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Fair trade tea and coffee packets.

Fair trade

by Chris Woodford. Last updated: November 11, 2013.

Everyone likes a bargain, but you have to wonder about a T-shirt that costs only five dollars. How is it possible for someone to grow the cotton, harvest it, make it into a shirt, transport it, sell it on to a retailer, and still make a profit for a price like that? The answer should be blindingly obvious, but we choose to ignore it. Cut-price clothes and food are all too often produced by exploiting people in developing countries, who make the cheap goods we've come to love by working long hours for low pay, often in appalling conditions. We try not to put up with this in our countries, but when the label says "Made in India" or "Made in Chile", we conveniently push it to the back of our minds. Fortunately, many people are waking up to the basic unfairness of world trade and demanding a better deal for the people who do our dirty work. It's called fair trade. Let's find out why it's important and how it works.

Photo: Fair trade coffee (left) and tea (right) sold by The Co-operative, one of the UK's leading fair trade retailers.

Bargain... or exploitation?

It's easy to find cheap goods on Main Street, but finding out why they cost so little isn't always so easy:

Fair trade NO SWEAT red hi-top hemp sneakers

Why do we put up with this kind of thing? According to Co-op America, the answer is obvious: "Ultimately, sweatshops exist because the human links of the supply chain are hidden from us when we shop. If working conditions at producer factories were visible to consumers at the point of purchase, it would be harder to convince shoppers that cheaper goods are worth the price of worker abuse." [4]

That's another way of saying "out of sight, out of mind."

Photo: Brands like NO SWEAT are rejecting unfair, sweatshop labor. Unlike some footwear brands, these popular sneakers are made by trade-union members who earn a decent wage and work in good conditions.

Why "free trade" often means "unfair trade"

Globalization—the tendency of companies to treat the world as one giant kingdom of potential profit, without all those pesky borders—is largely to blame. If a company can sew its jeans in Honduras for a fraction the price it can do it in Chicago, the decision to outsource is a no-brainer. And if competitors have already packed their factory bags and cut their costs, and you hold out for "Made in the USA" and higher prices, guess where your business might be heading?

Free trade is a part of globalization and it sounds great in theory: if we removed all barriers to trade, such as import tariffs (the taxes companies have to pay to get their goods into another country and sell them there), all countries could compete on a level playing field—and what could be fairer than that? In practice, it doesn't work out quite like that. Some countries are inevitably far more powerful than others and they want things to stay that way. Even while promoting "free trade", they use all kinds of tactics to ensure they can trade more freely than other people.

You might have heard of a practice called dumping? That's where an industrialized country subsidizes production of finished goods, which it then exports to a developing country at a price that's lower than the goods the developing country can produce at home. The developing country has to cut the prices of its own goods to a level that makes it impossible for poorer people to support themselves. Another tactic is for rich countries to impose high tariffs on finished goods but low tariffs on basic, raw materials. That gives poorer countries no option but to export raw materials: they can't turn those materials into high-value finished goods themselves because they won't be able to export them. The rich countries import the low-value, raw materials, make them into high-value finished goods wherever it suits them, then export the finished goods back to the poor countries. Practices like this mean "free trade" is all too often a synonym for "unfair trade". (You can read more about the rigged rules of free trade on Oxfam's Trade campaign website.)

According to advocates of globalization, free trade has brought greater wealth to people in poorer nations, giving them a foothold on the ladder of progress and prosperity. On that view, wealth gradually "trickles down" society from the richest to the poorest, making everyone's lives better in the long run. The trouble is that very often it doesn't. Big corporations haven't outsourced their operations to low-wage economies in developing countries through any desire to alleviate poverty; they've done it to keep prices down and compete in a marketplace where everyone else is outsourcing too. Now there are many good examples of companies working respectfully with partners in developing countries, providing fair prices that help communities gain access to such vital things as education and basic healthcare. But there are many more corporations supporting a shadowy world of sweatshops, where working conditions are appalling and wages are too little to meet even basic daily needs, never mind climb out of poverty. Unchecked, globalization swiftly becomes a "race to the bottom." If "trickle-down" theory works, why are so many of the world's people still in poverty?

What is fair trade?

FAIRTRADE logo

Photo: Fair trade goods have to be properly labelled through a recognized licensing scheme such as the FAIRTRADE mark, licensed by the Fairtrade Foundation.

