This page should help to answer any questions you might have about Trade Aid. If you have a question which is not answered here, contact us at:
This comment forms part of an argument against ethical food shopping that appears to have gained traction amongst those looking to criticise fair trade. This statement however, is based entirely on economic theory and not on producer and industry realities.
This comment seems to be specifically relating to the fair trade coffee trade. The argument explains that fair trade has the unintended effect of increasing the supply of coffee in the marketplace, and uses the 2002 price crash as an example of these market forces in play. There was indeed a surplus of coffee in 2002, a period which according to CoffeeResearch.org and the International Coffee Organization saw Brazil increase coffee exports by more than 200% and Vietnam's production almost triple from 1995 to 2002. Vietnam and Brazil are two of the three largest exporters of coffee in the world so naturally in this 7 year period, worldwide coffee production peaked.
However, mostly to blame for this rise in coffee supply was international pressure from bodies such as the IMF encouraging countries (specifically Brazil and Vietnam) to plant cash crops to finance their international debt. The IMF was so successful that Vietnam went from an insignificant coffee producer to the second largest exporter of coffee in the world. Any argument that suggests these peaks in supply are a result of normal supply and demand market forces or worse still, a result of fair trade fiddling in the market, is unplausible. Furthermore, to suggest that our current 'free' market system is really free, overlooks the vast sums of money spent by First World governments to artificially inflate domestic food prices, thus creating problems of 'dumping' of heavily subsidised First World agricultural produce that devastate Third World markets.
Fair trade farmers do want to diversify and are encouraged to through fair trade. Coffee farmers know that the world export market is fickle and that prices may dive again at any time. Because of this, a really important element of the service fair trade farmer co-operatives provide to their farmer members is encouragement and expertise for the producers to diversify as much as they are able. In complete contrast to the above statement this diversification is often only achievable using the profits from the fair trade price to invest in other crops.
With coffee farmers currently selling only an average of 20% of their crop at fair trade prices – there is no reason to believe that this would substantially encourage increased production of coffee beans, nor be enough to encourage others to jump from other crops onto the coffee bandwagon.
Like fair trading organisations around the world, Trade Aid supports the rights of developing countries to nurture their own agricultural, industrial and service sectors in any way they deem appropriate, just as today’s industrialised countries did to support the employment and economic security of their fledgling industries.
A recent report from the development agency Action Aid warns that developing countries will be trapped in poverty if they are denied the right to protect their economies against international competition. The study shows how free trade policies and economic liberalisation have resulted in farmers going out of business and factories closing down as cheap goods from abroad flood in as soon as trade barriers are lifted. The removal of tariffs on textile imports in Nigeria, for example, forced 20 factories to close with the loss of over 16,000 jobs. A further 18 factories are now under threat.
A history of protecting fledgling industries has undoubtedly helped give developed countries the strong financial and social basis they enjoy today – and countries like the US continue to pour millions into subsidising home-grown industries and erecting barriers against imports from developing countries.
A sovereign country has the right to protect certain vulnerable sectors such as agriculture from competition on the grounds of food security, livelihood security and sustainable rural development, just as it has the right to impose anti-dumping or health and safety legislation or decide when, how and if it will dismantle such processes.
Our own experience has been somewhat different.
In Nicaragua, for example, we buy our coffee from the PRODECOOP co-operative, which states: ‘At PRODECOOP we have worked to satisfy our clients, to improve the quality of our coffee, and to develop our production infrastructure, but none of this has meaning if the thousands of small-scale producers in the co-operatives don’t improve their quality of life’.
The coffee co-operatives we support put a great degree of effort into quality improvement - from the construction of better processing mills, through to constant training in the field, through to the continuous work they put in (where they have them) at their cupping facilities. Improvements to coffee quality are rewarded with improving prices – in practice, we now pay well above the fair trade minimum price for all of our coffees as reward for their quality.
Trade Aid supports fair wages for work, and we promote fair trade as a viable alternative to standard trading practices. So how does voluntary labour fit these objectives?
For over 30 years Trade Aid has relied on unpaid support. Indeed, without these years of voluntary work Trade Aid would never have survived and grown as it has. The contribution from volunteers allows us to undertake work beyond that done by normal importers/retailers, work such as promoting fair trade, running campaigns, producing educational resources and lobbying for change to trading systems.
Second to this is that voluntary labour never comes without some costs – the costs of training and supporting are as much for unpaid as for paid staff.
