How does fair trade work? A brief introduction
Fair trade is a concept that was born out of a desire to create parity for farmers, growers, and producers in the developing world.
When you buy fair trade products, you can enjoy peace of mind. You know that the person or people who were responsible for creating the garments or products you’ve purchased have been paid a suitable wage and that they work in appropriate conditions.
Fair trade addresses many of the issues that arise as a result of unfair market competition. The most important is enabling smaller producers and growers based in developing countries to compete on a level playing field. To participate in fair trade, you have to commit to paying sustainable prices, which cannot fall below the market value.
Traditionally, in the world of trade, big players are able to beat smaller companies because they have the power to charge less. Fair trade tips the balance, preventing discrimination against smaller sellers and those trying to earn a living in poorer, less developed communities.
Fair trade is not just about setting prices. It’s also a movement that aims to empower people. The fair trade model enables growers, producers, and companies based all over the world to showcase their products and fulfill their potential. By offering farmers the chance to reach out to customers in every corner of the globe, individuals and families can fight poverty and build a brighter future.
When did fair trade start?
The early beginnings of the fair trade movement can be traced back to the 1940s. In 1946, a lady called Edna Ruth Byler laid the foundations for fair trade by buying and importing needlecrafts from South America. Ms Byler purchased the products from groups of low-income women, setting a trend that was based on helping those less fortunate and giving them a platform to trade.
Over the years, initiatives were introduced and the fair trade movement has gone from strength to strength. This useful timeline gives us an idea of how the fair trade concept evolved into what it is today:
- 1946: Edna Ruth Byler starts importing needlework from women on low incomes in South America
- 1950s and ‘60s: a number of Alternative Trade Organizations (ATOs) were established in several different countries. The aim was to help poorer communities by working with international organizations and World Shops. World Shops and Alternative Trade Organizations work together to establish a fair trade framework.
- 1988: Solidaridad, a Dutch ATO, blazes a trail, creating the label, Max Havelaar. The brand pledged to guarantee that every coffee product it bought from the grower covered the cost of production.
- 1990’s: the fair trade model we know today was established, with countries all over the world setting up organizations to create fairer trading conditions and regulations for farmers and producers. Examples include Fairtrade Foundation in the UK and TransFair in the US. At this point, each individual organization was responsible for running their own campaigns and for regulating certification marks. In 1994, the first UK fair trade certified products hit the shelves. These included Clipper tea, Green & Blacks Maya Gold chocolate, and Cafedirect Coffee.
- 1997: fair trade organizations come together to create Fairtrade Labelling Organisations International, or FLO. The name was later changed to Fairtrade International. The primary role of Fairtrade International was to oversee the planning and implementation of a global fair trade strategy.
- 2012: fair trade farmers and growers are given half of the votes at the Fair Trade International General Assembly.
- 2014: the Fair Trade mark in the UK celebrates its 20th anniversary, and certified products boast a sales value that exceeds $5.5 billion. More than $10 million worth of revenue has been invested in fair trade projects.
The benefits of fair trade
One of the most important matters that arises from the question, ‘How does fair trade work?’ is identifying the pros and cons of fair trade. In order to understand the benefits of buying fair trade products, it’s essential to have an understanding of how the system works, and how it impacts people at both ends of the scale. How does fair trade work for farmers and producers, and how does it benefit consumers?
Fair trade offers a diverse range of benefits. Here are the most significant:
- Economic advantages
The fair trade model works based on a minimum price. Setting a limit helps farmers and producers of products like coffee and fair trade bananas to increase their earnings, reduce the risk of poverty and increase the security of their jobs and household income.
Fair trade is also encouraging growers and farmers to work together to form stronger, more powerful communities and cooperatives, which have greater buying power. Economic gains also enable growers to invest in training to create better quality products. The extra income obtained from fair trade initiatives can also be injected into communities to develop better, more efficient farming techniques and increase the size and value of crop yields.
- Benefits for the environment
Protecting the planet is a subject on everyone’s lips. Fair trade isn’t just beneficial for farmers and customers with a conscience. It also contributes positively to the environment. Fair trade regulations and standards protect and shield the environment, outlining key areas including reducing greenhouse emissions, conserving wildlife species and preventing the use of harmful chemical pesticides.
Fair trade also actively encourages farmers and growers to undertake training to help them better understand the environmental impact of agricultural practices and to improve yields while simultaneously doing their bit for the planet. More and more money is also being made available to invest in techniques and methods that combat climate change.
- The human impact
Fair trade promotes equality. People who produce fair trade products have more control over their crops, they work in suitable, secure, safe environments, and they should not be subjected to discrimination or prejudice.
