Fair Trade: Transparency
Get Naked! This is the first in a series of posts that will explore the stated principles of Fair Trade and the requirements for certification.
The first of the major components of fair trade we will look at is transparency. In order to obtain Fair Trade certification, the producer must, among other requirements, be “organized into cooperatives or associations that are transparent, accountable and democratic.” IFAT defines transparency and accountability as “transparent management and commercial relations to deal fairly and respectfully with trading partners.” Transparency appeals to me as a consumer. If you need to cover your operations you have something to hide, right?
Wired magazine agrees that transparency has high potential commercial value. Wired used a very literal take on transparency in the March 2007 issue with their lead article “Get Naked and Rule the World” featuring a transparent cover that pulls away to reveal a naked Jenna Fisher from The Office… along with a strategically placed sign. While it is the image that garnered a lot of attention, it is the article that is truly controversial. It features a series of stories about "radical transparency, our notion that the next model of business success is laying your company bare to the world—sharing secrets with your rivals, blogging about ideas as you have them, and copping to fumbles and foibles as you make them.”
Sharing secrets (gasp), owning up to mistakes (no!), utter madness! What could possibly come from such openness? Perhaps consumer trust? Maybe innovation and advancement? Perhaps even ethical business?
The requirement that producer cooperatives be transparent and accountable has proven to benefit the Fair Trade movement greatly by establishing trust amongst members of the cooperatives and providing a means to account for the spending of Fair Trade social premiums, which are to be used only for community development purposes. One of Fair Trade's major shortcomings is that this requirement is not extended to the purveyors of the products in Western markets. Many Fair Trade retailers and wholesalers have chosen to emulate the transparent cooperative model (perhaps the best example is coffee roaster Equal Exchange), and all retailers and wholesalers who are members of the Fair Trade Federation are commited to transparency. However, since transparency is not strictly required, large retailers that offer Fair Trade certified goods are not living up to the same standard required of the producers of those goods. JustThings.info has a good example of this failing:
While 100% fair-trade roasters like Just Coffee are proud to post their producer contracts on their website and share solidarity stories of the relationships they’ve developed with communities from Chiapas to Ethiopia over the years, this is not the case for a player like Starbucks. Instead, one hears tales of price gouging, corruption, insider trading, racketeering, ghost buyers – all the worst hallmarks of corporate capitalism.
All of this is to say that despite the many successes of the Fair Trade movement, until it requires the same standard of transparency and accountability from retailers that is required of producers, the burden of holding all companies accountable still rests squarely on the shoulders of the consumer. There are plenty of retailers and wholesalers from which to choose that do meet this standard. As Fair Trade has moved into the mainstream, popping up everywhere from McDonalds to Wal-Mart, there is great oportunity for such companies to take advantage of the marketing edge available through the Fair Trade label without committing to the true purposes of the movement. Should these companies be forbidden from selling fair trade? Perhaps not, as we can seize this opportunity to get a foot in the door and demand that these companies commit 100% to the ideals and criteria of fair trade, transparency included. I want to see every business standing naked and proud before the world, their fair and just business practices stripped bare for the entire world to see and respect.
Tags: accountability, Big Business, ethics, Fair Trade, transparency
May 16th, 2007 at 4:15 pm
In addition to transparency there is the ideal that they _entire_ supply chain from farmer (or artisan) to the consumer reflect Fair Trade ideals, and not just that portion of the chain that exists in developing countries.
For example, for most Fair Trade CertifiedTM commodities (coffee, cocoa, sugar, etc) farmers have to be organized into democratic co-operatives. There are powerful reasons for this. For one, cooperatives are a business model built around the core principles of democratic control, and the fair distribution of economic benefits.
