Why Fair Trade? | Third Space

Why Fair Trade?

Mon 30 Apr 2018

‘Change today, buy fairtrade’.

This pithy motto encapsulates the vision of Fair Trade—that the developing world can indeed be changed through individual purchasing decisions. Indeed Fair Trade is at the heart of my family story - I grew up in the 1980's selling Fair Trade products with my mum in markets across North Shropshire in the UK.

But does Fair Trade really change the world, or just make us feel better or unwittingly even make the situation worse? Are Fair Trade initiatives appropriate interventions to alleviate the poverty of producers and their societies?

We explored some of these questions in the recently broadcast Bigger Questions conversation with my Dad as I asked him some Bigger Questions on Fair Trade.

What is the origin of Fair Trade?

The modern Fair Trade movement has clear Christian roots. Fair Trade grew out of Christian organisations purchasing handicrafts from poor producers in the developing world and selling them directly to conscientious consumers. Since then commodity food lines have risen to dominate the global Fair Trade market.

What kind of products are Fair Trade?

The distinction between handicrafts and commodities is important for Fair Trade works slightly differently in each situation. Fair Trade handicraft organisations create employment for the marginalised, offer training and skills development and promote fair internal labour arrangements. Fair Trade commodity producers are organised into co-operatives and receive either the world market price or the Fairtrade minimum price—a price floor set by the Fairtrade Labelling Organisations International – whichever is greater, guaranteeing the producer a minimum price. This price is supplemented with a compulsory ‘fairtrade premium’, paid to the co-operative, which finances various community development projects such as schools, recreational facilities and educational centres.

What is Fair Trade?

At its core Fair trade seeks to guarantee fairness: fair prices and conditions for participants. This is necessary because of the ‘unfairnesses’ faced by such people in the wake of modern capitalism.

Why are people poor?

The poor are in a vulnerable position because they lack the factors contributing to empowerment. They often lack education—many coffee growers have about a fourth grade education. They lack expertise to attempt alternatives: farmers in Dominica often return to bananas when they can’t earn a living from anything else. Allied with this, the poor are often risk averse, for if a new, risky venture fails there will be nothing to feed their family. The poor also lack capital and efficient credit markets; poor producers lack collateral and are at the mercy of loan sharks. Moreover, standard economic models advocating free access to information or markets also break down. Without these factors, the poor are powerless—lacking essential resources to participate in broader social communications, they are trapped in unprofitable industries or jobs unable to switch to alternative income generation sources.

Is Fair Trade charity?

Fair Trade does not see itself as charity—it is built on trade, not aid—and operates completely within the capitalist system. An alternative market is created for participants and consumers voluntarily purchase the products. However Fair Trade also operates ‘against’ the market—where purchasing decisions are not based on simple financial considerations, but primarily on social conscience. Thus Fair Trade represents not pure capitalism, but generous capitalism.

What is the goal of Fair Trade?

Fair Trade ultimately exists to serve developmental goals. It seeks to assist in the alleviation of poverty and improve the livelihoods of those participating.

What are the Christian connections to Fair Trade?

Concern for the poor originates in the character of God who ‘watches over the sojourners; he upholds the widow and the fatherless’ (Ps 146:9). God desires that the powerless not be exploited and expects his followers to act similarly, ‘Open your mouth, judge righteously, defend the rights of the poor and needy’ (Prov 31:9). Christians also desire to reflect the grace of God and exhibit generosity; giving equal treatment to human beings and loving our neighbour in practical and physical terms, ‘let us not live in word or talk but in deed and truth’ (1 Jn 3:18).

Fair Trade expresses this biblical concern for the weak and powerless. Particularly pertinent to Fair Trade are the theological maxims expressing labour justice, for example ‘Behold, the wages of the labourers who mowed your fields, which you kept back by fraud, are crying out against you, and the cries of the harvesters have reached the ears of the Lord Jesus’ (James 5:7). Whilst Christians in the developed world may not have actively withheld wages from their workers, complicity cannot be completely avoided if through low prices they have indirectly benefited from such practices. Moreover, globalisation has increasingly separated consumers from producers rendering exploitation invisible to the consumer’s eyes. Paying higher prices guaranteeing improved labour conditions expresses practical care to the powerless in the developing world and are generous economic expressions of ‘loving my neighbour’. Fair Trade offers a way of ensuring the twin tyrannies of distance and invisibility are to some extent overcome.

How optimistic can we be about unfettered capitalism?

Some are critical of Fair Trade precisely because it is perceived to stand opposed to capitalism and the opportunities and development it creates. Some claim that the sweatshops of today are essential to facilitate economic prosperity in the future. Harvard economist Jeffery Sachs comments, ‘Those are precisely the jobs that were the steppingstone for Singapore and Hong Kong, […] and those are the jobs that have to come to Africa to get them out of their backbreaking rural poverty.’

Many free trade advocates also consider Fair Trade initiatives as inappropriate because they ‘distort the market’ and send pricing signals that encourage overproduction and lead to a lower market price making everyone ultimately worse off. They propose that the appropriate response to developing world poverty is free trade, unfettered capitalism—let the market weave its magic! The rapid economic development of East Asia and more recently India and China is attributed to them ‘embracing free markets’.

Yet we should be cautious with capitalism's concern for profit and efficiency - markets are blind, amoral and seek the most ‘efficient’ outcome, often disregarding the human cost. This human cost is accepted almost as a good by free market advocates: ‘creative destruction lies at the very heart of the market process.’ Thus to free market advocates ‘race to the bottom’ is somehow a good thing.

Why shouldn't we accept 'pure' capitalism?

