Fairtrade is part of the rich tapestry of institutions that develops in market economies to bring together consumers and producers. Fairtrade opens up an additional trading channel within the market in a way that matches consumer preferences to the needs of many producers.
However, it does not alter the market fundamentals. The demand and supply conditions for Fairtrade products follow conventional trade practices. Upstream actors in the supply chain exert economic and quality control taking account of consumers’ preferences. Fairtrade growth, like conventional trade, is fuelled by the increasing involvement of mainstream corporate and retail circuits.
It is therefore simplistic to assert that Fairtrade corrects inequitable trade because Fairtrade is not changing the market basics. Furthermore, Fairtrade is not for the poor and marginal producer as it is difficult for them to meet the Fairtrade requirements. The beneficiaries of Fairtrade activity, by and large, are not the world’s poorest people.
Of course, like other speciality market producers, Fairtrade producers benefit from the additional trade channel that is opened up. But so do a very large number of conventional market producers – and other labelling schemes such as Rainforest Alliance. Most conventional trade buyers want stable supply chains and good relationships with suppliers and Fairtrade is not unique in achieving such relationships. For example, the growth of speciality coffee, encouraged by buyers, provides a huge premium for growers and has led to much greater prosperity in Africa’s poorest countries.
Despite the growing visibility of Fairtrade in some Western markets and some products, one cannot ignore the fact that Fairtrade sales represent only around 0.01 per cent of the total food and beverage industry sales worldwide. So, when it comes to the relief of poverty, Fairtrade will always be a bit-part player.
The main drivers of poverty reduction are peace and stability, the rule of law, the protection of property rights, good systems of justice and the right conditions for enterprise and markets to work. This includes a commitment to free trade.
Fairtrade is a small player in a general environment of institutional and policy improvements in many poor countries. It is these other policy improvements that lead to the greater competition for labour, more efficient supply chains and the movement into higher-value-added production that are the sustainable solution to poverty.
It is not Fairtrade that has led to the highest level of economic growth in sub-Saharan Africa in its history in recent years; it is not Fairtrade that has led to significant reductions in inequality in Africa. And it is the extension of free trade that has lifted hundreds of millions out of absolute poverty in countries such as Vietnam, China and India. Indeed, those poor economies that opened to trade grew three times faster in the 1990s than those that did not.
Thankfully the Fairtrade Foundation has become relatively silent on the issue, but it was certainly not helpful in the 1990s and early 2000s when it was making the case for more trade regulation – a policy destined to promote bad governance and increase poverty. There is enormous potential for much greater poverty reduction in India, Pakistan and Bangladesh but, again, Fairtrade is largely irrelevant. Of course, significant responsibility lies with developed economies too. They should reduce their trade barriers (for example in cotton, sugar and rice). This would also help the poor, but not because of Fairtrade.
To repeat, we welcome Fairtrade! We believe in a market economy. We approve of private certification schemes (though the cost of such schemes should be borne in mind and those promoting such schemes should not use soft or hard coercion to promote membership).
Fairtrade deserves credit for opening up a trade channel that provides an additional marketing opportunity for some producers and possibly allowing them to capture a price premium. That participation brings greater diversification, empowerment and capacity building.
However, Fairtrade is to the primary product market what the fan-owned clubs such as Exeter City and Wycombe Wanderers are to the football league – welcome institutional diversity, but not of huge significance.
This article is excerpted from a debate in the journal Food Chain.