Fair Trade 101 // Part II: The Impact

January 24, 2013

by   ⁄  1 Comment  ⁄  Filed under Blog, Economic Stability

Fair Trade 101 is 3-part series that aims to explore the true meanings of Fair Trade, its impact in the global market, and Fair Trade label interpretation.

Part I: Fair Trade 101: Three Names, Three Meanings explores the different meanings and contexts of Fair Trade. To read this post, click here. Now that the concept of Fair Trade is clear, we will explore its impact.

Without delving into economics too deeply, selling agricultural commodities (think coffee, cocoa, sugar) in a global market can be a serious gamble. Prices fluctuate as farmers and consumers all over the world influence supply and demand. For example, small coffee growers in Fondjomekwet, Cameroon compete with big coffee producers in Brazil. Furthermore, global markets often favor large multinational companies, and individual countries have subsidies and tariffs that can alter the playing field in favor of their own producers. Market prices are unstable and can drop rapidly in the international market. Fair Trade mechanisms help decrease this instability and give small producers access to global markets in order to make farming a sustainable livelihood.

Raw coffee beans getting ready for export

Raw coffee beans getting ready for export

 Other factors determine an individual farmer’s success from one year to the next as well. A drought or invasion of pests can ruin a farmer’s crop, resulting in a lack of profit that year for that farmer. For someone whose sole livelihood is farming, this can be disastrous.

Fair Trade can help reduce uncertainty for farmers and workers alike. How? Fair Trade organizations can:

  • Offer farmers a minimum price for their product, which they will receive even if the international market price falls below that mark;
  • Offer long term contracts and price guarantees for a given period of time
  • Provide access to credit with reasonable interest rates that won’t later send producers into debt;
  • Pay Fair Trade Premiums to help farmers’ organizations fund development projects (i.e. health centers, schools);
  • Enforce higher labor standards that prohibit child labor, forced labor and guarantee the right to organize;
  • Encourage higher environmental standards

Farmer counting the money he received for his coffee harvest

For example, Utamtsi provides all its coffee farmers with a two-year fixed minimum price for their product. It provides credit to families to send their children to school, and is currently developing a microfinance project for women farmers and expansion of current coffee farms. Utamtsi employs handicapped workers throughout the production process, in both Cameroon and Germany. It requires all planters to practice organic agriculture in order to preserve the health of the environment and themselves.

These are the kinds of impacts a Fair Trade organization can have on producers and their communities. These kinds of mechanisms can be incredibly helpful not only to those who rely on the global market to sell their commodities but also to those producers so small they are unable to penetrate such a large market.

There are, however, criticisms of the Fair Trade impact. Since they are too complex to be explained here, check out this summary to get a more balanced view: New Evidence of Old Concerns. While reading, keep in mind that all Fair Trade organizations hold different standards, and tune in next week for more about how to make sense of different Fair Trade labels.

Next week→ Fair Trade 101 // Part III: Interpreting your Fair Trade label

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  1. [...] Part II of the Fair Trade post series is now up on the ‘Roots blog: here [...]

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