Is Fairtrade Really Fair?

Philip Sigley, Chief Executive of the Federation of Cocoa Commerce, and Fairtrade business pioneer Pauline Tiffen go head to head on the benefits of 'free' and 'fair' trade supply chains for cocoa producers.

Is Fairtrade Really Fair?

Philip Sigley, Chief Executive of the Federation of Cocoa Commerce (FCC)
Speech at JustShare debate
St Mary Le Bow Church, London, 4th July 2006

Ladies and gentlemen,

Thank you for this opportunity to explore with you the key topic of "fair" trade and mainstream in relation to the international cocoa trade:

First - the reasons why “Fairtrade” in cocoa and chocolate forms a very small part of the global confectionery market

Secondly - why the “Fairtrade” lobby may be working against the interests of poor people in cocoa producing countries

And finally - how “Fairtrade” and free trade can work together to bring a significant improvement to the lives of millions.

Cocoa is principally a small holder crop with annual global production around 3.5 million tonnes. Production has tripled over the past 30 or so years. This growth has been achieved by free trade. Over 70% of the world’s cocoa is grown in West Africa - several countries are heavily cocoa and commodity dependent. The largest producer is Cote d’Ivoire – growing around 1.4 million tonnes – about 41% of the world total.

Cote d’Ivoire has seen difficult times and yet despite civil unrest and divisions within the country and some loss of life, the wheels of the mainstream market have continued to turn. Rural communities have been able to sell their output to the international markets. The conditions may not be ideal. Middlemen may have taken a portion of the revenue. However without these middlemen, this cocoa would not have been brought to the market.

Why?

There is an extremely important point here – the legitimate private sector will operate to the prevailing political, social and economic conditions in a country – the risks it will take are very measured and the free market will find a way if there is a way to be found. Whether it is as efficient or rewarding as it could be for certain members of the supply chain is another matter. However, it does provide an opportunity for cocoa farmers wherever they may be, to gain some reward for their efforts.

You will find very little Fairtrade cocoa, if any, coming from Cote d’Ivoire. In contrast the mainstream buys $2 billion of cocoa every year from that country of which a quarter of the total, around $500 million, goes into the state in the form of levies and customs duties.

If alternatives to Fairtrade had not been available, the effect on the 600,000 farmers, and the estimated 5 million or so people, in the Ivory Coast dependent on cocoa would have been disastrous.

Next door in Ghana you will find some Fairtrade cocoa but just pay a visit to the cocoa farms operating under a Fairtrade umbrella and you will observe little significant difference in yields and income over and above the mainstream cocoa business, which in Ghana, is still internationally traded through a state marketing board.

In terms of receiving a higher proportion of the international price for cocoa, farmers in Ghana are better off than farmers in the Ivory Coast. Ghana cocoa still has the benefit of a quality control regime which attracts a premium over other cocoa origins – this system applies to Fairtrade and mainstream. And so we must conclude that Fairtrade appears to have chosen its market very carefully. If you take other Fairtrade origins – for example Costa Rica and Panama, the prevailing conditions are substantially easier than in the main cocoa growing countries.

I would like us to reflect now on the fair / unfair comparison. Please consider the position if the private sector was to take on all of the issues that go with compliance with Fairtrade criteria in Cote d’Ivoire for example. The costs of doing so would be enormous since the private sector would effectively have to replace the state in many functions which would be totally unacceptable to all concerned. In addition you would effectively create a minimum price for cocoa which would attract more producers unless quotas or specific supply chain relationships were put in place. The market would be unable to absorb the over supply – what happens to the surplus – is someone forced to buy it? Would this be fair to those who want to and are able to enter or continue in the market at a lower cost? Moving therefore to the second aspect of what I set out to explore with you we come to unfair aspects of Fairtrade. Fairtrade as an alternative system does not create any difficulty for the mainstream in terms of a debate as to whether it is fair “as a concept” – indeed it is complementary to other trading systems and this gives the consumer a genuine choice. I do not propose to go into the debate that Mr Bretman has with the BBC2 Money Programme as to whether farmers get a fair share of any additional premiums that are paid by the consumer and the costs of Fairtrade labelling – licence fees, etc.

