What is fair trade?

Fair trade is a type of trade that gives smallholders, especially in the South, the opportunity to develop in a sustainable way. One of the most important principles is that smallholders get a fair price for their product, but there is more to it than that.

Fair trade objective, definition and principles

Fair trade originated from the finding that the gap between poor and rich populations is widening and the desire to establish fairer trade practices. Fair trade indeed undertakes to change trade practices through better prices and decent labour conditions for farmers, artisans and workers, primarily in developing countries but also in Europe and Belgium.

The main global networks of the Fair Trade movement agreed the following definition of Fair Trade in 2001: “Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers – especially in the South.
Fair Trade Organizations, backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade.”

10 principles of fair trade

  1. Create opportunities for economically disadvantaged producers.
  2. Promote transparency and accountability.
  3. Guarantee trade relations based on trust and mutual respect.
  4. Guarantee the payment of a fair price.
  5. Ban child labour and forced labour.
  6. Commit to non-discrimination, gender equity and women’s economic empowerment, and the freedom of association.
  7. Ensure decent working conditions.
  8. Provide capacity building.
  9. Promote fair trade.
  10. Respect the environment.

Source: World Fair Trade Organization

Find out more on fair trade principles: The Fair Trade Charter.

Fair trade has many positive effects on producers, such as capacity building through provided technical assistance. The fair trade premium, a development bonus paid to producer organisation, allows investments in key sectors such as health, education, infrastructure and community development.

Fair trade also has a positive impact on the preservation of the environment. It regulates substances used in agriculture, such as pesticides and other chemicals, and is attentive to waste management and the conservation of biodiversity.

Fair Trade: Prices and premiums

Fair prices and minimum prices

The fair price is the price paid to producers as a fair remuneration (in the local context) ensuring, among other things, coverage of production costs and decent living conditions.

For many fair trade products such as coffee, cocoa or bananas, a fixed minimum price exists that covers the cost of sustainable production for each of these products in the region concerned and avoiding instability linked to price fluctuations on the international commodity markets. This price is fixed and reviewed regularly by instances such as Fairtrade International.

When the market price of a product is higher than that minimum price, the market price is paid, increased with the development premium (see below). But, when the market price is below that minimum price, the minimum price is paid and also increased with the development premium. The minimum fair trade price is like a safety net protecting producers from excessive price fluctuations on the commodity markets.


Fair trade premium

The fair trade premium is an extra sum transferred to producers which they obtain on top of the payment for their products.

This sum, usually amounting to between 10 and 15 % of the minimum price, is for a common fund of workers and/or farmers which they can use to improve their social, economic and environmental situation. The farmers and/or workers must determine their priorities: their children’s education or health, the improvement of productive activities or the construction of infrastructure such as road and bridges serving their community.

In addition to the fair trade premium, Fairtrade International has developed an organic premium, which is calculated based on the difference in operating costs between conventional agriculture and organic agriculture. This premium is only acquired after making the transition to organic agriculture; it is a kind of award for the investments agreed upon and covers the additional costs incurred over time by organic agriculture (particularly, more field work).

Integrated supply chain and labelled supply chain

Since 1988 and the creation of IFAT, the International Fair Trade Association (which, in 2009, became WFTO, the World Fair Trade Organisation) and the launch of the Fairtrade label, two major fair trade regulation systems have emerged and co-existed: the ‘integrated’ system (in particular WFTO and EFTA) and the ‘labelled’ system (in particular Fairtrade International).

The principal characteristic of the integrated system, which was the original fair trade organisation approach, is the fact that all the businesses intervening in the creation and marketing of the product (producers, processors, importers and points of sale) voluntarily abide by fair trade principles. Fair trade businesses trade among themselves in a spirit of cooperation and long-term engagement. They benefit from fair trade certification (usually linked to a logo) for which they have collectively defined rules and criteria (fair prices, transparency, pre-financing, etc. Check the 10 fair trade principles to find out more).

