Unfair Trade: Is Fair Trade Scalable?
Posted in: Opinion
Another reason why FairTrade fails is that it's not scalable on the producer side.
As I mentioned in my original post Unfair Trade in Belize - How Kraft Shafts Cocoa Farmers , the international FairTrade organization (FLO - FairTrade Labeling Organization, headquartered in Bonn, Germany) says that there were 746 certified producer organizations in 59 countries in their 2008-2009 annual report - after more than a decade of work. Again, as I asked above, if Fair Trade (as institutionalized by FLO) is so great, how come it's not more successful on the producer side?
One reason is that the certification process itself is not scalabl e. Individual farmers are not certified because the entity looking to be certified has to pay fees - the initial certification fee and annual re-certification fees. The fact that the producer organizations have to pay fees to be a part of Fair Trade is not widely known among the general public and the relatively high cost of certification is certainly a barrier to entry.
Another, more systemic, barrier to the expansion of Fair Trade, is the certification process itself. Certification requires certifiers. Trained certifiers. Paid, trained certifiers - who incur travel and other expenses.
Let's take the case of the Ivory Coast. There are an estimated 600,000 cacao farms in the Ivory Coast. For the sake of argument, if we organize Ivorian cocoa farmers into co-ops of 200 farmers each, there would be 3,000 co-ops. Certification is annual, and let's say that one certifier can certify one co-op per week. In order to handle the certification load - just for cocoa, just in the Ivory Coast - it's necessary to have 60 full-time certifiers working 50 weeks a year: for one crop in one country, to achieve 100% certification.
What would 100% certification mean for the individual farmer? Probably not much, as we can see from the TCGA example in Belize, because few co-ops (let alone farmers) have direct access to an export market. The Fair Trade premium on cocoa amounts to just 8% at the floor price (US$1800/tonne) and is about 5% at the current price (US$3200/tonne). The assumption that as the price increases the farmer automatically earns more is clearly erroneous - at least when it comes to cocoa. When government cocoa boards control prices and access to export markets (or there is a contractual agreement that limits market price volatility as is the case with the TCGA in Belize), producers are insulated from the market and have no pricing leverage.
More tellingly, there is no place in the FairTrade standards that focuses on improving quality or agricultural practices that could improve yield. Showing farmers how to take care of their farms (basic pruning, how to care for diseased trees and fruits, etc.) has shown to be able to more than double yields on existing land, reducing the pressure to "pioneer farm" (slash and burn new forest). A focus on improving post-harvest processing techniques improves the quality of the cocoa offered on the market. However, as long as the producer does not have direct access to markets, there is no way to extract any income from improvements in quality.
The focus on certification (to the producer - "You have to prove that you are following our rules, but we don't have to help you in any way by providing information that would make you better farmers") is a travesty in my opinion.
Another travesty is the layers of expensive bureaucracy that have developed over the years. FLO sits at the top of the pyramid in Bonn. There is a World Fair Trade Organization, a Fair Trade Advocacy Office, and more. FairTrade worldwide relies on government support - so some taxpayers (in Switzerland, the UK, and Germany at least) are supporting FairTrade through their federal taxes in addition to paying FairTrade licensing fees when they purchase products.
Perhaps more disturbingly, it occurred to me when I re-read the annual report in preparing this post, is that there is a subtle disintermediation that is happening through the official language that has been adopted by FLO. Agricultural workers are no longer farmers. They are producers. They are not farmer co-ops, they are producer organizations. At one level I can understand this, as not all products that are FairTrade certified are agricultural products (there is a move to certify gold as FairTrade, for example).
Nonetheless, the language has literally dehumanized the supposed beneficiaries of FairTrade, at least among FairTrade officialdom. As consumers, we are marketed to that FairTrade benefits farmers, not producer organizations. I wonder how successful end-consumer marketing of FairTrade would be if all the marketing messages talked not of helping farmers and their families, but of helping producer organizations?
Probably not nearly so successful.
I am firm believer that you can't just be against something, you have to be for something in its place - otherwise shut up. About this time last year, I started another (private) network on Ning to discuss an alternative idea for FairTrade. There are already several members and quite a bit of discussion. As of right now, I am making the network public (subject to member moderation) to advance my ideas in this regard.
The network is called 5percent4farmers . The idea is to create a system that:
a) has the minimum of bureaucracy and overhead
b) does not charge farmers to take part
c) captures premiums for the farmer throughout the value chain - not just at the point of initial sale
d) is scalable
e) can benefit farmers everywhere in the world, not just "developing countries"
f) is completely transparent, using the power of the Internet for administration and oversight
g) encourages "voluntourism" as a component of oversight
h) works to provide farmers direct access to markets
If you are interested in learning more, I encourage you to visit the site and join to add your opinions. If anyone knows anyone interested in funding the development of the underlying software system needed to implement this, please let me know.
updated by @Clay Gordon: 04/18/15 18:29:03
