2.38: Perspective: Fair Trade

Fair Trade

Eefje de Gelder is a PhD student on “the Consequences of Mainstreaming Fair trade” (Radboud University Nijmegen). She has also worked as a postdoctoral researcher on inclusiveness for the Inclusive Biobased Innovations project (Delft University of Technology) and as a project coordinator on a research project on Morality and Markets at Vrije Universiteit Amsterdam. Her main research interests are how to include smallholders in agricultural value chains and market systems in which profit-maximisation and sustainability are often in conflict.

Learning Outcomes

After reading and discussing this text, students should be able to:

• Explain fair trade practices and how these relate to underlying ideological debates.
• E xplain what fair trade mainstreaming is and the main topics of debate around it .
• Articulate potential future direction s for the fair trade movement .
• Formulate an informed position on fair trade practices and ideologies.
• Review and compare the fair trade p ractices of different organi s ations and businesses .

Fair trade

While doing your daily grocery shopping, you may have wondered about the fair trade labels you see on certain products. Fair tradeis a form of ethical commerce, embodied by a movement that mobilizesthe idea of food justice.^[1] The goal of the movementis to providejustice to marginalised, small-scalefarmers in supplychainsthat typically do not have equal access to international markets and/or have low bargaining power in exchange relationships. Ideally, direct and long-term relationships between producers and buyers are established, eliminating the middlemen who often take a large part of the profits. The movement aims to pay higherprices than those already established on the world market, and establish better exchange conditionsfor producers, for example by including pre-finance options and fixed interest rates when contracts are set up. Better wages, fewer working hours, prohibition offorced andchild labour,and better protection against toxic material are among the ways that working conditions of labourers areimproved. In this way, fair trade aims to makeproducers less dependent on the mercies of world marketsand middlemen. In other words, it is believed that compliance with fair trade principlesimprovesand stabilises the socioeconomic situationof producersand labourers and the communitiesin which they live.

These additional requirements do not come without costs for consumer s . Over time, different fair trade organi s ations and businesses have supplied fair trade products to Western consumers, who in turn pay a higher price for these products . The higher consumer price is intended to ensure the well – being of producers . At the same time, with descriptors, labels and marketing campaigns around their products, fair trade organi s ations aim to create greater awareness , explaining why fair trade products cost more . At a higher level, fair trade organi s ations want to change the rules of the game , where conventional international trade practices are perceived as unfair .^[2] For example, the Fair Trade Advocacy Office in Brussels is dedicated to bringing fair trade and justice to the fore in EU policies.

When fair trade principles are applied in practice, t here are a couple of basic premises for the part ners involved in the exchange . Small-sca l e p roducers of handicraft or commodities such as coffee and bananas — with the production organi s ed democratically in producer communities — receive a guaranteed higher price than the world market price . If the world market price is higher than the fair trade price, the world market price holds . On top of the fair trade price , a social premium should be provided , which producer communities should spend on community development , for instance on education. Organically grown commodities receive an additional premium. For example, s in ce 201 9 , the guaranteed fair trade price for cocoa has been US $ 2400 / m etric t onne ( MT ) , with a social premium of US $240/MT and an organic premium of US $300 /MT . At the beginning of 2021, the cocoa price was US $2604/MT, meaning that fair trade cocoa producers would receive the world market price plus the social premium, which amounted to US $ 2844/MT . Organic cocoa producers would receive a US $ 3144/MT. Besides the payment of fair trade prices, pre-finance arran gements should also be made with producers who often lack the financial means to invest and/or face high interest rates . On their side of the bargain, p roducers must apply s ustainable production methods and forbid c hild labo u r in the production process.

