Fair Trade: Are Your Purchases Doing More Harm Than Good?

I’ve been in Cochabamba, Bolivia for just over 2 weeks now and although my research project isn’t designed around Fair Trade, it has come to mind that Fair Trade impacts Bolivian producers. So I feel this blog post to be of importance. Fair Trade covers a multitude of products grown throughout the developing world, including cocoa, cereals, fresh fruit, vegetables, herbs and spices, nuts, tea, and most notably: coffee. Coffee is the second largest traded commodity (by value) in the world, after petroleum.

Fair Trade has been an interest of mine for some time and, as most people would, found the concept of Fair Trade to be noble and important in protecting the rights of farmers in the developing world. The idea that farmers in developing markets could receive enough income to feed their families, be able to send their children to school, have enough income to pay their workers fair wages and be able to stand up for themselves so they are no longer taken advantage of by large, international coffee companies that used to hold more bargaining power.

However, this past spring I was reading a book by renowned economist, Jagdish Bhagwati, who made a negative connotation towards the fair trade practice. And it got me to thinking, why would this free trade promoter, who comes from an emerging country (India), take issue with fair trade? It led me to researching the pros and cons of fair trade, which has ultimately inspired me to question the entire practice.

I believe any compassionate individual would support the idea of fair trade and want to help disadvantaged farmers. I, too, wish to help in any reasonable way to eliminate global poverty and support opportunities for youth education. But upon researching the arguments of those against fair trade, I was disturbed by several facets of fair trade certification. First, Fair Trade USA not only certifies small farmers, but they do the marketing of fair trade products as well. In my opinion, this creates a conflict of interest. Since the certifying organization earns $.10 on every pound of fair trade coffee sold, it is only in its best interest to certify as many small farmers as possible. Remember: non-profit does not mean “no profit.”

However, my biggest issue with the Fair Trade certification process is that it is only for “small farmers”. There are a number of hurdles to jump through to become a designated Fair Trade producer. How it basically works is that the buyers of Fair Trade produced products must also be certified to purchase them. The small farmers can only produce a certain amount of their product each year and employ a certain amount workers. They must also pay fair wages and receive a specific price for their product from the buyers, often above market prices. At least for coffee, the small farmers MUST participate in a large cooperative with other small farmers who make decisions democratically.

This is a great idea, but I ask: What about the medium- and large-size farmers? What about the larger farmers who pay fair wages and follow the guidelines of the Fair Trade regulations? They cannot become Fair Trade certified. What this policy creates is exclusionary practices, not inclusionary. What is happening is that the medium- and large-size farmers are left out of the Fair Trade boom. They, in turn, must sell their products at market prices and are paid considerably less than the small, Fair Trade certified farmers. This certification process is nothing less than discriminatory.

And what about the small-, medium-, and large-size farmers who prefer to make their own independent business decisions not be driven by what other farmers in the cooperative want? Yes, a cooperative of 100 farmers can create more bargaining power when negotiating business deals, but it also binds farmers who want to make their own business decisions. Should the farmer choose to forego the cooperative, they cannot be designated “Fair Trade Certified.”

What I’ve found is that what started off as an honorable idea has come to create substantial problems for farmers in developing countries. I believe farmers deserve an income that affords them the opportunity to put food on the table and send their children to school. And I want to spend my money on products that help them do so. But I do not wish to discriminate against the larger farmers, who employ more workers, also have a family feed, want to send their children to school, and are responsible for their employees putting food on their family’s table and sending their own children to school. I want them, too, to see the fruits of the Fair Trade explosion. Hence, I believe large- and medium-size farmers should be allowed to participate in Fair Trade. I’d like to speak these farmers and see what they think and learn how they’re being impacted, because right now it makes for a difficult decision as a consumer.

What do you think? Do you have any additional thoughts or comments on how Fair Trade can be more inclusive?

You can find more information about Fair Trade and the debate here:

http://www.fairtrade.net/

http://bigthink.com/videos/can-free-trade-be-fair-trade

http://www.organicconsumers.org/articles/article_4738.cfm

http://clac-comerciojusto.org/

http://en.wikipedia.org/wiki/Fair_trade_debate

http://blogs.the-american-interest.com/bhagwati/2010/06/18/67/

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6 thoughts on “Fair Trade: Are Your Purchases Doing More Harm Than Good?

  1. My “problems” with fair trade are very different from yours. Having seen farmers with fairly large farms be fair trade certified makes me think the medium and large farm objection may be one more on paper than in real life (some of the farmers I worked with had farms that were VERY large). I don’t see a problem with letting larger farmers in, but I don’t see this as too much of a hindrance to large (family owned) farms either. As far as having to join the cooperative is concerned, while I understand the desire to make your own business decisions (farmers retain the right to decide how much to produce and how to produce as long as it’s within FLO guidelines, but they may lose some power on “who to sell to”), I also understand the point of view of FLO. It’s not just that cooperation means power in negotiations (although that is a HUGE incentive), it also has to do with making sure their bonuses are spent within a system of checks and balances. Cooperatives make a bonus for each pound of coffee sold that that must be used on social/community programs. If this were given to each individual farmer, it would be impossible to see and track that this actually went to those types of programs.

