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Fairtreade report
1. 1. Introduction to Fair Trade
The Fair Trade movement shares a vision of a world in which justice and sustainable
development are at the heart of trade structures and practices so that everyone, through their
work, can maintain a decent and dignified livelihood and develop their full human potential.
The Fair Trade movement believes that trade can be a fundamental driver of poverty
reduction and greater sustainable development, but only if it is managed for that purpose,
with greater equity and transparency than is currently the norm. We believe that the
marginalized and disadvantaged can develop the capacity to take more control over their
work and their lives if they are better organized, resourced and supported, and can secure
access to mainstream markets under fair trading conditions.
Fair Trade connects the aims of those in the developed world who seek greater sustainability
and justice with the needs of those in the South who most need those changes. It enables
citizens to make a difference to producers through their actions and choices as consumers.
Demand for Fair Trade products enables Fair Trade Organizations and others who adopt Fair
Trade practices to extend the reach and impacts of their work, as well as visibly
demonstrating and articulating public support for changes in international trade rules to
governments and policy makers.
The currently accepted definition of Fair Trade is as follows: “Fair Trade is a trading
partnership, based on dialogue, transparency and respect that seek 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.”
2. Core Principles of Fair Trade
The principles of Fair Trade are based on the practical and shared experience of Fair Trade
Organizations over many years and reflect the diversity of Fair Trade relationships. The most
important of these are unique to Fair Trade and are integral to its developmental objectives.
These include:
1. Market access for marginalized producers
Many producers are excluded from mainstream and added-value markets, or only access
them via lengthy and inefficient trading chains. Fair Trade helps producers realise the social
benefits to their communities of traditional forms of production. By promoting these values
(that are not generally recognized in conventional markets) it enables buyers to trade with
producers who would otherwise be excluded from these markets. It also helps shorten trade
chains so that producers receive more from the final selling price of their goods than is the
norm in conventional trade via multiple intermediaries.
2. Sustainable and equitable trading relationships
The economic basis of transactions within Fair Trade relationships takes account of all costs
of production, both direct and indirect, including the safeguarding of natural resources and
meeting future investment needs. Trading terms offered by Fair Trade buyers enable
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2. producers and workers to maintain a sustainable livelihood; that is one that not only meets
day-to-day needs for economic, social and environmental well-being but that also enables
improved conditions in the future. Prices and payment terms (including prepayment where
required) are determined by assessment of these factors rather than just reference to current
market conditions. There is a commitment to a long-term trading partnership that enables
both sides to co-operate through information sharing and planning, and the importance of
these factors in ensuring decent working conditions is recognized.
3. Capacity building & empowerment
Fair Trade relationships assist producer organisations to understand more about market
conditions and trends and to develop knowledge, skills and resources to exert more control
and influence over their lives.
4. Consumer awareness raising & advocacy
Fair Trade relationships provide the basis for connecting producers with consumers and for
informing consumers of the need for social justice and the opportunities for change.
Consumer support enables Fair Trade Organizations to be advocates and campaigners for
wider reform of international trading rules, to achieve the ultimate goal of a just and equitable
global trading system.
5. Fair trade as a “social contract”
Application of these core principles depends on a commitment to a long-term trading
partnership with producers based on dialogue, transparency and respect. Fair Trade
transactions exist within an implicit “social contract” in which buyers (including final
consumers) agree to do more than is expected by the conventional market, such as paying fair
prices, providing pre-finance and offering support for capacity building. In return for this,
producers use the benefits of Fair Trade to improve their social and economic conditions,
especially among the most disadvantaged members of their organization. In this way, Fair
Trade is not charity but a partnership for change and development through trade.
3. Approaches to Fair Trade
Fair Trade products are goods and services that are produced, traded and sold in accordance
with these Fair Trade principles and, wherever possible, verified by credible, independent
assurance systems such as those operated by FLO (“Fair-trade-Certified”) and wfto
(Sustainable Fair Trade Management System).
All Fair Trade products originate from producers and workers committed to Fair Trade
principles. However, in the subsequent supply chain, Fair Trade products are traded and
marketed through two distinct but complementary channels:
1. The integrated supply chain route whereby products are imported and/or distributed by
organizations that have Fair Trade at the core of their mission and activities, using it as a
development tool to support disadvantaged producers and to reduce poverty, and combine
their marketing with awareness-raising and campaigning.
2. The product certification route whereby products complying with international standards
are certified indicating that they have been produced, traded, processed and packaged in
accordance with the specific requirements of those international standards.
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3. 4. Benefits from Fair Trade
1. Farmers receive a fair and stable price for their products
A main objective of Fairtrade is to increase producer incomes. This is achieved by payment
of a guaranteed, fair price and by reducing the number of intermediaries in the supply chain
so that the growers get a larger share of the export price.
The Fairtrade minimum price is calculated to cover the costs of sustainable production and a
sustainable livelihood. All stakeholders, including producers and traders, are consulted in the
price-setting process. There is an additional premium for investment in social, commercial or
environmental development projects.
2. Extra income for farmers and estate workers to improve their lives
The Fairtrade premium is paid into the bank account of an elected committee set up
specifically to administer the premium fund. The fund is reserved for investment in projects
that are decided on with the agreement of coop members (or following consultation with the
workforce in the case of plantations). The committee must produce an annual premium plan
and budget which is available for scrutiny by the beneficiaries and FLO.