For many New Zealanders giving to more impoverished peoples involves a one-off or monthly payment of money. For others, it involves giving time. The generosity of those who can offer unpaid hours to support those who work desperately hard to feed and clothe their families and communities has allowed Trade Aid to make a real difference to those most in need.
There are potentially four ways we know of that coffee growers can benefit from a genuine fair trade trading relationship, in comparison with their other options.
Firstly, the grower is generally assured of receiving more money up front for their coffee from fair trade buyers than they would receive from other coffee traders. Here are some recent examples we know of from field visits:
In Guatemala, street prices in 2009 were around 640 Quetzales/quintal in the Huehuetenango region. Our growers were paid 1000 Quetzales for their organic coffee and 700 for their conventional (street traders make no differentiation when buying organic or non-organic coffee). Similarly, growers in the Harrar region of Ethiopia were receiving 10-15% above market rate from fair trade buyers. In Papua New Guinea, farm gate prices for coffee parchment at the co-operative from latest records were less than half the price we calculated they would have earned from our order. These figures, it should be noted, relate to a period when world coffee prices were at a higher level than they have been in recent years, when we know (and various other studies online also confirm) that farmers sold to fair trade buyers coffee at up to triple the price that they would otherwise have received.
But this is just the first of several differences we can point to between fair trade and conventional coffee trading.
Secondly, certified fair trade co-operatives' also always receive a premium of US 10 cents per pound as a social premium from fair trade buyers; the co-operative’s members jointly agree what to spend this premium on for the wider benefit of the community. Typical examples of social premium spending are construction of schools, construction of medical centres, spending on projects that will enhance income generation in future years (typically, these would further enhance coffee quality – construction of better drying facilities, wet mills etc.). Coffee sold through conventional channels brings none of these additional benefits to growers.
Thirdly, the co-operatives spend money on projects that further benefit their communities – this encompasses a raft of different projects including the funding of additional quality-enhancing technical staff, provision of scholarships for students, organisation of social integration activities (crucial in areas where there may be growers from a range of ethnic or religious backgrounds) and so on. Dividends from profits are also common; for example the coffee growers of Yirgacheffe in Ethiopia also receive one half of all profits that the Oromia Coffee Farmers’ Co-operative Union generates. This, together with their social premiums, makes them much better off financially than they would otherwise be from selling to street traders.
Finally – and this is not a condition of our fair trade certification agreement but our own modus operandum – Trade Aid also returns a share of profits to co-operatives in the form of a rebate. Last year, this amounted to a 10% bonus for our trading partners, which was generally used by the co-operatives to either further strengthen their infrastructure, or else to provide further services to their members (in Yirgacheffe, they used the money to buy desks for their new but unfurnished classrooms).
It is important to also recognise indirect advantages to growers from our trade, which include greater access to more affordable credit, access to training, increased self-esteem, and enhanced family stability.
So, a long answer to the question! There is no simple way for us to claim ‘X% more money' goes back to growers thanks to our orders but from our practical experience, including the consistent feedback we receive from the growers themselves, it is clear that buyers such as Trade Aid working within the fair trade certification system are benefiting coffee farmers to a much greater degree than uncaring, normal market forces will allow.
Fair trade promises a better return to those who make or supply the goods you buy, but what actually are our proﬁt margins and what percentage of the retail price is returned to the producers? This is always a difficult question as Trade Aid does not have a set mark-up on the items we sell. We tend to have higher margins on products from Asia than those from Africa and Latin America. Certain products also have different margins – textiles, for example, are at the low end while jewellery lies at the high end. Jewellery, however, does have extra costs, such as more frequent writing-off of stock due to the fast-changing fashion cycles.
Trade Aid also has a number of small "at risk” producers where very low margins are applied. That said, a typical mark-up ratio for Trade Aid would be 1:5; that is, the landed cost of the product is about one fifth of the retail price (in comparison mainstream craft retailers ratios vary from 1:5 for discount operators to 1:20 for top brands). Trade Aid also has either a direct relationship with producers, or works through a local not-for-proﬁt organisation, enabling the producers to receive a higher price than they would through a conventional supply chain.
So if approximately 20% of the retail price goes directly back to the producer organisation as the cost of the product, what happens to the rest of it? Much of the remaining 80% is spent on costs within Trade Aid which are aimed at benefiting the producers - costs such as education, advocacy, fair trade campaigns and marketing support. In addition to this, since 2005 Trade Aid has rebated part of its operational surplus back to its trading partners.
