Fair Trade

international | worker & community struggles and protests | opinion/analysis Saturday April 22, 2006 14:31 by reginald

A solution to sustainability

Fair Trade - the pros and cons

Introduction

The sustainability of the international economy is of fundamental importance to long-term societal welfare. The benefits of an integrated global economy are compelling yet there has been widespread dissent on the extent to which these idealized assumptions apply in an imperfect world. Evidence suggests that power asymmetries and the incentive for short-term benefits at the expense of long-term costs have led to greater social inequality and increased environmental destruction quite contrary to the philosophy of welfare benefits accruing from liberalized trade. The “Fair Trade” movement is a response to what its advocates see as the social injustices of the contemporary economy. Working ‘in and against’ the market, Fair Trade aims to correct the negative externalities of free trade by providing those producers most susceptible to exploitation with economic and non-economic benefits. By means of creating an alternative trade network within the confines of the free market organism a symbiosis is created between these producers and ethically-driven and socially conscious consumers. Importantly, Fair Trade directly challenges the notion that current free trade practices are sustainable.

The following paper will be divided into eight sections. The next section will introduce the concept of ‘sustainability’. It will be argued that the ‘fair trade’ movement has a ‘strong’ multi-dimensional concept of sustainability. The third section will provide information on the logic of neoclassical ‘free market’ economics focusing on the benefits that a liberalized international market economy can provide. The forth section will then highlight some of the major global problems associated with the neo-liberal free market. Subsequent to this, the ‘Fair Trade’ movement will be introduced and an outline of its logic and institutional structure specified. This will comprise the fifth section. The sixth section will look at the success of the ‘Fair Trade’ movement and the following section, its problems. Throughout the paper, case studies from the coffee and banana industries will illustrate my findings. A conclusion will constitute the seventh and final part of the paper.

Sustainability

Human society is rudimentarily interconnected with the natural world. At the most basic level, human action can only occur within the confines of our own environment. Therefore, socio-economic actions must have an environmental dimension. The unified nature of our own existence with the non-human world requires that human activity does not harm our own living-system in any catastrophic way. It is in this context that the concept of ‘sustainability’ becomes indispensable. In order to provide an analytical tool it is instructive to generalize to two broad categories of the concept based on Barry’s (1997) notion of ‘sustainability’ and ‘sustainable development’. He states that ‘sustainability’ is “the ensemble of social-nature relations in general, material and moral [terms], which is to be distinguished from ‘sustainable development’, which refers more specifically to continuously productive economic-ecological exchanges, in terms of non-deteriorating capital stock (both natural and human)” (p.117) Both concepts are concerned with environmental justice and intergenerational equity but diverge on what the exact ‘needs’ of the environment and of present and future generations actually are.

The latter concept of ‘sustainable development’ I would argue is a notion of ‘weak’ sustainability (Gutes, 1996). Under this notion there is complete substitutability between natural and human-made capital. Neither component is in itself the focus of this form of sustainability but the net sum of both man-made and natural capital. Human society is sustainable as long as each generation leaves for the next generation at least the same total capital stock it acquired. ‘Weak’ sustainability has been criticized for assuming perfect substitutability between human and natural capital (Muradian, 2001)

The former concept of ‘sustainability’ emphasizes the interconnectedness of the human society and the environment not just in ‘general’ and ‘material’ terms but also in a ‘moral’ capacity. I would argue that this is a form of ‘strong’ sustainability. This concept “is concerned as much with the ends of our use of the environment as with the ecological means to economic development.” (Barry, 1997, p.117) This concept believes that the socio-economic and cultural relationships that exist between different sets of individuals combined with human-nature relations are essential factors in achieving ‘sustainability’. In this concept of sustainability environmental destruction is intrinsically related to social inequity. It is through this concept of materialistic and ethical ‘sustainability’ that I wish to view the neo-liberal ‘free market’ and ‘Fair trade’ movement.

