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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 scalable. 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.

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Clay,

Interesting post. I always hesitate to bring this up because people can react quite vehemently to it, but to me one of the biggest dangers of "Fair Trade" certification is that farmers on plantations growing flavor beans would need to join cooperatives to get the certification and have no incentive to grow anything but the most productive beans (often times least flavorful beans).

I have talked to a handful of artisan chocolate makers who all agree that Fair Trade is a deterrent to biodiversity and quality. Many even go as far as to say that Fair Trade is a guarantee of commodity grade beans. Any thoughts in that regard?

Thanks,
Matt
Matt:

I have suggested on several occasions that FairTrade actually exerts negative pricing pressure on the market by setting a value on the time and effort involved in the certification process. As some have pointed out (Frederick Schilling for one), this is not the case - FairTrade pricing sets the floor for negotiations. However in some cases (especially with commodity buyers looking to "greenwash" their brands by FairTrade certifying one or a small percentage of their products) FairTrade pricing sets a de facto price cap.

Farmers get paid by the pound for their product. Given limited monetary, time, and labor resources they will always opt for a crop that will produce more for a given ratio of money/time/labor to maximize their return. The challenge becomes when the return does not value the investment. A maximum 8% premium - that then is split among many actors (including the certification fee "kickback" paid to the certifier) - is not nearly enough to justify the effort in most cases.

In the end, the place to start is the consumer, who needs to realize that in order to help out the farmer we need to pay more for food and value quality. The issue (in the US anyway) is that federal agricultural and food policy for the last 30+ years had focused on delivering cheap calories to the consumer without considering the effects on agricultural workers, their families, and the communities they live in.
Thanks for the very interesting posts on fair trade Clay (and hello from a first time poster, brilliant site).

Hope you don’t mind if I make a few comments (although I am far from an expert and very happy to be found completely wrong! (my intention is to learn)). Agreed, some flaws with fair trade (ft) concept:

1) as you say in another post ft provides a fairer deal for producers in some countries than those in others (given differences in $ purchasing power across different countries);

2) as Matt says it fails to incentivise farmers to improve quality (unlike say direct trade concepts) – why put in more effort to raise the bar re planting more flavour-some but more labour intensive bean, or say spend more time and effort fermenting if you know you will get the same price as your more laid back neighbor who will just take the easy options? ;

3) the farmer could actually be worse off : if every farmer´s goal is to sell fair trade cacao then won´t this cause oversupply given the finite (albeit growing) fair-trade market? So those beans that s-he can’t sell fair-trade (if s-he does not belong to a co-operative) will have to be sold on the open market at rock bottom prices given the glut.

4) as you have pointed out before, the minimum cacao price contract seems, currently, a pretty rubbish deal after the spoils have been divied up. The ft floor price ($1750 per tonne isnt it? ie $1600 plus $150 premium) has been irrelevant for the last four or five years with open market cacao prices being above the floor (don’t know why the floor hasn’t been adjusted upwards to take into account of inflation). So the ft “advantage” for the farmers now (and for the foreseeable future in my opinion as I cant see cacao going down below $1600) comes from the $150 premium which as you point out is currently only about 5% above market. And if prices rise the premium will be even less in % terms. Obviously, when prices were at the $1000 level in the early 90s then farmers were getting a much better deal (when the ft price-premium was 75% above the open market).

All this said, I think the fair-trade foundation has done really important work to inform western consumers about the plight of developing world farmers, their miserable wages, living standards, environmental standards etc AND to empower them to demand changes-improvements using their wallet. It is also keeping big business accountable to some extent on wages, the environment etc given the ft certification many consumers now expect from big business.

But, I agree ft is mostly for the big boys. It´s not really helping the small scale farmer (who as you say find certification costs prohibitively expensive) reach international consumers. Nor is it really helping the ethical chocolate maker or craft producer who pays way above the minimum fair-trade price because they think it is the right thing to do in the circumstances, since their ft logo, if they go for it, will lump them in with all the "no more than $150 premium" corporate buyers. One size can´t fit all.

As you say Clay no point criticising a system without a better alternative to propose so really interested in your new site, will check it out. PS I came across The Fair Tracing Project a while ago whilst browsing (and no, I have no connection with them!) and I thought there were some great ideas in there. No doubt you have come across it already.

Sorry for rambling (especially on a first post)..and sincerely hope I have not offended anyone!

Dom
Dom:

Thanks for the reference to FairTracing.org. There is some very interesting stuff there and the 5percent4Farmers system could be implemented on top of it. I am going to reach out to them to see about collaborating.

:: Clay

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