Features of Fair Trade - Essay Example

Fair Trade Contents Contents 2 Introduction 3 Discussion 3 Features of Fair Trade 4 Purposes of Fair Trade and benefits to the Producers and Suppliers 4 Examples of Fair Trade in the present Day scenario 6 Conclusion 6 Introduction Fair Trade is being practised in the world more frequently and in huge volumes at the present day. Fair trade can be found to be practised in the developed countries of the world like UK, USA etc. and has taken a dominant place in the mainstream using the supermarket as the medium. The fair trade mark is being frequently used by organisations in order to provide a guarantee about their products to the customers. The fair trade market is said to be growing in the present times. However, there are various controversies relating to fair trade market. The movement on fair trade has become more and more aggressive with time. The supporters of fair trade are of the opinion that the various problems related to the imbalances in the society and the environmental problems arise as a result of free market trade. This essay tries to analyse the phenomenon of fair trade from the point of view of the suppliers. The various economic theories have been explored in this context. Thesis Statement The aim of this paper is to find out the benefits of fair trade as compared to the free trade to the suppliers of goods along with the theories that support the analysis. Discussion Concepts of Fair Trade Before proceeding with any elaboration of the various nuances of fair trade, it is essential o define the various aspects of fair trade. Fair trade is a movement which is aimed at promoting the labour standards as well as the environmental standards. It also includes setting a definite standard for the policy objectives which are aimed at the improvement of the societal welfare. Fair Trade is to be distinguished from free trade since free trade is that which depends on the market forces of demand and supply solely and would mean the removal of the different types of qualitative and quantitative barriers like tariffs and quotas. On the other hand Fair Trade would involve the promotion of the trade in the developing economies or the sectors which otherwise may not be able to compete with the international competitors. Exports being the focus of it from developing to developed countries. FINE proposed the most crafted definition of free trade in the year 2001. The fair Trade labelled products must be in line with the standards practised by the Fair Trade Organizations. The FLO or the Fair Trade labelling Organizations International is the responsible authority for regulating the certification standards as well as labelling of the products and stipulate the minimum criteria for each product to be labelled and sold as fair Trade (Mohan, 2010, pp. 17-24). Features of Fair Trade A number of criteria are present that distinguish the fair trade products from that of the other products in the market. First of all the producers are paid a minimum price by the traders. This ensures that the suppliers are able to maintain a minimum subsistence level of their living. Therefore the market price that is available to the final buyers is higher than what the traders pay to the producers. The traders generally provide support to the suppliers by providing them with the necessary funds for the setting up of the advanced techniques in the production process or in case of the use of equipments in the process. Funds are also mobilised for providing the social assistance for the development of the community (Trebilcock, 1996, pp. 61-79). Thus a premium of amount equivalent to 5- 10% of the amount is provided to the supplies or the producers above the minimum support price. Purposes of Fair Trade and benefits to the Producers and Suppliers The guarantee of the minimum support price or the fair price along with the social premium would ensure that the suppliers and in no way exploited in the wrong way and get a true value for their hard work. The social premium is not only useful from the economic point of view but also from the social point of view since the funds are utilised for the promotion of healthcare facilities, educational institutions as well as proper sanitation and roads in the rural areas where the suppliers mostly live (Moore, 2004, pp.73-86). According to the estimated of FLO the Fair Trade producers have been disbursed with funds for proper transportation as well as to make sure that the places where they live is equipped with proper access to safe drinking water. Thus fair trade would promote those industries which are not developed and the suppliers lack the competencies like access to the markets or proper strategies for the promotion of the products. One of the motives of Fair trade is to make use of the market based strategies with the aim to mobilise the consumer awareness which will help the workers and marginalised producers to move towards economic security from the phase of vulnerability (Hayes and Moore, 2005, pp. 3-5). It makes its contribution without getting directly involved in the production of commodities but offers a specific type of market structure as well as contractual terms that brings the benefits for the producers and workers. It is found that most of the farmers are poverty stricken. The phenomenon of Fair Trade helps in the elimination of poverty by providing the farmers with a strong footing and organisation which in turn would help them in building a capacity for playing with the players of the foreign markets. There are a number of criteria pertaining to the welfare of the society and environment should be followed in case of the fair pricing of the products (Bhagwati, 1995, pp. 745-759). the advocates of the fair pricing movement hold that the traders should take the necessary initiative to reach to the actual producers rather than buying from the intermediaries in the entire process of supply of goods (Booth and Whetstone, 2007, pp. 2-15). This would be possible when the traders get into long term contracts directly with the suppliers. This would eliminate the scope of operations of the intermediaries. This in turn would lead to a steady supply process in the economy from the actual producers to the markets. the proponents of Fair Trade also support that the actual suppliers deserve about 60% of the revenue that comes from the final customer. Another major benefit that the producers derive out of the Fair Trade is the safety against the fluctuations in the market. In case of a free trade the market prices are determined by the forces of demand and supply. It may so happen that in a particular year there is an excess production and hence the supply of the products is much more than that of the quantity demanded by the buyers (Smith, 2009, pp. 29–36). In case of the perishable commodities the producers often make distressed sell so that they get some money for their production. There is also not any facility for storage. However, fair trade would guarantee the suppliers that they would get the minimum supply price despite all odds. Examples of Fair Trade in the present Day scenario The principle of Fair Trade is practised by most of the organisations of the present day. This is mostly true for those organisations like Sainsbury or Marks & Spencer’s which has to depend on the supply chain to a great extent. The producers which have operations in a very small scale benefit from this process. Sainsbury however provided the minimum support price to the suppliers without shifting the burden of cost to the customers. This could be done because the numerous intermediaries were removed in the process and the company go the supply from the actual suppliers of the products (Renard, 2003, pp. 87–96). Conclusion It is clear from the discussion above that free trade is a special part of the market economy. Some of the customers are the advocates of free trade because they are willing to pay a price excess of the market price so that the suppliers of the products get a minimum subsistence level of living for themselves. It is most important for the emerging economies where the supply channels are not much developed and there is a lot of scope for exploitation of the producers. References Bhagwati, J., 1995. “Trade liberalisation and ‘Fair Trade’ demands: addressing the environmental and labour standards issues”. World Economy, Vol. 18(6), pp. 745-759. Booth, P. and Whetstone, L., 2007. Half a Cheer for Fair Trade. London: Institute of Economic Affairs. Hayes, M., and Moore, G., 2005. The Economics of Fair Trade: a guide in plain English. Newcastle Fairtrade Partnership. Mohan, S., 2010. Fair Trade Without the Froth: A Dispassionate Economic Analysis of ‘Fair Trade’. London: Institute of Economic Affairs. Moore, G., 2004. “The Fair Trade movement: parameters, issues and future research”. Journal of Business Ethics, Vol. 53(1/2), pp.73-86. Renard, M. C., 2003. “Fair Trade: quality, market and conventions”. Journal of Rural Studies, Vol. 19(1), pp. 87–96. Smith, A. M., 2009. “Evaluating the criticisms of Fair Trade”. Economic Affairs, Vol. 29(4), pp. 29–36. Trebilcock, M., 1996. “The Fair Trade – Free Trade debate: trade, labour and the environment”. International Review of Law and Economics, Vol.16, pp. 61-79. Read More