Fair Trade Essay ⋆ Business Essay Examples ⋆ EssayEmpire

The modern fair trade movement evolved in Europe during the 1960s as an outgrowth of leftist student organizations protesting multinational corporations’ “exploitative” trade relationships with producers in economically vulnerable developing countries. In 1968 the United Nations Conference on Trade and Development adopted “Trade not Aid” as its mantra, and focused its transnational organizational efforts on establishing a commercial fair trade framework between multinational corporations (“importers”) and economically developing nations (“exporters”).

Since 1994 the European Union (EU) has been on record supporting fair trade, with the European Parliament passing the Resolution on Fair Trade in 1998, and the European Commission in 1999 adopting the Communication from the Commission to the Council on Fair Trade. On July 6, 2006, the European Parliament unanimously passed “Fair Trade and Development,” a resolution suggesting the development of an EU-wide policy on fair trade.

Fair trade advocates argue that there is both a market failure associated with the present international trade system and a long-term commodity crisis adversely affecting developing-country producers. Addressing the former criticism, Oxford University professor Alex Nicholls and Charlotte Opal, director of product development, Transfair USA, argue that the present international trade system results in market failure, as

key conditions [e.g., perfect market conditions, access to markets and credit, and the ability to switch production techniques and outputs in response to market information] on which classical and neoliberal trade theories are based are notably absent in rural agricultural societies in many developing countries. … Thus, these fundamental assumptions are fallacious in the context of agricultural producers and workers in developing countries.

Furthermore, concerning the latter criticism, as a result of unregulated competition in global commodity markets since the 1970s, prices for many agricultural developing-country exports, including cocoa, coffee, cotton, and sugar, have fallen by 30 to 60 percent. Fair trade advocates do not believe that current market prices for many agricultural commodities reflect the actual costs of production, including environmental and social costs absorbed by producers, and therefore recommend a stable minimum price system remedy.

According to a definition developed in December 2001 by an informal group of four major international fair trade import federations, which include the Fairtrade Labelling Organizations International, International Fair Trade Association, Network of European Workshops, and the European Fair Trade Association, popularly referred to by the acronym FINE:

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.

The fair trade principles referred to in the above FINE definition include the following guidelines:

Fair Price. Farm and handcraft cooperatives are guaranteed a “floor” price from importers (referred to as a “Fair Trade Minimum”); in addition to this minimum guaranteed price, a premium price (referred to as a “Fair Trade Premium”) is added by importers for the sale of certified organic farm products, for example.
Fair Labor. Agricultural and handcraft workers are entitled, when they deem necessary, to the freedom to associate (i.e., the opportunity to join a labor union), equal employment opportunities, safe working conditions, and to receive living wages. Also, no forced labor or exploitative child labor is employed in the production process.
Market Access and Sustainable Trading Relationships. Importers will make every effort to develop long-term, direct purchasing relationships with agricultural and handcraft cooperatives, thereby eliminating so-called middlemen in the supply chain; increasing profit margins for producers; and further developing farmers and crafts peoples’ knowledge base and business skills, thus allowing them to effectively compete in the global marketplace.
Democratic Cooperative Organizations and Community Development. In free association, farmers and craft workers democratically, and transparently, decide how to invest fair trade revenue in sustainable business operations and, with their Fair Trade Premium revenue, community social, economic, and environmental development projects.
Environmental Sustainability. Farmers utilize environmentally safe and sustainable agricultural production methods that protect owner/ employee health and preserve the ecosystem for future cultivation.
Consumer Awareness. By informing consumers of the need for social justice and trade opportunities, fair trade organizations advocate for developing country producers to acquire consumer support for reform of international trade rules, leading to an equitable international trade system (as the current system of international trade is “unfair”).

When discussing fair trade, there are generally two complementary approaches to trading/marketing agricultural and craft products to consumers:

Integrated Supply Chain. Fair trade organizations, also referred to as alternative trading organizations, employ their marketing expertise (including public awareness campaigns) to import and/or distribute their clientele’s products to consumers.
Product Certification. Products complying with established fair trade international standards are formally certified, utilizing a consumer-friendly labeling “mark,” to have been produced, traded, processed, and packaged according to the applicable specifications listed in the international standards.

