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Fair Trade LabelingIs it helping small farmers in developing countries?

The number of products sold with fair trade labels

is growing rapidly in Europe and the United States.

Big chains like Wal-Mart, Dunkin Donuts, Starbucks

and McDonalds have begun offering coffee and other

items. Fair trade brands hope to raise their profile by targeting

consumers who care about the environment, health and fair-labor

standards. Fair trade supporters say small farmers in the developing

world benefit by receiving a guaranteed fair price, while the envi-

ronment gets a break from intensive industrial farming. But critics

say consumers pay too much and that fair trades guarantee of

a good return no matter what the market price sends the

wrong economic signal to farmers. When the price of a global

commodity like coffee tumbles in response to oversupply, over-

compensated fair trade farmers will remain in an uneconomic

sector long after they should have switched to some other crop

or livelihood, free-market economists argue.

I

N

S

I

D

E

THE ISSUES ......................435

BACKGROUND ..................442

CHRONOLOGY ..................443

CURRENT SITUATION ..........448

AT ISSUE ..........................449

OUTLOOK ........................451

BIBLIOGRAPHY ..................454

THE NEXT STEP ................455

THISREPORT

Small farmers like Dennis Alfredo Cruz, a coffeegrower from Honduras, receive guaranteed minimum prices for their crops when they

deal with fair trade-certified groups.

CQResearcherPublished by CQ Press, a division of Congressional Quarterly Inc.

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CQ Researcher May 18, 2007 www.cqresearcher.comVolume 17, Number 19 Pages 433-456

RECIPIENT OF SOCIETY OF PROFESSIONAL JOURNALISTS AWARD FOREXCELLENCE AMERICAN BAR ASSOCIATION SILVER GAVEL AWARD

434 CQ Researcher

THE ISSUES

435 Does fair trade certifica-tion improve life signifi-cantly for small farmers? Does fair trade certifica-tion distort markets, hurtingsmall producers? Would trade reformshelp small farmers morethan fair trade certification?

BACKGROUND

442 Rise of Fair TradeAfter World War II,churches helped refugeesby selling their handicrafts.

446 U.S. Enters MarketA co-op in Massachusettslaunched fair trade coffeein the U.S. in 1986.

447 Trade Justice MovementFair trade coincided withgrowing activism overtrade inequities for poorercountries.

CURRENT SITUATION

448 Government SupportEurope has given fair tradeconsiderably more supportthan the United States.

451 Proliferating LabelsCompetition from otherlabels threatens the fairtrade movement.

OUTLOOK

451 Growth PotentialFair trade could match the$15 billion organic marketby 2012.

SIDEBARS AND GRAPHICS

436 Fair Trade Imports by U.S.IncreaseCoffee sales grew dramatically.

437 How Fair Trade GuaranteesSafety NetGrowers get minimum $1.26per pound.

438 U.S. Leads in Fair TradeThe United Kingdom andSwitzerland are next.

439 Is Fair Trade MonitoringAdequate?Financial Times uncoversproblems in Peru.

440 Fair Trade Coffee Sales RiseU.S. market share and salesincreased since 2000.

443 ChronologyKey events since 1948.

444 Fair Trade Towns BoostConsumer AwarenessBusiness picks up too.

448 Consumers Say They WillSupport Fair TradeBut do they?

449 At IssueIs fair trade the best way tohelp poor farmers?

FOR FURTHER RESEARCH

453 For More InformationOrganizations to contact.

454 BibliographySelected sources used.

455 The Next StepAdditional articles from currentperiodicals.

455 Citing CQ ResearcherSample bibliography formats.

FAIR TRADE LABELING

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Fair Trade Labeling

THE ISSUESA t the upscale Londonsupermarket chainWaitrose, the smilingfaces of small farmers fromAfrica and Latin America lenda human touch to coffee pack-ages bearing a distinctive greenand blue Fairtrade label. 1

In testimonials, the farmerssay the fair trade companythey deal with, Cafdirect, paysthem better than competingcoffee buyers and helpsthem preserve the environ-ment. But Cafdirect coffeecosts more than the compet-ing brand, posing a dilemmafor shoppers: Is it worth theextra cost, and do the farm-ers really benefit?

The answer for many Britishshoppers is apparently yes,judging from galloping salesof fair trade products, whichhave doubled every two yearssince 2002. 2

The Fairtrade label, which signifiesthat farmers in the developing worldreceived a fair price for their crops,now covers some 2,500 retail and cater-ing lines in Britain, including freshfruit, tea, chocolate and baby food. 3

Sainsburys, a supermarket chain, sellsfair trade bananas exclusively. Marks& Spencer, a major department store,touts its commitment to fair trade cot-ton T-shirts and underwear with full-page newspaper ads.

Britons now spend about five timesmore per capita on fair trade itemsthan Americans. But U.S. sales of fairtrade items have also grown rapidly averaging an estimated 50 percentannually since 2001 and some ex-perts predict the United States couldsoon overtake Britain in per capitaspending on fair trade products. 4 Cof-fee represents the lions share of fair

trade products, and U.S. fair trade cof-fee consumption alone already dwarfsany other nations total retail spend-ing on fair trade. (See graph, p. 438.)

At the same time, awareness of fairtrade products is far lower in the Unit-ed States than in Europe. Only 20 per-cent of coffee-drinking Americans arefamiliar with the fair trade label, com-pared to more than half of British con-sumers. 5 The U.S. selection of fairtrade items is also more limited themost common items are coffee, choco-late, tea and bananas and theyoften are available only in health foodor gourmet stores.

Fair trade brands hope to raise theirprofile by gunning for the marketniche known as conscious consumers those who care about the envi-ronment, health and fair-labor stan-dards. Big chains like Wal-Mart, DunkinDonuts, Starbucks and McDonalds have

begun offering fair trade cof-fee and other items.

Sam Magona, a Ugandancoffee farmer, says his rev-enues have more than tripledsince he started selling underthe fair trade banner in 1998.Until farmers organized intocooperatives a requirementof fair trade certification ex-ploitative middlemen were tak-ing most of the profits, saysMagona, chairman of the Gu-mutindo cooperative union,which represents about 3,000small farmers in Uganda.

Many families in his vil-lage could not afford to sendtheir children to school andneeded them to work in thefields. And when the worldprice of coffee dropped pre-cipitously in 2001-2004, cof-fee farmers who sold on theopen market could not evencover their costs, Magona re-calls. By contrast, selling fairtrade products guarantees a

minimum price, insuring farmers againstdisaster when the price of coffee, trad-ed on international markets, drops.

Now, children in the Gumutindocommunity are attending school. Peo-ple have a roof instead of grass thatch,Magona says, and they eat more meatnow after selling the coffee. But whenMagona factors in how much it wouldcost to pay the family members whodonate their labor for free, he says heis just nearly breaking even.

Experts say this is the reality of sub-sistence farming in developing coun-tries farmers live on the margins,fair trade or not. At the same time,the fair trade system often pays up toone-third more than farmers would geton the open market, according toChristopher Himes, chief financial offi-cer of TransFair USA, the leading label-ing organization that certifies fair tradegoods sold in the United States.

BY SARAH GLAZER

Get

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Starbucks is one of several big U.S. chains that sells fairtrade coffee and other products. The fair trade label

signifies that farmers in the developing world received afair price for their crops. Only 20 percent of coffee-drinking Americans are familiar with the fair trade

label, compared to more than half of British consumers.

436 CQ Researcher

But some consumers may be dis-turbed to learn that as little as 10 per-cent of the extra price they pay for afair trade cup of coffee goes to thegrower, according to some estimates.Thats because wholesalers, processors,branders and retailers each take a littleof the extra price for themselves.TransFair has no control over thoseextra dips into the profit chain, Himesresponds; it merely guarantees that afair price was paid to the grower.

Some critics say fair trades guar-antee of a good return no matterwhat the market price sends thewrong economic signal to farmers.When the price of a commodity likecoffee, which is traded on world mar-kets, tumbles in response to globaloversupply, overcompensated fair tradefarmers will remain in an uneconom-ic sector long after they should haveswitched to some other livelihood, free-market economists argue.

If theres an artificial inducement like fair trade to stay in the mar-

ket, then that retards the exit process[of farmers] needed to rebalance sup-ply and demand, and encourages morefarmers to enter the market, drivingdown the world price for everyoneelse, says Brink Lindsey, vice presi-dent for research at the conservativeCato Institute in Washington, D.C.

And, critics add, fair trade doesnt helpthe very poorest farmers, those whodont own land or arent members of agrowers co-op, because the movementaims primarily to help small land-owning farmers. Large coffee plantationsand their workers are barred from cer-tification. The cooperative system canend up discriminating against people whouphold the values of the fair trade move-ment but who happen to be part of big-ger farms, or just dont want to join acooperative, according to LawrenceSolomon, director of the Energy ProbeResearch Foundation, a Toronto firm thatanalyzes trade and consumer issues. 6

Responding to free-marketers, otheranalysts say fair trade is sending an

accurate market signal: Some consumersare willing to pay more for a productwhen they know the producer is paidfairly. The movement has been savvyenough to focus on the fastest-growingslice of the coffee market thegourmet sector and recently hasbeen winning awards at internationaltasting competitions.

