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Fair Trade: Overview, Impact, Challenges ♦ The extent to which it is plausible or appropriate to expect prices to be based on production cost or livelihood considerations, or to regard market-based pricing as unfair. 17 3.3 The Agenda for Market Development and the Role of Fair Trade The key problem in most liberalising systems relates to the weakness of the physical infrastructure and institutional environment – particularly for contract enforcement and the supply of other key public goods such as market information 18 - and uncertainty, not least about possible government interventions. In marketing systems (for instance in South Asia and Latin America) where the private sector is much better established, the domination of systems of market regulation by local and national elites can create pervasive inequalities in the terms of market access for different social groups. Cooperatives and other forms of producer organisation can help small farmers to reduce per unit costs of information gathering and transport, increase their bargaining power, and sometimes to enable value-adding activities to be undertaken. Small, locally run cooperatives may be more sensitive to farmers' needs and circumstances than other institutional arrangements. Set against this, cooperatives and other farmer organisations often face major challenges. These include capacity to raise capital, finding and keeping competent managers, maintaining effective accountability to members, dealing with the risk of politicisation, and competing with private traders who will generally be less constrained by bureaucratic procedures and decision making (Abbott, 1993). Whilst there are strong arguments against a return to pervasive statutory involvement in the agricultural markets of developing countries, the current situation in many countries calls for an active agenda of initiatives aimed at market development. The basic challenge is to combine the benefits for producers of access to a wider range of marketing channels with the need for a stronger institutional framework for private and collective initiatives. Such an agenda may include the following elements: ♦ Credible and consistent national marketing policies. ♦ Seeking to improve access to market mechanisms that may assist small-scale farmers (and groups of farmers) in managing their risks. 19 ♦ Improving market access for specific groups of marginalised producers. 20 17 There are formidable conceptual and practical problems in establishing and using such definitions of appropriate pricing. One relates to the problem of defining production costs or adequacy of income in the context of variation across several dimensions between producers. This includes the insights stressed by sustainable livelihood analysis that few households are entirely dependent on a single cropbased source of income, and the dubious validity of the concept of an average “cost of production”. The second relates to the implications for managing problems of oversupply if prices are set consistently out of line with demand. 18 See for instance Jaffee (1993). 19 The issues are discussed in the South African context in Bayley (2000). 20 Risopoulos et al (1999) suggest that farmers can be remote from markets in one or more of three ways: if they are geographically distant from market centres; if they are relatively close to market 21
Fair Trade: Overview, Impact, Challenges ♦ Strengthening the capacity of private trade in terms of contract enforcement, dispute resolution and access to information. ♦ Improving the supply of infrastructure and key public goods (for instance through local government and effective marketing information schemes). ♦ Facilitating the development of farmer organisations. From the perspective of a developing country government and donors seeking to support a strategy to improve the functioning of agricultural markets for smallholder producers, FT initiatives have a potentially important role. This relates principally to helping to strengthen the capacity and accountability of farmer organisations that may have a pivotal role to play in the development of an efficient marketing system that can improve incomes and assist in managing market risks. It also suggests that there is no necessary conflict between the interest of smallholder producers in the development of strong producer organisations and the interests of conventional profit-oriented business including multinational processors and traders in marketing systems that are consistently and reliably able to supply high quality production. Both potentially stand to gain from institutional strengthening measures that enhance the ability of the marketing system to mobilise credit, ensure quality control and manage risk – though the relative market power of each will influence the distribution of the gains from an improved marketing system. centres but remote because of difficulties (and therefore relatively high costs) in getting produce to these market centres; and if they are socially or institutionally remote. 22
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