Marketing Poverty: the Question of Fair Trade

Capitalism is a system based explicitly on the exploitation of the many by the few. Throughout its few short centuries of existence, it has extended massive inequality to every corner of the globe. The supposed “free market” has pushed that process to the extreme, especially between the exploited countries of the global “south” and the global “north”. The extreme poverty of the people living in countries which produce luxury goods such as tea, coffee and cocoa is both inescapable and well understood by western consumers. Consequently, there have been a number of schemes set up with the supposed goal of reducing the suffering of exploited peoples, principal among them is Fair Trade.

Started in 1997, Fairtrade International, and it’s licensing body the Fairtrade Labelling Organisation (FLO), sought to set up a system whereby producers of raw goods such as coffee, cacao, bananas and sugar are paid a “fair” price for their produce. Additionally, purchasers pay an additional sum on the price of the goods which is to be used for development projects. Presenting itself as an alternative to the ravages of free market capitalism, a way for the most impoverished to escape poverty, it’s solution was to create a second, parallel market for these goods. Picked up as a banner of good intent by hippies, liberals and hipsters throughout the west, in 2011, the Fair Trade consumer market was valued at around US$6.5 billion. Rarely in these circles, however, is the “goodness” of Fair Trade questioned.

Eliminating Poverty?

The marketing around Fair Trade is compelling. Indeed, it currently draws approximately $1 billion dollars worth of extra money from western consumers choosing fair trade products over non-certified equivalents, it is estimated. There is, however, little evidence to suggest that it does much good for the producers in practise. Indeed, the Fairtrade International publishes essentially no numbers to support its claims, not that this does anything to slow the multi-million dollar marketing campaigns claiming it is solving poverty worldwide.

It shouldn’t come as a surprise that, while retailers are able to charge a significant premium for Fair Trade goods, little of that extra money makes it back to the producers. In fact, while the percentage varies widely from product to product, Ndongo Samba Sylla, a former Fairtrade International employee, in his 2014 book The Fair Trade Scandal: Marketing Poverty to Benefit the Rich puts the overall figure at 3% of the premium paid by western consumers making it back to the producers. The rest is pocketed by the retailers or the companies which process and package the goods.

While the FLO now has standards for groups employing paid workers, evidence from a recent London University study (PDF) has indicated that, at least in Africa, wage workers in Fair Trade institutions producing coffee, tea and flowers experienced essentially no poverty reduction compared to their colleagues in non-Fair Trade employment, and indeed may be payed less. Though the FLO contests the findings of the study, their own rather flimsy numbers support the findings.

Christopher Cramer, an economics professor at SOAS, University of London and one of the report’s authors, said: “Wages in other comparable areas and among comparable employers producing the same crops but where there was no Fairtrade certification were usually higher and working conditions better. In our research sites, Fairtrade has not been an effective mechanism for improving the lives of wage workers, the poorest rural people.”

Driving a Wedge

The FLO’s certification rules favour cooperatives and smallholder organisations on the assumption that this allows for the best chance of the premium prices and the development premium being distributed for the benefit of the communities. However, even this seemingly logical assumption doesn’t appear to be having the intended effect. Instead, it appears to drive a wedge between landowners and wage labourers.

The Faitrade Standard for Small Producer Organizations applies to small-scale producers that supply Fairtrade products. These make up about 87% of all of those covered by Fair Trade as of 2012. (PDF) The rules for these are very specific, first among them being “The majority of the members of the organization must be smallholders who don’t depend on hired workers all the time, but run their farm mainly by using their own and their family’s labour.”

On the one hand, this means the benefits of Fairtrade are limited to landowners, who are prevented from taking on full time staff. In a period where even much of the third world is being proletarianised, which is to say, people are being forced off their land and into wage labour, this means that those who are often the most desperate are denied the benefits of the higher Fairtrade prices.

On the other hand, it means those small farmers who want to develop their farms to make use of local labour are discouraged from doing so by the complication of potentially losing their certification or having to re-certify under different standards with different conditions.

