Tuesday, January 3, 2012

Unfair Trade

Fair trade aims to promote solidarity by helping producers in developing countries to have better trading conditions guaranteeing higher prices and ensuring higher social and environmental standards. It has been expanding over the last two decades, with a global revenue of about US $ 6 billion and an annual increase of more than 20% on average. While this represents a tiny proportion of world trade, some fair trade products such as coffee account for 20-50% of all sales in individual countries. According to Fairtrade Labelling Organizations International (2008), over 7,5 million producers and their families benefited from fair trade funded infrastructure, technical assistance and community development projects. Fair trade is guaranteed by more than 200 brands all over the world. The fair trade 'brand' has expanded beyond food and fiber, especially in the UK in particular for towns, schools, universities and churches.

However, its increasing popularity has drawn criticism from both conservatives and the progressive left. Conservatives argue that fair trade is a subsidy that impedes growth and that only free trade is fair. On the other hand, the fair trade movement has not challenged  adequately the current trading system. This division has become apparent within the largest association of fair trade producers, Fair Trade International, where conflicting views opposed the fathers of the movement, Nico Roozen and Frans van der Hoff, a Dutch missionary. In 1988, they had the idea to launch Max Havelaar, the first Fairtrade label to help small producers to sell their products at a minimum guarantee price which would allow to invest in social development projects. The former now supports more market orientation and favours the involvement of multinational companies; the latter  still lives in a poor community of Mexican producers and rejects any compromise with multinational companies like Nestlé. Since 1 January, the US association will separate from the international conglomerate and sell products under its own brand.

This raises economic and ethical issues about the significance of 'fair trade' in the capitalist world. If a small fraction of international trade does not strictly follow market rules, this means that the current trading system is unfair since it does not remunerate adequately producers from developing countries. The argument put forward by Nico Roozen and his followers is to extend the fair trade system to large producers and to soften some rules to allow big companies such as Starbucks, Nestlé or Walmart to get the fair trade branding.

Imagine a company which pays its workers 'fair' wages, uses sourced materials from sustainable sources, creates minimum environmental impact and operates a neutral carbon system of offsets. Why would this company need a fair trade logo to cover its wages or a Rainforest Alliance label to cover its sustainability to convince an'ethical' consumer to buy its products? There seems to be something wrong if a company which behaves in the most ethical way has to rely on others to make that known. Let's take an example: Cadbury, the British cocoa manufacturer decided to go for Fairtrade in 2009. The mechanism is simple: it has to guarantee a minimum price for cocoa and commit to a 'social premium' (for investment in the producer's area). This mechanism was designed when commodity prices were low but now seems inadequate. The problem is that with minimum prices for producers of cocoa or sugar remained stable for years because market prices have soared and the long-term outlook is that they will remain at current level. So the only cost for the company is the 'social premium', which in fact is the equivalent of an investment in communication to restore the image of the company! 

With a similar mechanism, multinational companies want to take control of the 'fair trade' market to the detriment of the small producers which are most in need. Conor Woodman has described in great detail in a  book* how big businesses want to increase their domination over the world's poor. It is sad to hear the recent scandal of a 'fair trade' cotton produced for a famous American lingerie in Burkina Faso was harvested by child slaves, who are not only forced to work long hours in the sun, but are beaten if they   don't perform enough. This appalling case raises the perpetual question of whether the search for profit (at any cost) which is the essence of capitalism  is compatible with human dignity and justice. 

* C.WoodmanUnfair Trade

How Big Business Exploits the World's Poor - and Why It Doesn't Have To - Random House 2011

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