Fair Trade and Sustainable Business Practices


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I gave this presentation at the 2nd Annual Good Mule conference which was organized by a group of students (including myself). It is a modified version of the presentation I gave to defend my Senior Honors Thesis entitled "Free Trade Problems, Fair Trade Solutions."

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  • Like most students of economics, I was intrigued with the idea of “perfect” models. However, as I learned more about the current state of the planet – the widespread poverty, market failures, exploitation – I became more and more perturbed. Economic theory, as perfect and logical as it seems, just didn’t seem to be matching up to realities in the global economy. About this time, I sat down to write a paper about why fair trade was a bad idea, economically speaking, and why it would never work. The longer and harder I searched for supporting evidence, however, the more I realized how wrong my assumption was.
  • First, I’m going to talk about global poverty, because currently Fair Trade producers are limited to the poorest regions of the world. I’ll give you some information about what and where dire poverty is, what have come to be known as poverty traps, and then go into how fair trade has offered the poor keys to escape these poverty traps.
  • It can be useful to distinguish between three degrees of poverty: extreme or absolute poverty, moderate poverty, and relative poverty. People living in extreme poverty cannot meet the basic needs of survival, such as food, health care, safe drinking water, sanitation, education, and shelter. This type of poverty is found only in developing countries. The World Bank defines the extremely poor as those who survive on less than $1 per day. There are approximately 1 billion people or one-sixth of humanity living in these conditions. The moderately poor are only slightly better off, living on between $1 and $2 per day. The extreme poor and moderately poor make up about 40% of humanity. Finally, relative poverty is the kind of poverty “poor college students” deal with persisting on a household income below a certain proportion of the average national income.
  • Africa is one area of the world where dire poverty is rampant. A 2001 study estimated that 48% of the population lived on less than $1 per day. Life expectancy is only 46 years and falling, mainly due to the AIDS epidemic. In many African countries, one in five children die before the age of five from preventable causes. Africa historically has been the victim of colonialism, exploitation, and corruption. Throughout the 1980s, several African countries borrowed money from the World Bank with stipulations of market liberalization. While this opened up African markets to goods from foreign countries, African countries had very little to sell abroad and investors scoured Africa’s bountiful natural resources.
  • When your income is so minimal that it only covers necessary costs of surviving, leaving no margin of income for future investment, you are said to be in a poverty trap. Sadly, many of the poor living in poverty traps are forced to exploit their natural resources to survive. This is not only unsustainable for the farmer because he will eventually run out of resources, but also is very degrading to the environment which has widespread affects.
  • Now I’ll talk more about what I really want to share with everyone and that is the Fair Trade movement. Nicole Chettero, a reporter for World Ark, said:
  • I’ll talk briefly about why Free Trade is different, what “fair” means in general, and the definition of fair trade.
  • Free trade means no gov’t regulations, limits, quotas, tariffs, or protection. The U.S. advocates free trade a lot. If you’ve ever taken an econ class, you’ve probably seen the models that show how incredibly efficient free trade can be (in theory). However, there are hidden costs for this efficiency: stability, community, and equality, to name a few. In many developing countries, governments depend on the tariff revenues for the development of infrastructure and other state-supplied services such as education. Eliminating all tariffs makes it very difficult for the state to create a climate that allows business to thrive. Also, “free trade” has been very asymmetric. The U.S. often maintains agricultural subsidies, for example, while pushing developing countries to open up their markets to free trade. Finally, exploitation is a huge problem. People are greedy, and with no regulations to stop them, businesses strip natural resources and abuse labor to increase profits.
  • Story: You witness a crime, the criminal has a gun, the victim may be shot. You could go in personally but you’re risking your own life for theirs. Your life is of comparable significance. Or, you can stay a safe distance from the crime, spend $0.25 to use a payphone and call the police to report the crime. Twenty-five cents is not of comparable significance to the victim’s life. Or, you can do nothing and watch the crime unfold. How many agree that violent crime is bad? How many agree that if you don’t have to sacrifice anything of comparable significance (like a quarter) to save someone’s life, that you ought to do it? What if you spent $5/week to prevent all violent crime, would your budget be hurting? Would it be worth it to live in a crime-free world? This was Peter Singer’s argument from his essay FA&M
  • So instead of talking about giving that money away, let’s talk about how your twenty-five cents can save a life and further the movement of Fair Trade. When you purchase a fair trade certified product, you’re supporting:
  • The main goals of the fair trade movement are to:
  • There are several ways that fair trade can offer the poor keys to escaping poverty traps. By cutting out middlemen and returning profits to producers, the poor can invest in human capital (health, nutrition, and education). They may also have the ability to invest in business capital and natural capital. The fair, constant wage that fair trade businesses promise producers acts as a kind of insurance against the inevitable fluctuations of the world prices of goods. A MNC might be able to withstand dramatic fluctuations in the price of coffee, but small impoverished farmers may be forced to sell land and capital to survive during the low times, and do not always have the chance to recuperate when the high times return. Fair trade businesses eliminate this risk by paying a constant wage. Fair trade businesses place great importance on educating the workforce that they trade with to ensure that they know how to produce sustainably and manage their business effectively. Fair trade cooperatives allow small farmers to build stronger communities, network with other farmers, pool resources to invest in community development, and thereby create a more stable environment for investment and business. Finally, environmental sustainability is key to avoiding poverty traps. For example, instead of clear-cutting forests to maximize arable land, many fair trade coffee companies sell “shade-grown” coffee grown among the trees. This helps prevent erosion and loss of valuable topsoil, provides a natural fertilizer and preserves the ecosystem of the forest.
  • Fair trade standards usually create environments that yield higher-quality products. The fair constant wage paid to farmers allows them to reinvest in cultivation, harvesting and post-harvesting, which helps to improve the quality of the crops. Also, by cutting out middlemen, farmers can get valuable feedback regarding quality control.
  • A final note about sustainability…
  • In conclusion…
  • Fair Trade and Sustainable Business Practices

