Cambridge SP Adopters Student Group 13th February 2004 - Policy Forum Making all trade Fair Trade

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What is Fair Trade?
How could the Simultaneous Policy make all trade Fair Trade?
Criminal law
Tariffs
Implications

Many thanks to Jon Galton for organising the event and John Bunzl, Director of the International Simultaneous Policy Organisation for explaining the SP concept.

Thanks also to the Sagar Quartet for excellent music in the interludes.

What is Fair Trade?

[This is based on the presentation made by Francis Irving of the Cambridge Fair Trade City campaign and quotes from the briefing paper ‘Introducing Fairtrade’ produced by the Fairtrade Foundation http://www.fairtrade.org.uk/]

" The first Fairtrade label was launched in 1988 in the Netherlands and applied only to coffee. Since then, labels have been launched in 16 other countries, in Europe, North America and Japan, and the products have gained between 1% and 14% market share in different countries. In the UK, the first FAIRTRADE Mark products appeared in 1994 (chocolate, coffee and tea) and, from a small base, sales are still expanding rapidly – by around 40% per year.

" Unlike the various ‘ethical’ and socially-responsible trade arrangements, Fairtrade can only work if consumers are willing to select Fairtrade products in the supermarkets and elsewhere. The FAIRTRADE Mark is both a tool to attract consumers’ attention, and a guarantee to the consumer that Fairtrade standards really have been met. Without such an external assurance – and without agreed international standards – any company could lay claim to fair trade. This would in time create two linked problems:

" Consumers would become sceptical about fair trade, as they did about ‘green’ claims in the late 1980s.

" Producers would find standards of fair trade begin to decline as more companies competed for consumer attention and began to negotiate prices down.

" The FAIRTRADE Mark creates a level playing field; an external standard below which companies cannot drop, allowing competition to operate without damaging the poor producers at the end of the supply chain.

" The problems experienced by poor producers and workers in developing countries differ greatly from product to product. The majority of coffee and cocoa, for example, is grown by independent small farmers working their own land and marketing their produce through a local co-operative. For these producers, receiving a fair price for their beans is more important than any other aspect of fair trade. Most tea, however, is grown on estates. The concerns for workers employed on tea plantations are fair wages and decent working conditions.

" To address this there are two sets of generic producer standards; one for small farmers and one for workers on plantations and in processing factories. The first set applies to smallholders organised in co-operatives or other organisations with a democratic, participative structure. The second set applies to organised workers, whose employers pay decent wages, guarantee the right to join trade unions and provide decent housing, where relevant. On plantations and in factories, minimum health and safety as well as environmental standards must be complied with, and no child or forced labour can occur.

" As Fairtrade is also about development, the generic standards distinguish between minimum requirements which producers must meet to be certified Fairtrade. Progress requirements also encourage producer organisations to continuously improve working conditions and product quality, to increase the environmental sustainability of their organisations and the welfare of their members or workers.

" Trading standards stipulate that traders must:

" The Fairtrade Foundations, with its international partners, checks that approved products continue to meet these criteria."

[Additional comments from Francis]

Cambridge city council has passed a fairtrade resolution to promote and support Fair Trade in Cambridge. However, there is more work to do to get shops and workplaces stocking and using fair trade products before the Fairtrade Foundation declare us a "Fairtrade Town".

The exact criteria to be declared a fairtrade town are available on the Fairtrade Foundation website: http://www.fairtrade.org.uk/get_involved_fairtrade_towns.htm

The aim is to encourage us in Cambridge to take practical action, merely by buying a different product, to help the lives now of producers in developing countries. Rather than just watching the news and despairing about poverty, this would be a simple statement that Cambridge is concerned about the way the world trade systems works, and that it can be improved. Also, we have to get there before Oxford! They're ahead at the moment, and it would be terrible if The Other Place became a fair trade town first... Show your support via http://www.bbc.co.uk/dna/ican/Club106

How could the Simultaneous Policy make all trade Fair Trade?