The premium is invested in social projects such as building schools, clinics and community
centers; funding scholarships; installation of electricity; and low-interest loan funds to
improve housing or pay school or medical bills. Estate workers have used loans to start up
small income-generating enterprises such as rearing animals and growing crops to sell meat,
eggs, milk, vegetables, fruit and spices to local markets or traders. Co-ops have used the
premium for environmental protection or to strengthen their businesses by financing organic
conversion or quality improvement programmes. Others have built processing facilities or
cupping laboratories which enable them improve the quality of their coffee and hold coffee
tasting sessions for buyers. These measures allow growers to add value to a raw commodity
product.
3. Greater respect for the environment
Environmental protection and sustainability must be included in producer organisations’
management policies. They must comply with national and international legislation on
protection of the environment (natural waters, virgin forest and other ecosystems of high
ecological value), erosion, waste management and the use and handling of hazardous
chemicals.
The use of agrochemicals is minimised and reduced through the implementation of an
Integrated Crop Management system and gradually replaced with organic fertilisers and
biological disease control. Producers are encouraged to work towards organic practices where
practical.
4. Small farmers have a stronger position in world markets
Fairtrade strengthens producer organisations - by dealing directly with Fairtrade partners and
buyers, farmers’ organisations gain crucial technical information and market knowledge that
can also help them get better prices in the conventional market.
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4. Table 1: Top countries in number of fair trade farmers and workers
Country 2010 2011 % change
Kenya 151200 173800 13
Tanzania 151900 169100 10.17
India 94400 121400 22.24
Ethiopia 89500 106900 16.27
Ghana 79100 78300 -1.02
Columbia 54900 55900 1.78
Peru 52900 52600 -0.5
Nicaragua 32100 34400 6.68
Mexico 27600 29600 6.75
Source: Fair trade annual reports (2012)
5. Closer link between consumers and producers
Fairtrade is a grassroots consumer choice movement that empowers consumers to take
responsibility for the role they play when they buy products from developing countries. When
shoppers check out a roduct carrying the FAIRTRADE Mark they are the most important link
in the supply chain to the producers; this act of solidarity ensures that producers receive extra
income through the guaranteed price and additional premium to improve their businesses and
develop their communities. It proves that consumers are willing to buy into a fairer model of
trade but also sends out a wider signal in support of trade justice on a global level.
Fig. 1: Value of fair trade sales year over year
5. Fair Trade Premium
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5. The Fairtrade Premium is just one of the many benefits farmers receive from participating in
Fairtrade. The Fairtrade Premium is an additional sum of money paid to farmers on top of the
agreed price. It is used for the improvement of their social, economic and environmental
conditions. The amount of the Fairtrade Premium is set by the FLO Standards Unit and
remains the same, even if the producer is paid above the Minimum Price for the product.
The Fairtrade Premium is intended to be a flexible support that farmers and workers can use
to meet their specific needs and those of their communities. Accordingly, Fairtrade farmers
and workers use the Fairtrade Premium in hundreds of different ways. Main areas of
investment include Community, Education, Environment, Health, Gender Equity Programs
and Investment in Business Development.
Table 2: Top fair trade premium receiving countries
Country 2009-
10
2010-
11
% change
Peru 5.9 8.2 28.04
Dominican Republic 4.9 6.3 22.22
Colombia 4.8 5.9 18.64
Kenya 5.4 4.3 -25.58
Belize 3.2 3.2 0
India 1.8 2.7 33.33
Ecuador 2.3 2.7 14.81
Ghana 2.5 2.5 0
Source: Fair trade annual reports (2012)
Fig. 2: Fair trade premium usage in 2010-11
6. History of Fair Trade
194
6
Edna Ruth Byler imports needlecrafts from low-income women in Puerto Rico, and
displaced in Europe, laying the groundwork for Ten Thousand Villages, North
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6. America’s first fair trade organization
194
8
Church of the Brethren establishes SERRV, North America’s second fair trade
organization, to import wooden clocks from German refugees of WWII
196
8
United Nations Conference on Aid and Development (UNCTAD) embraces “Trade
not Aid” concept, bringing fair trade into development policy
196
9
Oxfam and other European humanitarian organizations open the first World Shop in
the Netherlands to sell crafts, build awareness and campaign for trade reform
197
2
Ten Thousand Villages opens their store, the first fair trade retail outlet in North
America
198
6
Equal Exchange is established as the first fair trade cooperative in North America,
importing coffee from Nicaragua as a way to make a political statement with a high-
quality, household item
198
8
Farmers and activists launch the first fair trade certification system, Max Havelaar, in
the Netherlands to offer third-party recognition and a label for fair trade products
198
9
International Fair Trade Association (IFTA), now WFTO, is established by fair trade
pioneers as the first global fair trade network
199
4
Fair Trade Federation is formed as the first network of fair trade organizations in
North America
199
7
Fairtrade Labeling Organization (FLO) is formed
199
9
TransFair USA begins certifying fair trade coffee using the TransFair USA label
200
2
FLO launches the international “FairTrade” certification mark
200
4
Producers form national and regional fair trade associations across Asia, Latin
America and Africa
200
6
The Institute for Marketecology (IMO) begins their “Fair for Life” certification
program
200
7
Fair trade retail sales top $1 billion in the U.S. And $2.5 billion worldwide
201
0
Organic Consumers Association (OCA) launches Fair World Project, the first fair
trade consumer organization, to promote and protect the integrity of the fair trade
movement
7. Key Players in Fair Trade
Agents who buy Fairtrade products are obliged to pay at least a minimum price for the goods.
