Fair Trade, also known as alternative trade, refers to a voluntary certification program with requirements for both producers and distributors. Working through producer cooperatives, Fair Trade seeks to raise the living and working conditions of small producers of handicrafts and commodities located mostly in the global south.
Coffee is the first commodity to receive fair trade labeling. Fair Trade certification stipulates that coffee producers will receive a premium that exceeds market levels. These prices ($1.21 for a pound of arabica coffee, additional 15 cents for organic coffee, and a social premium of 5 cents) have enabled farmers to remain on their land, improve sanitation and water supply in their homes, build bridges and roads, establish medical clinics and build schools for their children.
Beyond coffee, other Fair Trade certified commodities include tea, cocoa, banana, rice, sugar, honey, fruits, nuts, juice, vanilla, olive oil and others. Recently I received an e-mail on Fair Trade sporting goods. The Europeans are further along in the Fair Trade movement, distributing 60% of the global output. In the United Kingdom alone, 2,500 product lines are certified Fair Trade. The U.S. is growing faster at rates of about 40% per year. Fair Trade coffee is served in 80 million U.S. households and available on 400 campuses.
Fair Trade, despite its good intentions, has critics. These cite over-supply of coffee beans as the cause of low market prices. By artificially raising the price, Fair Trade prevents necessary adjustments and diversification into other crops. The higher price would entice other producers, thus exacerbating the surplus problem. Critics see such price protection as providing little incentive for improvement. Fair Trade may breed dependence of small producers on the charitable instincts of consumers who may be fickle. Others have argued that the stipulated prices are too low to make a big difference. Some critics point out the disproportionate positive publicity large corporations gain when they make seemingly token commitments. Others caution that the gains to Fair Trade products may not accrue to producers but to retailers who use this as a marker for price-insensitive consumers. Most are concerned that interventions to the free market are inefficient and nonproductive.
Fair Trade certification is structured for the potential to achieve long-term gains in the form of enhanced competitiveness of producers and environmentally sustainable approaches to agriculture. To qualify, producers must be small family farms organized into politically independent demographic associations and committed to ecological goals. Certified distributors must buy directly from Fair Trade certified growers at stipulated prices and contract for periods longer than one growing cycle. In addition, the distributors also provide pre-financing equal to 60 percent of the contract value.
These arrangements provide funds for cooperatives to invest in better facilities for storage, processing, quality control, transportation and so on. Some cooperatives hire technical experts to improve their crops, develop new products, get market information, and provide leadership training. The producers, through more stable and higher cash receipts, gain access to credit and increase their bargaining leverage with government, development agencies and NGOs. Divine Chocolate, distributed by Catholic Relief Services and the first farmer-owned Fair Trade chocolate brand, offers a model of empowerment and a vision of what is possible. The farmers from the Kuapa Kokoo cooperative in Ghana supply the cocoa, serve on the board of Divine Chocolate, participate in decision-making and share in the profits of the company. The other focus of Fair Trade is environmental sustainability. Dangerous chemicals listed by the International Standards Organization cannot be used in Fair Trade products. Transfair (a Fair Trade labeling organization) reports that approximately 85 percent of the Fair Trade coffee in the U.S. is certified organic.
With respect to concerns about free market interventions, Fair Trade is not as disconnected from current market practices as some have worried. No market is completely "free," as evidenced by the tax credit for the Prius, minimum wage stipulations, tariffs on certain imported products, subsidies for various commodities, regulations on product safety, environmental standards, ingredients that are banned, employee benefits, etc. Fair Trade options go up against regular products and are not exempt from competition even within their own class. For coffee alone, there are approximately 200 grower associations from 24 countries listed on the Fair Trade registry. Fair Trade products also vie for market distinction through prestigious awards from Food and Wine magazine and other food and beverage reviews.
Moreover, in Economic Justice for All, the U.S. Catholic Bishops state that "the economy should work for people, and not the other way around." Catholic Social Teaching reminds us that where we stand with God depends on how we stand with each other. As consumers, we are moral agents, not just economic agents. Fair Trade offers a non-violent, non-political option to level the playing field for producers in the global South and to give a hand, not a handout.
This essay would not be complete without passing on a recommendation for my favorite coffee, Green Mountain Island Coconut - Fair Trade certified.
Carolyn Y. Woo is the Dean of the Mendoza College of Business and a Professor for Entrepreneurial Studies. She can be contacted at Carolyn.Y.Woo.5@nd.edu
The views expressed in this column are those of the author and not necessarily those of The Observer.