When Britains Twin Trading Ltd. firststarted marketing fair trade coffee, theproduct had a reputation for poor qual-ity, and everyone laughed at us, saysCommunication Manager Simon Billing.Now everyones talking about its choco-laty, velvety flavors, he says at thefirms London headquarters, as a white-coated quality-control taster swishes sam-ples of Peruvian coffees in his mouthand spits them into a bowl.

If you talk to gourmet coffee orchocolate companies, they will say theresnot enough good-quality coffee or choco-late out there, says sociologist Laura T.Raynolds, co-director of Colorado StateUniversitys Center for Fair and Alterna-tive Trade Studies. Fair trade is bolster-ing the capacity of producers to enterinto this stronger specialty market. In-deed, as fair trade growers continue toimprove their coffee beans, gourmetbrands could lure them away with evenhigher prices than fair trade buyers offer.

Since 1997, the fair trade movementhas been overseen by Fairtrade LabellingOrganizations International (FLO), aBonn, Germany-based association of20 national labeling organizations likeTransFair. FLO sets minimum prices andstandards and monitors sites whereverfair trade products are grown and pro-duced. Organizations like TransFair USA the national labeling organization forNorth America license and certifythe actual buying and selling of fairtrade products bearing their black-and-white label.

Most experts prefer the FLO sys-tem, with its independent inspectors,over efforts by corporate growers tocreate their own fair trade labels. Yetthe Financial Times last year found

FAIR TRADE LABELING

Fair Trade Imports by U.S. Increase

U.S. importation of fair trade-certified coffee, tea and cocoa has risen significantly in recent years. Coffee imports alone have increased by over 850 times since 1998.

Source: Fair Trade Almanac 1998-2006, TransFair USA

Imports of Fair Trade-Certified Products, 1998-2006(in pounds)

Year Coffee Tea Cocoa

1998 76,059 N/A N/A

1999 2,052,242 N/A N/A

2000 4,249,534 N/A N/A

2001 6,669,308 65,261 N/A

2002 9,747,571 86,706 14,050

2003 19,239,017 95,669 178,888

2004 32,974,400 180,310 727,576

2005 44,585,323 517,500 1,036,696

2006 64,774,431 629,985 1,814,391


seasonal workers for fair trade grow-ers in Peru were paid below mini-mum wage and questioned whetherthe inspection system could keep upwith growing demand for fair tradeproducts. 7 (See sidebar, p. 439.)

Fair trades roots can be traced inpart to the broader trade justice move-ment, which seeks to reform world trad-ing rules seen as discriminating againstpoor countries. Massive demonstrationsat World Trade Organization meetingshave been among the most widely pub-licized protests against the current freetrade regime, which critics say favorswealthy countries markets at the ex-pense of developing countries.

For Americans who are not likelyto protest arcane trade rules, fair tradeproducts are another way of reachingthem, says Laura Rusu, a spokeswomanfor Oxfam America, a leader in thetrade justice movement. Her organi-zation is currently lobbying to reducethe billions of dollars in federal agri-cultural subsidies coming up for a votelater this year in the U.S. farm bill.Government subsidies to Americanfarmers encourage overproduction ofproducts like cotton, driving down theworld price and putting farmers inAfrica out of business, Oxfam charges.

If we look at only one thing toachieve change for most farmers its definitely through changing therigged rules at the international level,says Rusu. Fair trade certification issomething in the meantime where wecan make a change.

Yet with multilateral trade talks at astalemate and wealthy countries reluc-tant to give up their subsidies and tradeprotections, some academics agree withactivists that fair trade labeling may bea faster way to achieve some of thosegoals. The labeling scheme is essential-ly an end-run around the government;it doesnt rely on policy makers makingpolitically risky decisions, says MichaelJ. Hiscox, a political economist at Har-vard University. Ironically, even thoughthe labeling initiative grew out of a left-

leaning movement hostile to free-marketideology, it has turned out to be amarket-based solution that relies ongood information, he observes.

When it comes to international tradetalks, were not holding our breath,confirms Himes of TransFair USA. Weretaking an approach that allows us toassist growers right now and raisesocietys awareness as we do that.

As the market for fair trade prod-ucts continues to grow, here are someof the questions being debated amongconsumers, activists and the interna-tional community:

Does fair trade certification im-prove life significantly for smallfarmers in developing countries?

The face of Nicaraguan coffee farmerMelba Estrada darkens when she recalls2001, the sad and difficult year whenthe world coffee price fell to a historic

low of 49 cents a pound. After Estradahad paid the half-dozen seasonal work-ers who helped harvest the coffee onher three-acre family farm, there wasnot enough money for our own food,recalls the widowed mother of six.

The major standard-setting body forfair trade, FLO, aims to keep small farm-ers like Estrada afloat during those dif-ficult times by setting a floor price cal-culated to cover the farmers costs andprovide a decent standard of living.

Currently, the basic minimum priceFLO guarantees for coffee from Cen-tral America, Africa and Asia is $1.21per pound, plus a five-cent social pre-mium for community projects thegrowers cooperative chooses, such asschools or clinics. If the world coffeeprice rises above the minimum, thefair trade price rises to meet it, andthe fair trade importer must pay thatprice plus the social premium.

How Fair Trade Guarantees Safety Net

Fair trade certification guarantees coffee farmers a minimum price of $1.26 per pound $1.21 per pound plus a five-cent social premium to fund community projects (dotted line). When the world market price of coffee plummets, as in 2001-2002, the fair trade price remains stable and can be twice the market price. If the market price rises above $1.21, as it did last January, the fair trade minimum meets it, plus pays the social premium.*

* Under new rules starting June 1, 2007, the social premium rises to 10 cents per pound.

Source: TransFair; Market prices are from New York Board of Trade for Arabica beans, the type imported to the United States under fair trade.

Fair Trade Price vs. Market Price,Arabica Beans, 1997-Present

Market priceFair trade price

0.0

0.5

1.0

1.5

2.0

Jan.07

Jan.06

Jan.05

Jan.04

Jan.03

Jan.02

Jan.01

Jan.2000

Jan.99

Jan.98

Jan.1997

(Price in $)

438 CQ Researcher

For example, on Jan. 4, the worldprice was $1.25 per pound. 8 So thelowest an importer could have paidfor fair trade coffee was $1.30 (theworld price plus the social premium).

While the five-cent premium maynot seem like much when the cof-fee price is high, as it is now, fairtrade farmers say the guarantee canmean having enough to eat in leanyears when the price drops precipi-tously, as it did between 2001 and2004. (See graph, p. 437.) During thoseyears, fair trade farmers could selltheir coffee at more than double thestreet price paid by local coyotes or middlemen. 9

Indeed, while small coffee farmersaround the world received an addi-tional $17 million in income last yearas a result of U.S. fair trade sales, theyreceived an even bigger premium of$26 million in 2004, when world priceswere at a low point, even though theyexported half as many beans. 10

But how much does that improve in-dividual farmers lives? Estrada, who start-ed selling to fair trade six years ago, saysthe extra income allowed her to converther dirt-floor adobe hut into a cementhome and make investments on her farmto improve the quality of her coffee.

Fair trade provides credit in cash-poor seasons, better information aboutcurrent world prices and bargainingpower, advocates say, especially forfarmers like Estrada who live in re-mote areas and used to sell to ex-ploitative itinerant buyers.

We were fairly impressed by therange of benefits, says Douglas L.Murray, co-director of the Center forFair and Alternative Trade Studies,who directed a two-year study of fairtrades impact on farmers in Mexicoand Central America. But, he adds,our conclusion was most of the ben-efits were beyond income.

Murray found that fair trade coop-eratives gave growers technical skills

to convert to more profitable organiccoffee, developed marketing strategiesto enter the gourmet market and helpedfarmers diversify into other productsthey could sell in slack seasons. Thesocial premium in some cases result-ed in some fairly nice benefits, fromhealth clinics and schools, he adds.

Yet those benefits only reach a mi-nority of farmers and farmworkers.Only about 30 percent of the worldssmall-scale coffee producers are linkedto fair trade networks. 11

In addition, fair trade growers gen-erally receive only a small fraction ofthe extra margin consumers pay. Takethe fair trade cup of coffee sold at Costa,a London coffee bar. For several years,Costa charged an extra 20 cents a cup.But when Financial Times writer TimHarford analyzed the costs, he foundthat more than 90 percent of that pre-mium did not reach the farmer. Theextra cost to Costa of buying free tradecoffee beans should have translated toa cost increase of only 2 cents a cup,Harford calculated, since it only takesa quarter-ounce of coffee to make acappuccino. The other 90 percent, hefigured, went to Costas bottom line.

The truth is that fair trade coffeewholesalers could pay two, three orsometimes four times the market pricefor coffee in the developing worldwithout adding anything noticeable tothe production cost of a cappuccino,because coffee beans make up sucha small proportion of the cost, Harfordwrites in his new book, The Under-cover Economist. So why was Costacharging so much more? Harfords an-swer: fair trade coffee allowed Costato find customers who are willing topay a bit more if given a reason todo so. 12

Even analysts sympathetic to fairtrade estimate that only five cents ofan additional 20 cents the shopperpays for a pound of fair trade bananaswould go to the farmers, largely be-cause wholesalers and retailers allratchet up their mark-ups. 13 Fair trade

FAIR TRADE LABELING

U.S. Leads in Fair Trade Sales

With $499 million worth of Fair Trade Certified coffee alone in 2005, the United States leads the world in the retail value of Fair Trade Certified products. The United Kingdom is second, with a value of $351 million.

