Fair trade or fairy tale?


Some really interesting exchanges yesterday on the topic of fair trade. At the core of the argument was the following question:

Is fair trade good for developing countries, or is it just a placebo to soothe our conscience, while doing very little to lift them out of poverty?

The debate was framed within a wider discussion on poverty and inequality, in which neo-liberal and Marxists economists threw World Bank data at each other in an attempt to win the argument. Someone later commented they were like children in a school yard. And indeed, it is hard to see how we can move forward in understanding how to fight poverty and inequality if all we get to hear is this biased bickering, which takes into little consideration the real complexities of the world. What’s the use – for example – of drawing conclusion on the impact of global economic dynamics on Africa when the data aggregates all countries, without distinguishing the ones that have been ridden for decades with internal conflicts?

Data (mis-)management aside, the fair-trade debate was an interesting one, because it brought the theory down to the real world, and confronted us with some hard questions. High-return industries are increasingly concentrated in economic cluster areas – dominated by North America, Europe and East Asia – while only the lower and less profitable parts of the production chain are off-shored to developing countries. This off-shoring comes at a heavy price, as northern TNCs play southern countries against each-other to induce them to lower their corporate taxes, reduce environmental regulations and curb the legal power of unions. So little hope for an economic boom on the manufacturing side.

What about the agricultural sector? Well, this has never been the door to economic miracles, and dependency on the fluctuation of prime food commodities (like coffee, tea, etc.) means many countries are building their economies with a foot in the grave. The long collapse of coffee prices, for example, was mainly showldered by small farmers, who bore the heavy costs of a production chain that won’t cut down advertising costs in New York or London, but will happily let those who grow the beans go hungry. Result: no hope for Nicaragua to raise to the levels of economic growth of Taiwan.

The response – aside from the smashing of Starbucks shop-fronts – has been the rise of the Fair-Trade industry. By paying a premium to small farmers, the Fair-Trade label guarantees a sale price to farmers regardless of the fluctuations of the market. This – combined with the security provided by long-term contracts – allows farmers to start focusing their resources on improving production facilities, community infrastructure, cooperative initiatives, and eventually gather enough money to start-up integrated business ventures. Ideally, on the log run, Nicaragua’s cooperatives will be able to produce, package, store, ship and market their own coffee, by-passing the expensive steps of New York and London, to reach directly the consumer with a high-quality and competitive product that will constitute a real drive for the country’s economy.

This is the theory. And what about the practice? Well, leaving aside recent reports by the Financial Times on the alleged lack of integrity of the Fair-Trade certification process, there are some dark spots in the picture. The first one is purely market related: although most people claim they support the principles of fair trade, only 5-10% actually walk the talk. This poses limitations on the amount of support the Fair-Trade Foundation, for example, can give to farmers – in terms of certification costs, etc. The second issue relates to the capacity of large multinationals to change the rules of the game to their advantage. Seattle-based Starbucks is a good example.

First, having had a number of windows smashed in various cities of the world, it declares it wants to come clean and starts an interesting partnership with Oxfam. Then, it decides that rather than complying with international Fair-Trade standards, it’ll be better off writing its own rules:

Starbucks Coffee Company initiated C.A.F.E. (Coffee and Farmer Equity) Practices to evaluate, recognize, and reward producers of high-quality sustainably grown coffee. C.A.F.E. Practices is a green coffee sourcing guideline developed in collaboration with Scientific Certification Systems (SCS), a third-party evaluation and certification firm.

Finally, it shows its true colours by blocking an attempt by Ethiopia’s farmers to copyright their most famous coffee bean types, denying them potential earnings of up to £47m a year. Indeed, every time I try and have faith in companies, and trust their statements of corporate social responsibility, I stumble across some other dirty trick they play in the un-fair game of market competition. So is there no hope?

Well, I am not sure. Personally, I came up with a few policy suggestions which might help us move forward:

  1. More FDA should be channelled directly to fair-trade and cooperative organisations, especially to promote business ventures in the primary production process; this should be done with the help of business experts and market analysts, to allow the emergence of integrated fair-trade business models, building on the existing capabilities of the national economies (agriculture) to expand in the direction of the manufacturing and service industries.
  2. Fair trade should be at the centre of any future trade negotiation between developing and developed countries, especially the EU, and should be dealt with separately from other forms of trade: in a sense, fair-traded commodities (not just agricultural ones) could consitute the way out of the current empass on the EU subsidies.
  3. Fair-trade associations and cooperatives should be given a strong voice – and separate from the business and civil society sectors –  in the shaping of national economic development plans.
  4. A strong campaign should be launched against businesses setting up their own “fair-trade” labels, questioning their ability to be really independent in deciding what is ‘fair’ in all trade matters.

In all this, clearly, the role of governments is fundamental. And to those who think their ability to reign in large corporations has been destroyed, check this recent report by the NY Times on China’s move to boost unions and end workers’ abuses by TNCs operating within its boundaries [via Patrick].

More suggestions/ideas are welcome…


2 responses to “Fair trade or fairy tale?

  1. Certification is always hard, as you point out, and one of the issues that make this whole issue more complex than it seems. You always get free riders and once a company gets certified, it can slide back. The cost of monitoring is tough.

    I won’t defend Starbucks, but read there was some hint that the copyright was going to price the Ethiopian coffee out of the market. I don’t know enough about the specifics, but appreciate what they have done, even if I know their primary goal is their growth. They deserve credit for pushing the debate, which doesn’t mean they should get off if they are sliding back into unfair practices. I trust Oxfam to hold them to that.

    My only other thought is that beneficent-looking actions in the West can have devastating consequences for farmers. Health and Safety regulations and “high quality” certifications schemes can hurt those without resources to complete the certification process.

  2. “The master’s tools will never dismantle the master’s house.” – Audre Lorde

    Perhaps later readings/lectures on value-adding chains and intellectual property laws will clarify this particular issue?

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