INSIGHTS: Issues Surrounding the Concept of Fair Trade
“Trade not Aid” used to be the slogan of third-worldist movements in the mid-1960s. The aim was then to challenge the capitalist system at its very basis. Today, the issue of unequal exchange has resurfaced through the Fair Trade movement, which purports to help the poorest and most marginalized producers of the global South. Based on the perceived failures of aid and free trade paradigms, the Fair Trade protagonists count on the generosity of Northern consumers in order to achieve fairer trade relationships between the North and the South.
Much of movement revolves around labelling and is epitomized by the Max Havelaar/Fairtrade label. Unlike the previous approach that certifies “organizations”, the labelling approach only certifies “products”. As there is no requirement to be “100 per cent fair-trade specialized” in order to obtain a license for the sale or distribution of Fair Trade products, the sale/distribution of certified products is in theory available to all corporations, provided that they comply with specific standards and pay their annual license fees to the label holder (namely the national labelling initiative). This Fair Trade approach, as it is currently conceived and as it currently works, is an alternative neither to aid nor to free trade, and in some ways, it tends to reproduce their shortcomings.
Producers in developing countries face generally three kinds of interrelated issues in conventional markets: The price of their product is often very volatile; the price they receive for their products tends to be low, sometimes below the cost of sustainable production; and due to the influence of middlemen and inequalities of power, their share of the added value created in agricultural value chains tends to be low.
To address these issues the Fair Trade economic model sets for each product a guaranteed minimum price that covers the cost of a “sustainable production” (that is a production which is environment-friendly and which is associated with decent working conditions for producers). As for the exploitation of producers by “unfair” middlemen, the issue is supposed to be tackled by the certification process (only buyers complying with Fair Trade standards are able to enter these value chains).
The crucial element of the model is, however, the availability of “ethical consumers” from the North who are ready to pay a higher price for products labelled as Fair Trade. The growth of Fair Trade markets is, therefore, ultimately dependent on the growth of the population of “ethical consumers”.
For the Fair Trade economic model to be efficient and to be considered as a superior alternative to free trade, it has at least to provide to producers better outcomes in terms of prices and market access compared to conventional international trade. However, owing to the way in which it has been conceived, there is no guarantee a priori that producers involved in the Fair Trade movement should be better-off than conventional producers.
First, there are limits to the “generosity” of the Fair Trade minimum price. If it is too high relative to standard prices observed in conventional markets, there is the risk that consumers will be discouraged to buy Fair Trade products. However, if the minimum price is not generous enough, it will probably not have a significant effect on poverty. Second, contrary to a popular belief, the use of a Fair Trade label does not guarantee producers that they will be able to sell all of their production at Fair Trade prices. Labelling initiatives can just simply define the rules of the game and try to ensure that standards are enforced. They cannot guarantee that each producer will have access to markets.
Following this free trade logic, it is not a surprise that Fair Trade producers are generally recruited not from the most marginalized but from the better-off. Producers that have some “social capital” and some international ties are those that are more likely to enter the Fair Trade markets.
If the evidence regarding the local impact of the Fair Trade label tends to be mixed, it is all but unambiguous regarding its global impact. We must say that if Fair Trade has been a huge marketing success (revealed by the important sales growth rates recorded until now), it remains until now a very insignificant part of the world trade system.
As an alternative economic model which aims to supersede aid and free trade, the FT approach tends to generate low average revenues for producers. In 2008, the gross average revenues that accrued to producers amounted to 74 euros annually per worker. This figure which represents 16 percent of the average GDP per capita of the least developed countries in 2008. As a transfer mechanism, the Fair Trade economic model seems also to lack efficiency. To take the case of the United States, for each dollar paid by “ethical consumers” to buy an FT coffee product, only 3-cents are actually transferred to producers. This low rate of transfer is illustrative of the fact that the surplus paid by consumers is appropriated by intermediaries, including the labelling initiatives themselves.
While the Fair Trade economic model is supposed to benefit producers in the poorest countries, in actual practice, the it targets more those in the richest developing countries. The least developed countries are underrepresented among Fair Trade producers (13 percent of the total). This is due to the bias associated with the certification model. Given that the certification process is relatively costly, this tends to favor producers in countries with a higher level of development. There is also the fact that the offer of certification by labelling initiatives is biased towards products exported by Latin American countries (coffee and bananas for example), a region which is on average richer than Africa and developing regions in Asia.
