Fair Trade

By Hulm, Peter; Kasterine, Alexander et al. | International Trade Forum, April 1, 2006 | Go to article overview

Fair Trade


Hulm, Peter, Kasterine, Alexander, Browne, Stephen, International Trade Forum


What does "fair trade" mean? You won't find one single answer. Here we look at the market profile of fair trade - the players, controversies, benefits and drawbacks.

Fair trade in international commerce has two distinct meanings. In trade negotiations, the term is used broadly to argue that subsidies and disguised barriers skew the global trade system against developing countries and commodity producers. Former World Bank chief economist and Nobel Prize winner Joseph Stiglitz, for example, argues for "fair trade for all" in the context of the latest WTO round of trade liberalization, the Doha Development Agenda.

Small share, big voice

Meanwhile, small farmers in developing countries who produce some of the world's favourite fruit and beverages still find themselves getting pennies for products that sell for several dollars in the rich world's supermarkets. Even worse, their income fluctuates violently from season to season, sometimes from day to day, depending on commodity prices. Striving against other producers to keep up their revenues when prices are dropping can lead to collective impoverishment across the globe.

This is where the other, more famous fair trade movement comes in. Unofficially reaching the age of 60 this year, this labelling, marketing and advocacy initiative seeks to ensure that producers in developing countries receive more of the profits from the price paid by consumers. This article tries to put the alternative fair trade movement into its trade development context.

Fair trade often pays the producers one-quarter to one-third more than they can get on the open market. But only Fairtrade-labelled products - that is, those certified by Fairtrade Labelling Organizations (FLO) International - imply agreement on a minimum price. Most alternative fair trade agreements speak only of giving producers an unspecified "fair price" for their products to provide a living wage and sustainable costs of production (Fair Trade in Europe 2005).

Sales through this new channel still represent less than 0.1% of all goods traded internationally, according to the United States-based Fair Trade Federation.

So can this trade have a major impact? Will it survive competition from bigger players? The European-centred FLO points out: "Fair trade products [i.e., from all the alternative fair trade bodies] can now be found in 55,000 supermarkets all over Europe and the market share has become significant in some countries: 47% of all bananas, 28% of the flowers and 9% of the sugar sold in Switzerland are Fair Trade labelled. In the UK, a market with eight times the population of Switzerland, labelled products have achieved a 5% market share of tea, a 5.5% share of bananas and a 20% share of ground coffee."

While market share may be very small, sales are growing fast. "Fair Trade sales in Europe have been growing at an average 20% per year since 2000. The annual net retail value of Fair Trade products sold in Europe now exceeds EUR 660 million. This is more than double the figure five years ago," notes FLO.

Fair trade labelling initiatives are under way in 15 European countries, while fair trade producers are organized into some 3,000 grass-roots organizations, with umbrella structures present in over 50 developing countries. Apart from coffee, bananas and some other fruits and vegetables, fair trade producers also include artisanal goods.

Europe represents most (60-70%) of the fair trade market. The trade importing organizations say 26% of their sales come from Africa, 40% from Asia and 34% from Latin America.

The impact of fair trade products goes beyond its market share. Advocacy for alternative fair trade seeks to strike a chord among consumers by highlighting development goals that do not depend on traditional market solutions. Europe's fair trade organizers also argue in their most recent report, Fair Trade in Europe 2005, that: "Fair Trade has become much more than a niche market for socially-aware and middle-class Northern consumers. …

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