Fair Trade

Fair Trade is a system of private governance that aims to improve working conditions and compensation for producers of certain goods. The primary intention is to create a more socially just and environmentally sustainable trade arrangement. Having said this, Fair Trade is subject to various interpretations and, as such, the concept, its practice, and subsequent results are not consistent. Although there is considerable support for Fair Trade, there has also been much criticism of the approach. In particular, many have questioned the power and spread of Fair Trade discourse on the grounds that empirical understanding remains only modestly (if not increasingly) developed.

Although Fair Trade is usually considered to have emerged at the end of World War II, more recent scholarship has suggested that in some countries, such as the United Kingdom, the movement only really began in the 1970s. The literature shows that Fair Trade developed as a multitude of institutions sought to channel greater benefit from the international economy to producer communities seen to be otherwise disadvantaged. These activities became known as the Alternative Trade movement, which had two primary aims: to link materially poor producers in the developing world with markets in richer countries as a means to facilitate resource transfers, and to organize this interaction around the aim of maximizing the benefit to these initial producers. Operationally, the concept of alternative trade was based on the idea of a partnership between socially orientated northern alternative trade organizations (ATOs), responsible for the purchase and import of goods, and southern producer organizations, which provided services to their members in marketing, product development, financing, and distribution services. To facilitate equality, producer and trade organizations structured their operations and interaction on predefined socially orientated norms. These principles were then used as part of the marketing of the final product, the “alternative” identity of which was legitimized by the social reputation of retailers. It was also considered that by embedding products with information about conditions of production, consumers and producers were brought closer together in links of solidarity. Although alternative trade mainly dealt with handicraft items, ATOs also moved into a range of basic commodity crops, including coffee.

However, the scope and impact of alternative trade proved to be limited by its nature as an “alternative” niche market, worsening financial conditions, and increasing competition from mainstream commerce. As a response, the Mexican cooperative Union [Page 140]de Comunidades Indigenas del Region del Istmo and a Dutch nongovernmental organization, Solidaridad, developed a system of external third-party governance and certification. The Max Havelaar mark, launched in 1988, guaranteed that certified coffee had been bought by importers direct from cooperatives for a price of up to 10 percent higher than world market prices, that importers had underwritten additional costs and provided prefinancing of up to 60 percent of the final price, and that producers were maintaining long-term relationships with producer communities. For the first time, alternatively traded coffee could be commercialized through mainstream channels and sold by conventional retailers.

This model proved tremendously popular, and gradually other national certification systems began to emerge; for example, the Fairtrade Foundation in the United Kingdom (founded in 1992) and Transfair in the United States (founded in 1998). While the number of products eligible for certification broadened, national organizations slowly assimilated under a unitary set of regulations, represented by a single certification “brand” and administered by the Fairtrade Labelling Organizations International (FLO). Although certification requires producer organizations to operate in a socially just and sustainable way, it also requires initial buyers to support the process by providing up to 60 percent up-front credit on request, engaging in long-term and predictable relationships, paying minimum guaranteed and above market prices, and paying an additional social premium. Certification is available for 16 different product categories, most of which are food commodities.

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