Fair Trade Research Paper

Is Fair Trade Fair

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Abstract

Fair Trade is synonymous with good labor conditions, environmental sustainability, and standard prices at a market rate. Yet, much debate exists on whether Fair trade is as ethical as it first appears. Fair trade changed the way we shop. However, major companies have started to abandon it and set up their own in-house imitations threatening the idea of fair trade. In this paper, I would like to explore why this certification results in uneven economic advantages for growers and identify the gaps in this organization to be a successful tool and deliver all its benefits.

Is Fair Trade Fair

Fair trade is a certification system that ensures that product supply and production   adheres to a set of standards.  From workers and farmers’ perspective, fair trade means fairer pay, better working conditions, and workers’ rights (“Classroom Video”). For traders, fair trade means ethically and high-quality products.  Therefore, fair trade should benefit the poor, working, and middle-class families. Accordingly, the trade should protect values instead of concentrating on trade liberalization. According to Meyer (2018), the U.S trade agreements fairness has been criticized since 1992. 

\The critiques aimed to ensure that free trade agreements do not undermine labor and environmental standards in developing and developed nations. Nonetheless, critics were worried about the 1990s ratification and negotiation of the NAFTA (North American Free Trade Agreement). According to critics, limiting trade barriers will cause companies to shift their production to nations with less stringent labor and environmental standards (Meyer, 2018). The resultant effect will be pressuring countries to reduce their labor and environmental standards to attract foreign investors. Thus, NAFTA parties adopted rules that criminalized the selective enforcement of environmental and labor standards to promote fair trade.  

However, the fair trade model continues to be criticized because of the economic burden it exerts on small scale farmers. For instance, the cooperatives of small coffee growers in the fair trade coffee system are expected to pay Fair Trade International (FLO) thousands of dollars to join the network (Sylla, 2014). Additionally, FLO members must pay compliance fees and are guaranteed minimum price for their ethical products.  The fair trade model disadvantages the developing nations because of their inability to compete with developed nations on a level playing field and the adoption of protectionist policies. For instance, the United States engages in free trade with other advanced nations. However, most of its tariffs are extracted from its poorest trading partners.  For example, the United States collects from Bangladesh and Cambodia more tariffs than it does from France and England (Sylla, 2014).  Businesses and consumers wishing to socialize their economic decisions should reject the Fair trade model because it is not necessarily beneficial. 

The Fair Trade Principles: Social, Economic, and Environmental Principals

Although the fair-trade has been praised for its social, economic, and environmental benefits, it has been criticized for disadvantaging the poor nations. According to Jaffee (2007),  the fair trade movement was considered a project to assist peasant farmers navigate and better comprehend alternative markets. For instance, the project aim was to enhance the economic well-being, educational access, food security, and environmental health of conventional and fair trade growers of coffee.  However, this has not been achieved because fair trade farmers continue to languish in poverty because their product prices are determined by the international market.

According to Jaffee(2007),  fair trade farmers  compared to conventional farmers are better  off economically, though marginally. The economic gains in fair trade are evidenced by enhanced family income that has ripple effect on the wider community. Nonetheless, Jaffee(2007) argues that  fair trade coffee farmers rely on community support programs and programs that renders them poor. Additionally, they are susceptible to international community prices that leave them overwhelmingly poor.  Fair trade farmers’ exposure to external forces that influence their commodities’ prices render fair trade unfair.  Jaffee(2007) also outlines the environmental benefits associated with fair trade. Fair trade promotes sustainable development in nations that rely on agricultural trade because it promotes ethical production. The ecological benefits associated with fair trade include preservation of biodiversity because fair trade safeguards against the loss of biodiversity and control soils erosion (Jaffee, 2007; Rios, Finkelstein, & Landa, 2015).  Biodiversity is protected by promoting sustainable organic polyculture farming.  The community also benefits from fair trade because of its social impacts.  For instance, the social premium paid in fair trade supports projects in communities participating in the fair trade movement (Sylla, 2014).  Despite the criticisms, fair trade benefits farmers socially, economically, and environmentally.

