Learning To Trade Commodities

Fair trade is an organized social movement and market-based approach to empowering developing country producers and promoting sustainability. The movement advocates the payment of a fair price as well as social and environmental standards in areas related to the production of a wide variety of goods. It focuses in particular on exports from developing countries to developed countries, most notably handicrafts, coffee, cocoa, sugar, tea, bananas, honey, cotton, wine, fresh fruit, and flowers.

Fair trade's strategic intent is to deliberately work with marginalized producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency. It also aims at empowering them to become stakeholders in their own organizations and actively play a wider role in the global arena to achieve greater equity in international trade. Fair trade proponents include a wide array of international religious, development aid, social and environmental organizations such as Oxfam, Amnesty International, Catholic Relief Services, and Caritas International.

In 2007, Fair trade certified sales amounted to approximately €2.3 billion (US $3.62 billion) worldwide, a 47% year-to-year increase. While this represents a tiny fraction of world trade in physical merchandise, fair trade products generally account for 1-20% of all sales in their product categories in Europe and North America. In June 2008, it was estimated that over 7.5 million disadvantaged producers and their families were benefiting from fair trade funded infrastructure, technical assistance and community development projects.

Definition of fair trade

The currently accepted definition of Fair Trade has been agreed by FINE, an informal association of four international fair trade networks (Fairtrade Labelling Organizations International, International Fair Trade Association, Network of European Worldshops and European Fair Trade Association):

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 – especially in the South. Fair Trade Organizations, backed by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade. Fair Trade products are produced and traded in accordance with these principles — wherever possible verified by credible, independent assurance systems.

Key fair trade principles

The principles of Fair Trade are based on the practical and shared experience of Fair Trade organisations over many years and reflect the diversity of Fair Trade relationships. The most important of these are unique to Fair Trade and are integral to its developmental objectives. These include:

• Market Access for Marginalised Producers -

Many producers are excluded from mainstream and added-value markets, or only access them via lengthy and inefficient trading chains. Fair trade helps producers realise the social benefits to their communities of traditional forms of production. By promoting these values (that are not generally recognised in conventional markets) it enables buyers to trade with producers who would otherwise be excluded from these markets. It also helps shorten trade chains so that producers receive more from the final selling price of their goods than is the norm in conventional trade via multiple intermediaries.

• Sustainable and Equitable Trading Relationships -

The economic basis of transactions within Fair Trade relationships takes account of all costs of production, both direct and indirect, including the safeguarding of natural resources and meeting future investment needs. Trading terms offered by Fair Trade buyers enable producers and workers to maintain a sustainable livelihood; that is one that not only meets day-to-day needs for economic, social and environmental wellbeing but that also enables improved conditions in the future. Prices and payment terms (including prepayment where required) are determined by assessment of these factors rather than just reference to current market conditions. There is a commitment to a long-term trading partnership that enables both sides to co-operate through information sharing and planning, and the importance of these factors in ensuring decent working conditions is recognised.

• Capacity Building & Empowerment -

Fair Trade relationships assist producer organisations to understand more about market conditions and trends and to develop knowledge, skills and resources to exert more control and influence over their lives.

• Consumer Awareness Raising & Advocacy -

Fair Trade relationships provide the basis for connecting producers with consumers and for informing consumers of the need for social justice and the opportunities for change. Consumer support enables Fair Trade Organisations to be advocates and campaigners for wider reform of international trading rules, to achieve the ultimate goal of a just and equitable global trading system.

Approaches to Fair Trade

All Fair Trade products originate from producers and workers committed to Fair Trade principles. However, in the subsequent supply chain, Fair Trade products are traded and marketed through two distinct but complementary channels:

• The "integrated supply chain" route whereby products are also imported and/or distributed by organisations who have Fair Trade at the core of their mission and activities (commonly referred to as alternative trading organizations), using it as a development tool to support disadvantaged producers and to reduce poverty, and combine their marketing with awareness-raising and campaigning.
• The "product certification" route whereby products complying with international standards are certified indicating that they have been produced, traded, processed and packaged in accordance with the specific requirements of the international standards.

General structure of the movement

Most fair trade import organizations are members or certified by one or several national or international federations. These federations coordinate, promote, and facilitate the work of fair trade organizations. The following are the largest and most influential:

• The Fairtrade Labelling Organizations International (FLO), created in 1997, is an association of three producer networks and twenty national labeling initiatives that promote and market the Fair trade Certification Mark in their countries. The FLO labeling system is the largest and most widely recognized standard setting and certification body for labeled Fair trade. It regularly inspects and certifies producer organizations in more than 50 countries in Africa, Asia, and Latin America.

• The International Fair Trade Association (IFTA) is a global association created in 1989 of Fair trade producer cooperatives and associations, export marketing companies, importers, retailers, national, and regional fair trade networks and fair trade support organizations. In 2004 IFAT launched the FTO Mark which identifies registered Fair Trade Organizations (as opposed to the FLO system, which labels products).

• The Network of European Worldshops (NEWS), created in 1994, is the umbrella network of 15 national Worldshop associations in 13 different countries all over Europe.

• The European Fair Trade Association (EFTA), created in 1990, is a network of European alternative trading organizations which import products from some 400 economically disadvantaged producer groups in Africa, Asia, and Latin America. EFTA's goal is to promote fair trade and to make fair trade importing more efficient and effective. The organization also publishes yearly various publications on the evolution of the fair trade market. EFTA currently has eleven members in nine different countries.

In 1998, these four federations created together FINE, an informal association 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.

• The Fair Trade Federation (FTF), created in 1994, is an association of Canadian and American fair trade wholesalers, importers, and retailers. The organization links its members to fair trade producer groups while acting as a clearinghouse for information on fair trade and providing resources and networking opportunities to its members.

• The Fair Trade Action Network, created in 2007, is an international fair trade volunteer web-based network. The association links volunteers from a dozen of European and North American countries, actively supports Fairtrade Town initiatives and encourages grassroots networking at the international level.

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