Fair Trade Live Up to Its Ethical Objectives?
The aim of this paper is to analyze the relevance of fair trade to the world today and whether it practices meets the ethical issue. The study will analyze its impacts both negative and positive to the developing countries and whether it has been a success for the developed economies. I wish to state that my discussion in this study considers fair trade as unethical even though it is a strong vehicle that has grown in the recent years with the main aim of minimizing global inequalities and intent in promoting globalization grounded in social justice and ecological sustainability. However despite the well meant intentions, it stands on unethical grounds.
Fair trade is one of the most debated topics in the economies since 19th century up to the 21st century and the arguments are along the lines of economic, moral, and socio-political arguments. Its popularity has increased and so is its criticism. But what exactly do we mean by fair trade? ‘Fair trade in simple terms simply refers to the business relationship between developing markets and markets in developed countries.’ (Joseph, 2007)
There are unique products that are offered in the fair trade markets meant for the world consumer. Some of these are; coffee, tea, chocolate, clothing, bags, etc. The links between the manufacturers and the stores is mainly through such bodies like Fair Trade Federation and the World Fair Trade Organization.
Chrissy, (2007), states that ‘Fair trade is an important ethical consumerism movement with an interesting and inspiring history. The challenges and future of fair trade also pose interesting questions about the viability of consumer- based movements, as well as the issue of the developing world.’
Fair trade is unethical mainly because it does not promote the success of the producer in developing countries as it does to the developed markets. Even though it is an organized social movement and market based approach that aims at helping producers especially in developing countries make better trading conditions and promote sustainability, this benefits only run for a short-term and in the long-term, the benefits are washed away with adverse effects.
Fair trade advocates for the producer to receive higher payments besides receiving higher social and environmental standards. To many critics, this is seen as a form of subsidy or marketing ploy that hampers growth. Instead producers should receive normal payments according to their transactions. Because of this hence, fair trade does not adequately challenge the current trading system, which is an impediment to trade growth in the global markets.
The intention of fair trade is to raise as well as stabilize the incomes of small scale farmers, farm workers, and artisans. It also aims at enhancing a more equitable distribution of economic gains, besides increasing the commercial capacities of producer groups while creating opportunities and eliminating risks associated with the production and sale of these goods. The fair trade as well intends to support democratically owned and controlled producer organizations. It is also aimed at promoting labor rights and the rights of workers to organize, while promoting safe and sustainable farming methods and working conditions, and connecting consumers and producers, as well as increasing consumer awareness, and engagement with issues affecting producers.
However, even with all the above objectives of fair trade we can say that it has failed to address the issue of small scale farmers and the objectives are only on paper but are not enjoyed by small scale farmers. In today’s world, profit is the vehicle that drives people to engage in economic activities, profits rule. However for the case of fair trade, small scale farmers are left out of the equation and out of the bargaining power and yet they are the people who do the most work. There are indeed too many processes and middle men in between the small scale farmers and their sale of commodities to fair trade organization, and the effect of this is that the huge costs means they get little profits/revenue in return.
‘While it maybe profitable for retailers, there is a reason to doubt that that much of the extra that of the consumer reaches the Third World Countries, and there is doubt that farmers get much if any of what reach Third World exporters. There is no evidence that fair trade farmers generally get higher prices.'(Harriet, 2008)
Indeed there is no evidence showing that fair trade benefits or has a positive economic impact on Fair trade farmers. The process is long with too many middle men and by the time the fair trade farmers receive their payments the costs are immense and thus the profits are low. However there are almost no formal impact studies attempting to measure the impact on farmers covering the period before the fair trade practice and after the introduction of Fair trade.
Still debating on the unethical issue of fair trade we look at one of the opponent of Fair trade; Adam Smith Institute who claims that similar to other farm subsidies, fair trade attempts to set a price floor, for a good that is in many cases above the market price. By doing this it encourages existing producers to produce more and new producers to enter the market leading to excess supply. When this happen and if we apply the laws of supply and demand, excess supply can lead to lower prices in the non-Fair Trade market.
‘Fair trade is a well intentioned scheme but which does not result to success but failure. Fair trade is a misguided attempt to make up for market failures in which one flawed pricing structure is replaced with another.’ (Kimberly & Lynne 2000) It benefits are in the short run because it encourages fair trade producers to increase production due to the high returns and there after they produce more to take advantage of the high returns and the results in an over surplus of production which affects them in the process because the prices goes down.
‘While benefiting a number of fair trade producers over the short run, fair trade critics worry about the impact on long run development and economic growth. Economic theory suggests that when prices are low due to surplus production, adding a subsidy or otherwise artificially raising prices will only exacerbate the problem by encouraging more supply and also encouraging workers into unproductive activities. (Mary, 1999)
Despite its conceptualization as a move toward helping developing countries improve, the impact of fair trade on poor countries does not seem to coincide with this assumption and are not felt by developing countries which are the main exporters. ‘Fair trade primarily focuses on developing countries exporting products such as cocoa, tea, cotton, wine, gold, handicraft, etc. To developed countries.’ (Joseph, 2007)
However fair trade is just but another form of subsidization which in the process impedes growth and it is a flawed as a marketing strategy which does not adequately challenge the current system of trading and thus it is viewed as unfair. To understand the impact of fair trade on the developing countries, let’s see what a subsidy does to the developing countries. A farmer in a third world country is given a subsidy because he is deemed to be poor. As a result the farmer is paid or they are paid more than they would have received in a traditional market. Because of the so-called or seen as privileges from subsidies, the farmers seem to misinterpret price signal in the market. This distortion eventually leads to over production and wasteful allocation of resources, among others.
