Fair Trade Initiatives for the Third World - Research Paper Example

Abstract Fair-trade initiatives have been proposed as some of the most viable poverty alleviation initiatives for the developing countries. This report traces the impact of fair-trade on rice farmers in Thailand as propagated by Green Net Cooperative who have set up an enviable set of programs that have greatly assisted the poor rice farmers. The report also evaluates the positive impact by organisations that embrace the concepts in the developed countries in addition to the shortcomings. The analysis reveals Green Net initiatives and commensurate fair-trade policies can have a positive impact on poverty alleviation. Table of Contents Abstract Introduction 3 Definition 4 Background 5 The Fair Trade Movement 6 Poverty Alleviation and Economic Development 7 Fair-Trade Certification 8 ‘Bottom of the Pyramid’ Hypothesis 9 Reversed Benefits 9 Criticisms of Fair-Trade Approaches 10 Conclusion 11 References 12 Appendices 15 Introduction Fair trade has been described as an equitable trading regime that endeavours at enhancing fair pricing for small producers, mostly marginalised poor farmers and job environment hence ensuring ecological, employment and developmental values are upheld as well as facilitating economic development. This progressive strategy has been endorsed by major brands including Cadbury and Starbucks among others (Global Development Network, 2010). This has led to better pricing for their produce that used to be underpriced because of too many intermediaries and lack of direct access to the large markets as enhanced international trade assist producers in developing countries particularly if there are fair-trade concessions. This study will focus on Green Net Cooperative, a Thailand consortium of rice producers and consumers whose main objectives are empowering Thai farmers through better prices while simultaneously producing healthy organic produce for the consumers. Green Net Cooperative exports 800 tonnes of organic Fairtrade certified rice to Europe annually. Definition Fair trade is a market-based approach that empowers poor farmers to enhance their production methods and livelihood by providing markets for their goods within the developed nations. Commodities produced through these methods must ensure ‘environmental, labour and developmental standards and those producers receive a fair wage for their work’ (Snilstveit, 2010). The number of companies practising fair trade has risen while the products are rapidly improving in quality estimated at 22 percent increase in 2008 as fair-trade certified products gain more acceptance (Nicholls and Opal, 2005). Background Green Net Co-op was started in 1993 in Bangkok to in efforts to cushion rice farmers from fluctuating commodity prices even as production costs escalated. Concurrently, consumers awareness on the adverse effect of pesticides on personal health and ecosystem was heightened, thus the two groups were united by Green Net to set up the cooperative, which has five farmer associations with almost 1,000 producers and 81 consumer members (Fairtrade.org, 2010). Green Net was also influential in the formation of the Organic Agriculture Certification Thailand (ACT) a Thai certifying entity in addition to the Earth Net Foundation an affiliate mainly involved in research and improvement of organic commodities and promotion of the merchandise to shoppers, in addition to women rights, education among others (Fairtrade.org, 2010). Green Net has set some significant goals and objectives that have resulted in considerable benefits to its members [see appendix 2 &3]. In 2002, Green Net was certified by Fairtrade Labelling Organisations International (FLO) which promotes fair-trade products sales thus opening up markets for Green Net in Europe [see samples in Appendix 1]. Now being the largest producer of organic products in Thailand, Green Net intends to extend this to other Asian countries in addition to diversifying its products to encompass fruits, ‘teas, cosmetics and naturally dyed textiles’ (Fairtrade.org, 2010). Green Net rice farmers employ small-scale irrigation paddy farming methods to produce ‘organic long grain red, white and brown jasmine rice’. Jasmine rice though not of abundant yield is nevertheless of excellent quality and idyllic for the arid setting typical of the region. Farmers are now also better trained hence able to improve their livelihood including health, education and sanitation among others (FLO, 2009). The commodity price fluctuations can be traced to the heavy subsidies advanced on US farmers who later dump their excess produce unto the world markets thus adversely affecting the prices. The adoption of organic products and fair-trade initiatives however can forestall this negative trend by promoting Thai or Green Net Jasmine rice as a healthy alternative with the added advantage of assisting in poverty alleviation (Economist.com, 2006). The Fair Trade Movement The Fair Trade Movement has over one million small-scale farmers and employees in its ranks encompassing over 3,000 organisations spread in over fifty developing countries (Kocken, 2006). However, free-trade advocates contend that this