Recent high-level UN discussions regarding the post-2015 development agenda recognised a ‘continued but misplaced faith in market fundamentalism’ and called for an emphasis on development-led globalisation. In other words, a push towards the integration of social objectives into the global economy. But we only need to look at today’s Fair Trade market to realise the serious challenges this entails.
Market success has not necessarily brought the returns to small producers originally promised by the Fair Trade platform. Despite achievements, which include certified product sales totalling €4.36 billion worldwide in 2010 (up by 27% on 2009), and global sales more than tripling in the last four years, Fair Trade standards appear to have weakened, while equity in trade relationships remains uncertain and the movement’s legitimacy contested by the highly concentrated power and influence of corporations.
In Nelson and Pound’s comprehensive literature review on the impact of Fair Trade, the focus is largely on outputs (e.g. higher price, training activities, etc.), rather than on outcomes or livelihood impacts (e.g. higher incomes, new skills, changes in material wealth, social wellbeing and empowerment). Countering the success stories promoted by Fair Trade proponents, which today include transnational corporations (TNCs) and national supermarket chains, are case studies that suggest many of the claimed advantages of fair trade remain illusive to producers, who are undercut by the economies of scale associated with TNC commodity production and practices.
Mainstreaming of the Fair Trade market, which controversially includes sourcing from larger commercial farms and plantations, has succeeded in raising consumer demand, which in turn satisfies a number of the objectives of the fair trade campaign. Namely, to increase the volume of Fair Trade sales and heighten the visibility of the movement, suggesting the enabling of producers and workers to benefit from the corresponding financial flow. But, it has also allowed TNCs to flex their market power muscle and renegotiate the rules of Fair Trade.
Weakening of certification standards continues to be a problem, despite the establishment in 2010 of a New Standards Framework. Enabling (and enabled by) ‘regulatory capture’ are low entry requirements to the Fair Trade market. Many TNCs have struck deals to enter the fair trade system while purchasing less than 1% of their total volume at Fair Trade terms. While some, like Starbucks, are increasing their commitments, they are doing so voluntarily under their own sets of rules.
The subsequent proliferation of competing, private fair trade labels gives rise to a multiplicity of interpretations regarding standards and commitments. In 2007, the Fairtrade Foundation reported that 240 different ethical labels and over 500 codes of conduct had been registered in Europe alone, revealing variations in committed quantities of fair trade certifiable ingredients and levels of loyalty to small producers.
Weakening of certification standards is also evident in Fair Trade minimum prices. Inflation and intensified power dynamics in the commodity supply chain have undermined the benefit of minimum price levels, which have risen only minimally since they were established in 1989. Supermarkets and other large retailers have been accused of adding significant mark-ups to Fair Trade products, which contrary to consumer perception go largely to the retailer.
Renegotiating the terms of Fair Trade
The profitable potential of a growing niche market has made a compelling business case for TNC engagement in fair trade. Flexible conditions of market entry and active recruitment by licensing bodies have provided further incentive.
Since Starbucks first capitulated to activist demands for greater corporate accountability regarding global labour and pricing practices (2000), an increasing number of international corporate actors have entered the fair trade market. Most are visible in the agrifood sector and range from mass-market manufacturers to large restaurant and retail chains. FLO cites nearly 3000 licensees around the world selling Fair Trade products in over 70 countries. Among them are 28 ‘mainstream companies’ in 20 countries with whom the FLO Global Account Management team has recently engaged on social issues.
But despite the successful penetration of Fair Trade commodities into transnational distributive networks, tensions have arisen, particularly between corporations based in the Global North and small producers and their communities in the South. The global economic power (and influence) of a disproportionate number of companies with interlocking ownerships has been pervasive. Tellingly, the fair trade movement’s success is increasingly described in terms of market growth (a business metric) than it is on the experience of small producers, the original social imperative of fair trade (see this research article).