Fair trade revenue is also injected into community development and initiatives that target areas like housing, healthcare, and education. Fair trade programs have helped to improve and enhance the quality of life in many farming communities across the world, especially in rural areas where opportunities were limited.
Pros and cons of fair trade
Nothing in this world is perfect. While fair trade attracts plaudits the world over, there are critics out there. Here are the most significant advantages and disadvantages of fair trade.
Fair trade offers a host of advantages, including:
Competitive wages: one of the most alarming issues related to farming and growing in the developing world prior to fair trade was low wages. People were working incredibly long hours for very little in return. Now, with fair trade regulations in place, wages are considerably higher. People take more home, and additional revenue is invested in community initiatives, which are designed to improve access to services like healthcare. Farmers can also be more confident in the stability of their jobs, and therefore, the security of their salaries.
Working conditions: fair trade promotes safe, secure working environments. By eliminating the use of harmful chemicals and dangerous equipment, fair trade has ensured that millions of people all over the world are working in places that prioritize health and safety.
- An end to discrimination: fair trade has helped to ensure that everyone has access to a job, regardless of their gender or religion. In many countries, the workforce is made up primarily of women, as wages are significantly higher than they would be for jobs traditionally associated with female labor.
- A reduction in child labor: children often start working at a much younger age in the developing world than in developed countries. Fair trade has contributed to a reduction in child labor due to the fact that adults are earning more. With higher household incomes, children have the chance to enjoy their childhood and to benefit from education instead of having to go out to work.
- Improved living standards: the establishment of community cooperatives in rural areas and higher incomes have led to an improvement in living standards. Villages and towns are now safer, people have access to better services and the quality of life is better.
- Competitive trade opportunities: before the days of fair trade, it was virtually impossible for a small grower to compete with a multinational company. Fair trade has created a much more level playing field.
- The rise of organic farming: there has been a great deal of media attention on farming techniques, most notably, genetically-modified foods. With fair trade products, organic methods are used exclusively.
- Set prices: people often ask the question, ‘how does fair trade work?’ One of the most significant elements of the model is setting minimum prices. Once a product is certified, the producer or the cooperative responsible for that fair trade product will receive a minimum fee. The lowest price will never drop below the relevant market level, meaning that growers and fair trade communities will never lose out financially.
- Diversity: the range of fair trade products is expanding all the time.
- Success is limited: investing in cooperatives brings a huge range of benefits to communities, but success is limited to those who are part of the working community. It is possible that fair trade could lead to divisions within an area if some people are left out of the cooperative.
- Fees: to become a certified fair trade grower or cooperative, you have to pay fees. With charges reaching hundreds, even thousands of dollars, this is a scheme that might not be accessible to all.
- Higher prices and smaller customer pools: the higher prices associated with fair trade may have a part to play in the size of the customer pool. Some products are likely to be less appealing to consumers on a budget, and some might simply be unaffordable. Not everyone will be willing or able to pay a premium.
- Limited product choice: the range of fair trade products is diversifying all the time, but there is still a gulf in terms of choice between fair trade and non-fair trade items. The current market is dominated by tea, coffee, and chocolate. Outside of this range, it’s much more difficult to find fair trade products that are widely available.
- Administration fees: there are questions about the financial impact of fair trade due to the fact that administration costs often have to be absorbed by local communities.
- Attracting the heavy hitters: it’s difficult to attract some of the big names in the worlds of commerce and retail due to higher prices. If a company can save up to 30% on the cost of producing items that are high-quality, for example, it’s very difficult to persuade them to opt for fair trade products instead.
- Concerns over wellbeing: on the surface, the fair trade model looks flawless, but there are still concerns about working conditions and a lack of investment that benefits workers and farmers directly. The vast majority of cooperatives benefit hugely, but there have been examples of labor exploitation.
- Justifying higher fees: often, it’s difficult for fair trade producers to justify higher rates and some consumers will question whether it’s worth them paying more for products that may fundamentally be very similar.
Fair trade companies
The range of fair trade products is increasing all the time, and you can now buy everything from fair trade clothing and ice cream to coffee, wine, and shoes. There are some brilliant companies and businesses out there sourcing and selling fair trade items and making a positive difference to the planet. Here are some case studies:
- Ben and Jerry’s
Ice cream lovers will be well aware of the Ben and Jerry’s brand. Known for its quirky, witty branding and delicious flavors, Ben and Jerry’s is the most famous ice cream business in the world. The company first started exploring fair trade coffee in 2005, and it now produces tubs of ice cream laden with fair trade delights, including vanilla beans, nuts, chocolate, sugar, and bananas. In 2015, Ben and Jerry’s announced that all its tubs and mini cups of ice cream and frozen yogurt were made using fair trade ingredients.