Besides excluding producers in the poorest countries, the Fair Trade movement tends also to marginalize the countries which are the most dependent on the revenues obtained from the exports of primary products. Let’s take for example the case of coffee, the Fair Trade flagship product. Ethiopia and Burundi are the two countries most dependent in the world on coffee revenues which account respectively for 34 and 26 percent of their export revenues. Until 2009, there were only three Fair Trade coffee certifications in Ethiopia and none in Burundi. Paradoxically, Mexico and Peru, which are not dependent at all on coffee exports (less than 2 percent of their export revenues), accounted for 31 percent of the total coffee certifications.
Therefore, despite the generous intentions of its protagonists, the Fair Trade economic model is not in practice an alternative to aid and free trade and simple tends rather to reproduce their deficiencies. Looking at its global socioeconomic impact, the limits of the economic model are certainly illustrated by the way in which it marginalizes the poorest producers and the most dependent countries as well as its low average returns.
Unless developing countries change their economic specialization, by starting to process locally their own primary products, it will be in vain to expect strong economic development.
ON THE ECONOMY: LOVE SHACK, BABY!
“I got me a car, it’s as big as a whale, and we’re headin’ on down to the love shack. I got me a Chrysler, it seats about 20, so hurry up and bring your jukebox money. The love shack is a little old place, where we can get together. Love shack, baby!”
The lyrics of this 1989 song by the B-52s have been interpreted in different ways, but they also describe the current U.S. trend toward multi-generational households.
Historically, multi-generational families tended to live together in a single household or community. This arrangement is still the norm in many parts of the world, but following the end of World War II, in America, at least, the percentage of multi-generational households fell dramatically. According to a recent analysis of Census data released by the Pew Research Center, 57 million Americans, (18.1 percent of the population) lived in multi-generational households in 2012. While the number of people is a record, the actual percentage of the population living with their parents or grown child is still well below the 24.7 percent prior to World War II.
The long term decline in multi-generational households has been due to a number of factors, particularly improvements in the health and incomes of the elderly (57 percent of whom lived with family at the turn of the century), which has allowed older Americans to live independently. In addition, changes in the economy from an agricultural to an industrial base, and changes in transportation technology have allowed children to hold jobs and develop new households far away from their parents.
While the recent upswing of growth in the number of families living together over longer periods is based on changes in racial and ethnic demographics (for example Asian and Hispanic families are much more likely to live in multi-generational households than are white families), much of this growth, particularly among young adults, is due to poor economic conditions in the past few years.
According to the Pew Report, the post-recession increase in the number of young adults living with their parents grew by an astonishing 2 percentage points from 2010 to 2012 alone. The trend was seen in both males and females and across racial lines; however, the unemployed are much more likely to live in a multi-generational home than are those with jobs, and the increase in young adults living with their parents since the recession is most apparent among those without a bachelor’s degree.
Everything in the economy today is transpiring against the young, even those with college degrees. While the overall unemployment rate is not significantly different than the national average for young adults, their wages are about 10 percent lower than the national average. Many of these young people have huge amounts of college debt that they must pay off making their disposable income even lower.
In addition, there have been social changes in the past generation that make it very different from their Baby Boomer (and even Generation X) parents. According to Pew, the growing tendency of young adults to live in multi-generational households may be a manifestation of their delayed entry into adulthood. Young people are marrying later, and staying in school longer, and these factors may be contributing to the rising share of young adults living with their parents.
Finally, there has been a regional population shift toward urban areas. According to the Bureau of the Census, urban areas accounted for 80.7 percent of the U.S. population in 2010, up from 79.0 percent in 2000. Many urban areas that young people are attracted to (Brooklyn, Denver, San Francisco, Portland) have extremely expensive housing costs, and younger Americans simply may not have access to the credit or savings needed to purchase or even rent a new home.
This rise in multi-generational households is just one more symptom of poor economic conditions, and while there may be some substantial social benefits that result from closer families, based on historical data, many parents are likely not all that excited to see their children and their children’s grandparents at the dinner table each and every day.
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