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The Fair Trade initiative was created to form a new method for trade. This method takes an ethical stand point, and considers the producers first, in an attempt to emphasise equality in the market place. The organization forms a partnership between the consumer and the producer, and aims to eliminate other parties within the supply chain (Alvarado, 2009). Fairtrade International (FLO) uses fair trade benefits to make certain that the producers who take part in the initiative are not being exploited by buyers in developed countries, who try to reduce their own costs to make a bigger profit and/or cover the cost of higher taxes and employee benefits imposed on companies in developed countries. The second part of Fairtrade International is their independent certifier called FLOCERT. FLOCERT ensures that companies and producers all comply with FLO's standards of trade. Fairtrade International was initially made up of other national fair trade initiatives from around the world, who came together to form one international umbrella organisation (FLO). Fairtrade International started with the coffee industry, but now covers a range of products such as cocoa, fruit, cotton, flowers, tea and others. The established buyers of these products make up a niche market, which makes marketing for fair trade a challenge.
Retail sales of Fairtrade certified products have grown steadily over the last decade and are expected to continue growing but fairtrade certified products make up a relatively minuscule share of the global market for agricultural goods. As of 2011, 827 producer organizations in 58 developing countries were Fairtrade certified, representing over 1.2 million farmers and workers. The effectiveness of Fairtrade is questionable; and in some cases workers on Fairtrade farms have a lower standard of living than on similar farms outside the Fairtrade system.
The fair trade movement stemmed from an initiative established by the Dutch development agency, Solidaridad, and aimed to create more equality between coffee producers and roasters. The agency recognised that the producers were not being treated fairly, and strived to create a more ethical system to trade. The Max Havelaar seal, which was based on a fictional character, was established "to license existing roasters and retailers who complied with its fair trade criteria" (Alverado, 2009). The seal provided specific benefits for cooperatives of small coffee producers in Mexico, with the aim of balancing the production of crops to be exported, as well as crops for the local population. The four benefits in this early model of the fairtrade initiative were:
- A guaranteed minimum price to protect producers from any potential falls in the global market.
- An additional 10% of the market price for their investment in social and environmental projects.
- A 60% advance to producers to reduce the pressure of selling their product "immediately after harvest when its price is lowest" (Alvarado, 2009)
- A commitment by roasters to eliminate any other parties within the supply chain, with the aim of dealing more directly with producers.
The global market
The Solidaridad informed large audiences of the mistreatment of coffee producers and poor living conditions in developing countries. They worked with other associations as well as the mass media to spread the message and create an awareness of their fair trade initiative. Because of their efforts, in 1988 the first bag of Max Hevelaar sealed coffee from Mexico was delivered to Holland's Prince Claus, and was launched to be sold in supermarkets throughout Holland. By the 1990s every western European country had established their own national version of the Max Hevelaar initiative. (Alvarado, 2009)
Between the late 1980s and the mid 1990s, multiple national initiatives following a fair trade system coexisted within "Europe, USA, Canada, and Japan" (Nicholls & Opal, 2005, p. 128). 1997 however, 17 national initiatives joined forces to create one international umbrella organisation called the Fair Trade Organization (FLO). FLO is based in Bonn, Germany, and has quickly become the largest organisation of its kind (Nicholls & Opal, 2005). FLO also has branches and field workers situated in Africa, Central and South America and China. The international fair trade label was introduced in 2002 to improve visibility for consumers.
Marketing Fair Trade
A key part of the Fair Trade initiative is to inform consumers through innovative marketing. According to Nicholls and Opal (2005) the marketing must create a value proposition for the initiative that encompasses the ethical side, as well as the quality of the product. A challenge that marketers of Fair Trade products often face is that their funding is very limited. Marketing often comes from a variety of print media, such as newspaper articles and magazines, as well as some guerilla marketing strategies. Another challenge for marketers is which aspect of the initiative it should sell. According to Witkowski (2005), marketers are challenged by whether they should sell the product or the ethics. One of the biggest selling fair trade branded products in Britain is Cafedirect, who have used a variety of platforms to position their fair trade brand in the market. However, Wright (2004) recognises that it is often less successful to market fair trade from an ethical perspective than it is to persuade consumers by confirming their good taste. Cafédirect discovered that only 13% of consumers within the UK preferred buying fair trade or ethical products. The small percentage of consumers meant that Cafédirect needed to shift from marketing to a niche market to more of a mass market perspective (Wright, 2004).
