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Explain and analyse one obstacle to implementing “Fair Trade” for Southern producers?
The Fair Trade movement is considered to be a “response to” (Leclair, 2002: 957) and a “critique of” (Raynolds and Ngcwangu, 2010: 74) neoliberal free trade whilst representing an alternative to aid as a mechanism for development (Hira and Ferrie, 2006: 108). By offering a guaranteed minimum price for exported products and a social premium to participating producers (FLO, 2011), Fair Trade aims to “secure the rights of marginalised producers and workers – especially in the South” (FINE, 2001 cited in Fairtrade Foundation, 2011).
Whilst the movement has a well documented history (see Kocken, 2003; Murray and Raynolds, 2007), this essay will define Fair Trade with respect to its most recent manifestation; compliance with Fairtrade standards and the terms of trade as defined by the Fairtrade Labelling Organisation International (FLO) (2011) – a non-governmental organisation established in 1997 comprising of 24 organisations working to promote Fair Trade in general but also specifically products carrying the Fairtrade Mark (FLO, 2011).
FLO (2011) state that the movement is “designed to address the imbalance of power in trading relationships, unstable markets and the injustices of conventional trade” and therefore reduce the inequality of international trade that well recognised within the development literature (see Stiglitz, 2002 and 2007). So, as Fair Trade provides an opportunity for development (Leclair, 2002: 957) and empowerment (MacDonald, 2007: 794) through the mechanism of higher but stable prices for exported products, it seems logical for Southern producers to participate.
Whilst the literature identifies a multitude of interrelated challenges (see Hira and Ferrie, 2006; Tallontire, 2002), this essay will consider one obstacle to implementing Fair Trade for Southern producers; that is, the financial costs associated with becoming a certified Fairtrade producer.
In light of this obstacle, this essay will then critically analyse the Fair Trade movement so to make a judgement as to whether overcoming the obstacles associated with implementing Fair Trade can be justified to Southern producers. It will comment specifically on the internal pressures faced by the movement as it grows – especially in relation to mainstreaming.
Firstly this essay will discuss is the short-term and long-term financial costs associated with becoming a certified Fairtrade producer. Despite claims that the Fair Trade movement is “unique” (Leclair, 2002: 957; FLO, 2011) in terms of the contribution it makes towards development throughout the Global South and also the overwhelmingly positive and optimistic tone of the literature (see Raynolds and Ngcwangu, 2010; Welford et al., 2003), there are many financial costs associated with the implementation of Fair Trade. Although broad challenges associated with the movement are well documented the financial barriers to implementing Fair Trade are often either completely ignored or traded against the “remarkable” benefits available to certified producers (Murray and Raynolds, 2007: 5).
Listed separately from the academic praise and glossy photographs of beaming Southern producers are the “Producer Certification Fees” available from FLO-CERT – the certification body and the more corporate arm of the Fair Trade movement. For a Small Producer Organisation comprising of less than 50 members they list a €525 fee for the application service, €1430 fee for the initial certification fee and €1170 annual auditing fee regardless of whether the audit takes place that year or not (FLO-CERT, 2010: 4-6). Whilst this does not seem exceptionally expensive, given the variety in market (or guaranteed) prices between commodities and, for example, the fact that many family based coffee growers in Guatemala earn less than $600 per year (Levi and Linton, 2003: 412), there is a question as to whether Fair Trade is accessible and thus whether all marginalised workers can benefit (Tallontire, 2002: 13).
A guaranteed price and the social premiums offered to certified producers allow for consistent income and welfare projects respectively thus contributing to development (Welford et al., 2003). However, using coffee prices as an example, the market price has only dipped below the guaranteed price 10 times since 1976 (International Coffee Organisation, 2011; Levi and Linton, 2003: 411) and given rising commodity prices currently the necessity of Fair Trade is drawn in to question. Obviously this particular argument ignores the other benefits of certification such as the establishment of long-term trading partnerships (FLO, 2011) however as not all certified produce can always be sold (Renard, 2005: 427) which limits the effectiveness of the movement.
Short-term costs can be justified if payback periods are acceptable, especially if certification costs are covered with micro-finance loans (Hayes, 2006: 460) however the long-term implications of Fair Trade should be considered. The Fair Trade movement is designed to support producers so they can eventually gain access to conventional markets (Tallontire, 2002: 13) however some critics see the minimum price as a form of subsidy and suggest that inefficient production techniques are thus promoted (Boersma, 2009: 54; Tallontire, 2002: 14). This risks future competitiveness, especially given the opportunity cost associated with not diversifying in to more lucrative export markets (see Prebisch, 1950; Singer, 1950) and also when products have to compete in oligopolistic markets (Doherty and Meehan, 2006: 305) such as chocolate and bananas – two of the largest Fair Trade markets (Moore et al., 2006: 332).
