Fair trade debate

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There has been great debate about the merits of Fair Trade practices, especially those associated with the prominent certification system operated by Fairtrade International; although it remains essential to separate different approaches and to judge them on their individual details. The issues around which this debate has centred are outlined below.

Contents

[edit] Ethical Basis of Criticisms

Although there is evidence to suggest that consumers buy fair trade goods for a variety of reasons, some are willing to pay more for Fairtrade certified products for example, in the belief that this helps the very poor.[1] The main ethical criterion of critics of Fairtrade is that this money is diverted from the very poor farmers to businesses in rich countries, to moderately poor farmers, to employees of cooperatives or are used for unnecessary expenses—and some critics go as far to argue that this results in "death and destitution".[2] This informs criticisms that there is reason to doubt that much of the extra money paid reaches farmers, and that there is reason to believe that Fairtrade harms non-Fairtrade farmers. There are criticisms of what is designated Unfair Trading under EU law. There are also criticisms using many other criteria.[3]

On the other hand, more supportive commentators and academics point out that while some of these criticisms are grounded in acceptable standards of evidence (and deserve serious attention), others are less well elaborated.[4] In a few cases, criticisms remain assertions with little or no credible evidence to support them, and are strongly questioned by the application of more sophisticated frames of analysis.[5][6]

[edit] What Happens to the Money

[edit] Little money reaches the developing world

The criticism is that little of the extra money paid by consumers reaches the farmers. However Fairtrade International does publish annual monitoring and evaluation reports each year, showing that in 2010, for example, an additional 52 million Euros were earned in Fairtade premiums, in addition to the fair price offered. Critics have also argued that there is no monitoring of how much extra retailers charge for Fairtrade goods, and retailers almost never sell identical Fairtrade and non-Fairtrade lines side by side, so it is rarely possible to determine how much extra is charged or how much reaches the producers, in spite of the Unfair Trading legislation. However, European legislation dictates that retail prices are a matter determined by retailers alone. In fact there are many examples of Fairtrade products retailing at similar, or in some cases even lower prices, than non-Fairtrade products, and consumers are not being requested to pay any extra for the assurance that Fairtrade standards are being met. In four cases it has been possible to find out. One British café chain was passing on less than one percent of the extra charged to the exporting cooperative;[7] in Finland, Valkila, Haaparanta and Niemi[8] found that consumers paid much more for Fairtrade, and that only 11.5% reached the exporter. Kilian, Jones, Pratt and Villalobos[9] talk of US Fairtrade coffee getting $5 per lb extra at retail, of which the exporter would have received only 2%. Mendoza and Bastiaensen[10] calculated that in the UK only 1.6% to 18% of the extra charged for one product line reached the farmer. All these studies assume that the importers paid the full Fairtrade price, which is not necessarily the case.[11] Critics claim that "many" counter-examples would be needed to show that these are not typical. Unfortunately, this is methodologically flawed analysis as there are an equal number of identifiable, and hight profile cases (such as major retailer and brand switches on bananas, sugar or products like Cadbury Dairy Milk, Ben & Jerry's ice cream, Tate & Lyle sugars) which were delivered to consumers without any change in prices.

FLO’s own figures [12] are compatible with this. They claim that 1.53% of retail prices reach the developing world, and, since Fairtrade charges a 1.9% licencing fee at wholesale, the maximum that reaches producer countries, even if traders charge low margins is 50%. Some argue that this would be unacceptable to most charities; although no empiricla evidence has been cited by those making the claims.

[edit] Less money reaches farmers

The Fairtrade Foundation does not monitor how much of the extra money paid to the exporting cooperatives reaches the farmer. The cooperatives incur costs in reaching the Fairtrade standards, and these are incurred on all production, even if only a small amount is sold at Fairtrade prices. The most successful cooperatives appear to spend a third of the extra price received on this; and if they continue to participate in the sheme it can be assumed that they are happy with the arrangement. However, critics rightly highlight that some less successful cooperatives actually spend more than they gain. While this appears to be agreed by proponents and critics of Fairtrade,[13] there is a dearth of economic studies setting out the actual revenues and what the money was spent on. FLO figures[14] are that 40% of the money reaching the developing world is spent on ‘business and production’ which would include these costs, as well as costs incurred by any inefficiency and corruption in the cooperative or the marketing system (which is less a product of the fair trade system than a widespread issue with value streams in the developing world due to the lack of sufficient governance arrnagements). The rest is stated to be spent on social projects, rather than being passed on to farmers.