How it works
To use an example; Fair trade coffee packers in developed countries pay a fee to their country's Fairtrade organization for the right to use the brand and logo. Nearly the entire fee goes to marketing. Packers and retailers can charge as much as they want for the coffee. The coffee has to come from a certified Fairtrade cooperative, which pays certification and inspection fees. The importer is obliged to pay the exporter a base price which keeps the price from sinking below that level.It is sometimes higher than the going world price, but at times when coffee prices are high, it may be lower than the going price. There is also an additional "producer premium" (20c/lb for coffee). For a few products, like coffee, there is also a minimum price. For other products production by plantations rather than small farmers is permitted, and marketing is done by normal traders.
The cooperatives or other Fairtrade certified firms incur additional costs including increased marketing costs, certification and inspection fees, and costs of conforming to the specifications. However, they can, on average, sell only a small amount of their output as Fairtrade, because of lack of demand, and must sell the rest as uncertified at world prices.
Any deficit after paying these costs means a lower price for farmers, while any surplus from the premium price must be spent on "social projects" for "common goals" organized by the exporting cooperative rather than being an extra payment for farmers. These may include the building of classrooms, baseball pitches, or the establishment of women's groups, for instance.
Fairtrade farmers have to meet a large range of criteria on production: there are limits on using child labour, pesticides, herbicides, genetically modified products and so on.
Fairtrade Standards contain minimum requirements that all producer organizations must meet to become certified as well as progress requirements in which producers must demonstrate improvements over time. To become certified Fairtrade producers, the cooperatives and their member farmers must operate to certain standards laid down by Fairtrade International. FLO-CERT, the for-profit side, handles producer certification, inspecting and certifying producer organizations in more than 50 countries in Africa, Asia, and Latin America.
There is widespread confusion because the fair trade industry standards provided by Fairtrade International (The Fairtrade Labelling Organization) use the word "producer" in many different senses, often in the same specification document. Sometimes it refers to farmers, sometimes to the primary cooperatives they belong to, to the secondary cooperatives that the primary cooperatives belong to, or to the tertiary cooperatives that the secondary cooperatives may belong to but "Producer [also] means any entity that has been certified under the Fairtrade International Generic Fairtrade Standard for Small Producer Organizations, Generic Fairtrade Standard for Hired Labour Situations, or Generic Fairtrade Standard for Contract Production." The word is used in all these meanings in key documents. In practice, when price and credit are discussed, "producer" means the exporting organization, "For small producers' organizations, payment must be made directly to the certified small producers' organization". and "In the case of a small producers' organization [e.g. for coffee], Fairtrade Minimum Prices are set at the level of the Producer Organization, not at the level of individual producers (members of the organization)" which means that the "producer" here is half way up the marketing chain between the farmer and the consumer. The part of the standards referring to cultivation, environment, pesticides and child labour has the farmer as "producer". The part referring to democratic organization has the primary cooperative as "producer".
Fairtrade Standards for small farmers' organizations include requirements for democratic decision making, so that farmers may have a say in how the Fairtrade Premiums are invested. They also include requirements for capacity building and economic strengthening of the organization.
Fairtrade Standards for hired labour situations specify that employees receive minimum wages and collective bargaining. The standards also specify that Fairtrade-certified plantations should have no forced or child labour and that health and safety requirements are met. (These labor standards do not apply to Fairtrade "small farmer cooperatives" though some have an average of 2.39 ha per farmer of just one crop, coffee, with some single farmers having more than 23 ha coffee, implying substantial use of hired labor.) In a hired labour situation, Fairtrade Standards require a "joint body" to be set up with representatives from both the management and the employees. This joint body decides on how Fairtrade Premiums will be spent to benefit plantation employees.
Fairtrade Standards and procedures are approved by the Fairtrade International Standards Committee, an external committee comprising all FLO stakeholders (labeling initiatives, producers and traders) and external experts. Fairtrade Standards are set by FLO in accordance to the requirements of the ISEAL Code of Good Practice in standard setting and are in addition the result of a consultation process, involving a variety of stakeholders: producers, traders, external experts, inspectors, and certification staff.
The main aspects of the Fairtrade system are the Minimum Price and the Premium. These are paid to the exporting firm, usually a second tier cooperative, not to the farmer. They are not paid for everything produced by the cooperative members, but for that proportion of their output they are able to sell with the brand 'Fairtrade Certified', typically 17% of their turnover, rising to as much as 60% in a few cases.