In light of this discussion of the financial costs associated with becoming a certified Fairtrade producer, this essay will now critically analyse the movement in order to comment on the effectiveness of the movement and thus whether the obstacles mentioned previously can be justified to Southern producers. As stated previously this essay will focus on one issue with the Fair Trade movement; the internal pressures faced by the movement as it grows – especially in relation to mainstreaming.
Although the ethos of Fair Trade is simple – ensuring a better deal for Southern producers – the mechanism by which to go about achieving this aim is contested within the literature. FLO (2011) recognises the benefits from mainstreaming so to increase impact on development in the Global South by expanding the scale of Fairtrade products sold. This view is supported throughout the literature. For example, Murray and Raynolds (2007: 8) suggest that expanding the movement brings benefits to “a greatly increased number of marginalised producers”.
Meanwhile, and despite this, many are critical of mainstreaming. Moore et al., (2006: 330) proclaim that Fair Trade has “sold out” and even “lost its soul” whilst Barrientos and Smith (2007: 109) suggest that there are “inherent tensions between the underling social values of Fair Trade and the commercial principles and practices”. Tallontire (2002: 12) summarises this well by suggesting that “Fair Trade has feet in both the development and business camps, which can create tension”. So what does this mean for Southern producers? Southern producers will need to be able to adapt to the shifting demands of the movement. For example, as supermarkets gain an increasing relative and absolute share of the Fair Trade market products will need to become more homogenous (Wilkinson and Mascernhas, 2007: 127) and this may favour certification of plantations and cooperatives as opposed to small-scale plots. Evidently there will be winners and losers from this potential shift and this will depend on the context and the commodity. For example, coffee production is highly decentralised (Levi and Linton, 2003: 412) and so within this market a shift in employment structure may occur.
This essay set out to discuss the obstacles to implementing Fair Trade for Southern producers. By presenting an analysis of the financial costs associated with becoming a Fairtrade producer and then outlining one critique of the movement this essay has highlighted the complexities associated with implementing Fair Trade as well holistically explaining the advantages and disadvantages of a movement that is both “in and against the market” (Raynolds and Ngcwangu, 2010: 75). By demonstrating the breadth of academic discussion within this field this essay has aimed to show that any obstacles to implementing Fair Trade are highly contextual. This is important given the expansion in product categories within the Fairtrade scheme. Despite this, there are evidently benefits to implementing Fair Trade. For example, the potential for increased revenue and expertise as well as the opportunity for often much needed development projects are major incentives for Southern producers to become Fairtrade certified.
It is not practical to decide definitively on whether the obstacles to implementing Fair Trade can be justified to Southern producers given the risks associated with the future of the movement as each case is highly contextual. However it is possible to conclude that Southern producers should carefully examine the risks and benefits associated with Fair Trade. Throughout this essay has highlighted the contention between short-term protectionism (as a result of guaranteed prices and social premiums) and long-term growth. Hira and Ferrie (2006: 113-114) argue that the market price is key to signalling appropriate changes to supply and demand and thus, by removing this signal, the Fair Trade market risk diverging from the mainstream market. This potentially could allow competing companies to gain market share. Whilst Fair Trade offers the opportunity for “trust, shared ownership, and access to network resources [such as] capital, skills [and] technology” (Doherty and Meehan, 2006: 302) which increase profitability, it is noted that few Fairtrade producers ever move to the mainstream market (Tallontire, 2002: 14) resulting in problems such as those associated with the infant industry debate.
This essay thus concludes that the success of the movement depends on its future direction which, as shown, is far from certain. The obstacles to implementing Fair Trade for Southern producers will shift over time, and, whilst today Fair Trade can offer some protection against the impersonal global market, producers in the Global South cannot afford to become complacent.
Word Count: 1581
Reference list:
BARRIENTOS, S and SMITH, S. (2007). Mainstreaming Fair Trade in global production networks: own brand fruit and chocolate in UK supermarkets IN: RAYNOLDS, L; MURRAY, D AND WILKINSON, J (eds). Fair Trade: The challenges of transforming globalisation. Oxon, UK: Routledge, pp103-122.
BOERSMA, F. (2009). The Urgency and Necessity of a Different Type of Market: The Perspective of Producers Organized Within the Fair Trade Market. Journal of Business Ethics. 86(1), pp51-61.
DOHERTY, B and MEEHAN, J. (2006). Competing on social resources: the case of the Day Chocolate Company in the UK confectionery sector. Journal of Strategic Marking. 14(4), pp299-313.