What we mean is that these farmers in the third world countries will persevere in an efficient system of production and without any inclination towards long-term viability. In addition to the above the farmers in developing are faced with the impact of additional costs that include monitoring costs and regulatory costs which create more costs for farmers and further distort their incentives for producing export quality goods, so at the end of the day the producer does benefit much.
There are those proponents of the fair trade with the belief that these third world farmers can benefit in the short-term, earning extra money, during the limited period. However, opponents of the same system argue otherwise on the fairness of this positive short-term benefits when they pale in contrast to the negative long-term effects. “However it is sad to note that in an Ethical Consumerism report, from 2000 it was argued that consumers simply didn’t care about ethics.’ (Joseph, 2007)
Fair trade market has lot of impact for developing countries both positive and negative impacts. As we set to analyze the impact of fair trade on the local markets, we see an interesting insight produced by developing countries. The implementation of this market-based strategy is expected to improve the price of local goods because subsidized products will take priority over other goods and more production resources will be allocated to the products that will be sold to developed countries. This would however have a great negative impact on the poorest sections of these developing countries.
The aim of this social movement was basically organized to specifically aid these producers by creating better trading conditions and promoting increased sustainability. By receiving huge or receive bigger payments for their produce, this puts them in a better condition to improve their living standards even if it is for a short run. Notwithstanding fair trade is intended to uphold the rights and privileges of the producers in developing countries.
Besides that producers can get a fair price- a living wage and for commodities, farmers receive a stable, minimum price. Buyers and producers trade under direct long-term relationships. Besides that the aim of fair trade is to aid producers with an access to technical and financial assistance. Sustainable production techniques are encouraged. Working conditions are healthy and safe. All aspects of trade fair are open to public accountability.
The main goal of fair trade is to alleviate poverty especially for developing countries and inculcate the value of sustainable development. By selling their products to the developed world, developing countries are in place to get revenue to run the domestic expenses. As a result we can say that fair trade aims to create more opportunities for producers facing economic disadvantage over multinational companies. Because it also aims to enhance sustainable development, both workers and producers are given much better trading conditions than before.
The producer’s income increases in the following ways: This is achieved in the following two ways; the price of the commodity being paid at an agreed and guaranteed fair price. The distribution channels involved in marketing the good is also reduced thus the producer gets a larger share from the price of the good. The revenue the producer gets is able to sustain him and even better his production in the future.
The other benefit is that both the workers and producers are in position to improve their lives because they have a large share of the income. They are placed at a better position where they can now have a good and dignified life. The price of a specific good is typically computed to cover the costs of both sustainable production and livelihood. A premium is also added to the price to be used as an investment for development projects. The development projects may include; building schools, hospitals, paying loans etc. ‘Not only do the producer benefit but the whole community because of the revenue is able to put up community developments.’ (Kimberly & Lynne 2000)
In addition to the above two benefits, trade fair allows for greater environmental protection. The producer posses a certification with various specifications and one of it is supposedly to protect the environment. The certification shows where the goods are from and who benefits from it. The certification goes ahead to show to the consumer how the goods were produced or made and manufactured, for instance the use of pesticide may be discouraged, hence enhancing environmental conservation and safe products.
Besides that fair trade allows the farmers to obtain a better and strong foothold in the world market. The buyers deal directly with the farmers, and so farmers are able to get good prices for their products in the market place. They are even in position to bargain for better prices and to have a wider knowledge of the market due to the interactions.
Lastly, fair trade aids the producer and the consumers to be in close link. ‘Most consumers are environmentally conscious and thus want to know more about their products. To do this they have to interact with the producer hence creating a bond. Besides that the consumers also want to know how much the producers get when they sell to them. All this information is vital to a consumer because he is directly affected by the whole transaction.
Thus, in the end, consumer becomes satisfied with the quality of their products and the farmers on the other hand get satisfaction from knowing that they got what they ought to from their goods.’ (Harriet, 2008)
‘Free trade makes society more prosperous, increasing global level of output because it allows specialization among countries. Specialization allows nations to devote their scarce resources to the production of that particular goods and services for which that nation has comparative advantage.’ (Chrissy, 2007) For instance if it is Ghana, it will specialize in the production of Cocoa, etc. Consequently what happens is that it increases the global production possibility frontier.
Free trade can also impact the international society by developing it hence an increased commerce globally. This inter-dependence means that countries get to unite more and war between or among countries is unlikely because of economic interdependence, a key feature of liberalism- the leading theory within the study of international Relations.
