March 6, 2014, by ICCSR

What is fair in the age of Fair Trade?

Think back 20 or even 10 years. Did you buy fair trade? Had you even heard about it? It is quite inexplicable how fast it has grown and how pervasive fair trade has become. It has grown to be $7billion market worldwide in 2013. A third of which is the UK alone (~£1.8bn / $2.8bn). It was worth less than £100m in 2003.

However all fair trade is not the same! For a start many labels such as the Rainforest Alliance, Utz Kapeh and newly formed Fair trade USA have similar rhetoric to fair trade without following similar principles or auditing practice. Even within the Fairtrade Mark different standards and levels of support to farmers exist dependent on everything from product category to production type (plantation vs. small holder). It can, rather depressingly, be different based on which country awards the mark or even which year it was awarded as the standards and principles have changed over time. In table 1 I have attempted to summarise the main principles the fair trade accreditation bodies were set up to oversee.

Table 1: Fair trade principles

	Principle	How it works
1	Fair trade minimum price	– Minimum floor price which fair trade goods cannot fall below
2	Provision of a social premium	– Often 10% or more of the cost of goods over and above the price paid on the market.
3	Long-term relationships and supply contracts	– Develop buyer-producer relationships built on trust and mutual respect
4	Direct / transparent purchasing from producers	– Brand owners should be able to show the full and direct supply chain for their produce.
5	Provision of pre-financing	– Importers should make advanced payment at critical times to help producers to both meet fair trade standards and maintain cash flow.
6	Provision of market information to producers.	– Close relationships between FTOs and producer co-operatives allow for clear flow of information
7	Democratic Structures	– Small scale farmers should be organized into democratic / co-operative structures- Plantations should provide the ability for workers to Unionise and represent themselves democratically
8	Promote consumer education	– Essentially not audited although is practiced by many organizations
9	Sustainable production must be practiced	– Little information exists to suggest how this works

Although a number of organisations (both Fair trade labelled and not Fair trade labelled) follow all these principles – other brands may not. For instance, Principles 6, 8 and 9 have effectively never being enforced due to the immeasurability or extreme cost of administration. Principles 4 and 5 (Transparency and Pre-financing) were effectively suspended by Fairtrade International in 2008 following a number of years of inconsistent application. But many organisations continue to do them (Co-operative) and others do not (Tesco’s and ASDA). What this has led to is a very uneven application of fair trade standards and basically no “standard” fair trade.

“How could this happen!” I hear the righteously indignant scream. And “how am I supposed to know what to buy?”

Nearly all dilutions in standards were made with the best of intentions on the best data available at the time. Fair trade has a difficult line to tread. It wishes to be inclusive of anyone wishing to make a commitment to aid impoverished producers, however it also wishes to operate within the capitalist world view of economic and consumer led growth. These objectives can, at times, conflict. For instance, is it better to sell a small amount of goods with a very high level of producer impact (Liberation nuts) or a large volume of product with lower additional producer support (Dole bananas)? The reality is we do not know. Impact studies that have been conducted in fair trade are almost exclusively conducted on farmer owned Fair Trade Organisations (FTOs- Divine, Cafédirect, Liberation) supply networks and we fundamentally don’t know much about the impacts on suppliers from big brand conversions such as KitKat and Maltesers.

The certification bodies had to make decisions based on very limited information. Part of what these bodies do is balance the benefit of say Dole or Tesco converting whole product lines to fair trade but allowing them to negotiate on the terms and conditions vs. shutting the door and only allowing organic growth from the specialist FTOs. There is no way Tesco would agree to profit-sharing or market information sharing with producers (which Divine and Cafédirect both do) or providing a fully traceable supply chains (Principle 4). But they do sell millions of pounds worth of fair trade produce.

To help in understanding what is actually on the market Bob Doherty, Sophi Tranchell and I have developed a model of the 7 predominant types of fair trade “value-chains” that exist on the market today (See Table 2) which give an approximate indication of the level of producer support and number of principles likely to be followed by the branding company.