[Presentation by Mike Brady, Coordinator of the Cambridge Simultaneous Policy Adopters Group]

SP gives us the opportunity to make the Fair Trade criteria just presented to us requirements for all companies, not only those who voluntarily choose to opt in to the system.

We are here today to think through some of the methodology and implications of making all trade Fair Trade. My suggestion is to write up out discussion as the starting point for a possible policy document, which other SP Adopters Groups can take to discuss and develop further. We may wish to return to this topic in future meetings, particularly when we have feedback from groups in other countries. I am working to set up twinning with SP Adopters Groups in Latin America and Africa at present and it will be very interesting to have their views on the ideas coming from this meeting today.
So nothing we discuss today is definitive. How could it be? It is the start of a process. I hope this discussion will also show the potential of SP to change the world and encourage more people to become SP Adopters. That is our long-term project. In the immediate term, I hope those of you who do not presently show a preference for buying existing Fair Trade goods will do so. There are also actions you can take to support Fair Trade such as making Cambridge a Fair Trade city and joining Oxfam’s coffee campaign. SP fits in very well with these other activities.

I am a great believer in not re-inventing the wheel. This is partly due to laziness and partly due to respect for the work done by others in developing policies. Fair Trade, as we have been hearing, is something that is working in a day-to-day practical sense to transform people’s lives.

The global Fair Trade market is presently valued at £300 million. Fair Trade is a niche market. Fair Trade goods are generally more expensive than other goods, partly because supermarkets make more profit on them. For example, Fair Trade bananas are typically 78-90 pence/kg more expensive, with 35-65 pence of this going to the supermarkets as increased profit and on 24 pence extra to the growers. We can campaign for this to be changed. For Fair Trade to become more mainstream, supermarkets could accept lower margins to build turnover of Fair Trade goods.
SP is not an alternative to these campaigns, but it provides us the opportunity to think beyond what is possible through conventional campaigning, to bring in the policies which are necessary, not only those that will be tolerated.

So how can we make all trade Fair Trade using SP? There are several approaches I have been attempting to think through. Perhaps you can think of alternatives.

Criminal law

We could include in the Simultaneous Policy package the legal requirement that all companies abide by Fair Trade criteria. Corporations are adept at following legislation in a whole host of areas from contract law, to PAYE tax and VAT, to quality standards. They have systems for ensuring that their own quality standards are abided by when they source primary ingredients or components from outside suppliers.

There is already in the UK something called the Ethical Trading Initiative, which is attempting to work with supermarkets to ensure that core labour and environmental standards are followed. It relies on reporting from the supermarkets concerned. We should perhaps not be surprised to learn that Tesco has been accused of demanding a payment of £278 per year per site from all primary suppliers to cover the costs of its compliance with the ETI code. Some have also raised concerns that ETI can help retailers ‘avoid addressing the broader ways in which they create inequitable power relations in trade and agrofood networks between North and South’ (Du Toit A 2001, quoted in Food, Inc, UK Food Group 2003).

The relationship between retailers and suppliers is extremely unbalanced. The UK Food Group’s new report Food, Inc. Corporate concentration from farm to consumer provides an expert analysis of this (To download as a pdf go to http://www.ukfg.org.uk/docs/UKFG-Foodinc-Nov03.pdf). It talks of supply chain ‘bottlenecks’ which concentrate power. For example, in Europe, 110 buying desks source produce coming from 3,200,000 farmers for 160,000,000 consumers using 170,000 retail outlets of 600 supermarket chains. Those buying desks have enormous power to squeeze prices, discard produce which does not comply with their exacting standards and, perhaps as an inadvertent consequence, drive down standards for human rights and environmental protection.

Can such power be held to account by voluntary codes such as the Ethical Trading Initiative? Only independent monitoring can verify that. Generally speaking, corporations are opposed to independent monitoring of their undertakings to abide by voluntary codes.