How Fair Trade Works from Farm to Supermarkets

Initially, fair trade USA was restricted to small-scalecoffee bean farmers. These farmers were grouped into cooperatives. The fair trade primary goal was to help the cooperatives sell their products directly to the United States coffee importers and rosters, thus eliminating the need for local middlemen (Walske & Tyson, 2015). As a result, farmers accessed fair benefits and trade prices. The cooperatives enabled farmers to collectively buy their farm inputs like equipment, leading to improved crop quality and greater economic stability and wealth (Walske & Tyson, 2015).  Therefore, fair trade works by working with farmers who grow various products. Once the products are harvested, they are sold to importers and rosters in international markets. The roasters and importers sell the improved product to intermediary brokers or distributors. The supermarket buys from these brokers or distributors or purchase directly from importers and rosters and then sells to final consumers.

The Costs and Benefits of Fair Trade

The popularity of fair-trade products is growing rapidly because of the benefits associated with them. According to Rios, Finkelstein, & Landa (2015), global fair-trade sales since 2000 have increased by 20%.  In the United States, fair-trade coffee market share increased by 2% between 2000 and 2005, a growth equivalent to $ 400 million sales increases. Thus, companies with fair trade products sustain a strategic competitive advantage in the market and increases market share because of increased demand for their products. Apart from economic benefits, fair-trade addresses the environmental and social challenges in international markets. Rios et al. (2015) note that fair-trade products has resulted in consumers boycotting unethical products. Low-wage payments, hazardous production practices, and unsafe working environment define unethical products. As a result of the consumer boycotts, fair-trade PTAs trade agreements integrate labor rights protection to safeguard individual rights in PTA partner states.  According to Kim (2012), developed economies value robust labor protection policies because they believe that such policies enhance their attractiveness as prospective or potential PTA partners. Thus, the fair-trade promotes individuals’ labor rights protection. 

Consumers are willing to pay premium prices for fair-trade products. Rios et al.(2015) note that  consumers are ready to pay 10% more for fair-trade products than their counterparts. De Pelsmacker, Driesen,  & Rayp(2005) substantiate the claim that consumer concerns about companies’ ethical behavior are expressed through their behavior and ethical purchasing. For instance, ethical consumers are accountable toward society and use their purchasing behaviors to express their concerns. Therefore, these consumers will purchase products that address ethical issues like the environment, animal rights, labor conditions, and human rights. Therefore, they will shun products that violate these rights.

 Ethical consumptions benefits society and environment. From the environmental perspective, consumptions of environmentally friendly products conserves the natural environment by prevent legal logging and preserving animal habitats.  Equally, ethical consumption benefits society by ensuring that companies sell fair-trade products and refrains from using child labor in their production. Therefore, fair trade promotes ethical production because consumers purchase products with positive attributes while boycotting those with negative traits like violation of children’s right.  

Despite the benefits associated with fair-trade, there are also costs associated with this business model. Sylla (2014) notes that fair-trade farmers are not guaranteed that 100% of their harvests will be sold to potential buyers in the global market. The market does not oblige fair trade importers to purchase 100% of fair trade harvests.  Additionally, fair-trade network growers dump their products into traditional markets annually.  Thus, joining the fair-trade network is a speculative investment because it may fail to yield the intended outcomes in the long-term. Also, fair-trade is meant to boost the lives of the poor but it is not doing to so. For instance, Sylla(2014)maintains that developing nations cannot be wealthy if the global economy restricts them to a commodity-based production  requiring limited skills and equipment. In this case, fair-trade should not be considered a solution to developing poor nations’ poverty. On the contrary, poor countries can realize sustainable progress by investing in diverse economic activities rather than restricting themselves to a commodity-based-production like coffee or tea. Fair-trade earnings benefits commercial outlets, roasters, and importers than farmers. 
Benefits and Costs of Formal Equality and Preferential Treatment under Fair Trade 

In the fair-trade model, developed nations advocates for formal equality in the trade regime.  Formal equality requires that all member states offers and receives uniform or equal treatment regardless of their status.  For instance, the World Trade Organization prohibits member states from treating any country less favorable than the other. Equally, states are expected not to treat domestic products favorably than imports (Christensen, 2015). Therefore, the tax and regulations applied to imports should not differ from those of domestic products. However, developing nations cannot be treated similar to developed nations under formal equality because their level of economic growth differ significantly, hence perpetuating inequality. Thus, the poor nations are against formal equality demanding special and differential treatment (SDT). 