The aim of this price floor is to cover the costs of sustainable production. They also need to
pay what is called the Fairtrade premium. This premium is not paid directly to producers and
workers, but to governing organizations or joint bodies.
Buyers of Fairtrade must also provide long term sourcing plans so producers can predict more
accurate which volumes they might want to buy. They are also obliged to provide pre-finance
for 60% of the contract value on the producers’ request, in addition to some other
requirements concerning traceability and documentation.
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7. FLO allows no discrimination of members or potential members regarding the right to
participate, vote, get elected, get access to markets and get technical support or any other
benefits membership in the producer organization may yield. The anti-discrimination
standards also apply for workers being hired by the producer organization or its members.
The producer organizations receive the Fairtrade premium from traders. This income and its
use are accounted for in accounts separate from other income. The Fairtrade premium income
is to be used for “investments in the social, economic and environmentally-sustainable
development of the organization and its members and through them, their families, workers
and the surrounding community.”
Fig. 3: Number of fair trade producer organizations year over year
FLO also has standards concerning the use of agrochemicals, waste management, soil and
water pollution and GMO’s, to secure an environmentally sustainable production.
When hiring workers, producer organizations and its members must as far as possible meet
ILO conditions, and must heed the workers’ right to collective bargaining, freedom from
discrimination and freedom of labour. They must not use child labour, pay an at least regional
average wage and secure a safe working environment.
8. Fair trade value chain
1. Producers and producer organizations
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8. Fairtrade products start with producers in the south, who “have been economically
disadvantaged or marginalized by the conventional trading system.” Producers who want to
sell their products wearing the Fairtrade label need to form a producer organization. These
are usually cooperatives, but can also be other types of organizations or associations. The
producer organization collaborates in the bargaining with traders.
To become and stay certified, producer organizations pay fees to FLO based on their number
of members and products. They also need to comply with the standards described by FLO.
This enables them to sell products carrying the Fairtrade label when they reach retailers in the
north.
However, being Fairtrade certified does not guarantee that all products can be sold as
Fairtrade goods. This means that in some cases only 25-30% of the goods produced in a
Fairtrade organization are sold as Fairtrade certified, even though all products must be
produced according to Fairtrade standards. The rest are sold in the same markets as
conventional goods.
2. Traders
Fairtrade traders are typically brand owners who after refining and packaging the products
sell it to retailers. As an example, the Norwegian coffee roaster “Kaffehuset Friele” imports
Fairtrade coffee beans from cooperatives in Guatemala, which is then refined, packaged and
sold to Norwegian supermarkets.
3. Retailers
Fairtrade products are sold to customers either via supermarkets, or other retailers selling
Fairtrade goods alongside conventional goods, or in so-called worldshops, non-profit outlets
that specializes in Fairtrade products. In Norway there is only one worldshop, called “Friends
Fair Trade”, so the bulk of Fairtrade products are sold via the mainstream supermarkets. In
other countries there is a bigger share of worldshops, with Germany in the lead with 836
Fairtrade outlets.
In addition to purchasing Fairtrade certified products from brand owners and traders,
worldshops also trade directly with Fairtrade producer organizations. The Norwegian
worldshop, for example, is a certified trader of Sports balls.
4. Consumers
The fair trade movement was spawned by concerned consumers in the US and in Europe.
They felt that conventional trade was unfair, and thus wanted a fair alternative. This
preference for ethical goods is often described as a "warm glow effect" (Chau, et al., 2009, p.
4) which increases the utility of the good. Just knowing the good you are consuming is
produced and traded in an ethical way gives you some extra utility. Maseland & de Vaal
(2002) split the arguments for trading Fairtrade goods into two crude categories, based on
information from Fairtrade brochures and web pages.
The first type of argument is concern for the conditions for trade, and the conditions under
which production of the goods take place. For example, consumers may object to child labor
being used or workers handling pesticides without safety gear. In the other group are
arguments regarding which consequences trade has. It is unfair, the advocates for Fairtrade
says, that trade rewards differently not based on effort, but based on social and natural
differences.
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9. Consumers only concerned with the first group of arguments would find Fairtrade goods to
be morally superior, and thus be willing to pay a premium, regardless of which consequences
Fairtrade may have on the monetary welfare of producers and their communities. The other
group will want to know what effect paying a Fairtrade premium will have on stakeholders in
the south.
Of course, most consumers will probably belong to both groups to different degrees. Either
way, the result is an extra willingness to pay for ethical goods. A 2005 Harvard study
conducted by Professor of Government Michael J. Hiscox found that marking towels and
candles as Fairtrade certified increased sales even when prices went up 10 percent, and even
more when prices went up 20 percent.
Fig 4: Fair Trade value chain
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10. Fig. 5: Fair trade coffee supply chain
9. Fair Trade standards
Fairtrade International (FLO) sets and maintains the Fairtrade standards that producers and
trading relationships must meet. FLO is owned jointly by 21 national labelling initiatives
covering 22 countries and producer networks. These networks represent certified farmers and
worker organisations across Asia, Africa, Latin America and the Caribbean. FLO sets
standards and works with farmers and workers to help them meet the requirements; a separate
certification company (FLO-CERT) regularly inspects and certifies producers against these
standards.
All producers, processors and exporters in the producer country are certified by FLO-CERT.
The products of importers and companies in the supply chain outside of the producer country
are certified either by FLO-CERT or by the local labelling Initiative.
Fair trade standards are not just a list of requirements for farmers and traders to farm and
trade responsibly. They go further to support disadvantaged small-scale farmers and
plantation workers. Fairtrade standards cover three areas: social development, economic
development and environmental development.
