The Fair Trade Movement – A Victim of its own Success?

The World Economic Forum recently wrapped up in Davos. Representatives of wealthy countries discussed the global economic future. But where do the interests of the impoverished come in? This question is not new; it represents a continuous struggle the Fair Trade movement subscribes to. The aim is to create a fundamentally new economic system that is not rooted in neo-colonial exploitation of developing countries. The unacceptable, disastrous environmental and moral weaknesses of the unregulated free market economy which is “optimized” to mass produce cheap goods without taking into account the potential repercussions should be counteracted with this initiative. The promise of Fair Trade is to guarantee humane loans for third world producers who are frequently the weakest constituents of the capitalist hierarchy. Environmental protection, organic farming, sustainability and autonomy are principles claimed to be central to the concept of Fair Trade.

Image courtesy of Eric Magnuson, © 2009, some rights reserved.
Image courtesy of Eric Magnuson, © 2009, some rights reserved.

Producers should also be somewhat economically sheltered from fluctuating stock market prices provoked by, for instance, commodity price speculations. Thus the minimum price for their produce is always set above the stock market price and is decided by farmers themselves depending on how much they need to survive and provide for their families. Additionally, they get a Fair Trade premium for their products and for producing organically. In co-operatives, they should democratically decide how the premium is best sustainably invested (e.g. schools, health care facilities, microcredit initiatives, pensions, new equipment, etc.).

Even though Fair Trade started out on a very small level, nowadays, it can hardly be considered a niche business. The number of Fair Trade companies and organizations, as well as the product range and quality, has risen enormously. Whereas in the 1970s mainly students and activists drank the often unpleasantly tasting Fair Trade coffee in an act of solidarity, now, Fair Trade is far more than just coffee, tea, chocolate and bananas from developing countries. The product range goes from soap dishes to chopping boards, door mats to chairs, over backpacks and fashionable handbags, candles, paper, cosmetics to spices, all different kinds of pasta, rice, spreads and sweets. The Fair Trade market is experiencing annual two-digit growth rates in most European countries.

This trend is partially due to the fact that the TransFair logo has become somewhat of a status symbol, but also to information about environmental and Human Rights scandals in the production process of our consumer goods being circulated efficiently in the age of globalization. For instance, reports about dangerous working conditions of textile factories in Bangladesh, India, Taiwan and China, where workers die in fires while the exit routes are blocked off, frequently appear in Western media. As consumers learn about the horrific conditions under which our everyday goods are produced, they grow dissatisfied with the status quo and create a demand for ethical production and corporate transparency. This demand needs to be catered for by the market.

With thousands of producers in developing countries aiming to become Fair Trade certified so they can sell their goods at better conditions, send their children to school or afford health care, especially in times when the stock market crop prices are down, the majority of the Fair Trade movement saw the need to expand the outlet area to conventional supermarkets and discounters, even though this is a very controversial measure.

Now that sales in conventional stores make up for around 40% of the Fair Trade market, supermarket chains are able to apply enormous pressure on the Fair Trade label TransFair to weaken the mandatory production conditions such as environmental standards or the abolition of exploitative child labour. This is a highly dangerous, self-destructive process for the concept of Fair Trade, provoking traceability issues and the phenomenon of “mass balancing”. The latter refers to the fact that large food producers (e.g. Nestlé, Cadbury, Mars etc.) who purchase a small amount of Fair Trade ingredients have the permission to print the TransFair Logo on a certain contingent of their products irrespective of whether the product actually contains Fair Trade ingredients. Moreover, for instance, if a chocolate manufacturer uses 5% sugar in Product A and 35% sugar in Product B, and he purchased some Fair Trade sugar, he has the permission to print the TransFair label on a certain number of his products, proportional to the amount of sugar purchased. Logically, he will print the label on the product that maximizes his advertisement benefit. Furthermore, it is not even required that the Fair Trade ingredient purchased is used at a particular production site, so it can potentially be sold off to a sister company and never end up in the end product with the Fair Trade logo on it. This practice is highly criticized for causing consumer deception and severe traceability issues. The FLO (Fair Trade International Labelling Organizations), however, declares mass balancing a necessary measure to help farmers sell their produce. In addition, the adjective “fair” is not patented which some companies take advantage of by designing their own, often unverified, labels.

Another immense problem for the Fair Trade System is that small scale producers who most urgently need the promised social benefits (schools, hospitals, microcredit initiatives, infrastructure, pensions etc.) often can’t afford the very expensive annual certification costs for the TransFair label. Thus, many have started their own labels or joined other projects, which potentially causes consumer confusion and mistrust. After almost 40 years in business, Gepa, the first and largest German Fair Trade Company removed the TransFair label from their products to give small scale producers the opportunity to participate in the Fair Trade system.

Besides, when the stock market price for coffee rose above the Fair Trade price, a lot of coffee farmers temporarily left the Fair Trade co-operatives seeking short-term benefits by taking advantage of the beneficial market conditions. This created big problems for Gepa (and other Fair Trade Companies) as the Fair Trade production system was not able to function efficiently anymore. So when the market price declined again, farmers were left with no Fair Trade infrastructure to support and protect them against the inhumane realities of an unregulated free market economy.

 To survive, the Fair Trade movement desperately needs to find resourceful solutions to the challenges related to its rapid growth. In order to enable famers to truly become independent from stock market commodity prices, investment in facilities to finish the production process, and not only source the raw material, needs to be considered.

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