However, when Fairtrade supporters seek to impose or infer an “unfair” tag on everything else then this suddenly does create a situation with potentially very serious consequences for farming communities who do not enjoy circumstances conducive to a Fairtrade type of system. This “tag” does a great disservice to the mainstream and risks damaging the incomes of some rural producers in the most difficult areas because a stigma becomes attached to a particular commodity or country whether or not such stigma is justified.

Child labour has been such an issue – where some so-called Fairtrade organisations have chosen to deliberately exaggerate the issue for their own political, ideological and commercial ends. They urge consumers to buy guilt free chocolate arguing that only through Fairtrade is it guaranteed as regards the absence of child labour.

The cocoa trade and industry is working hard with the cocoa origins on the child labour problem in a ground-breaking, creative and supportive way. Other industries could do well to observe and adopt the efforts we are making. Schools, churches and local authorities have been targets for what may be called “Fairtrade propaganda”. Effectively school children and church congregations and well meaning local authorities are being persuaded to support farmers who already are able to enjoy better conditions than those less fortunate. Both sides of the debate need to be carefully considered.

Please do not get me wrong – I am not saying that trade and industry is operating in every way that it could to address CSR – but we do deserve a much better image than we receive by comparing our attempts to deal with millions of farmers with a niche Fairtrade product. This comparison is too often advanced by governments and donors who find such ideology politically expedient.

Regrettably – developed country governments influenced by naïve lobby groups, have made little effort to understand markets and have joined with the arguments against mainstream to a certain extent – it is easier than having to sit down and work out the big picture. This could be the subject of a further debate – we do not have time today.

I will just say that failure of governments and donors to address fundamental measures to encourage trade in developing countries is a major inhibitor to progress. Fairtrade as currently promoted by its supporters is creating a sideshow to the real issues that need to be addressed to allow the mainstream market to develop in a way that brings maximum benefit to the many – which is, to me, a much more meaningful contribution to “fair trade”.

Developed and developing country governments argue that agriculture is vital to achieve alleviation of poverty. If agriculture is such a key industry for helping people in rural communities how is this being served with so little commitment to repairing roads in a terrible state of disrepair, poor quality to non existent communications and dealing with the problem of imported food surpluses from developed nations? Without the vital infrastructure facilities in the rural areas all the splendid talk is for nothing. Do we continue to deal with the consequences of failure of markets and not the root cause?

The real mission is to take the good intentions of Fairtrade and translate them into the real world. There is an urgent need to genuinely make cocoa/cash crop farms an engine room for growth in the agricultural sector of the countries with which we are concerned.

So rather than focus on Fairtrade as a concept – look at “sustainability” as the objective. Rather than paying an artificial price for a commodity to be produced in an inefficient way - what can be done to get farmers to increase yields and rehabilitate degraded land? Indeed perhaps farmers can grow other crops which will give them diversity of income and some risk management of their affairs rather than grow more cocoa for which there may be no market.

When farmers earn additional incomes for their crops they do not necessarily invest in their village – it is not uncommon to find additional funds earned by a farmer used to buy a house in a city and to rent it out. Is this because of demands from an extended family or because donor interventions have made cities a far more attractive place to be?

There is a real concern that young people just do not want to work on the farms – this is in part due to donor intervention – investing not in trade in agriculture or in agricultural communities– but in city based improvements and government buildings encouraging urban drift. We have to do better than continue to encourage situations where the best jobs for local people to aspire to are with foreign NGOs.

To my final point, I believe the difference in this world that we all seek will come from joined-up thinking and genuine interaction between the international business community, the governments of producing countries, the donors and of course the farmers and their families in looking at what interventions will really make a difference and produce a sustainable and just standard of living. The cocoa trade and industry have projects in place in Cote d’Ivoire to develop farmer incomes and trading systems. Time does not permit a meaningful discussion of these initiatives today but I would be happy to discuss these later. These are important interventions linking the markets to valuable supply chain attributes and including a social component in return – these interventions do not include a minimum price. However, they are a tremendous challenge for the market because of the obstacles due to poor infrastructure and other shall we say political and economic difficulties.