- Rishi Tea
Rishi tea is grown in a remote mountainous community in China. Harvested organically, this tea comes from one of the world’s oldest plantations. Fair trade initiatives have helped to improve community services here, including the establishment of new health clinics. The most notable achievement is the development of a scholarship program, which runs from middle school to university.
- People Tree
A leading name in sustainable clothing, People Tree was one of the first brands to make a splash in the world of fair trade fashion. People Tree set out ambitious targets to adopt ethical practices and standards throughout the entire supply chain, and the brand has become synonymous with a shift away from fast fashion, a trend that has become increasingly popular.
- Rapanui Clothing and Teemill
Rapanui Clothing was established on the Isle of Wight in the UK. Producing men’s and women’s clothing and accessories, Rapanui’s ethos is founded on using sustainable materials and ethical production techniques. The brand also runs Teemill, a website that enables you to design and order custom-made tees. Like its parent company, Teemill also employs ethical practices.
- Fairhills Wine
Initially based in South Africa, Fairhills’ fair trade wine project has since expanded to Argentina and Chile. The growers and wine producers are paid a minimum fee and additional revenue is invested in community projects. Fairhills Wine initiatives have helped to fund a new daycare center, a village hall and a library, for example.
Born out of a love of traveling and an appreciation of Indian fashion, Nomads was established by a team that wanted to bring the colors and textiles synonymous with Indian flair to a wider audience. Having traveled extensively in India, the team set about creating a fair trade business, which specializes in light, comfortable, Bohemian-style pieces.
- Theo Chocolate
Theo Chocolate works with an extensive network of farmers and cooperatives, with contacts in the Democratic Republic of Congo, Peru, Ecuador, Costa Rica and the Dominican Republic. Theo Chocolate prides itself on assuring customers that every single chocolate bar is made using organic cocoa beans that have been grown and nurtured by fair trade farmers. The company actively promotes environmental schemes, including protecting biodiversity, and initiatives designed to enhance the quality of life.
- Annie Greenabelle
One of the most recognizable and high-profile names in the fair trade fashion industry, Annie Greenabelle is known for producing beautiful women’s clothing. Most pieces are made from organic cotton, and the brand focuses on using ethical manufacturing and processing techniques to provide eye-catching, affordable garments.
- Green Mountain Coffee
Green Mountain Coffee is something of a pioneer in the world of fair trade coffee. Based in Vermont, this well-known brand sells fair trade coffee bags, as well as single-use K-cups. Green Mountain supports farmers and growers abroad, as well as the local Vermont community, with an emphasis on recycling, sustainability, and working conditions.
- Blends for Life
Blends for Life is an innovative beauty brand, which creates indulgent skincare and body care products using blends of organic, fair trade shea butter. The brand buys the shea butter blends at a set price, which is approximately double the fee of a similar non-fair trade product. The higher price increases the earnings of the producers, many of whom are women. Higher incomes contribute to better quality of life.
Blends for Life has also been involved in community projects, including funding management training schemes and providing access to modern technology. Investing in technology can increase efficiency, protect the environment and enable producers and growers to boost yields.
Fair trade certification process
When it comes to answering questions like ‘how does fair trade work?’ it’s crucial to understand the fair trade certification process. To sell fair trade products, you can’t just customize a label and proclaim yourself a fair trade company. You have to go through a certification process.
This process involves 5 key steps, which are outlined below:
1. Sign up: to get started, you’ll need to complete an application form, which is provided by FLOCERT. You can follow a link online to make the application process swift and straightforward. Once you’ve submitted your form, you’ll be contacted and provided with all the information you need to determine whether or not you’ll be granted certification.
To be a fair trade seller, you’ll need to fit certain criteria. If you receive the application package, and you don’t meet the guidelines, you may wish to make changes or delay the next step, which is the audit.
2. The initial audit: the audit is designed to ensure that a business meets the necessary fair trade certification guidelines. An auditor will visit the company and take a good look at the premises and sites. Interviews will take place between auditors and growers, farmers, members of unions, and management staff. A checklist will be provided in advance of the visit to help the company prepare for the audit. The duration of the visit will depend on the size and scale of the business. Where possible, a local auditor will be assigned to the business.
3.Analyzing the audit: after the audit, the application will be evaluated in detail, and the auditor will discuss the findings with the representative. If there are problems, or the business isn’t operating according to fair trade standards, the auditor will make recommendations and provide advice to improve the chances of successful application in the future.
4.Making a decision: if a business wasn’t fully compliant before, but the necessary changes have been made, the application will be reviewed and a final decision revealed. In some cases, it may be possible to issue temporary ‘Permission to Trade’ status if the audit didn’t flag up any critical issues. This enables producers to start selling sooner.
