Is There Such a Thing as Fair Trade - Essay Example

Introduction Fair trade is a type of system that is based on inclusion of environmental and social factors affecting commodity farmers or producers.1Fair trade usually focuses on products coming from third world countries especially those ones that are sold in first world countries. Some of these products include; coffee bananas tea cotton wine flowers fruits honey sugar etc The movement was started with the aim of empowering farmers who had been sidelined in the global market. Most of these producers had no price security and their economies were also quite unstable. Some of the issues brought forward by the movement include; lack of producer participation within their organisations and low levels of contribution within the global market. There are a number of groups and associations that have expressed the above sentiments and other problems facing the world commodity producers. Such advocates include; Caritas International, Amnesty International and Oxfam. However, despite these firm proponents, there have been some controversies linked to Free trade. Some people assert that free trade is nothing more than a subsidy while others claim that free trade proponents do not possess the ability to transform the trading system the world over. They believe that farmers are facing a situation that is simply beyond control and it will take much more than free trade ideals to change it. In-depth understanding of fair trade 2There were four main fair trade organisations that came up with a definition for Fair trade. These four organisations were known as FINE. They defined fair trade as a form of partnership that aims at instituting equity in trade. The trade referred to by this organisation is global in nature. Additionally, they support workers who have been marginalised and air out their views through fair trade organisations. The latter group offers campaigns and informs workers about their rights. Fair trade is based upon a number of principles; the first one being fair pay. Pay may be labelled fair if it incorporates all the expenses that workers incurred during the process of production. It must also cover environment considerations and labourer's social needs. It must also be on time and should cover their future production needs. Fair trade is also founded on the principle that workers should have the capacity to participate fully in their markets. They should be given the incentives to manage their products well and also to achieve greater flexibility within this realm. On top of these, farmers and other labourers should be handled in an open and transparent manner. No one has the permission to take advantage of their vulnerabilities through hidden dealings. Men and women should be treated as equals regardless of what their social premises may be. Reimbursements must be proportional to the amount of work done rather than to one's gender. According to fair trade advocates, workers should be provided with safe and conducive environments. This implies that children will only be allowed to work if this does not come in the way of their education, ell being, security and growth. Lastly, fair trade discourages the use of environmentally friendly working techniques, for instance, it strongly opposes the [production of genetically modified foods because they harm the environment. 3In the recent past, the FLO International (which sets standards in fair trade) created a labelling system where products can be Certified if the adhere top Fair trade principles. Some of these principles are examined during the process of growing a commodity, harvesting it and even supplying it to the world market. Products that earn the fair trade mark are those ones that do not employ children during child labour. Additionally, they must not involve the use of slave labour of any kind. The certified commodity should also have been produced in an environment that is safe to work in and one that does not undermine labourer's human rights. Its price must also be such that it can facilitate some social problems facing farmers at that time and it should also be able to help them conserve their environment. The certified product will also assist farmers and other producers in establishment of links between the producer and his purchaser thus streamlining the trading process. Arguments for fair trade Free market inefficiencies Most fair trade proponents like Oxfam believe that fair trade is the ultimate solution to prevailing market inefficiencies. The rules of trade in theory may not necessarily apply in the real world especially in poor countries. 4Neo classical theories put forward the fact that all stakeholders in trade stand to benefit. However, there are some prerequisites for this win-win scenario; 1) if producers can access their markets with ease 2) if the market is well informed 3) if production methods can be changed in accordance to prevailing market conditions 4) if quantity of goods produced matched demand in the market 5) if producers can access credit when necessary 5As it can be seen, these are ideal conditions and it is quite difficult to find such conditions in the third world. For example, certain crops may take excessively long periods of time before they can mature; e.g. seven years. Framers dealing with such crops will produce whatever they had planned on producing seven years ago regardless of market changes today. This leaves them at an extremely vulnerable situation because they cannot respond to demand immediately. The situation is normally worsened by rural farmers found in developing countries. While some countries in the Western part of the world might have access to some of the 'ideal' conditions, it is highly unlikely that the same situation will prevail in other poorer countries. Consequently, farmers in the latter regions become very vulnerable to market forces in their countries. Prices are continuously changing yet farmers have no way of protecting themselves from such predicaments. It is quite common to find that farmers may decide to produce excessive crops even when world prices have fallen so that they can minimise unit costs. The overall effect of such a move is that prices continue reducing as a cycle is created by farmer's decision to produce more than is required. Against the background of such problems, there is a need to provide alternatives in the market. Fair trade proponents argue that their system is necessary to provide workers/farmers with some sort of cushion against these market forces. For instance, fair trade ensures that prices are stable, it offers farmers incentives to progress in their businesses and it also offers them favourable conditions of trade. Commodities and their prices Before the year 1980, the international community used to intervene in commodity [prices. However, after that year, the idea was abandoned and thus leaving farmers quite vulnerable. In the next decade, there was institution of commodity reforms. This meant that most world food and commodity prices were quite susceptible to price falls. 