The Buy New Zealand Made campaign aims to encourage consumers and organisations to buy NewZealand goods and services wherever possible. As the campaign website says, "When you buy a NewZealand produced product or service, you're helping to create jobs, promote growth and improve ourbalance of payments". Trade Aid supports this philosophy. Our work involves supporting small, local craftspeople who are disenfranchised often because of trade liberalisation policies and competition from large multinational organisations – the same things that threaten NZ manufacturers. A vibrant local manufacturing business is critical for a sustainable community and country and a 'Buy NewZealand Made' campaign is a small but vital part of trying to reverse the direction of exporting jobs overseas. In supporting the craft making initiatives of people in some of the poorest countries in the world, we are supporting their bid to "create jobs and promote growth" and offering consumers an alternative to often exploitative factory-made overseas craft.
Protecting the environment is a key principle of fair trading: "Fair trade actively encourages better environmental practices and the application of responsible methods of production" World Fair Trade Organisation (WFTO).
Trade Aid actively encourages better environmental practices and the application of responsible methods of production, while at the same time supporting communities in need throughout the developing world by purchasing their products at fair trade prices. Typically the food products our trading partners can provide us with are not grown in New Zealand – e.g. coffee, tea, cocoa – and so there is no contradiction in regards to our environmental policy in the promotion of these items.
There are occasional instances when competing products are produced in our country. A good example of this is olive oil, which we import from Palestine, but which is also extracted here. While Trade Aid appreciates the global benefit of reducing food miles wherever possible, we also recognise that this consideration alone should not prevent us from supporting groups which are in great need. Part of our focus and part of our long-term goal is to help our producers to improve their capacity to operate better within their local markets and thus to reduce their dependence on world markets and exports.
Overall Trade Aid products have a very low carbon footprint and come from artisans and producers with some of the world's smallest carbon footprints. It is also these artisans and producers who are the biggest losers in terms of their vulnerability to changes in our climate and weather patterns.
Some of the things these artisans or producers do that make their product carbon footprint so small is that they:
- handcraft their products, instead of working on large machines
- work at home or in small workshops, not in large factories
- have built in the environmental cost, into the cost of the product
- receive encouragement and support to monitor their environmental impact
- live where they work, increasing the motivation to assess environmental impact
- in the case of food products, many are certified organic or are working towards organic certification
- send their products to NZ by sea not by air, substantially reducing carbon emissions
Ultimately, we are making decisions which we believe to be in the wider interests of people and the planet combined.
McDonald’s now sell Rainforest Alliance (RA) certified coffee in their McCafés. What is the difference between McDonald’s coffee, and Trade Aid fair trade coffee?
Rainforest Alliance certification requires privately-owned coffee estates and large-scale farms to meet a number of environmental criteria, but includes only minimal consideration for workers’ rights (essentially amounting to compliance with national minimum-wage laws in the producing country).
Trade Aid fair trade practice encourages and rewards farmer-run co-operatives to maintain high environmental standards (all our coffee is certified organic). At the same time, Trade Aid standards meet a number of strict social criteria, including payment of higher prices to farmers and payment of crop pre-financing, which is often critical for farmers in countries where their lending institutions are corrupt.
Why would McDonald’s choose Rainforest Alliance certification, instead of Trade Aid-level fair trade practice?
Their decision is driven by pure business logic: Rainforest Alliance coffee is cheaper than that bought through a high-bar sustainability-focused organisation like Trade Aid. McDonald’s knows there is demand for fair trade coffee but assumesconsumers won’t do their homework. Their logic goes like this: if we put a ‘sustainable’ label on our package, customers will be satisfied, so let’s choose the cheapest. What do customers know about different certification standards?
Well, some know a lot, and won’t let them get away with ‘low-bar’ sustainability.
Why does Trade Aid support fair trade certification, and not Rainforest Alliance certification?
When farmers have no financial guarantee, they experience pressure to destroy their natural surroundings for short-term financial gain. Fair trade relieves financial burdens that are often the motivation for destroying the environment. Given that Trade Aid’s practice offers a better deal for both farmers and the Earth, we believe that this combination is a recipe for true positive social change.
It is correct that with current economic growth in South Asia at 5%, India and the surrounding countries are looking at a potentially brighter future than many other developing countries.
However, a large majority (40%) of the world’s poor still come from India and South Asia. Even with high economic growth, a country that is starting with next to nothing takes a long time to reach a status where the most marginalised and disadvantaged are reached by improvements in the economy. Next to Sub Saharan Africa, Pakistan and India have the highest child mortality rates in the world and although the percentage of people living in South Asia in extreme poverty has reduced by 10% since 1990 it is still at a very high 31% of the population.
