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Fair Trade: Overview, Impact, Challenges
♦ Private sector trade at the farm level has strong tendencies towards local
monopoly, and small-scale farmers are at a high risk of suffering from cheating
and fraud from private traders.
♦ International markets are prone to destabilising speculation and
manipulation which requires international public action (for instance through the
WTO or through the revival of international commodity agreements).
♦ Direct marketing links that minimise the number of market intermediaries
between producer and consumer and that are based on long-term relationships
between producer groups and marketing organisations are generally more
efficient and more effective at engaging marginalised producers than
marketing channels involving private commercial intermediaries.
♦ Prices should be based on a concept of “fairness” (based either on guaranteeing
that production costs are covered, or that the price is sufficient to provide an
adequate livelihood for producers) rather than on market considerations.
♦ Democratic and accountable producer organisations present the best
opportunity for obtaining fair prices and for empowering producers in other
respects (for instance through access to credit on more favourable terms).
♦ The provision of a price premium and guaranteed prices that will provide adequate
livelihoods (for which some consumers are prepared to pay), and capacity
building for farmer organisations, may make FT an effective means of
promoting sustainable rural livelihoods and poverty reduction. The lack of a
need to earn a return on capital employed or pay dividends to shareholders also
enhances the capacity of FT to provide a redistributive transfer from rich
consumers to poor producers.
The case studies examine the specific features of the cocoa and coffee markets and the
implications for the case for FT. To a considerable degree the view of how markets
operate that is inherent in FT practice (if not always in some of the more simplistic
marketing and advocacy messages) is close to the view presented in the previous subsection
based on current research, theory and experience.
For example, in relation to the operation of international markets, the world cocoa
market is characterised by a significant degree of volatility. This is the result of
climatically induced production fluctuations and low price elasticities of supply and
demand. Since 1984 world prices have fallen sharply, reaching a thirty year low in
1992. By 1998 they were at a level slightly above the 1992 low. Attempts to stabilise
prices through a series of International Cocoa Agreements have collapsed because of
difficulties of tackling the problem of long-term over supply. Likewise, international
coffee prices are extremely volatile: during the 1970s and the first half of the 1980s
the short term price instability for coffee was far greater than for other commodities
and between 1980 and 1991 the real international price of coffee fell by two-thirds.
While market liberalisation and associated reforms have certainly in general been
favourable to export commodity producers, there are significant and continuing
problems in how markets operate.
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