Problematically, it cannot be rigorously concluded that Fairtrade certified farmers get higher than those in conventional value chains; although there are prominent quantities studies which indicate that this is the case. What such research has little addressed is the problems of price reporting in developing world markets,[15] and few appreciate the complexity of the different price packages which may or may not include credit, harvesting, transport, processing, etc. Cooperatives typically average prices over the year, so they pay less than traders at some times, more at others. Bassett (2009) [16] is able to compare prices only where Fairtrade and non-Fairtrade farmers have to sell cotton to the same monopsonistic ginneries which pay low prices. Prices would have to be higher to compensate farmers for the increased costs they incur to produce Fairtrade. For instance, Fairtrade encouraged Nicaraguan farmers to switch to organic coffee, which resulted in a higher price per pound, but a lower net income because of higher costs and lower yields.[17] The claim that Fairtrade ‘Fairtrade guarantees a fair price for the producer’ is not supported by the evidence.

[edit] Lack of Evidence of Impact

Some critics argue that there have been very few attempts at Fair trade impact studies. However, this is highly contestable on a variety of grounds. Firstly, those on both sides of the fair trade debate agree that case studies are of limited value in making an overall judgement as to if fair trade in general, or even the specific certification of Fairtrade International, does or does not have a positive impact.[18] Secondly, there have been many studies on the impact of Fairtrade, mostly conducted by independent research institutes and academics. The University of Greenwich published a literature review of 33 case studies which is available on the Fairtrade Foundation website. The most recent studies (see impact section on Fairtrade website) include impact for wine and rooibos tea growers in South Africa, on tea farmers and workers in Malawi, and on banana farmers and workers in Ghana, Dominican Republic, Windward Islands and Ecuador. While these are individual and highly specific examples, one trend in findings is that while the benefits of Fairtrade certification are maximised in periods of depressed global prices they do reduce when international prices increase [19][20]

Griffiths (2011)[21] makes the excellent point however, that few of these attempts meet the normal standards for an impact study, such as comparing the before and after situation, having meaningful control groups, allowing for the fact that Fairtrade recruits farmers who are already better off, allowing for the fact that a Fairtrade cooperative receives aid from a dozen other organizations – Government Departments, Aid Agencies, donor countries, and NGOs, and allowing for the fact that Fairtrade may harm other farmers. . Other serious methodological problems arise in sampling, in comparing prices, and from the fact that the social projects of Fairtrade do not usually aim to produce economic benefits. On the other side of the argument, these limitations also apply to those studies finding poor results. Indeed, due to the snap shot nature of research, and particularly that which achieves the highest circulation due to its reporting in the media, the time of fair trade involvement is often omitted. A further significant problem is that the agency and perspective of producer decision makers is often ignored. For example, research with NASFAM in Malawi discovered that early in their involvement with fair trade returns were lower than additional income. However, ascribing agency and a voice to the managers highlighted that they saw this is an acceptable business risk given the potential rewards. Indeed, the following year, income rose dramatically and Fairtrade certification opened the door to a wide European market from which the producer was previously excluded.[22] Capturing such socially constructed benefit, including that of confidence in business relationships, is notoriously difficult to capture in social science research.

[edit] Inefficient Marketing System

One reason for low prices is that Fairtrade farmers are forced to sell through a monopsonist cooperative, which may be inefficient or corrupt – certainly some private traders are more efficient than some cooperatives. They cannot choose the buyer who offers the best price, or switch when their cooperative is going bankrupt.[23] There are also complaints that Fairtrade deviates from the free market ideal of some economists. Brink calls fair trade a "misguided attempt to make up for market failures" encouraging market inefficiencies and overproduction.[24]

[edit] Corruption

Low prices may also occur because the Fair Trade marketing system provides more opportunities for corruption than the normal marketing system, and less possibility of, or incentive for, controlling it. Corruption has been noted in false labelling of coffee as Fairtrade by retailers and by packers in the developing countries,[25] paying exporters less than the Fairtrade price for Fairtrade coffee (kickbacks)[26] failure to provide the credit and other services specified[27] theft or preferential treatment for ruling elites of cooperatives [28] not paying laborers the specified minimum wage [29]