FAIRTRADE FOUNDATION. (2011). What is Fairtrade? [online]. [Accessed: 01.05.11]. Available from: http://www.fairtrade.org.uk/.
FAIRTRADE LABELLING ORGANISATION INTERNATIONAL. (2011). What is Fairtrade? [online]. [Accessed: 01.05.11]. Available from: http://www.fairtrade.net/.
FLO-CERT. (2010). Fee System – Small Producer Organization. Bonn, Germany: FLO-CERT.
HAYES, M. (2006). On the efficiency of fair trade. Review of Social Economy. 64(4), pp447-468.
HIRA, A and FERRIE, J. (2006). Fair Trade: Three Key Challenges for Reaching the Mainstream. Journal of Business Ethics. 63(2), pp107-118.
KOCKEN, M. (2003) Fifty years of Fair Trade: a brief history of the Fair Trade movement. London, UK: IFAT.
LECLAIR, M. (2002). Fighting the Tide: Alternative Trade Organizations in the Era of Global Free Trade. World Development. 30(6), pp949-958.
LEVI, M and LINTON, A. (2003). Fair Trade: A Cup at a Time? Politics & Society. 31(3), pp407-432.
MACDONALD, K. (2007). Globalising Justice within Coffee Supply Chains? Fair Trade, Starbucks and the transformation of supply chain governance. Third World Quarterly. 28(4), pp793-812.
MOORE, G; GIBBON, J; and SLACK R. (2006). The mainstreaming of Fair Trade: a macromarketing perspective. Journal of Strategic Marking. 14(4), pp329-352.
MURRAY, D AND RAYNOLDS, L. (2007). Globalisation and its antinomies: negotiation a Fair Trade Movement IN: RAYNOLDS, L; MURRAY, D AND WILKINSON, J (eds). Fair Trade: The challenges of transforming globalisation. Oxon, UK: Routledge, pp3-14.
PREBISCH, R. (1950). The Economic Development of Latin America and its Principal Problems. Lake Success, NY: United Nations Economic Commission for Latin America.
RAYNOLDS, L and NGCWANGU, S. (2010). Fair Trade Rooibos tea: Connecting South African producers and American consumer markets. Geoforum. 41(1), pp74-83.
RENARD, M-C. (2005). Quality certification, regulation and power in fair trade. Journal of Rural Studies. 21(4), pp419-431.
SINGER, H. (1950). The Distribution of Gains between Investing and Borrowing Countries. American Economic Review. 40(3), pp473-483.
STIGLITZ, J. (2007). Making Globalisation Work. London: Penguin.
STIGLITZ, J. (2002). Globalisation and its Discontents. London: Penguin.
TALLONTIRE, A. (2002) Challenges facing Fair Trade: which way now? Small Enterprise Development. 13(3), pp12–24.
WELFORD, R; MEATON, J and YOUNG, W. (2003). Fair Trade as a Strategy for International Competitiveness. International Journal of Sustainable Development and World Ecology. 10(1), pp1-13.
WILKINSON, J and MASCERNHAS, G. (2007). BARRIENTOS, S and SMITH, S. (2007). Southern social movements and Fair Trade IN: RAYNOLDS, L; MURRAY, D AND WILKINSON, J (eds). Fair Trade: The challenges of transforming globalisation. Oxon, UK: Routledge, pp125-137.
FEEDBACK
1st: 70
1st+ / 1st / 2:1 / 2:2 / 3rd / FAILresearch, knowledge and understanding [30%] / x
argument and analysis [40%] / x
structure and coherence [10%] / x
grammar and style [10%] / x
referencing [10%] / x
In the assessment criteria a first is described as:
Excellent work. A clear command and understanding of the issues can be noted along with independent thinking. The essay contains a wealth of relevant information, and demonstrates wide reading of appropriate literature.
Tutors comments:
Strengths:
Very well organised and thorough essay which answers the question directly, fully and intelligently. Literature is well handled, with some excellent commentary and analysis of your own. Clearly written, focussed and engaging. Your critical analysis of the literature was especially good, the fact that you identified areas of popular agreement with multiple references and then used your line of argument to put various academic works up against each other helped make your answer worth 70.
Weaknesses:
Whilst your essay clearly presents one challenge to implementing fair trade for southern producers, by making reference to some of the other challenges that exist such as the weakness of the movement due to mainstreaming, you could have commented on the significance of the one challenge you identify. For example, you stop short of arguing that fair trade can potentially trap producers into poverty by incentivising them to remain in low return and volatile markets but by mentioning this briefly, you could add context to your conclusion.