Memorandum submitted by the International
Institute for Environment and Development (IIED)[71]
Fairness in trading is at the cutting
edge of efforts to secure a more just and sustainable agrifood
system. In 2000, OPM and IIED released a report[72]
which listed three main routes by which the scale and impact of
fair trade can be increased: (a) Rapid expansion of Fairtrade
labelling, (b) encouraging large processors (such as Cadbury,
Nestlé, Unilever) to develop Fairtrade labels on branded
lines; and (c) using experience gained within fair trade more
widely for producers to engage more effectively with the wider
market. Our submission deals with (a) and, in our response to
Q7, to (c).
Our first recommendation is to acknowledge the
different roots of "fair" and "ethical" trade.
"Fair trade", with its origins in the trade justice
movement, is largely treated in the marketplace as a high-end
niche, in the form of an extra cost to consumers for Fairtrade
labelled produce. And "ethical trade", with more recent
roots in CSR, is treated as a cost to suppliers in the form of
imposed standards and codes. "Ethical" codes make little
mention of producer price despite huge imbalances in market power
between producers and retailers. In fact, the current trading
environment is characterised by both a proliferation of standards
for ethics and sustainability and the abuse of market power
by powerful buyers, leading to a classic cost-price squeeze for
producers.
Q2. How best can donors help to develop fair
trade consumer markets in both developed and developing countries?
The growth in fair trade and its brand recognition
has been due to mainstreaming and the expansion of new product
lines. Donors can help this process through financing new product
label development at FLO, in the form of: technical standard development
inputs for new product areas within FLO standards unit; liaison
officers within the FLO product business unit (critical to bringing
new producers on-line); pilot certification schemes for the new
product, training of FLO-CERT technical staff in new product areas.
Q3. How can aid be more effectively mobilised
to help producers improve the quality of their produce in order
to access fair trade markets?
Aid can be mobilised to support southern producers
associations and support networks that link such associations
with existing business services. Support can also be channelled
to capacity building measures in developing countries and the
encouragement of public-private partnerships. In addition, aid
could provide farmers and workers with the financial incentives
and technical assistance required to convert to full organic production.
Q4. Is there a role for donors in helping
to develop the interests of producer communities in developing
countries (for example, the Ethiopian coffee trademark dispute)?
Yes. There are a number of concrete examples
where DFID has already supported the development of producer interests
in developing countries. These include:
— Through its Business Linkages Challenge
Fund (BLCF), DFID helped establish the Fair Trade horticultural
company "Gambian is Good" which supplies high value
hotels and restaurants with quality local produce.
— In 1999, DFID guaranteed a £400,000
loan taken on by the Day Chocolate Company to market Ghanaian
smallholder cocoa. Shortly afterwards, the Fair Trade Divine brand
was launched, and is currently available in the UK retail market.
— Another DFID BLCF grant helped to
implement a trademark programme which recognises fair and responsible
tourism practices in South Africa, benefiting local communities
and giving confidence to buyers.
There is a direct role in funding FLO Producer
Business Unit local liaison officers in the producer countries.
In addition to direct financial support to local
producers, donor governments could also help to create enabling
legislative frameworks (in developing and developed countries).
For example: legislation to facilitate trademark registration,
with a related appeals process, would help producers in developing
countries to create market value brands that provide higher profits.
Donors could also fund capacity building work to assist businesses,
trade associations and other organisations to formulate strategies
aimed at incorporating fair trade products into global value chains.
Q5. How does the international trade system
impact on ethical and fair trade production (for example, the
impact of changes in the EU tariff regime for bananas on small
developing country producers)?
Trade justice is an essential cornerstone of
fair trade. Fairness and equity in trading requires complementary
reforms of the international trading system, to ensure the end
of dumping products on world markets below the cost of production,
and to re-regulate commodity markets to reduce volatility and
chronic oversupply. To date the Doha round of WTO negotiations
has failed to reach an agreement on new trade rules that are fairer
for developing countries. Although WTO rules in principle allow
members to adopt or enforce measures necessary to protect human,
animal or plant life or health, WTO dispute settlement panels
have repeatedly found in favour of free trade and against import
restrictions for environmental reasons or related to production
methods. The WTO dispute settlement body has yet to consider a
case involving legislative preferences for products certified
as ethical or fair trade. However, based on past outcomes it is
unlikely to find, for example, import restrictions on non-certified
products or the preferential treatment of certified products consistent
with current trade rules.