The Logic of Neoclassical Free Market Economics

Neo-classical free trade economic policy is the guiding force for the majority of the world economies. Its negative impacts have been the source of origin for reactionary movements such as the ‘Fair Trade’ movement and therefore a complete understanding of its logic and proposed benefits is necessary if we wish to comprehend ‘Fair Trade’ as a response to free market externalities.

Free trade is based on the premise that with the removal of trade restrictions such as tariffs and import quotas, the world economy can maximize societal welfare due to the free movement of labour, capital and information. The global economy would remove any deadweight loss and a Pareto efficient outcome could be achieved for some particular distribution of resources.

The major impediments to free trade are trade restrictions and other national legislation. Frundt says, “Free traders believe that many regulations serve particular interests and prevent healthy competition that leads to innovation and growth.” (2005, p.216) This perspective has been noted by other writers (Howse, 1996; Muradian and Martinez-Alier, 2001) where environmental and human rights concerns thread a thin line between being used as an intrinsic ethical belief by national governments and being used to serve protectionist interests by supporting domestic operations.

Importantly, according to neo-classical theory protectionism has a negative influence on societal welfare. It results in higher prices and a sub-optimal quantity of goods and services being produced. With the removal of trade restrictions prices generally fall and the economy is restructured so that it produces that which it is relatively best at doing compared to other countries. What then are important for an economy is not its absolute costs of production but its opportunity cost of production (i.e. the value of the highest forgone alternative) This notion is embodied in the ‘Law of Comparative Advantage’ which states that it is in the interests of a country to trade. So long as the cost-ratios of two countries differ, a comparative advantage will always exist whereby each country can produce some goods at a lower relative cost than the other. This process should lead to specialization, where each country produces only that in which it has a comparative advantage. Production will be aimed at the export market and will require a structural transformation of the domestic economy. (Mankiw, 2001; Muradian and Martinez-Alier, 2001)

Ultimately, international trade causes increased efficiency through lower costs due to economies of scale, increased competition and the enhanced flow of ideas. (Mankiw, 2001) An example of the culmination of this process is noted by Frundt (2005). He observes that Trans-National Corporation (TNCs) economists in the banana industry have reproached European countries for supporting small, labour-intensive, ‘inefficient’ banana farms in African-Pacific-Caribbean (APC) countries through a licensing regime which only gained 8 tons of produce an acre compared to 30 tons an acre in large plantation farms in liberalised Latin American economies. This highlights the Free traders argument that the end result of liberal open markets is increased productivity which should provide impetus for economic growth and greater societal welfare.

The theory also proposes that free market open societies not only promote economic growth but environmental protection and social/human rights. The reasons for this are two-fold. Firstly, economic growth affects positively the demand for environmental and humanitarian initiatives while it also, “enables governments to tax and raise resources for a variety of objectives.” (Muradian and Martinez-Alier, 2001, p.282) Therefore, the answer to environmental degradation and social inequality is through market-based economic growth.

Problems with Neoclassical Free Market Economics

Theoretical problems with the free trade model, question the foundations upon which the free trade argument originates. One such argument is that of ‘meaning’ and ‘structure.’ (Frundt, 2005) Based on the notion of class construction of meaning it is argued that different groups in the hierarchical ‘structure’ of society use words to apply ‘meaning’ to the world so as to represent their interests and assert control. Applying this theory to neo-classical free market economics it is argued those sectors of the society that most benefit from the ‘structure’ of free market economics impose their own meanings of concepts such as ‘efficiency’, ‘free’ and ‘competitive’ on the rest of society. It is argued that even though neo-classical economics is often used to purport objectivity it actually reflects a particular hegemony of ideas and its use of terms such as ‘free’ and ‘competitive’ is only one formulation of their meaning.

