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Is Fair Trade Free? Does it Matter?

I recently got into a debate with someone that argued that the fair trade movement is really just a marketing ploy that preys on the goodwill of consumers in an effort to increase sales.  Importantly, I noted the important work of the Fairtrade Labelling Organizations International (FLO) in Bonn, Germany as a counter to the critic’s points.

Upon reflection, I realized that the assertions of this critic should be closely examined.  It has been recently reported by FLO that world fair trade products expanded by 22% in 2008 despite the onset of the global financial crisis.  If there is a growing demand for these products, while demand for many other products is either leveling off or declining, then there must be something important happening at the international level.
JaneSilkVendorsIn truth, the fair trade movement has led to many unique unconnected, nonetheless, worldwide initiatives that seek to advocate for workers being paid a fair wage.  Furthermore, the advocacy doesn’t end there.   The World Fair Trade Organization (WFTO) audits their members to ensure that, not only the producers, but everyone along the supply chain, all the way to the ultimate consumer is being adequately compensated.  And, it is true in some cases, as some critics of fair trade point out; the end price to the consumer is generally higher than prices on similar items sold without the certification of fair trade.

But the questions remain:

  1. Are these efforts by a growing number of businesses from around the world making an impact on the lives and fortunes of those they are seeking to represent?
  2. Is the new so-called “LOHAS” consumer group, just that; a marketing ploy to those who live Lifestyles of Health and Sustainability (LOHAS)?
  3. Is there truly a growing worldwide demand for fairly traded products?

The Institutional Framework

Some of the most important organizations that are leading the fair trade movement worldwide are as follows:

  • The WFTO, based in the Netherlands, has developed a set of 10 principals that have become the de facto charter for fair trade organizations around the world. WFTO is over 20 years old and maintains the FT100 list; a list of member companies that are fully committed to creating a sustainable future.
  • The Fair Trade Federation (FTF), based in Washington, D.C., serves as a resource for organizing trade fairs and conferences for U.S. and Canadian wholesalers and retailers who are working with producers from around the world.
  • FLO, mentioned above, is made up of 24 member organizations from around the world. It has developed a trademark that only its member organizations can use when selling products on the open market.  It has established both generic and product standards, and maintains a standards evaluation unit for ongoing review of members.
  • The Fair Trade Resource Network (FTRN), based in Philadelphia, is an information hub that serves the worldwide fair trade community with educational materials and networking ideas.

These organizations, as well as many other industry-specific or region-specific non-governmental organizations (NGOs) are the thought leaders of this worldwide grassroots movement.

Is Fair Trade Making An Impact on the Lives of Producers?

HappyKidsGift2Testimonials given on hundreds of corporate sites of the members of the FTF and WFTO seem to suggest that the movement is, indeed making an impact on the lives of producers.  For example, FTF member Baladarshan, based in Chennai, India sells handmade objects through a storefront and on the Internet.  Handicrafts are constructed in vocational training programs supported by the SPEED Trust (Slum People Education and Economic Development).  SPEED is also involved in microfinance, elementary education, and prenatal education for members of the community.

optGroupSimilarly, in Luang Prabang, Laos, the storefront Ock Pop Tok is providing employment for a group of about 40 weavers and trainers and shop-keepers, all involved in selling the masterful weavings that characterize the traditional arts of Laos.

ThaiCraft1In Thailand WFTO member Thai Tribal Crafts brings together the traditional crafts of the Hmong, Lahu, Mien, Karen, Akha, and Lisu tribes to sell to the growing tourist traffic in Chiang Mai.  These artisans produce a wide range of products from silversmithing, to baskets to wood and stone carvings to beautiful weavings.

As encouraging as these isolated examples are, it remains to be seen whether or not many small-scale, regionally focused initiatives can make a dent in the profound need for jobs in the developing world.  To address this on scale large enough to matter, traditional news outlets and political pundits need to forego the call for protectionist policies in developed world countries and start educating people on the systemic benefits of a trading system that holds all its producers in esteem.

Until then, this question remains unanswered.

Is Fair Trade Just A Marketing Ploy?

The LOHAS magazine defines LOHAS as: a market segment focused on health and fitness, the environment, personal development, sustainable living, and social justice. According to researchers at the WorldWatch Institute, the LOHAS market was estimated to be worth $300B in 2006.

Big corporations are also moving aggressively to market to this segment.  For example, eBay (NASDQ:EBAY) has formed a joint venture relationship with World Of Good to launch WorldOfGood.com, a web-based auction and product sales portal that only sells LOHAS products.

Furthermore, in specific market segments, peer-reviewed, scientific publications are beginning to emerge that suggest that this is an increasingly important phenomenon, and that, beyond the hype, there is some validity to it.

