What are Fair Trade Products Anyway?

Fair trade

While doing your daily grocery shopping, you may have wondered about the fair trade labels you see on certain products. Fair trade is a form of ethical commerce, embodied by a movement that mobilizes the idea of food justice.^[1] The goal of the movement is to provide justice to marginalised, small-scale farmers in supply chains that typically do not have equal access to international markets and/or have low bargaining power in exchange relationships. Ideally, direct and long-term relationships between producers and buyers are established, eliminating the middlemen who often take a large part of the profits. The movement aims to pay higher prices than those already established on the world market, and establish better exchange conditions for producers, for example by including pre-finance options and fixed interest rates when contracts are set up. Better wages, fewer working hours, prohibition of forced and child labour, and better protection against toxic material are among the ways that working conditions of labourers are improved. In this way, fair trade aims to make producers less dependent on the mercies of world markets and middlemen. In other words, it is believed that compliance with fair trade principles improves and stabilises the socioeconomic situation of producers and labourers and the communities in which they live.

These additional requirements do not come without costs for consumers. Over time, different fair trade organisations and businesses have supplied fair trade products to Western consumers, who in turn pay a higher price for these products. The higher consumer price is intended to ensure the well–being of producers. At the same time, with descriptors, labels and marketing campaigns around their products, fair trade organisations aim to create greater awareness, explaining why fair trade products cost more. At a higher level, fair trade organisations want to change the rules of the game, where conventional international trade practices are perceived as unfair.^[2] For example, the Fair Trade Advocacy Office in Brussels is dedicated to bringing fair trade and justice to the fore in EU policies.

When fair trade principles are applied in practice, there are a couple of basic premises for the partners involved in the exchange. Small-scale producers of handicraft or commodities such as coffee and bananas—with the production organised democratically in producer communities—receive a guaranteed higher price than the world market price. If the world market price is higher than the fair trade price, the world market price holds. On top of the fair trade price, a social premium should be provided, which producer communities should spend on community development, for instance on education. Organically grown commodities receive an additional premium. For example, since 2019, the guaranteed fair trade price for cocoa has been US$2400/metric tonne (MT), with a social premium of US$240/MT and an organic premium of US$300/MT. At the beginning of 2021, the cocoa price was US$2604/MT, meaning that fair trade cocoa producers would receive the world market price plus the social premium, which amounted to US$2844/MT. Organic cocoa producers would receive a US$3144/MT. Besides the payment of fair trade prices, pre-finance arrangements should also be made with producers who often lack the financial means to invest and/or face high interest rates. On their side of the bargain, producers must apply sustainable production methods and forbid child labour in the production process.

The efficacy of fair trade certification programs has been found to be mixed and multi-layered. Fairtrade certification by Fairtrade International may function as a safety net in cases where world market prices are low, but in those cases where world market prices are high, the relative benefits of fair trade certification may disappear. Results depend on the context, and may reflect the way in which the fair trade certification program is applied and the type of producer group involved. It is also hard to control how the auditing of small-scale producers functions, as well as how transparent these processes are. Furthermore, the poorest small-scale producers—those suffering mostly from power imbalances in exchanges—may not be reached by its program, since a yearly certification fee is charged to co-operatives, which the poorest are unable to pay. While generally it can be said that fair trade certification programs such as Fairtrade are beneficial to producer and worker communities, fair trade cannot be regarded as a panacea for the structural challenges that continue to exist at the international level. For example, it would be more effective to lower or eliminate U.S. subsidies for cotton farmers that serve to keep world market prices artificially low, and allow prices—and therefore incomes—for cotton producers to rise worldwide.

This raises the question of how the fair trade movement as a whole approaches the market, with fair trade organisations and companies having different ideas about how fair trade works in practice. A major issue is the extent to which the movement’s ideology fits the markets it operates in. Should fair trade focus on enlarging its market, or focus on greater international justice? Do fair trade practices exist completely separately from conventional market operations, or can they be integrated? The history of the fair trade movement reveals the tensions between different approaches and different actors in the movement, and these differences have caused debate that continues today.

Table 1 shows different fair trade principles that virtually all actors in the movement adhere to, more or less.

