Fair Trade

The fair trade movement began in 1960s, with the first fair trade certification created in 1988 in the Netherlands (1). Fair trade aims to provide fair prices, decent working conditions, local sustainability, and equitable partnership between workers and buyers. It does this by paying workers an “above-market ‘fair trade’” (1) price if specific labor, environmental, and production standards are met. Fair trade not only seeks to protect farmers but also to ensure that large corporations do not receive special privileges.

Organizations, such as Fair Trade USA and Fairtrade Labelling Organizations International (FLO), have raised awareness to many shoppers about trading internationally. However, there are still flaws within the system, especially for fair traded coffee. The first flaw is the “price floor”, which is the minimum price for fair traded coffee (1). In order to understand the flaws it is important to understand the system. FLO pays a minimum price of $1.40 per pound of coffee bean (this price was in placed in 2011) and $0.20 per pound higher than commodity coffee if prices increase. Also, coffee is graded on their quality, so a higher grade (A) means higher quality. Because of the low demand for Fair Trade coffee, a problem arises between quality of coffee and whether it is labeled as Fair Trade. For example, a farmer has fair trade coffee grade A and fair trade coffee grade B, but there is only one fair trade buyer. The fair trade coffee grade A is $1.70 per pound in the open market and the grade B is $1.20 in the open market. In order to make a profit, the farmer must sell his fair trade coffee grade A at the market price of $1.70 without the Fair Trade label and the fair trade coffee grade B as Fair Trade coffee at the FLO’s minimum price of $1.40. This problem escalates as commodity coffee bean prices have increased from $0.40 in 2001 to $2.50 in 2011. (Example provided from source 1)

Another flaw is the new Fair Trade USA labeling policy for multi-ingredient products. The new policy will allow a Fair Trade label for products that meet 20% of fair trade ingredients. For example, a chocolate bar from a company with fair trade coca beans, sugar and milk and a company with only free trade cocoa beans (33% of ingredients) both receive the Fair Trade label. (2) So a company that meets the 20% fair trade ingredient gets put on the same playing field as one that is 100% fair trade ingredients. This creates an incentive for companies to use only the minimum amount of fair trade ingredients. This new policy completely undermines the Fair Trade standards.

Fair Trade USA and FLO has tremendously increase shopper’s awareness and created a way for consumers to purchase products that are meeting fair trade standards. But these standards change as our insight into the situation increases and the current fair trade standards do not reflect that. Fair trade standards should take into consideration and:
• Increase relationship between supplier and buyers. Reconnect production with sales. If workers don’t know the price there products are sold at or how much the collectors make, how do they know if they are receiving a “fair” price?
• Execute on its goal to alleviate poverty. Most organizations have this goal as a priority but few attempts are made towards this. However, there are a few organizations that take actions. Allegro pays higher than the Fair Trade price (1) and 85% of its profits go towards the worker’s community.
• Increase transparency.
• Include quality as a factor.

These are just some of many factors to consider.

It is important to understand and question existing models to ensure that the people’s wellbeing are taken into account.

-Krystal Le

New labeling policy: http://fairtradeusa.org/sites/all/files/wysiwyg/filemanager/Fair-Trade-Certified-Label-Use-Guide-2013_Dual-Labels_vers15.pdf

Source:
1) http://www.ssireview.org/articles/entry/the_problem_with_fair_trade_coffee
2) http://fairworldproject.org/blogs/fair-trade-usa-new-labeling-policy-is-harmful/
3) http://www.nytimes.com/2011/11/24/business/as-fair-trade-movement-grows-a-dispute-over-its-direction.html?pagewanted=all&_r=0
4) http://www.globalcitizen.org/Content/Content.aspx?id=78a2fafa-52cc-4cdb-ad29-95f8e69aca62
5) http://www.ssireview.org/blog/entry/the_future_of_fair_tradeis_there_one/
6) http://fairtradeusa.org/what-is-fair-trade
7) http://www.fairtrade.net/
8) http://www.allegrocoffee.com/about/giving-back/origin-direct-program#nicaragua-selva-negra-2013