Fairtrade: From aid, to trade… to aid-for-trade? The Malian example

17 June 2013

The issues of falling commodity prices and unequal terms of trade has always been central to the fair trade movement. Besides the political wing of the movement that is still actively engaged in "awareness raising and in campaigning for changes in the rules and practice of conventional international trade" (Consensus FINE, 2001), fairtrade is also "a trading partnership [that] contributes to sustainable development by offering better trading conditions to, and securing the rights of marginalised producers and workers - especially in the South". There are different fair Trade networks and labeling initiatives. The fairtrade International Labeling Organisation (FLO) is the world leader with 827 fair trade-certified producer organisations in 58 producing countries, representing over 1.2 million farmers. The fairtrade (FT) system basically relies on the premise that consumers in developed countries are paying more for producers to benefit from better conditions, guaranteed by the FT certification system. The  ‘fair' price is related to the sustainable production costs, and the ‘development premium' goes to producer organisations. To be certified, smallholders must observe many economic, social, and environmental standards. After two decades of sales growth, FT is still confined to a niche market, and its efficiency is increasingly challenged. Indeed, in the absence of other benefits than improved prices, FT certification may not be worthwhile for farmers in a context of booming commodity prices. This article suggests other ways to make FT more efficient.

Fair trade labeling: Successes and failures

While FT sales are still a drop in the ocean of international commodity trade (approximately €3.4 billion worldwide), the FLO has largely contributed to raise consumers' consciousness in developed countries about the environmental, economic and social consequences of their consumption choices. Ironically, however, the greatest promoters of FT also certainly contributed to its downfall as the marketplace has become crowded with socially and environmentally - responsible labels (organic labels, Rainforest Alliance, UTZ, etc.). Over recent years, competing in this market has become increasingly difficult as the growing body of evidence has raised skepticism about the ability of FT to generate sustainable benefits to producers in developing countries. Firstly , positive effects remain difficult to attribute to FT because of the lack of counterfactual impact evaluations. Secondly, it is not clear whether FT ensures a fairer distribution of value-added products throughout the value chain. Narrowness in the FT market implies either that the number of certifications should be limited, excluding some producers from the system (raising questions of the fairness of the selection process); or that rents are dissipated through over-certification (i.e. producers sold a tiny part of their production on the FT market). FT supporters thus try to raise the demand for certified products, while its detractors claim that this is precisely because FT is not based on a real differentiation that demand is low, and that the very model of FT prolongs producers' dependence on products that have no prospects in the long run. This argument is frequently stated by multinational firms to defend their own quality-labels against FT.

Some argue that FT should  be redesigned as a support to the development of commercial capacities. The networks and capacities built by the different FT organisations could, for example, help small-scale farmers get larger shares of the high-value export markets that FT tries to compete in. However, until now, we do not know if, and how, FT could support producers in developing countries in following high quality requirements and gaining market shares on high value-added segments that are saturated. FT cotton in Mali is an example of how a FT project can go beyond the strict framework of international FT standards to generate more benefits for producers, including non-certified producers.

Using fair trade effectively: The Malian example

When the French affiliate of FLO launched an FT cotton project in Mali in 2002, it was established that survival of West African cotton producers on international cotton markets depended on two main factors: productivity gains and, importantly, quality improvements. However, in Mali, quality and reputation of the cotton fiber worsened as production increased due to insufficient care during picking. Prices paid by the Malian cotton company , Compagnie Malienne pour le Développement des Textiles (CMDT), to producers are not actually differentiated according to the quality of seed-cotton: it is more profitable for producers to grow more, rather than better, cotton. In 2002, CMDT and its then French shareholder DAGRIS, thus decided to use the FT price (238 versus 180 CFAF per kilogram of seed-cotton paid by the CMDT on average) to differentiate prices on quality. Contrary to what occurs in other FT projects, certified producers would receive the FT price only for the part of their production which was graded in the four first grades of fiber cotton. This decision provided producers with strong, immediate individual incentives to adopt practices to improve quality. Secondly, quality should further improve because of the cooperation and peer-controls that the collective FT premium (34 CFAF/kg) should reinforce. Thirdly, contrary to what occurs in the conventional sector because of the lack of trust toward CMDT, producers are provided with clearer quality criteria and know that the third-party certification process prevents the cotton company from capturing FT premiums. Results of an evaluation conducted in Mali, in 2008, show that FT accounts for more than half of the quality improvement observed in the region where the share of top quality cotton increased from 3 percent to 16 percent over the period studied.

Fair trade and the issue of quality

The Malian FT project is also illustrative of how important it is to deal with quality and quantity issues. Indeed, as recalled by de Janvry, McIntosh, and Sadoulet ("fair trade and free entry: Can a disequilibrium market serve as a development tool", 2012), "markets cannot be used to transfer rents through the price mechanism if the quantity and quality sold are not correspondingly controlled". In their example of a coffee cooperative in Guatemala, FT prices do not reward quality and, contrary to Mali, the number of certifications is not controlled. Thus, the large benefits are dissipated through two mechanisms: over-certification first, as all coffee producers want to sell through FT markets simultaneously. As a consequence, coffee producers only sell a small share of their production on FT markets when a price floor is most needed. Secondly, as FT prices do not reward quality, it happens that FT buyers get high quality coffee at a lower price relative to what they would have paid on traditional markets. For a particular year when both prices and quality were high on conventional markets, the above-mentioned authors even found that Guatemalan farmers would have lost money by participating in FT.

Lessons learned and the way forward

The Malian experience suggests other ways for FT actors to help small producers increase the profitability of their farms.It is clear that "one size fits all" has failed for FT. The comparison between Malian and Guatemalan cases, at least regarding the issue of quality, demands that FT reflect different market constraints. Also, through its marketing networks in both developed and developing countries, FLO and its national affiliates could definitely be a bridge to help producers' and consumers' needs match. Indeed, FT actors can provide information from consumers to producers; but also from producers to consumers: there are examples where FT certification bodies included sustainability standards suggested by producers themselves to defend local interests. Of course, this implies that producers are well-represented in FT organisations and that consumers are ready to trust less standardised brands and labels. FT projects could also act as laboratories for innovation and change. As suggested by the Malian example, the adoption of new technologies or innovative agricultural practices can be fostered through the funding of trials and training programs to improve the design of sustainable initiatives and lead to greater effects.

Author: Gaëlle Balineau is an associate researcher to the Centre for Studies and Research on International Development (CERDI, France).

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