Accepting pure capitalism as a driving force for development and alleviation of poverty overlooks theological concern for justice, fair payment of workers and the welfare of the powerless. A Fairtrade price floor may ‘distort’ a free market, but it does so for the benefit of the powerless. Moreover, as outlined earlier, in many cases the relevant economic markets are not completely free—the world’s poor often have very few alternatives. Also, attributing all of the economic growth in East Asia to free market policies is overly simplistic and overlooks the important role government played in providing requisite physical and institutional infrastructure, ‘[t]o date, not one successful developing country has pursued a purely free market approach to development.’ Thus rejection of Fair Trade initiatives in favour of completely free market forces as a solution to global poverty is economically and theologically misguided.

Do Fair Trade initiatives work?

Does Fair Trade work, or is it a ‘misguided waste of time’? There is a growing body of evidence which suggests that fair trade initiatives do indeed make real, positive differences to the participants and their societies by empowering them with greater choices.

Fair Trade initiatives address the powerlessness of the poor in several ways. Firstly and most critically they empower participants by providing a higher income due to both a guaranteed price/wage and access to previously unavailable markets. Artisans report earning up to 40% of the retail price of their handcrafts compared to 10% from mainstream retailers. Moreover, the income received is more stable and less susceptible to market volatility.

Furthermore, Fair Trade participants have less need to borrow money and have less debt than their counterparts. This allows participants to budget in a financially responsible and sustainable manner. The additional income often leads to corresponding improvements in other wellbeing indicators. Fair Trade participants are able to afford improved housing and better education for their children—some educating their children beyond high school for the first time. This in turn facilitates other opportunities which ultimately may assist families break the poverty cycle altogether. Empowerment also creates psychological benefits for participants; increased self esteem, pride in their work, and increased security.

Some Fair Trade participants are empowered by possessing jobs previously unattainable. For example Craft Link in Vietnam creates employment for the marginalised: ethnic minorities in remote areas, street children and people with disabilities. Allied to this many Fair Trade participants are also empowered through access to training and skills development affording greater employment opportunities e.g. Umtha, a jewellery manufacturer in South Africa, employs unskilled women from the townships providing training and development. Some of these employees even broke off and initiated their own, successful jewellery venture. Alternatively, training is often provided which can lead to diversifying income streams.

Fair Trade also facilitates community development. Local co-operatives are empowered to make real changes which benefit their communities through the distribution of the Fairtrade premium. At this point Fairtrade becomes ‘aid’, but it is well directed and community empowered aid—with demonstrable community benefits. Infrastructure and broader community development projects, unattainable through trade alone, do improve the societies of participants. This also demonstrates that well directed aid is also an appropriate intervention for producers.

Is Fair Trade the only solution to poverty reduction?

Fair Trade initiatives do empower the poor with greater choices. However it is important to recognise that Fair Trade is not the complete and only solution to poverty reduction. There is an appropriate place for other interventions. As the application of the Fairtrade premium highlights—well directed direct aid benefits producers’ communities. Furthermore other entrepreneurial approaches can have demonstrable impacts on their societies, for example consultancy services, and the provision of micro-credit. The important correction that Fair Trade offers these entrepreneurial approaches is that labour fairness is guaranteed—hence Fair Trade can offer a more ‘just’ avenue to economic development.

It seems that Fair Trade initiatives work better for producers of handicrafts rather than for commodity producers, mainly because the Fair Trade mechanisms involved in commodity production are more complicated and bureaucratic. There are times where the benefits of Fair Trade are marginal for commodity producers. For example, the fair trade floor price is not indexed to any inflationary measure. This may mean that the Fair Trade floor price fails to cover costs of production. Also, when the market prices are well above the Fair Trade floor, the market incentives for producing Fair Trade goods are reduced, particularly as Fair Trade certification requires more work and incurs higher certification expenses.

What impact does the bureaucracy of Fair Trade have?

The bureaucracy created in Fair Trade commodity products is not without problems. There are examples of corruption, and problems with the politics and bureaucracy of co-operatives. Some acknowledge this is a problem with democratic economic organisations, and not specifically Fair Trade. However Fair Trade requires the use of co-operatives, possibly encouraging a less efficient bureaucratic system.

Does everyone benefit from Fair Trade?

Not everyone in the relevant society benefits from Fair Trade initiatives. Whilst there are some spillover effects, e.g. higher wages paid at Fair Trade farms caused unrest at neighbouring non-Fair Trade farms until neighbouring farms raised wages commensurately, most of the benefits of Fair Trade accrue to producers or organisations who voluntarily subscribe. Workers in other organisations fail to reap the benefits of higher income. Indeed global labour justice represents a far bigger problem which can’t be completely solved through voluntary fair trade initiatives. This difficulty explains the importance and appropriateness of advocacy and government action to enforce minimum wage requirements.

As a market based initiative, Fair Trade products are completely dependent on demand from ethical consumers in the developed world. Social conscience remains only one factor in a consumers purchasing decision, ‘the overwhelming majority of consumers buy coffee on the basis of how it tastes—and how much it costs.’

So why Fair Trade?

Fair Trade is an appropriate response to the economic exclusion suffered by many of the powerless in the developing world. Fair Trade offers jobs and guaranteed income which facilitates greater choice and hence opportunity for the powerless to escape poverty permanently. Fair Trade does facilitate change in the lives of producers and their societies—buying Fairtrade does indeed change today.

Fair Trade is also rooted in the Christian worldview and grew out of the Christian concern for the powerless in our global society.

However, Fair Trade should not be viewed as the complete or only response to adequately deal with the problems of poverty in the producers’ societies. The system is not perfect and must recognise the proper place for direct aid, advocacy, government intervention and other entrepreneurial activities.

So why not "buy fair trade and have another bite’.

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