Fair Trade

Fair trade aims to empower marginalized producers to improve their own living conditions. With the proper resources, capacity, and access to key relationships, disadvantaged producers are able to earn their own means to a better life for themselves and their communities. It aims to:

  • ensure farmers and producers are paid a fair price that accounts for a number of factors including cost of production and adequate living standards
  • build stronger relationships between producers, consumers, and businesses—streamlining supply chains to reduce inefficiencies and create more direct trading relationships
  • support producer organizations to improve their access to markets, tools, resources, and industry knowledge
  • support communities by creating the means to invest in infrastructures such as health and education
  • ensure proper standards for working conditions, environmental sustainability, and respect for cultural identity

In some cases yes, but they don’t need to be. There are many factors that can affect the price of a product. Goals for fair trade include streamlining supply chains, which can help bring costs down. In fact, many fair trade products are at par, or even cheaper than their conventional alternatives.

Higher prices are often based on quality. Many fair trade products represent a higher quality than lower quality conventional items.

Many fair trade products are offered by small companies that need to maintain higher margins to remain profitable. However, as companies grow and volumes increase, achieving better economies of scale, this allows businesses to lower their prices, as profits are earned more through volume. 

In many cases, yes. In some cases, no. There are a number of factors that can influence how a producer benefits from fair trade.

Due to limited demand for fair trade products, many producers can only sell a fraction of their product at fair trade prices, despite producing all of their product to fair trade standards. This means that they don't receive any additional income from their increased costs for production. As demand for fair trade products increases, fair trade certification will become more viable for producers, ensuring higher returns and greater impact.

Co-ops vary in capacity, size, scope, etc. Some represent as few as 20 producers; others represent as many as 60,000. These factors will affect the ability of a co-operative to produce and export quality goods. As these organizations grow, they are also able to adopt more value additions to their production. Rather than sell only raw materials, producers can wash, pack, and transport goods themselves, increasing the value of their products and earning them more benefits. Typically, larger organizations are able to co-ordinate more producers, produce more high-quality goods, and therefore, see the most benefit. 

Fair trade is about addressing systematic inequalities in the terms of trade. It aims to empower producers and reduce barriers so that they can better their own lives, as they're the ones to understand and address their own needs.

Many charitable donations programs use the rhetoric of "helping" or "giving back." While there are many programs that provide valuable aid to developing countries, these notions are often based on foreign perspectives, and in some cases, may also be geared towards the interests of foreign entities.

Rather than source products under unequal terms of trade, and then offer to "give back" some of the profits for community development, fair trade encourages businesses to pay producers what they deserve in the first place.

In short, no. Fair trade is a market-based system based on supply and demand -- much like free trade is. The difference is that fair trade attempts to address the inefficiencies of world trade to make it more mutually beneficial for producer communities. Much like the guaranteed minimum wages, workers' rights, and access to health care that we enjoy in Canada, fair trade encourages businesses to support these safeguards for producers in developing communities.

Some would argue that fair trade supports more open markets than currently exist, as our current global trading systems are heavily imbalanced. Wealthy nations use protectionist measures in the form of trade tariffs, quotas, and industry subsidies to protect their own industries, while developing nations are often prohibited from these as part of agreements made with the World Bank, the International Monetary Fund, and World Trade Organization. Fair trade aims to create more equitable rules for trade that no country should be excluded from.

Fair trade isn't perfect, but it is continually evolving. The fair trade of today won't be the fair trade of tomorrow. It's important that we support the efforts of those who are helping the system evolve and adapt the needs of producers, businesses, consumers, and other industry stakeholders.

While fair trade standards will evolve, the principles will remain the same. That is, fair trade is about enforcing transparency and accountability in supporting social sustainability.

Fair trade is about a process of social change. It offers consumers a way to support better business practices in supporting developing communities around the world.

Due to a lack of consumer demand for fair trade products, many fair trade producers are only able to sell a portion of their overall products at fair trade prices. This limits the impact, as the small gains aren't enough to balance the increased production costs of certification.

