Part 2: Governance, Certification & International Trade Justice: Which way now?

As discussed by Ian Agnew of the Lorna Young Foundation, the certification of coffee has become increasingly prominent in the last 10 years. However, the wide spread use and variety of these certification systems raise some important and often difficult questions: Are these schemes producing the effects that they claim? How can consumer, producers and others make sense of the options available?  Which certification option should I be choosing? In the second of a three part article, Dr. Alastair M. Smith shares some of his thoughts on ‘Fair Trade’ and ‘Ethical Trade’ governance and certification.

‘Fair Trade’ Governance and Certification

The ‘fair’ or ‘alternative trade’ movement began as a collection of similar initiatives with different approaches to benefiting communities in developing countries – a primary principle of which was to return more of the final retail value of goods back to parts of the world that needed it most. Given the popularity of this idea, a group of Mexican coffee farmers and a Dutch NGO (a non-governmental organisation) formalised such an approach to supply chain organisation which has become collectively known as ‘Fairtrade’ certification in Europe – managed by Fairtrade International (FLO) and its constituent National Labelling Initiatives (NLI) – or Fair Trade Certified in North America. Fairtrade certification aims to create and maintain markets for certified producers in the developing world, and in most cases, guarantees that:

  • Minimum prices have been paid to exporting organisations to at least cover the cost of sustainable production;
  • An additional social premium is provided for community development projects;
  • Up-front credit has been given in advance to assist with the cost of production; and
  • Buyers aim to establish long term relationships with the producers of their goods.

Having said this, the requirements for specific products are different and not all these criteria are relevant. In return for the support they receive, producers have to meet economic, social and environmental standards.

At the same time as the FLO system was developing, networks of other alternative trade organisations formed the World Fair Trade Organisation (WFTO). This separate organisation also developed accreditation functions for fair trade activity – providing endorsements for whole organisations/companies operating according to the 10 Principles of Fair Trade (and in contrast to the FLO system which only certified individual products), as well as a newly piloted certification system for individual products called the Sustainable Fair Trade Management System (SFTMS). Again, this type of certification aims to create and maintain markets for accredited producers, and ensure that:

  • Prices cover the cost of sustainable production (being based on either FLO minimum prices or transparently negotiated levels);
  • Working credit is advanced and labour standards are observed;
  • The environmental impact is minimised; and
  • Trade activities are fair and the principles of fair trade are promoted more widely.

While fair trade initially began among often small organisations focused on development, the availability of FLO certification has drawn involvement from profit driven companies – allowing the market to reach a value of 3.4 billion Euros in 2009. However, with the success of Fairtrade products, a series of issues have emerged. Firstly, within the fair trade movement many people feel that companies motivated by profit compromises the benefits of fair trade. As a key point, while the early fair trade movement worked to return as much of the final retail value to the coffee producers as possible, FLO certification only requires the payment of fixed prices. For this reason, in some cases coffee companies in Europe and North America have arguably benefited more than coffee farmers and producers. Furthermore, many people see that coffee companies have distorted the aim to help the poorest farmers (instead choosing to source coffee from the most successful farmers and hence wealthier communities), as well as resisted increases in the minimum prices paid. FLO certification also attracts criticism for only being available for certain products in certain countries and being too expensive for those most in need of access to support. Coffee producers who wish to obtain FLO certification must pay an up-front fee of €250 and are also required to pay inspection and verification costs, which are €350 per day.

For these reasons, the WFTO has attempted to differentiate itself from FLO by requiring that accredited organisations place fair trade operation at the centre of their activity, avoiding geographical limits on accreditation and keeping down the cost of certification for producers. On this basis they currently claim to represent the ‘authentic’ and ‘mission driven’ approach to fair trade, aiming to return as much as possible to the farmers or pay minimum FLO prices where applicable. Likewise, when Mexican coffee farmers developed their own domestic fair trade or Comercio Justo Mexico (CJM) certification system, they introduced limitations on the benefit that profit motivated companies can take from their involvement in the trading of certified products such as coffee.

Finally, a comparatively new organisation in the field of fair trade certification is ‘Fair for Life’.  It claims to offer complementary certification to existing fair trade and ethical trade (see below). Instead of fixing minimum prices and social premiums for example, these have to be negotiated between buyers and sellers. While this might be more flexible, the degree to which producers are protected from seeing prices driven down is not clear given the openness of the scheme of companies motivated by profit.

‘Ethical Trade’ Governance and Certification

Commercial companies have also become involved with a variety of other governance and certification systems claiming to give additional benefits to producers in the developing world; including those farming coffee. These so-called ‘ethical trade’ approaches are viewed by independent analysts as being different from fair trade activities, as they focus on setting standards for the production of goods – without setting requirements for the way that producer organisations should be treated by those buying from them.  In this sense their first priority is to improve the social and economic conditions of production, after which it is hoped that economic returns will increase.

One example is the certification offered by the Rainforest Alliance. This system began in the wood sector, before expanding to include bananas, cocoa, coffee, ferns and cut flowers, fruits and tea. Originally, considered as being primarily a ‘“conservation certification” program, with less concern for social justice issues (Murray and Reynolds 2000, p. 70), requirements covering the education of workers’ children for example, have strengthened over time. While minimum wage standards are similar to FLO, the latter also requires ‘salaries are gradually increased to “living wage” levels above the regional average and official minimum’ (FLO 2009, pp. 19-20). One of the largest issues with Rainforest Alliance certification is that products are eligible as long as they are made up of at least 30% certified products – although certified companies are required to plan for increasing this to 100%. As with many schemes in the Ethical Trade category, Rainforest Alliance standards concentrate on labour, social and environmental conditions at the site of production.

Another certification scheme for coffee embraced by many companies is the Utz Certified Good Inside, launched in 2002 by the Dutch food retailer Ahold. Here the coffee industry has largely set the requirements, although the Utz Kapeh Foundation was established to transform the initiative into a third-party certification system (Raynolds et al. 2007, p. 153). The program has a code of conduct which sets standards for socially and environmentally responsible practices, ensuring the coffee can be traced back to the farmers and professional farm management. While Utz started its governance for coffee, they now also offer certification for palm oil, cocoa and tea. One unique part of the Utz certification is that the end products are traceable from farm or cooperative to factory via an on-line system. Having said this, independent analysis evaluating the social justice requirement of the label concluded that it is weak in comparison with other systems – for example, setting few  standards for the education of workers’ children or the environment. A more lengthy discussion of different governance approaches can be found elsewhere; although while many of these schemes have impressive aims, they fall short of pushing standards of justice and fair treatment beyond existing expectations and requirements.

Look out for the final part of the article coming soon!

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