In the agricultural sector, for example, the World Bank published a Working Policy Paper on Fairtrade coffee in Costa Rica. The abstract states:

“This paper concerns an NGO intervention in agricultural commodity markets known asFairtrade. Fairtrade pays producers a minimum unit price and provides capacity building support to member cooperative organizations. Fairtrade’s organizational capacity support targets those factors believed to reduce the commodity producer’s share of returns. Specifically, Fairtrade justifies its intervention in markets like coffee by claiming that market power and a lack of capacity in producer organizations ‘marks down’ the prices producers receive. As the market share of Fairtrade coffee grows in importance, its intervention in commodity markets is of increasing interest[emphasis added].

Using an original data set collected from fieldwork in Costa Rica, this paper assesses the role of Fairtrade in overcoming the market factors it claims limits producer returns. Features of the Costa Rican input market for coffee permit a generalization of the results. The empirical results find that market power is a limiting factor in the Costa Rican market and that Fairtrade does improve the efficiency of cooperatives [emphasis added], thereby increasing the returns to producers. These results do not depend on the minimum price policy of Fairtrade and therefore can inform on its organizational support activities…..”

It would appear then, from this initial study that there is more to the Fairtrade agenda then a marketing ploy.  Indeed, many opportunists will be tempted to take advantage of the vulnerability of buyers seeking to do well with their purchasing decisions.  However, as Paul Hawken points out in his book Blessed Unrest: How the Largest Movement in the World Came into Being and Why No One Saw It Coming (2007), there is documented evidence that a major global shift in awareness is taking place by millions of people in many different locales.

I would give a tentative no in answer to this question.  Fairtrade is not just a marketing ploy; it is a genuine global movement with advocates all around the world whose actions are aimed at making world markets fairer to those who produce the goods for the consumers.
Is There a Growing Worldwide Demand for Fair Trade Products?

A survey, carried out by the Dutch Association of World Shops, in 28 European countries plus the United States, Canada, Japan, Australia and New Zealand, showed that global fair trade sales in 2007 reached a record figure of $3.61B.  When coupled with the 2008 Alter Eco consumer attitudinal survey which showed that 65.31% of those surveyed in the US had previously purchased fair trade products, this seems to confirm the trends, at least in the developed world.

To supplement these findings FLO conducted a global survey in 2008 which reveals that support for Fairtrade is on the rise.

“Ahead of World Fair Trade Day on May 9, 2009, this global consumer survey on Fairtrade shows that shoppers increasingly expect companies to be more accountable and fair in dealing with producers in developing countries. The survey by GlobeScan was commissioned by Fairtrade Labelling Organizations International (FLO) with a sample size of 14,500 in 15 countries. Among those surveyed, almost three quarters of shoppers believe it is not enough for companies to do no harm, but that they should actively support community development in developing countries. Consumers are calling for a new model in trade in which justice and equity are integral parts of the transaction. ‘Active ethical consumers’ make up more than half the population (55%) in the countries surveyed.”

As useful as these data are, these survey data are missing the added benefit of standard definitions for cross-border measurements.  One has to conclude that the most effective way of answering this question is to conduct statistical analysis on macroeconomic and trade trends at the global level.

This is, in fact, what the Global Trade Analysis Program (GTAP) at Purdue University is doing.  The problem is that the raw data that is analyzed from all of the countries of the world does not yet differentiate between widgets made using sweatshop labor, and widgets made by fair trade producers.

The UK-based New Economics Foundation (NEF) is not waiting, however.  They have recently published the 2nd Annual Happy Planet Index (HPI) report. In this analysis they use a number of indicators including the United Nation’s Human Development Index (HDI) and other measures of ecological balance and social welfare.

As useful as this index is for developing an understanding of the state-of-the-art in quantifying these global economic trends, the only real remedy to this would be a world-wide effort to incorporate fair trade measures in standard census counts and industrial activity surveys.  An agency such as the World Bank would be appropriate for this task; and the surveys could be conducted by all its member countries.  Countries would benefit from the standards definitions work that has been conducted to date by FLO and insight about the synergistic effects of fair trade on other measures of welfare from the members of the WFTO and FTF, among others.

Once standardized data were being collected the researchers of the GTAP project, NEF and others would be able to evaluate the true nature of the economic trends that fair trade advocates are documenting through regional analyses and case studies.  In this way, this final question could be answered.

In the end, NEF’s Happy Planet might just turn out to be very happy indeed.

One Response to Is Fair Trade Free? Does it Matter?

  1. Johannes Mauritzson

    September 15, 2009 at 2:20 pm

    Very interesting article, I’m gonna read it through carefully to try to broaden my view on the matter. For me fair trade is something very important understated, however I think it’s good also of course to make sure that the standards of fair trade really fulfil it’s purporse, which it does seems to do though.