Yet when multinational corporations at this end of the supply chain that buy and resell Fair Trade coffee, etc., are run in the typical fashion, which is not only not transparent, it is also highly un-democratic, and unegalitarian, with $10 million CEO salaries and an explicit priority of profit-maximazation. On the one hand this is acceptable in that the world needs these corporations - who control the flow of most of the world’s commodities - to adopt reforms like Fair Trade. But on the other hand for those who want more aggressive reforms they can look for importers, manufacturers and retailers who run their own businesses internally more on Fair Trade lines.
Such businesses would include Fair Trade pioneers like the non-profit Ten Thousand Villages (importer/retailer) or in Canada the importer/manufacturer La Siembra (they’re the 100
% Fair Trade worker co-op behind the Cocoa Camino brand of chocolate/cocoa & sugar).
Also, there are the 300+ consumer food co-ops across the U.S. that are not only co-ops, of course, but were also the first retailers to make Fair trade coffee, chocolate, bananas and other items available.
For ourselves - Equal Exchange - we’re both 100% Fair Trade and a 75 member worker-owned & governed co-operative. For more on that see: http://www.equalexchange.coop/our-co-op
May 16th, 2007 at 5:17 pm
This is hardly the first time fair trade has been blogged about here. What does fair trade have to do with being green?
I suppose if your goal is the decay of the free market system to decrease quality of life and consumption in order to regress to pre-industrial age conditions then sure, it’s green.
May 16th, 2007 at 5:30 pm
Oh, James… we've missed you…
_______________________________________
Jeff McIntire-Strasburg
Senior Editor
Green Options
jeff@greenoptions.com
May 16th, 2007 at 5:33 pm
Ya…I’ve missed you guys too. I’m still curious how the concept of fair trade can be tied together with being green.
May 16th, 2007 at 6:08 pm
I’m guessing I’m not the first to offer James an explanation of how something like Fair Trade relates to being green, but I’ll give it a quick try.
For starters, I won’t even go into the explicitly green aspects of Fair Trade, such as the prohibitions against Fair Trade registered farmers using any of the “dirty dozen” pesticides like DDT, or over 80 other toxic chemicles. (for more on that see “standards” at http://www.fairtrade.net)
Rather I just want to talk about the basic concept that its common for people to be so poor that they become desperate. So desperate, in fact, that they make choices (like cutting down all their trees for firewood to sell) that only help them to eat today, at the expense of eating in months and years to come. BUT when they are more secure economically - which Fair Trade makes possible - then they can not only avoid desperate ecological choices, they can actually make long term ECOLOGICAL investments, like converting to organic agriculture and organic certification. Regarding certification, this is very often ONLY possible through membership in a farmer cooperative, which again, the normal market discourages, and which Fair Trade explicitly supports.
For more on this, go to this site,
http://www.enn.com/today.html?id=9710
and scroll down to a study (just one of many I know of) “The Power to Change… By Choosing the Coffee We Drink”, that describes this dynamic at work in Mexico.
May 16th, 2007 at 6:24 pm
Thank you, Rodney, for jumping in here.
Most directly, and as Rodney mentioned, Fair Trade specifically stipulates making efforts to engage in environmentally sustainable production wherever possible. Fair Trade is very often linked with organic production as well and it strictly prohibits the use of the worst chemicals.
To me, becoming green is at its core about becoming sustainable. Fair Trade provides a more sustainable model of commerce for everyone involved, especially producers who enjoy more stable and sustainable trading partnerships under Fair Trade than the vast majority of conventional partnerships. Often the large Multinational corporations will come to a co-op and make a huge buy with no long-term contract and are never to be heard from again. Establishing a sustainable trade partnership allows co-ops to invest in their future and with the influence of Fair Trade this future is often an organic and more environmentally sustainable one.
To really become a green society we need to green our economy as well… Fair Trade is a greener form of commerce.
Brady
May 16th, 2007 at 6:34 pm
Thanks Rodney, those are excellent examples!
Another green aspect of Fair Trade is through recycling, especially in crafts. There are abundant, beautiful pieces that use discarded cans, plastic bags, glass, wire, etc. The garbage collection in some of the communities is small to non-existent, so not only are they recycling, but cleaning up as well.
