acorn international fairtrade report

Un-Fairtrade Organization How Fairtade Fails the Global Poor

Melanie Craxton & Wade Rathke

ACORN International — New Orleans, Louisiana

P: 504-302-1238 x2002 E: [email protected]

Un-Fairtrade Organization | 2

Introduction At first glance, Fairtrade (the organization, not the concept) looks like a great way to empower marginalized

producers and workers. With guaranteed prices, financing and social premiums to play for, it is easy to see why, on the

surface, Fairtrade is an attractive club to join. However, this report digs deep into the ins-and-outs of Fairtrade to find that

the organization is seriously failing to live up to its potential. In fact, it will be found that at its core, the structure of

Fairtrade itself is extremely flawed. Fairtrade is meant to answer the call for greater equity in trading relationships by the

developed world’s consumers as well as empower the developing world’s producers. However, in the end it is the retailers,

especially the market-driven ones, who are the real beneficiaries of Fairtrade.

Fairtrade is not only unsuccessful in achieving its lofty aims, but in attempting to do so it encourages unfair practices.

Without attacking the concept of more equitable trading relationships between developed and developing countries, this

report decouples Fairtrade from the concept it is named for.

We first look a bit at the background of Fairtrade before diving straight into the data where we will get a clear

picture of the size and scope of Fairtrade in today’s global market. It will be shown that while still only a niche in global

trade, Fairtrade is gaining ground, especially with consumers, and sector growth is impressive. We then expand upon the

opaque pricing structure of Fairtrade products and the miniscule trickle of retail sale mark-ups back to the primary

producers and see that after certification, administrative and other costs, marginalized farmers get an extremely raw deal.

Fairtrade is then exposed as an unfair mechanism whose greatest impact is allowing retailers to take advantage of both

producers and consumers. Even after we recognise the potential for Fairtrade to have a positive impact, in specific

scenarios, ACORN International concludes that Fairtrade may not be just inefficient and unfair, but it may be harmful as

well and distracts from higher-impact initiatives that could help marginalized producers and their families in the most

fundamental and direct way: increasing the amount of cash in their pockets.

1: COMUCAP: A Peruvian Coffee & Aloe Social Enterprise


What is FairTrade According to the international organization Fairtrade:

“The term ‘Fairtrade’ defines a trading partnership, based on dialogue, transparency and respect, that seeks greater equity

in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the

rights of, marginalized producers and workers- especially in developing countries”.1

Not to be confused with ‘fair trade’ (a concept that promotes ethical trading partnerships), ‘Fairtrade’ is one of

many ‘fair trade’ organizations that seek to empower the world’s marginalized producers by giving them market power

and ensuring them a better price for their products. In this report, the term Fairtrade will refer specifically to this

organization, rather than the concept. This distinction is very important.

In 2008, Fairtrade products achieved $4.3 billion in global sales which grew by 15% to amount to just shy of $5

billion by the end of the following year. Today there are 827 Fairtrade certified producer organizations in 58 producing

countries representing over 1.2 million farmers and workers. This report uses a figure of 746 rather than 827 certified

producer organizations because 2008 is the most recent year for which we have full access to the data. This means that

from 2008 to the present the number of certified organizations has increased by 11%. Overall, Fairtrade estimates that

over 6 million people directly benefit from Fairtrade.2

Fairtrade currently certifies sixteen products: coffee, bananas, cocoa, honey, cotton, flowers, fresh fruit, gold,

juices, rice, spices and herbs, sports balls, sugar, tea, wine and composite products.3 Certified products are marked with a

logo to indicate their Fairtrade status. If the logos below are not familiar to you, they probably will be soon as the number

of products sold as Fairtrade is constantly growing.

There are currently nineteen Fairtrade Labelling Initiatives that cover twenty-three countries. They co-exist under

the umbrella of the mother organization- Fairtrade International (FLO).4

Fairtrade is different than other fair-trade organizations because it is a certification system rather than a direct

trading partnership. Specific products obtain Fairtrade certification and certified producer organizations can sell their

products both as Fairtrade as well as on the conventional market. Also, licensed retailers can sell Fairtrade products

alongside non-Fairtrade products. A good example of this is the Swiss giant Nestlé which has been the target of much

international protest due to their unsatisfactory operations in many developing countries. Despite being attacked for

purchasing from producers who employ child-labor, Nestlé is still able to sell Kit-Kat bars as Fairtrade because they are

1 Fairtrade Glossary

http://www.fairtrade.net/fileadmin/user_upload/content/2009/about_fairtrade/Fair_Trade_Glossary.pdf 2 Fairtrade http://www.fairtrade.net/faqs.0.html?&no_cache=1

3 Fairtrade http://www.fairtrade.net/?id=361&L=0

4 Fairtrade http://www.fairtrade.net/?id=361&L=0. NOTE: In this report, Fairtrade will be used to refer to FLO so as to refer

to the entire organization

http://www.fairtrade.net/?id=361&L=0


licensed to purchase Fairtrade cocoa. That the

Fairtrade system allows for such ‘fair-washing’ by

large firms trying to improve their public image is an

important point that this report will consider.

In order to become part of the Fairtrade

club, a producer needs to obtain a certification from

FLO. To do this the producer needs to meet FLO’s

standards (all thirty-one pages of them), pay a

$2000-$4000 certification fee and submit to annual

inspections (which also cost money). Crucially,

Fairtrade is meant to be a market of producer

cooperatives. Membership in such an organization is

supposedly necessary in order to join the Fairtrade

club (though it will be seen that wage-labor

organizations have also been let into the club in

certain industries, resulting in some controversy). Membership of the Fairtrade club is meant to guarantee a producer

minimum prices that are at least the market rate as well as social premiums that are paid on top of the price-floor. Revenue

from the premiums is meant to be spent on improving the livelihoods of cooperative members. Fairtrade claims to

encourage democracy by dealing with cooperatives since members are meant to collectively vote on the use of the

premiums they receive. Club membership also entitles the producer the right to obtain 60% pre-financing from those

purchasing their products as well as supposedly longer-term contracts in order to introduce more predictability and market

power into the lives of the world’s marginal producers.

