Fair Trade System - Essay Example

The fair trade system brings about changes in conventional trading relationships in a way that affects both production and consumption. As is evidentfrom the case of the Windward Island, banana farmers in the Caribbean connect their participation in the fair trade system with their struggle against neoliberalism and the legacy of colonialism. They engage in the larger movement for global justice by participating in public protests and La Via Compesina. The fair trade system is indeed a complex one that exhibits differences and divergent tendencies. Although fair trade is often regarded as simply as reform initiative, it becomes apparent that Fair Trade is an intervention in the market to mitigate social exclusion, alienation, and economic inequality that uses the productive means of the communities instead of charity. Fair trade has its roots not only in civil society organizations but also includes private sector participants. Critics of corporations may be skeptical to the engagement of profit seeking firms but they offer potential to expose the broader society to Fair Trade products through shelf space in supermarkets and possible future advertising and educational promotions. In the following sections, I offer evidence from the involvement of MNCs role in shaping and formulating economic policies that hinder effective implementation of Fair Trade principles. Thus, through these evidences and in the absence of implementation of these principles, I argue that there is no such thing as Fair Trade, especially when we consider it in the context of globalization and the role of MNCs. MNC Market Power In the past two decades, MNCs have emerged as the dominant player in many industries. In the food industry, where Fair Trade is active, the top five parent companies of roasted and instant coffee (Nestle, Phillip Morris, Sara Lee, Proctor & Gamble, and Tchibo) control about 70% of the market1 and the banana industry is dominated by three oligopolies (Dole, Chiquita, & Del Montel) that control over 65% of the market. In 2003, these three companies had 56% of world banana export shares and 80% of export shares in Central America (FAO, 2003) Economics of scale enable MNCs to reduce the costs of manufacturing and lower prices to benefit consumers but they can also provide the basis for concentrated markets such as an oligopoly with high prices and monopsony power. Evidence of the power of MNCs is seen in the vertical integration where MNCs own banana plantations and control packaging, shipping, importing, and ripening to closely control the supply chain of these perishable products.2 There is also the significant evidence of disparity between retailers’ organic and fair-trade offerings. In 2006, Tesco stocked 14,000 organic products out of which only around 100 were in fair-trade lines. Similarly, Asda had around 900 organic products and a fair-trade range of around 55. Sainsbury’s stocked more than 1,000 lines of organic productions as compared to only 75 fair-trade products.3 Anti-corporation Criticism The private sector has the potential to use job creation for poverty reduction and R & D for technological solutions for various environmental and health problems but anti-globalization criticisms often go hand-in-hand with anti-corporation sentiments and focus on the negative rather than positive influences of MNCs. Critics ranging from the populist Michael Moore to Maude Barlow, of The Council of Canadians, to the Nobel Prize winner economist, Joseph Stiglitz, and anti-globalization activists in Seattle to organized groups such as the World Social Forum have sparked media interest and a broader debate on the impacts of international trade and MNCs detrimental behavior. One such detrimental behavior is the ‘race to the bottom’ where governments’ competition to attract large corporations for job creation can result in a global prisoner’s dilemma outcome.4 In general, anti-corporation critics back their arguments with cases of: 1) Disparity between huge profits of MNCs and the poverty in regions where they outsource their manufacturing; 2) International trade rules such as TRIPS that expand the privilege and rights of MNCs; 3) Increased competitiveness with no development of ‘supply chain governance’ resulting in a ‘race to the bottom’5,6 ; 4) Privatization of basic services where services are either not provided or are no longer affordable; 5) Strong corporate lobbying at all levels of government; 6) Complicity with human rights abuses and environmental degradation. Another disadvantage of the fair trade is that a small number of developing nations produce and export competing agricultural products (cotton, sugar, groundnuts) to the developed world, and face significant tariff barriers. Conversely, most African nations rely on non-competing agricultural goods, such as coffee and cocoa, which are not tariffed at all. For years (1973-1997), under the European STABEX (stabilization of exchange) program, these nations got subsidies on top of the price they received in international