Unlike the integrated supply chain, the labelled system is primarily based on the certification of the product sold. The businesses producing these products undertake to comply with defined specifications and to source their products from organisations of producers in developing countries (often cooperatives) who have been approved by the labelling organisation.
These labelled products can then be marketed at any point of sale, including conventional supermarkets. Several fair trade labels exist and Fair Trade is the best known among these labels.

The coexistence of these two systems illustrates the existence of different visions of fair trade, in particular regarding the type of relationship to be established with private economic players (multinationals, supermarkets) and a vision of development (and denunciation of international trade) on the one hand versus a business approach based on control on the other hand.

Fair trade certifications

Responding to different realities in the field, fair trade certifications have multiplied in recent years.

Fairtrade

Fairtrade is the historic label, the best known of all fair trade labels. Fairtrade Belgium grants its label to over 1,500 products on the Belgian market. This certification is given to products that meet international standards set by Fairtrade International, and chiefly concern production conditions and prices. To provide this guarantee, Fairtrade Belgium and FLO Cert monitor the entire chain, from producer to consumer.

www.fairtradebelgium.be  – www.fairtrade.net

WFTO guarantee system (GS)

In 2011, the membership of the WFTO decided to develop a new type of Fair Trade system to improve Fair Trade practices in the supply chain and to meet the ever-growing demand for a more trustworthy Fair Trade recognition scheme in the international market.  

The Guarantee System has five major components: a new membership admission procedure, a Self-Assessment Report, a Monitoring Audit, a Peer Visit, and the Fair Trade Accountability Watch (FTAW). The FTAW is a participative monitoring mechanism that allows the public to report compliance issues regarding Fair Trade Organisations.

Members that passed the GS process achieve ‘Guaranteed Fair Trade Organisation’ status and may use the WFTO Label on their products. The WFTO Product signifies that the practices across the supply chain are checked against the WFTO Fair Trade Standard.

www.wfto.com/standard-and-guarantee-system

Small Producers Symbol

The “Small Producers Symbol” was officially launched in November 2010 in Honduras. As stated by the National Coordination of Fair Trade in Peru (NCLA), the initiative came in response to Fairtrade International, which no longer exclusively reserves its Fairtrade label to small producers: « the international organisation that certifies fair trade in the world, has allowed large businesses to become certified to the detriment of small producers ». 

The label comprises a comprehensive set of criteria for production, management, respect for the environment, the management of relations between producers and purchasing organisations…

www.spp.coop

Fair for Life

The Fair for Life certification programme was launched in Switzerland in 2006 by the Bio-Foundation and IMO (Institute for Market ecology) with the explicit intention of setting itself apart from the system established by FLO International. The objective was to allow all fair trade producers and operators – including those who were unable to join the FLO system – to benefit from independent certification evidencing their observance of criteria such as: rejection of forced labour and child labour, freedom of association, safe and decent working conditions, etc.

The Fair for Life label is applied to agricultural produce (fruits and vegetables, herbs and spices, oils, etc.), and also to seafood, cosmetics, textiles, crafts and even toys.

www.fairforlife.net

FairWild

The growing demand for natural products in the food, cosmetics and medicinal sectors is putting great pressure on vulnerable plants; threatening local ecosystems and plant collecting communities, who normally belong to the poorest social groups.

FairWild standard guarantees buyers that the products have been harvested and processed in a socially and environmentally responsible manner.

www.fairwild.org

“Prix Juste Producteurs” – Fair Producer Price

The ‘Fair Producer Price’ label is a fair trade initiative for agricultural producers in Belgium. It aims at allowing producers to take into account their production costs (including their working hours).
This label was created by the “Collège des Producteurs” (Board of Producers). It labels the quality of business relations between producers and their first clients (in direct sales, this would be the end consumer; otherwise, first clients are dairy plants, slaughterhouses, etc.).

www.prixjuste.be and www.collegedesproducteurs.be

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