing consumer awareness of, and interest in, fair-trade
products, especially coffee, has resulted in pressure being
brought to bear on large companies to increase their sourcing of
fair-trade products. One of the most notable companies to come
under such pressure is Seattle-based Starbucks. Smaller,
generally independent coffee shops had begun selling coffee
brewed from fair-trade–sourced beans in the 1990s. In 1999,
Global Exchange, an international human rights NGO,
approached Starbucks and asked it to begin carrying fair -trade
coffee.19 The company expressed concerns that the coffee
might be of low quality and so did not agree to the request. As a
result, the NGO organized small protests outside Seattle-area
Starbucks shops. In early 2000, an investigative report
documenting low wages and child labor on certain Guatemalan
coffee plantations, including some suppliers of Starbucks, aired
on a San Francisco television station. Global Exchange
subsequently petitioned the company at its annual meeting to
offer certified fair-trade coffee, and that week Starbucks
announced a one-time purchase of 75,000 pounds of coffee that
it said were fair trade, but not certified as such. Global
Exchange organized additional demonstrations and a letter -
writing campaign, and in April of that year, Starbucks
announced an agreement to purchase coffee certified as fair-

9. trade by TransFair USA for all its shops. However, Starbucks
announced that this would be available only in whole-bean form
for consumers to purchase, grind, and brew at home.20
Pressure on Starbucks to increase its fair-trade coffee purchases
continued, and by 2011, 8 percent of its coffee purchases were
certified as fair trade.21 That percentage, however, has since
dropped to 3 percent.22 In 2008, Starbucks announced a goal
that by 2015, 100 percent of its coffee would be “ethically
sourced,” either from a fair-trade supplier or in conformance
with its own set of principles, the Coffee and Farmer Equity
(C.A.F.E.) Practices. These were developed in partnership with
the NGO called Conservation International and provide
guidelines in four areas: product quality, social responsibility,
environmental leadership, and economic accountability and
transparency.23
Fair-trade advocates are often skeptical of the stringency of
initiatives developed by companies or by industry
organizations. Often, when competing standards exist, those
developed by advocacy groups are much stronger than those
developed by industry. An example of this is found in the forest
products industry, in which the multiple stakeholder-based
Forest Stewardship Council (FSC)’s certification competes with
the Sustainable Forestry Initiative (SFI) standards developed by
the forest products industry. Many observers believe that the
FSC standards require much stronger environmental protections
than do the SFI standards, partly because of more rigorous
auditing procedures.24 Julia Caves, an ecologist who examined
Starbucks’ standards, suggested that although they are not the
most environmentally stringent coffee-growing standards, they
are fairly strong and compare favorably with those devel oped by
another NGO, the Rainforest Alliance.25 She also observed that
the C.A.F.E. Practices are actually stronger on environmental
grounds than are those of most fair-trade initiatives.
p.454
By 2011, Starbucks said that 86 percent of all its coffee
purchased was bought in conjunction with either C.A.F.E.

10. practices or fair-trade practices.26 In April 2015, Starbucks
announced that 99 percent of its coffee purchases were ethically
sourced.27 Starbucks’ coffee purchase claims are verified by
SCS Global Services, an independent third-party certifier of
environmental claims.28
In addition to purchasing ethically sourced coffee, Starbucks
has committed to supporting coffee farmers with both grants
and research information. To that end, it opened a farmer
support center in 2004 in Costa Rica, where it employs
agronomists and coffee quality experts who work with coffee
growers. It also engaged in research with the Costa Rican
Coffee Institute (Instituto del Café de Costa Rica, or ICAFE) on
how to improve growing practices of specialty coffee beans.
This research resulted in five new coffee hybrids, and in 2015
Starbucks donated thousands of the hybrid seedlings to ICAFE
for field testing in different parts of Costa Rica.29
Starbucks has since opened farmer support centers in Rwanda,
Tanzania, Columbia, and China, and in 2013 purchased a coffee
plantation in Costa Rica that it has developed as a Global
Agronomy Research and Development Center.30 Starbucks also
committed to providing loans totaling $20 million to smal l
coffee farmers. In 2015, it met that goal and pledged an
additional $30 million in small-farmer loans. These loans are
answering needs created by the effects of climate change and an
epidemic of coffee rust and are provided via nonprofit
microfinance institutions such as Root Capital. Craig Russell,
Executive Vice President of Global Coffee for Starbucks at that
time, commented that the loans mean “farmers have the ability
to make strategic investments in their infrastructure, offering
the stability they need to manage ongoing complexities so there
is a future for them and the industry.”31 The original $20
million in loans helped over 40,000 families affiliated with 62
different coffee-producer cooperatives.32
While pressures to purchase independently certified fair-trade
coffee led Starbucks to eventually emphasize a somewhat
different path to addressing the socioeconomic and