* Only includes Fair Trade Certified coffee. Figures for other countries also include other products such as tea, cocoa, rice, sugar and fruit.


Retail Value of Fair Trade-Certified Products, 2005(in millions of dollars)

$0 100 200 300 400 500

Australia and New ZealandJapan

ItalyCanada

GermanyFrance

SwitzerlandUnited Kingdom

United States $499*$351

$182

$138

$90

$44

$36

$4

$3


labeling organizations also charge feesto co-ops and wholesalers for theirservices like inspecting farms which are reflected in the price.

Defenders of fair trade say this is theway the free enterprise system works,and fair trade is no different. This is abusiness, not a charity, says Billing, atTwin Trading in London. We have noway of controlling the margins beyondwhat were paying growers.

Even Harford acknowledged that atthe time of his Costa study, the extra80 cents-$1.10 a pound that fair tradewas paying farmers could still nearlydouble the income of a farmer inGuatemala, where the average incomeis less that $2,000 a year. 14

Still, some critics consider fair tradepricing deceptive for the consumer whothinks the extra cost is going entirely tothe farmer. It may be more efficient toprovide that help by supporting a char-ity than it is to pay 40 pence (80 cents)more for your coffee when you dontknow what happens to the 40 pence,says Philip Booth, editorial and programdirector at the Institute of EconomicAffairs, a conservative London think tank.

Only a very small percent of all thepeople who buy fair trade coffee wouldever write a check to [a charity like]Oxfam, TransFair USAs Himes retorts.For all the people who dont havewriting a check to farmers on their top10 list of things to do today, what were

talking about here is millions of con-sumers in tens of thousands of outlets.

Moreover, the money farmers getis helping them develop a business;a charity check is merely a handout,Himes adds.

The extra cost of fair trade productscan also reflect the fees fair trade la-beling organizations like TransFair chargeto farmers and wholesalers, whichBooth criticizes as excessive. But if con-sumers want the fair trade label to betrustworthy, Murray notes, labeling or-ganizations need to conduct inspections,and charge fees to cover the cost.

Some critics question the fair tradepremise that farmers should stay on thesoil, where theyre only earning a few

S ome critics have suggested the monitoring system runby Fairtrade Labelling Organizations International, orFLO, may be inadequate, or even weakened by cor-ruption. A Financial Times reporter wrote last year that fourout of five fair trade-certified farms he visited in Peru paidsummer coffee pickers below minimum wage, despite FLOstandards requiring payments in line with minimum-wage laws. 1

Our standards for small-farmer co-ops dont cover their pay-ments to seasonal workers, responds Ian Bretman, vice chairmanof the Fairtrade Foundation, Britains labeling organization, partlybecause its nearly impossible to verify at every farm.

Bretman stresses that monitoring is aimed primarily at ver-ifying the price paid to small growers the main group themovement is trying to help. While small farmers are encour-aged to pay decent wages, theyre not subject to the rigorousinspections carried out at larger plantations with many full-timeworkers, according to Bretman.

Officers with the labeling organizations also point out thatthe farmworkers interviewed by the Financial Times were stillbeing paid more than the prevailing local wage. Certificationisnt a guarantee that nothing bad ever happens; its a guaranteethere are repercussions when bad things happen, says Christo-pher Himes, chief financial officer of TransFair USA, the lead-ing labeling organization that certifies fair trade goods sold inthe United States. The Financial Times article was interviewinggroups we were in the process of decertifying.

While FLO does annual inspections of cooperatives whentheyre first certified, its visits become more infrequent once a

co-op is established after several years. In a cooperative of1,000 farmers, only 10-15 of the farms might be visited, ac-cording to Bretman, so certifiers wont necessarily catch everyviolation.

In a written response to the Times, the Fairtrade Founda-tion said that of the Peruvian cooperatives mentioned in thearticle, one group sold only 10 percent of their beans on fairtrade terms; another 15 percent. This means they remain heavilyat the mercy of the conventional market, often forced to sellfor less than the cost of production and are often still verypoor themselves. 2

The Times reporter also quoted industry insiders saying non-certified coffee was being falsely exported under a fair tradelabel. The Fairtrade Foundation responded that FLO audits hadalready identified irregularities in the supply chain in Peru andhad scheduled an inspection for the week following the ap-pearance of the article.

Nevertheless, industry observers have questioned the abilityof certifiers to keep up with growing demand for ethicallygrown coffee possibly creating an incentive to misleadinglyexport non-certified coffee. Some also questioned the inde-pendence of the certifiers. FLO answers that inspections areconducted by FLO-CERT, a company owned by FLO but op-erated independently.

1 Hal Weitzman, The Bitter Cost of Fair Trade Coffee, Financial Times,Sept. 8, 2006, at www.ft.com.2 Fairtrade Foundation Briefing on Financial Times Article, at www.fair-trade.org.uk.

Is Fair Trade Monitoring Adequate?Financial Times uncovers problems in Peru

440 CQ Researcher

pennies more rather than improv-ing their lot through education and cityjobs. Fair trade is about Western feel-good rather than transforming peopleslives, says Ceri Dingle of WORLDwrite,a London cultural exchange organiza-tion. The fair trade movements en-couragement of organic methodsmeans farmers are doing more weed-ing by hand and dont have access tomodern agricultural methods, shecharges, encouraging manual toil.

Indeed, free-market economists likeBooth argue that fair trade doesnt workas a large-scale development strategy;usually it takes urbanization and indus-trialization to accomplish that. For farm-ers like Estrada, the most dramaticchange from fair trade may occur in thenext generation, when children leave thefarm. Her eldest daughter is studyingmedicine the first in her communityto attend college under a scholarshipfunded by fair trade social premiums.

Surprisingly, some leaders of themovement agree their effect on peopleslives is modest. Ian Bretman, vice chair-

man of the Fairtrade Foundation, Britainslabeling organization, calls the experi-ence of Ugandas Magona very typi-cal for subsistence farmers. Theyrebarely getting by, he concedes. Its al-most utopian to think we can transformthat position in such a short period oftime. With fair trade, he says, We hopepeople dont fall below the level wherethey can sustain a decent lifestyle.

Does fair trade certification distortmarkets, ultimately hurting somesmall producers?

Some free-market economists havesuggested that the fair trade approachcould ultimately hurt most farmers, es-pecially those not fortunate enough orsavvy enough to join co-ops that sellto higher-paying fair trade buyers.

In a widely quoted report last De-cember, the weekly British news-magazine The Economist took up thatargument. By propping up the price,the Fairtrade system encourages farm-ers to produce more of these com-modities rather than diversifying into

other crops and so depresses prices thus achieving, for most farmers, ex-actly the opposite of what the initia-tive is intended to do, the magazineeditorialized. 15

In the case of coffee, the propped-up price encourages more producersto enter the market and drives downthe price of non-fair trade coffee evenfurther, making non-Fairtrade farmerspoorer, the magazine said. 16

But fair trade coffee is still such asmall part of the U.S. market lessthan 4 percent that the idea it couldsway world prices is almost laughableto those active in the movement. 17

If we did get to that [influential]level of market share, fair trade is flex-ible enough that we can change thestandards, says Charlotte Opal, chairof FLOs Standards Committee, whichsets minimum prices.

And some economists say fair tradecoffee beans are essentially a differentmarket from the world commoditymarket, which determines pricing forrun-of-the-mill blends for consumerslooking for the lowest-cost product.

Theyre two different products andhave a different demand-and-supplycurve. To the extent that the signal is,Consumers want more fair trade cof-fee, the effect should be to get moreproducers to grow fair trade coffee,says Harvard political economist Hiscox.And that is the correct signal.

Studies by Hiscox and others haveshown that consumers of fair trade prod-ucts are willing to pay a higher pricefor the assurance that growers are paidfairly. (See sidebar, p. 448.)

Yet skeptics like Booth at the In-stitute of Economic Affairs doubt con-sumers would be willing to keep pay-ing a premium if the world coffeeprice sends competitive brands plum-meting. Could wholesalers sell enoughfair trade coffee to keep farmers afloatin a glutted supply market? he asks.

Absolutely, well be able to sell,responds Rick Peyser, director of socialadvocacy and coffee-community out-

FAIR TRADE LABELING

Fair Trade Coffee Sales Rise

Since 2000, the retail value of fair trade coffee sales in the United States has increased dramatically (left). As a percentage of all U.S. coffee sales, the market share of fair trade coffee rose from 0.20 percent in 2000 to 3.31 percent in 2006 (right).


Retail Value of U.S.Fair Trade Coffee Sales

Fair Trade MarketShare of All Coffee

0

100

200

300

400

500

600

700

$800

20062005200420032002200120000.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5%

2006200520042003200220012000

(in millions of dollars) (percentage)


r each a t G reenMountain CoffeeRoasters in Water-bury, Vt., a whole-saler of fair trade andother specialty cof-fees. That situationalready happened in2001 , he says ,when world coffeeprices hit bottom.Thats when ourfair trade sales start-ed to skyrocket, ascustomers sympa-thies were rousedby news s tor iesabout the thousandsof poor coffee farm-ers being driven outof business.