Q7. What is the role of supermarkets, retailers
and businesses in supporting ethical and fair trade production?
Fairness and equity in trading relations between
supermarkets and their supply chains are hot topics, both in the
development debate (smallholder access to markets) and the domestic
farming debate.
Fairtrade labelling alone is not a strong proxy
for a retail company's commitment to fairness and justice in trading.
For most retailers it tends to be an add-on, rather than the basis
for doing business (with notable exceptions, eg Co-op own-brand
chocolate and coffee, Sainsbury bananas). This is underlined by
the fact that many retailers have positioned Fairtrade as an up-market
niche. In effect retailers have made fairness and justice
in trading a consumer choice—a test of their customers'
willingness to pay for non-exploitative trading with primary producers—rather
than a corporate standard and a means to transform their
mainstream businesses. If fair trade does not break out of its
niche position or rapidly increase the range of labelled products,
there is always the risk of it being used as a fig leaf to provide
cover for socially destructive relations within mainstream trading
relations.
Even within the fair trade movement, questions
are being asked about whether the purchase of certified fair trade
goods is an effective way of achieving systemic fairness in trade.
These groups are investing in other approaches such as schemes
to facilitate improved access to conventional markets for marginalised
producers, and lobbying on codes of practice on retailer-supplier
trade relations.
In order to bring fairness and justice into
mainstream trading relationships, innovative retailers can start
to bridge the arbitrary and artificial gap between "fair"
and "ethical" trade. In our paper for the UK Food Group
Achieving fairness in trading between supermarkets and their
agrifood supply chains (see www.ukfg.org.uk) we propose the
development of a set of guidelines for retailers that wish to
incorporate fairness and justice into their trading relations,
learning from the Fairtrade experience, to expand rather than
constrain opportunities for small and family scale producers.
By this corporate standard (rather than a brand or mark), customers
could be assured that their purchases across the board have not
contributed to the exploitation of producers and misuse of market
power. The potential opportunities and risks associated with introducing
such guidelines are highlighted in the paper.
But the room for manoeuvre for innovative companies
is severely constrained by the current structure and governance
of agrifood markets, which rewards "economies of scale"
while failing to provide a public policy environment which would
curtail the abuse of market power.
For supermarkets to improve the equity and fairness
in their trading relationships with the world's farmers, there
are a number of policy areas for both the public and private
sector to ensure a supportive and coherent policy environment
for companies to do the right thing, which are discussed in the
UK Food Group paper.
The first step is to recognise the problem of
severe imbalances of market power in agrifood, and the limits
of self-regulation. There is plenty of evidence that policy makers
are unable to situate the problem in a policy context, and therefore
unable to regulate around criteria for what constitutes a fair
deal between producers and consumers. The recent UK Food Industry
Sustainability Strategy, for instance, only addresses "ethical
trade", and this is handled primarily as an issue of social
rather than economic sustainability. Incredibly, there is no mention
of supplier or producer welfare or problems of price in the section
on "economic" sustainability. Competition policy also
is in dire need of modernisation. Competition policy traditionally
tends to equate social benefits with consumer benefits rather
than fairness to suppliers. But in order for competition policy
to also protect suppliers and primary producers in an era of extreme
imbalance in market power, buyer power needs to be examined in
the development of national competition policy on its own terms.
Q9. In an increasingly crowded ethical marketplace
how can consumers be supported to distinguish between different
fair trade brands, labels and codes?
Action 2 of the European Action Plan for Organic
Food and Farming (http://ec.europa.eu/agriculture/qual/organic/plan/workdoc_en.pdf)
provides for the establishment and maintenance of an Internet
database listing the various private and national standards for
products certified as organic (including international standards
and national standards in main export markets) compared to the
European Community standard. A similar database for fair trade
brands, labels and codes may be a useful starting point.
February 2007
71 Including FIELD (the Foundation for International
Environmental Law and Development). Back
72
Oxford Policy Management and IIED (2000). Fair Trade: Overview,
Impact, Challenges. Study to inform DFID's support to Fair Trade. Back
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