Even in the short run, trade fairs benefit many farmers and have helped them provide for their basic needs and invest in community development. However, farmers are still selling most of their crop outside off the trade fair system because not enough companies are buying at Fair Trade prices and because the benefits are short run. Majority of farmers who are the small scale farmers- the benefits of agriculture is small. In developing countries, majority of these small scale farmers work modest plot of land, isolated from markets with a lot of middle men along the way to selling of the products and so we can say that not much is achieved by fair trade but if good system and checks are placed then the above positive impact would be felt by many producers in the developing countries.
Though there are always overlooked (short coming of fair trade), there are negative effects to fair trade. Though many developing economies continue to sell their products on the market most of them continue to specialize in certain products while others are not considered worthy while to be sold in the fair trade market. As a result and despite their best efforts only a few have managed to reach the mainstream distribution channels. For instance, soap continue to be sold in the in certain soaps and not much is sold in commercial stores.
In order to counter this limitation curbing fair trade, there is need to venture and exploit the online shopping. This is a good idea considering that the commodities come from developing countries. The problem though is that the price of the commodity will go up due to fees such as shipping fee, internet costs etc. raising the products costs and making the product not affordable to the normal or local consumer who just wants to buy one or two bars of soap.
Trade fair is also affected by the problem of the tariffs and taxes imposed on them. In most countries, non-processed good face s remains lower than that for processed ones. What this means is that instead of exporting roasted coffee, a farmer may opt to simply export coffee beans in order to remain profitable. The choice however points to two issues. Firstly the processing of the beans by another company means that the original producer looses its fair trade capability. Secondly, exporting raw materials or non-processed will be more profitable than and this will prompt, developing countries to become hesitant to put up facilities needed for processing which will hamper development in these countries as well as lose to multinational companies .
Another issue negatively impacting on fair trade is that of the certification. The company that buys the product has the right to the certification on its final product but it is the one that enjoys all the benefits derived from it, from a better corporate image to the profits. Companies that use the certification also tend to confuse consumers as to where the product actually comes from. One can argue that this is unfair, but it is hard to find a legal way to stop it. For instance, if a company wants to buy all the coffee beans in a particular county, should anyone stop it?
The success of fair trade to developed markets can be examined though a recent survey carried out in major European countries. The survey shows that fair trade has been growing fast in developed markets at an average 20% per year since 2000. The growth can only be translated as being a success to developed markets or countries. The study goes further to say that the annual net retail trade products sold in Europe now exceeds 660 million Euros. This makes fair trade one of the fastest growing markets in the world and hence a success story for developing markets.
Fair trade products can be found in many developing countries and market share has become significant in these developing economies. The developing countries have a huge market in the developed countries. As a matter of fact,, fair trade has expanded from a modest beginning into a world wide movement, benefiting more than five million producers and their families in developing countries, this can only mean that it is also a success to the developed countries who are the greatest markets.
Fair trade promotes equitable trading relations with producers in developing countries and those in the developed countries. Volumes of fair trade products, from bananas, to coffee, are currently increasing by around 40 per cent every year and majority of these have a market in the developed countries. Producers benefit from fair prices, and consumers benefit from sustainable products. Fair trade promotes international trade between North, South, East and west stimulating growth in these areas.
In 2006, International Trade Federation Trade (IFAT) reported that total sales amounting from trade fairs was $2.6 billion. In 2008, Traidcraft reported that the Fair trade market in U.S. was worth over $700 million a year, a 43% increase on 2007
There has been a huge success of UK trade fair and which is a clear representation of the success of trade fair in developed worlds. But despite this success, there is much more that fair trade is still yet to achieve, especially for developing countries such as challenging the power in global markets that keeps the poorer countries in poverty, and pushing for more policy changes that would encourage social justice in the global trading system.
I conclude that fair trade is fundamentally unethical. There is still a long way to go to maximize what trade fair is all about. Despite the disadvantages of fair trade, it is important to keep in mind that there will always be ways that can be used to solve them. Trade fair success will become possible if it gets the ability to combine visionary goals with practical engagements in fair and sustainable trade within and beyond the agro-food sector.
To avoid all of its challenges because its future is threatened, visions and practices need t be aligned. The vision of the trade in the world should be based on justice and sustainable development; this should be at the heart of trade structures and practices so that every one (developing and developed countries) can maintain a decent and dignified livelihood and develop their full potential. Despite this the ethical; brand continues to enjoy political support and the backing of millions of consumers.
Chrissy G, 2007, Fair Trade, A beginners’ Guide (Beginners Guide), One world, California
Harriet, 2008, Change Today, Choose Fair Trade, Wiley Publishers, UK
Joseph E.2007, Fair Trade For All; How Trade Can Promote Development, Oxford University Press, USA
Kimberly M. & Lynne M, 2000, Artisans and Cooperatives: Developing Alternative Trade for the Global Economy, University of Arizona, Arizona
Mary A. 1999, Social Responsibility in the Global Market: Fair Trade of Cultural Products, Sage Publications, New York
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