The history of fair trade

Fair trade has a longer historical track record than is immediately obvious. The fair trade movement began already in the 1940s, when consumer groups in the U.S. and Europe started to import products from handicraft producers. The American Edna Byler, for instance, formed the basis of what is now the retail chain Ten Thousand Villages, by importing handicrafts from Puerto Rico, starting in 1946. In the 1960s and 1970s, these consumer groups were joined by people aiming to change the international trade system entirely. Shops selling products coming from decolonising countries started to appear in commercial districts, encouraged by alternative trade organisations (ATOs). An example of these are the so-called World shops in the Netherlands. These outlets were regarded as alternative, and often functioned as centres of political action, where fair trade’s market approaches and actions were discussed. They paid special attention to producers from countries that were in the process of decolonisation and their participation in equal exchanges at the international level.^[3]

Differences over how to operationalise the movement’s ideals became very obvious with a new exchange practice in 1988. The birth of the first fair trade certification program, by the Dutch foundation Max Havelaar, implied the start of a market-based strategy. Conventional companies could now join the movement more easily, without being involved in the politically sensitive issues with which the ATOs were associated. Products could be fair trade–certified if producers and companies complied with fair trade standards, audited by an independent organisation (such as the European FLOCERT). Over time, fair trade certification became common ground in different European countries, as well as in the U.S. and Canada. The rise of fair trade certification programs enlarged the impact of fair trade among producers because more companies could join. Sales of fair trade products increased as consumers more easily and frequently encountered fair trade products during grocery shopping. At the same time, fair trade producers faced extra costs in terms of certification fees and associated administrative costs.

As fair trade–certified sales increased, the fair trade movement became more institutionalised, with the overarching body of the fair trade movement, Fairtrade International in Bonn (Germany), leading the different national European and American fair trade initiatives from 2007. This organisation is responsible for setting the Fairtrade Certified standards and management of the surrounding process. Currently, various fair trade suppliers, companies, certification programs, and organisations have emerged, including industry- and firm-based programs such as UTZ Certified and the Nestlé Cocoa Plan. UTZ Certified was introduced in 2001, as the certification program “Utz Kapeh” (“better coffee”) by the multinational Ahold, and fitting the desires of the industry better than the Fairtrade International certification program. The main difference was the guaranteed minimum price, which UTZ Certified does not offer. The emergence of different types of certification programs and industry involvement has meant that the concept of fair trade has increasingly been contested, with internal conflicts in the movement leading to a split in the American fair trade movement in 2011. At stake, among other things, were the percentage of fair trade certified ingredients in fair trade certified products and plantation certification.^[4] Essentially, the discussion was about who fair trade policies were about: the marginalised, small-scale producers, or companies engaging in fair trade.

Mainstreaming fair trade and the clash of two strands in one movement

Disagreements over the goal of the movement have led to intense discussions between people and organisations. Some fair trade movement actors have said that entering mainstream distribution channels would hollow out the movement’s ideals. Indeed, up until today, the debate about being a movement and a market at the same time has been an important thread in mainstreaming fair trade, that is, the process in which consumers and companies are increasingly buying and selling fair trade–certified products. Two main ideological positions in the fair trade practices of organisations and companies can be distinguished.

On the one hand, fair trade is regarded as a practice over and against conventional market practices. Activists advocate an entirely new, alternative international trade system. Based on Marxist ideas on exchanges, personal relationships between consumers and producers, and direct, long-term transactions are regarded as the embodiment of just trade. According to Karl Marx, commodities in an exploitative system focused on profit-maximisation hide the situation of marginalised producers and labourers. Commodification thus prevents consumers from seeing the true circumstances under which a product is produced. Following this logic, consumers should be enlightened about the precarious position of producers and labourers, and aim at the eradication of inequalities at the international level. By working in the market and with conventional market players, the movement would lose these values and no longer be an alternative for the impersonal market systems. Again, this argument suggests that such systems aim at profit-maximisation only, and may start to undermine fair trade principles. The fear is that cooperation with the same firms whose practices the movement has been trying to fight would cause the same problems to re-emerge, given that their motivations would not have changed fundamentally. Consumers, aiming to establish personal and long-term relationships in supply chains, or to acknowledge the producers’ situation, would have no incentive to buy. Instead, consumers would be extrinsically motivated and focus on other features of the products. This would undermine the movement’s objective of having a dedicated consumer base with a focus on international justice.