One can also challenge neoclassical free market assumptions. Perfect knowledge assumes in-depth information to be known about the all production possibilities of resources and individual preferences. Such information is bound with problems of acquisition and in pragmatic terms, this assumption is unrealistic and therefore undermines the efficiency criterion. Also, the ‘law of comparative advantage’ has been seriously questioned due to the nature of the globalized economy which undermines the neoclassical assumption of the immobility of factors of production. Since the free movement of capital is now protected by international law and more importantly, is actually possible due to a greater degree due to technological innovation, some economists have argued that, “what really matter are absolute advantages… and a few countries may have absolute advantage for many products. So, only a few countries may attract most of the world’s capital (and yield most of the world’s production) leaving other countries at an ‘absolute disadvantage’” (Muradian and Martinez-Alier, 2001, p.285)

The practical problems associated with the free trade model primarily arise from the ‘externalities’ associated with the structure of the capitalist system. Free market rules such as private property and the free movement of capital which are enforced by supranational institutions (e.g. WTO) allow for the growth of powerful organisations such TNCs who can then transfer wealth from disadvantaged areas (primarily ‘southern’ countries). Evidence of this exists in the banana industry (Murray and Raynolds, 2000; Frundt, 2005; Moberg, 2005) and the coffee industry (Muradian and Pelupessy, 2005) Due to unequal distribution of power and resources, TNCs have been able to exert power on national governments to protect their interests; move operations to competitively advantageous areas leaving redundant workers to bear the costs of ‘capital-flight’; engaged in predatory pricing so as to create monopolies; and used violence to keep costs low. This has led to the accumulation of value-added rents in the nodes of the commodity-chain located in ‘northern’ countries (Muradian and Pelupessy, 2005)

A notable externality of this process has been a deterioration of worker rights. For example, the Ecuadorian banana industry prevented or eliminated unions thereby reducing wages and providing their economy with a ‘competitive’ edge. (Frundt, 2005) In Costa Rica, the banana industry has seen the rotation of workers among different plantations so as to avoid paying additional benefits for workers; the proliferation of temporary workers and even the firing and rehiring of workers for less pay and longer hours (ibid.) Importantly, the WTO does not specify any workers ‘rights’ besides the most extreme cases of worker exploitation (e.g. prison labour) and does not allow the imposition of trade restrictions on countries gaining a competitive advantage in this manner. (Howse and Trebilock, 1996; Muradian and Martinez-Alier, 2001)

Similarly, the WTO only allows trade restrictions on products that harm the importing countries environment or health and therefore allows countries to pursue economic development by setting low environmental standards which can then be used to gain a relative advantage over its competitors (ibid.) Muradian and Martinez-Alier (2001) argue that the countries that pursue this policy are usually ‘southern’ countries with weak institutional structures and due to the nature of industry in these countries (predominantly low-priced primary product production which are not value-added growth industries) the lowering of these standards may create a ‘stuck at the bottom’ effect and could “lead to a polarization of international environmental conditions.” (p. 286)

The nature of TNCs agricultural operations can also have negative environmental effects. Mono-cropping with heavy applications of chemicals (e.g. insecticides and fungicides) has caused widespread deforestation, soil erosion; water pollution and worker health problems. (Murray and Raynolds, 1999; Frundt, 2005) This can lead to irreversible biodiversity loss which is estimated at 30,000 species a year mainly in ‘southern’ countries (Muradian and Martinez-Alier, 2001)

The relationship between export growth and higher societal welfare has been questioned as well. For example, the relevance of GDP growth as an indicator of an increased standard of living may not be applicable when one recognises that the export-led economy has been based upon environmentally-intensive resource depleting industries (Muradian and Martinez-Alier, 2001) Also, the effect that export-led industries have on the non-export sector in many ‘southern’ countries may be overstated and “may lead to increasing (national and international) income distribution asymmetries and ‘illusory’ growth in the short-term, but unsustainable development in the long-term.” (Muradian and Martinez-Alier, 1999, p.287)

Finally due to specialisation process of free-market economics, ‘southern’ workers have become increasingly dependent on one industry which as stated above is usually in resource-intensive primary product exports. Muradian and Martinez-Alier (2001) say that this may generate a ‘specialisation trap’ whereby due to power asymmetries in the commodity-chain the only viable possibility of increasing rents is to increase production which puts downward pressure on commodity prices. This then leads to declining terms of trade. This has been a historic consequence of agribusiness profit maximization (Moberg, 2005; Muradian and Pelupessy, 2005)