Table  2          Fair Trade Value Chains

Value Chain #	Form	Participants	Features	Level principles adhered to
1	FTO/Social Economy value chain (100% Fairtrade)	FTOs trading with FTOs, e.g. CTM Altromercato trading directly through associated world shops	Strong relationships with producers building organizational capacity and even producer equity. Consumer activists buying in this chain	8-9
2	FTO value chain with corporate retail participation	FTO products such as Divine chocolate and Cafédirect distributed via supermarkets	Strong relationships between FTOs and producers. Retailer purely route of distribution. More convenient for consumers to buy	8-9
3	FTO supplying supermarket own-label	FTOs supplying own-label supermarket brand such as Agrofair selling fresh fruit produce through supermarket branding	Strong relationships with FTOs and producers. Some FTOs maintain the intellectual property with reference to producers on packaging.	8-9
4	Corporate dominated licensee and retailer	Starbucks Coffee Company is an example	Modular form where corporation has significant control over value chain. Not all corporate products are FT	4-6
5	Corporate retail dominated but not licensee	Own label supermarket products sourced from second tier manufacturers such as supermarkets working through existing own-brand suppliers	Modular form where supermarket retailer does not have to commit to FT standards and minimum relationship with producers	4-5
6	Corporate manufacturer as licensee to retailer	Multinational corporation such as Proctor & Gamble or Cadbury’s converting major brands for general sale	Controlled and dominated by MNCs with limited transparency. Power resides with MNC.	3-5
7	Corporations and plantation production	Control of value chain remains the same but with adherence to social premium and FT price such as large fruit importers Chiquita or Dole	Similar to ethical trade with power very much with the corporation. No consumer brand choice as whole categories are converted e.g. bananas.	2-6 (only possible in USA)

Value chain 1 and FTO managed value-chains (2 and 3) are the least exposed to a reduction in producer support and reputational risk for the fairtrade movement. These value chains are controlled almost exclusively by organisations set up to work with impoverished producers, who are often jointly owned by producers, and nearly always involve profit-sharing and community development projects. However, these value chains have somewhat limited reach in terms of consumption levels. Value chain 1 relies on consumers shopping in specialist shops – which most do not. Value chain 2 involves consumers making an active choice to buy alternative brands to their usual preference – which many people don’t want to. And value chain 3 relies on supermarkets converting own-label goods to fair trade and supplying them through often more expensive FTO suppliers than their usual white label goods manufacturers. Although the likes of Co-op and Sainsbury’s do this with bananas, for cost reasons they have moved to alternative third party suppliers (value chain 5) in recent years on chocolate, coffee and tea.

Despite some problems with retailers however, it is at type 4, 6 and 7 value chains where the biggest fears of the dilutions of fair trade occur with powerful, and occasionally ethically questionable MNCs such as Wal-Mart and Starbucks (type 4), Nestlé and Cadbury (type 6) and Dole and Chiquita (type 7) entering the fair trade market. In 2000 Starbucks was awarded the Fairtrade Mark by Transfair USA (now Fair Trade USA) for less than 1% of its coffee, despite grave reservations amongst FTOs. It was also Transfair USA acceptance of Dole and Chiquita as licensees that allowed the formation of value chain 7 – major MNC plantations where workers receive only minimum wages – as certified value chains. This has very significant implications for the fair trade social movement because there are now licensees with greater power, capital and influence than the authorities and FTOs put together. This leaves fair trade certification in a weak position and lowers their bargaining power leading to some of the most dramatic changes in policy over the last 6-8 years.

Outside the US other major suppliers are making commitments to fair trade including Tate and Lyle (worth $3.2m to producers per year), Cadbury’s Dairy Milk (worth a retail value of $320m), Nestlé Kit Kat and Mars Maltesers. Obviously these moves increase the volume of fair trade on the market and increase the fair trade premium to farming communities, however the commitment of these major MNCs is often limited (as with Cadbury, Nestlé and Mars only certifying individual products). What is lacking with value chains 6 and 7 is Producer Support and Development (PS&D) projects, profit sharing or principles beyond minimum price commitments (therefore only principles 1 and 2 are enforced). There is also significant evidence of lobbying to lower fair trade standards, slow floor price growth and an emergence of a “fairtrade lite” access to certification with nominal if any benefit to producers. Uncommitted MNCs also have a habit of switching from Fairtrade to other schemes if sales do not meet commercial objectives e.g. both John Lewis Cafés and McDonalds have converted to Rainforest Alliance from Fairtrade. Asda de-listed Cafédirect from their range and replaced it with own-label Rainforest Alliance certified coffee, and Kraft (owners of Fairtrade brand Cadbury’s Dairy Milk) have announced Rainforest Alliance not Fairtrade certification on their Dime bar. Being easier to gain, cheaper to administer and requiring only small percentages of products actually coming from a certified source makes Rainforest Alliance very palatable to uncommitted MNCs. However with Fair Trade USA committing to global expansion, there soon will be an even cheaper and easier way to put fair trade on your products.

By Dr Iain A. Davies
Senior Lecturer in Marketing, University of Bath
Visiting Fellow of the ICCSR, Nottingham University Business School

Image: Fairtrade Shelves by Susan van Gelder reproduced under creative commons license CC BY-NC-SA 2.0 source: http://www.flickr.com/photos/28362388@N00/5379330090

 

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