Fair trade standards
Ensure producers get a guaranteed Fairtrade Minimum Price to cover their costs
Provide the additional Fairtrade Premium for farmers to invest in projects to benefit
their communities and businesses
Enable payment of contracts in advance if farmers need them
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11. Encourage partnerships between trade partners
Set up mutually beneficial long-term trading relationships
Set clear criteria to ensure that products are produced and traded under fair and
environmentally responsible conditions
How do Fair Trade standards work?
Producer organisations have to meet minimum requirements in order to be certified and
then, over time, they must meet more requirements which demonstrate permanent
improvement.
For example, a minimum requirement is a ban on the use of agrochemicals in the FLO list
of prohibited materials. A progress requirement is to keep reducing permitted
agrochemicals. In this way, the standards enable poorer, more vulnerable farmers to enter
the system, while supporting them to gradually improve their practices.
Fairtrade recognises that progress depends on the economic benefits the organisation
receives from Fairtrade and on the specific situation of each organisation.
Who must meet Fair Trade standards?
Producers and their organisations must meet Fairtrade standards, Generic Producer Standards
and Product Specific Standards. Traders who deal with Fairtrade products must meet Trade
Standards, Product Specific Standards and the Foundation's Fairtrade Standards.
Generic producer standards
Fairtrade works with two main types of producer organisations: small farmers’ organisations
and commercial farms and other companies that permanently employ Hired Labour. FLO has
developed distinct standards for each group that relate to their different ownership structures
and other characteristics.
The standards cover the aims of Fairtrade and set out in detail the criteria producers must
meet to participate in Fairtrade. They also explain how Fairtrade relates to other
internationally recognised standards and conventions, particularly those of the International
Labour Organization (ILO), and that all producer organisations must also comply with
national legislation. Where there are different values, the higher of FLO standards and
national legislation takes precedence.
Fairtrade Standards for Small Farmers’ Organisations
Coffee, cocoa, cotton and rice are among the many products that are grown by independent
small farmers who work their own land and market their produce through a local co-
operative. These producers want a fair and stable price for their crop, improved and long-term
market access, and payment in advance when required.
The Generic Fairtrade Standards for Small Farmers’ Organisations apply to small-scale
farmers who are organised into co-operatives or other associations which are organised
democratically with transparent administration.
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12. The structure of these organisations varies: while one co-operative might have 50 farmers
from the same village with very small plots of land, a bigger co-operative union might
include twenty member co-operatives representing several village co-ops and thousands of
individual farmers. The size of land owned by individual members can vary according to
membership rules, cultural norms and other factors.
Fairtrade Standards for Hired Labour
Tea, bananas, grapes and flowers are among the many products grown on commercial farms.
Workers can participate in Fairtrade if they are organized (normally into trade unions) and if
the company that they work for is prepared to promote its workers’ development and to share
with them the additional revenues generated by Fairtrade. The standard covers all workers
including migrant, temporary, seasonal, sub-contracted and permanent workers. The term
worker is limited to those who can be unionised and therefore excludes middle and senior
management.
Companies working with hired labour can be certified if they comply with the requirements
of the standards to pay decent wages, guarantee the right to join a trade union, ensure health
and safety standards, and provide adequate housing and other social provision where relevant.
Eligible companies include commercial or privately-owned farms, estates, plantations, and
sportsball stitching centres. The standard also applies to processing factories located on tea
estates and flower farms. The priorities for the workers (or hired labour) employed by these
companies are generally decent wages and working conditions.
In the Hired Labour standards, the social development criteria are intended to ensure that
companies recognize and support Fairtrade as a means to increase the empowerment and
well-being of their workers. They protect workers’ basic rights as defined in the conventions
of the International Labour Organization (ILO) relating to:
Freedom from discrimination (on the grounds of race, religion, gender, politics, and
ethnic or social origin)
Freedom of association (the right to join a trade union) and collective bargaining
Fair conditions of employment (wages, working hours, overtime, sick pay, leave etc)
No forced or child labour (minimum age of 15 years)
Occupational health and safety (a safe working environment).
The economic development criteria ensure the use of the Fairtrade premium for the social and
economic benefit of the workers, their families and their communities. The premium cannot
be used for the benefit of the company owners. A Joint Body is set up, comprising elected
worker representatives and a minority of management representatives whose role is to assist
and support the Joint Body in the management of the premium fund. The premium is invested
in projects agreed by the Joint Body following consultation with the workforce. Workers’
representatives receive appropriate training in areas such as finance, record keeping, and
administration in order to build their capacity and ability to deal with their additional Joint
Body responsibilities.
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13. Beside the premium administration it is expected that the establishment of Joint Bodies will
have other positive outcomes such as the development of good working relationships between
the management and workers; the empowerment of members through the process of working
with Fairtrade; the acquisition of skills in leadership and communication, project planning
and project management necessary to function effectively; developing the capacity to operate
without further assistance.
Product specific standards
As well as the generic standards, producers must also meet any relevant product specific
standards. These standards include additional social, economic and environmental criteria,
related to a specific product, which must also be met over time.
For example in the case of dried fruit produced by small farmers, the product specific
standard requires that appropriate measures are being taken over time to increase the
percentage of registered women growers and to promote their active role in decision-making
processes (including participation at members’ meetings and establishment of a women’s
subcommittees). Also, in the case of women growers and drier operators, it has to be ensured
that payments are given to the woman directly and not to the husband.