On the other hand, adherents of fair trade certification proclaim that the idea of just trade should be operationalised in the market. By means of certification programs, both market share and impact for producers and workers would increase. Moreover, working with bigger multinationals such as Starbucks and Nestlé would accelerate this process. The success of fair trade certification could stimulate these firms to apply fair trade principles in their other supply chains too. From a business perspective, a certification mark on their product packages implies added value to their products. A label may persuade consumers to buy not just a commodity, but a product that reflects fairness for producers. Having a certification mark could thus be a market strategy to differentiate, and give businesses a competitive advantage compared to other (not yet certified) products typically traded as commodities. In addition, larger businesses can often achieve economies of scale, making it easier to offer fair trade products at a lower price. Staying ‘alternative’ would mean that the (often more expensive) fair trade products remain a niche in conventional markets, restricting the overall improvement of producer livelihoods. Fair trade–certified products in conventional outlets would thus allow consumers to find fair trade products easily by their certification marks and labels, increase awareness of fair trade producers and workers, and allow high–quality products to be bought at affordable prices.

Mainstreaming fair trade and the practical consequences

The mainstreaming of fair trade has raised three main issues about operationalising just trade. Essentially, these reflect the roles of three actors in the fair trade movement and their effect on beneficiaries: the larger companies entering the movement, consumers, and the fair trade movement itself.

First, it has been feared that the entrance of larger businesses may violate or not fully comply with the standards set by Fairtrade International.^[5] For instance, in the U.S., Starbucks violated the Fairtrade requirement that 5% of total coffee consumption should be bought as fair trade–certified.^[6] Larger companies may start their own certification programs, requiring compliance with lower standards and thus diluting fair trade’s overall message. For consumers, distinguishing between the significance of different certification marks on products may become increasingly difficult. Connected with this, larger companies and multinationals often source from larger plantations, rather than small-scale producers, so the original fair trade beneficiaries would face competition. Due to overall low demand, they already face difficulties in selling their harvest. Moreover, power imbalances may continue to exist, to the detriment of small-scale producers, due to lack of transparency about how and to what degree standards are complied with. The voice of the producer may not be voiced sufficiently and, as can be imagined, a two-day, on-site audit of farm operations does not necessarily provide an accurate portrait of what happens in the day-to-day. Such developments raise the question about the intended beneficiaries of fair trade certification programs and about the transparency of the certification process.

Second, increased competition within fair trade in Western countries may result in the disappearance of Alternative Trade Organisations in commercial districts, an outcome already seen during the last decade. This is important, as these organisations typically embody the more ‘alternative’ current of the movement, conveying fair trade’s core message and identity, as well as functioning as a benchmark for fairness. ATOs also stand for establishing long-term personal relationships, which are hard to quantify but of importance to the producer groups they work with. The existence of certification programs would only further increase the anonymity of standardised market transactions, making producers again dependent on the mercies of the market.

Third, consumers’ stances on the different fair trade certification marks remains an open question. Consumers do support fair trade goals but do not always buy fair trade–certified products. Consumers can also differ greatly on which aspects of just trade are important and how they should be operationalised in conventional markets. The different fair trade labels that have emerged, such as UTZ-certified, may furthermore lead to confusion for consumers about what fair trade really means. A parallel example is the appearance of other sustainability-related labels (e.g., organic, carbon-neutral, climate-friendly, etc.), which may lead to label fatigue among consumers. For the fair trade movement, this is a risk, as consumers may no longer notice the fair trade–certification and/or consider its added (social) value. Further, media treatment of both the original fair trade certification program and conventional firms’ involvement in fair trade may undermine the trust in certification marks. At the same time, such attention can give consumers a better understanding of the difficulties in operationalising just trade.

Finally, the relationship between the Western fair trade organisations and the producers has also been questioned. Fair trade producers do not always have an equal say and/or impact on the strategy to be followed within the development of fair trade (certification) programs. This may hinder critical reflection and exclude the views of fair trade producers’ on fair trade standards, mainly developed in Western countries. Over time, Fair trade International has increased the voting power of producer organisations to 50%, but not all certification programs have such systems in place.

The consequences of mainstreaming are crucial to the legitimacy of fair trade in the conventional market. For both companies and consumers, successful and effective fair trade standards would legitimise paying a higher price for fair trade products and result in more engagement. If fair trade certification marks do not live up to expectation, consumers may lose belief in fair trade. The latter may also happen if fair trade practices are misused by companies, that is, were ‘fair–washing’ to occur, or were fair trade programs set up that in practice make little or no difference to the producers. For producers, importantly, their well–being depends on fair trade standards being effective. If fair trade does not sufficiently increase socioeconomic well–being, producers will stop working through it. However, there are other ways of fighting the structural inequalities that small-scale producers and workers face. More equality could be established in international trade if, for example, import tariffs and quotas were changed structurally, to the advantage of non-Western countries.

