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Does Linking Ethical Investment with Fairtrade Certification Enhance Credit Outcomes for Small

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Does Linking Ethical Investment with Fairtrade Certification Enhance Credit Outcomes for Small THESIS THE FAIRTRADE ACCESS FUND: DOES LINKING ETHICAL INVESTMENT WITH FAIRTRADE CERTIFICATION ENHANCE CREDIT OUTCOMES FOR SMALL FARMERS? Submitted by Nefratiri Weeks Department of Sociology In partial fulfillment of the requirements For the Degree of Master of Arts Colorado State University Fort Collins, Colorado Spring 2017 Master’s Committee: Advisor: Laura Raynolds Michael G. Lacy Alexandra Bernasek Copyright Nefratiri Weeks 2017 All Rights Reserved ABSTRACT THE FAIRTRADE ACCESS FUND: DOES LINKING ETHICAL INVESTMENT WITH FAIRTRADE CERTIFICATION ENHANCE CREDIT OUTCOMES FOR SMALL FARMERS? The Fairtrade Access Fund is a new ethical investment fund established to work with smallholder farmer cooperatives certified or becoming certified by Fairtrade International. How does the Fairtrade Access Fund fit in with current financing schemes in the developing world? Does the Fairtrade Access Fund's connection with Fairtrade International certification and ethical finance standards enhance the important positive aspects of credit access for smallholder farmers? Does the connection with Fairtrade Standards mitigate the potential risks inherent in debt finance? My study employs an economic sociology and political economy theoretical framework. It traces the certification requirements of Fairtrade International and analyzes how they intersect with the key institutions of ethical finance in order to answer the main research questions. The research includes information on both investors and recipients of the Fairtrade Access Fund and evaluates whether the fund differs from current forms of finance already available to some smallholder farmers. In sum, my findings indicate that linking ethical finance with Fairtrade certification schemes does enhance credit outcomes for smallholder farmers. Further, Fairtrade certification works as an important mechanism of risk management for ethical lending institutions. ii ACKNOWLEDGEMENTS Special thanks to my advisor, Laura Raynolds, who guided this project from beginning to end. Thanks to my committee members, Mike Lacy and Alexandra Bernasek for helpful suggestions on methods and theory. Thanks to my family for support and patience while I worked untold hours through summer vacations and numerous school breaks. iii TABLE OF CONTENTS Abstract ........................................................................................................................................... ii Acknowledgments .......................................................................................................................... iii List of Tables ................................................................................................................................ vii List of Figures .............................................................................................................................. viii List of Acronyms ........................................................................................................................... ix Chapter 1: INTRODUCTION ..........................................................................................................1 The Fairtrade Access Fund ........................................................................................................1 Fair Trade and Ethical Investment: Background and Overview ................................................2 Statement of the Problem ...........................................................................................................6 Methodology ..............................................................................................................................7 Chapter Overview ......................................................................................................................9 CHAPTER 2: THEORETICAL FRAMEWORK / LITERATURE REVIEW .............................12 Theoretical Framework ............................................................................................................12 Political Economy and the Capitalist Global Economy ...........................................................14 Economic Sociology and the “Sociology of Markets” ............................................................19 Literature Review: Fairtrade and Finance ................................................................................24 CHAPTER 3: FAIRTRADE INTERNATIONAL: HISTORY, GOALS, STANDARDS, AND THEORY OF CHANGE ......................................................................................................33 Introduction: A Brief History of Fairtrade International .........................................................33 The Goals of Fairtrade International ........................................................................................37 Governance Structure: The Institutional Structure of Fairtrade International .........................38 Fairtrade Standards: The Economic and Social Interventions of Fairtrade International ........40 iv Core Requirement: The Fairtrade Minimum Price ............................................................42 Core Requirement: Fairtrade Premium ..............................................................................43 Core Requirement: Pre-finance ..........................................................................................45 Role of the Consumer ..............................................................................................................50 Fairtrade International’s Theory of Change .............................................................................51 Conclusion ...............................................................................................................................56 CHAPTER 4: FAIRTRADE FINANCE AND ETHICAL LENDING INSTITUTIONS .............59 Introduction ..............................................................................................................................59 Credit Organizations that Work with Fairtrade Smallholder Farmers .....................................61 Access to Credit as a Primary Obstacle for Smallholder Farmers ...........................................62 Ethical Finance Institutions: Top Seven Lenders in Agricultural Finance ..............................71 Shared Interest ...................................................................................................................71 Triodos Bank ......................................................................................................................73 Rabobank Rural Fund ........................................................................................................74 Oikocredit ..........................................................................................................................75 Root Capital .......................................................................................................................75 ResponsAbility Fair Trade Fund ........................................................................................76 Alterfin ...............................................................................................................................75 Conclusion ...............................................................................................................................78 CHAPTER 5: THE FAIRTRADE ACCESS FUND .....................................................................81 Introduction ..............................................................................................................................81 Institutional Collaborators .......................................................................................................83 The Role of Fairtrade International ....................................................................................83 v The Role of the Grameen Foundation ................................................................................83 The Role of Incofin Investment .........................................................................................85 Fairtrade Access Fund: Investors .............................................................................................85 Starbucks ............................................................................................................................86 Overseas Private Investment Corporation .........................................................................88 KfW Development Bank ....................................................................................................88 FMO Entrepreneurial Development Bank .........................................................................88 Fairtrade Access Fund: Statistical Data ...................................................................................89 Fairtrade Access Fund: Fund Beneficiaries .............................................................................91 COCAFCAL ......................................................................................................................92 COCAFELOL ....................................................................................................................92 UCA San Juan ....................................................................................................................92 COCLA ..............................................................................................................................93 NORANDINO ...................................................................................................................93
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