- The Fairtrade Premium is an extra payment over the market price (e.g. an extra 20c/lb for coffee) which is paid to the exporting organization. The residual after extra costs incurred in producing and marketing Fairtrade have been met must be spent on "social projects" for social and economic development in the producing communities, rather than being given to farmers as extra payment. The producers themselves decide how these funds are to be spent. They are generally used for improvements in health, education or other social facilities, although it may also be used for certain development projects to enable farmers to improve productivity or reduce their reliance on single commodities. Fairtrade producer organizations are required to be able to show what happened to the money, and FLO-CERT should check whether they have such a system in place.
- The Fairtrade Minimum Price is a guaranteed price to be paid for a few products like coffee when the world prices collapse. Again, it would usually be spent on "social projects" rather than going to the farmers.
Fairtrade inspection and certification
Fairtrade inspection and certification are carried out, for a fee, by FLO-CERT, an independent, for profit, body created by Fairtrade International in 2004. FLO-CERT certifies that both producers and traders have met with Fairtrade Standards and that producers have invested any surplus received through Fairtrade in social projects.
FLO-CERT works with a network of around 100 independent inspectors that regularly visit producer and trade organizations and report back to FLO-CERT. All certification decisions are then taken by a Certification Committee, composed of stakeholders from producers, traders, national labelling organisations and external experts. An Appeals Committee handles all appeals.
FLO-CERT inspections and certification follow the international ISO standards for product certification bodies (ISO 65).
In 2006 it was claimed by Christian Jacquiau[who?] and Paola Ghillani, who spent four years as president of Fairtrade Labelling Organizations. There is criticism of poor enforcement: labourers on Fairtrade farms in Peru are paid less than the minimum wage; that adherence to fair trade standards by producers had been poor and that some non-Fairtrade coffee was sold as Fairtrade; "the standards are not very strict in the case of seasonally hired labour in coffee production"; "some fair trade standards are not strictly enforced"; and supermarkets may avoid their responsibility. In 2006, a Financial Times journalist found that ten out of the ten mills they visited had sold uncertified coffee to co-operatives as certified. It reported that they were "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.
If audit fees are too high they will price the product out of the market, and if they are too low, it is not possible to do the audit specified, and the guarantee becomes meaningless. There are complaints that the Fairtrade audit and certification fees are so high that the cooperatives may receive little money after paying them. There are also concerns that the money paid for the audit in producing countries covers three or four day's work which is not enough to do any meaningful audit of the accounts, let alone the large number of criteria on the labour, governance, pesticide, and so on.
Certification costs and returns
As of the early 2000s, Fairtrade farmers and marketing organizations incurred a wide range of costs in achieving and maintaining certification. They incurred these costs on all their production, but they can only recover costs on the small part of their production that they can sell as "Fairtrade certified". In practice they sold only a small proportion of their output as Fairtrade, because of lack of demand, and had to sell the rest as uncertified at world prices. For example, there is not enough demand to take all the certified coffee produced, so most has to be sold as uncertified. In 2001 only 13.6% could be sold as certified so limits were placed on new cooperatives joining the scheme. This plus an increased demand put up sales of certified to around 50% in 2003 with a figure of 37% commonly cited in recent years. Some exporting cooperatives do not manage to sell any of their output as certified, and others sell as little as 8%.
Certified organizations such as cooperatives have to pay FLO-CERT a fee to become certified and a further annual fee for audit and continued certification The first year certification fee per unit sold as "Fairtrade certified" varies but has been over 6c/lb with an annual fee of 3c/lb to 3.4c/b for coffee up to 2006 in some countries, at a time when the "Fairtrade premium" was 5c to 10c/lb.
The cooperative or other certified organization has to spend money on conforming to the standards, with changed employment practices, the introduction and administration of the required democratic processes, changed processing, labelling and packing, changed material.
Fairtrade farmers also have to meet a large range of criteria on production: there are limits on using child labour, pesticides, herbicides, genetically modified products and so on.
In the importing country the country's Fairtrade organization monitors importers/packers/distributors to ensure that they pay them the fee on every item sold as "Fairtrade".
There are substantial profits to be obtained by mislabelling, and enforcement is difficult, especially in outlets like cafes.