I have a great deal of experience in monitoring baby food companies at the other end of the supply chain, in how they market their breastmilk substitutes. The International Baby Food Action Network (IBFAN), consisting of over 200 citizens’ groups in more than 100 countries, monitors marketing practices against international standards adopted by the World Health Assembly. Companies claim they comply with the standards. Independent monitoring shows they do not, and this malpractice contributes to the unnecessary death and suffering of infants. According to the World Health Organisation 1.5 million infants die around the world every year because they are not breastfed. IBFAN’s report Using International Tools to Stop Corporate Malpractice – Does it Work? is available via the IBFAN website for further details of this experience (http://www.ibfan.org/).

So, I believe we need some form of enforcement mechanism. Presently international standards can only be enforced at a national level. Following this model, the Simultaneous Policy could require the governments of supplier nations to police and enforce Fair Trade criteria. However, I think we would see the same kind of pressures SP is intended to address: corporations could play one country off against another, threatening to switch to buying from a country with less strict regulations and enforcement.

We could make it a requirement on the market countries to ensure that only Fair Trade goods are sold. Imports presently have to comply with health and quality legislation. Customs and excise and Trading Standards officer currently enforce such regulations. I had a quick look at the Trading Standards website this afternoon to check the product recall notices. Taking one notice at random from the 9 posted in October 2003, Morrison’s is recalling cans of Chicken Tikka Masala because it contains a non-permitted colouring. That will be an expense to the company, both in terms of the products it has to scrap, but perhaps more importantly, because the notice has to be published in the national press, which harms the company’s reputation. So companies do their best to comply to such regulations. If they do not, they could be faced with more than a product recall, they could be faced with criminal prosecution. Earlier this year, SMA was successfully prosecuted by Trading Standards for breaking regulations over the marketing of baby milks (Update Newsletter, Baby Milk Action 2003 http://www.babymilkaction.org/).

The same enforcement system could be used to enforce Fair Trade criteria. If Fair Trade documentation is not in order, then products could be banned from sale. If it is found after the event that there is some irregularity, then products could be recalled, companies fined or even executives imprisoned. There is not the same risk of pressure being placed on a country with strict regulations for selling. Companies have a choice where they source their produce from, but they want to reach as many customers as possible. If a company refused to sell in a country because it objected to the regulations, it would be harming its own turnover and profits.

A third route could be through the international courts. The International Court of Justice can presently only hear cases involving governments, but its remit could be extended to corporations. There are moves to do just this within the European Union. The European Parliament, prompted by East Anglia MEP Richard Howitt, has adopted a white paper on corporate accountability (click here to access the white paper EU standards for European Enterprises operating in developing countries: towards a European Code of Conduct). This calls on the European Commission to set up a monitoring platform so that complaints can be registered against corporate malpractice, be it abuses of human rights, the environment or whatever, as judged against existing international standards. The monitoring platform would then be able to sanction the company in some way if it finds it guilty of malpractice.

These proposals have not progressed, because the European Commission, with the backing of our governments, prefers the route of a code of conduct for corporations to voluntarily adhere to. It prefers round-table discussions involving all stakeholders, rather than independent investigations and sanctions. It is a classic example of the problem SP aims to address: the undue influence of transnational corporations over policy setting. Corporations are powerful lobbyists. Our governments are also in a bind. Why put European corporations at a competitive disadvantage by forcing them to abide by international standards if corporations with headquarters outside Europe can get away free? You can write to your Member of the European Parliament to support the Monitoring Platform approach as a parallel strategy to SP.

George Monbiot, in his book ‘Age of Consent’ has proposed a new multi-lateral organisation, the Fair Trade Organisation, to replace the World Trade Organisation. This would licence corporations on the basis of compliance with Fair Trade criteria.

In any of these cases, I think sanctions against corporations breaking the rules need to be meaningful. In the SMA case I mentioned earlier, the company was fined £60,000, equivalent to 3 minutes turnover. The case set an important precedent and the publicity and loss of reputation was probably more costly for the company, but it shows the weakness of current systems. I would suggest linking fines to company turnover and ideally holding executive officers personally liable with an ultimate sanction of imprisonment.