According to Fairtrade International's 2012 Monitoring The Scope And Benefits Of Fairtrade, in the 2010-11 reporting year, the portion of products that small producer organizations sold at Fairtrade Prices, by product, were:

  • bananas 72%
  • cane sugar 54%
  • cocoa 61%
  • coffee 45%
  • seed cotton 60%
  • tea 7%

For hired labour organizations, these numbers were:

  • bananas 70%
  • flowers and plants 22%
  • tea 8% 

When producers in a particular region sell their products at fair trade prices, this often benefits non-certified producers in region as well. This is because other producers in the region will take notice of the higher prices being paid and will demand similar prices from their buyers. The presence of certified co-operatives will also encourage other producers to join or form their own networks to earn similar benefits.

Often, the social premiums earned by certified organizations will go towards community developments in education, health facilities, and general infrastructure—which can benefit entire communities (and not just those in the Fairtrade system).


Co-operatives versus Estates

Co-operatives represent a specific business arrangement based on shared ownership and democratic principles. These organizations are often referred to as small-holder farms/co-operatives, and while they may also incorporate hired labour, they typically operate according to the interests of the local community, and often have the means to better care for their local environment.

Estates represent producer organizations that are owned by a business or company that hires workers to produce goods. Estates are often referred to as large-scale plantations/estates, and are often run in the interests of producing goods for low prices for international companies. Estates certified under the FLO system ensure proper labour standards and also earn social premiums for workers and their communities.

The fair trade movement has its roots in empowering producers, which has been most effective in working with co-operatives. In working with these types organizations, producers are able to make their own decisions in what is best for themselves.

Currently, smallholders grow 70 percent of the world’s food—in cocoa, as much as 90 per cent. 

Typically, large estate operations produce higher yields, are well-organized, and can deliver consistent products. However, they don't offer the same empowering benefits to producers. The CFTN encourages support for co-operative organizations as they offer a better means for empowering producer communities.


Environmental Standards

The most recognizable fair trade certifiers in Canada have requirements for environmental sustainability.

As stated on the Common principles section of their website, FLO standards include:

"...requirements for environmentally sound agricultural practices. The focus areas are: minimized and safe use of agrochemicals, proper and safe management of waste, maintenance of soil fertility and water resources, and no use of genetically modified organisms. Fairtrade standards do not require organic certification as part of its requirements. However, organic production is promoted and is rewarded by higher Fairtrade Minimum Prices for organically grown products."

Not all fair trade products qualify for organic certification standards. However, organic production is promoted and is rewarded by higher Fairtrade Minimum Prices for organically grown products.

According to Fairtrade International's 2012 Monitoring The Scope And Benefits Of Fairtrade, 54 percent of Fairtrade certified producers report organic certification, including 61 percent of all Fairtrade certified small producer organizations.


Fairtrade International (FLO) Certification

The Fairtrade Premium is an additional payment made to producers beyond the price of a Fairtrade certified product. It is a pricing mechanism that is exclusive to Fairtrade International certification.

Fairtrade International defines the Fairtrade Premium as:

"an amount paid to producers in addition to the payment for their products. The use of the Fairtrade Premium is restricted to investment in the producers’ business, livelihood and community (for a small producer organization or contract production set-up) or to the socio-economic development of the workers and their community (for a hired labour situation). Its specific use is democratically decided by the producers."

According to Fairtrade International's 2012 Monitoring The Scope And Benefits Of Fairtrade, Fairtrade producer organizations received a total of 61.1 million euros in the 2010-11 reporting year.

Minimum prices are price guarantees for producers to ensure that they cover the cost of sustainable production.

The Fairtrade Minimum Price (FMP) is a floor price which covers producers' average costs of production and allows them access to their product markets. The FMP represents a formal safety net that protects producers from being forced to sell their products at too low a price when the market price is below the FMP. It is therefore the lowest possible price that the Fairtrade payer may pay to the producer.

It is important to recognize that market distortions are practiced regularly by national governments in the form of tariffs, subsidies, and quotas.

The United States Department of Agriculture distributes between US$10 billion and US$30 billion in subsidies to American farmers, which can lead to oversupply and deflated prices on world markets. Not only have these subsidies remained high even during years of record profits, they are often paid to the largest and wealthiest multinational corporations, leaving small-scale producers at a disadvantage.

Rather than protect specific national interests, the principles of fair trade aim to address systematic inequalities in global trade, applying them to all parties and ensuring an equal playing field. This is important in ensuring a more equal playing field in establishing more mutually beneficial trade relationships between producers and consumers.

