Fair Trade: Pros and Cons

Pros:

The benefits of trading using Fair Trade principles are economic, social and environmental: Fair payment for products.

o There is a guaranteed minimum payment.

o Humane working conditions.

o Wages are fair.

o Working conditions are safe and ethical.

Middleman avoidance. More profit and empowerment. Democratic decision-making. Power is in the hands of those that will be affected. Endogenous local development; profits are reinvested back into the local community. Environmentally sustainable practice is rewarded. Sustainable farming techniques are

rewarded. Chemicals and genetically modified species, as seen in other methods of farming and production, are prohibited (Transfair USA).

Fair Trade is, in essence, a model of production and exchange that is more conducive to eco-social sustainability.

Cons:

comprises an extremely small segment of the market Costs associated with certification (i.e. obtaining a Fair Trade logo) can be unaffordable Certification favors co-operatives. Individuals can be disadvantaged. Raw products are favored over value-adding. Thus prevents obtaining higher profits. Increasing associations between large and/or multinational companies and the Fair Trade

movement. This defeats the purpose of the Fair Trade movement. It is considered “selling-out” to the very organizations and ideologies that got us into this mess in the first place.

Fair Trade does not get to the core of the problem. Instead of tackling the real issues (such as oversupply/low prices), Fair Trade supports unsustainable markets and provides unrealistic prices.

Anna M. Gralton, Fair Trade – the pros and cons, last modified December 22, 2008, accessed July 24, 2011, http://www.altglobe.com/blog/fair-trade-pros-and-cons

Pros:

Producers get a decent living, gain necessary skills and knowledge, obtain access to credit, find technical assistance and market information, learn about trade and acquire experience in exporting.

Better prices for farmers do not increase consumer costs, since the fair trade organizations cut out intermediaries by handling all the operations between production and retailing themselves.

Consumers get an educational tool promoting thoughtful consumerism.

Cons:Critics sometimes treat fair trade as if it were offering a comprehensive solution to development problems. This can mislead strategists who are considering whether fair-traders will make good partners for their development efforts. However, this much is admitted:

Market share is much too small to have a major impact on general living standards in developing countries. Even if it expands significantly, only 20% of consumers at a maximum seem ready to pay more for fair trade products. This limits possible expansion.

Producing more low-priced commodities for over-supplied markets postpones what is really needed for development: diversifying exports and adding value, rather than depending on commodities and crafts. Or finding new social solutions for upland communities whose economic viability remains in doubt.

Rich markets can do more for poor countries by allowing bigger quantities of normally priced products in their markets.

Labelling organizations may cut out middle traders, but they may not return the full savings back to the farmers. Fair trade is an expensive niche market to maintain, because it needs constant promotion and requires educated consumers. High marketing costs are one reason why all those fair trade premiums don’t make it back to the producers.

Retailers may take advantage of consumers’ social conscience. After looking at prices in his local coffee bar where fair trade cups of coffee are sold at a premium, Tim Harford, a World Bank economist, concluded in The Undercover Economist: “Charging an extra ten pence gave a misleading impression of how much it really cost to get hold of that fair trade coffee.” Doubling a producer’s family income should add less than one penny to the price of a cup in a UK coffee shop, he observes. The coffee shop later dropped the price differential.

There are many different standards and criteria, and little discussion outside the organizations themselves. So consumers cannot decide whether the trade really is fair. Not all fair-traders are members of FLO, e.g., Rugmark and the Clean Clothes Campaign. The standards themselves can cover working conditions and environmental measures (or not) as well as stable pricing.

Peter Hulm, International Trade Forum: advising, empowering and inspiring trade, published February 2006, accessed July 24, 2011, http://www.tradeforum.org/news/fullstory.php/aid/1031

Fair trade started with a vision in the 1940 to equalize the rights of poverty-stricken communities abroad. Some U.S. and European organizations started selling their handicrafts and produce for a

fair price in developed countries. In 1990, a fair trade labeling system was started, and charities worked closely with Fair Trade USA and Fair Trade of other countries. Modern fair trade protects growers and farm laborers of crops such as coffee, tea and cocoa from exploitation by multinationals and middlemen.

Better Living Conditions for Growers: One of the pros of the fair trade movement is the improvement in living standards and conditions of workers of small farms in coffee and tea growing regions. According to Fair Trade USA, influence from the Fair Trade involvement has improved communities with schools, rights for women, sound business knowledge, work safety procedures and much more. The communities are encouraged to be self sufficient.

Room for Improvement: Charles Cain from the Tea Retailer website explains that wealthy tea barons have taken advantage of the Fair Trade movement. According to BSR's article Child Labor Eradication in Nicaragua's Coffee Zones, there is a need for global intervention to protect children from exploitation. The Fair Trade movement has encouraged education for children. Fair Trade USA believes compulsory education for children to be vital for the progression of these countries; the literacy rate is increasing.

For The End User The Price Is Higher: Fair Trade coffee costs a little more than some other coffees that are non Fair Trade. This is due to the cost of labeling and administration costs. According to Fair Trade USA, which admits that consumers pay a little more for a cup of coffee, far more is going back to the grower and the community at large. Overall the extra cost of the coffee is still positive for Fair Trade, although some see the higher price as a negative.

Fair Trade Raises Cocoa Prices: According to Fair Trade Australia, the increase in cocoa prices and sponsored initiatives gives the producers a sweet deal; the extra money will finance farm improvement projects to help create a more sustainable future for many communities. While cocoa prices are high, the communities prosper. When the prices drop, the communities are protected by the minimum price floor.

Size of Fair Trade Farms: One of the disadvantages of Fair Trade for big business is the small scale largely organic farming which it promotes. While this is a positive for the environment, the small scale farming does not allow for larger-scale farming methods which attract business from bulk buyers. Larger buyers generally stay away from Fair Trade produce as they have less control over production methods and prices. This can be a disadvantage for the developing nation as a whole but does protect the small farmer from exploitation.

John London, Fair Trade Pros & Cons, last modified April 16, 2011, accessed July 24, 2011, http://www.ehow.com/info_8236281_fair-trade-pros-cons.html