Fair trade products are, whenever possible, verified by a credible, independent assurance system. The fair trade product certification system is designed to allow consumers to identify a product (generally, although not exclusively, agricultural in nature) by a “mark” that informs him/her that it meets certain environmental, labor, and development standards (based upon the fair trade principles described above) in all aspects of production and distribution in the supply chain.

In 1997 the Fairtrade Labelling Organization (FLO) was formed as a centralized “umbrella” organization of 12 fair trade labeling organizations (now consisting of 23 member organizations, traders, and external experts), and in 2002, FLO initiated its International Fairtrade Certification Mark (or the Fair Trade Certified Mark in the United States and Canada), which is granted for a product inspected and certified by its independent certification body, FLO-CERT (which itself follows the ISO 65 standard for product certification). FLO-CERT, created in 2004 (along with FLO International, the standard-setting entity), operates with a network of 72 independent inspectors who regularly audit producer and trade organizations to verify and report on organizational (producer and trader) fair trade practices.

As of 2007 the International Fairtrade Certification is used by 632 organizations in 58 developing countries on a range of products, including bananas, cocoa, coffee, cotton, footballs, fruit juices, herbs, honey, nuts, spices, sugar, and wine, among others. In 2007 fair trade–certified product sales were $3.62 billion globally, with the 2005 Just-Food Global Market Review forecasting fair trade–certified sales of $9 billion in 2012, and $20–25 billion by 2020.

Criticisms Of Fair Trade

Opponents of fair trade argue that this concept is similar in application to a farm subsidy. As such, they posit that establishing a Fair Trade Minimum price for a product, which in many cases exceeds the market price, encourages existing producers to expand production while signaling new producers to enter the market—the result being excess supply leading to lower prices in the non–fair trade market. While the fair trade market may benefit such producers in the short-run, there are potential long-term effects on country development and economic growth. For instance, economic theory suggests that when low prices result from surplus production, in this case when artificially raising prices, it will only encourage expanded supply and the misappropriation of human capital into less productive economic activities. Other critics of fair trade argue that the present fair trade standards (as they pertain to product certification) are not strict enough or call for the establishment of a fairer, autonomous trading system not beholden to major retailers and multinational corporations.

Proponents of fair trade respond to critics, especially those employing the above mentioned market price distorting argument, by claiming that fair trade pricing does not “fix” prices, but establishes a product price floor to ensure that farmers and craft workers can meet their cost of sustainable production should market prices fall below this minimum sustainable level. They further argue that the Fair Trade Minimum price is not a “fixed” price, but only represents an initial starting point for business negotiation, as many fair trade producers who deal in differentiated products, such as coffee bean growers, routinely earn above this price floor for their higher quality, blends, packaging, and social responsibility features associated with their products. Moreover, fair trade proponents argue that, beyond the direct market benefits, there are other nonmarket benefits associated in the fair trade value chain, including increased technical assistance, democratization of markets, and crop diversification programs.

Bibliography:

Daniel W. Drezner, U.S. Trade Strategy: Free Versus Fair (Brookings Institution Press, 2006);
G. Hayes, “On the Efficiency of Fair Trade,” Review of Social Economics (v.64/4, 2006);
Peter Hulm, “Fair Trade,” International Trade Forum (v.2, 2006);
Stefan Mann, “Analysing Fair Trade in Economic Terms,” Journal of Socio-Economics (v.37/5, 2008);
Nicholls and C. Opal, Fair Trade: Market Driven Ethical Consumption (Sage, 2004);
Laura T. Raynolds, Douglas L. Murray, and John Wilkinson, Fair Trade: The Challenges of Transforming Globalization (Routledge, 2007);
Martin Richardson and Frank Stähler, Fair Trade (University of Otago, 2007);
Ruben Ruerd, The Impact of Fair Trade (Wageningen Academic, 2008);
Weber, “Coffee Enthusiasts Should Confront Reality,” Cato Journal (v.27/1, 2007);
Edwin Zaccai, Sustainable Consumption, Ecology and Fair Trade (Routledge, 2007).

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