Producers also have to pay Fairtrade in order to be part of the club. In order to sell Fairtrade products you need to

obtain a license from FLO. This license is different from a certification. The certification a producer’s cooperative obtains

shows that their products meet the standards of FLO. On the other hand, a retail license allows a firm access to the

Fairtrade markets in exchange for agreement to follow Fairtrade principles as well as paying a fee. It is the revenues from

these licenses that guarantee a revenue stream for Fairtrade.

ACORN International has learned firsthand of the ups and downs of the relationships between FLO and producing

cooperatives through our partnership with COMUCAP, a small women’s coffee and aloe vera producing cooperative of

about 200 members located in Marcala, Honduras in the state of La Paz. In trying to expand their sales of beans we had

excellent meetings with Rob Clarke, Executive Director of Fairtrade Canada (www.fairtrade.ca) and his staff about how to

help increase COMUCAP’s sales and outreach in Canada. During the meeting he confirmed on their international database

that COMUCAP was certified but there was an entry that indicated that they were in a temporary “suspended” status,

possibly due to a payment issue. When one of the authors mentioned that COMUCAP grew aloe vera, Fairtrade Canada

was especially excited about leading the way to help COMUCAP be perhaps the first certified, organic aloe vera producer,

and almost immediately located a customer for the product in London, Ontario. Unfortunately, the first glow of

excitement has long dimmed since FLO will not move forward on creating the aloe vera certification process until the other

problem is resolved, and the regional office in Central America responsible for this area of Honduras will not resolve the

suspension until they schedule a field visit, and now five months and counting, that visit has yet to be calendared, while

these women are still stuck. Despite having been certified for more than a decade, COMUCAP and ACORN International

are at wits end and despite the lobbying of our friends with Fairtrade Canada, have totally failed to speed up the process.

Who is hurt here? Certainly the producers, and probably consumers who might benefit from a great new, natural product,

but it underlines the problem of FLO and its lack of accountability and transparency, despite significant fees charged to

2: COMUCAP plantation and cabins

http://www.fairtrade.ca/


low income producers. One of the authors has visited with many of these women in their clean and dirt floored homes and

met with them repeatedly, and these women should be first in line for a response from FLO, not somewhere between last

and whenever.

Background

The concept of ‘fair-trade’ is not a new one. In 1946 a volunteer from the American Mennonite Central Committee took samples of needle-work from Puerto Rican women back to Pennsylvania, USA to sell to women in her community. By 1970 this had snowballed into a chain of boutiques called SelfHelp that grew so large by the mid-1990s that it was renamed Ten Thousand Villages and by 2008 there were over 130 shops across North America.

5 In the second session of the United Nations Conference on Trade

and Development there was a call for ‘Trade, not Aid’ which further popularized the relationship between bettering the lives of those in the developing world and international trade flows. Handicrafts were fair-trade’s first products. In the 1980s food commodities were welcomed into the fair-trade community. However, it was not until 1988 that certification and labelling of fair-trade products was instituted by Max Havelaar of the Netherlands. Coffee was the first certified product and Mexico was the site of the first certified producer organization. Fairtrade, the organization, was founded in 1997, building on Max Havelaar’s work, bringing nineteen national fair trade certification initiatives under the umbrella of FLO.

6

Fairtrade (FLO) is the focus of this report.

The Facts

[All of the data used to create these tables is from Fairtrade itself and the reference, Fair Trade: A Human Journey, is a Fairtrade sponsored book released in 2010. The data presented is that of 2008 and any growth rates are from 2007-2008 unless otherwise stated.]

Before discussing the issues facing the structure of Fairtrade as well as the arguments for and against the organization and its system, it is important to look at the cold, hard facts. We have presented these in the form of tables and subsequent analysis, highlighting both obvious issues and those issues that emerge from careful analysis of the figures.

This report focuses on nine of the biggest Fairtrade certified products: coffee, cocoa, sugar, tea, flowers, rice, cotton, bananas and wine.

PRODUCT CERTIFICATION DATES

PRODUCT Certification Date

Coffee 1988

Cocoa 1997

Sugar 1997

Tea 1996

Flowers 2004

Rice 2001

Cotton 2004

Bananas 1999

Wine 2003

5 Fair Trade: A Human Journey

6 Fair Trade: A Human Journey


FAIRTRADE IMPORTS IN RELATION TO GLOBAL PRODUCTIONS

PRODUCT Global Production Global Imports of Fairtrade

Coffee 7.8 million tonnes 65,808 tonnes

Cocoa 4.2 million tonnes 10,299 tonnes

Sugar 1.6 billion tonnesª 56,990 tonnesª

Tea 3.9 million tonnes 11,467 tonnes

In the sugar industry, global production measures the volume of sugar cane that is produced whereas global imports of

Fairtrade measures the volume of sugar. Thus an apples-to-apples comparison is impossible

º Global production of cotton reflects the volume of cotton produced whereas global imports of Fairtrade reflects the

number of items that contain Fairtrade cotton in them. Thus an apples-to-apples comparison is impossible.

Fair Trade Retail Sales in Relation to Conventional

Global Trade

PRODUCT Global Trade Fairtrade

Retail Sales

Fairtrade % of Trade

Coffee $11.1 billion $1.8 billion 16%

Cocoa $8.4 billion $275.3

million

3.30%

Sugar $20.1 billion $257.4

million

1.30%

Tea $3.75 billion $294.6

million

7.90%

Flowers $3.7 billion $256 million 6.90%

Rice $10.5 billion $28 million 0.26%


Individual Products’ Retail Sales as a Percentage of the Fairtrade Total

These three tables reveal a number of important things about Fairtrade.