Tariffs

Another possible method of promoting Fair Trade would be to give preferential tariffs to Fair Trade products. In other words, import duties would be lower if compliance with Fair Trade criteria could be proven. An imaginative tariff structure could make Fair Trade products cheaper than alternatives. I know some Non-Governmental Organisations are investigating this approach for their lobbying of the European Union. It relies on market forces driving corporations to support Fair Trade for simple economic reasons. I think this needs careful evaluation, because it will also create pressure for non-Fair Trade goods to be made even cheaper to offset the greater import duty.

Implications

I would briefly like to think about the implications of making all trade Fair Trade.

The positive implications are, I hope, obvious, from the presentation we heard at the outset.

But there could be negative implications. For a start, some products will be more expensive. That will have an impact on people’s purchasing power. This may disuade some people in rich consumer countries from supporting SP if it includes measures to make all trade Fair Trade. One of the values of SP policy development process is that it is links people around the world, so that while we will consider the views of those who object to paying more for certain items, they will also have to consider the views put forward by SP Adopters in poor producer countries.

However, the extra costs will not inevitably be felt by consumers. Consider the breakdown of the cost of £1.00 of bananas from Ecuador sold in a UK supermarket:

Extra costs for meeting Fair Trade criteria could be met at various points in this chain. Competition between retailers with no option but to source Fair Trade products may see them accepting lower mark ups. But again this will have implications, on tax revenues, share dividends (and so pension payments) and, perhaps, fat-cat salaries.

The above breakdown shows how reducing or scrapping the EU tariff, with the requirement that some or all of that saving is passed on to producers, could make a significant difference.

Another implication is the impact on competition between producers and the role that re-regulating markets could play in this.

Take coffee as an example. In 2002 there was a global oversupply of nearly a million tonnes of coffee (Food, Inc. UK Food Group, 2003). Global consumption was 6.4 million tonnes. Fair trade (2001) was just 14,400 tonnes. Making all trade Fair Trade will benefit those who are able to sell their coffee, but what about those who find no market?

At present growers without a market can compete on price. The result of this competition has driven the cost of raw coffee beans to a 30 year low, with growers receiving less than cost price for their beans. Such competition presently benefits the roasters (the main ones being Nestlé, Philip Morris-Kraft, Procter and Gamble and Sara Lee/Douwe Egberts). Nestlé is reported to make 26% profit on its processed coffee (more than most other products on the supermarket shelves). Competition on price is driving people into poverty. Oxfam proposes getting rid of excess production by scrapping poor quality coffee. That may be a temporary solution, but down the track we are likely to see over-production of better quality coffee.

I am wondering if we can somehow introduce into the system competition based on Fair Trade criteria, perhaps going back to the tariff idea mentioned earlier. The better the working and environmental conditions, the more sustainable the agriculture, the lower the tariffs. Could such a system encourage processors to seek out the producers with higher standards?

We could, of course, return to the system of International Coffee Agreements, which ran from 1962 to 1989. Producer countries negotiated quotas to supply the world market, in much the same way as OPEC regulates oil production still. Countries, such as Uganda, divided up their quota by issuing the licences to farmers, the majority being smallholder farmers as a poverty-alleviation method.

The International Coffee Agreements were attacked as distortions of the market. There were also concerns that some countries were free-riders, providing poor quality coffee to the market as competition was less intense. There was, of course, also squabbling over which countries received what quota. But because a system had certain problems does not mean it should not be looked at again.

I would like to finish with some statistics from the UK Food Group report which quotes a study from Robbins (2003) who calculated that had the prices for the top ten tropical commodities risen in line with inflation from 1980 to 2002, suppliers of these goods would have received US$243 billion more than their actual receipts – five times the total world aid budget. This is the effect of the rules set without our knowledge or consent. While processors and retailers have shown growth in profits, producers have lost out in real terms.

SP allows us to take back the world. I hope the possibilities I have outlined for making all trade Fair Trade provide food for thought.

The discussion forum on the BBC iCan site can be used to post comments and suggestions prompted by this article.