markets. So, the issue of agricultural protection is confined to a limited number of products that are both important to developing nations and compete with domestic production in the industrialized world. In addition, Fair Trade for All does not address the importance of diversification for developing nations. The world currently produces too much cotton, sugar and groundnuts; and there is insufficient demand to support current output levels. Enhanced market access is likely to delay diversification away from these products into other exports with more favorable long-term prospects.7 Lack of Awareness Awareness of fair trade products is far lower especially in the United States than in Europe which adversely impacts the benefits of fair trade for the formers. It is estimated that only 20 percent of coffee-drinking Americans are familiar with the fair trade label. Further, the U.S. selection of air trade items is also more limited — the most common items are coffee, chocolate, tea and bananas — and they often are available only in health food or gourmet stores. The Profiteers of Fair Trade It is saddening fact that as little as 10 percent of the extra price they pay for a fair trade cup of coffee goes to the grower because wholesalers, processors, branders and retailers each take a little of the extra price for themselves. TransFair has no control over those extra dips into the profit chain, Himes responds; it merely guarantees that a fair price was paid to the grower. Critics of fair trade argue that it doesnt help the very poorest farmers, those who dont own land or arent members of a growers co-op, because the movement aims primarily to help small land-owning farmers. Large coffee plantations and their workers are barred from certification. “The cooperative system can end up discriminating against people who uphold the value of the fair trade movement but who happen to be part of bigger farms, or just dont want to join a cooperative.8 The other argument against fair trade is offered by some critics who believe fair trade pricing as deceptive for the consumer who thinks the extra cost is going entirely to the farmer. Some other critics question the fair trade premise that farmers should stay on the soil, where theyre only earning a few pennies more — rather than improving their lot through education and city jobs. Thus, it can be said that Fair trade is about Western feel-good rather than transforming peoples lives. In truth, the fair trade movements encouragement of organic methods means farmers are doing more weeding by hand and dont have access to modern agricultural methods. The best way to improve the lives of the poor is to ensure that the necessary preconditions for development exist. These include good governance, a favorable business climate and free trade. These three conditions are mutually reinforcing. The reason why there is no such thing as fair trade is due to the fact that there is an absence of good governance as well as favorable business climate which are the biggest sources of corruption in developing countries. Also, there is considerable reliance on inefficient and unaccountable cooperative structures. The fair trade price promise is not quite what it seems to well-meaning and possibly naïve Western consumers. The various fair trade organizations do not promise to buy the farmers produce at the price. They buy at a fixed price only what the market demands. In poor market conditions, there is a risk of “insider/outsider” markets where those who are able to sell at the price do very well at the expense of others. Western consumers are probably also not aware that organizations charge wholesalers for the use of the fair trade label and that a huge proportion of this charge, in the U.K. at least, goes simply into marketing the brand. It is no wonder we only hear good things about fair trade! I doubt, too, that consumers know organizations charge producers to join up and that the fee is about 10 times the annual income of the average Kenyan. To sum up, these are the evidences that suggest that there is no such thing as fair trade unless these barriers, disadvantages and misconceptions exit in our society and market. References Ben Cooper (2006). Issues the food industry faced inn 2006: Management brief. ABI/INFORM Global. P. 19 Dhanarajan, S. (2005). Managing ethical standards: when rhetoric meets reality. Development in practice 15(3/4), 529-538 Donald Wittman (2006). Economic Foundations of Law and Organization. Cambridge University Press. P. 390. FAO. (2003). The World Banana Economy 1985-2002. Rome: Food and Agriculture Organization of the United Nations. Retrieved on 16 August, 20008 from http://www.fao.org/docrep/007/y5102e/y5102e00.htm Nicholls, A. & Opal, C. (2005). Fair Trade: Market-driven Ethical Consumption. London, UK: Sage. Sam Kornell. (2007). “The Pros and cons of Fair Trade Coffee: Bean Counting,” Santa Barbara Independent. UNCTAD. (2003). E-Commerce and Development Report 2003. New York and Geneva: United Nations. www.unctad.org/en/docs/ecdr2003ch6_en.pdf Read More