Fairtrade Certification - Fairtrade Pricing

Fairtrade Pricing

The main aspects of the Fairtrade system are the Minimum Price and the Premium. These are paid to the exporting firm, usually a second tier cooperative, not to the farmer. They are not paid for everything produced by the cooperative members, but for that proportion of their output they are able to sell with the brand 'Fairtrade Certified', typically 17% to as much as 60% of their turnover.

• The Fairtrade Minimum Price is a guaranteed price.
• The Fairtrade Premium is a separate payment designated for social and economic development in the producing communities. The producers themselves decide how these funds are to be spent. As part of the Fairtrade criteria, registered producers are accountable to FLO-CERT for the use of this money. It is generally used for improvements in health, education or other social facilities, although it may also be used for certain development projects to enable farmers to improve productivity or reduce their reliance on single commodities.

In practice the exporting firms do not always receive the full extra payment specified.

A significant proportion of the extra payment, sometimes all of it, is spent on meeting the criteria for certification, and added costs of membership. The Fairtrade Foundation does not monitor how much of the extra money paid to the exporting cooperatives reaches the farmer. The cooperatives incur costs in reaching the Fairtrade political standards, and these are incurred on all production, even if only a small amount is sold at Fairtrade prices. The most successful cooperatives appear to spend a third of the extra price received on this: some less successful cooperatives spend more than they gain.

There is no evidence that Fairtrade farmers get higher prices on average. Anecdotes state that farmers were paid more or less by traders than by Fairtrade cooperatives. Few of these anecdotes address the problems of price reporting in Third World markets, and few address the complexity of the different price packages. Cooperatives typically average prices over the year, so they pay less than traders at some times, more at others. Bassett (2009) is able to compare prices accurately where Fairtrade and non-Fairtrade farmers have to sell cotton to the same monopsonistic ginneries. Fairtrade encouraged Nicaraguan farmers to switch to organic coffee, which resulted in a higher price per pound, but a lower net income because of higher costs and lower yields.