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Fair Trade: Overview, Impact, Challenges Fair Trade: Overview, Impact, Challenges Study to Inform DFID’s Support to Fair Trade June 2000 Oxford Policy Management, Sustainable Markets Group, 6 St Aldate’s Courtyard, International Institute for Environment 38 St Aldate’s, & Development, Oxford, 3 Endsleigh Street, OX1 1BN London WC1H 0DD Tel: +44-1865-207300 Tel: +44-020-7388-2117 Fax: +44-1865-250580 Fax: +44-020-7388-2826 Email: [email protected] Email: [email protected] URL: http://www.opml.co.uk URL: http://www.iied.org Fair Trade: Overview, Impact, Challenges Fair Trade: Overview, Impact, Challenges Contents List of Annexes ............................................................................................. ii Acknowledgements...................................................................................... iii Executive Summary ...................................................................................... v 1. Introduction ............................................................................................ 1 1.1 Objectives and Report Structure........................................................... 1 1.2 Study Approach.................................................................................... 1 2. Fair Trade: Who Does What? ................................................................ 3 2.1 Definitional Issues ................................................................................ 3 2.2 Six Types of “Fair Trade” Organisation................................................. 7 2.3 Four Elements of Fair Trade................................................................. 9 2.4 Three Types of Fair Trade Product..................................................... 11 2.5 The Size of the Fair Trade Market and Main Trends .......................... 13 3 Commodity Markets and Fair Trade ................................................... 16 3.1 The Policy Reform Context................................................................. 16 3.2 Fair Trade Perspectives on Markets................................................... 18 3.3 The Agenda for Market Development and the Role of Fair Trade ...... 21 4 The Impact of Fair Trade ..................................................................... 23 4.1 Issues for Impact Assessment............................................................ 23 4.2 Evidence on the Benefits and Costs of Fair Trade ............................. 24 4.3 Case Study Findings on Impact.......................................................... 26 5. Dilemmas, Challenges and Links with the Mainstream .................... 31 5.1 Dilemmas in Fair Trade Practice ........................................................ 31 5.2 Challenges for the Fair Trade Movement ........................................... 32 5.3 Bringing Fair Trade into the Mainstream ............................................ 33 6. Conclusions ......................................................................................... 35 6.1 Agents of Change............................................................................... 36 6.2 Broadening the Impact ....................................................................... 38 6.3 Summary of Specific Questions from Study Terms of Reference....... 38 7. Recommendations for DFID................................................................ 40 i Fair Trade: Overview, Impact, Challenges List of Annexes Annex 1: Terms of Reference for Fair Trade Study Annex 2: List of Individuals, Institutions and Documents Consulted Annex 3: Fair Trade Case Study - Coffee in Tanzania Annex 4: Fair Trade Case Study - Cocoa in Ghana Annex 5: Summary of Main Features of Fair Trade Labelling Annex 6: IFAT Code of Practice ii Fair Trade: Overview, Impact, Challenges Acknowledgements This study was undertaken by Stephen Jones and Brendan Bayley of the Economic Policy Programme of Oxford Policy Management (with assistance from Jim Gilling) and Nick Robins and Sarah Roberts of the Sustainable Markets Group, International Institute for Environment and Development. The case studies were prepared jointly with Dr Anna Temu of Sokoine University of Agriculture and Dr Victor Nyanteng of the University of Ghana at Legon, with contributions from Dr George Mavrotas of the University of Manchester. Thanks are due to all the individuals and institutions listed in Annex 2 who provided immense assistance through interviews and access to documents, both in the UK, during visits to the Netherlands and to the EC in Brussels, and for the case studies in Ghana and Tanzania. Earlier drafts of the report were sent out to members of a reference group consisting of fair trade organisations, conventional businesses engaged in the cocoa and coffee sectors, and academics with an interest in fair trade. Initially, the Inception Report was circulated to all members of the reference group to provide an overview of the approach the consultants were adopting and to prompt a request for relevant information. The first draft of the report was circulated for comment initially to those organisations involved in fair trade that had supplied information for the study in order to check on issues of fact as well as to provide an opportunity for comment on the draft findings more generally. A meeting was then held with members of this sub- group and DFID staff to discuss more fully the comments that had been provided. Several issues were highlighted in this discussion, relating in particular to definitional issues, the underlying assumptions about market operations, and the interpretation of the case study examples. A second draft that incorporated factual corrections was then circulated to the whole reference group. Members of the reference group were also invited to supply additional case study information to supplement that provided by the consultants. The final report was prepared taking into account the comments received. This consultation process generated valuable comments, discussions and additional insights as well as providing an opportunity for a better understanding of the objectives of fair trade organisations. We would particularly like to thank those members of the reference group who spent considerable time supporting this process. The conclusions of this study are the consultants’ alone and should not be attributed to DFID. iii Fair Trade: Overview, Impact, Challenges iv Fair Trade: Overview, Impact, Challenges Executive Summary The Fair Trade (FT) movement is dynamic and diverse. Although there is a lack of consensus on definitions and criteria the FT movement is united by the view that conventional trading relations between the South and the North are both unfair and unsustainable. The core of the FT movement comprises southern producer organisations, northern Alternative Trade Organisations (ATOs) that have their roots in the NGO sector, their umbrella associations, and labelling organisations. The FT movement is committed to the payment of minimum guaranteed prices and price premiums to southern producers, to direct and long term trading relationships, and the provision of pre-financing, information and training to southern producers and their organisations. FT concentrates on smallholder crops, plantation crops, and small- scale manufactured goods. There are significant overlaps between the FT movement and initiatives aimed at other ethical dimensions of trade, and environmentally sustainable trade. The FT movement carries out four types of activity that are in practice closely linked, but which are logically distinct. ¨ As market participants, FT organisations seek to challenge and outcompete conventional profit-oriented competitors, and to create sustainable businesses. ¨ As agents of advocacy and awareness raising they attempt to secure changes to the international trading regime. ¨ As agents of redistribution they aim to pas on the benefits of price premiums that some consumers are prepared to pay to southern producers. ¨ As agents of empowerment, they aim to assist producers to develop their own capacity to engage on more favourable terms in international trading relationships. Over the past decade the FT movement's commercial value and profile has risen, albeit from a low base. Since the early 1990s a number of trends in the FT movement have become discernible, including; ¨ Pressures for increased efficiency; ¨ The harmonisation of definitions, criteria and monitoring at the European level; ¨ Marketing through supermarkets; ¨ Increasing professionalisation; and ¨ Increasing emphasis on quality assurance. Market liberalisation and associated reforms have generally been favourable to most export commodity producers, but there are significant problems with the way in which these markets operate. Newly liberalised markets, while often highly v Fair Trade: Overview, Impact, Challenges competitive, exhibit pervasive market failures and have a limited capacity to support the emergence of the type of contractual arrangements that will improve quality, enable credit to be mobilised and used through the marketing chain, and enable producers and traders to manage the price risks they face. Producer organisations (including marketing cooperatives) have a potentially important role to play in strengthening the functioning of agricultural marketing systems. FT initiatives, through providing support to producer organisations, may therefore have a significant role in a strategy to improve the functioning of markets for small producers. The most promising framework for assessing the impact of FT initiatives consists
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