Some critics say fair trade unfairlycreates insiders those inside thefair trade co-ops who get superiorprices and outsiders, who are stillbeholden to market prices. Whetherit brings significant net benefits to thepoor in general is questionable, theInstitute of Economic Affairs Boothconcludes in an upcoming article. 18

The poorest farmers are the leastlikely to benefit from fair trade, co-author Booth says, because theyre notorganized in co-ops and cant affordthe certification fees charged to co-opsby labeling organizations.

My concern is that the improve-ment for a small number of growerscomes at a price in particular re-stricting the corporate forms of the or-ganizations involved by requiring themto be cooperatives, says Booth. He ar-gues that co-ops are prone to corrup-tion and mismanagement becausethere are no clear lines of authority.

Supporting that concern, a recentstudy of Latin American coffee coop-eratives at Colorado State Universityfound rather than democratically choos-ing a community project to fund fromthe five-cent-per-pound social premi-um, cooperative leaders have at times

made the unilateral decision to use thepremium to cover operational costs. 19

So why are co-ops a requirement?They provide the kind of central man-agement crucial to checking that fairtrade standards are actually beingmet, explains TransFairs Himes, andhe says fair trade pricing provides in-centives for small farmers to jointhem. Dealing with the absolutelypoorest unaffiliated farmer thatsnot what fair trade does right now,he acknowledges.

Although cooperatives dont alwayslive up to the vision of democratic in-stitutions, Murray at the Center for Fairand Alternative Trade Studies says com-panies are equally prone to flaws in howmanagement decisions are made.

Opal maintains that even farmerswho dont sell to fair trade can benefitfrom a fair trade cooperative in theircommunity. We see prices for non-fairtrade coffee going up in those locali-ties, she says, because theres more in-formation, and farmers in the villageknow what they should be earning.And projects funded by fair trades socialpremiums, such as new roads, schools,clinics and wells, often benefit everyonein the village, she notes.

In the long run, the Fi-nancial Times Harfordspeaks for many free-market believers when heconcludes that fair tradecannot fix the basic prob-lem: Too much coffee isbeing produced. As longas growing coffee lookseconomically attractive, heargues, it will always beswamped with desperatepeople who have no al-ternative. 20

But its hard to ex-pect a coffee farmer,who must wait four yearsfor trees to bear andwho may farm on soilunsuitable for anythingelse, to turn on a dime

in response to dropping world prices.A coffee farmer who loses his landwont become a software engineer,observes Himes. More likely hell jointhe illegal immigrants seeking workin some North American city, suggestsBilling at Twin Trading.

Meanwhile, and somewhat contraryto classical economics, the gourmetretailers who buy from Green Moun-tain are willing to pay more in low-priced cycles to tide over farmers ofspecialty beans so they can ensure acontinuing supply of high-quality coffee,Peyser says.

Would trade reforms help smallfarmers more than fair tradecertification?

If buying fair trade cappuccino atyour local Starbucks is not the answerto addressing poverty, in the eyes offree-market economists, what is? Itssomething thats less fun than shop-ping, suggests The Economist in awidely cited editorial.

Real change will require action bygovernments, the editors wrote, in-cluding reform of the world trade sys-tem and the abolition of agriculturaltariffs and subsidies, notably Europes

Ugandan coffee farmer Sam Magona proudly holds a bag of Mt. Elgoncoffee produced by his cooperative of 3,000 farms on fair trade terms.

Magona was visiting the London office of Twin Trading Ltd., which buys his coffee beans for Cafdirect, a fair trade company.

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monstrous common agricultural poli-cy, which coddles rich farmers andprices those in the poor world out ofthe European market. 21

Similar U.S. government subsidies forcrops like cotton and rice have beenassailed by economists for encouragingoverproduction of unprofitable crops,driving their prices so low that poorrice farmers in Ghana, for example,have been forced out of business.

Although they may disagree on theprecise solutions free-marketers wantto remove all trade barriers, liberalsgenerally want to keep some for poorcountries some prominent liberaleconomists agree that the current world-trade regime benefits rich countries atthe expense of poor countries.

Since World War II, writes NobelPrize-winning economist Joseph E.Stiglitz in his book Fair Trade for All,developed countries like the UnitedStates have been somewhat duplici-tous in advocating that other nationsreduce their tariffs and subsidies forgoods in which the rich nations havea comparative advantage. At the sametime, rich countries have been reluc-tant to open up their own consumermarkets when it comes to goodswhere developing countries have anadvantage. 22

If governments really want to makepoverty history, as some British LaborParty leaders have pledged, they wouldchange the way that world trade cur-rently contributes to poverty, Stiglitzwrote in the London Daily Telegraph.Rich nations currently cost developingcountries three times as much with theirprotectionist trade policies as they givethem in aid each year, he estimated. Amere 1 percent increase in Africas shareof world trade would bring it some $60billion, he calculated. 23

In light of these huge monetary in-equities, the relatively small fair trademovement may be a distraction fromefforts to make trade agreements moreequitable between rich and poor coun-tries, some liberal economists worry. 24

Oxfam America, which is lobbying toreduce some $4 billion in cotton subsi-dies to American farmers, calculates sucha reform could increase the world priceof cotton by as much as 20 percent.When you look at a farmer earning alittle over $100 a year on his farm inWest Africa, an extra 20 dollars a yearcould mean his or her daughter goingto school or a successful village effortat getting a well, says Oxfam Americaspokeswoman Rusu.

Recent multilateral trade rounds havecontinued to give the advantage to de-veloped countries, which keep theirprotectionist trade barriers while per-suading developing countries to droptheirs, according to Stiglitz. 25 The 2003trade meeting in Cancun, Mexico, forexample, ended in a walkout aftermany participants accused the UnitedStates and Europe of reneging on theirpromises over agricultural reform.

But even some advocates of trade re-form doubt theres any life left in multi-lateral trade talks. The Doha Round isin a coma right now, and its unknownwhether it will ever revive, says the CatoInstitutes Lindsey, an advocate for re-ductions in U.S. tariffs. * The outlookisnt promising for putting real disciplineon our subsidies, either, he predicts.

That gloomy political outlook is onereason Harvards Hiscox has becomeenthusiastic about fair trade as an al-ternative to trying to insert labor stan-dards in trade agreements for man-ufacturing as well as farming. Historically,poor countries have opposed such stan-dards for fear theyll lose their cheap-labor advantage when it comes to ex-porting goods. And inserting economicpenalties for countries that violate laborstandards could ultimately hurt poorfarmers in those countries and stifle eco-nomic growth, he points out.

On the other hand, if higher fairtrade prices actually compensated firms

for their higher labor costs, everyonecould win, he writes, and it couldbe possible to improve working con-ditions without adversely affecting in-vestment and growth in developingcountries. 26

Trade justice activists, as advocatesfor reform of international trade rulesare known, are reluctant to admit tointernal tension within their movementcaused by fair trade activists, but thereare some differences. You can admitfair trade is part of a solution to a muchbigger problem one way of ad-dressing poverty, but its not a panaceaand will not fix the problem overall,says Amy Barry, trade spokeswomanfor Oxfam International, a leader in thetrade justice movement and a founderof Fairtrade International, the British fairtrade labeling organization.

Leaders of the fair trade movementin both Britain and America say theyrelinked in principle to the goals of thelarger trade justice movement. But theysay fair trade offers a market solutionright now while the prospects for tradereform look dim. And, Oxfams Rusuagrees, given that it will take some timeto get to a fair international-trading sys-tem, fair trade-certified products encourageconsumers to use their dollar to chooseproducts that are more fair.

The big question, according to Col-orado State sociologist Raynolds, is:Does an initiative like fair trade height-en awareness of inequalities in ourcurrent trade system so we can startto get the consensus and effort to getsome significant reforms?

BACKGROUNDRise of Fair Trade

T he roots of fair trade can betraced to projects initiated by

FAIR TRADE LABELING

Continued on p. 444

* The so-called Doha Round in Doha, Qatar,in 2002 launched a new round of multilateraltrade talks focusing on aiding poor countries.


Chronology1940s-1960sChurches and philanthropiessell Third World handicrafts, re-turning profits directly to crafts-men. Post-World War II attemptsto liberalize trade begin.

1948U.N.s General Agreement on Tar-iffs and Trade (GATT) is set up,begins rounds of negotiations toreduce trade barriers.

1965British humanitarian organizationOxfam starts helping by sellingprogram, leading to sales of ThirdWorld crafts.

1980s World coffeeprices plunge, impoverishingthousands of small farmers;early fair trade labeling effortsstart to pick up steam.

1986Equal Exchange, a worker-ownedcooperative in the United States,begins importing and roasting onlyfairly traded coffee.

1988The Max Havelaar Foundation inthe Netherlands begins marketingcoffee under its own label, certify-ing that a guaranteed minimumprice is being paid to the farmers.

1990s Fair trade label-ing efforts start in England andUnited States; international um-brella group formed to set fairprices and inspect farms; EUexpresses support; coffee be-comes dominant product.

1992Oxfam and other philanthropicgroups in England establish theFairtrade Foundation, Britains third-party auditor of fair trade practices.

1997Fairtrade Foundation and labelinggroups in other countries formFairtrade Labelling OrganizationsInternational (FLO), to set prices.

1998TransFair USA, the lead certifyingorganization in the United States,is founded.

1999TransFair begins serious labelingeffort; fair trade coffee salesbegin average annual growth of79 percent.