6In the recent past, farmers have been struggling with the fact that most of them have little if any gains from commodity prices. It has been estimated that poor countries have lost about two point five billion dollars in the past decade because of price falls. But because most of these farmers have no other choices, they decide to produce more commodities in order to make up for the price reductions. Consequently, the end up getting revenue that does not reflect what they worked for. This is where the issue of fair trade comes in, farmers are entitled to get revenue that reflects their production costs, since commodity falls have reduced these chances, and then there is a need to provide farmers with a minimum price for their produce. This system should be such that it is reliable and stable. These are all characteristics offered through fair trade. Price changes 7Some opponents of the fair trade system have argued that the latter fixes prices in order to help farmers. However, the truth of the matter is that fair trade only sets a minimum which is only relevant when market prices have fallen way below the price needed to give farmers a return on their investment. However, in cases where market prices are above the minimum, then market forces will prevail and farmers will be expected to negotiate. Additionally, there have been claims that fair trade tries to deal with the problem of market competitiveness. Most farmers have to deal with intermediaries. Consequently, there is very little room for interaction with their direct consumers. Price bargaining will occur between those intermediaries and the consumers themselves. This leaves very little room for considering farmer's needs and it puts them at a lower market power. Consequently, there is a need to institute a mechanism that boosts their market power and this is through fair trade. Proponents of fair trade like Oxfam argue that commodities are not similar in nature. Conventional market forces may not necessarily take into account these differences. For example, a commodity like tea comes in many varieties. A lot of effort has to be pout in the process of trying to enrich certain products. Tea may be instant or it may not, it may place in a tin or paper, some brands of tea may have higher quality than others. Consequently, products will fetch different prices depending on their demand. Free trade provides an avenue for negotiation and price innovations for products that have been incorporated certain social and environmental factors into production. These products have gained acceptance and are operating in various parts of the world currently. Banana dispute The banana dispute occurred between the Caribbean, a multilateral corporation called Chiquita and the US. The Caribbean was a fairly stable producer of bananas. It was competing in the International market through fair trade systems. The country had secured 10% of Europe's banana market. This is because it had been granted free access to their markets. However, in the year 1997, their fair trade system was abolished drastically through the actions of the World Trade Organisation (WTO). It was reported that WHO made this decision after getting a lot of pressure from the United States and the multinational organisation mentioned above. 8The decision meant that the Caribbean bananas would be subjected t free trade forces like all others in the region. The problem with such an agreement was that Europe had a relationship based on partnership with the Caribbean and other African countries. This relationship was seriously ruined after the banana agreement. In the following year after the WTO decision, the United Kingdom decided to eliminate all the privileges it had given the Caribbean; its guaranteed entry into UK was abolished. The EU decided that UK banana exporters would be allowed to market their bananas on a first come first serve basis. Consequently, the Caribbean had no chance of penetrating this market after scrapping off fair trade agreements. The region is now facing certain problems that include inflated unemployment levels extreme poverty The reason why the Caribbean region was experiencing these problems is the fact that most of their bananas are exported. They need the ability to have some sort of incentives because they are quite vulnerable to international forces. The area also largely depends on banana farming to earn revenue. Consequently, any problems in the system will trickle down to the common man and be manifested in form of unemployment. 9The Caribbean is also particularly susceptible to international pressures because they seem to lack other alternatives of trade. The region's industries are not fully developed and they lack diversification within their economies. Some countries have embraced tourism but this is still a far cry form what bananas contribute to the economy. Numerous fair trade advocates like Oxfam have come up in support of the Caribbean banana farmers. They have asserted that the latter group is left at Europe's mercy. Europe now has the upper hand in trade negotiation and farmers rarely have opportunities to get out as winners in these negotiations. 10There were numerous repercussions that came from the agreement. The banana trade agreement affected the level of trade between the United States and the European Union. The US sanctioned most goods from the latter region claiming that they were following the rules governing the banana trade agreement where trade should follow market rules. Arguments against free trade Rules of economics Source: Grodnick A. & Conroy M. (2007): Fair Trade: The Challenges of transforming globalization; Routledge, p86 It has been claimed that the free trade idea has a lot of clean intentions and goodwill but there are very few economic possibilities for implementation of this. The main premise behind fair trade is provision of incentives top farmers through price floors. Price floors are minimum prices set for fair price commodities. When market prices fall beyond this amount, then the fair trade price will apply. Some groups have claimed that farmers may be encouraged to produce more commodities to the market since they have the assurance of a fair trade price. 