Poor countries have benefited from SDT because the tariffs imposed on their imports are lower and are at liberty to refrain from engaging in trade agreements that do not safeguard their interests (Christensen, 2015). Additionally, SDT promotes technology transfers and payments to assist developing nations strengthen their negotiating capacity while helping developed countries implement obligations towards poor nations. Thus, advocates of preferential treatment maintain that it allows rich nations to assist the global poor by alleviating poverty and compels them to compensate poor nations for inflicting harm on their continent (Christensen, 2015). For instance, colonial practices undermined the well-being of poor nations and the structuring of the modern world order continues to threaten their development prospects.  Therefore, preferential treatment is necessary to compensate developing nations for the harms caused rich nations through SDT, even if it is costly.

 SDT ensures fair distribution of the burdens and benefits that characterize the trade regime. Imports from various countries differ significantly and imposing uniform or equal rights may be inadequate to realize genuine equality. For instance, developing and developed nation’s needs and abilities differ. Therefore, a set of rules that rich nations find it easier to comply with might be challenging for  developing nations, such as  adhering to World Trade Organization rules.  For instance, developing nations’ safety nets are fragile and unable to safeguard employees displaced by free trade. Also, implementing trade agreements require resource utilization and reforms in the administrative sector (Christensen, 2015). The resources used in these reforms could be channeled to development programs. In this case differential treatment is necessary because it ensures an equitable and equal distribution of trade burden and benefits. 

 However, critics of SDT maintain that it undermines poor countries bargaining power, harms their economies, and is unfair.  For instance, SDT undermines developing nation’s negotiating power by granting them access to significant markets in rich countries. Consequently, developing nations offer few concessions that undermine their ability to benefit from affluent nations. Thus, developing nations can benefit if they improve their negotiating position by liberalizing their markets and economies to import competition (Christensen, 2015). The strategy will help developing nation’s access goods of interest and bargain effectively.  SDT compels rich nations to act in a manner that undermines trade interests of poor nations. For instance, they single out goods that are of great significance to poor nations and impose high tariffs on them. In this case, abandoning SDT is good for poor nations because their interests are undermined by  affluent members of the  World Trade Organization. 

Low-Income Families and Fair Trade Products

Fair-trade is meant to help low-income families by enhancing their economic well-being. However, this is not the case because low-income families cannot afford fair-trade products because consumers are willing to pay premium prices for these products. As a result, low-income families that cannot afford to purchase these products are forced to buy alternatives. According to De Pelsmacker et al. (2005), fair-trade consumers are well-off and highly-educated. These individuals have relatively high status and high income. Thus, it is ironic that fair-trade does not benefit the poor people that are involved in its network. On the contrary, it makes the world more inequitable by limiting fair-trade products to specific niche of consumers because fair-trade model’s dialogue revolves around “mine versus theirs” and “me versus you” because stakeholders in fair-trade pursues their public mandates and private agendas (Garcia, 2007). Therefore, the issues surrounding the fair-trade model require a fair deal for a resurfacing trans-boundary community.