Perhaps one of the most striking conclusions that can be drawn from the import

data is the miniscule volume of Fairtrade production compared to global production.

Accounting for 46.2% of Fairtrade’s total retail sales, coffee is Fairtrade’s most

profitable product. However, imports of Fairtrade coffee only represent 0.84% of

global production. Those of the second most profitable product, bananas, are just

under half of that figure at 0.35% of global production. Retail sales of Fairtrade rice

are a mere 0.26% of global trade and imports of rice are an almost non-existent

0.0007% of global production. It is clear: Fairtrade is still a niche market.

What is interesting in looking at these three tables is that while the share of

global production that Fairtrade imports is tiny, the retail sales of Fairtrade imports

are a much larger percentage of global trade. Coffee’s 0.84% of global production

becomes 16% of global trade when you compare in monetary terms rather than in

weight.

There are two reasons why Fairtrade products earn a greater share of global trade through their retail sales than

their import’s share of global production would suggest. The first is that Fairtrade products, by their nature, carry a much

higher price than non-Fairtrade products. This is because license fees raise the marginal costs for retailers as do premiums

and price-floors. To be fair to Fairtrade, these figures reflect that products are being sold at higher prices on the Fairtrade

markets and thus Fairtrade’s structure does accomplish one of its main missions. However, the impact of these higher

prices and the relationship between price-floors and retail prices will be seen not to be as directly linked as many assume.

Retailers take advantage of consumers’ willingness to pay more for Fairtrade in the belief that they are helping third world

farmers. This is an issue that we will expand upon later.

The second reason is that not all produced goods are traded across borders. Rice is an extreme example of this.

Only 7% of all rice produced, cross international borders. This is because rice is usually used to feed the people of the

country in which it is produced.

While not as extreme as rice, other Fairtrade certified products also fall into the categories of goods that do not

necessarily cross borders. However, even with this in mind, Fairtrade still represents a very small share of goods that do

actually get traded. Even with higher retail prices, Fairtrade retail sales across these nine products still accounts for only

4% of global trade. We have compared Fairtrade imported volume to global production rather than global trade volume

because we lack the figures to do the latter comparison. However, with rice we know that 7% of global production crosses

international borders making global trade 45.6 million tons. Of this, 0.001% is imported as Fairtrade. Therefore the

conclusion that Fairtrade imports represent a very small share of global trade, based on their relationship to global

production, remains valid.

PRODUCT % of Total Retail ($3.9 billion)

Coffee 46.20%

Cocoa 7.06%

Sugar 6.60%

Tea 7.60%

Flowers 6.60%

Rice 0.70%

Cotton 6.70%

Bananas 16.90%

Wine 1.80%


A large part of the economic argument

against Fairtrade is that price-floors create soft

budget constraints for producers and create perverse

incentives to produce beyond the point of market

equilibrium. In basic supply and demand theory, when

production increases, prices fall (as there is more

supplied than demanded). The decrease in price is

meant to be a signal from the market to the producers

to produce less. However, with the institution of a

price-floor this signal never gets through and

Fairtrade farmers continue to produce because they

are guaranteed a minimum price. This is good for the

small percentage of the world’s marginalized farmers

that are allowed into the Fairtrade club, but for those

who either are landless, illiterate or unable to join a

cooperative for one reason or another, over

production by Fairtrade farmers means that prices tumble for everyone else. It is because of this negative knock-on effect

on poor farmers that Peter Griffiths argues that Fairtrade causes death and destitution.7 Recently, a New York Times article

referenced a study that has linked poverty to death in the United States (in the same manner that cigarettes have been

linked to death).8 If such a link can be found in the world’s largest economy, then it is certain to also apply to developing

countries. Given such findings, Griffiths’ claim of Fairtrade causing death and destitution by consigning non-Fairtrade

farmers to poverty in the wake of incentivised overproduction may not be as radical as it first sounds.

There have been refutations of this economic argument on the grounds that since Fairtrade is such a small share

of global trade, Fairtrade farmers are incapable of flooding the markets and thus are not capable of having a huge impact

on global prices. This is a very valid argument. However, Fairtrade is growing bigger and bigger all the time. Not only do its

products experience high growth rates (see table below), but consumers have begun to ‘vote with their feet’ and demand

Fairtrade goods.9 In 2009 Starbucks committed to doubling its purchase of Fairtrade coffee. Though this still only

represents 10% of Starbucks total imports, it represents almost a third of the world’s imports of Fairtrade coffee.10

Whole

Foods has also started offering a Fairtrade brand and university campuses are becoming Fairtrade campuses (including the

university of one of this report’s authors, the University of Edinburgh). These examples are important because each of

them represent a case where Fairtrade has been demanded by consumers. Whole Foods originally rejected the idea of a

Fairtrade product because they were not satisfied with Fairtrade’s operational structure.11

Starbucks also prefers its own

Coffee and Farmer Equity Practices (CAFE Program) to the Fairtrade model. Without involving price-floors, premiums,

7 Griffiths, Peter, ‘Ethical Objections to Fairtrade’

http://www.griffithsspeaker.com/Fairtrade/ethical%2027%20JAN%202011%20for%20web.pdf 8 New York Times ‘Researchers Link Deaths to Social Ills’

http://www.nytimes.com/2011/07/05/health/05social.html?_r=2&ref=health

9 The Economist ‘Voting With Your Trolley’ http://www.economist.com/node/8380592?story_id=E1_RPRDVJN

10

Fairtrade: A Human Journey

11 Haight, Colleen ‘The Problem with Fairtrade Coffee’ http://www.chaight.com/Problem%20with%20FT%20Coffee.pdf

3: Fair Grinds Coffee in New Orleans


certification or licensing fees, CAFE seeks to promote traceability of the product through detailed production and practice

descriptions.12

Massive trans-national corporations are also turning to Fairtrade, including Cadbury whose launch of the Fairtrade

dairy milk chocolate bar was set to double the amount of Fairtrade chocolate bars purchased in Canada.13

Even Nestlé, the

Swiss giant that is constantly under attack for the way it does business, has been able to sell some Fairtrade certified

products. This has led to accusations of ‘fair-washing’ pointed at large retailers who are attempting to improve their public

image by jumping on the Fairtrade band-wagon.