11Even some who may not necessarily be producing goods in this arena may be encouraged to do so in light of the fact that they are assured of a stable price. Eventually, this leads to excess supply of commodities in the fair trade zone. Similar commodities sold in the non- fair trade zone will become more susceptible to price falls and this will eventually harm the market. These opponents argue that fair trade goes against the rules of demand and supply. Others also add that the fair trade system is simply replacing a faulty price system with another. They claim that the system only gives short terms solutions but really hurts the market in the long run. This is because subsidies designed to encourage more production in the event that there is an excess in the market, only serve to make matters worse. Excess supply will continue due to the artificial prices and the cycle goes on and on. Problems in implementation 12The Adam Smith Institute is one of the major fair trade critics. Earlier this year, the group reported that most fair trade proponents are a burden on the local council within the UK and are also a burden to the government generally. Despite claims that fair trade is subject to market forces, most of their ideas are implemented through government funding; this can be likened to subsidies. In this scenario, fair trade implementers would be forgiven if they cause substantial changes with the funding received. However, the Adam Institute revealed how numerous local councils are consuming public finances intended for fair trade. It asserted that in the year 2006, local councils received about one point five million pounds. This was an amount awarded by the Department of international Development. Nonetheless, the local council kept requesting for more finances. Some of the amounts quoted reached the tune of fifty million pounds. They claimed that this was for investment in 'strategy' for fair trade implementation. Very little could be seen on the ground to indicate some of the benefits that the one point five million brought to farmers and other stakeholders. 13There are plenty of inefficiencies witnessed within these cooperatives. First of all, their leaders operate as if they want to win a popularity contest. Most of them may be faced with situations when they have to make decisions that may not be accepted by their fellow board members. Because they do not want to loose this popularity, they may decide to choose the inappropriate route just to maintain their positions. To add insult to injury, cooperatives rarely communicate with their fair trade counterparts. For example, it may be possible that some fair trade representatives usually make inspections within fair trade regions or countries. However, those visits may be done annually and for the rest of the year, farmers are left at the hands of the dishonest cooperatives. As if this is not enough, some fair trade implementers may require posted documents indicating that framers have been paid certain amounts. But research conducted in countries like Peru found that most of their coffee farmers rarely access the floor price set for fair trade framers. Instead, these farmers are given even much less than their free trade counterparts, i.e. most of them earn less than the minimum wage. 14While fair trade advocates may have had a lot of goodwill in mind, the beneficiaries of the scheme happen to be well-to-do farmers. For example in Mexico, (a free trade implementer and coffee producer) some farmers have gone around the problem of dealing with bureaucracy in the fair trade system through bribes. Most of the framers who can give those bribes happen to be the rich ones. The relatively poor ones have to go through all the hurdles instituted and they end up loosing in the end. This is the reason why Mexico is the largest producer of fair trade coffee yet its farmers are relatively wealthy. Mexico does not need fair trade as much as countries like Ethiopia or Kenya do. Mexico has been given direct access to US markets yet the US is the largest coffee consumer in the region. These facts highlight that fair trade has only created avenues for some ill intended groups to benefit while the ones who really need it are biting their nails. Fair trade does not address root causes 15While fair trade advocates may have the intention of boosting farmer's economic situations, they are going about in the wrong way. Most farmers in third world countries are mostly affected by their governments and other local problems. Issues revolving around world prices do not necessarily affect them that much. What the international community should be doing is introducing measures to stump out the root causes of poverty in those countries. Research conducted by the telegraph UK found that farmers in Kenya (one of the major coffee producers in Africa) complained of corrupt government officials as the major problems in productivity. They asserted that the government had made deals with coffee milling companies who monopolised the industry. Farmers were expected to take their coffee beans to those companies exclusively yet they were given peanuts in return. 16Farmers in that country also complained of the fact that fertilisers were also monopolised by certain companies who had made pacts with the government. Consequently, they had very few incentives to improve productivity. Additionally, some of them complained that farming equipment was a problem. The equipment could only be imported into the country yet the government charged heavy tariffs for imported goods. This hampers farmers who may have the goal of improving their productivity through mechanisation. They also encounter problems when transporting their coffee. Most of them have to use road transport and there are numerous police officers who stop them on the way. These officers normally require bribes in order to let the coffee pass thus eating into farmer's profits. Free trade Successes The same group mentioned above (Telegraph UK) also conducted research in Brazil. They found that most of the farmers in this country were free trade framers. The government had decided that farming in the country will be conducted through free trade mechanisms and they instituted reforms to this effect. This really boosted their agricultural sector because they encouraged mechanisation. Statistics show that the ratio of productivity in that region has skyrocketed; farmers who adopted mechanisation techniques produced as much coffee as one hundred conventional farmers. Fair trade critics argue that what the government of the UK and other countries in the world should be doing is following Brazil's examples of taking up measures that will encourage production. 