The Processes and Practices of Fair Trade: Trust, Ethics and Governance [1 ed.] 9781136231810, 9780415575669

Citation preview

The Processes and Practices of Fair Trade

Fairtrade has established itself as a distinct phenomenon within the realm of global consumerism. Buying Fairtrade products is presented as being capable of both minimizing harm and promoting well-­being to poor farmers in developing countries. Shopping Fairtrade or ethically thus begins to resemble a veritable moral imperative, the force of which extends beyond mere subjective taste and preference. Fairtrade aims to protect small producers against price volatility and inadequate incomes as well as to provide community benefits (health care, education). It targets the demand of shoppers interested in realizing ethical aspirations to address and perhaps even overcome some of the harms and inequalities typically associated with more conventional forms of exchange and consumption in the contemporary world. It presents itself as offering a means of bestowing a human face upon global capitalism. Such claims warrant closer and critical scrutiny. This book provides a critical scrutiny on these claims. It analyses the factors behind the recent expansion of Fairtrade and questions whether the trust given to the scheme by ‘ethical’ shoppers is warranted. It goes about this assessment by analysing the claim of ethical shopping and by scrutinizing the specific contribution of the Fairtrade Certification Mark to producers’ welfare. This assessment is based on information gathered in a mixture of desk-­based research and fieldwork carried out in Argentina, Bolivia, Chile, Peru, Tanzania, and South Africa. This book comprises separate chapters written by academics of various backgrounds, who have worked together on Fairtrade. It should however be noted that the authors do not necessarily hold a common set of views in respect to Fairtrade. Brigitte Granville is Professor of International Economics and Economic Policy at Queen Mary, University of London, UK. Janet Dine is Professor of International Economic Development Law at Queen Mary, University of London, UK.

Routledge studies in the modern world economy

  1 Interest Rates and Budget Deficits A study of the advanced economies Kanhaya L. Gupta and Bakhtiar Moazzami

  7 Competition Policy in the Global Economy Modalities for co-­operation Edited by Leonard Waverman, William S. Comanor and Akira Goto

  2 World Trade after the Uruguay Round Prospects and policy options for the twenty-­first century Edited by Harald Sander and András Inotai

  8 Working in the Macro Economy A study of the US labor market Martin F. J. Prachowny

  3 The Flow Analysis of Labour Markets Edited by Ronald Schettkat   4 Inflation and Unemployment Contributions to a new macroeconomic approach Edited by Alvaro Cencini and Mauro Baranzini   5 Macroeconomic Dimensions of Public Finance Essays in honour of Vito Tanzi Edited by Mario I. Blejer and Teresa M. Ter-­Minassian   6 Fiscal Policy and Economic Reforms Essays in honour of Vito Tanzi Edited by Mario I. Blejer and Teresa M. Ter-­Minassian

  9 How Does Privatization Work? Edited by Anthony Bennett   10 The Economics and Politics of International Trade Freedom and trade: volume II Edited by Gary Cook   11 The Legal and Moral Aspects of International Trade Freedom and trade: volume III Edited by Asif Qureshi, Hillel Steiner and Geraint Parry   12 Capital Markets and Corporate Governance in Japan, Germany and the United States Organizational response to market inefficiencies Helmut M. Dietl

  13 Competition and Trade Policies Coherence or conflict Edited by Einar Hope

  22 The New Industrial Geography Regions, regulation and institutions Edited by Trevor J. Barnes and Meric S. Gertler

  14 Rice The primary commodity A. J. H. Latham

  23 The Employment Impact of Innovation Evidence and policy Edited by Marco Vivarelli and Mario Pianta

  15 Trade, Theory and Econometrics Essays in honour of John S. Chipman Edited by James C. Moore, Raymond Riezman and James R. Melvin   16 Who Benefits from Privatisation? Edited by Moazzem Hossain and Justin Malbon   17 Towards a Fair Global Labour Market Avoiding the new slave trade Ozay Mehmet, Errol Mendes and Robert Sinding   18 Models of Futures Markets Edited by Barry Goss   19 Venture Capital Investment An agency analysis of UK practice Gavin C. Reid   20 Macroeconomic Forecasting A sociological appraisal Robert Evans   21 Multimedia and Regional Economic Restructuring Edited by Hans-­Joachim Braczyk, Gerhard Fuchs and Hans-­Georg Wolf

  24 International Health Care Reform A legal, economic and political analysis Colleen Flood   25 Competition Policy Analysis Edited by Einar Hope   26 Culture and Enterprise The development, representation and morality of business Don Lavoie and Emily Chamlee-­Wright   27 Global Financial Crises and Reforms Cases and caveats B.N. Ghosh   28 Geography of Production and Economic Integration Miroslav N. Jovanović   29 Technology, Trade and Growth in OECD Countries Does specialisation matter? Valentina Meliciani   30 Post-­Industrial Labour Markets Profiles of North America and Scandinavia Edited by Thomas P. Boje and Bengt Furaker

  31 Capital Flows without Crisis Reconciling capital mobility and economic stability Edited by Dipak Dasgupta, Marc Uzan and Dominic Wilson   32 International Trade and National Welfare Murray C. Kemp   33 Global Trading Systems at Crossroads A post-­Seattle perspective Dilip K. Das   34 The Economics and Management of Technological Diversification Edited by John Cantwell, Alfonso Gambardella and Ove Granstrand   35 Before and Beyond EMU Historical lessons and future prospects Edited by Patrick Crowley   36 Fiscal Decentralization Ehtisham Ahmad and Vito Tanzi   37 Regionalisation of Globalised Innovation Locations for advanced industrial development and disparities in participation Edited by Ulrich Hilpert   38 Gold and the Modern World Economy Edited by MoonJoong Tcha   39 Global Economic Institutions Willem Molle

  40 Global Governance and Financial Crises Edited by Meghnad Desai and Yahia Said   41 Linking Local and Global Economies The ties that bind Edited by Carlo Pietrobelli and Arni Sverrisson   42 Tax Systems and Tax Reforms in Europe Edited by Luigi Bernardi and Paola Profeta   43 Trade Liberalization and APEC Edited by Jiro Okamoto   44 Fiscal Deficits in the Pacific Region Edited by Akira Kohsaka   45 Financial Globalization and the Emerging Market Economies Dilip K. Das   46 International Labor Mobility Unemployment and increasing returns to scale Bharati Basu   47 Good Governance in the Era of Global Neoliberalism Conflict and depolitization in Latin America, Eastern Europe, Asia and Africa Edited by Jolle Demmers, Alex E. Fernández Jilberto and Barbara Hogenboom   48 The International Trade System Alice Landau

  49 International Perspectives on Temporary Work and Workers Edited by John Burgess and Julia Connell

  57 Financial Crises Socio-­economic causes and institutional context Brenda Spotton Visano

  50 Working Time and Workers’ Preferences in Industrialized Countries Finding the balance Edited by Jon C. Messenger

  58 Globalization and Self Determination Is the nation-­state under siege? Edited by David R. Cameron, Gustav Ranis and Annalisa Zinn

  51 Tax Systems and Tax Reforms in New EU Members Edited by Luigi Bernardi, Mark Chandler and Luca Gandullia

  59 Developing Countries and the Doha Development Round of the WTO Edited by Pitou van Dijck and Gerrit Faber

  52 Globalization and the Nation State The impact of the IMF and the World Bank Edited by Gustav Ranis, James Vreeland and Stephen Kosak

  60 Immigrant Enterprise in Europe and the USA Prodromos Panayiotopoulos

  53 Macroeconomic Policies and Poverty Reduction Edited by Ashoka Mody and Catherine Pattillo   54 Regional Monetary Policy Carlos J. Rodríguez-Fuentez   55 Trade and Migration in the Modern World Carl Mosk   56 Globalisation and the Labour Market Trade, technology and less-­ skilled workers in Europe and the United States Edited by Robert Anderton, Paul Brenton and John Whalley

  61 Solving the Riddle of Globalization and Development Edited by Manuel Agosín, David Bloom, George Chapelier and Jagdish Saigal   62 Foreign Direct Investment and the World Economy Ashoka Mody   63 The World Economy A global analysis Horst Siebert   64 Production Organizations in Japanese Economic Development Edited by Tetsuji Okazaki   65 The Economics of Language International analyses Edited by Barry R. Chiswick and Paul W. Miller

  66 Street Entrepreneurs People, place and politics in local and global perspective Edited by John Cross and Alfonso Morales

  74 Expanding Frontiers of Global Trade Rules The political economy dynamics of the international trading system Nitya Nanda

  67 Global Challenges and Local Responses The East Asian experience Edited by Jang-­Sup Shin

  75 The Macroeconomics of Global Imbalances European and Asian perspectives Edited by Marc Uzan

  68 Globalization and Regional Integration The origins, development and impact of the single European aviation market Alan Dobson

  76 China and Asia Economic and financial interactions Edited by Yin-­Wong Cheung and Kar-­Yiu Wong

  69 Russia Moves into the Global Economy Breaking out John M. Letiche

  77 Regional Inequality in China Trends, explanations and policy responses Edited by Shenggen Fan, Ravi Kanbur and Xiaobo Zhang

  70 The European Economy in an American Mirror Barry Eichengreen, Michael Landesmann and Dieter Stiefel

  78 Governing Rapid Growth in China Equity and institutions Edited by Ravi Kanbur and Xiaobo Zhang

  71 Working Time Around the World Trends in working hours, laws, and policies in a global comparative perspective Jon C. Messenger, Sangheon Lee and Deidre McCann

  79 The Indonesian Labour Market Shafiq Dhanani, Iyanatul Islam and Anis Chowdhury

  72 International Water Treaties Negotiation and cooperation along transboundary rivers Shlomi Dinar   73 Economic Integration in the Americas Edited by Joseph A. McKinney and H. Stephen Gardner

  80 Cost–Benefit Analysis in Multi-­ level Government in Europe and the USA The case of EU cohesion policy and of US federal investment policies Alessandro Ferrara   81 The Economic Geography of Air Transportation Space, time, and the freedom of the sky John Bowen