The main message is that while Fairtrade may be very small now, with such high sector growth rates and

increasing pressure from consumers for Fairtrade products, it has great potential to grow into something much larger. The

argument for Fairtrade that dismisses the prospect of the negative ramifications of overproduction has weight only when

Fairtrade is small. The more Fairtrade grows the more likely it becomes that the overproduction scenario will occur and the

fact is, it is growing, and it is growing fast.

Fairtrade Product Growth Rates

PRODUCT 2007-2008 Growth Rate

Coffee 14%

Cocoa no info

Sugar no info

Tea 112%

Flowers 31%

Rice 11%

Cotton 94%

Bananas 28%

Wine 57%

We now turn to look at the nature of the organizations that obtain Fairtrade certification.

Number of Certified Fairtrade Organizations per Product

PRODUCT Number of CFTOs

% of Total (746)

Coffee 291 39%

Cocoa 30 4%

Sugar 15 2%

Tea° 74 9.90%

12

Reynolds, Laura, ‘Mainstreaming Fairtrade Coffee: From Partnership to Traceability’ in World Development 13



Flowers° 46 6%

Rice 15 2%

Cotton 28 3.80%

Bananas° 63 8.40%

Wine° 27 3.60%

°These products have certified small producers’ associations as well as certified salaried workers’ organizations (i.e. with

wage labourers).

Small Producers’ Associations versus Salaried Workers Organizations

PRODUCT Small Producers' Associations Salaried Workers Organizations (SWO)

% SWO

Tea 31 43 58.80%

Flowers 0 46 100%

Bananas 28 35 55.60%

Wine 4 23 85.10%

%OF TOTAL

Over all 9 Products: 79% 19.80%

The two tables above give an overview of how many certified organizations make up the Fairtrade movement. In

total, Fairtrade had 746 certified organizations in 2009. Of these 746, small producers’ associations accounted for 541 and

salaried workers’ organizations for 205. As can be predicted from the figures in the first set of tables, the bulk of the

certified organizations produce coffee (291 organizations making up 39% of the total). It is interesting to note that the two

products with the next largest numbers of certified organizations allow certification of salaried workers organizations. In

fact, not only do they allow labour-based organizations, but the majority of certified organizations in tea and bananas are

wage labour-based (55-60% each). In the flowers sector, 100% of certified organizations use hired labour. So even though

small producers’ associations are just under 80% over all nine products, of the largest products (in volume of imports as

well as amount of retail sales), many are using hired labor.

Certifying organizations employing hired

labor has always been a very contentious issue, both

outside the Fairtrade community and within. When

tea plantations started to obtain Fairtrade

certifications for their products in 1996 there was a

great outcry, especially from the coffee sector.

Fairtrade is based on the idea of empowering farmers

and allowing them to wield more market power in

trade negotiations by grouping them into

cooperatives of small farmers who do not employ full

time labor. Fairtrade is membership fee charging

club. To join you pay a membership in the form of a

4COMUCAP coffee processing


certification fee (paid by the cooperative and normally in the range of $2,000-$4,000 (USD) annually). If you are a small

farmer and want to sell organic goods (and there is a very strong correlation between consumer demand for Fairtrade and

demand for organic goods), you have to pay yet another certification fee (however, that is paid to a different organization).

Because of this and due to the necessity of record keeping and the time required to work with Fairtrade and cooperative

bureaucracies, Fairtrade is simply inaccessible to many marginalized farmers who could really benefit from the safety net

of a price-floor and the promise of higher prices. For an example of such bureaucracy and complication one only need look

as far as the standards a Fairtrade certified organization needs to meet; they are thirty-one pages long! So when Fairtrade

started to certify organizations that used hired labor, jealousy was rife. Fairtrade requires organizations to allow workers to

organize, create a framework for collective bargaining and spend premiums on improving the living conditions of their

workers. However, it was found that in some tea plantations, workers do not see anything of the premium for years and

when they finally do, it is not in a direct cash transfer, but rather in the form of a laundry basket or a thermos.14

Inspections

of Fairtrade certified organizations are carried out annually, but are announced ahead of time and there is much proof of

plantation owners sprucing up living areas and coaching workers on what to say ahead of time in order to cover up poor

working conditions.15

In Nilgiri Hills, India it was found that tea estate workers were unaware that a premium was being

paid for their tea on top of the purchase price. They laughed when they heard that consumers in developed countries were

paying more for the tea they produced thinking it was improving the living conditions of marginalized farmers.16

Fairtrade

claims that its labor-based certified organizations pay at least the minimum living wage, but there has been much proof

that this has not been the case.17

The problem is, there is no way for Fairtrade to monitor what these organizations are

paying their workers (it would be absolutely impossible to do) and their annual inspections are neutralized by the fact that

they are pre-announced and therefore involve elaborate preparations. When Fairtrade touts its support of cooperatives, it

is unfair to consumers who purchase Fairtrade thinking they are helping democratically organized marginalized farmers,

when too often that is simply not the case.

This point opens up the debate over where the extra money paid by consumers actually goes. We will go into

more detail a bit later on.