The Logic and Structure of the ‘Fair Trade’ Movement

Logic

The ‘Fair Trade’ movement can be viewed as a reactionary response to what the supporters of the movement see as the social injustice of the global economy. In essence what the ‘Fair Trade’ movement aims to do is to correct ‘market failure’ by internalising some of the negative externalities associated with the free trade model. It is a bottom-up, market-based innovation that views ‘trade not aid’ as the solution to global poverty. Paradoxically, it is an oppositional movement that works ‘in and against’ the market by harnessing the opportunities the market provides “to forge new bonds of social and ecological interdependence” (Murray and Raynolds, 2000, p.66) in order to tame its destructive forces.

It is a voluntary regulatory system that aims to provide market access and economic and non-economic benefits to disadvantaged producers in the south. Through the market mechanism these producers are linked to ethically-driven and socially-conscientious consumers in the north. “The growing ‘Fair Trade’ movement seeks to challenge historically unequal international market relations, transforming north-south trade from a vehicle of social exploitation to an avenue of producer empowerment” (Raynolds et al., 2004, p.1109)

Fundamental to this process is the assumption that consumers are motivated by not just financial concerns but also moral considerations. Through the process of labelling the product ‘Fair Trade’, it aims to re-work the idea of ‘commodity fetishism’ whereby capitalist production of commodities obscures the exploitative social, economic and ecological relations of production and creates consumer surpluses in the aestheticization of commodities. (Goodman, 2004) The commoditization of ‘Fair Trade’ products reconstructs commodity fetishism by making transparent social, economic and environmental relations while also creating consumer surpluses in ‘feel-good’ factor. (Goodman, 2004; Muradian and Pelupessy, 2005)

It is suggested that this whole process of ethical trade from the grower to importer to manufacturer to retailer and to consumer, creates a transnational ‘moral economy’ in a sense that “entreats moral connections and responsibilities all along the commodity network in the pursuit of alternative development” (Goodman, 2004, p.903)

Structure

‘Fair Trade’ was born out of a number of alternative trade initiatives where an integrated commodity chain ran parallel to conventional market routes bypassing value-adding middle men and providing a better income for producers (Moberg, 2005; Renard, 2005) Various national initiatives (e.g. Max Havelaar, Fairtrade Mark) began labelling products as ‘Fair Trade’ “to promote their broader distribution through conventional retail outlets.” (Moberg, 2005, p.6) Members of the national initiatives came from for example, NGO’s, producer groups and consumer organizations. The movement was ‘self-regulated’ establishing its own norms, standards and criteria; and ‘self-certified’ controlling the process of inspection which was performed by peers, technical advisors, activists and volunteers. (Renard, 2005)

In 1997, the various national initiatives formed the ‘Fair Trade’ Labelling Organizations International (FLO). In its strategic plan for 2003-2008, FLO states that its mission “is to enable the sustainable development and empowerment of disadvantaged producers and workers in developing countries through ‘Fair Trade’ labelling by:

a) setting international ‘Fair Trade’ standards;
b) certifying production and auditing trade according to these ‘Fair Trade’ standards;
c) facilitating and developing ‘Fair Trade’ business;
d) supporting producers in making maximum use of the opportunities offered by ‘Fair Trade’ labelling; and by
e) promoting the case for trade justice in debates on trade and development” (FLO, 2003, p.1)

FLO to achieve its aims prioritises standard-setting, certification and trade-auditing. FLO have institutionalised fair labelling, its embodiment being the Fairtrade Certification Mark (CM). An independent certification unit has been established so that FLO will be able to receive accreditation under the international norms of the International Standards Organization (ISO). As a result it has been necessary to charge producers for the certification process (Renard, 2005) This whole project is part of the mainstreaming of ‘Fair Trade’ in order to increase development impact but is also due to the competitive pressures of the market from rival brands (see below).