10. Impact studies
1. In 2003 Fair Trade Research Group conducted case studies on Latin American Fair
trade coffee producers
A. Benefits to Individual Producers
The higher price paid for Fair Trade coffee is the most direct benefit to the small-scale
farmer. Fair Trade coffee receives a minimum US $1.26 per pound (including the five cent
social premium) and an additional US $0.15 if it is certified organic. The precise amount of
direct additional income a farmer receives through Fair Trade is difficult to calculate,
primarily because payments vary according to the cooperatives’ handling of debt servicing,
cooperative expenses, distribution of Fair Trade social premiums, etc. Secondly, most
cooperatives cannot sell all their members’ coffee through Fair Trade channels, and so sell
the remainder at regular prices. But payments to farmers for sales of Fair Trade and non-Fair
Trade coffee are often pooled into a single payment.
Field observations in several case studies found the revenues for Fair Trade coffee to be twice
the street price for conventional coffee, even after deductions were made for cooperative
management and other expenses. For example, Majomut cooperative members harvest an
average of 1,500 pounds, for which farmers earned US $1,700 for organic Fair Trade certified
coffee, compared to the local “street” price of US $550. With coffee production representing
roughly 80 percent of Majomut family incomes, Fair Trade certification represents a dramatic
increase in their livelihoods.
The range of less visible benefits is even more impressive. For example, participation in Fair
Trade provides individual producers with greater access to credit to cover harvest expenses
and other costs than their conventional farmer counterparts. This is largely due to the
requirement within Fair Trade standards that importers offer producer cooperatives pre-fi
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14. nancing at world market rates. In El Salvador, the Las Colinas cooperative receives up to
60% pre-financing for its Fair Trade coffee at half the interest rates of national banks.
The combination of the Fair Trade price guarantee and increased access to credit has
contributed to greater economic and social stability for coffee farmers. Because farmers
participating in Fair Trade registered cooperatives can count on receiving a set price for their
crop, they report being able to better plan for their coffee production, as well as for personal,
family and community needs.
Producers from many of the cooperatives noted another important, non-monetary benefit
from participating in Fair Trade: access to training and enhanced ability to improve the
quality of their coffee. Most small-scale coffee farmers have limited access to training, and an
even more limited understanding of what the Northern consumer, and the international coffee
market more generally, expect of coffee producers.
Another benefit of Fair Trade is the development of new networks of contacts among
participants. In El Salvador, Fair Trade has facilitated the building of social networks and
collective action that are essential for local actors to build and move forward their own
development processes. The majority of the case studies found that Fair Trade makes possible
exchanges of information between producers and buyers that create new commercial
opportunities for producers. La Voz members in Guatemala, for example, spoke of
participating in exchanges of visits with other producer groups that bring new information
and provide incentives to undertake similar efforts.
B. Benefits to Families
Fair Trade participation provides families with access to a diverse range of projects
sponsored by their cooperatives. For example, Majomut member families improved their
access to food through participation in organic gardening and subsistence supply projects, in
part supported by Fair Trade returns. Timely Fair Trade payments in La Selva have helped
cover immediate family expenses for medicines and ceremonies. Similarly, in Oaxaca, Fair
Trade has funded a small credit program that helps pay for a variety of family emergencies.
Training provided by the Fair Trade cooperatives has also allowed families to diversify their
incomes. In Oaxaca, Chiapas and El Salvador, Fair Trade cooperatives have provided training
and marketing assistance to families to develop alternative income sources. Expanded
economic activities include the production and marketing of artisanry, the establishment of
community stores, the development of bakeries, improved production of basic grains, and
other enterprises.
Enhanced family stability through additional employment represents another important
benefit of Fair Trade participation. Throughout conventional coffee growing regions families
are being broken apart as heads-of-households migrate out of impoverished communities to
seek employment. In communities where Fair Trade cooperatives exist, families more
frequently remain intact. Fair Trade-sponsored organic production helps generate sufficient
additional income and labor opportunities that allow more family members to remain in
coffee production. Though Fair Trade organic production alone cannot reverse migration
trends, in some areas, emigration is lower among families involved in organic production. In
Oaxaca, participation in the fair-trade market has allowed [CEPCO member families] to
continue growing coffee while many other farmers have abandoned coffee production,
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15. moving to the cities or transforming their land to other uses…with dire consequences in
social and ecological terms.
C. Benefits to Communities
One of the most visible community benefi ts has come through the social premium (US$ .05
per pound) paid by Fair Trade buyers to the cooperatives. As discussed in Section V below,
the use of this premium is evolving, and consequently so is its impact. In some cases, the Fair
Trade social premium has fi nanced the cooperatives’ technical and other organizational
support of coffee producers’ activities. In the past, the premium was often distributed among
members after administrative costs were discounted as part of individual income. More
recently, FLO has encouraged organizations participating in Fair Trade to direct the premium
toward social projects. While it is still evolving, the social premium attached to the Fair
Trade coffee price has potential to deepen and strengthen community ties.
Fair Trade has helped families fi nd work in their communities rather than migrating. Organic
coffee production promoted by Fair Trade (which requires nearly twice the work days in
relation to conventional production) has signifi cantly increased opportunities for family labor
in a number of the cooperatives. In 2001, Majomut members had nearly 2,000 hectares under
organic production, representing approximately 180,000 additional work-days each year.
According to several case studies, Fair Trade has contributed to cultural revival among
indigenous communities. La Voz members in Guatemala spoke of the recuperation of
ancestral farming practices. Other cooperatives, such as CEPCO, have supported artisanal
and other income generating activities with the assistance of Fair Trade financed training and
technical assistance.