United Kingdom’s Role in Fairtrade

14 Tom Heinemann’s documentary ‘Bitter Taste of Tea’ as referenced in The

Timeshttp://www.timesonline.co.uk/tol/news/uk/article5429888.ece

15 The Times ‘Case Study: Kenya: Workers Deprived of Dignity’

http://www.timesonline.co.uk/tol/life_and_style/food_and_drink/article5429873.ece

16 The Times ‘Case Study: India: ‘Nothing is Done to Help Us’

http://www.timesonline.co.uk/tol/life_and_style/food_and_drink/article5429872.ece

17 Financial Times ‘The Bitter Taste of Fairtrade Coffee’ and ‘Fair Workers Paid Below Minimum Wage’

http://www.ft.com/cms/s/2/d191adbc-3f4d-11db-a37c-0000779e2340.html#axzz1RXKDPnIo

http://www.ft.com/intl/cms/s/2/46cd2578-3f5a-11db-a37c-0000779e2340.html#axzz1RXKDPnIo


United Kingdom

PRODUCT Fairtrade Imports % Total Fairtrade Imports

Coffee 9,642 tonnes 14.70%

Cocoa 3,612 tonnes 35%

Sugar 43, 832 tonnes 77%

Tea 9,330 tonnes 81.40%

Flowers 105.4 million stems 33.90%

Cotton 20.2 million items 73%

Bananas 189, 413 tonnes 63%

Wine 4.4 million tonnes 49%

United Kingdom’s Growth Rate as Compared to Overall Growth Rates in Fairtrade Products

United Kingdom Overall


Coffee 16% 14%

Cocoa no info no info

Sugar no info no info

Tea 149% 112%

Flowers 26% 31%

Rice 33% 11%

Cotton 112% 94%

Bananas 32% 28%

Wine 25% 57%

We have chosen to look closely at the United Kingdom’s relationship with Fairtrade because it represents 30% of

Fairtrade’s global sales.18

Of the nine products referenced in this report, the United Kingdom imports a majority of

Fairtrade imports of four of them, just under half of one of them, an insignificant amount (relative to other Fairtrade

importing countries) of one of them (rice) and around a third of another two. The product for which the United Kingdom

plays the least significance, besides rice, is in coffee. The United Kingdom’s 81.4% share of Fairtrade tea imports helps

explain this. Put simply, British consumers prefer tea to coffee. There can be no doubt that the United Kingdom is a very

large player in the Fairtrade market.

18



This already significant role is on a path to expansion. Growth rates for importation of Fairtrade to the United

Kingdom top those for the overall global growth rate in five of the seven products for which we have data. Thus, today the

United Kingdom probably accounts for more than the 30% figure discussed above.

With this in mind, we now turn to the relationship that ACORN International Partner countries have with the

Fairtrade market. As it will be seen below, not only do ACORN International affiliates house a significant amount of

Fairtrade certified organizations within their borders as producers, but Canada and the United States are also important

players as importers.

With interests on both sides of the production and consumption relationship, Fairtrade is something that has the

reach to affect all of our members.

ACORN PARTNER COUNTRIES AND FAIRTRADE

The first two countries that we will look at are the United States and Canada because they represent the

consumers in the trading relationship.

UNITED STATES

PRODUCT Fairtrade Imports % Total Fairtrade Imports

Coffee 24,101 tonnes 36.70%

Cocoa 1,745 tonnes 17%

Sugar 3,364 tonnes 6%

Tea 600 tonnes 5.20%

Bananas 11, 292 tonnes 3.70%

United States Overall


Coffee 7% 14%

Tea 33% 112%

Bananas 244% 28%

CANADA


PRODUCT Fairtrade Imports

% Global Production

% Total Fairtrade Imports

Coffee 5,029 tonnes 0.06% 7.60%

Tea 271 tonnes 0.007% 2.40%

Canada Overall


Coffee 49% 14%

Tea 251% 112%

Compared to the United Kingdom’s 30% share of global Fairtrade sales the United States is not far behind with

25.6%.19

Undoubtedly the United State’s greatest contribution to the Fairtrade market is in coffee (importing around 37%

of all Fairtrade coffee worldwide). This figure is surely higher today as these figures are from 2008 and Starbucks signed

their big deal with Fairtrade in 2009. While the United States’ growth rates are much lower than British and overall rates,

they are still significant and consumer demand for Fairtrade products continues to rise as retailers are put under more and

more pressure to sell Fairtrade brands.

Canada is a much smaller player than the United Kingdom or the United States, but it still accounts for 4.5% of

global Fairtrade sales.20

Despite being newer to the game, Canada made a strong showing in 2007-2008 experiencing a

67% growth rate in the purchase of Fairtrade goods thus putting total Fairtrade sales just shy of $200 million.21

With the

Cadbury-Fairtrade deal mentioned earlier in the report, Canadian sales of Fairtrade chocolate bars were set to double and

the 251% growth rate in tea well exceeded the 112% sector rate. With statistics like these it is clear that Canada is a

country to watch as its relationship with Fairtrade is certainly set to grow.

INDIA

PRODUCT Number FTCOº Total FTCOs Global % Product Total FTCOs

Tea 18 74 25%

Rice 4 15 27%

Cotton 14 28 50%

ºFTCO meaning Fairtrade Certified Organization

MEXICO

19

Fairtrade: A Human Journey 20




PRODUCT Number FTCO Total FTCOs Global % Product Total FTCOs

Coffee 47 291 16%

KENYA


Tea 17 74 23%

Flowers 20 46 43%

DOMINICAN REPUBLIC


Cocoa 4 30 13%

Bananas 22 63 36%

ARGENTINA


Wine 8 27 30%

PERU


Coffee 41 291 14%

The above six tables showcase the other side of the trading relationship: that of the producers. As can be seen,

ACORN International affiliate countries play a significant role in the Fairtrade system. Half of the certified Fairtrade

organizations that produce cotton are located in India and just shy of half of flower growing certified organizations are in

Kenya. In eight of the nine products this report discusses, production occurs within at least one of ACORN International’s

affiliates.

