Fair Trade: becoming less fair?Posted: March 12, 2011
Shock in San José
I think we expected Hugo Villela to sing the praises of Fair Trade. He had worked, after all, for Shared Interest, the Newcastle-upon-Tyne co-operative society that lends around £33 million a year to Fair Trade ventures around the world. We learned quickly, though, that Hugo has concerns about Fair Trade.
Those concerns were repeated by co-operative officials and by producers as our group of 12, with guide Heiner and driver Rodrigo, travelled through Costa Rica and Nicaragua in February 2011, and on our final day Thomas Walsh, regional director of the Catholic aid organisation CAFOD, gave us the same message.
The words ‘Fair Trade’ and the associated logo ‘Fairtrade’ used to mean ‘improving the lives of small producers’ but the involvement of giant corporations appears to be leading Fair Trade towards a new identity as a heavily regulated niche brand for ethically minded shoppers.
The barriers to participating in Fair Trade have increased in line with the growth of the sector. Compliance with volumes of regulations, and the costs of so doing, place Fair Trade beyond the reach of individual small producers, and increasingly out of the reach of small co-operatives too.
Hugo, speaking to our group in Costa Rica’s capital San José, suggested that the changing structure of the Fair Trade movement was favouring large enterprises over small farmers. The Fairtrade International labelling organisation, known as FLO, imposes onerous standards on suppliers, he said, including a requirement that producers must show three years’ worth of audited accounts. He reckoned that producers with annual turnover of under $1 million would struggle to comply with FLO’s long and frequently changing lists of regulations. The difficulties were particularly acute for producers of crops that are harvested more than once a year, he said. Producers of coffee, with a single annual harvest, had to deal with compliance issues once a year, but the continuing compliance demands for crops harvested more frequently, such as cocoa and pineapples, was racking up the costs of achieving the Fairtrade label.
High costs of certification
At the ASOPROAGROIN[i] co-op in San Rafael de Gautuso, in the north of Costa Rica, the current premiums received from Fair Trade exports are going to build a packaging plant. Previous premiums have improved the education of local children and care for the elderly, and so the wider community has benefited. Now, though, the pressures of compliance with Fair Trade regulations are furrowing brows. We were told that the cost of achieving FLO certification was about €9,800, and for organic crops the required checks for agrochemical residues came to $2,800.
ASOPROAGROIN, which is changing its name to the simpler and more descriptive Agro Norte, is a co-operative of small producers, with an important export business in Fairtrade-label pineapples. Ligia Guerrero, the co-op’s compliance and certification officer, told us about a FLO requirement that was proving very difficult for them, the need for small producers to employ only family or local labour. Costa Rica has a shortage of farm workers, and all over the country farmers look to neighbouring and far poorer Nicaragua to provide labourers, especially at peak times. Despite the difference in prosperity between the two countries, Costa Rica has many small farmers who are not rich in the West European sense, and without Fair Trade premiums many would not be able to survive on their land. A free market solution would be to let that happen, and to let agribusinesses take over, but free markets pay no attention to the long-term sustainability of communities or their environments.
Pursuing the point that large organisations seem more influential than small ones in the corridors of FLO, the co-op’s staff have the impression that the hurdles for small producers to jump over are higher, relatively speaking, than the hurdles set before the big players. I do not know how accurate this opinion is, but maybe the point is that for many products, FLO operates two sets of standards, one for small producers, and the other for owners of large plantations.
At Cooperativa Cañera de San Ramón, a sugar cane co-operative in Costa Rica selling Fairtrade-labelled sugars, manager Jesus Villalobos made the point that Fair Trade contracts smooth out the wild price fluctuations that characterise free markets. When supplies are inadequate to meet market needs, as is the case for many foodstuffs in 2011, producers with Fair Trade contracts lose out. Jesus Villalobos said that the market price for sugar, at that time in February, was 15% higher than the Fair Trade contract price. On the other hand, the contracts are a cushion when market prices are low. In this respect, Fair Trade functions like the old-style system of guaranteed prices that the UK government applied when, in the years after the second world war, an important policy objective was to increase home production. Another enduring benefit of Fair Trade contracts is part-payment at the time of order, which gives small producers the resources to grow and harvest their next crops. The San Ramón co-op, while recognising some drawbacks inherent in Fair Trade, intends to stick with it, for philosophical as well as commercial reasons.
The next co-operative we visited, Cooperativa Santa Elena, markets Fair Trade coffee. Here the manager, Zinnia Villalobos, said that the FLO certification process was complicated, and that although demand for Fair Trade coffee was increasing, the number of producers was expanding faster.
According to Zinnia, in 2010 the FLO regulations for Fairtrade-label coffee numbered 166, under five headings. Regulations changed every year, she said, and in 2011 the co-op would have to meet four new environmental regulations. Certification was becoming harder and harder for small co-ops to afford, she said. At the same time, FLO seemed to be focusing more on large organisations and less on small co-ops representing small farmers.
We moved on to Nicaragua, where on our final full day we heard from Thomas Walsh, director of the Catholic Overseas Development Agency (CAFOD) for Central America and Mexico, that control of Fair Trade certification remained firmly in the wealthy countries of the global North. He too told us about the adoption of the Fairtrade label by large corporations, and the problems this causes for small producers. Additionally, he had noticed weaknesses in financial transparency along the supply chain from producer to retailer, and he reckoned that brokers – even those licensed to make Fair Trade contracts – did not always pass on the premiums due to producers.
Is Fair Trade inspection too rigid?
Back in the UK, I looked up the board membership of FLO to see if that would shed light on the apparent shifting emphasis from small producers to large ones. The board of 14 – nine men and five women – includes three representatives for producers, five advocates for ethical trading, two development professionals, and two representatives for retailers, including Sainsbury’s head of grocery product development, Liz Jarman. The remaining two are the chair, Heineken’s former director for Africa and Middle East operations, Jean-Louis Homé, and retired economist Michael E Conroy, who is also a board member of the US Fair Trade certification body TransFair. The composition of this varied board did not really indicate to me why so many small producers expressed concerns about Fair Trade.
Back in 2004, Fairtrade Labelling Organizations International split in two. One arm became FLO, and the other became FLO-CERT. Here was a clue, perhaps: while FLO sets standards for Fair Trade and its certification, FLO-CERT is responsible for inspection and certification. Although both organisations are headquartered in Bonn, Germany, they operate independently. FLO-CERT’s supervisory board is technocratic, and I wondered if this is a cause of small producers’ increasing difficulties with Fair Trade and the Fairtrade label. The six-member supervisory board includes the general manager of Rabobank International, an inspector for the World Bank, an expert on ISO standards, and an economist/financial consultant. Only one board member is a producer. An inspectorate like FLO-CERT is supposed to apply rules impartially, and perhaps this is part of the current problem: small producers still need special consideration, which FLO-CERT is not set up to provide.
The origins of Fair Trade lie in campaigns to stop the exploitation of disadvantaged small producers in poorer countries, and during our travels in Costa Rica and Nicaragua we saw how Fair Trade premiums benefit communities, for example a thriving primary school and new accommodation for eco-tourists at La Pita in Nicaragua.
Surely it is not too late to modify the inspection and certification system so that small producers and their co-operatives once again become the primary beneficiaries of Fair Trade, in accordance with the movement’s original aims? If this does not happen, in a few years ‘Fair Trade’ might be just another supermarket label.
[i] Asociacion de Productores Usuarios del Programa de Desarrollo Agroindustrial en la Zone Norte.