Explaining.. fair trade | Commercial awareness on The Gateway

Explaining.. fair trade

Finbarr Thomas examines the concept and asks if it's as ethical as we'd like to think

"Before you finish eating your breakfast this morning you've depended on half the world. This is the way our universe is structured. We aren't going to have peace on earth until we recognise this basic fact."

Martin Luther King, Jr.

The past few decades have seen accelerated globalisation, greater access to information and more focus on corporate and consumer social responsibility. For producers, the onus to deliver an ethically-sourced or built product is greater than ever before. Enter fair trade.

Consider the cup of coffee you drank this morning. Coffee is the world's most traded product (although the value of all trades is lower than that for oil).

If you bought that coffee from Starbucks, the final product could have passed through 19 difference countries en route to your mouth: the beans could have come from Ethiopia, Colombia and Indonesia; the paper cup from Finland, Canada or Russia; the sugar from Brazil, Australia or Malaysia.

People are increasingly aware that every sip of coffee we take, every garment we wear and every mouthful of cereal we eat could have a serious impact on someone else's life or on the environmental wellbeing of another place somewhere else in the world.

What is fair trade?

Well, there's fair trade, and there's Fairtrade.

"Fair trade" is an unquantifiable concept, which could be loosely transposed with ethical trade, sustainable trade or environmentally-friendly trade. It's essentially the idea that the end product or service has been delivered having had no negative impact on the environment, on society or on any individual.

For example, in the case of a coffee bean, it should be sourced without causing deforestation, without soil degradation, and from a farmer who has been paid fairly for his crop. It should not have been sourced through a regime that impinges on the human rights of its citizens.

Fairtrade, on the other hand, is an accreditation that can be attained by products that can be proven to have been sourced in a way that meets certain very specific criteria.

The Fairtrade accreditation is doled out by the Fairtrade Foundation to products including bananas, honey, oranges, cocoa, coffee, cotton, quinoa, rice, spices, sugar, tea and wine.

The process of accreditation differs depending on the product. For Fairtrade coffee, for instance, packers pay the foundation a fee to use the logo. They then have to source the coffee from a co-operative that's certified Fairtrade (the co-operative also pays certification and inspection fees to the foundation).

The coffee is then exported, with the importer being obliged to pay the Fairtrade minimum price per 20lbs of coffee, or higher. There is also a Fairtrade premium, which is paid over and above the price per pound.

The theory is that the farmers that sell coffee to the co-operative are guaranteed a good price for their coffee and are, therefore, protected against fluctuations in the volatile commodities sector.

Away from Fairtrade, there are other initiatives designed to improve the ethics of supply chains. The Rainforest Alliance is an NGO that also dishes out accreditation to products that meet its standards, including bananas, coffee, jeans and tea. As the name implies, its focus is more on ensuring that products are produced without deforestation.

Earlier this year, a group of banks came together with the Consumer Goods Forum - a group of companies that includes Asda, Coca Cola and Unilever and which has a combined purchasing power of $3 trillion (£1.8 trillion) - to launch the Soft Commodities Compact, a commitment to achieve zero deforestation in their supply chains by 2020.

The initial plan is to eradicate deforestation in the production of palm oil, before rolling it out through commodities such as soya, beef and paper.

Why do companies bother with fair trade?

Put simply, fair trade is big business.

I spoke recently to Gail Klintworth, the chief sustainability officer at Unilever, who was keen to emphasise the idea that no company gets involved in fair trade through altruism. Intentions are always commercial.

Nowadays, consumers demand that their products are sustainably sourced, that there were no animals harmed in the testing of their soap, that rainforests aren't being razed to the ground in order for their hair to look good.

For banks too, the motivation is no different. If their clients don't want to trade in unethical goods, then their financial advisors have to follow them.

The figures speak for themselves: sales of Fairtrade-branded goods are predicted to reach $25 billion by 2020 which, by way of comparison, is more than the value of all the goods and services produced by Paraguay, Cameroon, Ivory Coast and Estonia.

Criticisms of fair trade

Fairtrade

We'll start with the Fairtrade certification, which has no shortage of critics.

One argument is that it favours richer farmers, since you have to meet certain political and quality standards to gain certification. This excludes many of the poorest farmers, who can't afford to attain these standards in the first place.

Fairtrade prices are often below market rates. In his excellent book Unfair Trade, Conor Woodman makes this point and writes that to attain Fairtrade accreditation, Cadbury had to pay about $1,500 per tonne of cocoa, when the market rate determined by the International Cocoa Organisation was $1,600 - so was getting accredited for paying a below market rate (this is before Fairtrade has taken its fees).

Fairtrade has also been criticised for its lack of transparency, for misleading volunteers and for unethical selling techniques.

Other fair trade initiatives

Richard George, Greenpeace UK's forests campaigner, says that it's frustrating to see banks and companies putting money into new, sustainable initiatives while refusing to limit existing activities that are also detrimental to the planet.

Speaking specifically about the Soft Commodities Compact, he told me: "We don't see the problem being getting more money for good things, such as sustainable commodities. The problem for us is that there's far too much money for bad things."

"On paper, an initiative that increases the ease with which commodities producers can get access to credit if they do the right thing may be a good thing, but we'd much rather banks spent their time reviewing their balance sheets, reviewing who they're lending to and stopped, for example, giving money to companies involved in the destruction of Indonesia's rainforests. There's far too much money sloshing around for those kinds of things."

How to shop ethically

The conscientious shopper may feel like they're caught between a rock and a hard place, but here are three simple ways in which you can do your bit.

Choose where you shop carefully

Buy small and local where possible, as the retailer is more likely to have visibility over its supply chain.

Use technology

Mobile apps and plugins such as Seafood Watch and Social Impact will help make sure the products you buy have been ethically sourced. Also, websites such as Which? and Ethical Consumer compile really useful lists of companies and brands that are - and aren't - ethical.

Think independently

If something has a logo proclaiming it to be ethical or fair trade, question it. If the vendor or producer isn't able to fill you in, chances are you should steer clear.

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