  82 Cartelization, Antitrust and Globalization in the US and Europe Mark LeClair   83 The Political Economy of Integration Jeffrey Cason   84 Critical Issues in Air Transport Economics and Business Rosario Macario and Eddy Van de Voorde   85 Financial Liberalisation and Economic Performance Luiz Fernando de Paula   86 A General Theory of Institutional Change Shiping Tang   87 The Dynamics of Asian Financial Integration Edited by Michael Devereux, Philip Lane, Park Cyn-­young and Wei Shang-­jin   88 Innovative Fiscal Policy and Economic Development in Transition Economies Aleksandr Gevorkyan   89 Foreign Direct Investments in Asia Edited by Chalongphob Sussangkarn, Yung Chul Park and Sung Jin Kang   90 Time Zones, Communications Networks, and International Trade Toru Kikuchi

  91 Miraculous Growth and Stagnation in Post-­War Japan Edited by Koichi Hamada, Keijiro Otsuka, Gustav Ranis, and Ken Togo   92 Multilateralism and Regionalism in Global Economic Governance Trade, investment and finance Edited by Junji Nakagawa   93 Economic Growth and Income Inequality in China, India and Singapore Trends and policy implications Pundarik Mukhopadhaya, G. Shantakumar and Bhanoji Rao   94 Foreign Direct Investment in China Spillover effects on domestic enterprises Deng Ziliang   95 Enterprise Forms and Economic Efficiency Capitalist, cooperative and government firms Kazuhiko Mikami   96 Diversity and Transformations of Asian Capitalism Edited by Boyer, Uemura and Isogai   97 Knowledge Transfer in the Automobile Industry Global-­local production networks Dessy Irawati   98 Exchange Rates and Foreign Direct Investment in Emerging Asia Selected issues and policy options Ramkishen S. Rajan

  99 Singapore, the Energy Economy From the first refinery to the end of cheap oil, 1960–2010 Ng Weng Hoong 100 China-­India Economics Challenges, competition & collaboration Amitendu Palit 101 The Impact of China on Global Commodity Prices The disruption of the world’s resource sector Masuma Farooki and Raphael Kaplinsky 102 Case Studies on Chinese Enterprises Edited by Donglin Xia 103 Argentina’s Economic Growth and Recovery Michael Cohen 104 The Korean Labour Market After the 1997 Economic Crisis Edited by Joonmo Cho, Richard B. Freeman, Jaeho Keum and Sunwoong Kim

105 China and India The quest for energy resources in the 21st century Zhao Hong 106 Beyond the Global Crisis Structural adjustments and regional integration in Europe and Latin America Edited by Lionello Punzo, Carmen Aparecida Feio and Martin Putchet Anyui 107 The Global Economic Crisis in Latin America Impacts and responses Edited by Michael Cohen 108 The Processes and Practices of Fair Trade Trust, ethics, and governance Edited by Brigitte Granville and Janet Dine

The Processes and Practices of Fair Trade Trust, ethics, and governance

Edited by Brigitte Granville and Janet Dine

First published 2013 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2013 selection and editorial material, Brigitte Granville and Janet Dine; individual chapters, the contributors The right of Brigitte Granville and Janet Dine to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data The processes and practices of fair trade: trust, ethics and governance/ edited by Brigitte Granville and Janet Dine.  p. cm. 1. Developing countries–Commerce. 2. Foreign trade regulation. 3. International trade–Moral and ethical aspects. 4. Competition, Unfair. I. Granville, Brigitte. II. Dine, Janet. HF1413.P77 2012 382′.3–dc23 2012007431 ISBN: 978-0-415-57566-9 (hbk) ISBN: 978-0-203-10068-4 (ebk) Typeset in Times New Roman by Wearset Ltd, Boldon, Tyne and Wear

Contents



List of figures List of tables List of contributors Acknowledgements List of abbreviations

Part I

Overview and introduction

xiii xv xvi xx xxii

1

JANET DINE, BRIGITTE GRANvILLE, AND S te v en N T elford F O R D

Part II

Governance and institutions 1

Fairtrade governance and its impact on local development: a framework

17

19

M artha H A P re v e z er R

2

A short history of Fairtrade certification governance

43

E li z abeth T H A nne E B E N N E T T

3

Fair Trade: partners in development? A reassessment of trading partnerships within the Fair Trade model

79

M atthew H E W A N D E R S O N

4

The international fair trade movement: actors and regulatory approaches M arise S E C R E M O N A A N D G R A C I A M ar í n D ur á n

96

xii   Contents 5

Fair trade in the European Union: regulatory and institutional aspects

122

M A R I S E C R E M O N A A N D G R A C I A M ar í n D ur á n

Part III

Trust and ethics

197

6

199

Fairtrade, trust, risk, and the company concession model JANET DINE

7

Fairtrade and labour standards: why Fairtrade is succeeding where international law has failed

232

KIRSTEEN SHIELDS

8

Ethical shopping and trusting morality

246

ANDREW FAGAN

Part IV

Fairtrade in action 9

Beyond price – Fairtrade and capacity building: the case of Cooperativa Naranjillo in Peru

265

267

SHANNON SUTTON

10 Empirical evidence from South Africa

286

BRIGITTE GRANvILLE AND STEvEN TELFORD

11 Labelling challenges in Fairtrade: a need for harmonization?

341

ROHAN KARIYAWASAM



Index

363

Figures

  1.1 Gereffi et al.’s (2005) five types of governance of supply chain   1.2 Organization chart for RSTGA   1.3 WATCO green leaf tea production   1.4 Smallholder green leaf tea payments by WATCO   1.5 Schedule of dividend payments and profits for WATCO   2.1 Governance chart 2005–2006   2.2 Governance chart 2006–2007   10.1 Distribution of household income per capita   10.2 Distribution of household expenditure per capita   10.3 Timing of wage payment   10.4 Wage relative to minimum wage   10.5 Wage relative to minimum wage (excluding non-­respondents)   10.6 Whether the worker has considered changing employment   10.7 Ownership of consumer goods index   10.8 Ability to save   10.9 How savings are managed 10.10 Whether workers always have access to sufficient food 10.11 Receive subsidized accommodation 10.12 Educational achievement 10.13 Instances of child mortality 10.14 Expectations of generational improvement 10.15 Desire for children to remain in farming 10.16 Whether children are withdrawn from school during harvest time 10.17 Access to a visiting doctor 10.18 Living standard in comparison to parents 10.19 Change in living standard over the last three to five years 10.20 Active and passive joint body membership 10.21 Whether joint body membership is perceived to have a positive impact on living standards 10.22 Assistance with health and/or education 10.23 Opinions about whether FT is ‘specifically’ responsible for an improvement in living standards

26 33 35 36 37 61 63 292 293 294 294 295 296 297 298 299 300 301 303 304 305 306 307 309 309 310 311 313 313 314

xiv   Figures 10.24 Whether FT makes sufficient provisions for costs of living and family development 10.25 Expectation of being able to rely on FT to continue 10.26 If FT did not exist whether the worker would divert their labour to different products 10.27 How people feel they receive FT gains

315 315 316 317

Tables

  1.1 Average productivity comparing different sized coffee holdings   1.2 Premiums received by Rungwe Fairtrade Fund   5.1 Fair trade figures in EU Member States (2007)   6.1 Supermarkets – market share   9.1 Overview of Naranjillo   9.2 Overview of two sample groups (Group III interviews) 10.1 Pair-­wise independence tests: material welfare 10.2 Monthly household income 10.3 Pair-­wise independence tests: immaterial welfare 10.4 Independence tests on FT and degree of participation 10.5 Marginal effects on whether a person wishes their child to remain in farming 10.6 Marginal effects on whether a person has considered relocating their labour  10.7 Marginal effects on whether a person considers their wellbeing to have improved over the last three to five years

29 38 124 213 272 273 291 292 302 312 319 321 323

Contributors

Matthew Anderson completed his PhD in 2009 at the University of Birmingham on ‘The British Fair Trade Movement, 1960–2000: a new form of global citizenship?’. His research explores the dynamics of Fair Trade as a social movement and looks to explain how socio-­economic networks have evolved between cooperatives, development agencies, religious groups, trade unions, and consumers. He is currently working on a new book entitled A History of Fair Trade in Contemporary Britain: From civil society campaigns to corporate compliance (Palgrave Macmillan, forthcoming). Elizabeth Anne Bennett is completing her PhD in International Relations and Comparative Politics at Brown University (May 2013). Elizabeth is writing the first comprehensive history of certified fair trade governance, and her dissertation examines variation in producer inclusion in high-­level Fairtrade decision-­making over time. Her work is funded by the American Council on Germany, the Tinker Foundation, the German Academic Exchange (DAAD), and the Watson Institute for International Studies. Elizabeth is also the co-­ author of The Civic Imagination (Paradigm Press, forthcoming), a collaborative, interdisciplinary ethnography of political engagement in America, and a chapter on certifying social enterprises in Patterns of Social Entrepreneurship Research (Edward Elgar, forthcoming). Her research interests include international development, activism, North–South civil society, ethical certifications, and civic engagement. Elizabeth holds a MALD in Political Economy and International Development from The Fletcher School, and has taught for five years at the Tisch College for Citizenship and Public Service at Tufts University. Marise Cremona is Professor of European Law and currently President and interim of the European University Institute; until June 2012 she was Head of the Department of Law at the EUI. She joined the EUI in 2006, having previously held the chair of European Commercial Law at Queen Mary, University of London. Marise works in the field of EU law, and in particular EU foreign relations law. She is interested in the interaction between national, regional, and international legal, regulatory, and policy regimes and her current research projects include the constitutional basis for EU foreign relations law,