[edit] Fairtrade helps the rich

Fair Trade is profitable for traders in rich countries. In order to join Fairtrade, cooperatives must meet quality and political standards which means their farmers must be relatively skilful, educated and well capitalized, and critics point out that these farmers are, therefore, far from the poorest farmers. The majority of Fairtrade suppliers are in the higher income or middle income Third World countries, such as Costa Rica and Mexico, with relatively few in the poorest countries. Mexico has 70 times the GNP per head of Sierra Leone. The minimum wage of agricultural workers in Peru is $3 a day and the average income of Fairtrade farmers in Bolivia was US$900/year, very much higher than normal agricultural incomes in Africa and much of Asia. Again, critics say this is diverting money from the poorest farmers.[30]

[edit] Fairtrade Harms Other Farmers

[edit] The Overproduction Argument

Critics argue that fair trade and particularly those practices certified by Fairtrade International harm all non-Fairtrade farmers. This is because Fairtrade institutions claim that its farmers are paid higher prices and are given special advice on better techniques, both of which will lead to increasing yields being produced and sold on the global market. Proponents of this position referring to economic theory [31] assert that as the demand for many commodities certified by Fairtrade are highly inelastic, a small increase in supply means a large fall in market price, so perhaps a million Fairtrade farmers get a higher price and 24 million others get a substantially lower price. Their conclusion is that the Fairtrade minimum price means that when the world market price collapses, it is the non-Fairtrade farmers, and arguably the poorest, who have to cut down their coffee trees. This argument is supported by mainstream economists, but is most usually advocated by those with strong confidence in deferring governance to market coordination [32] (which fair trade supporters point out is very different from markets actually behaving as theory anticipates. This argument is often substantiated with reference to the example in which Vietnam paid its coffee farmers over the world price in the 1980s, planting lots of coffee, then flooding the world market in the 1990s.[33]

Unfortunately, as has been pointed out, the example of Vietnam is highly inappropriate.[34] Firstly, there are problems with the causality of the case. Vietnam was already increasing its output before prices were artificially raised and the period coincided with a generalised and significant increase in world prices after the Brazilian coffee frost in 1994.[35] More importantly however, the Vietnamese state did not set prices, but instead provide preferential credit and a range of input subsidies.[36] As Smith summarises therefore, "On the one hand we have farmers responding to global price increases and intensified by the massive provision of immediate subsidies by the national government. On the other side, we have a voluntary system of private governance which while claiming to guarantee prices do not slip below the cost of sustainable production, does nothing to ‘fix’ the price when world markets are above this stated level".[37]

The significant difference between the state and voluntary organisations setting minimum prices is even recognised by other fair trade critics [38] and further questioned by their own identification that Fairtrade International's price structure is mediated by intermediary cooperatives (see above) - a fact that reduces the price incentive to over produce experienced by actual farmers responsible for the production decisions.[39] While it is probably almost certainly the case that in some situations producers working within fair trade governance have and do increase output, the identification of this outcome as a result of minimum prices (the mention of which is unfortunately like a red-rag to the neo-liberal bull) has not been empirically substantiated but is instead grounded the most rudimentary use of economic theory.

[edit] Diverting aid from other farmers

Fairtrade supporters boast of ‘The Honeypot Effect’ – that cooperatives which become Fairtrade members then attract additional aid from other NGO charities, government and international donors as a result of their membership.[40] Typically there are now six to twelve other donors. Critics point out that this inevitably means that resources are being removed from other, poorer, farmers. It also makes it impossible to argue that any positive or negative changes in the living standards of farmers are due to Fairtrade rather than to one of the other donors.

[edit] Other ethical issues

[edit] Secretiveness

Under EU law (Directive 2005/29/EC on Unfair Commercial Practices) the criminal offence of Unfair Trading is committed if (a) ‘it contains false information and is therefore untruthful or in any way, including overall presentation, deceives or is likely to deceive the average consumer, even if the information is factually correct’, (b) ‘it omits material information that the average consumer needs . . . and thereby causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise’ or (c) ‘fails to identify the commercial intent of the commercial practice . . . [which] causes or is likely to cause the average consumer to take a transactional decision that he would not have taken otherwise.’ Griffiths (2011) [41] points to false claims that Fairtrade producers get higher prices, the almost universal failure to disclose the extra price charged for Fairtrade products, to disclose how much of this actually reaches the Third World, to disclose what this is spent on in the Third World, to disclose how much, if any, reaches farmers, and to disclose the harm that Fairtrade does to non-Fairtrade farmers. He also points to the failure to disclose when ‘the primary commercial intent’ is to make money for retailers and distributors in rich countries.

