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Fair Trade: Overview, Impact, Challenges
premium to producers if the market price is above the minimum. Where minimum
prices are not defined these must be based on covering production costs as defined
by the producer. For tea (reflecting the dominance of estate production methods),
a social premium rather than a FT premium is payable. Figure 1 illustrates the
relationship between the FT price based on this formula and the world price for
cocoa over the last five years.
♦ Producers must be provided with credit facilities of up to 60% of the value of
harvest.
♦ Long-term contract arrangements must govern relations between producers and
buyers.
Several points can be made about approaches to defining FT – particularly
relating to the need to distinguish between FT products and FT organisations of
various kinds:
♦ Alternative Trading Organisations (see section 2.4) emphasise the values and
objectives of the FT movement, in particular commitments to empowerment,
working with the marginalised, and development, rather than profit-driven, goals.
On this approach, it is by definition impossible for mainstream profit-oriented
companies to aspire to engage in “Fair Trade” practices.
♦ FT labelling organisations provide, for certain commodities, verifiable criteria to
justify the application of a FT label. According to this approach, mainstream
profit-oriented business may participate in the FT marketing chain provided that
they satisfy the labelling criteria, and FT labelled products can in principle be
sourced from any small-scale producer (not necessarily those classed as
marginalised).
♦ Typically, only a small proportion of the sales of producer organisations that are
registered as satisfying the criteria to supply FT labelled produce is in fact sold
under the FT labelling terms through ATOs to establish a distinct FT marketing
channel.
It is also important to relate definitions of FT to other alternative trade approaches.
Ethical trade (for instance as embodied in the Ethical Trade Initiative) focuses on the
conditions of production. 3 In particular, ethical trade promotes adherence to core
labour standards for employees and currently has no specific concern with the terms
of trade or seeking to overcome the marginalisation of producers. 4 As noted by the
European Commission (1999, p.4), the FT concept could be taken as applying to
trading situations and commodities where social and environmental standards are not,
or cannot be (because of the way in which production is organised), enshrined in law.
Environmentally-driven trade is concerned with ensuring that traded products are
produced using environmentally sustainable techniques.
3
However, in some of the literature “ethical trade” is used as an umbrella term covering both FT as
described here and the labour standard concerns embodied in the ETI.
4
A group of FT NGOs participating in the ETI is currently lobbying for a broadening of the ethical
trade concept to pay more attention to these issues (information supplied by Fair Trade Foundation).
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