is just a manifestation of greed and selfish interests with a total disregard for the consuming public and the less fortunate in the society (Fairtrade.org, 2010). Adopting fair-trade fundamentals is one of the crucial corporate social responsibility (CSR) attributes for corporations that are concerned about their responsibility to the communities that form part of their environment. The effect of low commodity prices for rice farmers has resulted in most households been beset by heavy debt burdens that averaging over 20,000 Thai Baht (£328) per homestead against an annual income of 80,000 Baht (£1,269). Among fair trade strategies adopted by companies is ensuring a more suitable workplace environment, procurement of supplies who similarly adopt the same features, engaging in community-based projects among others. The fair-trade movement assert that 'trade, not aid’ is the most sustainable model for poverty alleviation hence the need for opening up markets for traders in the developing countries for their produce and offering equitable prices. This can be possible of fair-trade concessions invoking the fair-trade approaches are allowed whereby governments like the US and Japan should stop subsidising their farmers at the expense of those in developing nations that only depress the prices of their produce hence perpetuating poverty within their ranks. The commodity crisis that was precipitated by the plummeting of agricultural prices from the 1970s after the enactment of free trade without any subsidy to farmers in developing countries, negatively affected the poor farmers who had to compete with highly subsidised products from rich nations. A trade partnership between the more affluent western countries and organisations like Green Net is therefore the most viable model for economic development in poor nations (EFTA, 2009). Poverty Alleviation and Economic Development Corporations generally mobilise countries’ natural and human resources so that they can gain profits however, modern organisations are required to regenerate some of these profits to the community where they outsource their produce. Green Net has been able to set up many social programs that have assisted the poor farmers including free rice feeding programs in schools, gender education, training farmers, environmental and credit services to its members. As demonstrated by Green Net, private non-governmental organisations can assist in poverty alleviation and economic development through positive deeds from their operations. These include: Investments in the developing countries, employing local labour and paying reasonable wages to staff; Payment of all the taxes to the local government, which ensures delivery of services to the local population; Providing skills and training to the local communities, which assist them in future self-sustenance; Production of merchandise that are affordable to the poor, hence ensuring they are not derived of essential commodities; Sourcing of local human and natural resources from resident communities and local suppliers Fair-Trade Certification Green Net has joined the global fair trade organisations that promote affirmative action within the rich developed markets thus providing ready markets for their produce. To encourage Fair-trade initiatives a certification processes that requires observance of ecological, employment and developmental standards has been enacted. This has led to sales in 2008 of fair-trade certified products reaching €2.9 billion (US $4.08 billion) in 2008, a 22 percent increment from the previous year (FLO, 2009). In the UK, the Ethical Trading Initiative (ETI) encompassing several companies, non-government organisations (NGOs) and trade unions regulates the inventory systems of affiliate members including the source suppliers wherever located to monitor their fair trade approaches. Controlling over £100 billion, the ETI ensures compliance with the Core Conventions of the International Labour Organisation by also inspecting the condition at the suppliers’ plants globally (DFID, 2003, p. 10). The impact of private enterprise is today more profound than it has ever been as approximately 800 nonfinancial organisations control an equivalent economic yield like that of the world’s 144 poorest nations. These organisations therefore have a dual duty of not only enhancing their growth but also addressing trading imbalances in line with fair trade initiatives. Surdyk (2009) has therefore likened fair trade strategies to a fusion of social movements and strategic management approach that end up ‘doing well by doing good’ (Pg. 1). Various public studies continuously reveal that consumers in many countries including the US, UK and other European nations are more likely to purchase items or services from those firms that practise fair-trade strategies, while a significant number even boycott merchandise from firms not conforming to fair-trade strategies (Burns, 2003); (Fairtrade.org, 2010); (DFID, 2003); (Surdyk, 2009). This offers immense opportunities for organisations like Green Net to liaise with progressive fair-trade supporting entities to provide markets for their goods as well as promote their social programs aimed at alleviating