2000s Major U.S.chains start selling fair tradecoffee and other items; U.S. fairtrade sales average 50 percentgrowth annually; activistsdemonstrate at internationaltrade talks.

2000Starbucks introduces fair trade coffee.

2001Demonstrators charging that traderules hurt poor countries stallWorld Trade Organization (WTO)talks in Seattle.

2002WTO launches new trade talks inDoha, Qatar, known as the DohaRound, focusing on developmentof poor countries.

September 2003Trade talks in Cancun, Mexico, endas walkouts charge rich countries

reneged on reducing farm subsidies;first fair trade fair held at talks. . . .Green Mountain Coffee Roasters inWaterbury, Vt., begins producingfair trade coffee for supermarketchains.

2004Fair trade organizations from 30countries sign declaration at Confer-ence on Trade and Development inSao Paulo, Brazil, calling for fairprices for small farmers. . . . Wal-Mart begins selling fair trade coffee.. . . Starbucks quadruples purchasesof fair trade coffee over 2001.

2005McDonalds begins serving fairtrade coffee blend in New England,Albany, N.Y.

2006European Parliament calls for Euro-pean Union to support the fairtrade movement . . . The numberof certified fair trade producer orga-nizations reaches 586 by years endin 58 nations in Africa, Asia andLatin America. . . . Awareness offair trade label among U.S. coffeedrinkers rises to 20 percent from 7percent in 2003.

Feb. 14, 2007On Valentines Day Divine Choco-late, a U.S. fair trade chocolate, islaunched.

March 2007Whole Foods Market chain an-nounces it will sell TransFair-labeledproducts, with 10-year goal of makinghalf of imported foods from thedeveloping world fair trade. . . .TransFair announces more than600 U.S. businesses carry fair tradeproducts in about 40,000 retailoutlets. . . . Fair trade coffee,fastest-growing segment of U.S.specialty market, sells $730 millionretail in 2006.

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churches in North America and Eu-rope in the late 1940s to provide re-lief to refugees and other poverty-stricken communities by selling theirhandicrafts to wealthier markets.

In Western Europe, just after WorldWar II, charities began to import handi-

crafts from impoverished Eastern Europeto promote economic development. 27

In the United States, around the sametime, the Mennonite Central Committeebegan to develop a market for embroi-dery from Puerto Rico by creating acrafts-selling organization that would be-come known as Ten Thousand Villages.

By the 1960s, these initiatives hadevolved into world shops, market-ing goods from the developing world.Their goal was to eliminate middle-men and return more of the profitsto Third World craftsmen. Oxfam ledthis effort with its helping by sellingprogram in 1965, marketing imported

FAIR TRADE LABELING

Continued from p. 442

Outside Bar 19 in Englands Avon River Valley, a chalk-board proudly proclaims the Fair Trade menu. Inside,lunchtime tables filled with parents and children on East-er break testify to the restaurants successful transformation froma seedy bar to popular and socially conscious family spot.

In 2003, when Richard Smith reopened the caf with blondwood paneling in the picturesque town of Keynsham, he adver-tised it as an alternative venue featuring organic and local prod-ucts and the first smoke-freedining environment in town.But he was reluctant to loadthe menu with fair trade items,fearing customers wouldthink theyre overpaying forpoor quality foods.

Confidence replaced re-luctance a year later, whenKeynsham, nestled in an agri-cultural river valley betweenBath and Bristol, started a cam-paign to become a fair tradetown. The town councilpassed a unanimous resolu-tion pledging to serve fairtrade tea and coffee at townfunctions, encourage busi-nesses to sell fair trade prod-ucts and promote the con-cept of fair trade in the schoolsand local media. To qualify,the town of 15,000 residents had to satisfy the Fairtrade Founda-tion, Britains lead fair trade labeling and certifying organization.

The proliferation of fair trade towns at last count 262 inthe U.K. helps explain the rapid growth in British con-sumption of fair trade goods, some activists believe. The move-ment started in 2000 when Garstang, a small market town inNorthern England, declared itself fair trade. A year later, 71percent of the towns residents recognized the Fairtrade label,compared to about 20 percent nationally. Today, more thanhalf of adults in Britain recognize the label. 1

Keynshams campaign made it possible for Smith to do alot less advertising to convince customers fair trade foods couldbe good quality and well-priced. Smith started promoting fairtrade wines from South Africa and rum from Paraguay, whichhe features in the cafs rum cake. (The tea, coffee and evenpineapple juice are fair trade, too.) If anything, fair trade helpedhis business grow, he says.

This is a good example of where fair trade has added to thebusiness and is part of its iden-tity, says Rachel Ward, a Keyn-sham official who kick-started thecampaign. Fair trade is a way oftelling people this is a placeworth shopping. Local officialshope fair trade status will helprevive the main shopping streetof the historic market town andeven draw some of the touristswho flock to nearby Bath.

Across the pond, attractingvisitors and shoppers also figuredin support for turning Media, Pa.into the first and so far theonly fair trade town in theUnited States. When Media resi-dent Elizabeth Killough pitchedthe idea to the local business as-sociation, she says, They got itright away as a way to attractconscious consumers the

well-heeled niche that goes for organic and fair trade products.Though Media has only 5,000 residents, restaurants and shopson its quaint Main Street compete for a daytime population ofaround 25,000 who converge on the county seat.

The idea was the brainchild of local tour magnate Hal Taus-sig, whose Untours Foundation makes low-interest loans abroadto create jobs and support fair trade products. My own inter-est is to get all the merchants in Media to sell fair trade goodsso when you walk down the street and ask people, What isFair Trade? theyll know what it is, says Taussig who donates

Fair Trade Towns Boost Consumer AwarenessBusiness picks up too in British, Pennsylvania towns

Richard Smith finds that patrons willingly accept fairtrade products at his Bar 19 in Keynsham, in

Englands Avon River Valley.

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handicrafts in its charity shops inEngland. 28

The first independent fair trade la-beling initiative began in the Nether-lands in 1988, when world coffee pricesstarted to plunge. The Max HavelaarFoundation began marketing coffeeunder its own label, certifying that a

guaranteed minimum price was beingpaid to the farmers.

Oxfam followed in 1992, joiningwith four other British philanthropicgroups to establish the Fairtrade Foun-dation, Britains third-party auditor offair trade practices. Today, affiliated fairtrade certifying organizations are active

in Europe, Australia, New Zealand, Cana-da, Japan, Mexico and the United States.

In 1997, the Fairtrade Foundationjoined with other national initiatives toform the umbrella Fairtrade LabellingOrganizations International (FLO), topool certification and marketing ef-forts. The FLO subsequently established

the profits of his tour company to the foundation.Medias town fathers decided to adopt the same criteria used

in Britain after they learned how Garstang had pioneered theconcept.

As far as bringing people to Media, anything we can doto promote our town in a positive way is a bonus. And weregetting recognition around the country from other towns, saysMedia Borough Councilwoman Monica Simpson.

Medias restaurants weresurprisingly resistant to serv-ing fair trade coffee, becausethey usually rely on a singledistributor for pre-measuredcoffee and urns, says Killough,associate director of the Un-tours Foundation. A supplierwas finally located who hadstarted offering fair trade cof-fee to compete for contractsat college campuses, wherestudents demanded it.

Similarly, when Keynshamapproached its largest em-ployer, Cadbury Chocolate,about serving fair trade prod-ucts in its employee canteen,the company resisted on thegrounds its food supplier did-nt offer them, town officialssay. Its no small irony thatthe work force at the chocolate plant has been decimated asCadbury jobs have migrated overseas to low-wage countries.

The chocolate giant does not carry the fair trade label onmost of its products although it says on its Web site that itpays its growers a fair return. 2 But local employees still de-cided to put in a vending machine featuring fair trade hotdrinks at the social club on the plants campus.

In Garstang, the inspiration for fair trade germinated in 1999,when veterinarian Bruce Crowther attended workshops by theBritish charity Oxfam on Third World poverty, which con-

demned unfair trade practices. They drew my attention to therealization that a child is dying somewhere in the world everytwo to three seconds because of poverty, he recalls. That sta-tistic totally horrified me.

Crowther draws a direct line from his activism as coordinatorof Britains fair trade towns initiative to 19th-century abolitionists,who campaigned against the slavery on sugar plantations withbrochures asking, What price is your sugar?

Its absolutely the same ar-gument today, Crowther says,for products that rich countriescan buy cheaply because theypay Third World farmers sopoorly. Its morally unaccept-able that people should sufferin order for us to get sugar fora cheap price, he declares.

Garstang is mirroring theslave triangle of more than 200years ago but in a reverse,fair trade image. In the 1800s,the triangle connected neigh-boring Lancaster, Britains fourth-largest slave-trading port; Ghana,the source of the slaves; andthe former American colonieswhere slaves were shipped.Since 2002, Garstang has forgeda cultural exchange with a townin Ghana, New Koforidua, home

to cocoa farmers selling to fair trade. In March, Garstang alsoaccepted an invitation to become a twin town with Media,once an important stop for runaway slaves on the UndergroundRailroad.

1 Elisa Arond, The Fairtrade Towns Initiative: Lessons from across theOcean, May 2006, Oxfam America, pp. 15, 40.2 Fairtrade is not the only way to ensure farmers receive a fair return fortheir crops, the Web site notes, since many farmers are not in coopera-tives as required by the Fairtrade Foundation. See www.cad-buryschweppes.com/EN/EnvironmentSociety/EthicalTrading/fair_trade.htm.