Contributors   xvii the legal and institutional dimensions of the EU’s external commercial policy, and the export of values and norms in EU external policy. Janet Dine is researching and teaching company law, globalization and EU enlargement. The latter is focused on the Balkans where she has completed several projects involving drafting legislation. Recently she has drafted (with a colleague, Dr Michael Blecher) Albanian Company Law (2008). The Albanian project is ongoing with Albanian and German government assistance. The Fairtrade project with Brigitte Granville was started in 2006 entitled ‘The Fairtrade Movement, legal support and social implications’ funded by the Arts and Humanities Research Council. Gracia Marín Durán is a lecturer in International Economic Law and directs the LLM Programme in International Economic Law. Her research interests lie generally in WTO law (with a specific focus on development issues, trade and environment nexus, and regionalism) as well as in the law of the EU’s external trade and sustainable development policies. Prior to joining the University of Edinburgh Law School in February 2011, Gracia served as a trade officer at the Delegation of the European Union to the Republic of South Africa (RSA), where she dealt with EU–RSA cooperation in a wide range of areas (such as trade in goods and services, investment, intellectual property, procurement, competition) as well as EU–SADC negotiations on an Economic Partnership Agreement. She previously worked at the Legal Affairs Division of the World Trade Organization, where she was involved in a number of dispute settlement proceedings, and consulted for the United Nations Food and Agriculture Organization in the preparation of a legislative study on organic agriculture. Andrew Fagan is the Director of Academic Studies of the Human Rights Centre. His human rights teaching focuses upon the philosophical, political, and cultural dimensions of human rights’ principles and practice. He is particularly interested in the philosophical foundations of human rights law, the relationship between cultural diversity and human rights, and that between religion and a respect for human rights principles. He has written and edited numerous books including The Human Rights Atlas (University of California Press, 2010), Human Rights: Confronting Myths and Misunderstandings (Edward Elgar, 2009) and, with Janet Dine, Human Rights and Capitalism: A Multidisciplinary Perspective on Globalisation (Edward Elgar, 2006). Brigitte Granville was appointed ‘Chevalier des palmes académiques’ (Knight in the Order of Academic Palms) by the French government (a decoration recognizing services to education). She received her PhD in economics from the European University Institute in Florence. She has been part of a team advising Russia’s Ministry of Finance, and has been a major contributor to the analysis of the successes and problems of Russian monetary reforms. She worked in Chatham House as the director of the International Economics Programme from 1999 until she joined Queen Mary, University of London in

xviii   Contributors 2004. Her research interests focus on the application of macro monetary economics to critical contemporary issues such as Fairtrade. Rohan Kariyawasam is a professor of Commercial Law at Cardiff University. Prior to Cardiff, he was at the University of Essex and a member of the Human Rights Centre and Director of their Programme in Information Technology, Media, and E-­Commerce Law. He has worked as a consultant for both the Media and Communications Department at Clifford Chance, the Media Law Department at Field Fisher Waterhouse, and as an external consultant to the UK’s Department for International Development (DFID). He qualified as a solicitor with DentonWildeSapte. Rohan is a past recipient of a Fulbright Scholarship to Harvard Law School and is the founding trustee to the Rahula Trust (www.rahula-­trust.org), which provides sponsorship to academically gifted children living in poverty in the developing world. Rohan’s research involves the intersection of trade (particularly WTO), technology, IP, and development law. His latest book is Chinese Intellectual Property & Technology Laws (Edward Elgar, 2011). In 2011, the British Academy awarded him a fellowship to research market competition, net neutrality, and privacy on the Internet. Martha Prevezer is Senior Lecturer in Strategy and Innovation at Queen Mary, University of London. She received her PhD from London University. She worked at the Bank of England, the National Economic Development Office, London Business School, South Bank University, and City University before joining Queen Mary, University of London in 2005. Her research interests are in governance, and institutional, technological, and regional development in developed, emerging, and low-­income countries. Kirsteen Shields joined Dundee Law School as a lecturer in Law in 2010 having previously been Fellow in Human Rights at the LSE Centre for the Study of Human Rights. A member of the AHRC research team on Fairtrade since its beginning in 2006, she has undertaken field trips to investigate labour conditions on farms in South Africa, Bolivia, and Cuba. She has published several papers relating to the legal and human rights dimensions of Fairtrade. Her broader research interest concerns the relationship between ‘global justice’ and public international law. Her forthcoming research relates to the structural relationship between the state and the allocation of natural resources. In 2011 she was awarded the title of Scotland and Northern Ireland Young Thinker of the Year. Shannon Sutton is currently completing her PhD at Queen Mary, University of London, where she is researching governance, participation, and representation at Tanzanian Fairtrade coffee cooperatives. Her research interests primarily relate to international development, cooperatives, rural agriculture, and gender, and she has conducted field research in Latin America and East Africa. Shannon previously worked in communications and project management at Fairtrade Canada, La Siembra Cooperative, the International

Contributors   xix Development Research Centre, and CSV, as well as at the Guludo Fairtrade eco-­lodge in Mozambique. She holds an MA in International Affairs (Norman Paterson School of International Affairs, Carleton University) and a Bachelor of Commerce (McGill University). Steven Telford has a first-­class honours BA in Economics and Sociology from the University of Wales, Bangor, an MSc in Development Economics from the University of Manchester, and a PhD in Economics which was supervised by Brigitte Granville. Both at undergraduate and graduate level he has taught economics at Queen Mary, University of London and University College London. He is currently working in Vietnam, where he is a lecturer in economics.

Acknowledgements

This book presents the results of a collective effort over five years. During this time, we have individually and jointly incurred many debts. Our research would not have been possible without the funding provided by the Arts and Humanities Research Council (AHRC). We have also benefited greatly from the all-­round support of Queen Mary, University of London. We are grateful in particular for research leaves that enabled this work to progress. We salute the tireless administrative assistance provided by Queen Mary administrative staff, notably Lorna Soar sorting out hotel bills at midnight on a Sunday in the UK while we were courageously working our way to the bottom of a bottle of FLO-­qualified Malbec in Mendoza (Argentina), and Jenny Murphy securing emergency air tickets in the middle of a near-­miss coup in Bolivia while one of the editors of this volume was on a drip during a journey along the encouragingly named ‘Death Road’ pursued by angry Bolivian NGO representatives seeking funds in excess of agreement. The story of our Bolivian fieldwork would not be complete, however, without a grateful mention of all the help we received from a cheerful group of students and, in the personal case of one of the editors, from a Cuban doctor who, in response to requests to accept well-­deserved remuneration for her services, asked for nothing more than a cigarette. We are also very grateful to Anna Denby from the Centre of Commercial Legal Studies (CCLS) who besides sorting out any number of logistical headaches also managed to find more money when we thought our time was up. A special thank you goes to Pierre Smit and Origin Wine, whose courteous hospitality cannot be exaggerated. It is thanks to Pierre, his nephew Derick, and a group of their friends that we managed to carry out our empirical study not only in South Africa but also in Argentina and Chile, the results of which will be published in a series of articles. Special thanks to Keith Band (Janet’s husband) who coped with freezing temperatures when he helped us with the questionnaires in South Africa and when the usual picture of a sunny soaked landscape was not realized! And we should not forget the two Flors from Mendoza who assisted us so well with translation. In Bolivia we thank Miguel Sánchez, for both his translation and optimism in the face of adversity. In addition to preparing her own chapter for this volume, Shannon Sutton took time and trouble identifying necessary corrections in the entire manuscript.

Acknowledgements   xxi Antonia Taffee provided administrative support and helped us enter the data. Marcelin Tonye Mahop helped us identify partners and negotiate the collaborative arrangements necessary for our fieldwork. Teresa da Silva Lopes devoted her formidable energies to organizing workshops and generating new ideas. Roland Miller provided IT support for the project. All these contributions are gratefully acknowledged. We also thank Effective Intervention and its director Peter Boone for helping us to design the quantitative methodology and introducing us to Mark Fisher who set us up with the necessary IT to process the data. On a more personal note, I thank Christopher Granville for his fortitude and being so wonderfully phlegmatic while left with children, dogs, and horses while his wife was off on field research trips in locations such as the above-­mentioned Death Road. Last but not least we thank Simon Holt at Routledge for his support of the project as well as the anonymous referees. All remaining mistakes are of course ours, and ours alone.

Abbreviations

ABM ACP AFN AFNOR AGICES AHRC ATO BAFTS BoD CCP CITES CLAC CMEs CNCE CODESFA CSR CTE CTS CWS DAWS DCs DFID EC EESC ECOSOC EFTA ESCAP EU FAM FLO FSC

Associazione Botteghe del Mondo African, Caribbean and Pacific (States) African Fairtrade Network Association Française de Normalisation Assemblea Generale Italiana del Commercio Equo e Solidale Arts and Humanities Research Council Alternative Trade Organization British Association for Fair Trade Shops Board of Directors Common Commercial Policy Convention on International Trade in Endangered Species of Wild Fauna and Flora Latin American and Caribbean Network of Small Fair Trade Producers Coordinated Market Economies Commission Nationale du Commerce Équitable Naranjillo’s Family Committee Corporate Social Responsibility Committee on Trade and Environment Cooperative Tea Society Cooperative Wholesale Society Dutch Association of World Shops Developing Countries Department for International Development European Community European Economic and Social Committee Economic and Social Committee European Fair Trade Association Economic and Social Commission for Asia and the Pacific European Union Fédération Artisans du Monde Fairtrade International Forest Stewardship Council

Abbreviations   xxiii FT FTA FTO GA GATT GSP GSP+ HL HbS IATP ICA ICA ICO IFAT IFOAM ILO IOAS ISEAL ISO LDCs LI LMEs KNCU MAC MAI MFN MNC MOM MSC NAP NSPP NEWS! NGDO NGO NSSP OGC PFCE PPMs PREDA