I think defining the correlation between the green movement and Fair Trade is important. I will go into greater detail in an upcoming post that analyzes the environmental aspect of the Fair Trade criteria.
May 17th, 2007 at 7:19 am
I’m all for transparency in Fair Trade and have had a hard time trying to find any transparency among Fair Trade coffee providers on costs and sales. When a Fair Trade purchaser buys coffee, how much a mark up do they put on? How does their final price differ from a regular coffee company selling the exact same beans? I see Fair Trade paying farmers about 25 cents over the free trade price, but fair trade coffee can be several dollars more expensive (and that includes the Equal Exchange types). But nowhere can I find an analysis of costs and prices that lay out why this might be.
May 17th, 2007 at 1:49 pm
Loved the article!
It can become difficult to become completely transparent - especially for a small company like my own. We sell clothing - mostly t-shirts. Our initial offerings of shirts come from many sources/producers. After we sell off this inventory we will probably consolidate with one or two producers. We do explain up front our standards related to organic, sweatshop free, and fair trade. But, we don’t list our actual sources.
When asked in person or by email we’ve been fairly open to sharing, but I’m also sensitive not to give out all my sources to a potential competitor because I’m barely selling anything and have limited resources to grow bigger now. Someone else can take my hard work (we’re talking hundreds of hours of research with no pay to do it), have more money to invest, and compete in such a way that they shut down my company.
At the same time, I really want more companies to do what I’m doing…so I’m constantly stuck between these two pulls.
You can check out our stuff: http://offyourbackshirts.com.
May 17th, 2007 at 2:13 pm
re: the retail price for Fair Trade coffee vs. others, etc.
When you compare retail prices for Fair Trade products vs. conventional products, you need to keep several factors in mind, plus make sure you’re comparing “apples to apples”.
For example, the coffee industry has at least 3 distinct segments. There’s the cheapest, mass-produced coffee in a can (Folgers, etc.), there’s some middle-market coffee that might come in a soft-pack and be of slightly higher quality (Eight O’Clock, Millstone, New England Coffee) and “specialty coffee” (Starbucks, Peet’s, Equal Exchange, Stumptown, etc.) which is the highest quality tier, and cost more.
Almost all Fair Trade CertifiedTM coffees are in the specialty category. And our own Fair Trade, organic coffees are priced comparably to non-Fair Trade, non-organic Starbucks coffee, and sometimes less.
Another factor is that most of the time coffee roasters like us do not control the retail price, which is set by the stores. So sometimes, especially at consumer food co-ops who really believe in Fair Trade, our products will cost about the same as the competition. But some retailers choose to mark-up Fair Trade coffee (and other products) more.
Likewise, some roasters who only sell a little Fair Trade coffee (in an otherwise non-Fair Trade product line) also mark-up their Fair Trade coffees more. Basically, every business has their own pricing strategy. For us, we try to keep the prices in line with the market so as to maximize the volume, becuase by doing so we also maximize the number of farmers we can support.
Lastly, at Equal Exchange we usually have a profitablity of about 2-3 cents on the dollar. Of those 2-3 cents, about 10% is donated to non-profit Fair Trade organizations, about 40% (starting this year) is distributed evenly among the 75 worker-owners of our co-op*, and the rest is re-invested in expanding our Fair Trade work.
(* That amounts to about $2,000 per worker per year. But if we lose money, the formula goes in reverse, and we, the workers, bear an equal proportion of the co-operative’s losses. So we’re bearing some risk, too, as the owners of our business. Note: pre-2007, only 20% was distributed to worker-owners. Also, note that in an industry where some CEO’s make $10,000,000/yr at Equal Exchange no one makes more than 4 x as much as the less paid employee. Further, the profits are distributed in equal shares to both highest and lowest ranking staff alike.)
For more financial details see our annual report at: http://www.equalexchange.com/annual-reports
Our 2006 annual report should go up any day now.