The Fairtrade Movement as a More Ethical Trading System - Essay Example

?The Fairtrade movement – A more ethical trading system The prime focus of any organization is to actualize ethically clean organizational functioning based on optimal ethics system; otherwise, the consequences will be on the negative side. This optimal ethics has to be included in the organization’s trading practices as well, and this why the concept of ethical trading is being focused even more nowadays. Although, ethical trading has become an important topic in business field since 1920s, it is in the current times, with the organizational processes and the Corporate Social Responsibility being scrutinized even more by the public, media, etc, that it has gained prominence. Ethical trading is the umbrella term used to denote and describe all types of business processes or practices, which borders on promoting socially as well as environmentally responsible trade. This was stated by Narasaiah (2006, p.148), “Ethical trade is one dimension of corporate social responsibility, bringing social issues into the mainstream of commercial supply chain management through the use of codes of conduct.” Although, the term is also used to refer to the trade practices in an organization’s supply chain, instead of ethical trading, the term Fair Trade is being used to denote the ethical trade practices in the supply chain. Although, the words Ethical Trade and Fair Trade are synonymously used or sometimes interchangeably used, there is some clear distinction between the two words. “Ethical trade focuses on employment conditions of workers within global value chains, as distinct from Fair Trade which focuses primarily on producer prices and trading relationships. (Barrientos, Conroy and Jones, 2007, p.60). Thus, Fair Trade is a form of trading, where the well-being of weak actors or producers in the supply chain is taken care, through optimal trading practices. That is, the big players need to carry out ethical practices and indulge in ethical trading, so that the interests of the small players or traders are protected. What is more, the Fair trade movement also focus on reducing the poverty and improving the living standard of primary producers or farmers. Successful organization will try to incorporate a feasible model for a more ethical trading system and this is applicable to organizations in any sector, including the food and drink sector. So, in this article, the argument will be made and the reason will be given on why Fair trade has become a viable model for more ethical trading system. Role of Fair Trade Fair Trade had its origins way back in 19th century in the form of Cooperative movement among the traders. However, it evolved more in the mid part of the 20th century. That is, it began with the Mennonite Central Committee, U.S. based service entity, deciding to do trade with the poor communities in the South in the 1940s. From that beginning, it further expanded and become a "movement" in the 1960s and 1970s. (Moore 2004). Fair Trade is the term given to the trade that is authorised and overseen by certain unbiased organizational bodies, whose role is to see whether that trade happens fairly giving the due benefits to the producers in the supply chain. The four main organizational bodies which formulated the guidelines that constitute Fair Trade, and gives Fair Trade recognition to specific producers and buyers, thereby overseeing the Fair Trade practices are Fair Trade Labelling Organizations International (FLO), World Fair Trade Organization (or formerly International Fair Trade Association), Network of European Worldshops (NEWS!) and European Fair Trade Association. To further actualize an omnipresent body, which can coordinate and oversee all the Fair Trade practices, these four bodies created together FINE (starting letters of the four) in 1998, an informal body “whose goal is to harmonize fair trade standards and guidelines, increase the quality and efficiency of fair trade monitoring systems, and advocate fair trade politically.” (articlesbase.com 2011). This FINE is also responsible for coming up with an acceptable definition for Fair Trade. Although, in course of time, many varied definitions were given to Fair Trade based to their purposes, FINE’s definition is the widely acceptable one. “FINE has developed the following: Fair Trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers” (fairtrade.org.uk). Among these four bodies, Fair Trade Labelling Organizations International (FLO) has wider influence and presence setting standards and giving certifications to higher number of producers and buyers. “There are now 827 Fairtrade certified producer organizations in 58 producing countries, representing over 1.2 million farmers and workers” (fairtrade.net). FLO has come up with standards for many products being cultivated or manufactured in the Third World countries including coffee, tea, bananas, fresh fruit juices, sugar, sports balls, etc, etc. Although there are product and country specific standards, some of the common standards, which has to be followed by both the buyers and the producers are the following It should be a direct purchase, with buyers purchasing directly from the producers, without any middlemen. Secondly, the buyers have to offer an optimal price that has to cover the cost of production of the producers and also cover the social premium that is needed to the improve social conditions; Social Premium is the key because the buyers have to improve the living conditions of the producers, their related community, by carrying out constructive community activities. In addition, the buyers have to give advance payment, so that the producers can carry out their cultivation or production process without any impediments like shortage of funds, and can also avoid falling into debts Fair Trade also stipulates that buyers and producers have to sign sizably long-term contracts, so there are long term opportunities and consistent sustainable production practices. (Renard 2004) In addition, the producers who want Fair Trade recognition should not employ child labour, and should provide optimal working conditions for the employees. (Renard 2004) This evolution and the continuing growth of the Fair Trade movement has turned out to be an key factor in achieving optimum social justice and ethical trade. That is, the movement wants to transform and strengthen the international trading relations between the buyers/consumers and producers on basis of trust and fairness. On the whole, it is said that Fair Trade ‘humanizes’ the trading process between the producer and the buyer/consumer, so that buyers become aware of the culture, identity, and conditions in which the producers live, thereby understanding and carrying out trade practices which financially as well as socially uplift the producers. (Raynolds 2000). Organizational Perspective Ethics is an important element in business practices as it relates to the inquiry into the nature and a ground of morality where the term morality implies moral judgments, ‘standards and rules of conduct’ (Parsa and Lankford 1998). Significantly, the pace at which the business world is changing especially with the development of multicultural organizations, and technology and communication infrastructure requires that all the strategic business decisions are aptly arrived at by factoring or taking into consideration all the ethical issues. The ability of an organization to put into place strategic measures to harness both ethics and sound corporate practices offers one of the best means of Fair trade, particularly when trading with the producers from Third World countries. Through ethical management and implementation of acceptable corporate social responsibility initiatives, it is most likely that a business’ performance, image and stakeholders perception will be enhanced. (Enderle 1999). In the international business environment particularly the Fair Trade carried out with Third World countries’ producers, the activities carried out by the organizations may either negatively or positively impact on the producers as well as others in their community. Thus, as part of ethical trading and in particular as part of Fair Trade, international businesses should not only seek to maximize its wealth but also solve some problems in the society. Fair Trade activities including Fair Trade Coffee support and intersect with other community development efforts, grounding and enhancing the resulting benefits (Raynolds, Murray and Taylor 2004, p. 116). These issue faced by the society may be due to the organizational operations of these organizations, which may lead to problems and pressures in the society or even environmental degradation. This being one perspective, the other is, even if the organization does not negatively impact the society, people and its environment, it is paramount on the part of the organization to be ethically correct, when it financially deals with them. As such, business entities has to manage purposefully to achieve both socio-economic and environmental benefits, even while achieving enhanced image, and at the same time owes ‘a duty to stakeholders other than shareholders’ (Kercher 2006). When considering the social welfare, it is therefore essential that the needs of all the stakeholders be recognized and met in accordance to the set out code of ethics. When an organization does this Fair Trade, apart from getting their raw materials for this organizational purposes, it will also elevate its ethical image, and thereby its brand image. Optimal Brand image is the key for any organization because it will only entice the prospective customers and make them into a loyal customer base. When a product or a service has a strong brand image, “customers perceive them as having value over and above that of the ‘equivalent’ commodity, or in excess of the sum of the price of the product’s or service’s constituent parts.” (Chernatony and McDonald 2003). To elevate their brand images only, the organizations will indulge in ethical practices including Fair Trade practices. That is, there may not be maximum direct financial advantage for the organizations, when they indulge in Fair Trade or any other Corporate Social Responsibility (CSR) based activities. So, they will indulge in these Fair Trade practices mainly to elevate its brand image, which in turn or indirectly will provide the organization financial benefits. When a organization or its products or services achieves a optimal as well as ethical brand image, it may be accepted and welcomed by the customers in a more strong manner, leading to the success of the product or services, resulting in profits. “The benefits of Fair Trade certification for coffee importers, roasters, and retailers include an "enhanced image for brand and company" and the "legitimacy and credibility of social responsibility claims afforded by independent certification."” (Raynolds 2000) Organizational perspective through the case of Starbucks and Nestle Starbucks in the early part of 2000 was not favourably viewed by the customers for not practising Fair Trade practices in its coffee imports from African Countries. Coffee is one of the first labelled commodities under the Fair Trade system, and so continues to be a kind of flag bearer for the Fair Trade system. FLO has stipulated that coffee buyers as well as the producers need to follow the earlier mentioned set of common principles to constitute a Fair Trade. That is, coffee buyers like other product buyers has to directly purchase from the growers or grower organizations using purchasing agreements, without any middlemen. However, there are certain coffee-centric stipulations in line with the common principles as well. For example, Coffee importers must guarantee the producers a FLO minimum price (US$ 1.26 per pound for arabic coffee) and pay a premium or social premium (US$ .05 per pound) above world market prices, should they rise above the FLO minimum. (Raynolds 2000). In addition, buyers must offer advance payment equal to 60 percent of the contract value upon request. (Raynolds 2000). However, when the case of Starbucks is focused, it was clear in early 2000s that they did not practice the Fair Trade practices aptly. Starbucks was accused of buying coffee beans from the African coffee growers for a very low price, pushing them into a cycle of poverty. Also, Fair Trade coffee means providing the coffee growers as well as the society of the coffee growers with “community development, health, education, and environmental stewardship” (globalexchange.org). However, Starbucks did not do this as well, so was viewed as an unethical organisation by its prospective customers, media as well as the common people, thereby coming under the ethical perspective of egoist. Ethical Egoism relates to the responsibility of an organization to ensure strong personal and social welfare for the individuals associated with it, and also society as a whole. In this case, Starbucks and its leader Howard Schultz, assuming the role of egoists, missed giving fair prices to the farmers and thereby avoided caring for