Decision-making in FLO is taken by the Board of Administration. They are supported in the implementation of their decisions by a Director, Executive Board and a number of specialized bodies. Reform was also recently carried out on FLO structure due to complaints of centralization of decision-making within the organization from regional assemblies of producers who played only a consultative role. It was also due to the impersonal links that FLO now have with producers but that are required for the organization to be an institutionalized certification body. Therefore, FLO restructured the Board of Administration making it more representative of the diverse interests in the ‘Fair Trade’ commodity chain; a representative standards and policy working group and a certification committee were formed; and several new producer initiatives and posts for liaison officers were created. (Renard, 2005; Taylor et al. 2005)

National initiatives concentrate on developing new domestic markets and sustaining good relations with pre-existing actors in the domestic ‘Fair Trade’ network. They also collect product label license fee income. FLO provide market opportunities when national initiatives demonstrate sufficient demand and producers have ‘Fair Trade’ market potential. FLO then “has in its hands the mechanisms of producers’ access to and exclusion from the fair-trade market.” (Renard, 2005, p.425)

Producer associations must comply with social and environmental criteria which vary depending on the nature of the commodity and the type of enterprise. Small-scale producers must belong to democratic producer co-operatives (e.g. coffee growers) and if they are workers they must be unionized. International Labour Organization (ILO) standards are applied. Environmental criteria include for example, protection of water-ways and topsoil and to achieve organic status stricter rules apply. (Moberg, 2005) Producer groups must be democratically organized and are required to meet regularly. They elect community representatives to a regional assembly who then elect officers who serve for two to three years. A staff of specialists provides technical assistance (Taylor et al. 2005)

In return, producer co-operatives receive a guaranteed ‘fair’ minimum price premium above conventional market prices. For example, producers receive $1.26 per pound for ‘Fair Trade’ coffee; $1.41 per pound for Organic ‘Fair Trade’ coffee while; $0.60 per pound is the average price for conventional coffee depending on market trends. Average small farmer producer costs in the coffee industry are $0.90. (Renard, 2005) Producers also receive a price premium to be dedicated to social and community projects (currently $0.05 per pound of coffee). Buyers are then required to pre-finance harvests and form long-term commercial relationships with the producer associations (ibid.) Co-operatives then gain from direct economic rents and also, long-term market access.

The ‘Fair Trade’ movement is now a market-expanding industry. Product sales for 2002 were approximately $300 million with ‘Fair Trade’ markets existing in 14 European countries and also US, Canada and Japan. There were 443 registered importers and importantly, the ‘Fair Trade’ network included 315 producer associations representing 900,000 in over 40 countries (FLO, 2003). Overall, the ‘Fair Trade’ movement must be viewed as part of the globalisation process. (Muradian and Pelupessy, 2005). It acknowledges the historical dependency of producer co-operatives (Murray and Raynolds, 2000) but places emphasis on co-operation rather than competition (McDonagh, 2000). Originally, fair-trade was more of a challenge to conventional market relations with recent formulations of ‘Fair Trade’ being presented as more of a ‘niche-market’ industry. Debates over the ‘meaning’ of fair-trade still rage.

‘Fair Trade’ Success

The redistribution of wealth brought about through ‘Fair Trade’ activity is its most glaring success. Through the combination of the guaranteed minimum price and related social premium (currently $0.05 per pound of coffee) Goodman refers to ‘Fair Trade’ as a “modern-day market based Robin Hood.” (2004, p.897) The guaranteed minimum price is so important when one recognises that the primary product industries that FLO support are subject very often to global over-supply which then depresses prices. The removal of the ‘Fair Trade’ price from the influence of the market has brought greater stability to many communities. In 2002 the Majomut coffee co-operative in Mexico earned $1,700 per 1500 pounds of coffee when the conventional market return was $550. (Taylor et al. 2005)

