Is Fairtrade Beneficial to Producers and Farmers in Developing Countries - Essay Example

IS FAIRTRADE BENEFICIAL TO PRODUCERS AND FARMERS IN DEVELOPING COUNTRIES? Department Introduction Fairtrade refers to an organized social movement with the sole objective of assisting farmers from developing countries makes better trading environment and deliver sustainability. In their quest, Fairtrade advocates for higher prices, social and environmental standards on behalf of exporters from developing countries to developed countries. Through their certifiers in many countries worldwide, they trade on agricultural products such as coffee, sugar, bananas, tea, handicrafts, cotton, honey, wine, chocolate, gold, fresh fruits and flowers (Altmann, 2010 p.16). However, fair Trade USA which was formerly under Fairtrade international label left the label and begun implementing a different labeled scheme and included all crops and estates as well as individual smallholder farmers This paper focuses on the analysis of Fairtrade and holds the view that Fairtrade is not beneficial to farmers and producers in the developing countries. As will be evident in this paper, while Fairtrade report a substantial increment in year to year trade, these increments in profits do not cascade down to farmers and producers because of several factors related to inefficiency in marketing and distribution of products in the developing countries. As stated by Griffiths (2012 p.369), the sales of Fairtrade international certified products totaled to approximately 98 billion United states dollars which represent 22 percent increment compared to the previous year. However, Fairtrade does not give a breakdown of how much of these sales reach the producers in developing countries. Moreover Fairtrade does not reveal how much of these figures are from the extra prices charged for Fairtrade goods. Fairtrade is not beneficial to farmers in Developing Countries Inefficient marketing system is one of the major factors that have resulted into lack of benefits to farers and producers. Fairtrade emphasizes on selling through monopolist cooperatives which are most of the times corrupt and inefficient (Griffiths, 2012 p. 370). It is also important to note that some private traders are more efficient than the cooperatives. In this regard it is also very difficult for the members of a cooperative to switch even if the cooperative is being mismanaged or when a cooperative is being bankrupt especially when they want to attain fair trade status. Fairtrade is also inefficient since it goes against the free market ideal of certain economies. Griffiths (2012 p. 268), refers to Fairtrade as a “misguided attempt to make up for the market failures.” This is because deviation from free market result into overproduction and enormous market inefficiencies. There are very little incentives to control corruption along the supply chain as witnessed in false labeling of different products by retailers in developing countries. In this respect, the brokers and corrupt cooperative officials benefit at the expense of real producers and farmers in developing countries. Fairtrade do not have the capacity to monitor the extra amount of retailer charges that is remitted back to the developing countries. In this respect, it is not possible to tell the amount that reaches farmers in the developing countries due to unfair trading laws. A study conducted by Len & Heaton (2006 p. 423), found that a British café was passing only one percent of the extra charges to the exporting cooperatives. Len & Heaton (2006 p. 424), also stated that consumers pay much more for the agricultural goods but only 11.5% reaches the exporting cooperatives. Other statistics have also shown that farmers do not benefit from Fairtrade despite the high sales and extra charges on Fairtrade certified goods. There is no sufficient statistics to support the argument that farmers who sell through Fairtrade cooperatives are paid higher than farmers who sell to other traders. According to Len & Heaton (2006 p.426), farmers are paid higher prices by other traders than Fairtrade. It is also important to note that different price options are available for farmers in the developing nations. This complexity in the prices further complicates price reporting. Farmer prices in the developing countries may include harvesting, credit, transportation, storage and semi processing. In this way, they often average their costs yearly which are mostly higher due to inefficiencies and corruption at the cooperatives. According to Chambolle and Poret (2013 p. 835), Nicaraguan farmer were encouraged by Fairtrade to plant organic coffee which fetched higher prices per pound of coffee for farmers, however, this did not cater for the higher costs of producing organic coffee. Consequently, there were lower yields compared to the other types of coffee. In this kind of scenario, farmers experience lower net income compared to those who sell to other traders. While Fairtrade concentrates in improving quality of agricultural products and prices for their members, the end result of better prices are not realized by the farmers. Fairtrade is not a good idea for none Fairtrade farmers in the developing countries as well. While Fairtrade offers special incentives for farmers and advise them on how to increase quality and yields of their products, other farmers who are not members of Fairtrade will experience a surge in production. However, since demand for most agricultural products are inelastic, an increase in production would result into a higher fall in prices. The fall in prices is likely to affect both the Fairtrade and non Fairtrade farmers in the developing countries. As Chambolle and Poret (2013 p. 835) states, this was witnessed in Vietnam when farmers were paid higher prices above the world prices for coffee in 1980s, they produced in large quintiles which resulted into a drop of prices in the nineties. This affected many coffee farmers in Vietnam resulting into uprooting of some coffee trees. Conclusions In conclusion, there is sufficient evidence to support the argument that Fairtrade does not benefit farmers and producers in the developing countries. These evidence range from Fairtrade own inefficiencies to other limitations within the supply chain. While research shows that consumers continue to pay higher process for products under Fairtrade certification, these premium payments do not reach the producers and farmers due to market inefficiencies. Statistics have also revealed how these premiums are instead collected by the middle men and the management staff of cooperatives who use them for unintended expenses. High corruption within the cooperatives and market inefficiencies are the major limitations of the Fairtrade in its quest to help farmers and producers in developing countries in gaining sustainability in the sales of agricultural products. References Altmann, M. 2010, Fairtrade New Business Model, International Trade Forum, 3, pp. 16-17. Chambolle, C. & Poret, S. 2013, "When Fairtrade contracts for some are profitable for others", European Review of Agricultural Economics, 40, 5, pp. 835. Griffiths, P. 2012, Ethical Objections to Fairtrade, Journal Of Business Ethics, 105, 3, pp. 357-373. Len, T.W. & Heaton, S. 2006, "Fair Trade marketing: an exploration through qualitative research", Journal of Strategic Marketing, 14, 4, pp. 411-426. Read More