    My issue with fair trade is that amount of money that actually makes it back to the farmers. If you look at how much extra you pay for fair trade coffee (or other products), you would think that those extra $2-5/lb are going to the producer, when in reality on small fraction of it makes it back to them. The second issue is that fair trade has a set price (For example, $100/100lbs of coffee) that does not really fluctuate with the market. On one hand this is helpful because if the market drops, producers retain a higher price, but on the other hand, in the market rises, producers still usually chose to sell to a fair trade buyer (to maintain their relationship with them), even if it means getting a price lower than the market.

    Finally, I feel that FLO and its certifying organizations do a pretty poor job of enforcing the “rules”. I know many fair trade farmers that still hire migratory workers at a much lower rate (and definitely below a fair trade standard) than they hire local workers and have seen cooperatives abuse and misuse the community development funds.

  2. Hey man, great piece on fair trade. Really presents a lot of good questions. Some questions come to mind. First, your point about the price discrimination large producers face is interesting. I am just wondering how they determine what is small, medium, and large? If large meant they could take advantage or economies of scale and produce cheaper products, thus allowing them to under sell small farmers, then the discrimination kind of acts as an equalizer. However, then we have to ask why would anyone want to be a large farmer? Seems to me the ones that will really get hurt are the guys in the middle. If you aren’t small enough to be fair trade certified, and not large enough to produce at an exceptionally efficient rate, then you’ll really be in for a hard time!

    Acting as a cooperative also seems like it can cause some issues. Although, I guess its not much different than joining a labor union or something. You end up giving up some autonomy for the benefit of collective bargaining. Question is, is it worth it? I don’t know. Great stuff man, really got me thinking. Now I’ll be standing in the coffee aisle at the supermarket for 30 minutes looking back and forth between the coffee cans thinking “should I buy fair trade or not? Dammit Thomas!” hahaha

  3. Thanks so much for your comments! Brittany – Much appreciated for your insight…it’s just the type of inside experiences that are tough to come by. I also concur on the price fixing scheme, however decided not to broach the subject in this article because I felt it was more in-depth than I wanted to go at the time. It really leaves us wondering how to ensure farmers get their fair share of income while still promoting free markets, sans manipulation. Your example of FLO is another reason I think the marketing and certification parts need to be broken up into separate organizations.

    Will – I don’t think buying either way is wrong. I just want people to think more consciously about their purchases and not fooled into thinking Fair Trade is a modern marvel. Perhaps the middle-sized farmers do get hurt the most. It makes for an interesting research study. Perhaps I have more empathy for large farmers than most, but I believe they have the right to participate in Fair Trade and reap the additional profits. One could argue they could potentially drive smaller farmers out of business, which I understand. But I don’t think exclusionary practices are the answer. Favoritism rarely produces great results in the long run.

  4. I think your article is a little misleading about how Fair Trade works. 1) Fair Trade USA is no longer part of Fair Trade International and has it own standards to certify independent, small, medium, and large farms. Please visit here to read Fair Trade USA standards:http://www.fairtradeusa.org/certification/standards. 2) Certifying organizations do not earn 10 cent per pound for coffee. Fair Trade price = Floor Price or Market price (when market price is higher than floor price) + premium. Floor price is there to ensure the farmers and workers get a price that can sustain their business during a time that the market price for the product is low. The premium, is what i think you are referring, is actually a fund goes directly back to the farmer group, which the farmers or workers can democratically decide on how to use the fund to invest in development projects in their communities. 3) Fair Trade International is not very fond of certifying large coffee estates because they think that may put the small coffee farmers in disadvantage in the Fair Trade market. But Fair Trade USA disagree with Fair Trade International and started pilot project to certify coffee estates with standards focusing on worker’s rights.

  5. Thanks for the update Eva. Your comments bring up another good point, there is no sort of international “law” regarding fair trade. There are different Fair Trade groups out there and, unless you’re doing your research, you might not be supporting what you think you are supporting.

    As per your point #2, the coffee organization I worked with (I forget their certifying org but worked with FLO) had their premium broken into different parts. Some parts went directly to the farmer, some went to women producers (who earned a very small bonus for being independent farmers), and some went to the community development funds. For the most part, those community development funds were spent wisely. However, as with any organization, those who were more involved (or just pushier) received more benefits. For example, if you were a very pushy cooperative member, you would make sure your child received a scholarship from the scholarship fund, even if their were better (or poorer) candidates. I do think, though, that’s this is a small price to pay for the benefits of the community development funds.

  6. Pingback: Have a #Fairtrade Vacation | Lolwutpolitics.com

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