With members on both ends of the trading relationship it is clear that ACORN International has an interest in the

workings of Fairtrade. Whether it is unfair to the producer, consumer or both (as we believe it may be), our members are

being affected.


ISSUES

It is at this point in the report that we will expand upon some of the issues that have been brought up in our

interpretation of the data.

OPAQUE BENEFITS

The first issue that we will discuss relates to the extra price paid by the consumer to the retailer.

Market research has shown that the average consumer is willing to spend 20-40cents extra for a cup of coffee if it

is ‘helping the third world’.22

There are also studies showing that an increase in the cost of a cup of conventional coffee

decreased the amount bought by consumers, but there was little to no effect of a similar increase on Fairtrade coffee. In the

United Kingdom, a major coffee retailer, Costa, admitted that of the extra 10p (16cents US) that they charged on Fairtrade

coffee, they pocketed 99% of it. Peter Griffiths goes on to explain that those 16cents would have had 100 times the impact

if they had been directly donated to a high impact charity (which Fairtrade is not).23

Because the consumer believes that

the extra money they are paying is going towards a charitable purpose, a substitution effect may occur and thus they will

be less willing to spend money on other charity projects, thinking they already did their part.

One definition of unfair is that ‘those pushing for a policy are giving false or misleading information to the people

they are trying to persuade to follow it’. It is by this definition that David Henderson argues Fairtrade is unfair and

considering the previous paragraph it is easy to see where his argument has strength.24

People who pay higher prices are

trying to do well by the producers in developing countries, but they often do not realise that the extra money they are

paying for a Fairtrade product has no relationship whatsoever with the money that actually gets back to the producer. On

Fairtrade’s website they even admit that they have no say in what a retailer charges for its certified products.25

This is one

of Peter Griffiths’ greatest issues with Fairtrade: it is impossible to know how much of the extra paid by the consumer

actually gets back to the producer. Unlike ethical trading schemes that put stickers on products telling you exactly how

much of your money goes back to the producer, the consumer who purchases Fairtrade is left very much in the dark. It is

because of this that retailers like Costa can get away with pocketing 99% of the extra that they charge.

In addition, even if you could figure out how much money got back to the cooperatives, it becomes even more

difficult to figure out exactly how much benefit individual farmers get from the premiums received. Giving money to

cooperatives is supposed to support democracy and collective well-being. Cooperative members are meant to vote on how

to use the premiums. Schools, roads and better farming equipment have been cited as examples of uses of premiums that

improve the living conditions of cooperative members and their families. However, as was seen with the tea and flower

producing organizations with hired labor, most marginalized laborers have no knowledge of this premium and some even

laughed at the notion that it existed (see above).

22 Peter Griffiths speaking at the UK Coffee Leaders Summit

http://www.ukcoffeeleadersummit.com/files/videos/ukcls2010/UKCLS2010-Speaker14-Peter-Griffiths.html

23

Griffiths, Peter, ‘Ethical Objections to Fairtrade’ http://www.griffithsspeaker.com/Fairtrade/ethical%2027%20JAN%202011%20for%20web.pdf 24

Henderson, David ‘Fairtrade is Counterproductive and Unfair’ in Economics Affairs

25 http://www.fairtrade.net/?id=361&L=0


In 2010, over $10.8 million in coffee premiums were delivered to producers (and as an interesting tie to ACORN

International, 23% of them went to Peru).26

While this sounds like a very healthy amount, for stronger cooperatives it has

been seen that 50% of received premiums go towards the administrative costs necessary for making sure that their

product continues to meet the ‘tick boxes’ of Fairtrade certification. Weaker cooperatives who only manage to sell 10-20%

of their product as Fairtrade spend all of the premiums they receive on keeping up with Fairtrade standards.27

Consumers

trust that the extra money they spend goes towards helping the third world; it is obvious that this is not happening.

At the end of the Charter of Fairtrade Principles Fairtrade says:

“The Fairtrade movement is conscious of the trust placed in it by the public and is committed to developing and

promoting the highest standards of integrity, transparency and accountability in order to maintain and protect that

trust”.28

Unfortunately, at present, Fairtrade has an awfully long way to go to achieve these high standards of integrity,

transparency and accountability and yet the public continually instils them with large amounts of trust. It is characteristics

like these that justify Henderson’s judgement of Fairtrade being unfair.

Recently we have also come to better understand some of the pressures of selling fair trade coffee and other

products through our partnership with Fair Grinds Coffeehouse (www.fairgrinds.com) in New Orleans, the oldest 100% fair

trade house in the city for over 10 years. Perhaps it is needless to say, but in a competitive environment with Starbucks

and local chains, the coffee, whether fair trade or not, has to be priced competitively at Fair Grinds, regardless of the

premium paid, as we have discussed, for the producer, or the mark-up by the broker and roaster to supply such coffee. In

fact we might even argue that a fair-trade only purveyor, like Fair Grinds, might even be at a competitive disadvantage

compared to other coffee operations able to source more cheaply and set the prevailing rate for a cup of coffee, which

many customers already believe is too pricey. The confusion in the marketplace on the various claims of fair-trade and the

increasingly crowded field of certification and certifiers between Fairtrade (FLO), Rainforest Action Network, and others

also means that an operation trying to play fair with its customers, like Fair Grinds, is unable to successfully communicate

an argument for a price differential when its own customers “don’t know beans.” Fair Grinds Coffeehouse has created a

direct relationship to support ACORN International organizing in Peru, Mexico, and Honduras where they are able to

source the beans at the Port of New Orleans in order to make sure that poor people in these countries actually benefit, and

is negotiating to begin buying directly from COMUCAP in Honduras and other suppliers to take the brokers out of the

bargain in order to survive, but the premium is not something that can be passed on to the consumer in this economy,

which threatens the entire Fairtrade (FLO) certification business model as well.