theirs’ as well their communities’ welfare, only focusing on their profit margin. To change this negative ethical image and to acquire a strong ethical and thereby brand image, Schultz mandated that coffee farmers from the African countries of Ethiopia, Rwanda, etc, who produce their coffee beans, should be paid premium prices, thereby constituting the concept of Fair Trade. In addition, as part of being ethical, Starbucks co-operated with CARE and carried out beneficial activities for many of these farming communities, including sponsoring of clean-water systems, providing resources for health and sanitation facilities, educational support, etc. The support given by Starbucks helped CARE carry out various social activities, which is still improving the living condition of the people as well as elevating the company’s image. “Schultz was the recipient of the International Humanitarian Award from CARE for his vision and leadership in developing an innovative partnership between Starbucks and CARE to support people in coffee origin countries.” (wpcarey.asu.edu). “It has also developed a project for shade-grown coffee with growers of Chiapas and Central America” (Renard 2004). Thus, with the introduction of Fair Trade or ethical coffee in 2002, Starbucks ‘evolved’ into an ethically sound organization. “Starbucks is North America’s largest purchaser of Fair Trade CertifiedTM coffee. Starbucks is the only company licensed to sell Fair Trade Certified™ coffee in 23 countries.” (starbucks.com). Thus, Starbucks by optimally taking care of the farmers aptly managed the ethical dilemmas and also fell in the line with the Consequentialist ethical theory of utilitarianism. This theory focuses on a best case scenario where there is greatest balance of pleasure over pain for all stakeholders, in this case the farmers as well as their community members. (Crane and Matten 2007). Since the world of business is very dynamic and competitive, it is recommended that the management of international businesses implement certain strategies aimed at building their reputation, goodwill and public image among the stakeholders and the general public. Nestle, one of the largest food and beverage companies of the world also carried out certain Fair Trade policies and it elicited good response from various stakeholders. Firstly, in 2005, Nestle launched its new coffee under the brand name “Nescafe Partners Blend” and promoted it being a Fair Trade coffee. When they did that, although it was not the first, Nestle was the largest food and beverage company to do so, and that led to expectations, whether Nestle will be able to make all of its products Fair Trade. Although, it was not able to do that in a widespread manner, making only one more product under Fair Trade, it is able to garner enough ethical mileage with that initiative. In 2010, Nestle launched 4-finger KitKat in its British operations, after gaining the Fair Trade certification for it. To receive that Fairtrade accreditation, Nestle on the lines of Starbucks committed to pay a minimum price to their suppliers, plus a premium of about $150 (?90) a tonne. (Wallop 2009). This way 6,000 odd farmers would be gaining extra ?400,000 per year. In addition, they also promised to carry out constructive activities under the “cocoa plan” in Ivory Coast, from where it sources sizable part of their cocoa needs. Under this plan, Nestle has promised to invest over ?65 million for over 10 years, and this builds on the ?35 million invested in cocoa sustainability initiatives over the last 15 years. (nestle.co.uk). With this investment, Nestle wanted to improve the farming practices through technical and resource assistance, and importantly wanted to uplift the social conditions through infrastructure development. Thus, its decision to bring Kitkat under the Fair Trade category has clearly elevated his ethical image, aiding the farmers and also bringing in positive publicity for it. “The announcement has been welcomed by not only the Government but also the Archbishop of York, helping the company to secure a public relations coup, after being dogged by bad publicity dating back to the late 1970s because of its promotion of baby milk.” (Wallop 2009). Conclusions From the above analysis, it is clear that Fair Trade is a valid and authentic model for ethical practices, and can be viable model for ethical trading system. Normally, an organization will be judged or even viewed by the common public, media, fellow organizations, etc, on the basis of the success, it achieves. Judged in the sense, the organization and its leaders will be accepted, appreciated and feted, when it achieves success, and on the other hand will be criticized, boycotted and hated in case of failures. In today’s competitive world, success of an organization will be mainly based on the profits and markets share, it achieves. Although, this fact about financial profits being the criteria for success is an acceptable one, nowadays it has become very crucial for the organizations to achieve that profits and success through ethical means. Thus, the organization has to first operate in an optimally ethical way, so that its operations do not cause any negative impact on the common people and their environment. However, that will not be enough, because organizations of today in order to achieve a stronger brand image and to bring in more customers, has to be proactive and voluntarily indulge in various ethical practices including Fair Trade. “Companies are increasingly recognizing the value of adopting proactive, rather than reactive, ethical policies. Such an approach to supply chain management can have a positive value both inside and outside of companies.” (Nicholls and Opal 2005, p.68). Thus, with a proactive mindset, many more organizations need to incorporate Fair Trade practices as part of their functioning, particularly in their supply chains in the Third World Countries. When they do that, it will become a perfect ethical model for them, and they can implement that model for all their products and services. References articlesbase.com 2011, Fair trade, viewed on April 29, 2011 http://www.articlesbase.com/presentation-articles/fair-trade-4520198.html Barrientos, S., Conroy, ME and Jones, E 2007, “Northern Social Movements and Fair Trade.” In Raynolds, LT., Murray, DL and Wilkinson, J 2007, Fair trade: the challenges of transforming globalization, Taylor & Francis, Chernatony. L & McDonald. M (2003). Creating Powerful Brands. Butterworth- Heinemann, New York. 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