Fair Trade has improved the natural environment in participating communities. Fair Trade’s
organic emphasis has promoted improved soil conservation and water management practices
as well as the increased consciousness about the importance of conservation in general.
Majomut’s technical team reports that the soil conservation measures of its organic coffee
production program, supported in part by Fair Trade returns, has helped reduce soil loss from
erosion by 3,800 tons per year.
D. Organizational Benefits
One of the most far-reaching effects of Fair Trade is its support for the organizational
capacity of participating farmers. Participation in Fair Trade provides farmers’ organizations
with benefits that have significant multiplier effects among the individuals, families and
communities they serve. Moreover, Fair Trade certification requires the democratic
organization of participants. While there remain significant problems in some cooperatives
with the degree of democracy, transparency, participation, etc., Fair Trade has fostered
democratic institutions and organizational empowerment throughout the coffee growing
region.
Participation in Fair Trade has strengthened the overall ability of the organizations to serve
their members. The process of applying for certification and undergoing periodic compliance
audits pushes organizations to improve their administrative capacity. Moreover, Fair Trade
encourages a shift toward organic production, where rigorous technical and administrative
certification requirements further strengthen organizational capacity and promote producer
participation. The Las Colinas cooperative in El Salvador reports that Fair Trade certification
has left them better prepared to pursue organic certification.
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16. Another intriguing organizational benefit is the support for entry of other groups into Fair
Trade networks and other specialty markets provided by existing Fair Trade registered
cooperatives. In Mexico, Fair Trade coffee production has expanded largely through the
collaborative efforts of producer groups. Many groups learn about Fair Trade from other
producer organizations and, in some cases, receive assistance from these other groups. For
example, the Fair Trade pioneer UCIRI helped draw La Selva into the Fair Trade coffee
market in 1990. La Selva in turn facilitated Majomut’s entry into Fair Trade in 1993-1994.
Majomut then assisted Tzotzilotic in selling Fair Trade coffee for the first time in 2001.
Farmers and cooperative leaders report that their organizations found it easier to gain access
to other opportunities once they had become organized through the Fair Trade process. In El
Salvador, Las Colinas cooperative members were able to gain quick access to earthquake
relief funds in 2001 through the Fair Trade organization APECAFE, while less well
organized communities and individuals were left with more limited resources and
opportunities.
Organizational through Fair Trade has also created capacities to negotiate with new clients.
For example, CEPCO, UCIRI, Majomut and other producer organizations are promoting a
new Fair Trade coffee market within Mexico and have created a new entity, Agromercados,
to coordinate the commercialization of a range of Fair Trade commodities. These
opportunities were beyond the reach prior to the Fair Trade certification process.
A number of cooperatives also report that participation in Fair Trade can increase an
organization’s credibility among government and other external institutions, such as banks
and development agencies. In the La Voz case, cooperatives that participate in Fair Trade
networks have a demonstrated increased ability to secure loans from lending institutions on
the basis of their perceived secure market future.
2. A case study of Bolivian coffee Fair Trade producers in 2005
Capacity building
Fair Trade producers seem to have a broader knowledge of coffee production processes and
the coffee market than producers from both firms. They were able to give detailed
explanations on each production step, from washing the berries to the principles of organic
production. This was confirmed for both men and women and can be explained as follows:
First, Fair Trade producers deliver parchment coffee, which is coffee in an advanced stage of
processing, as opposed to stewed corn for Copacabana and berries for Anditrade. Once the
parchment coffee has been delivered, the cooperative processes the coffee into Golden coffee
for export. Put differently, except for roasting, the production process is dealt with and owned
by the producers of the cooperative, which is key for capacity building.
Second, cooperatives regularly offer training courses on topics that are relevant to Fair Trade
producers (coffee market, organic production and environmental issues, administrative and
financial management etc.), which allows them to continuously improve the quality of their
coffee as well as their overall efficiency as a cooperative. In the case of Mejillones for
example, the fact that producers have a broader understanding of coffee issues is positively
related to above average efficiency levels. Whilst this does not by itself explain their higher
efficiency, it can be seen as an interesting indicator.
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17. Fair Trade-producers have higher incomes from selling coffee than non-Fair Trade producers.
Fair Trade cooperatives have high efficiency levels; producers can significantly increase their
revenues and consequently provide a better living to their families. Fair Trade producers have
enough income to provide their families with a decent living, whereas this number is smaller
in the case of Anditrade and Copacabana. Another compelling fact is that the number of
producers involved in other income-generating activities, such as taxi driving for example is
higher for non-Fair Trade producers. As regards crop diversification, our data shows that Fair
Trade producers are indeed diversified, producing and selling crops such as citrus fruits and
vegetables. Diversification is in fact strongly advocated by FLO to avoid reliance on a single
crop such as coffee with its history of excess supply and volatile prices.
Pre-financing facilities
In Bolivia, access to credit is constrained by high interest rates and a lack of policies acting as
incentives for the promotion of business activities. Producers of both Coaine and Mejillones
mentioned that they enjoy easier access to financing because of cooperative membership
(77% and 100% respectively). On the other hand, neither Anditrade nor Copacabana seem to
facilitate financing for their producers.
