Fairtrade Canada - How Fairtrade Works

How Fairtrade Works

With Fairtrade coffee, for instance, packers in developed countries pay a fee to The Fairtrade Foundation for the right to use the brand and logo, and nearly all the fee goes on marketing. Packers and retailers can charge as much as they want for the coffee. The coffee has to come from a certified Fairtrade cooperative, and there is a minimum price when the world market is oversupplied, and 10c per lb extra at other times. The cooperatives can, on average, sell only a third of their output as Fairtrade, because of lack of demand, and sell the rest at world prices.

The exporting cooperative can spend the money in several ways. Some goes on meeting the costs of conformity and certification: as they have to meet Fairtrade standards on all they produce, they have to recover the costs from a small part of their turnover, sometimes as little as 8%, and may not make any profit. Some meets other costs. Some is spent on social projects such as building schools, clinics and baseball pitches. Sometimes there is money left over for the farmers. The cooperatives sometimes pay farmers a higher price than farmers do, sometimes less, but there is no evidence on which is more common. In some cases the farmers certainly do not get enough extra to cover their extra costs in conforming to Fairtrade standards. There is little or no research on the extra costs incurred or the extra revenue.

The marketing system for Fairtrade and non-Fairtrade coffee is identical in the consuming countries, using mostly the same importing, packing, distributing and retailing firms. Some independent brands operate a virtual company, paying importers, packers and distributors and advertising agencies to handle their brand, for cost reasons. In the producing country Fairtrade is marketed by only by Fairtrade cooperatives, while other coffee is marketed by Fairtrade cooperatives (as uncertified coffee), by other cooperatives and by ordinary traders.

To become certified Fairtrade producers, the primary cooperative and its member farmers must operate to certain political standards, imposed from Europe. FLO-CERT, the for-profit side, handles producer certification, inspecting and certifying producer organizations in more than 50 countries in Africa, Asia, and Latin America. In the Fair trade debate there are many complaints of failure to enforce these standards, with producers, cooperatives, importers and packers profiting by evading them.