Testimonies from Farmers that Use the Fair-Trade Label and Corporations that Use Fair Trade Label

Jaffee (2007) engaged with fair-trade coffee farmers in rural Mexico and the rest of the world to uncover their views of the benefits of fair-trade.  After working and residing in two remote communities in Mexico between 2001 and 2003, Jaffee(2007) concluded that fair trade farmers  are marginally better off than their conventional counterparts.  Fair trade has relative economic gains for farmers because it directly impacts their income and its ripple effects felt by the community.  However, Jaffee(2007) notes that fair trade coffee farmers are desperately reliant on community support programs and governments, aspects that make them overwhelmingly poor. Additionally, fair trade coffee farmers are susceptible to global commodity prices. Thus, fair trade is not fair enough because it does not address the plight of farmers in its network.  Similarly, native groups and indigenous communities make up a significant percentage of smallholder farmers globally.  However, they have little say within the global fair trade governance structures. Thus, reforms are mandatory to shift the balance of power into small producer groups. 

Corporations that use the fair-trade label include Starbucks, Ben & Jerry’s Ice Cream, and other ethical brands. Jaffee (2007) notes that retailers are required to buy 3% or less of their coffee from their farmers network to be certified as fair trade partners. Starbucks is a certified fair trade partner who has entered into agreements with global certifiers. Other companies that source fair trade ingredients are chocolate and other manufacturers, including Dagoba Chocolate, Honest Tea, Ben & Jerry’s Ice Cream, and other ethical brands in international market (Walske, & Tyson, 2015).  The involvement of these corporations indicates the commitment of fair trade organizations to include more workers and farmers in the Fair Trade Model. 

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Conclusion

The fair-trade model is meant to benefit farmers in developing countries by promoting a more equitable world. However, this is not the case because the economic benefits gained by farmers are marginal. On the contrary, roasters and importers benefit from free trade than farmers.  For instance, fair-trade investment is speculative because farmers are not guaranteed that 100% of their products will be bought by international buyers. Additionally, the prices for their products are set by the market, further disadvantaging farmers in the fair-trade network.  Also, farmers have to pay to join the fair-trade network. Nonetheless, fair trade has some economic, environmental, and social benefits. For instance, fair-trade protects biodiversity by protecting the environment. Consumers of fair-trade boycott unethical products, thus promoting human rights, animal well-being, and investments in greener technology. The earnings from fair trade support programs in villages for the benefit of the community. Farmers sell their products to international markets, thus boosting their economic well-being. However, over dependence on community and government programs to support fair-trade farming practices renders many farmers poor.
References

Christensen, J. (2015). Fair Trade, Formal Equality, and Preferential Treatment. Social Theory and Practice, 41(3), 505–526. https://doi.org/10.5840/soctheorpract201541326

 Classroom Video, Films for the Humanities & Sciences, & Infobase. (2008). Fairtrade Who Benefits? Infobase.

De Pelsmacker, P., Driesen, L., & Rayp, G. (2005). Do Consumers Care about Ethics? Willingness to Pay for Fair‐Trade Coffee. The Journal of Consumer Affairs, 39(2), 363–385. https://doi.org/10.1111/j.1745-6606.2005.00019.x

Garcia, F.J. (2007). A "Fair" Trade law of nations or a "Fair" Global Law of Economic Relations? Alberta Law Review, 45(2), 303. https://doi.org/10.29173/alr296

Jaffee. (2007). Brewing justice : fair trade coffee, sustainability, and survival. University of California Press.

 Kim, M. (2012). Ex Ante Due Diligence: Formation of PTAs and Protection of Labor Rights. International Studies Quarterly, 56(4), 704–719. https://doi.org/10.1111/j.1468-2478.2012.00758.x

Meyer, T. (2018). Free trade, fair trade, and selective enforcement. Columbia Law Review, 118(2), 491–566.

 Rios, K., Finkelstein, S. R., & Landa, J. (2015). Is There a "Fair" in Fair-Trade? Social Dominance Orientation Influences Perceptions of and Preferences for Fair-Trade Products. Journal of Business Ethics, 130(1), 171–180. https://doi.org/10.1007/s10551-014-2221-9

 Sylla, N. (2014). The fair trade scandal: Marketing poverty to benefit the rich. Ohio University Press. 

 Walske, J., & Tyson, L. D. (2015). Fair Trade USA. California Management Review, 58(1), 123–143. https://doi.org/10.1525/cmr.2015.58.1.123