The efficacy of fair tradecertification programs has been found to be mixedand multi-layered. Fairtrade certification by FairtradeInternational may function as a safety net in caseswhere world market prices are low,but in those cases whereworld market prices are high, the relative benefits of fair tradecertificationmaydisappear. Results depend on the context, and may reflectthe way in which the fair tradecertification program is applied and the type of producergroup involved.It is alsohard to control how the auditing of small-scale producers functions,as well as how transparent these processes are. Furthermore, the poorest small-scale producers—those suffering mostly from power imbalances in exchanges—may not be reached by its program, since a yearly certification fee is chargedto co-operatives,which the poorest are unable to pay. While generallyit can be said thatfair tradecertificationprograms such as Fairtrade arebeneficial to producer and worker communities, fair tradecannot be regarded as a panacea for the structural challenges that continue to exist at the international level. For example, it would be more effective to lower or eliminate U.S.subsidies for cotton farmers that serve to keep world market prices artificially low, and allowprices—and therefore incomes—for cotton producers to rise worldwide.

This raises the question o f how the fair trade movement as a whole approach es the market , with fair trade organi s ations and companies hav ing different ideas about how fair trade work s in practice. A major issue is the extent to which the movement’s ideology fits the markets it operates in. Should fair trade focus on enlarging its market, or focus on greater international justice? Do fair trade practices exist completely separate ly from conventional market operations, or can they be integrated? The history of the fair trade movement reveals the tensions between different approaches and different actors in the movement , and these differences have caused debate that continues today.

Table 1 shows different fair trade principles that virtually all actors in the movement adhere to , more or less .

[table id=11 /]

The history of fair trade

Fair trade has a longer historical track record than is immediately obvious. The fair trademovement beganalready in the 1940s,when consumer groups in the U.S.and Europestarted to import products from handicraft producers. The American Edna Byler, for instance, formed the basis of what is now the retail chain Ten Thousand Villages,by importing handicraftsfrom Puerto Rico,starting in1946. In the 1960s and 1970s,these consumer groups were joined by people aiming to changethe international trade systementirely. Shops selling products coming from decolonising countries started to appear in commercial districts,encouraged by alternative trade organisations (ATOs).An example of these are the so-called World shops in the Netherlands. These outlets were regarded as alternative, and often functioned as centres of political action,where fair trade’s market approaches and actions were discussed. They paid special attention to producers from countries that were in the process of decolonisationand their participationin equal exchanges at the international level.^[3]

Differences over how to operationali se the movement ’s ideals became very obvious with a new exchange practice in 1988 . The birth of the first fair trade certification program , by the Dutch foundation Max Havelaar , implied the start of a market-based strategy. Conventional companies could now join the movement more eas il y , without bei ng involved in the political ly sensitive issues with which the ATOs were associated . Products could be fair trade – certified if producers and companies complied with fair trade standards, audited by an independe nt organi s ation ( such as the European FLOCERT ). Over time, fair trade certification became common ground in different European countries , as well as in the U . S . and Canada . The rise of fair trade c ertification programs enlarge d the impact of fair trade among producers because more companies could join . Sales of fair trade products increased as consumers more easily and frequently encounter ed fair trade products during grocery shopping . At the same time, fair trade producers faced extra costs in terms of certification fees and associated administrative costs.

Asfair trade–certifiedsales increased, the fair trademovement became more institutionalised,with the overarchingbody of the fair trademovement, Fairtrade International in Bonn(Germany),leadingthe different national European and American fair tradeinitiativesfrom2007. This organisation is responsible for setting the Fairtrade Certified standards and managementof the surrounding process. Currently, various fair tradesuppliers, companies, certification programs, and organisations have emerged, including industry- and firm-based programs such as UTZ Certifiedand the Nestlé Cocoa Plan. UTZ Certified was introduced in 2001,as the certification program “Utz Kapeh” (“better coffee”) by the multinational Ahold, and fitting the desires of the industry better than the Fairtrade International certification program.Themain difference wasthe guaranteed minimum price, which UTZ Certified does not offer. The emergence of different types of certification programs and industry involvement has meant that the concept offair tradehas increasinglybeencontested,withinternal conflictsin the movementleadingto asplit inthe American fair trademovement in 2011. At stake,among otherthings, werethe percentage of fair tradecertifiedingredientsin fair tradecertified productsand plantation certification.^[4] Essentially, the discussion was about who fair trade policies were about: the marginalised, small-scale producers,or companiesengaging in fair trade.