Recent efforts by the Fairtrade International to engage with and support trade union organising within the small percentage of Fairtrade Hired Labour Organisations are a welcome development, but also seems to be in the extreme minority (even Fairtrade International’s own reports do not provide solid figures) and appear tokenistic rather than the product of systematic orientation to workers organisation.

Worse, the social development premium may be deepening, rather than alleviating social divisions. The aforementioned London University study stated that social projects, paid for partly by the Fairtrade premium, were found not to provide equal benefit to all. The researchers reported that many of the poorest did not have access to facilities. In one Fairtrade tea co-operative, the modern toilets funded with the premium were exclusively for the use of senior managers.

In discussing the individual level characteristics influencing successful participation in Fair Trade, we must not forget the important role of gender. Though Fair Trade organizations state a commitment to gender equity this is likely to contrast sharply with local realities, particularly in coffee producing regions of Latin America. Women are much less likely to own land, have access to unpaid household labor, or have capital for investing in coffee production. In most coffee cooperatives it is the men who are granted membership under the assumption that they fairly represent the interests of their spouses and children. This may or may not be the case.

Good in Theory?

So, at present, Fair Trade does not appear to deliver the benefits for producers that are promised to western consumers. However, is it possible that, with a restructuring of some form, that fair trade as a concept could live up to it’s lofty goals? Sadly, once more, we are forced to conclude “No”.

Fair Trade is able to function at all precisely because it is niche – it represents only a tiny fraction of the consumer market for these products, a form of luxury good. Luxury goods are subject to different rules of supply and demand than regular goods, because the supply is kept low and the nature of the demand manipulated by factors distinct from the actual goods themselves e.g. fashion trends. Thus they can fetch a higher price in the market. Additionally, Fairtrade represents only a tiny fraction of the producer market: approximately 1.24 million farmers and workers worldwide. One good way, then, of examining the limitations of Fair Trade is to ask what would happen if it became the norm. If all the sugar in the world was produced as a fair trade product, what would happen to the fair trade price? Fair Trade products are able to demand a higher price because companies are willing to pay a premium for the benefits of being perceived as ethical, as well as the significant premium they can charge for Fair Trade labelled goods. If the scheme was extended to all producers, the same logic of capitalism which exists in the mainstream market currently would kick in, forcing prices down and the big buyers seek to maximise their profits by reducing costs.

Even without extending to the logical absurdity, the normal rules of capitalist competition still apply within the Fairtrade markets. The companies which purchase the fair trade produce use the same tactics used in normal markets to force producers into competing against each other, and will undercut the Fair Trade price in other ways. Often the vehicle for this is the demand for higher quality, which is not controlled by the FLO, so purchasers either insist on only purchasing the choicest offerings at the Fair Trade price, and then offer less for the rest, not sold as Fair Trade. Similarly, in a market environment where the producer market supply of Fair Trade certified produced goods exceeds the consumer market, charges have been leveled of big companies playing off producers against each other, demanding incentives to buy from this rather than that producer organisation. Just like normal markets, the Fairtrade industry is engaged in a cut-throat race to the bottom.

No solution in Fair Trade

In his book, Ndongo Sylla’s message is that the battle against the causes of global poverty and inequality will not be won by playing the free market, albeit with nicer rules. Any solution to global poverty will not and cannot be market driven. Inevitably, these solutions serve the interests of the wealthy long before they present any benefit to the poor. All Fairtrade appears to be delivering at present is a new way of fleecing the ethically concerned, generating huge profits while providing a false veneer of being ethical for giant firms, often disguising unethical practises in other spheres of production.

Capitalism cannot be talked into playing nice – the same logic which incentives maximum exploitation by one demands exploitation by all. Only by directly challenging the fundamental assumptions of capitalism can we seek to tackle poverty and inequality on a global scale. The organisations we work to build to achieve this in the here and now will be the best vehicles for fighting global inequality, and eventually hopefully provide the means for the emancipation of all.