The benefits that accrue at the level of the co-operative are also extensive. Raynolds et al. (2004) note that ‘Fair Trade’ prices and market access enhance financial and organizational stability, augment the economic viability of coffee marketing, increase the legitimacy of producer organizations in government and NGO circles and provide greater access to a range of credit institutions. Renard (2005) also reports improvements in administration skills. Moreover, using the social premium producer associations invest in capital. These include investments in processing equipment, warehousing, office space and transport systems (Taylor et al. 2005; Raynolds et al. 2004) Funds are also donated to environmental projects, organic certification fees and producer training schemes in sustainable farming. Finally, producer associations receive technical and market information on market trends and buyer contacts. (Goodman, 2004; Raynolds et al. 2004)

The social premiums are also used to fund social initiatives for the benefit of the community at large. These projects are proposed, debated and voted on at the democratic assemblies of producers. Projects have included investment in housing and schools; the funding of scholarship programmes to allow children to continue to higher education; the improvement of roads; provision of public bus services; health insurance funds and the establishment of community stores selling low-priced goods. (Raynolds et al. 2004; Moberg, 2005)

Indeed, Raynolds et al (2005) argue that while “the financial benefits appear the most significant in the short-run, in the long-run, it is the empowerment and capacity building of Fair Trade that will prove the most important.” (p.1119) Personal and community empowerment through participatory democracy has also been echoed by other writers (Goodman, 2004; Moberg, 2005) as one of the great success’ of ‘Fair Trade’ since it has helped strengthen indigenous identities and dignity.

‘Fair Trade’ producers have also accrued environmental and health benefits. For example, 45% of all ‘Fair Trade’ coffee is organic coffee (Muradian and Pelupessy, 2005) This has also reduced the possibility of adverse health effects (Frundt, 2005) and even if not organic all ‘Fair Trade’ farms require reduced chemical inputs into the production process. ‘Fair Trade’ exemplifies the important relationship between social and environmental conditions. If one improves working condition standards through controls on chemical use, environmental benefits accrue. Also if this process is done for environmental concerns, worker health improves. (ibid.)

‘Fair Trade’ has also had a positive effect in developed countries. It could be argued that it has helped moralize and politicize northern consumers through its promotional events and the mainstreaming of its product. Also, ‘Fair Trade’ has influenced the practices of TNCs. Many of these manufacturers and retailers now stock ‘Fair Trade’ goods which has had a positive effect on sales and therefore improved the living conditions of a greater number of ‘Fair Trade’ producers. Also, the newly proposed “Common Code for the Coffee Industry” (Muradian and Pelupessy, 2005) and other similar initiatives in the banana industry (Frundt, 2005) where major players in these industries intend to come together to set ‘minimum standards’ and ‘good practises’ in their industries could be partly attributed to the consumer awareness created by ‘Fair Trade’.

‘Fair Trade’ Problems

However, the expansion of the ‘Fair Trade’ market to incorporate large TNC actors has also raised serious questions. The dangers posed by the entrant of “the very actors fair trade was set up to subvert in the first place” (Goodman, 2004, p.901) is both serious and yet ambiguous. The move has received criticism for allowing corporate actors renowned for their exploitative practises, to have a corporate make-over and clean-up their image in the eyes of the public while also continuing their traditional trade patterns. (Goodman, 2004; Renard, 2005) Also, as TNCs expand into what they possibly view as nothing more than a ‘niche-market’ there is the danger that they “will appropriate the language and label of fair trade” (Renard, 2005, p.427) Already evidence of the power TNCs has been felt, exemplified in Tesco insisting all its Fair trade bananas be sourced from Dominica (and not the Windwards Islands as a whole) which critics attribute “to the supermarkets self-interested promotional strategies rather than principles of equity” (Moberg, 2005, p.8) This is because the island the island is perceived to have a ‘green’ image.