Part of Trade Aid’s objective as a development organisation is to change trading relationships contributing to a more sustainable form of change. Due to the unfairness of the conventional trading system the benefits of a good economy such as India’s do not tend to reach the most disadvantaged in an equitable way. Fair trade allows these producers to build themselves a base from which they then have opportunities to enter other markets and industries which have been reached by the booming economy.
Other countries that you may consider in the same position as India would be countries such as Peru whose gross national income per capita puts them into the lower-middle class income bracket but still has some of the most disadvantaged producers due to their marginalised indigenous status. Ostracised from being able to participate in the Peruvian economy, Trade Aid’s producer partners in Peru are some of our poorest producers.
Through reports and site visits, Trade Aid continually assesses the level of capacity achieved by our trading and producer partners and will always endeavour to remain true to our stated objective of working with the most disadvantaged of producers.
In India’s case it would be great to reach a stage when we could replace all our Indian producers with other marginalised groups from developing countries around the world and should this be required Trade Aid will make this change.
Trade Aid supports the work that our partners believe provides the best way to engage with its producers to alleviate poverty.
Trade Aid doesn’t decide for its partners what their country should or shouldn’t do or think. Attacking a religious system widespread in a country (caste is a Hindu derived system) will never create positive change. Fair trade is an excellent way of breaking down the caste system, not by telling a country/people that their religious beliefs are wrong, but through increasing both producers’ worth and esteem so they believe they can rise above their caste, and the respect the community holds for the producers through their success in small global businesses.
Fair trade has broken down barriers to caste for many of Trade Aid’s partners in India from Dalits in Northern Rajasthan (Urmul) down to the Dalits in Southern Tamil Nadu (Palam).
This letter from one of Palam’s producers highlights the impact of fair trade on caste very well:
For hundreds of years our forefathers have been producing handicrafts, both utility and decorative. The necessary knowledge and skills have been handed down from generation to generation. However, the Hindu social order relegated us to the status of untouchables or Dalits. Then Islam came to our land. Some of our forefathers converted to Islam because they believed that in this way they could obtain a more dignified place in society. But little changed: our forefathers, whether Hindu or Muslim, continued to suffer under social discrimination. This social discrimination continued for centuries and our communities were robbed of their sense of dignity and self-confidence. As children, we were made to believe that such conditions of social discrimination and the accompanying economic hardships were our fate and that we could do nothing to change!!!
Then students and social workers came with their message for struggle through the cooperative movement. Our involvement in the cooperative movement helped us to get out of the clutches of the exploitative middle-men. But our lowly and marginalized position in Indian society did not improve.
Then the international fair trade movement came into our lives. We became producers of articles for people like you who live in distant lands. You bought our products and used them in your homes. You presented our products to your friends and relations. You supported our struggle by offering voluntary help to sell our products. You advised us on quality and design improvement. You visited our villages and homes and shared cups of tea and meals with us. You took great interest in the way we live and work. The very fact that we have friends and markets in distant lands and the fact that we collectively own and control a large organization has made high caste Hindus look upon us as dignified human beings. We do not suffer any more from social discrimination. We have recovered our self-confidence and sense of dignity. We want you to know that this is the most important way in which you have helped us. Thanks to all of you for helping us in this way.
We want you to know that we will use our sense of self-confidence and sense of dignity to support the struggles of millions of our Dalit brothers & sisters to recover their justified place in our country’s social & economic structures.
World Trade is controlled by regulations and agreements negotiated between western governments and globally by organisations such as the World Bank, World Trade Organisation (WTO) and the International Monetary Fund (IMF).
Traditionally governments sought to protect their country’s own industries and growth by paying subsidies to producers to guarantee minimum pricing levels or to ensure the viability of certain industries. Tariffs (taxes levied on imported goods) are also used to protect a country’s financial growth by making imported products more expensive than those sourced locally. Quotas are another mechanism used by governments to limit the number of products able to be imported.
Many countries have signed free trade agreements with each other or between groups of countries. These agreements seek to minimise tariffs and quotas on goods and subsidies to producers for countries that sign up to the agreement. This is called trade liberalisation and is encouraged by the WTO. Free trade aims to trade with as few restrictions as possible by removing costs and restrictions across the board between countries and allowing businesses to import and export their products more easily. However power balances between rich and poor countries mean free trade has not occurred equally. Many poor countries have had to remove their own tariffs and are left vulnerable.
