How does fairtrade work?
To answer this question let’s look at coffee and bananas, some of the first products to command the attention of the fairtrade movement.

Coffee, tea and chocolate drinks are derived from plants that are native to tropical and semi-tropical climates, and now grow widely through Africa, Asia, Latin America and the Caribbean. The situation for bananas is similar. These crops have 3 things in common:

First, production takes place primarily on plantations. Typically a few owners possess large areas of land. They employ large numbers of low-paid labourers, often providing housing as well as employment.

Second, plantations replace the mixed ecologies of the land area they cover with a single commercial crop, a so-called ‘monoculture’. The plantation is dependent on intensive chemical treatments to sustain fertility and control disease.

Third, the price of these crops is unprotected on world markets because they are generally produced in countries of the South, where protection and subsidies are rare.

Unfortunately these three aspects mean the crops can experience dramatic price fluctuations. Disease or flooding can hit the plantations hard. Speculation in the financial futures market can slash the price of crops.

Coffee was one of the first commodities to be targeted by Fairtrade organisations. They set about buying directly from producers in the global South, paying them more than they would get for their beans on the world coffee market. The organisations then sold the coffee through charity shops and informal networks (such as church groups) at a higher price than other coffees. So, the common strategy of Fairtrade organisations has been to generate an ‘ethical premium’ which gives the money made from higher prices back to the producers.

Fairtrade coffee is the only sector of the coffee market that has grown over the last decade, overall world coffee consumption has dropped. The Fairtrade movement began as dispersed initiatives by charitable and non-profit organisations in different countries, mainly in Europe. Europe is the largest market for Fairtrade coffee, with the UK coming third behind Germany and the Netherlands in terms of market share. In the UK the Cafédirect Fairtrade brand has 10.5% of the roast and ground coffee market and is the second largest brand!

The economics of ethical thinking
Economic growth is essential for human welfare. Liberal economics sees growth as gradual and continuous; the long-term trend will always be increased growth. At a global level, liberalized trade under free market conditions is seen as an important engine behind economic growth.

However, the liberal economic position accepts that not all countries and not all people within a country will experience the gains equally. Instead they argue that all people will be better off overall (they talk of absolute gains), with some being relatively more better off than others (these are relative gains).

On the other hand, the reformist approach covers a broad spectrum of views: from environmental NGOs such as Friends of the Earth, who are quite critical of the current system of global trade, to the World Wide Fund for Nature, environmental economists and international environmental lawyers, who tend to be more accommodating. What distinguishes them is their problem-solving approach.

A problem-solving perspective identifies immediate problems without considering how the wider political, social and economic structures might contribute to the problem. It tries to find a solution to the problems identified without trying to alter the existing structures.

This means that instead of seeking to change the structure of global trade, they are looking to find compromises that would ameliorate any problems in the relationship between trade and the environment. They believe that it is possible to reconcile environmental concerns with the demands for economic growth.

It is the liberalization of global markets that has enabled companies to go into countries and exploit their land and climate for profit. They do not pay for the damage to the human environment – the social and economic costs of ill health. Neither do they do pay for the damage done to the non-human environment, such as:

• polluted rivers and land
• contaminated crops and livestock
• loss of forests

Global competition, and fear of that competition, means that governments are reluctant to impose environmental standards in case these will put up the costs of production and effectively price them out of the market.

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Content last updated: 31/01/2006

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