5. Monitoring: after fair trade certification has been granted, cooperatives and companies will be monitored to ensure that they continue to meet the qualifying criteria and produce crops and products according to fair trade guidelines. Audits are carried out on a regular basis as a means of protecting farmers, growers, producers, and consumers.
Will consumers pay for fair trade?
There are both pros and cons of fair trade. One of the most commonly cited disadvantages of buying fair trade is paying premium prices. The cost of fair trade products tends to be higher, but are people willing to stump up the extra cash? Surveys suggest that people often gravitate towards fair trade products when asked to choose between fair trade and non-fair trade in a questionnaire, for example. But what happens when a customer is faced with an aisle full of products in a store? This is the question associate professor, Jens Hainmueller, from Stanford University, wanted to answer.
- Jens Hainmueller’s experiment
Joined by a team of researchers, which comprised Michael J Hiscox, from Harvard University, and Sandra Sequeira, from the London School of Economics, Hainmueller investigated consumer responses to fair trade coffee. In a randomized trial, which involved 26 stores in the US, the group found that American shoppers would be willing to spend more and buy fair trade products. Prof Hainmueller suggested that people might be more inclined to talk about fair trade, rather than buying into the concept, but the study confirmed that consumers are drawn to fair trade products. Most people chose to buy fair trade coffee, even though it was more expensive.
The trouble with surveys, according to Hainmueller, is that people don’t always tell the truth. In a scenario like this, when an individual is asked to choose between two products, it’s very easy for them to talk the talk. The question that arose from the survey findings was ‘are people willing to walk the walk? Analyzing behavior at 26 stores in Rhode Island, Connecticut, Maine, and Massachusetts, the team found that the fair trade coffee was more appealing to buyers. To conduct a fair experiment, they placed fair trade labels on two types of coffee and compared them to a placebo equivalent that looked the same but made no ethical claim.
The test showed that sales increased by 10% for the fair trade label, but that sales fell when the price was hiked by 30% for a standard blend that was fair trade certified.
Hainmueller explained that the trial indicates that there are two main types of shopper. One that is more likely to spend more and pay a premium for fair trade coffee and one that won’t stretch much further than a minimal price hike. It is also important to note that carrying out a similar experiment in different stores, for example, bargain stores or exclusive food halls, may produce contrasting results.
- Research carried out by the University of Bonn
Another experiment conducted by researchers at the University of Bonn also concluded that shoppers are willing to pay more for fair trade products. The findings of the study, which were published in the Frontiers in Neuroscience journal, suggested that people have a positive response to the fair trade logo.
During the trial period, the neural responses of consumers were measured using brain scanners. Each participant was shown a selection of different items, some of which were fair trade. The scan results showed increased brain activity in response to products that carried the fair trade logo. The neural response was heightened in the regions of the brain that are linked to reward, and the researchers discovered that people would be willing to pay around 30% more for fair trade items.
When analyzing brain activity, neuroscientists found that levels increased in the frontal lobe when the participants were exposed to fair trade products. Dr Bernd Weber explained that the higher the level of activity in this region, the higher the fee the individual is willing to pay.
- The chocolate test
Another study required participants to evaluate two different pieces of chocolate. One was described as being fair trade. The group marked the fair trade chocolate much higher, leaving rave reviews about the taste and flavor. In reality, the chocolate pieces were exactly the same. Lead author of the study, Laura Enax, suggested that the differences were based purely on an imaginative response. The results suggest that people want to enjoy fair trade products more, largely due to the fact that we have a positive association with the logo and its connotations. Research conducted by the Fairtrade Foundation found that 93% of UK consumers recognized the fair trade logo, while 83% said that they trusted the logo when deciding whether or not the product was ethically sourced.
How does fair trade work? A summary
Today, there are over 1.6 million people involved in fair trade certified organizations and schemes in 73 different countries in the world. The fair trade model has evolved from early examples of buying from small-scale sellers on low incomes to creating an expansive network that provides opportunities for growers, farmers, and producers in every corner of the globe.
The concept of fair trade rewards people based on the produce they sell, rather than their country of origin or their social or economic status. By creating a level playing field, smaller operations can compete with large-scale corporations, and workers and growers reap the rewards of higher prices and minimum fees. There are benefits and drawbacks of fair trade like everything in life, but in the vast majority of cases, the positives far outweigh the negatives.
Over the years, fair trade has really taken off, and ethical, sustainable products are more popular than ever before. There’s a much wider range of items available, and the industry has diversified. Coffee, tea, and chocolate have always been popular, but fair trade fashion and beauty are trends that are gathering pace. As time passes, and studies suggest that consumers are willing to pay more for certified products, it seems as though fair trade will continue to grow and flourish.