Mainstreaming fair trade and the clash of two strands in one movement

Disagreements over the goal of the movement haveled to intense discussions between people and organisations. Some fair trademovement actors have saidthat enteringmainstream distribution channels would hollow out the movement’s ideals. Indeed, up until today, thedebateaboutbeing a movement and a market at the same time hasbeenan important thread in mainstreaming fair trade,that is,the process in which consumers and companiesare increasingly buying and selling fair trade–certified products. Two main ideological positionsin the fair trade practices of organisations and companiescan be distinguished.

On the one hand, fair tradeisregarded as a practice over andagainst conventional market practices. Activists advocate an entirely new, alternative international trade system. Based on Marxist ideas on exchanges, personalrelationships between consumers and producers,anddirect, long-termtransactions are regarded as the embodiment ofjust trade.According to Karl Marx, commoditiesin an exploitativesystem focused on profit-maximisation hide the situation of marginalised producers and labourers. Commodification thus preventsconsumers from seeing the true circumstances under which a product is produced. Following this logic, consumers should be enlightened about the precarious position of producers and labourers, and aim at theeradication ofinequalitiesat the international level. By working in the marketand with conventional market players, the movement would lose these valuesand no longer be an alternative for the impersonalmarket systems. Again, this argument suggests that such systems aim atprofit-maximisation only,and may start to undermine fair tradeprinciples. The fear isthat cooperation with thesame firmswhose practices the movement has been trying to fight would cause the same problems to re-emerge, given that theirmotivationswould not havechanged fundamentally. Consumers,aiming to establishpersonal and long-term relationshipsin supplychains, or to acknowledge theproducers’ situation,would have no incentive to buy. Instead, consumers would be extrinsically motivated and focus on other features of the products.This would undermine the movement’s objectiveof having a dedicated consumer basewith a focus on international justice.

On the other hand, adherents of fair trade certification proclaim that the idea of just trade should be operationali s ed in the market. By means of certification programs , both market share and impact for producers and workers w ould increase. Moreover, working with bigger multinationals such as Starbucks and Nestlé wou ld accelerate this process. The success of fair trade certification could stimula te these firms to apply fair trade principles in their other supply chains too . F rom a business perspective, a certification mark on their product packages implies added value to their products . A label may persuade consumers to buy not just a commodity, but a product that reflects fairness for producers . Having a certification mark could thus be a market strategy to differentiate , and give businesses a competitive advantage compared to other (not yet certified) products typically traded as commodit ies . In addition, larger businesses can often achieve economies of scale, making it easier to offer fair trade products at a lower price. Staying ‘ alternative ’ would mean that the (often more expensive ) fair trade products remain a niche in conventional market s , restricting the overall improvement of producer livelihoods . F air trade – certified products in conventional outlets would thus allow c onsumers to find fair trade products easily by the ir certification marks and labels , increase a wareness of fair trade producers and workers , and allow high – quality products to be bought at affordable prices.

Mainstreaming fair trade and the practical consequences

The mainstreaming of fair trade has raised three main issues about operationali s ing just trade . Essentially, these reflect the roles of three actors in the fair trade movement and their effect on beneficiaries : the larger companies entering the movement, consumer s , and the fair trade movement itself .

First, it has been fear ed that the entrance of larger businesses may violate or not fully comply with the standards set by Fairtrade International .^[5] For instance, in the U . S . , Starbucks violated the Fairtrade requirement that 5% of total coffee consumption should be bought as fair trade– certified .^[6] L arger companies may start their own certification programs, requiring compliance with lower standards and thus diluting fair trade ’s overall message . F or consumers , distinguishing between the significance of different certification mark s on products may be come increasingly difficult . Connected with this , larger companies and multinationals often source from larger plantations , rather than small -scale producers , so the original fair trade beneficiaries would face competition . D ue to overall low demand , they already fac e difficulties in selling their harvest . Moreover, power imbalances may continue to exist , to the detriment of small-scale producers , due to lack of transparency about how and to what degree standards are complied with. The voice of the producer may not be voiced sufficiently and, a s can be imagine d , a two-day, on-site audit of farm operations does not necessarily provide an accurate portrait of what happens in the day-to-day. Such developments raise the question about the intended beneficiaries of fair trade certification programs and about the transpare n cy of the certification process .

