Fair trade

As you’ll see from earlier posts, I’ve just got back from India after a two week fair trade tour – meaning not just that we visited five fair trade producers (and paid them for our visits), but that the hotels we stayed in were Indian owned, and the organisation was by travel agent and guides committed to its principles.  Most of the people on the trip ran fair trade stalls and networks in the UK, often through a local church.  Even an old atheist like me needs to acknowledge that religious groups (like the Mennonites and Church of the Brethren) were around when fair trade ideas started.

My previous trip to India was at a beach-front hotel in Goa, which was great but not exactly a gritty view of the real India.  This time, I wanted to get a bit below the surface and learn more about India, whilst acknowledging that I am too soft (and my knees too bad) to do a back-packing, 24 hour train-riding, hostel-sleeping tour.  Also, the economist in me wanted space and evidence to think about development and aid issues.  I went with a belief that I retain with greater force than before – that the way forward for poor countries is economic growth, more than aid or charity.  Growth is the only prospect of generating the volume of wealth needed to raise people out of poverty in a way that aid will never do; and charitable transfers are even smaller, and carry the wrong message that the fate of the poor should be determined by the preferences of the rich.

So where does fair trade fit into this ?  The World Fair Trade Organisation has been going for more than twenty years, and the arguments seem familiar – that free markets favour the rich and developed and stacks the odds against the poor producers.  There are those who put forward arguments against fair trade, some of them quite respectable.  I wondered whether a price premium might make producers uncompetitive and take away the main asset they have in international trade, which is low costs.  My view has changed on that, partly from the knowledge that ‘low cost’ can mean child labour or appalling work conditions.  Not that I can be an expert after a few days away, but here are some reflections that might be of interest:

• The fair trade benefit is not only about letting producers have a higher price to live a little easier. It also involves making sure kids get an education, workers can save for old age, women are not exploited, work conditions are healthy, a surplus can be available for micro-finance and the environment is undamaged.  A major (arguably the major ?) benefit is the increased confidence and optimism it gives to groups and communities, especially empowering women.
• Fair trade retailers in the west sell at a considerable mark-up compared to the prices they pay the producers. Our guide, Ranjith Henry, a former manager in a multi-national, reckons that a ratio of 5:1 is not uncommon, and we saw bigger mark-ups in some fair-trade catalogues.  This isn’t exploitation, as a margin is needed to maintain the infrastructure (and pay for transport & marketing), but you do wonder whether there is the opportunity for a lower ratio.
• Fair trade is gaining ground in mainstream retail outlets and supermarkets – it used to be hard to buy (e.g.) fair trade coffee and tea, but it is now on every supermarket shelf. However, the sales of the outlets devoted to fair trade (and the producers we met in India) are flat or declining.  Some producers have had to lay off workers. This may be because …
• … there are issues about the product range and design, of craft products especially. There are only so many hemp bags, soapstone candle holders or hippy necklaces that can be sold.  I guess the answer is to get into areas where there are repeat sales (foods and snacks, cosmetics) but those are very competitive.  Managers at Sasha pointed out that there are now a very large number of firms producing ayurvedic cosmetics.  Another approach is to use fashionable western designers, and we saw this happening to an extent.
• Which is the role for capacity building. In the west, this can be a dishonest term – I had a dose as a technical college principal of agencies cutting our budget to pass to meddlers who wanted to get involved, invariably less well and at higher cost.  But in less developed economies, fair trade producers need to be developed, to understand the standards and deadlines needed to develop western consumer markets, and put in touch with promising outlets.
• The least encouraging project we saw was the pineapple juicing plant in Kerala. This was a very smart modern factory, packed with state-of-the-art stainless steel equipment made in Milan, and funded by the EU and supported by the state government.  However, it is financially challenged, and doesn’t work for most of the year.  Local pineapple farmers grow for the table, which is a different variety than pineapples for juice.  The alternative product is ginger, but orders there have been slack since farmers were encouraged to plant the crop.  The moral, I guess, is to support local ideas and initiatives, rather than imposing grand ideas from outside.  The other worrying piece of evidence from our visit was the news that the factory was dropping out of one fair trade line because the cost of accreditation – including visits from European assessors – were too high.  Replacing exploitative middlemen with costly bureaucrats seems a less than useful exchange.
• And this will work. Indians are endlessly entrepreneurial.  A group of very poor women in Delhi started to market second-hand shoes, using micro-finance to clean and repair discarded items and sell on.  This has the additional advantage of creating and exploiting a local market, rather than being dependent on American, Austrian or British organisations to order.
• Which I think implies that government aid should be about infrastructure not second guessing the market.  Donors could help ensure that there are decent roads to move products, inexpensive but healthy homes for workers, secure electricity, clean water, and effective garbage disposal.  Creating real things might also get around the propensity for corruption in aid.

Anyway, the views of an utter non-expert who will now look more closely at the labels in Waitrose.  There may be a price premium, but knowing about the levels of income in India (where living on dollar a day is not uncommon) it’s worth it.

Those wishing to know more can pick up a good primer in Fair Trade: A Beginners’ Guide by Jacqueline DeCaralo.