What Is Fair Trade?

By Victor Kiprop on January 10 2020 in Economics

Fair trade protects the interests of the producers.
Fair trade protects the interests of the producers.

Fair trade is a movement that advocates for fair prices for farmers, workers, and companies who grow and manufacture food products. It seeks to protect producers from over-taxation, reduced wages, and unsuitable working conditions. Members of the movement advocate for higher prices, as well as improved environmental and social standards. Fair trade mainly focuses on exports from developing to developed countries in addition to the domestic market. It applies to selected goods such as coffee, cocoa, chocolate, fresh fruit, sugar, wine, gold, flowers, and handicrafts. Fair trade is anchored in three core beliefs; first, buying goods at fair prices from producers in developing countries promotes sustainable development. Secondly, the current global trade practices promote the unequal distribution of wealth and resources, and lastly, producers and consumers have the power to unite. The fair trade system currently covers over 1.65 million farmers and 1,200 organizations across 74 countries and four continents, including Vietnam, Sri Lanka, South Africa, and Argentina.

How Does Fair Trade Work?

The fair trade system reduces the supply chain between the producer and the consumer, making it possible for the end-user to purchase products from the farmer directly. Under a trade agreement, grocery stores buy products from distributors who are supplied directly by farmers. By doing so, all levels of the supply chain are paid the minimum fair trade price as well as a fair trade premium that can be used for development purposes such as building hospitals, drilling wells, and purchasing farming equipment. This promotes sustainable farming practices and lets farmers and employees decide what is best for their community. 

Fair Trade Certification

There are several different fair trade labels depending on the level of certification. The “FAIR TRADE” mark represents Fair Trade International. It is found in over 27,000 certified products across the world, including cotton, jewelry, drinks, and food. The “Fair Trade Certified” label is found in goods certified for fair trade by Fair Trade USA. It only applies to products in the United States. Most fair trade programs apply to specific products and do not extend to other products produced by the company. The “Fair for Life” label is issued to producers who only specialize in manufacturing fair trade goods. The “Fair Trade Federation ” is not a certification but a membership label that applies to certified members in Canada and the United States. 

Cons Of Fair Trade

Fair trade sounds like an ideal program for social and economic development, but critics argue that it distorts the economic reality that spurs overproduction and inflates prices. Consequently, consumers are forced to pay more for a product than the actual market price. They further argue that fair trade does little to uplift farmers and communities economically since most producers in developing countries languish in poverty. 

The Fair Trade Debate

Fair trade certification has traditionally been linked with cooperative societies, especially in the United States. Still, there is a push by large corporations to include plantations and other types of producers. This has not gone down well with the small and medium producers who view the move as an attempt by corporations to benefit from having more of their products labeled as “fair trade.” 

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