Second, increased competition with in fair trade in Western countries may result in the disappearance of Alternative Trade Orga ni s ations in commercial districts , a n outcome already seen during the last decade . This is important, as these organisations typically embody the more ‘alternative’ current of the movement, conveying fair trade ’s core message and identity , a s well as functioning as a benchmark for fairness. ATOs also stand for establishing long-term personal relationships, which are hard to quantify but of importance to the producer groups they work with. The existence of c ertification programs would only further increase the anonymity of standardi s ed market transactions , mak ing producers again dependent on the mercies of the market.

Third, consumers’ stance s on the different fair trade certification marks remains an open question. Consumers do support fair trade goals but do not always buy fair trade – certified products. C onsumers can also differ greatly on which aspects of just trade are important and how they should be operationali s ed in conventional markets . The different fair trade label s that have emerged, such as UTZ-certified , may furthermore lead to confusion for consumers about what fair trade really means . A parallel example is t he appearance of other sustainability-related labels ( e.g., organic, carbon -neutral, climate-friendly, etc. ), which may lead to label fatigue among consumers . For the fair trade movement, this is a risk , as consumers may no longer notice the f air trade – certification and/or consider its added (social) value. Further , m edia treatment of both the original fair trade certification program and conventional firms’ involvement in fair trade may undermine the trust in certification marks . At the same time, such attention can give consumers a better understanding of the difficulties in operationali s ing just trade.

Finally, the relationship between the Western fair trade organi s ations and the producers has also been questioned . Fair trade p roducers do not always have an equal say and/or impact on the strategy to be followed within the development of fair trade (certification) programs . This may hinder critical reflection and exclude the views of fair trade producers’ on fair trade standards , mainly developed in West ern countries . Over time, Fair trade International has increased the voting power of producer organi s ations to 50%, but not all certification programs have such systems in place.

The consequences of mainstreaming are crucial to the legitimacy of fair trade in the conventional market. For both companies and consumers, successful and effective fair trade standards would legitimi s e paying a higher price for fair trade products and result in more engagement . If fair trade certification marks do not live up to expectation, consumers may lose belief in fair trade . The latter may also happen if fair trade practices are misused by companies, that is, were ‘fair – washing’ to occur, or were fair tra de programs set up that in practice make little or no difference to the producers . For producers, importantly, their well – being depend s on fair trade standards being effective . If fair trade does not sufficiently increase socioeconomic well – being, producers will stop working through it . However, there are other ways of fighting the structural inequalities that small-scale producers and workers face . More equality could be estab lished in international trade if , for example, import tariffs and quota s were change d structurally , to the advantage of non-Western countries .

The future of fair trade

The future of the fair trade movement is closely related t o the mainstreaming of fair trade . P ractice and understanding are shaped by the way fair trade is operationali s ed . This has become increasingly varied , now that more companies and organi s ations have entered the market. It remains questionable to what degree ATOs such as Ten Thousand Villages and World shops will be able to attract consumers and convince them of the added value of the fair trade products. Enterprises that do not necessarily identify as ATO s or fair trade – certified will also become important transmitters of the fair trade message and even compete with ATOs . This could create confusion for consumers . At the same time, this and increased media attention could increase attention to the cause. For example, in the Netherlands, the company Tony’s Chocolonely has focused on improving the situation of cocoa producers , making this the reason for its existence and the core of its marketing campaign . (It was nonetheless heavily criticised for being un able to guarantee that its cocoa beans are ‘slave – free’ . ) More recent ly , there were media reports that this firm is no longer on a U . S . -based list of ‘ e thical c ompanies’ , due to its co-operation with a conventional cocoa processing company . Clearly, with mainstreaming, fair trade organi s ations and companies are increasingly under public scrutiny. Such discussions may pave the way for new and more effective avenues for key actors to mainstream fair trade .