“There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”
– Milton Friedman (1992)
Despite its claim as an alternative system of trade, the Fair Trade model remains a market-oriented solution to development. Its difference is in its moral ideology, which by definition challenges conventional means of capital accumulation. The perceived threat this poses to profit margins and conventional business practices is what participating TNCs are arguably attempting to defuse.
Academics Jaffee and Howard refer to TNC engagement in the movement as corporate ‘cooptation’ of fair trade; whereby large commercial players join the market, “taking advantage of the profits offered by these niches and the integrity they represent to consumers – while at the same time trying to neutralise the transformative power of the standards underpinning that integrity”.
Beyond appropriating the language, image and credibility of the Fair Trade movement, TNCs have used regulatory regimes to drive a wedge between Fair Trade producers and key governance bodies. Jaffee describes this as ‘regulatory capture’, whereby the regulatory function of certification and labelling organisations clashes with the economic interest in increasing demand. The financial dependence on high-volume licensees (TNCs) suggests that governance organisations lack the independence to ensure proper regulatory oversight. This leaves little room for small producers to participate in negotiation (or individual farmers to participate at all), which is evidenced by their nominal representation on certification boards.
A good example of regulatory capture is Fair Trade USA’s unilateral decision last year to withdraw from FLO and pursue its own ‘Fair Trade For All’ initiative – an expansion of Fair Trade certification to include plantations in coffee, cocoa, sugar and cotton (in addition to plantations already existing for tea, bananas, cut flowers and other products). Worker cooperative Equal Exchange accuses Fair Trade USA of lowering standards, undermining democratic governance, threatening the existence of small farmer cooperatives and thereby threatening Fair Trade itself.
With capital accumulation along the supply chain progressively moving away from small producers, it appears that Fair Trade growth has come at the cost of the movement’s moral goals.
To rebuild its ethical foundations and reclaim its legitimacy, the movement must reconcile its position as both a participant in global trade and an agent of development.
Oxfam’s ‘Think Big, Go Small’ strategy for bridging the gap – properly integrating social objectives into the market – is to adapt business models to incorporate smallholders into supply chains. But just like the original Fair Trade platform, and despite some success, this is an aspirational approach that demands relaxation of the ‘Friedman Doctrine’.
The outstanding challenge for Fair Trade is to harness the corporate ‘conscientisation’ evident in initiatives like the Starbucks-backed ‘Fairtrade Access Fund’, the financial sector’s ‘Principles for Responsible Investment’ and, closer to home, the National Australia Bank’s partnership with the Australian African community. This would redefine the business case for social responsibility rather than providing a mechanism for its outsourcing.
But, first the movement must redress the current imbalance of power over conditions of market entry and exclusion. Definitive measures may include:
- The introduction of regulations to offset the competitive advantages that TNCs have over ATOs
- Specific restrictions on the scope of corporate participation
- More stringent conditions and explicit responsibilities of certification
- Regular and impartial reviews of FLO minimum prices
- Transparent and democratic decision-making
- Links with other social movements.
Paradoxically, this range of policy possibilities depends on the organisational and governance structure of those controlling market access and certification (the corporate sector).
As a market-oriented solution to development, Fair Trade must contend with the realities of economic globalisation, which include the presence of influential TNC networks. Driven by a dominant, neoliberal ideology, the TNC agenda gives primacy to the market and tends to overlook other organising principles of society. This exclusive focus on profitability is antithetical to the social objectives on which the fair trade movement was founded. It seems, therefore, that until a convincing business case can be made for development and poverty alleviation, social objectives are unlikely to be properly integrated into TNC management of the Fair Trade market.
The revival (and long-term survival) of the Fair Trade movement may therefore depend on renewal of the bottom-up model – capitalising on the increasing politicisation of consumer activity and facilitated by committed ‘consumer activists’, who are sensitive to issues of social justice in their daily purchasing practices.
Rather than pitting one paradigm against the other, a negotiation between old ideas and new approaches may be a more promising way to enrich Fair Trade principles. Today’s definition (and survival) of Fair Trade must be subject to that negotiation. And, only then will the capacity of corporations to facilitate the long-term development of local economies be realised.