11. environmental challenges facing the coffee industry,
controversies and criticisms began to emerge regarding fair -
trade itself. One of these controversies involved a split within
one of the major fair-trade organizations.
THE FAIR TRADE USA CONTROVERSY
TransFair USA was founded in 1998 by the Institute for
Agricultural Trade Policy, which saw a need for an organization
to set standards, issue certifications, and label fair-trade
products in the United States. Paul Rice, an American who had
previously served as the director of PRODECOOP,33 a
Nicaraguan coffee-growing cooperative that sold coffee to
Equal Exchange,34 was hired as the organization’s first
executive director. For over a decade, TransFair USA led efforts
to bring the fair-trade message and fair-trade products to
American consumers as the U.S. affiliate of FLO. As noted
previously, consumption of fair-trade products in the United
States grew dramatically during this period.
In September 2011, however, the American organization (which
had changed its name to Fair Trade USA in 2010) announced
that it was resigning its membership in FLO. In January 2012,
Rice described why Fair Trade USA had made this
decision.35 Rice noted that FLO generally worked with farmers
who participated in producer cooperatives, but that Fair Trade
USA believed that
Fair Trade has to work for all kinds of producers to make a
meaningful dent in global poverty. In its current form, Fair
Trade principles are applied inconsistently. For some product
categories, like coffee, Fair Trade certification is limited to
cooperatives, while in other categories, like bananas and tea,
workers on large farms can become certified. Fair Trade USA
resigned our membership from FLO in order to eliminate these
inconsistencies, which exclude so many from the benefits of
Fair Trade. Beginning in coffee, we are adapting Fair Trade
standards for both workers on large farms and independent
small holders. Through this more inclusive model, Fair Trade
USA can reach over 4 million farm workers who are currently

12. excluded from the system.36
p.455
Fair Trade USA’s action was met with criticism by many in the
fair-trade movement because it was seen as threatening the
producer cooperatives that had been at the heart of the fair -trade
model. Rodney North of Equal Exchange argued, “Fair trade is
designed to change commerce. We shouldn’t be changing fair
trade to accommodate commerce.”37 Equal Exchange
subsequently initiated a petition drive asking fair-trade brands
and consumers to reject Fair Trade USA’s vision and only
purchase products from farmer cooperatives. Frans van der
Hoff, the priest who cofounded the Max Havelaar brand, is also
among the critics of efforts to certify coffee from larger estates.
But his cofounder, Nicco Roozen, agreed with Rice that large
growers should be able to be certified as fair-trade producers if
they improve the conditions of their workers and meet other
fair-trade standards.38
Some observers felt that Fair Trade USA’s resignation from
FLO also may have occurred for monetary reasons, as the U.S.
organization paid about 20 percent of its revenues to FLO for its
labeling and certifying services. Critics of Fair Trade USA have
since argued that, although the organization said one of its
goals was to bring small farmers outside of cooperatives under
the fair-trade umbrella, there is little evidence that this has
happened.39 To them, it appears that the organization’s efforts
have been aimed primarily at certifying the products of more
traditional large farms as fair trade.
CRITICISMS OF THE FAIR-TRADE MOVEMENT
In addition to the internal divisions, external criticism of fair
trade has surfaced and increased. Some of these criticisms could
probably be addressed through greater transparency (one of the
main criticisms is lack of transparency), but others seem
inherent in the fair-trade model itself. There appear to be four
broad areas of criticism.
First, critics have charged that fair-trade organizations are not
transparent enough and do not disclose enough information to