Fair trade is also under threat due to the proliferation of parallel initiatives which are usually under the control of TNCs. These initiatives by and large apply ‘minimum standards’ and ‘good practises’ to social and environmental criteria. An example would be UtzKapeh who guarantee ‘certified responsible coffee’. (Muradian and Pelupessy, 2005; Renard, 2005) These initiatives generally are used by TNCs to expand into the ‘niche-market’ while also providing a form of market access for producers. However, the vast majority do not guarantee a minimum price to farmers with UtzKapeh arguing for example, that to do so would be against market principles (ibid.) The initiatives threaten displacing ‘Fair Trade’ with an inferior social quality seal while improving the image of major market actors at a low cost. Consumer awareness is of utmost importance (Renard, 2005) It also provides evidence to what many suspected, that these new corporate actors in the ‘Fair Trade’ network don’t have “the same interests and commitments that inspired the creation of the fair trade system” (Taylor et al. 2005, p.207)

The proliferation of these parallel initiatives is not just a side-effect of the mainstreaming policy pursued by the FLO but also due to the failure of the ‘Fair Trade’ market to grow sufficiently. Renard (2005) finds that an average coffee co-operative fails to sell more than 20% of their production to ‘Fair Trade’ importers. There is also a large variance in sales between different co-operatives with some selling 100% of their produce as ‘Fair Trade’. (Raynolds et al. 2005). In Moberg’s (2005) study on banana plantations in the Windwards, less than half of the fruit produced by ‘Fair Trade’ farms is sold on the ‘Fair Trade’ market. In both cases the surplus must be sold through conventional routes. As a result of surplus supply for the ‘Fair Trade’ market, many co-operatives have formed direct links with retailers through parallel initiatives like those mentioned above. (Taylor et al. 2005) From the perspective of the producer however, this conveys initiative and the overall empowerment of these co-operatives.

Producer co-operatives also have many grievances with the FLO structure. Even, given recent reform Renard (2005) states that “producer organizations have the impression that fair trade’s regulatory organization is guided more by commercial considerations than by solidarity, and acts more against them than in support of them.” (P.425) This possibly stems form the reorganization of ‘Fair Trade’ into an accredited standard-setter and certifier which resulted in a shift in power relations away form the producer. Evidence from the Windwards banana plantation suggest that despite, “the rhetoric of equality and mutuality adopted by the Fair trade movement in the developed North, those who confer Fair Trade status on farmers are seen in no different light than the powerful agents who have personified world market expectations in the past.” (Moberg, 2005, p.10)

Taylor et al. (2005) show us that formal governance arrangements have also been problematic at the level of the co-operative. Institutional memory loss due to the rotation of leaders; members finding general assembly information hard to understand; and tensions arising within the group from the need for the co-operative to act quickly when reacting to market change, all paint the picture that the democratic organisation of producers is at odds with the needs of the market. Also, External technical advisors were reported to hold the greatest power in decision-making due to the permanency of their post.

Regarding the distribution of rents between the various actors along the global commodity-chain, Muradian (2005) states there is no significant difference with conventional markets. “Basically what the Fair Trade system does is to enlarge the total income size of the chain, by means of asking a price premium to consumers” (p.2034) Fair Trade it seems has failed to correct ‘market failure’ related to power asymmetries and has therefore, pursued a mainstreaming strategy which further undermines its philosophical base. Moberg (2005) provides figures related to this issue in the banana industry. While Fair Trade fruit retails for 119% more than generic fruit, producers receive only 41% greater than the lowest cost generic. Also, the social premium paid by retailers for Fair Trade fruit of $1.75 per box is less than 4% of the $53 the retailers receive.

Producers have criticised Fair Trade’s environmental policy because it does not take account of traditional farming practises. As a form of top-down general criteria they argue that it does not apply to their location. The costs of compliance have been very high for some co-operative where additional labour costs, increased pest problems and a reduction in the size of eligible land for farming have all occurred and they claim they these costs offset the financial benefits of the scheme. (Moberg, 2005)

The Fair Trade system has also been criticised for being exclusionary. Due to insufficient market expansion the FLO has been unable to certify more producers. This has led to a long-waiting list of producer associations waiting to join the initiative. Also, Goodman argues, (2004) “fair trade has the potential to exclude those most in need of alternative development. Complying with production and quality standards denotes a sophisticated institutional infrastructure that may or may not be attainable or maintainable for many cooperatives and small farmers.” (p.909) The exclusionary aspect of Fair Trade has led to a hierarchical structure of ‘southern’ producers divided into Fair Trade producers and non-Fair Trade producers. (Taylor et al. 2005) Also, outside of Fair Trade farms wider agrarian problems continue - Rural depopulation; people’s reliance on seasonal wages; and the production of illicit drugs (Moberg, 2005; Taylor et al. 2005)

