The Difference Between Trade and Fair Trade

What is Fair Trade?

Most people who read this post are probably well aware of the nature of Fair Trade, and the WFTO ten fundamental principles of Fair Trade that guide most people trying to trade in an ethical and fair way.

The 10 Principles of Fair Trade

These principles are, in short:

  1. Creating Opportunities for Economically Disadvantaged Producers
  2. Transparency and Accountability
  3. Fair Trading Practices
  4. Payment of a Fair Price
  5. Ensuring no Child Labor and Forced Labor
  6. Commitment to Non Discrimination, Gender Equity and Freedom of Association
  7. Ensuring Good Working Conditions
  8. Providing Capacity Building
  9. Promoting Fair Trade
  10. Respect for the Environment

So what makes companies who follow these Fair Trade principles different from those that don’t.

This post aims to highlight some of the differences, but also understand why other companies do not follow fair trade principles.

First we need to distinguish Fair Trade from ethical trade and regular trade.

Consider a farm shop in the UK that is buys only certified organic food from local producers within the UK, treats it’s workers well and follows all employment and health and safety guidelines

This could certainly be considered an ethical company but could never become a Fair Trade company.

Why?  I suppose it’s summed up in this quote from WFTO:

Fair  Trade,  fundamentally,  is a  response  to the  failure  of conventional trade to deliver sustainable livelihoods and development opportunities to people in the poorest countries of the world

So you can be happy and justified in buying products from the ethical farm shop, but it is not Fair Trade because it is not international trade.

Fair Trade in effect is a subset of ethical trade.  A subset that concentrates on international trade with disadvantaged communities in the poorest countries.

When we consider global trade as a whole, ethical trade is a subset of that both domestically and internationally, while Fair Trade is a subset of the international ethical trade.

A very rough graphical representation of this is show below.

Trade types

Is Fair Trade better than Ethical Trade

Fairtrade logoBoth are important. In an ideal world, all trade would be ethical, and those parts that deal with international trade from poorer countries would be Fair Trade.  I personally don’t think Fair Trade is “better” than other ethical trade.

But if you see the Fairtrade mark on a product you know that it has been audited and shown to comply with the regulations of the FLO.

If you see that a supplier is registered with BAFTS then you know the company has been checked and confirmed to get at least 70% of its products form Fair Trade producers.

Any claims of ethical status on products are, in general, probably true, but you would need to do your own research to be certain.  There are organizations that promote ethical trade such at the Ethical Trade Initiative (ETI) and you can get an idea about which companies are making an effort in this area.

Why don’t more companies engage in Fair Trade?

There are a number of reasons that most large companies do not engage in Fair Trade practices.

Fair Trade is fundamentally less profitable than regular trade

If a proportion of profits are put back into the local communities, and spent on ensuring good working conditions, then there is less for the shareholders.

Fair Trade companies accept this and work it into their calculations.  Many larger companies whose shareholders demand high profits will not accept this additional cost.

The company structures only allow expenditure on things like this if there is an economical or legal reason for it.

Fair Trade products are more expensive

This is often true. Clearly the Fair Trade importer is at an economical disadvantage compared to the importer who squeezes every last bit of work out of his workers for very little money.

The cost of manufacture is driven in large part by the wages of the workers so lower wages translate to lower manufacturing costs and lower product costs.

However one mitigating circumstance is that Fair Trade companies generally deal direct with the suppliers so some levels of “middle men” can be removed from the supply chain.  However this rarely results in the products being available as cheaply as exploitative products.

Consumers don’t demand it enough

While the status and visibility of Fair Trade has increased over the last decade, there is still not a fundamental demand from consumers to ensure companies treat their overseas suppliers well.

Events like the factory collapse in Bangladesh do bring this to the attention of the general population, but there has not been a large boycott of low cost stores in response to similar events.  Until that happens, companies, driven by shareholders’ desire for high profits, will continue to keep costs as low as they can.

Fair Trade involves paying a fair price for products

It’s one of the fundamental principles of Fair Trade but doesn’t sit well with the buyers for large companies. Their job is to squeeze margins and get the cheapest prices possible.

When we have a contraction in the economy in the UK the big companies want cheaper goods and demand that from their suppliers.  The buyers go and squeeze an extra 10% discount from the factory owners.  So the factory takes cost cutting measures and the people who suffer are the most disadvantaged, either by reduced wages, or by poorer or dangerous working conditions.

How do we reduce the difference between Fair Trade and normal trade?

Fair Trade is clearly the “good” way to do business. It is growing, and more and more companies are embracing ethical and Fair Trading principles.

You can be fairly confident that most large companies that are moving towards better ethical trading are doing so because it makes financial sense to do so.  There may be exceptions that are doing so out of morality, but in general market forces are driving the changes.

So consumers are really the power here as long as we work together.

  • Buy Fair Trade where it is available.
  • Buy Ethical where it is available.
  • Avoid the companies who are known for their poor record on worker conditions.

With consumer pressure, more companies will move towards ethical and Fair Trade if they are hit where it hurts, in the pocket.

Grand Conclusions

Usually you might expect some grand conclusions to a post like this.  I don’t really have any, other than to say that things are moving in the right direction.

Globalization initially made it possible to exploit workers in developing countries. Recent developments in technology mean that the end consumers are better able to see the effects of this exploitation, either through the web, or through better reporting of these events in the media.

Being aware of the working conditions of the people who produce our goods has started us moving towards Fair Trade for all.  It will take a long time, but with the correct will it can be done.

No comments yet.

Leave a Reply