One option may come from companies that opt for having no certification label at all, in order to be more effective in reaching social responsibility and environmental goals . T he main aspects of just trade these companies adhere to are establish ing direct and long-term relationships with farmers , provid ing community support , and support ing environmental- friendly production . Moreover, these companies give the producer organisations a price that may be beyond the minimum price as set by Fairtrade International . B eing transparent to the public about their on – the – ground practices — even if it includes difficulties in operationalising fairness locally — is often another goal . As such, these companies can be regarded as a new type of ATO , operating in often – specialized niche markets . If the se companies are able to succeed in establish ing socioeconomic well – being for producers without need ing certification programs , they show case a new way of operationalising fairness to actors in the mainstream . To succeed, however, these companies will need a dedicated consumer base that understands and engage s with the issues they aim to address , including a willingness to pay a higher price for products ( compared to conventional and fair trade – certified products ) .

Fair tradecertification organisations, in turn,are increasingly aware ofthe consequences of mainstreaming,as well as the limits of their own certification programs. They tend work together more, lobbyingfor (inter)national legislation, as they believe that market-based strategies do not work quicklyenough,and consumer commitment is too weakto achievereal change. In thisway, a level playing field for all companies mightbe established, forcing thosethat are lagging behind to start implementing human rights and environmental due diligence. This entailsthat companiesaddressall the social and environmental risks and impacts within their supply chains.They would have to make the risks ofcarbon emissionsandpollutionvisible, but also make the payand working conditions of workers transparentand,in doing so, respect human rights. The United Nations Human Rights Council initiated guidelines for company and government responsibilities and duties in 2011.

Currently, these frameworks are mostly voluntary for companies , although some countries are in the process of making mandatory the prohibition of forced and child labour. Because of mainstreaming , companies and consumers are increasingly aware of these issues, and at the present moment, there is greater openness to this type of enforced regulation by governments that have, until now , not actively put into place such regulation .

[table id=12 /]

Figure 1: Fair trade organizations supporting alternative trade. Fair Trade Federation and World Fair Trade Organization are membership organizations, SERRV International and Ten Thousand Villages are examples of American outlets, and Wereldwinkel (“World shop”) is an example of a Dutch alternative trade organization.

Figure 2: Fair trade certification organizations in mainstream markets.

Synthesis

F air trade products that consumers encounter during their grocery shop ping reflect a world of organisations and firms that struggle over bring ing just trade into practice. The balance between movement and market has been a continuous struggle in the historical trajectory of fair trade . The mainstreaming of fair trade products in conventional distribution channels makes clear that the operationali s ation of just trade has become increasingly difficult , especially since 1988 , when certification was introduced as a new way to approach the market . Certification was a radical ly different way of establishing fairness, meaning that m ore organi s ations — with different interests and motivations than the original, alternative shops — have entered the fair trade market. For fair trade , mainstreaming entails th at the movement think through who it want s to benefit from its certification system s : small-scale producers , who may not always be so efficient and are the most vulnerable ? Or the plantations of the newly joined , larger companies? And is fair trade only a safety net when world market prices fall , or does it represent a panacea for producers ? Other questions revolve around the credibility of the fair trade certification programs that have emerged. Companies and consumers may have different motivations for joining in the movement, bringing along different understandings of fair trade . This could create confusion for consumers about what should be understood as fair trade . At the same time, these developments also force the fair trade movement to re-identify and react to the increasingly competitive environment of which they are a part . That implies that co-operation between actors has emerged , as well as new initiatives to operationalise fair trade without need ing certification . To most fair trade actors, however, th e time seems ripe for a legal enforcement of fair trade ’s standards on the (inter)national levels at which they operate . The fair trade movement may be about to enter into a new are n a in which ‘just trade’ becomes the standard for all products .

Discussion Q uestions

• Which stores in your neighbourhood would you classify as an Alternative Trade Organisation (ATO), and why?
• Thinking about the products you buy regularly in the supermarket , to what degree are you aware of the companies’ policies regarding fair trade principles?
• Discuss how political convictions relate to the fair trade movement’s two main ideological positions .
• Do you see your consumption choices as a political act ? Why or why not?