Fair trade has been labelled exclusionary with regard to consumption. (Muradian and Pelupessy, 2005) The high prices that the goods are retailed at places inherent constraints on its ability to gain a larger market share. Consumer characteristics of class, education and knowledge are intrinsic factors. (Goodman, 2004) In areas where Fair trade is well-established it growth rate also appears to be levelling off. In the coffee industry this market share is about 3%, (Muradian and Pelupessy, 2005)

Fair Trade has also been charged with the crime of inefficiency. This is in terms of charging prices greater than the market average and “the extent to which it may subsidize inefficient and sub-standard producers.” (Muradian and Pelupessy, 2005, p.2033) The counter-argument is that what Fair Trade is actually doing is internalising into the market structure intangible benefits such as social ties, personal empowerment, environmental protection and sustainability.

Finally, Fair Trades mandate of ‘in and against’ the market poses many difficulties. The most glaring is that of its dependency on northern consumers. As stated above this may only have a limited effect. The importance of consumer awareness can not be overstated and will probably require greater investment in order for it to expand. This would probably mean more mainstream marketing which will further erode the movement’s most elementary beliefs and importantly, will require scarce resources being devoted to advertising when they could have been used to support producers in the south. Another option would be to remove the minimum price premium in order to increase demand but this would call into question the very existence of the ‘Fair Trade’ movement itself. In addition ‘Fair Trade’ does not question the possible need for a reduction in consumption. As Goodman points out, “fair trade has yet to confront the moral issues of promoting more consumption even in it’s moralized form as a solution to the problem of development without a deeper reflexive take on current consumption patterns.” (2004, p.909)

Conclusion

‘Fair Trade’ is a bottom-up voluntary regulatory system that aims to correct the market failure of the modern global economy by internalizing externalities such as persistent poverty, social disempowerment and environmental degradation. Working ‘in and against’ it facilitates improvements in the conditions of third world producers by linking them to ethically-minded consumers in western society. Fair trade has succeeded in many of these respects but is still constrained in attaining a sustainable world economy due to its fundamental embedding in the market system.

The ever-present danger of further centralization of power in its organization must be addressed. Increasing the input of farmers into the production process is essential if the democratic roots of the organisation are not to be eroded. The trade-off that exits between market efficiency and social equity must be tackled. An important part of this process could be the expansion of the Fair Trade movement into mainstream manufacturing and retailing (Goodman, 2004). This would allow for more transparent value-adding activities and increased scope for cooperative input. Importantly, it would help reconfigure power relations in the commodity-chain and importantly, reduce consumer prices thereby increasing demand.

From a ‘northern’ perspective, for the fair trade movement to become established as the world-wide standard for sustainable economic production there is a need not just for greater consumer awareness and education, but moreover, a general evolution of social consciousness whereby people from different corners of the world are not just interdependent through production and consumption but are linked through a moral interconnectedness which transcends the economy. They are in sense active global citizens. It is this that is required in order for ‘sustainability’ to occur in ‘general’, ‘material’ and ‘moral’ terms.

This then poses a fundamental conundrum. Should we leave the market to designate what are commonly called ‘human rights’? Fridell (2004) states that from a historical perspective the success of fair trade “can only be properly understood as the flip side of the defeat of the broader fair trade movement that sought international market regulation and strong state intervention and is in fact indicative of the current triumph of neoliberal globalization.” (p. 411) The question that then arises is, should there be public policy to support the ideals of Fair trade? Only through the actions of producers, consumers and ‘global’ citizens can this question be answered.

Bibliography

Barry, J. (1997) “Sustainability, Political Judgement and Citizenship: Connecting Green Politics and Democracy” In: Doherty, B., de Gues, M (eds), Democracy and Green Political Thought, pp. 115-131

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