26

TransFair USA Almanac 2010 http://www.transfairusa.org/sites/default/files/Almanac%202010_0.pdf

27

Peter Griffiths speaking at the UK Coffee Leaders Summit http://www.ukcoffeeleadersummit.com/files/videos/ukcls2010/UKCLS2010-Speaker14-Peter-Griffiths.html

28 Charter of Fairtrade Principles

http://www.fairtrade.net/fileadmin/user_upload/content/2009/about_us/documents/Fair_Trade_Charter.pdf

http://www.fairgrinds.com/


UNFAIR FINANCES

One of the benefits of being part of the Fairtrade club is supposedly better access to financing. Retailers and

wholesalers who purchase from cooperatives are meant to be able to pre-finance 60% of the contract price on request.29

Contracts are also supposed to be long-term. This is meant to address the problem of the volatile nature of producers’

incomes over the year. This problem is caused by the nature of working in agriculture: you make all of your money right

after you harvest and nothing much in between. Access to credit allows farmers to ease their budgetary constraints and

smooth their consumption. It also gives them confidence to invest in their business since with a longer-term contract they

have less fear of incurring sunk costs from which they will never recover. Reducing volatility and unpredictability is a

hallmark of Fairtrade’s self-acclaimed raison d’être.

Sadly, in reality this is not the way it works. Joni Valkila points out that while other exporting organizations will

often pre-finance at an interest rate of 11%, Fairtrade financing usually comes at a price of 18-22%.30

One could attempt to

dispel this argument by saying that Fairtrade financing is guaranteed in a manner that producers can trust, but that still

does not take away from the fact that 18-22% is a very steep price to pay, especially for developing world farmers. Laura

Reynolds argues that ‘market-driven’ firms attempting to ‘fair-wash’ (to look better in the consumers’ eyes who are

increasingly demanding Fairtrade products) often argue that they are in the business of buying commodities, not

financing. She goes on to point out that these ‘market-driven’ firms are often the biggest purchasers of Fairtrade (we have

seen that Starbucks accounts for one third of Fairtrade coffee sales) and thus producing cooperatives are afraid that if they

do not play by the firm’s rules, they will be unable to sell their products for prices that justify the fee they pay for Fairtrade

certification.31

This fear of failing to sell their products at the Fairtrade price is very real. Fedecocaua, the largest Fairtrade

certified organization in Guatemala, reported that it could only sell 23% of its product to Fairtrade buyers. Similarly,

Coocafe, the top level Fairtrade certified organization in Costa Rica, reported that they could only sell 20% of theirs and

they specifically cited the reason to be a lack of buyers.32

In 1998 it was reported that certified coffee cooperatives were

selling 10% of their product as Fairtrade on average. Today this number has risen to 50% according to Fairtrade, but

anecdotes such as those from Fedecocaua and Coocafe cannot be disregarded.33

In order to sell any of your product as Fairtrade you need to pay to be certified and pay costs to undergo annual

inspections.34

It is easy to see why Fairtrade may not be worth it for the producer when they are paying steep prices to sell

such a small percentage of their product at the Fairtrade price. It is also clearer now why so much of the premiums that are

received by cooperatives go towards meeting Fairtrade standards and certification costs. It is for this reason that some

cooperatives have actually left the Fairtrade family.

29

Reynolds, Laura, ‘Mainstreaming Fairtrade Coffee: From Partnership to Traceability’ in World Development 30

Valkila, Joni, ‘Fairtrade Organic Coffee Production in Nicaragua: Sustainable Development or Poverty Trap?’ in Ecological Economics 31

Reynolds, Laura, ‘Mainstreaming Fairtrade Coffee: From Partnership to Traceability’ in World Development

32 Berndt, Colleen, ‘Does Fairtrade Coffee Help the Poor?’

http://mercatus.org/sites/default/files/publication/Fair%20Trade%20Coffee.pdf

33


Henderson, David ‘Fairtrade is Counterproductive and Unfair’ in Economics Affairs


UNFAIR PRICES

The main draw of the Fairtrade system is the price-floor. By guaranteeing a minimum price for a product,

producers are meant to be able to protect themselves from volatile prices determined by the market. As the commodity

market price of the product increases, so does the Fairtrade price-floor and the premium guarantees that Fairtrade

products should always fetch a price above the market. However, in reality, what is meant to be a price-floor often

becomes a price-ceiling. Market-driven firms who are seeking to placate consumers by offering Fairtrade brands will often

refuse to pay any more than the price-floor.

Retailers already have to pay more for the product because they have to pay the Fairtrade Organization itself in

order to obtain a license to sell Fairtrade goods. It is this license that makes up the bulk of Fairtrade’s income at 70% in the

United States and 85% in the United Kingdom (with the rest of the income in the form of donations or subsidies from DFID

and USAID among others).35

It is important to note that these license fees do not make it back to the producers and in the

United Kingdom 70% of the revenue from the fees is used to advertise the Fairtrade brand within the country.36

It is because of the profit maximizing drive and sheer size of the trans-national firms that they have the incentive

to both purchase the product at the lowest price possible (so as to make up for paying a license fee) and bully producers

into following their rules (as we saw above in regards to financing).

This flaw that exists at the very heart of the Fairtrade system is a very serious one indeed.