Fairtrade Free Trade Agreement Fair Trade Organization General Assembly (with reference to some labelling initiatives’ governance structures) General Agreement on Tariffs and Trade 1994 Generalized System of Preferences Generalized System of Preferences Special Incentive Arrangement for Sustainable Development and Good Governance Hired Labour Helping by Selling Institute for Agricultural and Trade Policy International Cooperative Alliance International Coffee Agreement International Coffee Organization International Federation for Alternative Trade/International Fair Trade Association International Federation of Organic Agriculture Movements International Labour Organization International Organic Accreditation Service International Social and Environmental Accreditation and Labelling International Standards Organization Least Developing Countries Labelling Initiative Liberal Market Economies Kilimanjaro Native Cooperative Union Marine Aquarium Council Multilateral Agreement on Investment Most Favoured Nation Multi National Corporation Meeting of members (with reference to pre-­FLO meetings between LIs) Marine Stewardship Council Network of Asian Producers National Sustainable Procurement Policy Network of European Worldshops Non-­Governmental Development Organization Non-­Governmental Organization National Sustainable Procurement Policy (of the Netherlands) Office of Government Commerce (UK) Plateforme Française pour le Commerce Équitable Processes and Production Methods People’s Recovery, Empowerment and Development Assistance Foundation

xxiv   Abbreviations PVS RCB RCTs RSTGA SACCOS SAI SPS SPO SU TBT TTA UIF UK UN UNCTAD UNDP UNODC USAID USFT WATCO WDM WFTO WTO

Private Voluntary Standards Regional Coordinating Body Randomized Control Trials Rungwe Smallholders Tea Growers Association Savings and Credit Cooperative Societies Social Accountability International Sanitary and PhytoSanitary Measures Small Producer Organization Standards Unit Technical Barriers to Trade Tanzanian Tea Authority Unemployment Insurance Fund United Kingdom United Nations United Nations Conference on Trade and Development United Nations Development Programme United Nations Office on Drugs and Crime United States Agency for International Development Union Students for Fair Trade Wakulima Tea Company World Development Movement World Fair Trade Organization World Trade Organization

Part I

Overview and introduction Janet Dine, Brigitte Granville, and Steven Telford

The primary subject matter of this book is fairness in trade and in particular what Western consumers have come to recognise as being the ‘Fairtrade’ movement. Strictly speaking, one should reserve ‘Fairtrade’ (as a single term) for discussions that relate to ‘Fairtrade International’ – previously known as Fairtrade Labelling Organizations International (FLO). Fairtrade International is a non-­ profit, multi-­stakeholder association involving 23 Labelling Initiatives (including the Fairtrade Foundation). Set up in 1997, FLO develops and reviews Fairtrade standards and provides support to Fairtrade-­certified producers. FLO-­CERT GmbH is responsible for the inspection and certification of producer organisations.1 As far as the eye of the consumer is concerned, sporting its famous blue green and black empowerment badge, FLO umbrella certification likely constitutes nine tenths of the concept, and indeed the chapters of this book are predominantly concerned with FLO and its standards of practice. It is true that there are in existence various other uncertified initiatives that are capable of posing a similar moral boast, and as well as that there are similar moral practices which at times are present in commodities which are not certified (see Berlan 2006, and Mohan 2010). Nevertheless, as the predominant concern of our book is Fairtrade International, we will stick with ‘Fairtrade’ (as a single term). Though the contexts of economics, history, law, and philosophy, this book aims to deliver a multidisciplinary analysis of Fairtrade. From the onset it must be mentioned that the authors do not share a unified view of what Fairtrade is, what it represents, or what it should be. To the contrary, there is considerable disharmony in frameworks, opinions, and general perceptions of the role of markets. To be clear, when something is said as ‘I’ or ‘we’, it relates to the owner(s) of individual chapters; ‘we’ is not a universal statement. We think (hope) that the reader will enjoy any touches of disharmony that they may occasionally encounter, for in a setting such as this, it is contention not accord that gives birth to progress and wider understanding. Let us first outline the sequence and structure of our book. Thereafter, we will deliver a practical outline of what Fairtrade is, the logistics and growth of the movement, and the generalised standards under which it operates. The third entry elaborates on the issue of definition. It looks at how Fairtrade chooses to

2   J. Dine et al. define itself and plays the devil’s advocate in seeing how one may assault that definition in order to generate a healthy debate. Part II is entitled ‘Governance and Institutions’. In tune with the title, the opening chapter written by Martha Prevezer examines the role which governance plays in delivering developmental goals (Chapter 1). The subsequent chapter by Elizabeth Bennett reviews the history of Fairtrade International and its governance structures (Chapter 2). In the third chapter, Matthew Anderson asks whether Fairtrade is worthy of being perceived as having forged a genuine partnership with development. In the final two chapters of Part II written by Marise Cremona and Gracia Marín Durán, we depart from Fairtrade’s histor­ical context and set the scene for Part III by moving the discussion towards a regulatory evaluation of Fairtrade (Chapters 4 and 5). Part III furthers applies the context of scholarly law, but at the same time adds a philosophical twist through a consideration of trust and ethics. The opening chapter, Chapter 6, sees Janet Dine look at Fairtrade from the perspective of trust, risk, and the company concession model. Kirsteen Shields in Chapter 7 takes into consideration the extent to which Fairtrade offers solutions to the problem of compliance with labour standards in foreign contexts. By pondering the relationship between ethical consumption and trusting morality, Andrew Fagan in Chapter 8 holds the context of ‘trust’ but engages with it through a more philosophical lens than seen in the preceding chapters. Entitled ‘Fairtrade in Action’, Part IV is distinct from its predecessors in that it looks more at the operational level practicalities of Fairtrade. Shannon Sutton in the opening chapter poses the argument that the income component of Fairtrade plays second fiddle to capacity building (Chapter 9). Written jointly by Brigitte Granville and Steven Telford, Chapter 10 is empirical in that it takes data on Fairtrade wine (grape pickers) in South Africa, and contrasts welfare performances with those of regional counterfactuals. Rohan Kariyawasam in Chapter 11 also makes use of primary data in his attempt to ascertain the potential role that technology has to play in bolstering trust. Just before we move to address issues of definition, let us first consider the geography, commodities, size, and growth of the movement. Appendices 0.1, 0.2, and 0.3 offer a picturesque outline of the countries and commodities with which FLO-­certified Fairtrade is predominantly associated. In terms of volume and visibility, coffee has traditionally been the poster child of Fairtrade certification, but in regards of retail value bananas have now in some markets knocked it from its top spot, and other commodities continue to rise. As a whole, Fairtrade certification is estimated to account for only 0.01 per cent of global agricultural trade (Riedel et al. 2005). Needless to say the markets for final consumption are those with affluent enough incomes to be able to support it. The Fair Trade Federation (2010) estimates that total global sales of FT products in 2009 amounted to €3.4 billion, a 15 per cent overall increase on the previous year. In 2009 North American sales amounted to €1.053 billion, a 20 per cent increase on the year before. Sales in 2009 to Pacific Rim countries amounted to €29 million, a 55 per cent increase compared to 2008. Europe stands out as being particularly receptive to the message of the movement. Appendix 0.4 depicts the market share of

Overview and introduction   3 coffee across selected countries, and Appendix 0.5 displays more recent retail volumes and year on year growth in global sales. While there is always a lag, the length of which we do not yet know, it is interesting to observe that the financial crisis did not appear to coincide with a dent in the value of the Fairtrade market. 2008–2009 did however reside over a fall in the rate of growth, albeit still impressive, down from 43 per cent in the previous period to 15 per cent. Appendices 0.6 and 0.7 trace the growth of Fairtrade in the UK market, in which total sales in 2009 are estimated to have been between £799 million and £836 million, and to have thereafter breached the billion pound mark in 2010. As estimates sometimes have to be revised, the researcher may find slight discrepancies between various FLO annual reports, which are the sources of the numbers reported here. It is appropriate to proceed with an ‘in-­house’2 definition of Fairtrade: 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, marginalised producers and workers – especially in the South. Fair Trade Organisations (backed by consumers) are actively engaged in supporting producers, in awareness raising and in campaigning for changes in the rules and practices of conventional international trade. (Fairtrade Advocacy Office, 2011) While the above text is touted as a definition, it may be argued that the statement amounts to more of a guiding principle, a constitution of sorts; as in regard to the realities on the ground it undeniably leaves much to the reader’s imagination. The specifics of various Fairtrade agreements are often generalised to be inclusive of such definitional conditions as: a minimum price that is guaranteed to be above the market price; a social and business development premium; partial payment in advance if requested; and the signing of contracts sufficient in length to afford the producers a predictable horizon of income. The premium is based on volumes sold and is intended to be used for investments from which all members may benefit, e.g. a health clinic or occupational training. There is nothing overly misleading about the above definitional inventory; it states the rules of the game in what may be described as an ‘accurate enough’ package. However, it is necessary to be aware that there are occasional pragmatic departures from what one may typically regard as the usual suspects of Fairtrade, for example: “Where minimum prices are not defined these must be based on covering production costs as defined by the producer” (OPM, 2000: 6). The fact that some products lack minimum prices provides an illustration of one such twist of convention. Hence emerges the reasoning as to why Fairtrade is forced to employ so broad a definition as its principal charter. In response to ambiguities that manifest themselves at the operational level, we would personally be inclined to prefer a more plain and practical definition that may be stated as so:

4   J. Dine et al. Fairtrade is a privileged contractual trade agreement whereby producers and or labourers receive a degree of insulation from market forces and alleged market failures and which seeks greater equity in international trade. In a further engagement of the FINE definition, one could assert that it is a touch myopic to view this problem of fairness in trade as being a North–South issue as opposed to it being a more deeply entrenched rural–urban phenomenon. Indeed, development economics is well equipped to argue that relative agricultural ache is more a sign of progress than illness. Admittedly, that is a historical and technical argument, and not a moral one. On moral grounds, one must concede that some technical and historical arguments must surely be of little comfort to those who are forced to bear the burden of structural disruption and/or structural entrenchment. The inter-­temporal, or to be more precise, the intergenerational trade-­offs that Fairtrade may potentially give rise to makes for an absorbing avenue of discussion. While one must maintain respect for paths well worn and lessons that seem largely inevitable, at the same time one must not be too eager to be taken hostage by the view that not even the edges can be smoothed to assist those whom development might otherwise devour. The question is not ‘why’ – it is ‘how’. Continuing to take issue with the FINE definition, one may raise an eyebrow with respect to the claims of transparency and sustainable development. From the view of the consumer who is likely to have only the packaging in front of them, there is no explicit reason to consider Fairtrade any more or less transparent than a conventionally traded good. What is made public outside of the packaging may well surpass that of many conventional equivalents; however, given the search costs involved, transparency in itself can be a trait that is difficult to qualify. In one sense something can be declared to be transparent if everything that relates to it is freely available. But in another sense, if that which constitutes ‘everything’ amounts to an unassailable amount of testament, then the claim to transparency shrinks in practical meaning. The ‘Fair Tracing project’,3 a program being developed by which a consumer will be able to input a barcode and trace the origins of their purchases by way of website and mobile phone, potentially offers an impressive and innovative solution to this part of this quandary. Indeed, Fairtrade organisations, such as Canada’s Ethical Bean, are now using QR (Quick Response) codes to allow consumers to trace the origins of their purchases. Impressive as this technology is, what it does not completely solve is the wider issue of consumer faith in the enforcement of standards. Given that the number of FLO-­CERT inspectors is, as of 2010, listed to be 120, one may be forgiven for harbouring a touch of scepticism regarding the ability of Labelling Initiatives to effectively monitor conditions on the ground; the relationship with the consumer does in effect end up defaulting to be one of ‘trust’. Accordingly, the theme of ‘trust’ is one that punctuates a number of chapters of this book. Trust is of course characteristically brittle – a lifetime to build and just a second to lose all. In the case of Fairtrade, regulation, inspection, and the proliferation of ‘nice stories’ are the obvious bullets to fire. Nonetheless, this ammunition

Overview and introduction   5 does not come cheap. Given that ‘shots fired’ and ‘final price’ are likely to be positively related, one must express sympathy with the difficulty of the task at hand, for it is far easier to regulate something to death than it is to regulate it efficiently and effectively. Preservation of trust may not be cheap, but it will be less expensive than trying to re-­establish trust if it is ever lost. In respect to the FINE statement of sustainability, one may legitimately ask, sustainable relative to what? In addition, some may argue that FLO’s hostility to genetically modified (GM) crops starkly contradicts its stated aim of sustainability (Haight and Henderson, 2010). One may be sceptical about scientific and industrial involvement in the food chain but, particularly with regards to the poor, there is also the potential for immense virtue. More troublesome still becomes the claim of sustainability when coupled with the oft-­touted accusation of oversupply. As yet, oversupply should neither be taken for granted nor lifelessly dismissed; it is a painfully obvious claim, yet it is not as simple as some commentators make it out to be (see Telford, 2011: Ch. 3). A parallel matter of suitability relates to encouraging farmers to embrace organic methods of production. Attempting to pair Fairtrade with organic production plays well to the likely privilege of the final consumer, and in addition ‘organic’ adds weight to what might be deemed to be real economic value to the product. It is, however, as yet, an unsettled debate as to whether organic production is any more sustainable than non-­organic methods. Synthesised chemicals are of course absent by definition, but the negative trade-­off is said to be felt in a reduction in yields per hectare, by which note serious questions of suitability may legitimately be raised (Economist, 2006). Possibly the best counter to the questioning of sustainability relates to the social premium being employed in a manner that teaches sustainable methods of production to farmers, As Sutton details in Chapter 9, this does indeed at times take place. Yet, whatever techniques may be taught, theory and practice appear to suggest that ‘secure and well-­defined property rights’ are the first order conditions for any efforts of sustainability. Of particular relevance to how this general introduction is rounded off, Moore (2004) makes us privy to the fact that Fairtrade insiders readily acknowledge the definitional problem that surrounds ‘fairness’. Strange as it may sound, this admission of Moore’s carries an air of comfort for the welfare economist; for had the claim been otherwise, the credibility of the movement would be philosophically and analytically damaged. One must not forget that the strongest judgement in welfare economics, that of preferring a Pareto improvement, e.g. a change in which at least somebody is better off, and nobody is worse off, is still essentially a value judgement – albeit a very strong one. As well, the very foundations of the sub-­discipline of welfare economics are themselves ‘impossibility theorems’ – seminally, Nobel laureates Arrow and Sen. Philosophically, the door may be more ajar, but it is not wide open. Quite naturally there is an emotional content to ‘fairness’. When addressing fairness, it is effortless to get caught up in the romance of elegant and enchanting Marxian mantras such as ‘from each according to his ability, to each according

6   J. Dine et al. to his need(s)’. Indeed, if a person is never once in their lifetime inspired by optimistic undertones such as those, then it is to the coroner they should arguably have been sent. Yet history beckons that the old Chinese proverb creeps to mind, ‘be careful what you wish for . . .’ and few laws boast the potency of the ‘law of unintended consequences’. Butterflies in Brazil, tornadoes in Texas, and David Hume at his billiards table – for the reason that judgements are always ongoing, one may never speak with precise accuracy of the legacy of historical action. It’s not over until it’s over, and so judgement is a largely a continuous process. And if the road to hell can be paved with the finest of intentions, than so too feasibly can the road to places more temperate be paved with the worst of intentions. Speaking to date, there is an unfortunate irony in recognising that extreme egalitarian adventures appear to have damaged the very people that they were designated to be vanguard of. And, while it is wholly true to say that he who cannot envision something better for the world is a person of meagre mind or crippled heart, it is equally factual to assert that she who seeks to navigate the seas of human incentives will make precious little headway if she chooses to deny the existence of the selfish tides and egotistical winds. Of precious little use are the finest silk sails if no wind is permitted to fill them. To be a real friend to fairness demands that one must be sceptical. There will always be the tendency to look back with the feeling that we can learn from past mistakes and craft something better for the future. This is a sentiment both noble and essential to the evolution of our species, yet in respect to doctrines of extreme fairness, it is not so much the past but rather ‘the self ’ into which one must peer. At the microeconomic level, fairness from the perspective of the individual is a social judgement that embodies the beliefs, preferences, and values of a particular population at a particular period in time. The problem of defining what is essentially a ‘social judgement/perception’ runs aground when confronted with the fact that, if these perceptions and judgements change, then so too may the circumstances which get designated fair or unfair. We are potentially faced with trying to define an inconsistent entity. A view such as this receives strong empirical support from Kahneman et al. (1986a, 1986b), the results of which clearly indicate that people harbour deep inconsistencies in their declarations as to what they perceive constitutes fairness. Similarly, Thaler (1985) clearly demonstrates that the same individual will routinely employ different ‘fair’ prices for an identical good. When it comes to resolving the tensions which reside between micro behaviour and macro application, and therein attempting to soothe the precarious rift between ‘equity and efficiency’, John Rawls’ veil of ignorance, in direct line with Harsanyi’s work (1953, 1955), crafts a definition of fairness in which one is permitted to designate a particular outcome to be fair, only if one is willing to accept it for oneself (1971: 118). The proposal suffers from the issues relating to imperfect information and from non-­universal tendencies of risk. Yet, irrespective of flaws in practical application, Rawls provides something to gravitate towards. To capture it simply, eradication of the sort of lifestyles and livelihoods

Overview and introduction   7 that one would deem unacceptable for oneself is a truly dignified way to assign both definition and purpose in the tying together of justice and development. From this he crafts the Rawlsian base, above which inequalities are tolerated in the name of liberty and efficiency, but below which nobody should be permitted to fall. Fairtrade may not necessarily be targeting the most severe levels of poverty, but in attempting to use market forces to fortify a progressive base for a sufficiently disadvantaged group, it can be seen as being harmonious with a Rawlsian distinction of fairness. It is, we believe, for its compatibility with ‘Rawlsian fairness’ that advocates of free markets should look twice before designating Fairtrade to be just another piece of interventionism. For our own part we believe the concept of fairness can be seen to reside within a paradox: one may not be able to put a price on justice (at least it is outwardly honourable to think so), yet at the same time it is wrong to suggest that one cannot equate a cost to justice. It is somewhere within that paradox that the concept of fairness hides. From the perspective of an economist, the retort by which to tame that paradox above can be stated as simply as so: if the costs of justice are inaptly high in terms of welfare, then that alone will be sufficient to facilitate the conclusion that justice is unbecoming of its name. Quite simply, fairness is what fairness does. This book will not lay claim to answering in all purity the question as to whether or not Fairtrade is actually fair. Rather, the objective is to open up the institutional mechanics, show historical colour, and progress the debate so as to facilitate a better understanding of whether or not, and by what magnitude, a situation of Fairtrade may or may not be preferable to a more conventional state of affairs.

Appendix 0.1: Fairtrade commodities from Africa Mali

Morocco 1

2

Uganda 1

4

10

Burkina Faso 1

Egypt

1

l

3

Ivory Coast 1

2

l

Ethiopia

Senegal

'3

1 1 Ghana

Kenya 1

8

12

1

1

Tanzania

Benin 7

1 Cameroon 1

2

6

Mozambique 1

2

i

Congo

Malawi

1

1

Rwanda

Zambia

5

1

South Africa 22

2

5

Ipnpnd

Banana

FlnwpH

RirP

Cocoa

Fresh Fruits

Sugar

Coffee

Honey

Tea

Cotton

Juke

Wine

Source: FLO website (2007).

22

1

Appendix 0.2: Fairtrade commodities from Asia India

Pakistan 4

30

2

1

1

China 3

3

Lao 1 Vietnam 1 Nepal

Thailand

l

1

7

1

Philippines

Sri Lanka

2

14

Papua New Guinea 4 Indonesia

East Timor

3

1

Leqend

Source: FLO website (2007).

Coffee

Rice

Cotton

Sugar

Flowers

Sport Balls

Juice

Tea

Appendix 0.3: Fairtrade commodities from South America Ecuador

Colombia 4

1

7

1

3

24 Venezuela

1

2 Brazil

Peru 5

3

6

1

25

1

1

1

6 4 6 Paraguay 6

Bolivia Argentina i

3

18

1

Chile 4 5

Legend Banana

Fresh Fruits

Tea

Cocoa

Honey

Wine

Coffee

Juice

Cotton

Sugar

Source: FLO website (2007).