Fair trade is a different system that starts from the premise that workers lives have a value; this social benefit is partly what you pay for when you buy something. Fair trade doesn't just means farmers and producers receive more money so they can support their families in the short term—though that's vitally important. It also means they work under long-term contracts so their communities have enough security to invest in improvements both to their businesses (with more land or animals or better machinery) and their societies (with things like schools or health clinics). Typically, fair-trade producers are small cooperatives of workers using no child or forced labor, using organic or environmentally sustainable methods, and having high standards of animal welfare. Workers are free to join unions and bargain collectively to help improve their lives. Typically, fair trade producers sign up to some sort of labelling scheme that guarantees things have been made under good conditions. You can read some typical standards from the Fairtrade Labelling Organizations and from OneVillage (a UK-based retailer of artisan goods from developing countries and a long-established pioneer of fairer trade).

Is fair trade as good as it seems?

Fair trade sounds brilliant—and it's now very big business. In the UK alone, annual sales of fairtrade products topped GB£1.32 billion (US$2.1 billion) in 2011 [8]. Over the last decade or so, the UK has seen massive growth in retail sales of fairtrade coffee (+944% since 2001), tea (+136% since 2001), wine (+128% since 2004), and flowers (+511% since 2004) [9]. But fair trade is not without its drawbacks. One obvious problem is that fairly traded goods can cost significantly more; though the difference between a fair-trade candy bar and an ordinary one is often marginal, fair-trade clothes or household items can be significantly more expensive than goods traded in the usual way. Many people, especially those struggling on low incomes, cannot afford to pay the difference—which is perhaps a bit ironic: if fair trade really is purporting to help poorer people and make the world more equitable, shouldn't it be aiming to help poorer consumers as well as poorer producers? Do we care about poverty in our own countries?

Unless it reaches mass markets, there's a danger that fair trade remains a token gesture, more about making middle-class, liberal-leaning consumers feel less guilty than about fundamentally reforming the relationships between producers and consumers. If you return home from the store with a bag of fair-trade coffee in your shopping, and feel good about it, maybe you won't worry that the other 99 percent of your shopping has been produced by dubious, unfair trade practices? While some grocery stores (such as the UK's Co-op) have embraced fair trade in a very big way, and apparently quite sincerely, others have used it to suggest they're perhaps more ethical than they really are.

There's little doubt that the term "fair trade" can be hijacked and used cynically. One often-cited problem of the UK Fair trade symbol is that it certifies only raw materials and not finished goods. You can buy a T-shirt made from fair-trade cotton that could, in theory, have been made into a finished article in a sweatshop. There's nothing to stop the manufacturer advertising this as an ethical shirt and branding it with a fair-trade logo. According to Mark Engler, writing on sweatshops for New Internationalist: "Consumers who think they are choosing an ethically untainted product might actually be buying clothing sewn with child labour or finished in a dangerous overheated factory."[6]

It's for reasons like this that OneVillage, a pioneering UK retailer of artisan-made items, shuns the term fair trade altogether. According to founder Roy Scott: "There remains an enormous discrepancy between pay, conditions, and opportunity that Europeans would regard as acceptable, compared with those of the producers of most products being bought. Claims of 'fair trade' are therefore inaccurate and misleading. To say 'This is fair trade' to such workers whose pay is insufficient to enjoy an adequate quality of life—or is grossly out of step with those of the owners of the businesses in which they work, or those of the buyers—to claim and say 'This is fair' is shocking and in itself a great injustice." [7]

OneVillage promotes its products as a step "towards fairer trade"; ultimately, that's perhaps the only honest approach. Buying fair-trade products is almost always preferable to buying (implicitly unfair) alternatives, but it's only a starting point. Trade is about long-term relationships, not just between producers and consumers but between entire countries and regions of the world. Achieving truly fair trade means seeing the world in a different way, as a planet of partnership and mutual prosperity rather than plunder and exploitation. Fair trade is not about paying 50 cents more for your coffee; it's about caring for your "neighbors"—even when they're on the other side of the world.

Fair trade or direct trade?

Rainforest Alliance logo on Kenco coffee

Photo: Fair trade? This jar of Kenco coffee doesn't describe itself as "fair trade" but carries the Rainforest Alliance Certified logo, promising it's "helping coffee farmers and protecting the planet" when you buy it. That's certainly an improvement on ordinary, commodity coffee, which makes no promises at all. Even so, critics have charged that the Rainforest Alliance program falls short of other fair trade initiatives.

One of the lesser known disadvantages of ecolabelling is that it can mislead consumers by oversimplifying: just because one product loudly claims to be good, it doesn't automatically follow that its competitors are bad.