poverty. ‘Bottom of the Pyramid’ Hypothesis To adequately deal with the problem of global poverty requires stakeholders to address the needs of the ‘bottom of the pyramid’ as a more effective strategy to alleviate poverty. This hypothesis indicates that the poor are bevelled by a myriad of problems due to the vicious cycle of poverty hence addressing their issues will ease the root of world problems. This is critical considering that approximately a fifth of global citizens live on less than $1 daily while half of the world’s population live on less than $2 on daily basis while most of the global wealth is in the hands of just a few people (World Bank, 2001, Pg.3-4). In Thailand located in the ‘rice bowl of Asia’ endemic poverty and bedevilled by debts, which erodes the little returns, they gain from the paddy fields. Reversed Benefits Organisations that are involved in poverty reduction eventually benefit as they enhance the poor’s purchasing power hence able to buy their products and services. Many of the current social ills including crime, disease, and lack of education or pollution can be eradicated by a more affluent society. This is due to enhanced economic status ensuring the desperately poor people will not result to crime and other antisocial activities. The International Finance Corporation (2004) stated, ‘We want to know how to enable poor people to be the central force for change and not an object of charity’. Similarly, the propagation of healthy living through marketing of organic products as currently done by Green Net provides a dual role that has mutual benefits for both consumers and producers. Criticisms of Fair-Trade Approaches Fair-trade initiatives are essentially self-regulated community based initiatives adopted by businesses but has nonetheless been discredited by some analysts as deviating from corporations main objective of generating profits (Rubin and Barnea, 2006). Others have criticised the fair-trade initiative as mere ‘window dressing’ to forestall regulatory authorities from exerting governance issues on the mostly large transnational corporations (Paluszek, 2005). The Adam Smith Institute alleges that fair-trade approaches are mere marketing ploys that distort the natural market movements with minimal benefits to the intended recipients. They therefore assert that these initiatives of setting a price floor only encourage more production, which increases supply hence eroding any price gains [figure 2] (Adam Smith Institute, 2003). Figure 1 Redfern-Snedker (2002) In Becchetti and Costantino (2006) have indicated that fair trade is a $500 million global trade ‘seeks to push the benefits of that trade to the poorest’ who would otherwise have been unable to access this markets. Other benefits include: Has endowed poor farmers in developing countries with a extensive assortment of entrenched services unavailable domestically; Offered market entry to the disadvantaged shunned by conventional traders Enabled or affected the ever growing items of fair trade merchandise on store shelves; Effectively promoted at several levels of strategy formulation to encourage genuine pro-poor amendments; Elevated the theme of fair trade with millions of customers altering mind-set to trade and growth; It has been a considerable vehicle in the growth of moral themes in conventional industry and commerce habits, persuading the enlargement of CSR, approaches Conclusion The Fair-trade approaches advanced by the progressive forces in developed countries that have evolved into corporate social responsibility initiatives have had a positive impact on the lives of poor farmers in the developing countries. These approaches however cannot be significantly felt by the mostly disorganised farmers without proper organisation as exemplified by Green Net who have mobilised rice farmers in Thailand to take advantage of such gestures. Nevertheless, there is a need for more involvement by government and international institutions in supporting this poverty alleviation programs by enacting laws that require corporations and consumers using products from the poor nations consider whether the pricing, labour and environmental aspects have been observed. This can only be enforced by legalising the fair-trade certification labels, which will sensitise the project. In our study, Green Net has demonstrated that fair-trade can have more profound impact on the economy of the country than many government or international affiliated programs. These efforts should nonetheless be enhanced through more economic or income generating projects. References Adam Smith Institute. (2003). Effects of a Price Floor. 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Oxford : Oxford University Press. Surdyk, J (2009) CSR: More than PR, Pursuing Competitive Advantage in the Long Run. New York: QFinance. Transfairusa.org. (2010). Fair Trade Rice Co-Op: Green Net Cooperative, Thailand. Retrieved April 29, 2010, from Transfairusa.org: World Bank (2001) World Development Report 2000/2001: Attacking Poverty. Washington DC: World Bank. Appendices Appendix 1: Fairtrade Certifications Marks Appendix 2 Appendix 3 Appendix 4 Fairtrade Certified Rice Producer in Thailand Read More