Ladies and gentlemen, Fairtrade and other niche sectors are a welcome part of our global cocoa market and we are very happy that consumers have the option to make such choices; however the mainstream alternatives to Fairtrade if properly supported will achieve far greater impact on poverty and achievement of MDGs than some of the narrow focus areas. If there is one thing I would like you to take away from this debate today it is not too be unfairly prejudiced about the change that sensible activity between governments, donors and trade and industry could bring about – please convince our public sector decision makers to do more in this respect and that over reliance on Fairtrade for the benefit of a few will be massively unfair on millions of poor people in terms of the time taken to reach where we all want to be.

I thank you.

Methinks He Doth Protest Too Much

Pauline Tiffen, Director of Strategic Planning at Lightyears IP, Operations Advisor to the World Bank, founder of CaféDirect and Divine Chocolate
A response to Philip Sigley’s speech 'Is Fairtrade Really Fair?

As a pioneer of fairly traded products over the last two decades, I cannot but feel a sort of frisson when a major heavyweight lands a defensive punch in the face of the success of our movement in mainstream markets. Most especially, when industry spokespeople start to use the word “niche” in the same sentence as Fairtrade, the adage from the bible comes to mind: a wise person ignores an insult!

Actually, when fair trade really got going, we knew we were niche and somewhat proud to be considered at all in a “mainstream context”. Now, the question is, is niche a label of size, or of purpose? Or a sensibility? I think when Cafédirect did freeze dried instant we stopped being niche because we were catering to a far larger audience (consumer palate) than the term niche deserves. I think niche means (likeably) weird, gourmet, great, unique, odd, different. And also, in market terms, small, because in no way will a lot of people ever really like a genuinely niche product. Think Maya Gold Think Niche! When Divine launched a comparable product to Galaxy and Cadbury Dairy Milk it was NOT NICHE, it just had the inconspicuous market share of a new entrant. Now it is neither niche nor small!

How things have changed for Fairtrade, but perhaps not for industry still grappling with issues such as whose responsibility it is for the millions of small scale cocoa producers being so marginal, so poor after literally generations i.e. hundreds of years, of toiling and selling cocoa to them.

What are the big companies still missing then?

Well we can agree with industry that liberalisation programmes in the developing world – in short-hand a basic step towards “free” markets - actually did play a role in improving things for farmers and sometimes got rid of very bureaucratic state intermediaries. But free markets without safe mediation between small farmers and large trans-national corporations has added to the victimisation of small farmers by agents and middle men, and has meant both high and low prices, unpredictable booms and busts, directly reaching the village and impacting everything on which cash income depends: school fees, school books, school uniforms, health care, cultural and family rituals and events – weddings and funerals and so on.

Large companies that do not care about the supply chain and take no steps to upgrade their own operations are complicit in the consequences. They are responsible by omission if not commission. So unfortunately that is sort of where we start to differ in opinion on causes and effects and most of the solutions. Companies have a lot of "power in their elbow" and should stop blaming others!

Finally, there is a saying for small businesses: turnover is vanity and profit is sanity.

Selling your output to international markets on "less than ideal" conditions - as someone put it - usually means at below the real costs of production. Let us be plain. This results in losses, a failure to save and accumulate anything and the perpetuation of poverty. It is certainly not a tribute to dogged spirit of entrepreneurs as industry would have us believe. Imagine having to stay in a job when you KNEW that your salary each month was never going to meet your rent, food and other needs.

Some kinds of trade are bad: illicit trade in narcotics, spare kidneys, even babies and daughters cannot be argued as a triumph of the free market, just because those chains actually work i.e. they deliver the goods to an end consumer! It is sad when industry suggests “taking more than necessary from a small scale producer cannot be prevented without a real choice for the producer” but fails totally to see that the most profound role being played by Fairtrade companies is providing perhaps the only sustainable, market-based “ratchet” that makes traders trade upwards and not down to the lowest price possible for the farmer.