Fair trade products are a good example. The basic concept of "fair trade" is to guarantee a minimum price for commodities, such as tea, coffee, and sugar, so workers in developing countries are paid more than they would otherwise earn. When commodity prices fall, they're still paid the guaranteed minimum price for their products, so they have a basic safety net against poverty. That's the theory, anyway. It sounds like a great idea and it's a sentiment virtually everyone would endorse—but unfortunately it oversimplifies things.

Take "fair trade" coffee. If the price for which ordinary coffee (also called "free trade" or commodity coffee) is bought and sold is relatively high, it will exceed the guaranteed fair trade price. Under fair trade rules, that means the coffee growers are paid almost exactly the free-trade price (with a very small premium on top)—so they're being paid virtually the same as if they were selling ordinary commodity coffee in the first place. They don't lose out when prices fall, but nor do they really gain when prices rise, as you might expect.

So, when commodity coffee prices are high, you, as a consumer, are still paying a premium in store for your "fair trade" coffee, but it's perfectly possible that the growers are being paid virtually the same as ordinary coffee growers. Who benefits? Most likely, the importers, the big grocery stores, the main-street coffee shops that loudly boast about their "fair trade" coffee to make you feel good (even though 90 percent of the coffee they sell is probably not fair trade anyway), and absolutely everyone in the middle of the chain. Who doesn't benefit? The growers (who earn no more) and you, the consumer (who pay more to give no more to the growers, but receive a product that is no better in quality than basic, commodity coffee). This doesn't mean to suggest that "fair trade" has no value—it's a hugely important step toward recognizing and correcting the unfairness of trade with developing countries. The point is simply that there are flaws in the "fair trade" system and we shouldn't be afraid to look for something better.

What's the alternative?

A bag of Floresta direct trade organic coffee from Bahia, Brazil.

Many people (and larger stores) opt to buy only "fair trade" coffee, rightly determined to do their bit to fight world poverty. In so doing, they've automatically rejected other coffee not labelled as fair trade and, in their own mind, deemed it "unfairly traded." But how fair is that? An increasing number of small coffee suppliers in regions such as North America and Europe now use an alternative buying model called direct trade, where they purchase sacks of coffee directly from farmers in tropical countries. Since they're cutting out the middle-men, they can often pay substantially more for the coffee than they would either for fair trade or commodity coffee. Usually, small suppliers sell to discerning buyers who happily pay a premium for the very best coffee, so direct trade also helps to raise the standard of what's grown and drunk.

Direct trade isn't "fair trade"—it doesn't carry a "fair trade" label. But arguably it's much fairer all round: for the coffee growers (who are sometimes paid substantially more), for the importers (who earn more and are more likely to develop rewarding, long-lasting relationships with their suppliers), and for the consumers too (who get a higher-quality product, for a similar price, and have the knowledge that workers have been paid fairly). The main problem with direct trade is that it's a very new model and currently only vaguely defined: unless you know exactly how much growers have been paid, can you really sure they've been paid a decent amount? Some coffee suppliers are now using independent certification—and even publishing the prices they pay—to try to reassure their customers that direct trade is transparently fair.

Photo: Direct trade: This delicious chocolatey coffee from Fazenda Floresta is directly traded by its farmers, who earn twice as much as they would by selling it as "Fairtrade" coffee. It's also organic, biodynamic, and far superior in quality to most "Fairtrade" coffee. It's supplied by Nelson Ribeiro from his farm in Chapada Diamantina in Bahia, Brazil. Read all about it in Andrew Purvis's excellent article from The Guardian.

Find out more

Find out more

On this site

Fair trade advocates and campaigns

Want to find out more about fair trade? These campaign groups and organizations are worth a visit:

Criticisms of fair trade

In defense of free trade

Is free trade really such a bad thing? These advocates argue not:

News articles

Videos

References

  1. Reform of US cotton subsidies could feed, educate millions in poor west African countries, Oxfam International press release 22 June 2007
  2. Chilean fruit-picking workers' story, Oxfam International campaign page
  3. Fair trade: Flowers, Green America
  4. Guide to Ending sweatshops, Green America (PDF file)
  5. Sweatshops: What to know, Green America briefing
  6. Sweating over sweatshops, Mark Engler, New Internationalist, November 2006
  7. "Fair trade: At least that's what they say", OneVillage.org.
  8. Responsible capitalism? new fairtrade figures show business is changing for good, Fairtrade foundation press release, 27 Feb 2012
  9. Facts and figures on Fairtrade, Fairtrade foundation. [Retrieved 6 October 2012.]
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Woodford, Chris. (2008/2011) Fair trade. Retrieved from http://www.explainthatstuff.com/fairtrade.html. [Accessed (Insert date here)]

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