Exercise

Pick a product of your choice (for example, coffee, tea, chocolate, spices) and then go to a supermarket where it is sold. Find the product on its shelf and list all the fair trade certification marks you can find on the different brands. Then search for more information regarding each certification program on your list and compare them with the help of the principles as outlined in Table 1. In your opinion, which fair trade certification program looks like ‘the fairest of them all’?

Additional Resources

Fair Trade Advocacy Office

Jaffee, D., 2014 . Brewing justice: fair trade coffee, sustainability, and survival . 2nd ed. Berkley: University of California Press.

Raynolds, L.T. and Bennett, E.A. 2016. Handbook of Research on Fair Trade . Cheltenham, UK: Edward Elgar Publishing .

Wheeler, K., 2012 . Fair trade and the citizen-consumer: shopping for justice? New York: Palgrave MacMillan.

References

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Bassett, T.J., 2014. Capturing the margins: world market prices and cotton farmer incomes in West Africa. World Development 59, 408–421.

Besky, S., 2015. Agricultural justice, abnormal justice? An analysis of fair trade’s plantation problem. Antipode47 (5), 1141–1160.

De Gelder, E., De Vaal, A., Driessen, P.H. Driessen, Sent, E.-M., Bloemer, J. 2021. Market competition and ethical standards: the case of fair trade mainstreaming. Review of Social Economy79 (2), 191–221.

Doherty, B., Davies, I.A., Tranchell, S. 2013. Where now for fair trade? Business History 55 (2), 161–189.

Dragusanu, R., Giovannucci, D., Nunn, N. 2015. The Economics of Fair Trade. Journal of Economic Perspectives 28 (3), 217–236.

Fridell, G. (2009). The Co-Operative and the Corporation: Competing Visions of the Future of Fair Trade. Journal of Business Ethics 86, 81 – 95.

International Cocoa Or g anization.

International Fair Trade Charter 2018. The International Fair Trade Charter.

Jaffee, D. 2010. Fair trade standards, corporate participation, and social movement responses in the United States. Journal of Business Ethics 92 (Suppl. 2), 267–285.

Jaffee, D. Howard, P.H. 2016. Who’s the fairest of them all? The fractured landscape of U.S. fair trade certification. Agricultural and Human Values 33 (4), 813–826.

Marston, A., 2013. Justice for all? Material and semiotic impacts of fair trade craft certification. Geoforum 44 , 162–169.

Maseland, R. , De Vaal, A. 2002. How fair is fair trade? De Economist 150 (3), 251–272.

Naylor, L. 2019. Fair Trade Rebels Coffee Production and Struggles for Autonomy in Chiapas. University Of Minnesota Press .

Raynolds, L. 2017. Fairtrade labour certification: the contested incorporation of plantations and workers. Third World Quarterly 38 (7), 1473-1492.

Raynolds, L.T. 2009. Mainstreaming fair trade coffee: from partnership to traceability. World Development 37 (6): 1083–1093.

Reed, D. 2009. What do corporations have to do with fair trade? Positive and normative analysis from a value chain perspective? Journal of Business Ethics 86: 3–26.

Van Dam, P. 2020 . No justice Without Charity: Humanitarianism After Empire. The International History Review . https://doi.org/10.1080/07075332.2020.1739734

Van Rijsbergen, B., Elbers, W., Ruben, R., Njuguna, S.N. 2016. The ambivalent impact of coffee certification on farmers’ welfare: a matched panel approach for cooperatives in Central Kenya. World Development 77, 277–292.

Walton, A. 2010. What is fair trade? Third World Quarterl y 31 (3), 431–447.

W orld F air T rade O rganization , 2016 .

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1. Maseland & De Vaal 2002, 253. ↵
2. International Fair Trade Charter 2018, 7. ↵
3. See also Van Dam 2020. ↵
4. For a discussion on plantations, see Raynolds 2017. ↵
5. Doherty et al. 2013. ↵
6. See Fridell 2009. ↵