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In a recent article for Foreign Affairs (“Unfair Trade,” April 4, 2013), Amrita Narlikar and Dan Kim criticized our organization, Fairtrade International, and the fair trade movement writ large for doing too little to help the poor. They are wrong on a number of counts.
First, Narlikar and Kim argue that Fairtrade deflects attention from the biggest challenge facing farmers in the developing world: domestic farm subsidies in developed nations. We agree -- and have stated publicly -- that such subsidies do great harm. The United States and the European Union, for example, annually pay out $4.8 billion worth of subsidies to domestic cotton farmers. These payments create an impenetrable market barrier for many cotton farmers in developing countries, especially those in West Africa. The World Bank estimates that African farmers, already among the poorest in the world, lose out on $147 million in annual revenue due to Western cotton subsidies alone.
Yet far from compounding this injustice, Fairtrade has drawn new attention to it, galvanizing public support where it was previously lacking. After all, rising Fairtrade sales provide hard evidence that the public supports the kind of structural reforms Kim and Narlikar advocate. To defer steps that we can take now (such as purchasing Fairtrade) in the hope that Western leaders act on their own defies any basic understanding of change. Rather, as public-sector attitudes and private-sector practices shift, so, too, will government opinion.
Second, Narlikar and Kim are wrong to claim that the Fairtrade certification system harms farmers. A recent study by the Natural Resources Institute states that “a small number of studies suggest that there might be negative externalities, but no empirical evidence was found of this occurring in practice and in fact a higher number found positive influence on local market prices for non-Fairtrade farmers.” In a comparison of the incomes of Fairtrade and non-Fairtrade farmers in Peru, the Centre for Evaluation at the University of Saarland found that, due to Fairtrade, the former doubled their incomes in the last five years in comparison with the control group. And a recent study on Malawi concluded that the stability and predictability provided by Fairtrade resulted in farmers receiving higher and more stable incomes, which allowed them to save and make priority investments in their houses and families.
The authors also claim that the cost of certification excludes many small farmers from the Fairtrade system. But they are obviously unaware of the Producer Certification Fund, to which producers can apply if normal fees are too high a hurdle. In April 2013, for example, the fund granted $31,400 to 13 groups -- ranging from sugar farmers in Jamaica to mango growers in Senegal -- to defray certification costs.
Third, Narlikar and Kim misleadingly conflate government subsidies with Fairtrade minimum prices and premiums, which allow businesses and/or consumers to pay for a higher quality product and invest in the long-term interests of disadvantaged farmers and workers. They also provide producers’ businesses with much-needed capital. Fairtrade’s minimum prices act as safety nets, helping producers weather the worst effects of price volatility. Coffee prices, for example, have fallen by half in the last two years. Yet coffee farmers are hard-pressed to diversify; they grow coffee because their land is best suited to it, and because particular knowledge has been handed down to them. Still, diversification is important, and any extra income that farmers get from Fairtrade can be used to fund it. Fairtrade profits have allowed Costa Rican coffee farmers to grow macadamia nuts, Sri Lankan tea farmers to sell spices, and Tanzanian coffee farmers to invest in an instant coffee factory.
Narlikar and Kim are right to be concerned that farmers do not benefit enough from the prices consumers pay. We estimate that cocoa farmers earn three to six percent of final retail prices of their goods and tea workers can get as little as one to three percent. We agree that they should get more. Our minimum prices and added premiums are one small step along the way.
Finally, in bemoaning the prices of Fairtrade products, the authors neglect the fact that many companies foot added costs themselves. For example, shoppers in the United Kingdom and Ireland have paid no more for their Cadbury Dairy Milk, Maltesers, or Kit Kat bars since they became Fairtrade certified.
Companies are ready to invest in Fairtrade because they know that consumers want them to treat their suppliers fairly, and because it makes good business sense. The production of key commodities is dominated by large numbers of smallholder farmers (in the case of cocoa and coffee, for example, 30 million of them). These farmers are under severe pressure at the sharp end of supply chains where the market has progressively stripped out value. Companies are now realizing that without investment back into these communities, they will struggle to secure high-quality, reliable products in the future.
We are confident, therefore, that Fairtrade creates positive change. But we are constantly seeking out ideas, advice, and fact-based challenges. Above all, disadvantaged communities want the chance to trade their way out of poverty. We welcome any dialogue that brings us closer to this goal.