PERVERSE INCENTIVES

This price-floor-as-ceiling phenomenon is especially detrimental in the coffee market. This is because there are

essentially two coffee markets: the normal one and the specialty one. Coffee prices are set on the normal market based on

the quality of the bean and standards are extremely strict. However, the specialty coffee market represents an extremely

wide variety of coffees thus comparison is often impossible. Fairtrade coffee is considered a speciality coffee and is thus

sold on the specialty coffee market. Since the Fairtrade price-floor is based on the market value of coffee, situations arise

where it is actually more profitable for a producer to not sell their product under the Fairtrade name. As we have seen,

producers cannot sell all their products as Fairtrade even if they wanted to. Thus a perverse incentive is created: producers

are better off selling their lower grade coffee as Fairtrade and their higher grade coffee not as Fairtrade as they will fetch a

better price for it on the non-specialty market.

The result of these perverse incentives is that Fairtrade consumers receive lower quality coffee. This is yet

another way Fairtrade is unfair to both producers and consumers.

35

Griffiths, Peter, ‘Ethical Objections to Fairtrade’ http://www.griffithsspeaker.com/Fairtrade/ethical%2027%20JAN%202011%20for%20web.pdf and Haight, Colleen ‘The Problem with Fairtrade Coffee’ http://www.chaight.com/Problem%20with%20FT%20Coffee.pdf 36

Griffiths, Peter, ‘Ethical Objections to Fairtrade’ http://www.griffithsspeaker.com/Fairtrade/ethical%2027%20JAN%202011%20for%20web.pdf


POTENTIAL FOR POSITIVE?

We have looked over many of the issues that infect the Fairtrade system. However, we must also acknowledge

the positive. While the price-floor has its flaws, especially within the coffee sector, and the money that gets back to the

farmers is not as significant as Fairtrade would like us to believe, it has played a positive role in the past. During the coffee

crisis at the beginning of the 21st

century, prices paid to coffee producers dropped to a 100-year low. Murray, Raynolds and

Taylor found that the price-floor of Fairtrade coffee played a significant role in helping small producers weather the

economic storm. 37

Bradley Wilson also found that in 1998 in Nicaragua after Hurricane Mitch struck, price-floors were of

massive help. However, he also says that Fairtrade should “offer more than a means of basic survival” and that while it is an

effective safety net, Fairtrade is not the magic bullet its promoters would like to advertise it is.38

What we can take from this is that guaranteed higher income is beneficial for producers in developing countries as

it greatly reduces the amount of risk and volatility in their economic lives. However, it is important to remember that a

Fairtrade price-floor is not the only way to boost income and there are many more lower-cost, higher-impact projects out

there that are much more effective. At the end of the day, what these producers need is simple: increased income. Peter

Griffiths says that he is only concerned with “cash in the pocket” and it is clear that while Fairtrade can help out in times of

great need, it does not provide this necessity on a day-to-day basis.39

CONCLUSION

This report began with an explanation of Fairtrade’s lofty claims of creating a better deal for the developing

world’s marginalized producers. It now ends having challenged that claim and it can only be concluded that reality shows

that Fairtrade does not live up to it. More importantly, it has been shown that it is not just an issue of lax oversight and

management on behalf of Fairtrade, but more crucially it is an issue seated at the very core of Fairtrade’s operational

structure. Rather than helping the marginalized producer, Fairtrade’s greatest impact has been to allow trans-national

firms to take advantage of both consumers and producers.

Paradoxically, the best way to describe Fairtrade is to use the word ‘unfair’. Unfair to producers and consumers

alike, Fairtrade fails to achieve its aims and negatively affects many on its way to failure.

To empower the developing world’s producers and create better trade relationships is an admirable goal, but

confronted with the evidence, it is clear that Fairtrade is not the way to reach such a goal. There is no substitute for cash in

the pocket as the most effective form of direct money transfer that improves the lives of lower income families. Fair-trade

initiatives that are transparent in telling exactly how much money goes back to the producer and that do not require a

certification organization as a middle-man are much more effective than Fairtrade. Every penny spent on Fairtrade is a

penny that could have had much higher impact if spent elsewhere.

Producers and consumers around the world deserve better than Fairtrade. It is time we started to set about

remedying the situation.

Authors’ Note: On September 15th

, 2011 Fair Trade USA announced their decision to split from the international organization

Fairtrade. Chief executive Paul Rice justified the move claiming the organization was “after results” (a very market-oriented

37

Murray, Raynolds and Taylor, ‘One Cup at a Time: Poverty Alleviation and Fairtrade in Latin America’ http://welcome2.libarts.colostate.edu/centers/cfat/wp-content/uploads/2009/09/One-Cup-at-a-Time.pdf 3838

Wilson, Bradley ‘Indebted to Fairtrade? Coffee and Crisis in Nicaragua’ in Geoforum 39

Peter Griffiths speaking at the UK Coffee Leaders Summit http://www.ukcoffeeleadersummit.com/files/videos/ukcls2010/UKCLS2010-Speaker14-Peter-Griffiths.html


response from the head of an organization whose founding principle was to create an alternative to market-capitalism).i This

move has caused uproar within the Fairtrade community as light is increasingly being shed on the unfair nature of an ethical

trading system that supposedly exploits the developed world’s markets to the benefit of developing world producers. This

article, written in July-August 2011, exposes the pitfalls and corresponding concerns pertaining to the international Fairtrade

system. Fair Trade USA’s move in September only serves to justify existing anxieties and adds further weight to the argument

that Fairtrade is, in reality, anything but fair, especially since the Fair Trade USA action is seeking to dilute, what we have show

in the foregoing is already a woefully inadequate system for producers and consumers.

The authors of this report are Melanie Craxton (University of Edinburgh) and Wade Rathke, Chief Organizer,

ACORN International.

i Business Week, ‘An American Rebel Roils Ethical Commerce’ (November 7

th-13

th, 2011).

acorn international fairtrade report

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