Rather than construing Fairtrade Premiums and Minimum prices as market distortions, they should instead be seen as systemic changes to global trade to ensure fair dealings on behalf of everyone, much like minimum wage laws that exist in developed countries.

For a more detailed discussion on different fair trade certifications, please read our resource on fair trade verification.


Labour Standards

The principles of fair trade do not allow for forced labour or child labour. It is important that fair trade certifiers have procedures in place to guarantee producers prohibit the use of forced labour and child labour.

Under the FLO system, producer organizations must go through an on-site inspection to be certified. Once certified, they are audited once per year, unless they can demonstrate excellent compliance over a series of audits, then they are eligible for desk top review as part of a three-year inspection review.


Issues for Fair Trade

Fair trade advocacy focuses heavily on changing consumer behaviours. We are creatures of habit: once we do something, we're likely to do it again. Similarly, once we learn the benefits of something, it is difficult to un-learn it.

While there may be many initiatives that consumers can get involved in, almost none will be as seamless and powerful as integrating fair trade purchasing into our everyday buying habits.

Fair washing is a strategy that a company might use to brand itself according to the principles of fair trade without formally committing to a set of recognized standards.

Smart consumers will be skeptical of companies that come up with their own proprietary programs and standards for social sustainability, as these typically lack transparency and oversight to measure the actual impacts. Conversely, certifications offered by third party organizations such as Fairtrade International ensures clear and accountable adherence to an approved set of international standards.

Whether a company offers only one product that is fair trade or all of their products as fair trade, what may be more significant to consumers is what a company's intentions are.

If a company offers only one fair trade product and has no plans to certify more, the company could be perceived as fair washing. That is, some might accuse them of trying to increase market share by appealing to responsible consumers. Meanwhile, they continue to support business practices that don't support social or environmental sustainability.

Conversely, offering one certified product can often be a first step in a larger transition to supporting social and environmental sustainable products. For many companies, the shift toward sustainability is not always simple or easy. It can require changing suppliers, working with new factories or farmers, and company and product rebranding.

If the goal is to maximize support for farmers, welcoming companies into the movement is key.


For Businesses and Institutions

The decision to only accept products certified through Fairtrade Canada or the Small Producers Symbol for Fair Trade programs or verified by the Fair Trade Federation or the World Fair Trade Organization was made by the CFTN Board of Directors with support from the organization’s membership.

Fairtrade and SPP certification offer the highest degree of transparency, accountability, and verification in ensuring the principles of fair trade are adhered to. Its standards and procedures are developed with input from producers and represent a large body of international stakeholders. No other certifications offers as much transparency and scope conducive to administering these types of programs. The Fair Trade Federation and the World Fair Trade Organization offer the highest standards when it comes to product verification, based on the fair trade principles.

There are many different factors that can go into the price of sourcing fair trade coffee. The price may increase, but it is often comparable. In some cases, it can be cheaper.

A couple of things to consider:

  • Prices are sometimes higher due to a lack of volume. When larger food service providers, institutions, or businesses buy on volume, prices often come down, as economies of scale can be reached.
  • Buying fair trade often involves buying higher quality products, which can be more expensive.
  • Prices may differ by the bag, but by the cup, differences can be as little as a penny.
  • When buying fair trade we put workers, families, communities, and the environment first. The type of coffee you purchase can actually change lives.

Supply is typically not an issue for businesses or institutions, as the supply for fair trade products currently outweighs demand. According to Fairtrade International’s 2012 Monitoring the Scope and Benefits of Fairtrade, only 45 percent of coffee certified under the FLO system is sold at Fairtrade prices. This proportion can be as low as 7 percent, as is the case with fair trade tea sales.

If there are concerns with fair trade products being different from products already being sourced by a company or institution, we can always work with suppliers to have producers certified.

Certification fees pay for operational costs for licensing, certification, and audits, as well as funding the ongoing development of trade standards. Fees also go towards supporting community and organizational development among producers.

Certifiers must also market their certification to increase recognition and demand for fair trade products.

While these fees may seem sizable, they often provide sizable returns to mitigate the increased expenses. Once certified,  producers gain access to buyers, higher prices, and more stable relationships, amongst other benefits such as tools, resources, and knowledge.

Grant and loan opportunities have also been established to mitigate the expenses in certification.