What is Fair Trade?

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What is Fair Trade?

Fair Trade is a system of international commerce based on dialogue, transparency and respect. It is a system that ensures a decent standard of living for everyone involved, from producer to consumer. By ameliorating working conditions, empowering and educating farmers and ensuring the best quality for the consumer, Fair Trade contributes to sustainable development. Therefore, this movement is an efficient tool to overcome poverty and to meet the Millennium Development Goals. It gives producers a fair deal, not only by paying a stable price for their products but also by helping partners to get better market access, to protect the environment, and to comply with ILO standards. Long-term trading relationships and pre-financing are other important pillars of the Fair Trade system. All in all, Fair Trade is a variant of the producer-consumer relationship that connects production and consumption via a modified supply chain model which distributes its revenues more between all stakeholders than the conventional model.

Fair Trade’s mission is to offer the most disadvantaged producers, foremost in the South, the opportunity to raise their living standards through creating market access, foremost in the North, under beneficial not under exploitative terms.

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These mechanisms are central to the working of Fair Trade:
Fair Trade Standards

  • A minimum price agreed upon by the Fair Trade Labelling Organization (FLO).
    This price floor is paid to the producer in case the world market price falls below the minimum that would still cover the cost of production as well as provision for the family members and farm maintenance. This guarantees producers a living, allows them to plan for the future, and invest in long-term business strategies.
  • Payment of an agreed social premium.
    This premium is paid to the supplier and is usually around 10% of the cost price of goods. This allows suppliers to concentrate on development.
  • Small scale farmers are nearly always organized into co-operatives that work strictly democratically, one person, one vote.
    Collectively they are enabled to implement larger projects focused on technology, education and the enhancement of their living standard. This approach maintains the dignity of producers and empowers them to actively ameliorate their situation instead of being dependend on outside help.
  • Fair Trade prefers co-operative dealings instead of the more common competitive approach.
  • The production process cannot include any labor abuses such as child or slave labor.
  • Products are purchased directly from producers which means the influence of middlemen is limited.
    This not only increases the efficiency of the system but allows for a greater share of the final price to be redistributed to the producer.
  • Long-term trading partnerships must be transparent and accountable at all times.
    Pre-financing whenever possible allows for greater flexibility of the producer with a risk on the side of the company buying the product.
  • Market information will be shared with suppliers.
  • Sustainable production is tied together with the Fair Trade concept. Although obtaining certifications is a slow and expensive process due to an overload of work for the respective agencies, many farmers obtain organic certification. This makes them eligible for a higher Fair Trade floor price and increases the quality of their products. Moreover, it is imperative for all Fair Trade farmers to abstain from the use of certain pesticides and to work with resource management plans in the co-operatives.

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Photographed by Marcia C. Schenck in South Africa 2006

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