    1. 1. Fair Trade and Sustainable Business Practices<br />By Anna L. Guyton <br />B.A. International Studies, Global Economic Systems, International Business; UW 2008<br />Presented to The Good Mule Conference 2010<br />
    2. 2. Fair Trade is an emerging movement in the global economy that is helping to reduce poverty and empower rural producers through ethical and sustainable business practices. <br />Thesis<br />
    3. 3. What is Poverty?<br />Where is Absolute Poverty?<br />Poverty Traps<br />Poverty<br />
    4. 4. What is Poverty?<br />3 degrees of poverty: <br />Extreme/Absolute poverty<br />Cannot meet basic needs<br />Only in developing countries<br />Less than $1/day<br />Approx 1 billion people<br />Moderate poverty<br />Basic needs met, just barely<br />$1-$2/day<br />Approx 1.5 billion people<br />Relative poverty<br />Income < proportion of average national income<br />
    5. 5. Where is Absolute Poverty?<br />Percent of national populations living on less than $1.25 per day. UN Estimates 2000-2007<br />
    6. 6. Where is Absolute Poverty?<br />Africa<br />48% absolutely poor (2001)<br />Life expectancy 46 years and falling (AIDS)<br />1/5 of all children die before age 5<br />Colonialism<br />Exploitation<br />Corruption<br />Failure of trade liberalization <br />Natural resource curses <br />
    7. 7. Poverty Traps<br />No margin of income for future investment<br />Livelihood often unsustainable<br />Deplete natural capital:<br />Cutting down trees<br />Exhausting soils of nutrients<br />Mining mineral, energy & metal deposits<br />Overfishing<br />
    8. 8. “Fair trade is the essential first step toward an equitable and sustainable form of international trade that benefits industry, consumers, producers, and the Earth” (Nicole Chettero)<br />Fair Trade<br />
    9. 9. Why not Free Trade?<br />What does “Fair” mean?<br />Definition<br />Goals<br />The Concept<br />
    10. 10. Why not Free Trade? <br />“Free markets, though more efficient and productive, produce distributional consequences and compromise other values” (Bruce E. Moon) <br />Income inequality<br />Loss of tariff revenue = less state capacity for building infrastructure, etc. <br />Free trade not always free<br />Exploitation<br />
    11. 11. What does “Fair” mean?<br />Justice<br />Do you agree? <br />If we can prevent something bad without sacrificing anything of comparable significance, we ought to do it; <br />absolute poverty is bad; <br />there is some poverty we can prevent without sacrificing anything of comparable moral significance; <br />therefore we ought to prevent some absolute poverty.<br />Peter Singer, “Famine, Affluence, and Morality”<br />
    12. 12. Definition<br />Equitable trading systems<br />Community support<br />Transparent supply chains<br />Sustainable production methods<br />Protection from unstable prices<br />Safe, healthy working conditions<br />
    13. 13. Goals of Fair Trade<br />Keys to Poverty Traps<br />Fair Trade Perks<br />Sustainable Business Practices<br />Win-Win-Win-Win Situation<br />Goals & Achievements<br />
    14. 14. Goals<br />Alleviate poverty<br />Protect the environment<br />Encourage sustainable development<br />Create opportunities for capacity building<br />Promote gender equity <br />
    15. 15. Fair Trade Keys<br />Higher profits<br />Investment in human capital<br />Investment in business capital<br />Investment in natural capital <br />Fair, constant wage<br />“Insurance” <br />Access to new technology<br />Diffusion of knowledge<br />Cooperatives <br />Stronger communities<br />Networking opportunities<br />Pooling of resources<br />Stable environment<br />Environmental protection<br />“Shade-grown” coffee<br />Sustainability <br />
    16. 16. Fair Trade Perks <br />Fair trade standards  quality <br />Reinvest in cultivation, harvesting & post-harvesting <br />Feedback about quality control<br />Empowered rural producers<br />Better solve local issues without need for charity<br />Raise standards of living<br />Stronger communities<br />Reduced exploitation<br />
    17. 17. Sustainable Business Practices<br />Not just about climate change <br />Sustainability has 3 factors: <br />Environmental<br />Natural resource extraction and pollution<br />Economical<br />Is the business viable? Can it turn a profit? Are prices fair? Can the industry withstand fluctuating commodity pricing?<br />Social/Community<br />Community development, fair labor practices, cooperative networks<br />Fair Trade addresses all 3<br />
    18. 18. Win – Win – Win – Win Situation<br />Producers are happy<br />They have work, fair wages, and fair working conditions<br />Consumers are happy<br />They have higher quality products and feel good about the impact of their purchases<br />Earth is happy<br />Less environmental degradation due to our consumerism<br />Industry is happy<br />When all of the above are sustained, there is good business<br />
    19. 19. “Ending poverty is possible but not inevitable… It is one thing to know that people are suffering. But it is another thing to know that this suffering can go on indefinitely, is largely unnecessary, and that we could have done more to help—with potential benefits that could prove very significant for our own future” (Stephen Smith)<br />Conclusion<br />