Fair trade

Fair trade

Why we need it more than ever

What are the economic drivers behind the fair trade movement? And can fair trade make a real difference?

Alastair Smith

Issues of trade justice are an important topic for geographers to understand. For example, recent G7 meetings (see Box 1) have called for ‘fairer’ trade practices — and this impetus looks set to continue as the impact of the global pandemic continues to be felt. In order to comprehend this issue, we need to understand the geographical history of our contemporary trade system. Only by appreciating how our own system of intraand international trade has developed, can we have an appropriate understanding of the social, economic and environmental issues of concern to geographers and policymakers worldwide.

Geographies of trade and economic development

Trade has played a significant part in the development of local, regional, national and international economies. It is essential to urbanisation because as humans settle in one place the population density grows and attracts the emergence of secondary manufacturing and tertiary services. Even in early medieval Europe, urban areas needed to buy in some food from rural areas. Expanding towns needed to obtain fuels such as wood and coal, and manufacturing sectors imported raw materials such as iron for manufacturing.

Physical systems

Trade can and often does benefit all those involved, but outcomes are most often highly uneven, with some participants benefiting more than others. It is for this reason that, according to Mari Pangestu, World Bank Managing Director of Development Policy and Partnerships:

‘There is no question that the rise in trade over the past 30 years has helped to dramatically reduce global poverty, but the benefits were not shared equally.’

One reason for such growing inequalities is that physical geography creates naturally arising opportunities and disadvantages. Towns and cities initially emerge in locations that are naturally more defendable (London emerged in the loop of a river), are located at important nodes in travel and trade routes (Istanbul, Turkey, is on a major waterway connecting the Mediterranean and the Black Sea) or develop social significance (Mecca, Saudi Arabia, was named a holy site). As populations grow, these towns and cities attract more human labour for productive activity. They also have higher population densities, which allow more intensive interactions between more individuals; and this includes more frequent exchanges of knowledge and therefore people can learn new and advantageous things more rapidly. Furthermore, individuals and communities of people with the most opportunities understandably seek to perpetuate advantages, further increasing inequalities.

Social systems

There are also social reasons for ‘specialisation’ and organising ‘divisions of labour’. As some individual humans or specific groups and communities specialise in certain economic activities — such as growing food, extracting minerals, making artefacts, providing accounting services, etc. — their focused engagement and repetition makes them more effective at the task. So human social systems encourage individuals and communities to specialise in the production of particular goods and supply, and then trade the outcomes.

International trade: terms and inequalities

The discipline of economics often assumes that trade is mutually advantageous and therefore should always be encouraged. For this reason, powerful actors — including governments and international organisations such as the International Monetary Fund (IMF) and World Bank — encourage trade by advocating the removal of physical and social barriers to trade. This could be by building infrastructure such as roads and containership canals, or by removing import and export taxes. This set of policies has been collectively known as ‘neoliberalism’ (see Box 2).

Despite evidence that trade helps everyone, the current system is not seen by all as socially just, or ‘fair’. Not all countries have the same economic and trade opportunities, and there are different physical, and then emerging social, economic and political differences of geography. Some countries and regions have extensive mineral resources and others do not. Variations in physical geography mean certain crops grow in one place but not in others. Some countries have long growing seasons with adequate rainfall and ground water supplies, others have limited growing seasons due to short yet intense rainy seasons.

Beyond the unfairness of initial opportunities, the structure of the economy adds further socially constructed inequalities. For example, the ‘terms of trade’ between primary goods on one hand, and secondary goods and tertiary services on the other, are always shifting in favour of countries that export more complex manufactured goods and tertiary services (see Box 3).

The global system: core–periphery relationships and inequalities

The historical development of trade has created uneven outcomes and contributed to a ‘world system’ in which trade is organised to extract resources from ‘peripheral’ rural areas, and less wealthy countries, and concentrate these in the ‘core’, more economically wealthy countries, specifically in large cities.

To take the example of tea: international supply chains trade and transform tea leaves in a way that supplies the best tea to the wealthiest, urban populations. At the same time, the most financial benefit from that trade and processing accumulates not with those communities that grow and harvest the primary crops, the farmers, but with those who own and run the trade, who also likely live in cities across the globe. This means that financial accumulation grows fastest for a small number of businesses.

By contrast, because of competition to provide raw primary materials like tea leaves — which can be grown with few tools or investment, and in many parts of the world — prices are low. This means that business owners in the periphery of the global economy often struggle to invest in better environmental or working conditions.

As a result, even though you might pay several pounds for a packet of tea on the UK high street, those growing leaves likely received only a few pence. Another example to consider is bananas.

Social justice and fair trade

Is trade unfair?

Many people conclude that the uneven distribution of outcomes from trade is acceptable, and at best expect those currently receiving the least to work harder, or smarter. Others disagree, pointing out that if we genuinely want to equalise the gains from global trade, we must proactively support the economies, traders, farmers and workers who currently benefit the least.

People in this latter community argue for ‘fair trade’. This approach recognises that individuals are born into situations of differing opportunity, and instead of multiplying those differences through trade organisation, we should seek to reduce them.

Advocates of fair trade argue that leaving prices to be negotiated allows the powerful to get their way. Therefore, instead, prices should be controlled or agreed, so that producers of primary commodity goods can earn enough to cover the costs of production, invest in improvements and receive enough to provide a minimum standard of living for themselves and their families.

 

Consumer power

Fair traders argue that workers and producers can be empowered when they are allowed and supported to organise collectively, and therefore negotiate more effectively with powerful owners and buyers of their produce. Overall, fair trade identifies that as consumers, the prices we all often pay for goods — such as coffee, tea and chocolate from the developing world, or perhaps milk and meat from the UK countryside — do not reflect the true cost of producing them. Therefore, if we are serious about our claims to care about trade, we must advocate for fairer distributions of the money we pay for goods, with more being returned to the peripheral countries and producers who provide the basics we often take for granted.

Fair trade ambitions and failures

These fair trade principles have led to the creation of many different schemes of trade organisation. After the Second World War, the European community built international institutions to control international prices and support peripheral economies in the developing world. However, the growing neoliberal agenda quickly deconstructed these in favour of prioritising individual freedoms, most advantageous to the powerful.

In response, the fair trade movement was created. It pioneered the idea of a certification label for goods that were fairly traded, where more of the price was returned to those that needed support the most. This work eventually resulted in Fairtrade International, which offers certification for producers and buyers who meet certain social, economic and environmental standards. Other organisations, such as Fair for Life, provide similar opportunities, including for traded within as well as between different countries. Naturally, all these different certification schemes have their own positives and limitations. Ultimately, there is no short cut to being an ethical consumer. We must continue to work together, aspiring to a fairer and more equal world, to research, analyse to learn and share our knowledge with others.

Alastair Smith is an academic activist, working as a senior teaching fellow and the education for sustainable development officer, within the Division of Global Sustainable Development, University of Warwick.