People need to know more about the relevance of fair trade

Epik Pranasari, Market Access Coordinator, Oxfam GB/Indonesia, mepik@oxfam.org.uk

Ratri Kustanti, Justice & Peace Institute, (Yayasan Samadi), samadi@solonet.co.id

There is a paradox in international trade. Though trade has caused poverty to the people of the South for centuries, people may learn that trade is also an important factor in poverty eradication. This is the belief that underlies the concept of fair trade that has been developed since the 1960s and puts it into practice, with all possible endeavors that make it possible.

Figures show that had developing countries increased their export market share by only 5 percent, they could have gained additional income of up to US$ 350 billion -- seven times higher than the total sum of aid they now receive. Africa could have raised its income up to $70 billion, five times higher than the total sum of aid and debt relief programs, only by managing a one-percent increase in its export market share (Oxfam International, Rigged Rules and Double Standards: Trade, Globalisation, and the Fight Against Poverty, 2002).

Yet developed countries still have protectionist trade policies, but require or even force developing countries to liberalize. According to the United Nations, such trade systems cause developing countries an annual loss of up to $100 billion.

Fair trade finds its context in the current international trade system, and opts to put poor and marginalized local producers at the center of the movement. Fair trade aims to provide security to small and medium producers from poor and developing countries, which would guarantee them fair prices for their products and long-term purchasing contracts.

Fair trade seeks to shorten distribution chains that stretch between Third World producers and consumers of developed countries, particularly for primary products and handicrafts.

Fair trade products that are traded with facilitation from fair trade organizations -- which act as importers -- or directly with fair trade importers are distributed through fair trade outlets in developed countries. This model has proven effective in eliminating intermediaries as well as opening and securing international markets for products vulnerable to market exploitation.

One priority is direct access to markets, which is highly difficult in conventional trade systems. Once reaching fair trade organizations or fair trade importers, the products are directly distributed through fair trade store chains in both fair trade and conventional markets.

To small producers, fair trade offers a number of practical benefits, namely advance payments, product development facilitation, market information and capacity building, and trade facilities.

Fair trade system requires advance payment, usually 50 percent or so of the total price or cost, after the agreement between producer and importer is made, or after the signing of contracts. This requirement is necessary to ensure that small/medium producers would not depend on loan or credit from a third party to start production.

Fair trade organizations also provide producers with financial and technical facilitation, including in information on possible target markets. Targeting producers and their employees, capacity building through training is expected to enhance their capacity and skill so that they can be self-reliant to improve their products. Fair trade requires a safe and healthy working condition not only because it is necessary to improve production capacity, but also for protection of workers.

To open up market access, fair trade organizations always encourage and facilitate producers to participate in business fairs or events of the same kind. In this way, producers are expected to gain direct access to new markets.

The fair trade movement has established a reliable alternative market, but goes beyond it. Since the 1980s, this movement has embarked on the purchase of processed products from developing countries, namely coffee, chocolate, tea and other snack foods through the world's giant supermarket chains such as K-Mart, Tesco, Sainsbury, Coles, and Aldi, in developed countries.

This activity may bear two positive effects for Third World farmers/producers. It certainly opens up direct access for Third World farmer/producers to supermarkets in developed countries. At the same time, it hinders them from exploitation by world- dominating multinationals.

Stepping into the mainstream market, therefore, implies that while protecting weak producers of the Third World, the movement, writes David Ransom, extends its targets to multinational retailers in order that the latter would be willing to receive products directly from farmers or small producers.

Fair trade as an empowerment movement has also spread to Indonesia. This development is reflected in the ever-growing number of organizations and groups that adopt a Fair Trade model as a strategy to empower marginalized communities and most importantly in the growing market in fair trade products.

By the end of the 1990s, Western Europe, New Zealand and Australia estimated the annual volume in fair trade to be $400 million to $500 million. Fair trade market growth in Europe is estimated to reach 5 percent per year. Spain noted an increase in the turnover of fair trade products to 50 percent during the period of 1995-1996. Fair trade products in Italy grow by 10 percent per year. In some countries, certain products were even reported to manage remarkable market penetration. Fair trade bananas maintain stable market shares of 8 percent in the Netherlands and 13 percent in Switzerland. Meanwhile, fair trade organic coffee holds a share of 70 percent in the Austrian organic coffee market, according to latest figures.

Such impressive development, however, does not mean elimination of challenges. Consumers' awareness of fair trade and recognition of its products are decisive factors as well as the toughest challenge in the development of fair trade.

We may also ask ourselves whether we are willing to pay higher for fair trade products that are ethically produced and environment-friendly or whether we prefer goods with lower prices that are produced by damaging the environment and violating human rights.

Giving a preference to fair trade and its products may contribute significantly to the efforts of poor and the marginalized, particularly in the South.