Overview and introduction   11

Appendix 0.4: Market share of coffee in selected countries Appendix 0.4  Market share of coffee in selected countries (%) Belgium Denmark Finland France Germany Italy Holland

1.70 3.40 0.40 0.40 1.10 0.30 2.90

Sources: Vihinen and Lee (2004).

Norway Sweden Switzerland United Kingdom United States Japan

1.10 1.60 2.80 1.70 0.30 0.40

   

 

  1,623,300,000

409,500,000 499,000,000

2,800,000 41,000,000 8,600,000 16,000,000 142,300,000 1,900,000

6,800,000 41,700,000 28,000,000 53,800,000 23,200,000 22,500,000 166,000,000 110,000,000 11,600,000 34,500,000 4,100,000

2006

 

   

  2,381,000,000

704,300,000 730,800,000

3,200,000 47,500,000 18,100,000 42,500,000 158,100,000 3,900,000

10,800,000 52,800,000 35,000,000 79,600,000 39,600,000 34,600,000 210,000,000 141,700,000 23,300,000 39,000,000 6,200,000

2007

Note * Growth rates as reported in local currency, not euro.

Source: Various FLO annual reports, www.fairtrade.net/annual_reports.html.

Australia/New Zealand Austria Belgium Canada Denmark Finland France Germany Ireland Italy Japan Latvia Lithuania Luxembourg Netherlands Norway Sweden Switzerland Spain South Africa United Kingdom USA Rest of the world Total

Country 59 27 25 48 71 54 27 29 101 13 51     14 16 110 166 11 105   72 46   47

%D

Appendix 0.5  Estimated retail value of Fairtrade-certified products (€)

   

  880,620,304 757,753,382 130,722 2,956,368,442

4,249,301 60,913,968 30,961,160 72,830,302 168,766,526 5,483,106

18,567,280 66,200,000 46,780,141 123,797,132 51,220,106 54,445,645 255,570,000 212,798,451 94,429,586 41,284,198 9,567,132

2008

Appendix 0.5: Estimated retail value of Fairtrade-­certified products (€)

28,733,986 72,000,000 56,431,496 201,978,074 54,436,609 86,865,284 287,742,792 267,473,584 118,574,416 43,382,860 11,283,451 153,500 315,380 5,327,122 86,818,400 34,689,522 82,662,331 180,160,263 8,030,724 458,076 897,315,061 851,403,590 18,099,255 3,394,335,776

2009

14–15

55* 9 21 63* 6 60 13 26 26 5 18*     25 43 12* 13 7 46   2* 12*

%D

13.7   2.0   1.0 n/a n/a n/a n/a n/a n/a 16.7

Coffee Tea Cocoa products* Honey products* Bananas Flowers Wine Cotton Other Total

15.0   4.5   2.3 n/a n/a n/a n/a n/a n/a 21.8

1999 15.5   5.1   3.6   0.9   7.8 n/a n/a n/a n/a 32.9

2000 18.6   5.9   6.0   3.2 14.6 n/a n/a n/a   2.2 50.5

2001 23.1   7.2   7.0   4.9 17.3 n/a n/a n/a   3.5 63.0

2002 34.3   9.5 10.9   6.1 24.3 n/a n/a n/a   7.2 92.3

2003   49.3   12.9   16.5   3.4   30.6   4.3   1.5 n/a   22.3 140.8

2004   65.8   16.6   21.9   3.5   47.7   5.7   3.3   0.2   30.3 195.0

2005   93.0   25.1   29.7   3.4   65.6   14.0   5.3   4.5   45.7 286.3

2006

117.0   30.0   25.5   2.7 150.0   24.0   8.2   34.8 100.8 493.0**

2007

137.3   64.8   26.8   5.2 184.6   33.4   10.0   77.9 172.6 712.6

2008

Notes   * The figures against these products represent the cocoa part of all products containing cocoa and the honey part of all products containing honey.   ** Following review, some of the 2007 figures have been amended but the total remains the same. *** Subsequent press releases in March 2011 have stated a final revised figure of £836 million, and an estimated 2010 figure of £1.17 billion.

Source: Fairtrade federation annual reviews, www.fairtrade.org.uk/what_is_fairtrade/annual_reports.aspx.

1998

 

Appendix 0.6  Product-specific estimated UK retail sales by value for 1998–2009 (£m)

Appendix 0.6: Product-­specific estimated UK retail sales by value for 1998–2009 (£m)

157.0   68.1   44.2   4.6 209.2   30.0   16.4   50.1 219.4 799.0***

2009

14   J. Dine et al.

Appendix 0.7: Total estimated UK retail sales by value 1998-2009 (£m)

UK retail sales by value 1998–2009 (£m)

900 800 700 600 500 400 300 200 100 0

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Year

Source: Fairtrade federation annual reviews, www.fairtrade.org.uk/what_is_fairtrade/annual_reports. aspx.

Notes 1 www.fairtrade.net/home.html. 2 As agreed in 2001 by the main networks (FLO, IFAT, NEWS!, and EFTA, cumulatively by the acronym known FINE). 3 http://web4.cs.ucl.ac.uk/staff/C.Wallenta/fairtracingblog/.

References Berlan, A. (2006). Keeping Cocoa Clean: An Anthropological Review of the Chocolate Industry’s Strategies for Poverty Reduction and Ethical Supply Chain Management. DSA Annual Conference. University of Reading. Economist (2006). Voting with your trolley. The Economist, London, 7 December. Fairtrade Advocacy Office (2011). Fairtrade Advocacy Office website [Online]. Available: www.fairtrade-­advocacy.org [Accessed 5 April 2011]. Fairtrade Federation (2010). Fairtrade Federation website [Online]. Available: www.fairtradefederation.org [Accessed 5 April 2011]. FLO (2004). Fairtrade Bananas Impact Study, June. Dominica, Windward Islands. Haight, C. and D. R. Henderson (2010). ‘Fair trade is counterproductive and unfair: a rejoinder’, Economic Affairs, 30(1): 88–91. Harsanyi, J. C. (1953). ‘Cardinal utility in welfare economics and in the theory of risk-­ taking’, Journal of Political Economy (61): 434–435. Harsanyi, J. C. (1955). ‘Cardinal welfare, individualistic ethics, and interpersonal comparison of utility’, Journal of Political Economy (63): 309–321.

Overview and introduction   15 Kahneman, D., J. Knetsch, and R. Thaler (1986a). ‘Fairness and the assumptions of economics’, The Journal of Business 59(4): 285–300. Kahneman, D., J. Knetsch, and R. Thaler (1986b). ‘Fairness as a constraint on profit seeking: entitlements in the market’, American Economic Review 76(4): 728–741. Mohan, S. (2010). Fair Trade Without the Froth. London, Institute of Economic Affairs. Moore, G. (2004). ‘Fair trade movement: parameters, issues and future research’, Journal of Business Ethics 53: 73–86. OPM (2000). Fair Trade: Overview, Impact, Challenges: Study to Inform DIFID’s Support to Fair Trade, Oxford Policy Management. Rawls, J. (1971). A Theory of Justice. Cambridge, Harvard University Press. Riedel, C. P., F. M. Lopez, A. Widdows, A. Manji, and M. Schneider (2005). ‘Impacts of Fair Trade: Trade and Market Linkages’, Proceedings of the 18th International Farming Symposium, 31 October–3 November, Rome, Food and Agricultural Organisation, www.fao.org/farmingsystems [Accessed 20 April 2012]. Telford, S. (2011). An Economic Enquiry into the Welfare Effects of Fair Trade, PhD thesis, Queen Mary, University of London. Thaler, R. (1985). ‘Mental accounting and consumer choice’, Marketing Science 4: 199–214. Vihinen, L. and H.-J. Lee (2004). Fair Trade and the Multilateral Trading System. Paris, OECD.

Part II

Governance and institutions

1 Fairtrade governance and its impact on local development A framework Martha Prevezer

Introduction This chapter draws on a project on the governance of Fairtrade schemes and their impact on local producers, which involves a number of people at Queen Mary, University of London and at York University in the UK. The project has a number of commodities and countries in its purview. The main thrust of the project is that it is the governance – organizational arrangements and agency issues associated with those arrangements – rather than purely the price mechan­ isms that have been significant in the Fairtrade scheme. And that where they work, it is the governance arrangements as well as the price mechanisms that have the potential to deliver impacts both directly and indirectly to local communities. The chapter is structured in the following way. The Introduction says some­ thing about Fairtrade (FT) and how it is meant to work. It mentions some of the literature and debates on its mechanisms and impacts, in particular where it fits into the debate about free trade versus regulated trade. The second section goes through the main aims and questions of this project and the theories – what is meant by governance, its main aspects, and which models we employ to tackle those questions around governance. In the third section by way of results I will report on some of the findings of our pilot study in Tanzania of coffee and tea plantations and farmers and outline the main issues that require further investi­ gation. By way of a conclusion in the final part I will go back to research methods. First I will outline how we are thinking about measures of impact and also the difficulties in undertaking this sort of research, then how we match up theories to practice and how we can hope to deal with problems of sampling and representativeness. Context The origins of the Fairtrade movement and networks are explored in depth in subsequent chapters, suffice here to note the distinction made by Gavin Fridell (2010) between the Fairtrade network and the Fairtrade movement. Fridell argues that the network is the formal system of non-­governmental organizations