Although many attempts to market fair trade products were observed in the 1960s and 1970s, fair trade sales only became widespread with the Max Havelaar labeling initiative in 1988 and the establishment of Fairtrade International (which included other regional initiatives like it) in 1997. Fair trade sales prior to labelling initiatives were contained to relatively small world shops (also called charity shops), operated by alternative trading organizations (ATOs) such as Oxfam and Traidcraft. Many felt that these world shops were too disconnected from the rhythm and the lifestyle of contemporary developed societies. The inconvenience of going to them to buy only a product or two was too high even for the most dedicated customers. The only way to increase sale opportunities was to start offering fair trade products where consumers normally shop, in the large distribution channels. The problem was to find a way to expand distribution without compromising consumer trust in fair trade products and in their origins.
At the initiative of Mexican coffee farmers, the first fair trade labelling initiative, Stichting Max Havelaar, was launched in the Netherlands on November 15, 1988 by Nico Roozen, Frans van der Hoff and Dutch ecumenical development agency Solidaridad. The initiative offered disadvantaged coffee producers following various social and environmental standards an above market price for their crop. The coffee, originating from the UCIRI cooperative in Mexico, was imported by Dutch company Van Weely, roasted by Neuteboom, sold directly to worldshops and, for the first time, to mainstream retailers across the Netherlands.
The initiative was groundbreaking as for the first time Fairtrade coffee was being offered to a larger consumer segment. Fairtrade labelling certification provided some assurance that the products were really benefiting the farm workers at the end of the supply chain.
The initiative was a great financial success and was replicated in several other markets: in the ensuing years, similar non-profit Fairtrade labelling organizations were set up in other European countries and North America, called "Max Havelaar" (in Belgium, Switzerland, Denmark, Norway and France), "Transfair" (in Germany, Austria, Luxembourg, Italy, the United States, Canada and Japan), or carrying a national name: "Fairtrade Mark" in the UK and Ireland, "Rättvisemärkt" in Sweden, and "Reilu kauppa" (Finnish) or "Rejäl handel" (Swedish) in Finland.
Global Fairtrade Sales
|2014||€ 5 900 000 000|
|2011||€ 4 900 000 000|
|2010||€ 4 300 000 000|
|2009||€ 3 400 000 000|
|2008||€ 2 900 000 000|
|2007||€ 2 381 000 000|
|2006||€ 1 623 000 000|
|2005||€ 1 142 000 000|
|2004||€ 832 000 000|
|2003||€ 555 000 000|
|2002||€ 300 000 000|
|2001||€ 248 000 000|
|2000||€ 220 000 000|
Initially, while the Max Havelaars and the Transfairs co-operated product by product with equivalent standards and producer lists there was no contractual agreement to ensure global standards. In 1994, a process of convergence among the labelling organizations – or "LIs" (for "Labelling Initiatives") – started with the establishment of a TransMax working group, culminating in 1997 in the creation of Fairtrade Labelling Organizations International, now simply known as Fairtrade International (FLO). FLO is an umbrella organization whose mission is to set the Fairtrade Standards, support, inspect and certify disadvantaged producers and harmonize the Fairtrade message across the movement.
In 2002, FLO launched a new International Fairtrade Certification Mark, effectively replacing most previous Max Havelaar and TransFair certification marks. The goals of the launch were to improve the visibility of the Mark on supermarket shelves, facilitate cross border trade and simplify export procedures for both producers and exporters.
Today, all but one labelling initiative have fully adopted the new mark. TransFair USA has apparently elected to continue with its own Fair Trade Certified Mark for the time being, while the Canadian organization currently allows certified products to carry either mark, it is transitioning toward sole use of the International Fairtrade Certification Mark.
In January 2004, Fairtrade Labelling Organizations International was divided into two independent organizations: Fairtrade International (FLO), which sets Fairtrade Standards and provides producer business support, and FLO-CERT, which inspects and certifies producer organizations. The aim of the split was to ensure the impartiality, the independence of the certification process and compliance with ISO 65 standards for product certification bodies.
At present, over 25 labelling initiatives and producer networks are members or associate members of Fairtrade International. There are now FAIRTRADE Certification Marks on dozens of different products, based on FLO's certification for coffee, tea, rice, bananas, mangoes, cocoa, cotton, sugar, honey, fruit juices, nuts, fresh fruit, quinoa, herbs and spices, wine and footballs.
The Fairtrade and Fairmined dual certification for gold was launched across the United Kingdom on 14 February 2011, a joint scheme between The Fairtrade Foundation and The Association for Responsible Mining.
Fairtrade impact studies
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