Local official Rachel Ward, right, helped turn Keynshaminto one of Great Britains 262 fair trade towns.

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detailed standards for certified com-modities governing pricing and laborstandards. It monitors producer andtrader groups to ensure complianceand may de-certify groups for failingto meet the criteria. 29

To ensure fair prices, producers mustreceive a guaranteed minimum priceand an additional social premium forcommunity projects, set separately foreach product by FLO.

FLO has developed specific stan-dards for coffee, tea, cocoa, quinoa, ba-nanas, cane sugar, rice, cotton, winegrapes, nuts and oil seeds, dried fruit,fresh fruit and vegetables, fruit juices,herbs and spices, flowers and plants.Until the recent introduction of fair tradecotton goods, sports balls were the onlymanufactured item certified by FLO.

For coffee, the main fair trade prod-uct, FLO requires that producers besmall, family-based growers organizedinto politically independent democra-tic organizations cooperatives and that they limit the use of envi-ronmentally harmful chemicals. FLOhas developed separate standards foroperations employing large numbersof workers, such as farms growing tea,bananas and other fruit.

Importers of fair trade products mustcomply with another set of FLO stan-dards aimed at giving cash-poor farm-ers, often beholden to extortionate money-lenders, credit at reasonable rates: Buyersmust agree to long-term purchasing agree-ments (beyond one year) and provideadvance financing to farmers.

By the end of 2006, there were 586certified fair trade producer organiza-tions in 58 developing nations in Africa,Asia and Latin America. 30

U.S. Enters Market

A s the fair trade market picked upsteam through the 1980s, coffeequickly became the dominant prod-uct. 31 In the United States, the pio-

neer in the market was Equal Ex-change, a worker-owned cooperativein West Bridgewater, Mass., whichbegan importing and roasting onlyfairly traded coffee in 1986.

TransFair USA, the lead Americancertifying organization, opened in1998 and began a serious labeling ef-fort the following year. Since then, fairtrade coffee sales have grown an av-erage of 79 percent annually, accord-ing to TransFair, and coffee remainsthe dominant crop.

In addition to coffee, TransFair in-troduced fair trade-certified tea andcocoa to the U.S. market. Sugar, riceand vanilla recently came under itslabel. Flowers, wine and nuts are newproducts on the horizon, according toChief Financial Officer Himes.

Total U.S. sales of fair trade-certi-fied products grew by 350 percent be-tween 2001 and 2005 and by 60 per-cent between 2004 and 2005, estimatesHarvards Hiscox. 32 Today, more than600 U.S. businesses carry fair tradeproducts in about 40,000 retail outlets,according to TransFair USA. (For a listof stores, go to www.transfairusa.org.)

Much of the rapid U.S. growth isdue to the mainstreaming of fairtrade beginning in 2000, when Star-bucks introduced fair trade coffee. In2003, Green Mountain Coffee Roast-ers began producing fair trade cof-fees for large supermarket chains,and in 2004, Wal-Mart began sellingit. Starbucks quadrupled its purchas-es of fair trade coffee between 2001and 2004. 33

In 2005, McDonalds introduced afair trade coffee blend created for it byGreen Mountain and Newmans OwnOrganics, which the chain now servesin 650 restaurants in New England andAlbany, N.Y. But McDonalds doesnttell customers the coffee the onlykind served in those restaurants isfair trade. Indeed fair trade was notthe main reason behind McDonaldschoice. According to McDonalds USAspokeswoman Danya Proud, the main

impetus was that Green Mountain isa name well-known in that part of thecountry, and the quality of the coffeeis high.

The United States currently ac-counts for almost a third of global fairtrade sales, and Europe almost two-thirds. 34 The enormous scale of theAmerican consumer market, especial-ly for coffee, makes the United Statesthe largest single consumer of fairtrade goods. But as individuals, Euro-pean consumers spend far more perperson than the average American.Swiss consumers spend about 20 timesmore on fair trade and Britons almostfive times more than the averageAmerican. 35 In 2003, the averageSwiss spent 19 Euros ($26), the Briton$7, and the average American $1.60on fair trade products.

Awareness of fair trade labels amongAmerican consumers remains far be-hind their European counterparts, al-though it is rising. A recent survey ofthe nations coffee consumers thosemost likely to have seen fair trade cof-fee in coffee bars showed aware-ness grew from 7 percent in 2003 to20 percent in 2006. 36 By contrast,more than half of British consumersrecognize the label.

Fair trade became well-known inthe United Kingdom partly becausenonprofits like Oxfam, with hundredsof thousands of subscribers, had beenconducting campaigns about injusticesthey perceived in the world tradingsystem some 25 years before theystarted the labeling system.

By doing that work for so long,you have quite a lot of the popula-tion that knows something about it inquite a detailed way, says SophieTranchell, managing director of DivineChocolate Ltd., a fair trade companyin England. The development of fairtrade brands like Divine Chocolateand Cafdirect, exclusively for fair tradecoffee, and their growing presence inBritish supermarkets also contributedto rapid sales growth.

FAIR TRADE LABELING


Trade Justice Movement

T he growth of the fair trademovement coincided with grow-ing concern and activism over tradeinequities for poorer countries amidexpanding globalization. Widespreadattempts to liberalize world trade andbring the benefits of trade to all coun-tries began after World War II. In1948, the General Agreement on Tariffsand Trade (GATT), set up under theauspices of thenewly formed Unit-ed Nations, attempt-ed to arbitrate in-ternational tradedisputes through aseries of roundsof negotiations de-signed to eliminatetrade barriers be-tween countries.

Since those initialefforts, the worldhas been moving to-ward reduced tariffsand restrictions ontrade. For example,between 1960 and1980, lending bythe InternationalMonetary Fund andthe World Bank was often tied to re-quirements that developing countriesdrop their trade barriers. 37

GATT and its successor, the WorldTrade Organization (WTO), succeed-ed in generating more free trade; totaltrade in 2000 was 22 times that in1950. Global inequality has alsogrown, however, note two advocatesof fair trade, citing figures showingthat the share of the worlds incomeamong the poorest 10 percent fell dur-ing this period, while the richest 10percent got wealthier. 38

As developing countries continuedto liberalize their trade barriers, wealthynations like the United States wereincreasingly reluctant to drop their

protections for products for which de-veloping countries had an advantage,writes economist Stiglitz. As a result,we now have an international traderegime which, in many ways, is dis-advantageous to the developing coun-tries, he concludes. 39

These tensions came to a head inSeptember 2003, when a series of mul-tilateral meetings in Cancun, Mexico,ended abruptly without any agreementon the major issues. The meetingswere intended to follow up on a de-

claration made at the WTOs meetingin Doha, Qatar, in 2002. The so-calledDoha Round launched a new roundof multilateral trade talks focusing onaiding poor countries. But the Cancuntalks fell apart in large measure be-cause many participants felt the Unit-ed States had reneged on its promis-es, particularly pledges to reduce itsown agricultural subsidies. 40

Philanthropic groups focusing onThird World poverty, like Oxfam, havebecome increasingly convinced overthe last decade that trade not aid isthe best route to alleviating poverty inthe developing world. 41

Meanwhile, college-student activistsconcerned about overseas sweatshops

and child labor have at times mergedwith anti-globalization activists, whosesentiments culminated in violentdemonstrations at the WTO talks inSeattle in 2001. 42

Supporting a wider campaign forglobal trade reform and trade justice isone of three aims of the fair trademovement in addition to alleviatingpoverty and empowering small farm-ers write fair trade activists Char-lotte Opal and Alex Nicholls in theirbook Fair Trade. Fair Trade began as

a campaigning issue dri-ven by activists and main-tains a powerful interna-t iona l ne twork o flobbyists, they write. 43

The movements grow-ing political impact, theauthors claim, could beseen in 2004 at the U.N.Conference on Trade andDevelopment in Sao Paulo,Brazil, which generated adeclaration signed by morethan 90 fair trade organi-zations from 30 countriescalling for greater tradeprice stability and fairprices for small farmers indeveloping countries. 44

An evaluation by re-searchers at the London

School of Economics found no directimpacts on WTO rules could be at-tributed to the fair trade movementbut noted its increasing lobbying pres-ence at international meetings, includinga trade fair at the Cancun meeting. 45

Poverty activists increased interestin fair trade has been sparked by theperception that international aid, themain alternative to the fair trade move-ment, often seems to have had lit-tle long-term effect, note Nichollsand Opal. While aid can alleviatesudden world crises like famines,they argue, it often fails to offer adevelopmental path for the poor outof poverty and dependence on out-side support. 46

TransFair USA is the leading third-party certifier of Fair Trade productsin the United States (left). Fairtrade Labelling Organizations

International (FLO) is the worldwide fair trade standard-setting and certification organization (right).

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FAIR TRADE LABELING

CURRENTSITUATION

Government Support

G overnments and political leadersin the United Kingdom and

throughout Europe and have given thefair trade movement considerably moresupport than it has received in theUnited States, where politicians aremore likely to scratch their heads overthe meaning of the term.

In 2006, the European Parliament,in a largely symbolic move, unani-mously adopted a resolution that calledfor a European Union-wide approachto supporting the movement. In pre-vious resolutions in 1997 and 1998, it

called on the European Commission tosupport importers of fair trade bananasand other goods.