20   M. Prevezer connecting producers in the South with consumers in the North through a system of Fairtrade rules whereas the Fairtrade movement is a broader idea of an alter­ native trade movement created by initiatives of Southern governments, interna­ tional organizations, and NGOs using regulation to protect poor farmers from international markets to try to establish fairer international trade rules. In other words the Fairtrade movement uses the backing of state intervention, regulation, and standards to temper the effects of market trade especially in commodities, whereas the emphasis of the network is on using the Fairtrade standards to boost free trade, to fit in with the free trade regime as much as possible. What are the Fairtrade standards? The most publicity and work has focused on the minimum price which is charged for Fairtrade goods, plus a premium on top of that. The FT minimum price is paid if it is above market price; if market price rises above the FT minimum, then the market price is paid. For instance, the coffee price was very low during the ‘coffee crisis’ of the early 2000s. In recent years, the market price of coffee has been higher than the FT price. The FT price for coffee has recently been raised from $1.26 per pound of arabica roasted to $1.40 per pound. The premium stands at $0.20 per pound for coffee. These prices vary between commodities and over time. What this does not dictate is what proportion of the farmers’ crop is sold at that FT price, even if 100 per cent of the crop is FT certified. This proportion sold can vary between very low levels of 5–10 per cent for tea particularly, to much higher pro­ portions – up to 60 per cent for coffee in some areas. This of course varies widely also between commodities and between countries. The premium, also called the social premium, is a specified sum above the minimum price to be spent by the cooperative in accordance with democratic decision-­making. Funds are allocated by local committees and are spent on a variety of social community projects as well as business development invest­ ments, such as repairing equipment or training and marketing assistance to farmers and microfinance schemes, as well as schools, health clinics, water holes, and pipes for clean water. Fairtrade standards also stipulate working conditions which have to conform with ILO standards, particularly for hired labour standards. For example there is to be no child labour under 14 years of age, a minimum wage is to be paid, and trade unionization is to be allowed. Improving access to finance is also a broad aim within Fairtrade standards. There is the stipulation that there should be some prefinancing from buyers, and the scheme broadly supports assisting develop­ ment of credit mechanisms via banks or via companies further up the value chain. For certain product categories, e.g. coffee, buyers have to pay up to 60 per cent of the final gate price upfront if producers request the support. This is important as it can take some time for the final balance to be remitted to farmers; the Bacon (2005) study on coffee farmers in Nicaragua estimated 41 days for Fairtrade Certified and 73 days for organic certified for the final payment to be made to farmers (Smith 2008).

Fairtrade governance – a framework   21 Democratic decision-­making is an important component of the Fairtrade standards. There is a stipulation that FT structures, a General Assembly for co-­ operatives, and a Joint Body of labour and management for larger estates, should operate democratically through elections to the Board and voting to decide how premiums should be spent, as well as other decisions such as electing the Board of Directors of the cooperative and how the cooperative should be run. There is an Annual General Meeting at which these decisions are taken. Smallholders own their own farms and are formed into cooperatives for the purposes of processing and selling – and it is to the cooperatives that the pre­ miums are paid and out of the cooperatives that the General Assemblies are formed. Smallholders can also use hired labour to produce up to 49 per cent of output. There are also separate standards that apply to estates that operate using a major­ ity of hired labour. Some commodities such as coffee are farmed exclusively by smallholders, while others such as tea and wine operate under both Small Pro­ ducer Organizations (SPOs) and through estates with hired labour (HL). Transparency and auditing is another broad aim of Fairtrade. Fairtrade stand­ ards include a stipulation about keeping records and being inspected. There are lists of proscribed pesticides of certain sorts within Fairtrade’s environmental standards, but there are different standards for organic certification. There exist other certification schemes – such as Rainforest Alliance and Utz certified – that have stricter environmental standards and are more concerned about sustainabil­ ity than social justice issues, and some farmers have multiple certifications, belonging to more than one scheme. Capacity building is a broad aim of Fairtrade. Under this heading comes the training of producers in various ways as well as the building-­up of linkages and increasing exposure to export markets. The argument is that seizing market opportunities can occur only when producers are in a position to be aware of those opportunities. Direct buying and longer-­term contracts are also broad aims of the Fairtrade scheme. These are not a requirement but an aspiration. Certainly they are men­ tioned as something to be aimed at. But there is no clear definition of what is meant by long term, nor what the obligation entails in legal terms. The practical operation of Fairtrade is not as a charity. The consumers of Fairtrade-­certified items are buying a final consumable. The money spent is paid as remuneration to those in the supply chain for that product. No money is paid directly to FT or the institutions that administer the scheme, such as the offices of the cooperatives or associations that collect premiums and communicate prices to farmers. (In our case studies these institutions were KNCU and RSTGA.) The money goes back to producers to cover the sustainable costs of production and certification is considered part of their overhead, as an invest­ ment in the expectation of a return. So has this mainstreaming and transformation from an alternative but mar­ ginal scheme to a more widespread network within conventional trade relations been beneficial? In what ways has it altered the nature of what was originally intended by the Fairtrade movement? This of course begs the question of what

22   M. Prevezer was originally intended by the Fairtrade movement, and whether the benefits of what has happened have gone through to the southern producers and helped to alleviate rural poverty in the ways envisaged. So that is what this project is about – about trying to measure impacts on local producers in a variety of ways to be spelled out below, and also to understand the nature of and variety of govern­ ance or organizational arrangements through which the Fairtrade system works. As well as attacks from those who see the current Fairtrade system as having sold out from its alternative more interventionist regulatory roots, there are also of course attacks on it from those, particularly at the Adam Smith Institute, who see it as a system that undermines free trade through setting a minimum price and discouraging diversification into other livelihoods and propping up ineffi­ cient techniques rather than letting market mechanisms do their work of select­ ing the fittest (Sidwell, 2008) These attacks on the Fairtrade system by those in favour of a more rigorously applied laissez-­faire system have been answered by Smith (2008) and also by Dine in this book (Chapter 6). Nelson and Pound (2009) have compiled a review of the evidence to date of the impact of Fairtrade schemes. They conclude that the evidence concentrates overwhelmingly on coffee, on case studies of small­ holder farms, and on Latin America, and that there is a dearth of broader data, on African countries and on India and Sri Lanka, and on commodities other than coffee. This project aims in part to start to address some of those issues.

Theories of governance The main argument through this chapter is the idea that there are scale and scope economies available at the collective/cooperative level through the Fairtrade scheme which are not achievable for all sorts of reasons at the individual small­ holder farmer level. And that these scale and scope economies involve an admin­ istrative reorganization of participation, risk-­sharing, mutual monitoring, and incentives at the cooperative level. The argument here is that administration at the cooperative/collective level can overcome huge risk and risk aversion – which is an insurmountable obstacle at the individual level for poor farmers with too little in savings or insurance, subject to volatility in market values for indi­ vidual crops on which they are reliant. They are more able to take on invest­ ments with longer time horizons at the collective level than is possible for the individual farmer. And the cooperative administrative structure also alters the scale of the projects that might be invested in, making it feasible to buy equip­ ment, set up marketing structures, and invest in infrastructure that cannot be fully utilized at the individual level but are justifiable at the village or coopera­ tive level of operation. The ideal also is that at the level of the cooperative within the local community farmers know each other and can monitor each other to exert incentives to spend loans on investments and not to shirk in terms of main­ taining their farms and using appropriate techniques. This follows on from Bes­ ley’s work (1995) on lending to groups in the context of rural farmers, and studying the repayment incentives of such groups as compared with individuals.

Fairtrade governance – a framework   23 The Fairtrade scheme in instituting the cooperative as an intrinsic part of its gov­ ernance can be the trigger to bring about these quite substantial transformations. Governance is seen here in its broad connotation implying the organizational and incentive arrangements relating to ownership, to access to finance, to value chains and their operation between suppliers and consumers, and to capacity building or the functioning of capabilities of producers and other agents within the supply chain. We are not concerned here with the micro-­governance arrange­ ments within any particular enterprise such as how particular companies within the supply chain operate, nor how Fairtrade International (FLO) operates in terms of its governance structures, although these are both topics that need to be integrated into any research framework on governance. This paper is concerned with setting out a governance framework in the broader sense of thinking about the articulation of the various elements in the supply chain for the commodities that are Fairtrade certified and how to link the mainstream debates over govern­ ance to this particular area of Fairtrade research. Our four governance areas are therefore: 1

2

Ownership and control: Fairtrade standards differ according to ownership structures, treating smallholder farmers (SPOs) differently from hired labour (HL) workers on larger plantations. Within SPOs there is a General Assem­ bly which is responsible for deciding on and administering the social premium collected as part of the Fairtrade pricing arrangements. Larger plantations with hired (wage) labour, both permanent and seasonal, have a Joint Body, representing both labour and the management of the plantations, through which the social premium is administered. There is a variety of ways in which the FT standards are administered according to ownership structure, across different commodities with different degrees of SPO and HL, different histories of ownership structure, different co-­operative histor­ ies (which often pre-­date the involvement of Fairtrade regulation), and the relationships between the different constituent parts – for example, the General Assembly for SPOs and the Joint Body for Hired Labour. The tea ownership structures with their legacies of colonial tea estates and hired labour, alongside smallholder tea owners/producers, look very different from the coffee ownership structures, entirely smallholders but which them­ selves are varied according to quality/type of coffee and value of coffee beans. Our second strand of governance issues centres on the classic governance debate about the relations between investors and managers, involving principal-­agent issues. This entails information asymmetries with investors not usually having the same or adequate information or expertise with which to judge how managers are making use of the money lent or given over in control to them. There need to be monitoring and incentive mechanisms – both in the case where investors/owners are highly dispersed and lack access to inside information about the everyday workings of the firm or enterprise – for investors to be assured that their money is not being squandered and is