Physical capital
Living conditions
40% of Mejillones producers (men and women) state that with the profits from Fair Trade
they have been able to improve their dwellings, buy new clothes and better food, and send
their children to school. As regards electricity for example, families from Mejillones are
significantly better off than all others with 70% having electricity in their houses and access
to potable water. The same however is not true for Coaine producers, whose living conditions
remain far more rudimentary with only 12.5% having access to potable water. While none of
the producers officially have ‘regular’ electricity, 27.5% get electricity from solar panels. In
comparison, Anditrade producers fare better in terms of potable water with 42.5% and 19%
respectively. In comparison, only 19% of Copacabana families have access to potable water
and 14% have electricity in their houses.
Infrastructure
The positive impact of Fair Trade on infrastructure could stem from the utilisation of the
social premium. the social premium has largely been invested to improve production
facilities, notably through the acquisition of pre-benefit and benefit plants. Both Coaine and
Mejillones producers have mentioned these plants when asked about major improvements in
their villages. While this is doubtlessly positive in terms of capacity building and quality
improvement, it remains debatable whether this has ‘improved their livelihood’ as such.
According to FLO standards ‘Premium money in this sense is meant to improve the situation
of local communities in health, education, environment, economy etc.’, which means in other
terms that it is up to producers’ organisations to allocate the money accordingly. The only
requirement put forward by FLO is that the premium be managed transparently and that
‘decisions on its use are taken democratically by the members of the cooperative’.137
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18. For the two cooperatives under study, most of the money seems to have been invested into a
common fund that is used for improving production facilities or serves to pay off the debts of
the cooperative.138 On the basis of the number of exported containers, we have calculated
the estimated amount of the Premium that the two cooperatives are likely to receive each
year. As Coaine exports only 4 containers to Fair Trade markets, it receives revenue of $8642
from the social premium at cooperative level, which divided by its 370 producers’ results in
an average of $23.36 per producer. Not surprisingly, given its higher productivity levels,
Mejillones gets a total of $17,284 which represents an average of $135 per producer.
3. An investigation into the impact of fairtrade in South Africa
The overriding benefits of Fairtrade in the study are developmental projects that were
invested in using Fairtrade premiums. In most cases, the premiums were used to finance
potential local public goods, where there were no cases of excludability and free riding on the
goods. The projects invested in fall into the following categories: education and training,
infrastructure development, production projects, environment, health and security, investment
in production and processing inputs, investment in material goods, and investment in sport
and leisure. Through these development projects, Fairtrade has contributed towards
strengthening relationships and providing services that would otherwise not be accessible to
individuals and communities. Thus, Fairtrade has significantly contributed towards economic
and social development in the country.
Using the results on how the Fairtrade premium is passed on to the beneficiaries, the study
challenges the criticism that was presented by Sidwell (2008). The paper advocates direct
donations to charities as compared to Fairtrade premium, based on the argument that only
―10% of the Fairtrade premiums paid by consumers reach producers (Sidwell, 2008: 11).‖
On the contrary, the research analysis has shown that the Fairtrade organization is transparent
with how the Fairtrade premium is calculated, and participants have not reported any cases
where they received lower premiums than they expected. In addition, the results show that the
way in which the Fairtrade premium is passed on to the beneficiaries in a commercial farm
setup is effective. The premium is directed into the Joint Body‘s account, thus, leaving no
chance of the Fairtrade premium being manipulated by the farm owner, whose monetary
gains are received from Fairtrade minimum prices.
Apart from the premium, Fairtrade brings about other benefits to Fairtrade producers. Both
commercial and small-scale farmers are allowed access to a market that offers stable prices,
which are always at least as high as, and often higher than market prices. Even commercial
farmers, although are not primary beneficiaries of Fairtrade, benefit from Fairtrade in this
way. Fairtrade minimum prices were more than twice the market price for commodities such
as litchis, plums, organic table grapes and rooibos tea in 2010. These Fairtrade minimum
prices, unlike in conventional markets, remain stable for a relatively longer period, despite
changes in global market competition. Thus, even if global market prices drop, Fairtrade
producers are assured of getting a higher price for their produce than market prices.
Moreover, once producers gain access to the Fairtrade market, they continue supplying the
market for a relatively longer period because the Fairtrade organization encourages long-term
relationships within the supply chain. These relationships have further contributed towards
building a link between Fairtrade consumers in the North and producers in South Africa.
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19. In the case of small-scale farmers, Fairtrade has allowed them to expand their business
opportunities to export markets. Before they were engaged with Fairtrade, they sold their
produce locally through middlemen. When they changed from local marketing to
international marketing, they managed to reduce the number of middlemen who siphoned off
part of the producers‘incomes along the supply chain. Thus, Fairtrade has opened up
opportunities (among the small-scale farmers) for relatively direct trade. As a result, small-
scale farmers enjoy an increase in income due to an increase in the share of export price.
Nevertheless, these increased opportunities for small-scale producers came along with more
responsibilities in terms of farm and group management. In Coop 1, where members had
problems in totally embracing the concept of group and conflict management, the cooperative
was decertified from Fairtrade.
Fairtrade has also contributed towards producer empowerment, particularly among small-
scale farmers and farm workers. Training small-scale farmers in organic production improved
the inherent capabilities of this group of farmers that was not being used to full potential.
After training, they managed to increase production. In addition, cooperative members
acquired exporting knowledge by participating in Fairtrade markets. Through this exposure to
export markets, small-scale farmers in the study are now better informed of market
requirements. As such, supplying export markets is a step towards career development among
small-scale farmers, considering that they were historically denied direct access to both local
and international markets. Among the farm workers, Fairtrade provided a learning platform in
a number of areas ranging from production to social issues. Farm workers, especially those
owning majority shares on a farm (for example Farm 8), or in part-ownership arrangements
with their employers, learnt to manage farms. Training in areas such as computer skills,
group management and project management equipped them in carrying out management
tasks. Farm workers were also left to manage social premium funds, where they were
required to decide on which social projects to invest in. The projects that they invested in
helped address issues related to unemployment, food security, education, poverty and
HIV/AIDS. By investing in these projects, Fairtrade has contributed towards social and
economic development in local communities and in South Africa in general.