The commission issued a declara-tion of support for fair trade with de-veloping nations in 1994. And the 2000Cotonou trade agreement between theEuropean Union and African, Caribbeanand Pacific nations called for the pro-motion of fair trade initiatives. 47 Sever-al European governments also provide

Continued on p. 450

Amajority of American consumers say in surveys theywould pay more for clothes and other products if theyknew they werent made in sweatshops. But do they?In a 2002 experiment, University of Michigan sociologists

placed two groups of identical athletic socks in a departmentstore, labeling only one group as being made under GoodWorking Conditions. 1

About a quarter of the consumers were willing to pay morefor the labeled items far fewer than the 70-80 percent whotell survey takers they will pay extra. 2

More recently, a Harvard study at ABC Carpet in New YorkCity found that more consumers bought towels and candles promis-ing fair labor conditions than similarly priced products withoutthe label. Intriguingly, when researchers raised prices of the fairtrade products 10 percent above the competition, sales rose evenmore. When they raised prices 20 percent, they rose higher yet.

It was more believable that standards were higher if theprice was higher, suggests Harvard political economist MichaelJ. Hiscox, whose team created the label, Fair and Square, andpresented it as ABCs own for the experiment. His tentativeconclusion: Retailers could increase their sales and their profitsby charging 10-20 percent more for fair trade-labeled goods.(Another possibility is that consumers think theres some hiddenquality advantage in a higher-priced item. Hiscox is designingnew experiments to tease out that question.)

But Hiscox cautions that shoppers with less money are lesslikely to behave like ABCs customers, who are generally well-to-do New Yorkers with a taste for contributing to social causes.

Hiscox has become an enthusiast for fair trade labeling be-cause he thinks it might be able to achieve what the WorldTrade Organization has not better labor standards abroad.Unions and activists have lobbied for including such standardsin international trade agreements, but developing countries likeChina and India have resisted for fear theyd lose their cheap-labor advantage in their exported goods.

So far, sports balls are the only manufactured item certi-fied by TransFair USA, the lead fair trade labeling organiza-tion in the U.S., which focuses on paying small farmers fair-ly. Cotton goods are the newest product to win fair tradelabeling in Britain, but the label only guarantees that a fairprice is paid to cotton growers in poor countries, not to mak-ers of the garment.

No cotton goods are certified fair trade in the U.S. becauseof TransFairs concerns that it cant guarantee workers condi-tions all the way up the manufacturing chain from sewersto zipper makers. Although African cotton farmers have a com-pelling story, thats not where the concern is in the U.S., saysChristopher Himes, chief financial officer of TransFair. Thesweatshop issue is very important to us. We want to make thatthe core mission of fair trade cotton garments in the U.S. Wethink we will do fair trade garments eventually, but were notthere yet.

Whether factory-made goods can be included in the exist-ing fair trade labeling scheme and inspected and certifiedin a way thats credible to consumers is the big enchila-da, Hiscox says, if fair trade goods are to become a majorplayer in this countrys retail market and ultimately affect work-ing conditions on a large scale.

There are a lot of consumers that would like to advance[fair labor] causes while theyre shopping, he says, but wedont know how big a [group] that is and how much theyrewilling to pay extra.

1 The study, by Howard Kimeldorf, et al., is cited in Michael Hiscox andNicholas F.B. Smyth, Is There Consumer Demand for Improved Labor Stan-dards? Evidence from Field Experiments in Social Labeling.2 A study by Marymount University Center for Ethical Concerns found 86percent of those surveyed in a 1999 poll said they would be willing pay$4 more for a $20 garment made under good conditions. A 1999 poll bythe National Bureau of Economic Research found about 80 percent of thosesurveyed would be willing to pay more. See ibid., p. 8.

Consumers Say They Will Support Fair TradeBut what do they do at the mall?

no


At Issue:Is fair trade the best way to help poor farmers?Yes

yesCHARLOTTE OPALCHAIR, STANDARDS COMMITTEE, FAIRTRADELABELLING ORGANIZATIONS (FLO)CO-AUTHOR, FAIR TRADE: MARKET-DRIVENETHICAL CONSUMPTION

WRITTEN FOR CQ RESEARCHER, MAY 2007

t o many poor farmers in developing countries, the freemarket is a distant dream. There are no roads connectingtheir farms to market, so they are dependent on middle-men to come to their farm and buy their crops. They do nothave access to price information, so they dont know howmuch the middlemen should be paying them. They cant takeout loans to improve the quality of their products, build roadsto access more buyers or switch to a more profitable crop.

Fair trade turns this reality on its head by ensuring farmersthe income and organization they need to make the marketwork for them. In the fair trade system, small farmers are orga-nized into cooperatives that pool their income to buy their owntrucks to deliver product to the market, apply for low-interestloans or hire experts to help them diversify their crops. Individ-ual small farmers living hand to mouth cannot access thesefree-market instruments but once they are earning enough tolive on and are organized into a cooperative, the benefits of aproperly functioning free market are finally available to them.

Guaranteeing that the extra money consumers pay for fairtrade-certified products actually goes to the farms with the bestliving and working conditions requires audits and inspections,some of which are paid for by companies, and some by thefarmers themselves. Companies that carry the Fair Trade Certi-fied label must pay a nominal fee for auditing to a nonprofitcertifier. In the United States, this certifier is TransFair USA, andeach $1 of its budget guarantees an extra $7 in income to fairtrade farmers and workers quite a strong return on a socialinvestment.

Farms must also pay an inspection fee, although it is muchlower than the fees they pay for organic, food safety andother certifications. As fair trade is the only system that guar-antees farmers more money, it is no wonder that more than1 million farming families are willing to pay for these inspec-tions to gain access to the fair trade market.

If we believe the free market is the best way to relievepoverty for the rural poor, fair trade is the only mechanismconsumers have for making sure the free market actuallyreaches small farmers. American families who buy coffee, tea,bananas, vanilla, and other tropical products every day wantto know that their purchases are empowering, not impoverish-ing, farmers and workers. Fair trade certification gives themthat guarantee.No

PHILIP BOOTHEDITORIAL AND PROGRAM DIRECTOR, INSTITUTE OF ECONOMIC AFFAIRS, LONDON

WRITTEN FOR CQ RESEARCHER, MAY 2007

t he best way to improve the lives of the poor is to ensurethat the necessary preconditions for development exist.These include good governance, a favorable business cli-mate and free trade. These three conditions are mutually rein-forcing. One of the biggest sources of corruption in developingcountries is the regulation of trade. The fair trade movement inEurope has the potential to do considerable harm through itscampaigning for the restoration of trade regulation in the coffeemarket, though its position on the regulation of the cotton tradeis more sensible.

The movement should stick to its basic business principles,the application of which can help some farmers in particularconditions. Fair trade can help farmers by providing creditfacilities, contracts with price guarantees and business facilitiesand information sharing in unsophisticated markets.

But fair trade has its downsides, too. There is considerablereliance on inefficient and unaccountable cooperative structures.The fair trade price promise is not quite what it seems towell-meaning and possibly nave Western consumers. Thevarious fair trade organizations do not promise to buy thefarmers produce at the price. They buy at a fixed price onlywhat the market demands. In poor market conditions, there isa risk of insider/outsider markets where those who are ableto sell at the price do very well at the expense of others.

Western consumers are probably also not aware that orga-nizations charge wholesalers for the use of the fair tradelabel and that a huge proportion of this charge, in the U.K.at least, goes simply into marketing the brand. It is no won-der we only hear good things about fair trade! I doubt, too,that consumers know organizations charge producers to joinup and that the fee is about 10 times the annual income ofthe average Kenyan.

Different business models have different disadvantages.There are, of course, costs and benefits of all ways of doingbusiness, so the above points are not intrinsic criticisms of fairtrade. In international development policy, we are used to im-portant people campaigning for politicians to pull big levers.The reality is that once certain preconditions for developmentare in place, prosperity comes as a result of lots of peopledoing small things in the business economy. The fair trade or-ganizations can help this process. But they should be modestin their economic claims and very cautious regarding theirethical claims.

450 CQ Researcher

grants to cover thecosts of certificationfor producers in de-veloping countries. 48

In 2000, govern-ment agencies in sev-eral European nationsbegan purchasingfair trade-certified cof-fee and tea to servein government offices,including the Euro-pean Par l iamentbuilding. The Euro-pean Commission hasco-financed a projectsecuring commit-ments from policy-makers to includefair trade criteria inpublic-procurementlegislation.

Serving fair tradecoffee, tea and bis-cuits in governmentoffices can have a bigripple effect, says Di-vine Chocolates Tranchell. Its diffi-cult for small fair trade product com-panies to get on the list of big cateringcompanies, she says. So if key ac-counts like government departmentsstart to ask for products, then theyreon the menu and other people canbuy them too.

In Britain, the government has pro-vided loan guarantees to help fairtrade start-up companies like DivineChocolate and has made grants toeducate schoolchildren about howfair trade products help Third Worldfamilies.

As Tranchell explains, the lure ofchocolate gives us an in with kids.Divine Chocolate has used grant moneyit received with a nonprofit partner toset up a Web site named after itsDubble chocolate bar, where 50,000young people have signed up as aDubble agent to change the worldchunk by chunk. Another Web site

provides teaching materials teacherscan download.