24   M. Prevezer

3

4

invested in appropriate ways in accordance with their aims; and also in the case where investors/owners are highly concentrated and there are opportu­ nities for the larger investors in collusion with management to take advan­ tage of minority investors (Shleifer and Vishny, 1997). How do these issues relate to the financing of smallholder farmers in poor rural areas, where there is often a lack of access to finance? How does the Fairtrade scheme alter or attempt to alter these conditions and does it succeed in doing so? One of the conditions for Fairtrade certification is that the buyers should advance up to 60 per cent of payment for the products if requested. This prefinancing mechanism acts as a form of credit and is designed to increase stability for the producer. A further objective, although not a required condi­ tion, is for the scheme to facilitate long-­term loans and other credit facilities. The questions that we are asking are whether and how these conditions are brought into play, by which kinds of producers and by which lenders and for which commodities? Again there exists a variety of credit mechanisms and degrees to which access to finance is altered by the Fairtrade scheme. A further issue, relating to finance, draws on Besley’s work (1995) on group lending, repayment incentives, and social collateral. This argues that, especially in cases of rural poverty, lending to groups which are jointly liable for repayment draws on the rural community’s collective information about each other’s capacities to repay and activates social penalties for defaulting and also cross-­subsidizing those who cannot repay by those who can. The added danger is that the whole group may default. This type of arrangement may be applicable to the case of financing and lending at the cooperative level, where social collateral and social penalties may lead to higher repayment rates than with either lending to individuals or with lending on government schemes where it may be the case that the group will collude against repayment. Additional questions will be asked as to whether lending to groups such as the cooperative via the Fairtrade mechanism alters the type or nature of projects invested in and what types of monitoring and support mechanisms are enacted around this type of lending. Our third area of governance research is into the governance of the value chain. By this we mean the types of relation along the value chain, the links between producer at one end and the consumer at the other. How many intermediaries are there in the value chain, who are they (what kinds of companies or agents), and how do we characterize the governance relation­ ship between these agents in the value chain? Here we use the taxonomy employed by Gereffi et al. (2005) of different types of value chain govern­ ance ranging from market, relational, modular, captive, and integrated and ask what type of governance value chain does the Fairtrade scheme aim to enact and what does it manage to achieve in this area? We expand on this schema below. Our fourth type of governance issue, although by no means the issue with least emphasis, is that of capacity building. Under this heading is lumped the issues of the enhancement of expertise and skills with markets, the use

Fairtrade governance – a framework   25 of the social premium, the issues of representation, democracy, and trans­ parency that are enshrined in the aims of Fairtrade, and the linkages to pro­ ducer networks and how those links work in terms of representation. This area of capacity building has been cited by several commentators as the one holding the most potential in terms of impact of Fairtrade schemes on poverty alleviation of these communities; that through growth in expertise and direct knowledge of export markets for example, the farmers are able to expand their markets; their dealings and new avenues for wealth creation and diversification are created in the process (Nelson and Pound, 2009). In addition to going through these four separate governance areas, the connec­ tion or interrelations between these different governance issues must also be stressed. For example, the relationships in terms of changing conditions of access to finance are bound up with the relationships with suppliers – shifting from arm’s-length market forms where the world commodity price is the market price, there is no prior contact between buyers and sellers and no longer-­term relationship. We define the relational form as a longer-­term relation between suppliers and buyers, with differing terms of contract, that also involves greater access to finance through the possibility of buyers loaning in advance up to 60 per cent of the value paid for the products. This has an impact on stability, on the ability of poor producers to commit to going ahead with the deal, so linking financial and value chain issues. Similar links could be argued between these other aspects of governance. For example smallholder ownership and the func­ tion of cooperatives link with the uses of the social premium in capacity build­ ing, collective ownership links to using the social premium for longer-­term collective investments. Teasing out these linkages – between access to finance and the value chain, between ownership structures and capacity building, and between the value chain and capacity building – whether they exist and how they work, will be a main function of the project. The commodity value chain Let us start then with the issue of the commodity value chain. How is the Fair­ trade scheme altering the structure and governance of the value chain? Gereffi et al.’s (2005) schema is a useful way to illustrate this. They put forward five theo­ retical types of value chain: market, modular, relational, captive, hierarchy (Figure 1.1). What is meant by these? This schema was directed principally at industrial sectors, although it does include an agricultural sector. Market governance means arm’s-length relation­ ships governed by price. Modular governance (in particular relating to work on electronics) relates to highly codified clean interfaces between members of the value chain. Relational governance means longer-­term relations between lead firms and suppliers and maybe hierarchies of suppliers. Captive governance is the idea of the lead firm having much more power in relation to suppliers, with low switching costs between suppliers. And a hierarchical governance form

26   M. Prevezer

End user

Market

Modular

Relational

Customers

Lead firm

Lead firm

Captive

Hierarchy Integrated firm

Value Claims

Lead firm Price

Suppliers Materials

Low

Turn-key supplier

Relational supplier

Component and material suppliers

Component and material suppliers

Captive suppliers

Degree of explicit coordination Degree of power asymmetry

High

Figure 1.1 Gereffi et al.’s (2005) five types of governance of supply chain.

means full integration and internal governance of the supply chain within the firm. Gereffi et al.’s argument is that power asymmetry is low under the market governance form. That depends on who the customers and suppliers are and how the market price is formed and the extent to which the product is a commodity sold on a worldwide market. This schema is useful though in thinking about the shifting capabilities of suppliers: as they increase so they move into higher value parts of the chain, as in relational governance. Our hypothesis here is that Fair­ trade schemes aim to shift governance forms from market towards relational governance. Empirical questions arise: (1) is that a correct way of thinking about what is going on? and (2) does the Fairtrade scheme manage to do this? Could it be that the shift is from market to captive forms of governance, depending on which types of northern buyers get involved in the value chain? Gereffi et al.’s (2005) schema relates mainly to a variety of industrial sectors – bicycles, clothing, electronics – although they do include a value chain for Kenyan vegetables. Their focus is on three determinants of governance type for the value chain: complexity of transactions, codification of transactions, and capabilities in supply base. Our focus here is particularly on the capabilities in supply base – complexity and codification may be more applicable to manufac­ turing processes, although again it is worth thinking about how relevant these categories are for agricultural processes as well. To elucidate: the complexity of transactions mainly relates in manufacturing to institutional theory on how specific the investments are, i.e. investments that

Fairtrade governance – a framework   27 do not have separate market value. Does this relate to the agricultural sector and how? The appropriate questions here would be: how specific are investments in this agricultural area? Do they involve investments by suppliers/producers to deliver to specific buyers? This ultimately means, as producers perhaps integrate into processing up the supply chain, how much of the requirements for specific manufacturers/retailers are they meeting e.g. for Starbucks or Typhoo? Are investments generic or related to those buyers? On the codification of transactions, the question here is about how independ­ ently producers can operate along the value chain. Modular forms require clean interfaces between segments of the value chain; clear instructions that enable both sides of the contract to deliver without closely working together. How applicable is this to the agricultural supply chain? Our investigation will relate to (1) what kinds of additional processes agricultural producers are taking on as they move up the value chain and (2) how are they organizing these processes contractually. The focus in this project is on the capabilities of producers in the supply base. Part of the aim of the Fairtrade scheme is to educate, train, and increase capabili­ ties, thereby enabling producers to take on more of the value chain, extend into their own processing, exporting, and even branding, and capture the value in the value chain. So we want to see how much FT in practice assists in doing this and how this alters relations along the value chain. Empirical questions to tackle in this area include: how is the value chain organized, how direct are the links between producer and consumer, how many intermediate agencies are there? What are the relationships like in terms of length of contracts and terms of contract? How have these linkages altered the terms of trade? Can southern producers be brought into the branding surplus and derive benefit from being part of labelling? For example Cafédirect prides itself on being an Alternative Trading Organization (ATO) able to link directly to pro­ ducers and sell into northern markets. How does this work in both coffee and tea? Ownership structures On ownership structures, we relate our research to the terms of the classic gov­ ernance debate on ownership and control. When firms grow, capital is raised often through issuing shares; ownership becomes dispersed and control of the firm is often ceded to professional managers who run the enterprise. They in turn have differing aims and objectives from the owners and a variety of incentive and monitoring mechanisms have grown up to deal with the asymmetries of information between owner and manager, giving rise to issues of adverse selec­ tion and moral hazard. How do we connect these debates to the Fairtrade owner­ ship structures? First the Fairtrade ownership structures themselves are complex and we would aim to clarify the nature of ownership between smallholders, cooperatives, and their representation in the General Assembly; second, what is the nature of decision-­making over investment of the social premium, borrowing,

28   M. Prevezer remuneration? And how to distinguish between smallholder structures and large estates with hired labour, their General Assemblies and Joint Bodies, and repre­ sentation and decision-­making through those collective bodies? Again the ten­ sions should be explored over representation, investments, borrowing, and remuneration as expressed through the collective bodies. A further interaction between ownership and the value chain governance issues is the changing own­ ership structures that arise through producers – smallholders or larger estates – expanding into and buying stakes in processing plants. This sometimes involves joint ownership with outside investors or buying out previously state-­owned processing plants. We wish to tease out here the differences between smallholder ownership and hired labour. Plantations, especially tea estates, often fall under the hired labour category with larger owners who own more than one farm or plantation. Fairtrade certification applies standards in relation to that hired labour – ruling out various sorts of labour abuses such as child labour, applying ILO condi­ tions such as the ability to unionize and the enforcement of minimum wages. But the real issue here, apart from labour standards and the differences in applicability between SPOs and HL is the organizational structure. HL struc­ tures have cooperative Joint Bodies which have decision-­making capabilities over investment decisions. We wish to examine what the pitfalls are here in terms of ability to make decisions and types of investments likely to be made. How does the cooperative run as an enterprise, with management remunerated by farmers, and in whose interests? How is the diversity of voices heard? How does the representation of SPOs through the General Assembly and of HL through the Joint Body work and what kinds of tensions arise? In practice there is an overlap between smallholders and hired labour: many smallholders hire in labour at certain peak times of the year and many farmers hire themselves out as labourers as well as farming their own farms. This is commonplace and may give rise to tensions over applying standards for HL on smallholder farms and vice versa. The application of standards differs markedly between commodities, and the operation of decision-­making and intricacies both for SPOs and for HL are not uniform. Does the cooperative assume the risk for individual farmers, e.g. with prefinancing? How do relations between cooperative, farmers, and other in­tegrated forms such as shares in processing plants work? The issue of scale and productivity Table 1.1 illustrates an issue here about the economies of scale and productivity that relate to coffee and are likely to relate to other commodities such as tea and cocoa. The data on productivity differentials between small and large holdings in coffee production are drawn from the Bacon (2005) study on coffee in Nicaragua. Table 1.1 shows a highly skewed population in terms of numbers and produc­ tivity, with the large numbers of smallholders being more than ten times less

Fairtrade governance – a framework   29 Table 1.1  Average productivity comparing different sized coffee holdings Number of producers

Productivity qq/ha

41,698 micro (