Nestle launched its new coffee, “Nescafe Partners Blend.” This coffee was promoted for being Fairtrade, which indicates that its production met certain criteria (such as the payment of living wages to local farmers) in the countries from which Nestle sourced the coffee beans. While not the first, Nestle is the largest food and beverage company to do so, and this decision inevitably affects whether other smaller companies will follow suit. Because of Nestle's influential standing, its decision has drawn strong reactions from
critics and proponents of fair trade.

For a company with a yearly turnover of US$67 billion, which buys 750,000 tons of coffee beans a year,¹ the decision to offer Fairtrade coffee prompted some activists to laud this decision as a milestone. Harriet Lamb, Director of the Fairtrade Foundation², calls the move "a small step in the right direction. Here is a multinational listening to people and giving them what they want.³" Others dismiss the decision as mere exploitation of a profitable trend. John Hilary, Policy Director at War on Want.⁴, remarks that "the Fairtrade movement was set up to challenge the practices of companies like Nestle. How can such a company deserve the Fairtrade mark?⁵" It should be noted that many other medium-sized and a few multinational companies, such as Starbucks, Walmart, and Procter and Gamble (the largest coffee supplier to the United States) preceded Nestle in offering Fairtrade products. There are also critics of fair trade -- typically, proponents of “free trade”-- who consider the fair trade movement entirely misguided.

Strictly speaking, fair trade is a movement and “Fairtrade” is a brand. The brand belongs to the Fairtrade Labeling Organization (FLO), which is based in the United Kingdom. Nineteen member groups, also called “national initiatives”, in different countries confer Fairtrade certification to new members and monitor their compliance. Some of these nineteen are “Transfair,” in the United States, “Max Havelaar” in Denmark, and “Comercio Justo” in Mexico. In order to be certified "Fairtrade", products must meet standards regarding the organization of workers, working conditions, contracting agreements, and pricing. The calculation of the pricing standard is based upon what a sustainable living wage for the source country is, rather than on world market prices for the goods sold. Fairtrade products are frequently more expensive than their non-Fairtrade equivalents. Nonetheless, there is a steadily growing demand for such products. In October 2004, the Canadian Center for Policy Alternatives estimated that the fair trade sector was "growing at a much faster rate than the non-fair trade sector⁶" noting that North American sales of Fairtrade coffee doubled every year from 1998 to 2001, with over 10 million tons sold in 2002.

In order to be certified Fairtrade, products must meet standards regarding the organization of workers, working conditions, contracting agreements, and pricing.

The intention of the development of Fairtrade products and the fair trade movement is to promote equitable trading conditions for developing countries. FINE⁷(a partnership of four organizations of which FLO is a member) defines its goal as contributing to “sustainable development by offering better trading conditions to, and securing the rights of marginalized producers and workers.” Inherent in this goal is the controversial accusation that standard, free-market based business practices are "unfair".

Proponents of fair trade point out several unfair aspects of traditional economic pricing. First, a farmer cannot change crops as quickly as the world price for agricultural goods fluctuates—therefore, to insure a steady income during periods of over-supply such as the 1990s, when there was a coffee bean glut, a certain amount of pre-harvest credit or subsidy is necessary. Second, market prices for harvested crops rarely pay a living, sustainable wage—an inequity when one considers that they are typically resold with high mark-ups to upper-middle class consumers in developed countries. Third, fair trade “subsidies” simply balance out the disadvantage poor countries face on a global market, while they are often forbidden to protect their national industries from cheap imports with tariffs, the developed countries to which they export often have protective tariffs themselves. Fourth, market prices are actually too low because they do not reflect the cost of social and environmental degradation involved in producing. A 2003 World Bank study determined that fair trade practices for coffee can lead to “improved natural resource management" which "decreases costs and health risks and provides more jobs for those in desperate need.” The European Commission also supported private sector fair trade practices in 2002.

The growing number of Fairtrade certified goods does indicate a widespread public interest in international humane business practices, livable wages, and sustainable livelihoods.

However, opponents of Fair Trade argue that an economy works best when prices are the direct reflection of supply and demand, not politically motivated and artificially determined. The Cato Institute in 1991 condemns fair trade as “In practice...protectionism,” and therefore a trade barrier that “undermines the productivity of capital and labor throughout the economy.” Senior fellow Brink Lindsey refers to Fair Trade as a “well intentioned, interventionist scheme...doomed to end in failure."⁸ Although consumers of Fair Trade products may believe that by paying above-market-value for imported goods they promote the development of poor countries, they are contributing to their stagnation or, worse, fostering their dependency on subsidies. As an arbitrary subsidy on a particular crop, fair trade pricing both distorts the comparative advantage of that economy and hurts farmers elsewhere. Lindsey proposes to remedy, rather than compensate for problems of chronic overproduction. Fair trade, according to free trade advocates, is a misguided attempt to make up for market failures and replaces one flawed pricing structure with another.

The growing number of "Fairtrade" certified goods does indicate a widespread public interest in international humane business practices, livable wages, and sustainable livelihoods. It is also clear that the traditional system which allows global markets to determine prices does not account for systemic inequities that allow tariffs in some places but not others. Whether the Fairtrade products and the fair trade movement will result in a fairer and more balanced system is hard to predict, but Nestle's decision to join the movement will accelerate the outcome.

Other resources:

Fair Trade
Fair Trade Labelling
Fairtrade.net
More on Marks and Labels

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¹ The Taipei Times

² Fairtrade.org

³ The Guardian

⁴ WaronWant.org

⁵ The Guardian

⁶ Canadian Center for Policy Alternatives

⁷ The FLO, IFAT (International Federation for Alternative Trade), NEWS! (Network of European World Shops) and EFTA (European Fair Trade Association) are collectively known as “FINE.”

⁸ Adam Smith Institute




Reprinted with permission from CSIS Globalization101.org.

To read another Global Envision article about Fair Trade, see Free Trade Versus Fair Trade.



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