13. allow for thorough understanding of their activities. Economist
Bruce Wydick argues that the information provided by Fair
Trade USA regarding the effects of fair trade on farmers and
their families is “vague at best,” and consists of little more than
explaining the logic of the model and listing the numbers of
families associated with producer cooperatives. His assessment
is, “All of this is well-intentioned and sounds wonderful. The
problem is that it doesn’t work well.”40 Haight states the
logical result of this lack of transparency: It makes it difficult
to assess whether some of the other criticisms leveled at fair
trade are valid or not.41
A second broad criticism is that fair trade actually does not
address the problems of the most disadvantaged
producers.42 First, African farmers are generally the poorest in
the world, but less than 10 percent of fair-trade coffee is grown
in Africa, even though the most favored coffee variety, Arabica,
originated in Ethiopia. Second, regardless of region, fair trade
tends to help those who are most skilled in both growing coffee
and managing certification requirements, rather than those at
the bottom of the economic ladder.43 Lastly, the most
disadvantaged members of the growing community are not the
small farmers, but the migrant laborers who are not, and cannot
be, members of producer cooperatives. Despite Fair Trade
USA’s stated goal of benefitting this group, there is little
evidence of any impact.
A third area of criticism is that an unacceptably small portion of
the price differential (20 cent Fairtrade Premium and potential
20 cent Fairtrade Minimum Price buffer as noted earlier)
actually reaches and benefits the growers and their
families.44 This stems partly from the cost of certification
requirements—around 3 cents per pound in the case of
coffee.45 But it also reflects the fact that the fair-trade price
premium is paid to cooperatives, not farmers. Although
proponents point out that this money can be spent on things
such as health care and education that directly benefit the
farmers’ families, it appears that the bulk of the funds is

14. actually spent on improving the buildings and equipment owned
by the cooperatives, and increasing the salaries of their staff
members. Such expenditures may result in long-term benefits
for the farmers, but it is also quite possible that a different
allocation would result in greater benefits.
A fourth area of criticism leveled at fair trade is the most
complex and troublesome because it suggests that a key aspect
of the model, the pricing mechanism, may inherently produce
undesirable consequences for both consumers and producers.
p.456
Critics charge that, when prices are high, fair-trade pricing
mechanisms encourage farmers to sell their lowest quality beans
to fair-trade brands to get the fair-trade minimum and premium.
Meanwhile, the best quality beans go to other buyers who are
paying the highest market prices. In the process, the argument
goes, fair-trade consumers are buying consistently lower quality
products.46
Conversely, when prices are low due to oversupply, the higher
fair-trade minimum price encourages more growers to seek fair-
trade certification to sell to fair-trade buyers. The fair-trade
market “pot” is consequently divided into more smaller shares.
Existing fair-trade producers reap fewer financial rewards. As
the costs associated with certification are spread across a lower
sales volume per fair-trade producer, it becomes more difficult
to actually recoup the certification costs. In these ways, the
producers can end up receiving little actual additional
income.47
Wydick argues that one of the best ways of raising producers’
incomes is to encourage a decrease in production,48 but fair
trade encourages existing and even new farmers to increase
production. This may particularly be the case among the most
marginal producers. He concludes by stating that in a survey of
16 development economists, fair trade was rated as the next to
lowest of 10 strategies for lifting people out of poverty. Thus,
fair trade actually may not be accomplishing the goal it touts
itself as achieving. Wydick argues that directly addressing root