Wealthy countries still charge developing countries high taxes to sell them finished goods, so developing countries can only afford to export and sell them raw materials. By selling only raw materials, there is no opportunity for increased profit for developing countries through selling higher value finished products. For example, European countries will only allow the importation of cocoa with lower profit margins for the cocoa producer but not the importation of finished chocolate products. They retain this industry for themselves and the resulting benefits of higher profits remain in their country. So even though wealthy countries espouse the principles of free trade, in reality most do not practice them. They continue to subsidise their own producers (such as the USA subsidising farmers and the EU subsidising cows) and then also tax imported goods.
Wealthy countries impose rules on poor countries, disadvantaging their ability to develop and creating an imbalance of power between developed and developing countries.
Conversely fair trade is about producers and consumers creating their own rules about what type of trade they want to create and participate in. It is not about setting rules between countries. It is about individuals and groups making decisions about how they want to interact and participate in an international trading community on what is best for the artisans and communities making the products.
The fair trade model is based on an agreed set of principles that allows everyone in the supply chain to profit from the sale of a given product. Buying decisions are based on long term benefits to the producers rather than short term profits to buyers. Long-term trading relationships as partnerships allow producers to have the confidence to invest in the futures of their families, communities and their country. Fair trade advocates payment of higher prices to producers plus higher social and environmental standards. It focuses on the export of finished products from developing countries to developed countries so that the maximum product value is retained by producers.
Fair trade raises awareness in consumers to consider the products they consume, where and how they were made and how the people who made those products were treated. It challenges the consumers to discover the story and cultural roots behind the products they purchase and what impact this has on the person who made it.
Fair trade seeks to change people’s lives for the better. By providing a fair and equitable return to disadvantaged producers, it helps to enrich, empower and transform their lives from a state of dependency to one of self-reliance. Producers are enabled to work their own way out of poverty without resorting to disempowering forms of aid or charity. In 2011, over a million small-scale producers and workers are part of over 3,000 grassroots fair trade organisations in over 50 developing countries.
Trade justice is needed now more than ever. Developing countries are increasingly losing the ability to trade in a way that is sustainable for the development of their economies and best for their people. Democracy is lost for the citizens of these countries. Developing countries need nurturing to grow strong and healthy economies. They need to control their terms of trade and work to benefit their people until such a point that their country can trade and grow to independence.
Asking a developing country to trade within an unjust environment is similar to asking a 5 year old child to manage their life in the same way as an 18 year old. A child grows into this responsibility through nurture and care. Similarly, a developing country needs to grow their economy in a nurturing environment. However with increasing numbers of trade agreements being signed, developing countries are at an unfair disadvantage. Their ability to compete with rich developed countries in international trade negotiations is severely limited, exacerbating an already unbalance picture. For example, at one full meeting of the WTO, the EU has 500 negotiators - Haiti had none. The long-term nature and legislation surrounding trade agreements leads to dire consequences when unequal agreements are signed. Industrialised countries have protected their trade and have all developed behind tariff barriers and subsidies described earlier in this discussion. These countries would never have prospered had they been subjected to the rules they now unfairly force on poorer countries. Living standards have dropped consistently in countries forced to adopt free trade strategies imposed as conditions attached to IMF and World Bank loans to developing countries. It is unfair to force developing nations into trade liberalisation, whether by WTO rules, an IMF or World Bank package or in response to threats from wealthy countries that aid will be withdrawn.
Trade Aid believes that when trade is conducted fairly, it has the greatest potential to lift the world’s poor out of poverty. By campaigning for greater justice in world trade, we work to change the rules that already work in favour of the rich countries of the world and against the developing countries.
• International trade is worth $10 million a minute but poor countries only account for 0.4% of this trade. Since 1980 their share of trade has halved.
• The poorest 40% of the world’s population account for 5% of global income. The richest 20% accounts for three-quarters of world income.
• The world’s poorest countries share of world trade has declined by more than 40% since 1980 to a mere 0.4% (UNCTAD Conference on Least Developed Countries 1999)
• The poorest 49 countries make up 10% of the world population, but account for only 0.4% of world trade. This disparity has been growing (UNCTAD Conference on Least Developed Countries 2001)
• Unfair First World barriers have been costing developing countries US $700 billion a year in lost export earnings - some 14 times the amount that poor countries receive in aid (World Development Movement, "Briefing from Doha” citing Prof. Alan Winters, "Trade Liberalisation and Poverty”, DFID 1999)
(Data accessed 13 November 2011)