17The critics instead claim that fair trade proponents usually discourage such progressive framing techniques. For example some fair trade proponents have been on record saying that farmers should intercrop (mix different types of crops) so that they can minimise costs. These ideas will impede future developments in agriculture because when different crops are planted together, it becomes very difficult to mechanise. 18There are certain countries that have demonstrated what free trade can do for them. For example countries like Costa Rica have discovered the secret behind succeeding in the coffee industry. The country plants the coffee, mills it, blends and even packages the coffee. Most of the coffee producing countries on the fair trade scheme only produce their coffee. The rest of the production is done in developed countries. For example, it is a known that fact that fair trade coffee found in UK supermarkets is mostly roasted and manufactured in European countries such as Germany and Belgium. On top of impeding fair trade farmer's progress, this process also produces bad coffee. The reason for this is that most coffee is taken from poor countries in the form of fresh beans. The process of transporting them directly to Europe exposes them to the elements and some of them get spoilt. This is the reason why free trade countries like Cost Rica have made a name for themselves in the coffee market. Their coffee tastes better because there is no time wasted in the transportation process to some far way land. One of the well known brands from Costa Rica is Caf Britt. Suggestions made to the FLO (in charge of fair trade) about such an approach were quickly thrown out the door. Additionally, free trade allows small entrepreneurs to come up with their own methods of farming coffee thus facilitating development. In contrast, fair trade encourages most framers to form cooperatives or such organisations. The problem with cooperatives in most of these developing nations is that they are mismanaged. Fair trade advocates normally encourage farmers to join cooperatives yet cooperatives have proved ineffective in the past. Framers are not informed about how valuable their coffee is, this means that cooperative leaders normally misappropriate farmer's profits because they may not be aware of what their coffee really fetched. Leaders within those cooperatives normally dominate positions year in year out. They have customised the electoral process in those cooperatives to suit their desires and this has eventually given them an avenue to swindle money. There are other ethical methods of producing coffee 19Fair trade advocates usually price their coffee prices exorbitantly. They usually justify this by claiming that their coffee has accommodated some social and environmental issues and is therefore quite valuable. However, one should not underestimate the fact that there are other forms of coffee that may have included these forms of social responsibility but through free trade. For example, there is a Cafe Britt and God African coffee for Eastern Africa. These are also bends that have been produced ethically and are still marketed in the Unite Kingdom. However, it should be noted that the latter brands are not doing very well in the UK market because most of them lack the incentives associated with fair trade coffee. Fair trade coffee has really marketed itself widely by making other coffee brands look less ethical and this is not necessarily the case. Fair trade discourages innovation Coffee framers in most countries experience a lot of problems when it comes to the issue of cooperatives. This is because most cooperatives mix coffee beans regardless of the fact that some may have different quality or not. Farmers who normally add quality to their coffee beans are not fair trade farmers; they practice free trade. Cooperatives give framers equal prices regardless of their quality. Consequently, most free trade will not feel the need to improve their products because they are getting exactly what their counterparts are receiving even without adding some extra efforts. In addition, farmers in the free trade system usually go out of their way to improve quality. This is because the higher the quality of their coffee, the higher their prices and the more their returns. However, in the fair trade system, there is a minimum price that all fair trade farmers must receive even when they bring in poor quality coffee. Such a system has created a monster in the coffee markets. Fair trade farmers produce good quality coffee and then take it to the free market. 20Coffee that got rejected in the free market (due to deficiencies and low quality) is usually taken and thrown into the fair trade market. This is the reason why most coffee consumers were complaining about the fact that fair trade coffee tastes so badly yet one has to spend so much to purchase it. Conclusion Fair trade was instituted with the purpose of protecting marginalise farmers form poor countries. These framers had relatively minimal access to markets and could not get returns on their investments. Some of the arguments brought forward include: protecting weak economies against external forces as was the case with the banana dispute which left Caribbean countries vulnerable to free trade forces. Fair trade also cushions farmers against fluctuating international prices. However, the arguments against fair trade are numerous. First of all, fair trade does not tackle the root causes behind agricultural problems in third world countries. These include corruption and government inefficiencies. Additionally, fair trade goes against the rules of demand and supply. It encourages excessive supply through artificial prices and hence lowers prices further. Coffee farmers from poor countries rarely reap benefits from fair trade because cooperatives are too bureaucratic and inefficient. As if this is not enough, fair trade discourages innovation and brings about poor quality coffee. Fair trade undermines some of the successes witnessed in free trade such as those reported in Puerto Rico. With all these disadvantages, it can be clearly seen that there is no such thing as fair trade.While the notion may appear very appealing; it has no place in today's global market. Other free trade methods should be adopted. 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