15. causes of poverty such as poor education, underdeveloped
infrastructure, poor health, inadequate entrepreneurial skills,
and poor governance skills would accomplish the stated goals of
fair trade better than does paying price premiums. He suggests
that addressing these root causes would moreover improve
individuals’ abilities and choices, rather than shifting them back
toward growing a crop that is often overproduced and thus is a
poor means of exiting poverty.49 Wydick concludes, “The most
damaging aspect of the fair-trade coffee system may be that it
misleads well-meaning coffee consumers into believing that by
buying fair-trade coffee they are doing something meaningful
and helpful for the poor, while the best evidence suggests that
other types of programs are far more effective.”50
Direct trade, in which buyers establish long-term contracts
directly with producers, offering a higher price and requiring
higher quality, has been suggested by some as a more efficient
approach for achieving the goals of fair trade.
Nestlé,51 Starbucks, Peet’s Coffee, and Allegro (the house
brand of Whole Foods) are among the coffee brands that claim
to have increased direct purchasing.52 Equal Exchange, a major
provider of fair-trade coffee, tea, chocolate, sugar, and dried
fruits and nuts to food cooperatives, uses a direct trade model,
and purchases only from producer cooperatives (see Figure 3).
Equal Exchange lists and describes its 40 producer-cooperative
partners on its website.53
In response to the still low, minimum fair-trade price, some
producer cooperatives are banding together, taking the initiative
to completely avoid the middleman by marketing their products
directly to wholesalers and retailers in the United States and
other developed nations.54
FAIR-TRADE ORGANIZATIONS RESPOND
In a rejoinder to Haight’s article, Paul Rice of Fair Trade USA
argues that fair trade provides substantial benefits to farmers
through their cooperatives. He emphasizes that decisions on
how to spend the fair-trade premium funds paid to a cooperative
are made democratically by all members of the cooperative. He

16. also suggests that the quality of fair-trade coffee is in fact not
lower, claiming that many fair-trade producers invest some of
their earnings in coffee quality improvement.
In early 2017, the president of Equal Exchange, Rink Dickinson,
criticized the entire fair-trade movement, including both Fair
Trade USA and Fairtrade International, for the emphasis they
place on certification, charging that this benefits the staff of the
fair-trade organizations more than it does the producers of the
food.55 Equal Exchange emphasizes building relationships and
working directly with producer cooperatives and does not
require certifications from fair-trade labeling organizations. As
a result, its products state that they are fairly traded, but do not
carry a standard fair-trade label.
p.457
FIGURE 3 RELIGIOUS ORGANIZATIONS, AMONG
OTHERS, PARTICIPATE IN EQUAL EXCHANGE
Source: United Church of Christ—Equal Exchange Coffee
Project, www.ucc.org/justice/issues/coffee-project Retrieved
from
http://slideplayer.com/slide/5889807/19/images/59/Where+to+B
uy+Fairly+Traded+Coffee.jpg.
As more consumers than ever before are aware and accepting of
fair-trade logic, it is ironic that those both outside and inside
the movement are questioning its benefits. What effect w ill
these criticisms have on the purchasing decisions of retail
buyers such as Crystal Kepple, and consumers who shop at their
stores? The answer remains to be seen.
Critical Thinking Questions
1. What is fair trade, and what are the basic principles
underlying it? Had you ever heard of fair trade before reading
this case? Have you ever purchased a fair-trade product?
2. Should fair-trade brands limit their purchases to goods from
producer cooperatives such as Equal Exchange and FLO
advocate, or should a wider range of producers be eligible for
certification as fair-trade producers, as advocated by Fair Trade

17. USA? Why?
3. Do you think that there is a meaningful difference between
a company (a) meeting external fair-trade certification
standards, or (b) internally developing its own standards and
having its claims externally verified by a third party, as
Starbucks has done? If you believe there is a meaningful
difference, which approach do you prefer and why?
4. What are the central points of disagreement within the fair-
trade movement, as illustrated by Fair Trade USA and Nicco
Roozen on one side, and Fairtrade International and Frans van
der Hoff on the other side? Which side do you agree with, and
why? How does Equal Exchange differ from both these
perspectives?
5. What are the four general areas of criticisms about fair
trade? Do you agree or disagree with all or some of them?
Which of the criticisms do you feel are most important, and
why? If you were Crystal Kepple of the Macomb Food Co-op,
what action would you take regarding selling fair-trade products
given these criticisms and counterarguments?