What Does 'Fair Trade' Actually Mean?

You've likely heard the phrase and even seen the iconic blue and green logo on products such as chocolate, bananas, or coffee — but do you know what it means?

If you're a particular fan of chocolate (or coffee, bananas, and other staple goods that don't typically grow in the U.S.), then you may have become familiar with the green and blue logo that frequently marks fair trade products. You've also likely come to expect that any commodity bearing that symbol is going to cost a bigger percentage of your grocery budget. But what exactly does it mean for your morning cup o' Joe to be fair trade? And who benefits from that arrangement?

To answer those questions, we've put together a brief guide explaining all the basics of the fair trade system. So if you'd like to better understand the meaning behind the sticker on your produce, feel free to follow along.

Fairtrade Bananas

So, What Does Fair Trade Mean?

"Fair trade" is a certification term that some food companies seek for their products; the label is granted by an agency tasked with ensuring that farmers and producers, particularly in developing countries, are fairly compensated for their goods when selling to distributors. To use the fair trade label, a company must set the cost of its product high enough that the proceeds will, in theory, both compensate producers for their goods and allow them to invest in future harvests. In other words, if a coffee company like Starbucks is interested in selling fair trade coffee, it has to pay its sources enough that they can cover the cost of growing the beans and still have enough left over to reinvest, if they wish. That reinvestment money is called a fair trade premium, and it makes up a fair chunk of the higher costs that fair trade products usually bear. In part, this system is intended to prevent wealthy corporations from disenfranchising poor workers who depend on international interest in regional cash crops for financial prosperity.

Fair trade organizations attempt to combat exploitation in the trade system by guaranteeing a price floor for valuable commodities that might see value fluctuations from season to season, like coffee. If the price of coffee per pound of beans is $1.50 according to the New York Exchange, then fair trade certified growers are guaranteed to receive that same amount per pound (in addition the premium mentioned above).

How Did The Fair Trade Movement Start?

As the World Fair Trade Organization explains on its website, the fair trade movement was born out of a larger interest in supporting small craftsmen and traders in the mid-twentieth century. In the United States, nonprofits started working with Puerto Rican needleworkers to sell their wares, while organizations in Europe sold crafts created by Chinese refugees. In the mid-1960s, the concept of fair trade, then called alternative trade, became more popular among socially conscious consumers interested in creating more sustainable trade relations with producers in Africa, Asia, and South America. In 1988, coffee became the first commodity to bear a fair trade logo, with the mark becoming progressively more popular throughout the 1990s.

Who Decides Whether a Product is Fair Trade?

Any business who wants its product to sport the iconic fairtrade symbol mentioned above will have to seek out a farm or group of producers that have been certified by Fairtrade Labelling Organization International (FLO), a nonprofit organization located in Germany. If you're buying fair trade products in the US, however, you might see a similar fair trade logo representing Fair Trade USA, which once belonged to Fair Trade International. Both certifications require companies to not only provide fair compensation in addition to the fair trade premium, but they also require farmers to provide decent labor conditions and ensure that no slave or child labor is used in the creating the product.

To be certified under FLO or Fair Trade USA's standards, a producer has to be a small farmer who belongs to a democratic cooperative and who doesn't hire permanent laborers. Rather than going directly to the farmer, the fair trade premium mentioned above goes to the cooperative, which then is meant to decide how best to help the community with those savings.

Does Fair Trade Actually Help Farmers, Though?

In a 2011 deep dive on the impact of fair trade on the coffee industry in particular published by Stanford Social Innovation Review, economist Colleen Haight submits that fair trade's greatest success, arguably, is the increased consumer awareness surrounding some of the exploitative practices used against impoverished coffee farmers. But as far as bringing poverty relief to farmers overall, Haight argues that FLO and Fair Trade USA's models have left a lot to be desired.

For example, the floor price can in practice become a price ceiling for some farmers during a bumper crop year. If the price of coffee falls to $1.00 per pound because there's been a plentiful harvest in numerous countries, for example, then some fair trade buyers won't pay more than $1.20 regardless of the quality of the seller's beans. This leaves farmers with less incentive to participate in the fair trade system or to improve their growing methods. This also means that fair trade coffee is often subpar in quality compared to premium coffees that don't bear fair trade certification. Farmers will save their best beans for buyers who will pay above market price rather than settle for fair trade buyers who will only meet the bare minimum.

Another common critique of fair trade is that the profit distribution ensured by these certification models is rarely transparent. Haight discusses how cases have been documented of fair trade premiums being used to build better office spaces for domestic cooperatives or hire more staff, rather than used for education, local schools or food sustainability projects. Since most of the products sought under fair trade agreements are grown in South American countries, some critics also argue the certification system unfairly benefits South American countries over developing communities in Asian and African countries, whose native crops may not be as in demand.

Are There Other Sustainability Alternatives to Fair Trade?

The fair trade certification models used today may certainly have their flaws, but the core values behind fair trade — decreasing poverty and ensuring market equality — are still worth pursuing in the culinary world. And some purveyors, particularly in the coffee world, are ensuring better working and trade standards on their own by reaching out directly to vendors. That method, direct trade, has a lot of potential for helping consumers and sellers skirt the downsides of the existing certification system while still ensuring food is procured ethically. However, direct trade is still a relatively fledgling trade method, requiring significant time and energy on the part of the buyer. If customers want to ensure that producers are getting their fair shake, then they will have to more insistently demand that food companies are transparent about their supply chains and that they follow through on commitments to create thriving working conditions for the farmers they partner with.

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