[edit] Imposing One’s Politics

The Fairtrade criteria are essentially political, and critics state that it is unethical to bribe Third World producers to adopt a set of political views that they may not agree with, and the donors providing the money may not agree with. In addition many of the failures of Fairtrade derive from these political views, such as the unorthodox marketing system imposed.[42] Boersma (2002, 2009) [43] the founder of Fairtrade, and like minded people[44] are aiming at a new, non-capitalist way of running the market and the economy. This may not tie in with the objectives of producers, consumers, importers or retailers.

[edit] Unethical selling techniques

Booth says that the selling techniques used by some sellers and some supporters of Fairtrade are bullying, misleading and unethical.[45] There are problems with the use of boycott campaigns and other pressure to force sellers to stock a product they think ethically suspect. However, the opposite has been argued, that a more participatory and multi-stakeholder approach to auditing might improve the quality of the process.[46] Some people argue that these practices are justifiable: that strategic use of labeling may help embarrass (or encourage) major suppliers into changing their practices. They may make transparent corporate vulnerabilities that activists can exploit. Or they may encourage ordinary people to get involved with broader projects of social change.[47]

[edit] Misleading Volunteers

A lot of people volunteer to work to support Fairtrade. They may do unpaid work for firms, or market Fairtrade in schools, universities, local governments or parliament. Sometimes they do not appreciate that most or all the benefit may go to businesses in rich countries.

[edit] Failure to monitor standards

There are complaints that the standards are inappropriate and may harm producers, sometimes imposing months of additional work for little return.[48]

There have been claims that adherence to fair trade standards by producers has been poor and that enforcement of standards by Fairtrade is very weak, notably by Christian Jacquiau[49] and by Paola Ghillani, who spent four years as president of Fairtrade Labelling Organizations[50] There are many complaints of poor enforcement problems: labourers on Fairtrade farms in Peru are paid less than the minimum wage;[51] some non-Fairtrade coffee is sold as Fairtrade[52] ‘the standards are not very strict in the case of seasonally hired labour in coffee production.’[53] ‘some fair trade standards are not strictly enforced’[54] supermarkets avoid their responsibility.[55] In 2006, a Financial Times journalist found that ten out of ten mills visited had sold uncertified coffee to co-operatives as certified. It reported that "The FT was also handed evidence of at least one coffee association that received Fairtrade certification despite illegally growing some 20 per cent of its coffee in protected national forest land.[56]

[edit] Trade Justice and Fair Trade

Segments of the trade justice movement have also criticized fair trade in the past years for allegedly focusing too much on individual small producer groups while stopping short of advocating immediate trade policy changes that would have a larger impact on disadvantaged producers' lives. French author and RFI correspondent Jean-Pierre Boris championed this view in his 2005 book Commerce inéquitable.[57]

On the other side of the debate, institutions operating under the umbrella of FLO International and the World Fair Trade Organization, as well as numerous other institutions which self identify with the concept of fair trade, engage in continuous policy analysis, critique and advocacy. While these issues do consider communities of small farmers, they also cover macro trade policies adopted by national governments, the European Union and the World Trade Organization.

[edit] Political Objections

There have been largely political criticisms of Fairtrade, both from the left and the right. Some believe the fair trade system is not radical enough. French author Christian Jacquiau, in his book Les coulisses du commerce équitable, calls for stricter fair trade standards and criticizes the fair trade movement for working within the current system (i.e. partnerships with mass retailers, multinational corporations etc.) rather than establishing a new fairer, fully autonomous trading system. Jacquiau is also a staunch supporter of significantly higher fair trade prices in order to maximize the impact, as most producers only sell a portion of their crop under fair trade terms.[58] It has been argued that the approach of the FairTrade system is too rooted in a Northern consumerist view of justice which Southern producers do not participate in setting. "A key issue is therefore to make explicit who possesses the power to define the terms of Fairtrade, that is who possesses the power to determine the need of an ethic in the first instance, and subsequently command a particular ethical vision as the truth."[59] Some of the criticisms of Fairtrade from the free market approach to economics appear to be linked to right wing political approaches, but this does not mean that their analysis in this particular case is unacceptable to mainstream economists.

[edit] References

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  32. ^ Collier, Paul (2008). The Bottom Billion: Why the poorest countries are failing and what can be done about it. Oxford: Oxford University Press. pp. 163. 
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  36. ^ Nguyen, Hoa; Ulrike Grote. "Agricultural Policies in Vietnam: Producer Support Estimates, 1986-2002". Discussion Papers on Development Policy. http://www.econstor.eu/dspace/bitstream/10419/21849/1/zef_dp93.pdf. 
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