More than 260 towns in the U.K.have passed resolutions declaringthemselves Fair Trade Towns, a des-ignation that requires the towns gov-erning body to commit to serve fairtrade products at town functions andto encourage local business to sell theproducts. Some activists think the des-ignation helps explain the move-ments rapid growth and high levelof public recognition. Inspired by theBritish example, Media, Pa., dubbeditself the first U.S. Fair Trade Town.(See sidebar, p. 444.)

On Valentines Day, Divine Choco-late introduced its brand to the Unit-ed States. It set up headquarters inWashington, D.C., because DivineChocolates mission is to be a highlyvisible and vocal advocate for betterconditions in the chocolate industry,according to Erin Gorman, U.S. CEO.

At a briefing on CapitolHill, there was clear in-terest on the part of Hillstaffers about how theU.S. government mightfollow the example ofthe U.K. in supportingfair trade companiessuch as Divine, Gor-man says.

However, some lead-ers of the movementsay theyre leery of gov-ernment involvement,particularly since, intheir view, interest-group lobbying has wa-tered down the organ-ic food standards setby the U.S. AgricultureDepartment. I dontthink we would lookfor legislation or evennecessarily standardiza-tion, says TransFairsHimes. It introducescomplexity and poli-ticking.

Coming in for criticism was a re-cent $8.6 million grant from the U.S.Agency for International Development(AID) to the Rainforest Alliance, aninternational environmental groupbased in New York, to certify prod-ucts from more than 300,000 acres offorest and farmland as well-managedenvironmentally. The Rainforest Al-liance label, which also pledges goodworking conditions, would apply to90 million boxes of certified bananasand 30,000 tons of certified coffeethrough partners including Chiquitaand Kraft Foods.

But the certification project couldlead to an undermining of fair tradestandards, according to Colorado StateUniversity researchers, because theRainforest label is focused primarilyon environmental management, andbrings fewer benefits to small farmersand less reliability in monitoring themthan TransFairs certification. 49

FAIR TRADE LABELING

Continued from p. 448

Fair trade bananas are grown at the Juliana Jaramillo Cooperative inthe Dominican Republic. Big banana growers are permitted to

take part in the fair trade scheme, but big coffee growers and other large operations currently are not included.

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Proliferating Labels

C ompetition from the RainforestAlliance and other labels pledg-ing good working conditions poses achallenge to the fair trade movement.Some advocates worry proliferating la-bels could lead to consumer confu-sion or distrust, especially if they di-lute the TransFair standards. TheRainforest label, for example, avoidsTransfairs fees since the organizationdoesnt have to pay for such exten-sive monitoring, critics say.

But some proponents of alternativelabels say TransFair doesnt have a moralmonopoly on judging labor standards.The Organic Consumers Association hascampaigned against Starbucks, charg-ing that by buying only a small per-centage of its coffee from farmers cer-tified by TransFair, the company hasnot made a good-faith effort to helpfarmers in developing nations. Accordingto Starbucks annual report, 6 percentof the coffee beans it purchased in2006, some 18 million pounds, werecertified by TransFair. 50

Cooperative Coffees, a group of21 small coffee companies commit-ted to selling only fair trade beans,uses a different label the insigniaof the Fair Trade Federation todistinguish themselves from competi-tors that sell only a minority of fairtrade coffee. Many companies use afew token Fair Trade items as a mar-keting tool to give the impression ofbeing a fair trade company, says thegroup on its Web site. By contrast,each of the 21 companies claims tosell 100 percent fair-traded coffee, al-though not all of it has been certi-fied by FLO. 51

The argument of the 100 per-centers is that someone like GreenMountain Coffee Roasters takes yourcustomer account away by offeringcheaper prices. And the reason theycan do that is that most of their pur-

chases are much cheaper coffee, be-cause theyre not paying the fairtrade price on 100 percent of theirproducts, says Organic ConsumersAssociation National Director RonnieCummins. Fair trade products areabout one-quarter of Green Moun-tains total sales.

In an e-mail, TransFairs Himes re-sponds that for growers, Starbuckspurchase of 18 million pounds at fairtrade prices is extremely significant.TransFair just certifies the product beingsold, not the company, he stressed.If we took the company-certificationapproach, he adds, wed have veryfew partners, and very few peoplewould have heard of or been able tobuy fair trade products.

Some activists also have expressedimpatience with the slowness of Trans-Fair to certify manufactured goods likeorganic cotton clothing, a market thatis booming. TransFair has decided notto certify cotton now because it is notyet capable of ensuring no sweatshopsare involved in production, accordingto Himes.

The Organic Consumers Associa-tion has joined some 80 groups andcompanies participating in the Do-mestic Fair Trade Working Group,which is developing a new label thatwould certify products as both organicand fair trade.

If we want consumers to be ableto tell that the garment was not madein an exploitative factory, we need alabel, says Cummins. And we cantwait around for TransFair to decideits a priority. Although TransFair en-courages its growers to farm organi-cally and guarantees a premium fororganically grown products, not all ofits products have government-certifiedorganic status.

As for the proliferation of labels,some observers see it as a positive sign that the marketplace is increasinglyrecognizing consumer demand for fairworking conditions.

OUTLOOKGrowth Potential

H ow much further can the fairtrade market grow? The Amer-ican fair trade market is now onlyabout one-fortieth the size of the or-ganic market, which attracts similarconsumers. If fair trade sales con-tinue growing at their current rate,by 2012 they should match todays$15 billion-plus organic market, pre-dicts Harvard political economistHiscox. 52

A major factor in determininghow big the market grows will bewhether large coffee farms, someowned by multinationals, will be al-lowed to enter the fair trade scheme.It currently bars them from FLO cer-tification on grounds that the move-ment is trying to help the most dis-advantaged growers. But someobservers think big producers even-tually will be included, as bananagrowers already are.

Market growth could also be heldback by limited demand for fair tradeproducts. Fair trade cocoa producersin Ghana, for example, could sell only8 percent of their crop to fair trade,and fair trade coffee producers inTanzania sold only 10 percent, onestudy found. 53

By emphasizing high-quality prod-ucts, however, the market will havea better chance of attracting new con-sumers, some observers believe. Fairtrade-certified coffee is now the fastest-growing segment of the $11 billionU.S. specialty coffee market. 54 Yet assmall farmers grow savvier about themarket, they may take different av-enues to capturing more of the finalretail value of their gourmet coffeesand chocolates.

452 CQ Researcher

FAIR TRADE LABELING

Ugandan coffee farmer Magona sayshis cooperative would like to capturemore of the profit margin taken bywholesalers and retailers for his prizedhigh-altitude Mt. Elgon coffee byprocessing the beans in Uganda in-stead of abroad. The Ethiopian gov-ernment, meanwhile, has been tryingto obtain trademark status from theU.S. Patent Office for three specialtycoffees, an alternative approach thatwould allow Ethiopian farmers to keepmore of the profit margin now chargedby Starbucks, says Oxfams Rusu.

But trade barriers blocking the im-portation of processed goods, oppo-sition by established companies inconsuming countries and the practi-cal difficulties of developing a newindustry in a poor country could hin-der those kinds of efforts. If fair trademakes consumers more aware oftrading inequities between countries,it might increase pressure for moreequitable trading agreements, remov-ing barriers to growers efforts to domore of the processing and brand-ing themselves.

As fair trade grows, another challengefor certifying organizations will be keep-ing up with the need to monitor morefarms. Reports last year in Peru of somefarmers selling non-fair-trade beans atfair trade prices might be a sign of themovements growing pains. 55

If fair trade is to make a majordent in the consumer market, someobservers say, it will have to start in-cluding manufactured products, likecotton clothing, as Britain has already

done. But experts inside and outsidethe movement agree it will be muchharder to monitor sweatshops in theapparel industry, which often em-ploys numerous subcontractors in avariety of countries before finishing agarment.

As savvy growers learn more aboutthe value of their products, they maybe lured into selling to high-end com-panies that arent necessarily part ofthe fair trade system.

Would that necessarily be a badthing? It might be if those companiesabandoned growers during cycles ofexcess supply and plummeting prices just the time fair trade helpsthem most.

On the other hand, some advo-cates say, the ultimate goal for thefair trade movement is to put itselfout of business: When all productsbecome fairly traded.

Notes

1 In Britain, the label promoted by the leadcertifying organization, The Fairtrade Foun-dation, spells the term as one word. In theUnited States the equivalent label, with ablack-and-white symbol, approved by Trans-Fair, is two words: fair trade.2 Fairtrade Foundation press release, Boostfor Farmers, Feb. 26, 2007; www.fair-trade.org.uk.3 Ibid. The full range of Fairtrade productsis: coffee, tea, chocolate, cocoa, sugar, bananas,pineapples, mangoes, oranges, satsumas,clementines, lemons, avocados, lychees,

grapes, apples, pears, plums, fruit juices,smoothies, quinoa, peppers, green beans,coconuts, dried fruit (apricots, mango, raisins,dates), herbal teas, rooibos tea, green tea,ice-cream, cakes, biscuits, honey, muesli,cereal bars, jams, chutney, sauces, herbs,spices (vanilla pods, cinnamon sticks, groundginger, ground turmeric, black pepper,cloves, nutmeg), nuts (brazils, cashews,peanuts), nut oil, wine, beer, r

fair trade labeling - california - watertrade+labeling.pdf · fair trade labeling is it helping...

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