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22. New Committee elected & agreed to shift the NS to New Delhi
Participated in the Social Development Fair at New Delhi
200
3
NS established at New Delhi with a small staff team (Supported by Tara
Projects)
4th National Convention at New Delhi
Started participating in Indian Handicrafts & Gift Fairs (IHGF)
Organized World Fair Trade celebrations in four regions
200
4
Coordinated and facilitated participation of the global fair trade fraternity in
the World Social Forum 2004 held at Mumbai
Hosted the launch of the Global Journey of Fair Trade Mark at Mumbai, which
coincided with the World Social Forum 2004
5th National Convention at Bangalore
Launch of EU-India SHARE in December
Organized World Fair Trade celebrations in four regions
200
5
Facilitated member’s participation in IHGF (Spring) 2005/ IHGF (Autumn)
2005
Social Development Fair organized in Kolkata
Facilitated members participation in the Fair Trade Fair at Hong Kong
6th National Convention at Kolkata
Developed product catalogue of members
Organized fair trade food workshop in four regions
Organized World Fair Trade celebrations in four regions
200
6
Became IFAT member
Organized fair trade food workshop in four regions
Coordinated 10 pilot projects and Marketing & Logistic trips to EU countries
as part of the EU-India SHARE project
Taken part in the consultation on 11th 5-year plan approach paper by the
Planning Commission
Table 3: Number of FLO certified producer organizations in India 2011
Commodities No. of certified producer organizations
Coffee 11
Tea 28
Sugar 1
Cotton 18
Cocoa 2
Others 11
Total 71
Source: Fair trade annual reports (2012)
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23. Table 4: Major Fair trade certified commodities in India 2012
Commodity Quantity
Coffee 16400
Tea 47700
Organic tea 4600
Sugar 2200
Source: Monitoring Fair trade annual reports (2012)
12. Indian cases
Putharjhora Tea Garden
The tea garden was established in 1887. At present it has 1055 workers and a production
capacity of 300000MT
Putharjora sets up a high school and several community centres in tea garden to carry cultural
activities. It also contributes to Women and children health- care schemes. Recently, the Fair
trade Premium paid for the Hepatitis B vaccination for all the children of the workers in the
plantation. From the Fair Trade premium, mosquito nets were distributed which helped in
reducing the instance of Malaria. Small credit funds for workers and small tea farmer
schemes. Conservation of natural fuel resources by introducing pressure cookers and cooking
gas, solar lights in the homes of the workers
SUNSTAR - Federation of Small Farmers of the Khaddar Region
The federation was established in 2001. At present there are about 900 farmer members in it.
The federation produces Brown Unpolished Basmati, White Polished Basmati. The annual
production of about 2200 MT.
The federation focuses on increasing educational opportunities to women and children and
improving access to health care. It runs agricultural training for disadvantaged women,
facilitates self-help groups, and provides family planning programs. It also develops
sustainable farming systems based on local needs, provides training for farmers on organic
agricultural practices, and grants loans for agricultural improvements. It also funds and
facilitates the organic certification process. Sunstar farmers build raised roads and bridges to
lessen the impact of annual flooding.
13. Challenges to fair trade
Market share is too small
Extent of potential contribution to development
Lack of agreement about what fair trade really means
Uneven awareness and availability across different areas
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24. Producing more low priced commodities for over supplied markets
Absence of official regulation
Entire savings made by removing middleman may not reach to the producer
Expensive niche market to maintain
Retailers may take advantage of consumers social conscience
14. Conclusions
Fair Trade has become part of both the policy and market place toolkit geared towards
poverty alleviation
Fair Trade strengthens the capacity of producer organizations
Fair Trade initiatives improve the transparency with which the markets and producer
organizations operate
Fair trade encourages a diversity in competitive marketing
Fair trade can provide a solid platform for innovative producers
Successful capacity building, organizational development and marketing support are
provided by the ATO’s to the producer organizations.
15. References
ANONYMOUS, January 2009, A charter of fair trade principles, World Fair Trade
Organization and Fairtrade Labelling Organizations International.
ANONYMOUS, 2012, Monitoring the scope and benefits of fair-trade, Fourth edition, :
Fairtrade Labelling Organizations
ANONYMOUS, 2013, Annual report 2012-13, Fairtrade Labelling Organizations
DOUGLAS L. MURRAY, LAURA T. RAYNOLDS, AND PETER L. TAYLOR, March
2003, One cup at a time: Poverty alleviation and fair trade coffee in Latin America, Colorado
State University.
SANDRA IMHOF, ANDREW LEE, June 2007, Assessing the Potential of Fair Trade for
Poverty Reduction and Conflict Prevention: A Case Study of Bolivian Coffee Producers,
Swisspeace.
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25. JARI, BRIDGET, 2012, An investigation into the impact of fairtrade in South Africa. PhD
thesis, Rhodes University.
Websites:
http://www.fairworldproject.org/overview/fair-trade/history.html
http://www.fairtrade.org.uk/what_is_fairtrade/fairtrade_certification_and_the_fairtrade_mark
/fairtrade_standards.aspx
http://www.fairtrade.net/standards.html
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