The future of fair trade

The future of the fair trade movement is closely related to the mainstreaming of fair trade. Practice and understanding are shaped by the way fair trade is operationalised. This has become increasingly varied, now that more companies and organisations have entered the market. It remains questionable to what degree ATOs such as Ten Thousand Villages and World shops will be able to attract consumers and convince them of the added value of the fair trade products. Enterprises that do not necessarily identify as ATOs or fair trade–certified will also become important transmitters of the fair trade message and even compete with ATOs. This could create confusion for consumers. At the same time, this and increased media attention could increase attention to the cause. For example, in the Netherlands, the company Tony’s Chocolonely has focused on improving the situation of cocoa producers, making this the reason for its existence and the core of its marketing campaign. (It was nonetheless heavily criticised for being unable to guarantee that its cocoa beans are ‘slave–free’.) More recently, there were media reports that this firm is no longer on a U.S.-based list of ‘ethical companies’, due to its co-operation with a conventional cocoa processing company. Clearly, with mainstreaming, fair trade organisations and companies are increasingly under public scrutiny. Such discussions may pave the way for new and more effective avenues for key actors to mainstream fair trade.

One option may come from companies that opt for having no certification label at all, in order to be more effective in reaching social responsibility and environmental goals. The main aspects of just trade these companies adhere to are establishing direct and long-term relationships with farmers, providing community support, and supporting environmental-friendly production. Moreover, these companies give the producer organisations a price that may be beyond the minimum price as set by Fairtrade International. Being transparent to the public about their on–the–ground practices—even if it includes difficulties in operationalising fairness locally—is often another goal. As such, these companies can be regarded as a new type of ATO, operating in often–specialized niche markets. If these companies are able to succeed in establishing socioeconomic well–being for producers without needing certification programs, they showcase a new way of operationalising fairness to actors in the mainstream. To succeed, however, these companies will need a dedicated consumer base that understands and engages with the issues they aim to address, including a willingness to pay a higher price for products (compared to conventional and fair trade–certified products).

Fair trade certification organisations, in turn, are increasingly aware of the consequences of mainstreaming, as well as the limits of their own certification programs. They tend work together more, lobbying for (inter)national legislation, as they believe that market-based strategies do not work quickly enough, and consumer commitment is too weak to achieve real change. In this way, a level playing field for all companies might be established, forcing those that are lagging behind to start implementing human rights and environmental due diligence. This entails that companies address all the social and environmental risks and impacts within their supply chains. They would have to make the risks of carbon emissions and pollution visible, but also make the pay and working conditions of workers transparent and, in doing so, respect human rights. The United Nations Human Rights Council initiated guidelines for company and government responsibilities and duties in 2011.

Currently, these frameworks are mostly voluntary for companies, although some countries are in the process of making mandatory the prohibition of forced and child labour. Because of mainstreaming, companies and consumers are increasingly aware of these issues, and at the present moment, there is greater openness to this type of enforced regulation by governments that have, until now, not actively put into place such regulation.

Synthesis

Fair trade products that consumers encounter during their grocery shopping reflect a world of organisations and firms that struggle over bringing just trade into practice. The balance between movement and market has been a continuous struggle in the historical trajectory of fair trade. The mainstreaming of fair trade products in conventional distribution channels makes clear that the operationalisation of just trade has become increasingly difficult, especially since 1988, when certification was introduced as a new way to approach the market. Certification was a radically different way of establishing fairness, meaning that more organisations—with different interests and motivations than the original, alternative shops—have entered the fair trade market. For fair trade, mainstreaming entails that the movement think through who it wants to benefit from its certification systems: small-scale producers, who may not always be so efficient and are the most vulnerable? Or the plantations of the newly joined, larger companies? And is fair trade only a safety net when world market prices fall, or does it represent a panacea for producers? Other questions revolve around the credibility of the fair trade certification programs that have emerged. Companies and consumers may have different motivations for joining in the movement, bringing along different understandings of fair trade. This could create confusion for consumers about what should be understood as fair trade. At the same time, these developments also force the fair trade movement to re-identify and react to the increasingly competitive environment of which they are a part. That implies that co-operation between actors has emerged, as well as new initiatives to operationalise fair trade without needing certification. To most fair trade actors, however, the time seems ripe for a legal enforcement of fair trade’s standards on the (inter)national levels at which they operate. The fair trade movement may be about to enter into a new arena in which ‘just trade’ becomes the standard for all products.

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