Investing in Fair Trade

Fair trade is a model for sustainable economy in rural communities in the developing world. Small grassroots businesses, such as banana farmers and handicraft co-operatives, make up the fair trade movement. Promoting livelihoods and empowering these groups is where sustainable development and poverty alleviation begin. Fair trade promotes operating with transparency and long term relationships with producers. It also provides incentives for rural producers to engage in environmentally sustainable and socially responsible practices by paying a price which covers the costs of sustainable production, while ensuring a Fairtrade Premium for community development projects. In 2008, the Fairtrade Premium contributed over 22 million euros to fair trade coffee farmers and over 11 million euros to fairtrade banana farmers. As successful as the fair trade movement has been at helping to eradicate poverty in the developing world, the current worldwide credit crunch is threatening the viability of the movement going forward.

Over 7 million people in 62 countries across the world depend on fair trade for their livelihood, either directly through their work or indirectly through the community projects that the Fairtrade Premium provides. Some 450 million small farms are home to 2 billion people, a third of the world’s entire population. These farms are also home to half the world’s hungry people. Seventy-five percent of the 2.6 billion people who survive on less than $2 a day live in rural areas.

Before the economic downturn, small farmers were already struggling as they worked their ever shrinking land plots, often with poor irrigation and limited infrastructure, while battling against the ravages of climate change. Many, especially in sub-Saharan Africa, continue to deal with the impact of HIV/AIDS. A Fairtrade Foundation report shows that spiraling food, fuel and fertilizer prices have now intensified the problems which many families have to face. Most are now spending up to 80% of their household budget on basic food items. This means they have to buy more food than they can sell. Even a small price fluctuation can have a terrible impact. In an increasingly hostile climate, where 10 food retailers control about a quarter of the $3.5 trillion food world market, small farmers continue to find it difficult to get their fair share of the pie.

All businesses rely on credit to grow, or even survive, whether it is a line of credit to overcome temporary shortfalls in cash flow or long term loans to purchase equipment. Most businesses in the developing world don’t have access to traditional finance. Considered too risky and small for mainstream banks and too large for microfinance, these grassroots businesses cannot access the capital they need to grow and sustain their businesses. In our global economy, credit is often exorbitantly expensive for self-help groups. And it sometimes comes with “strings” that can lead to outside control of developing economies.

Small farmers who belong to the fair trade movement, which advocates fair prices and sustainable agriculture, say they get some protection from wild market fluctuations that are happening in the economic crisis. But many fair trade organizations are reporting that producers are having difficulties raising finance and loans locally in the developing world. As banks run out of money, or refuse to lend, fair trade groups are starting to struggle to meet demand for working capital. The fair trade movement needs public support to raise working capital for fair trade businesses around the world. Access to credit is imperative for producers and fair trade organizations because otherwise they cannot buy materials to start or continue production and earn a fair income.

Increasingly, consumers are demanding sustainably grown, ethically sourced products. In the economic crisis, the market for organic, fair trade and ethical goods will likely take a temporary hit, but will bounce back. In fact, this sector continues to be a good investment. “The market is relatively robust. Given the downturn, there will likely be a short-term hit, but there is much more potential than its current size” says Gareth Thomas, UK Minister of State at the Department for International Development. Thomas told the World Development Forum conference in Switzerland in October of last year that UK sales of fairtrade labeled goods have risen 1000% in the last decade, with a 50% increase in the last quarter compared to a year earlier. “Not only is the market for ethically grown and traded here to stay, but it is a growth market,” affirms Alex Brigham, Executive Director of the Ethisphere Institute, based in the USA. Asked if it still makes sense for developing countries to put money into fair trade projects, he noted that in a consolidating market there will be winners and losers. “But do not pull back investment in this time of crisis,” he said. “Strong organizations invest in times of trouble”.

Demand for sustainably made, socially responsible products seems to be growing even as the global economy staggers. TransFair USA CEO Paul Rice thinks that companies investing now are particularly forward looking. “Companies who are announcing big increases in fair trade product lines are really trying to position themselves for when we come out of the recession.” And Rice believes there is good reason to do so, citing studies that show up to 30% of US adult consumers-some 60 million people-regularly shop for products “that are consistent with their values.” Despite the global recession, fair trade sales have grown by at least 50% in seven countries, including: Australia and New Zealand (72%), Canada (67%), Finland (57%), Norway (73%) and Sweden (75%). The largest markets for fair trade products continue to experience strong growth, as sales of fair trade certified products increased 43% in the UK and 10% in the USA. Fair trade products have also gained popularity in a number of new markets, including Eastern Europe, Eastern Asia and South Africa. In 2008 consumers spent an estimated 2.9 billion euros on fair trade products globally.

Despite the growth in fair trade sales globally, the fair trade market is still miniscule compared to the general commodity market.  Small farmers and artisans can only sell a fraction of what they produce to the fair trade market. Silver Kasoro-Atwoki, a tea grower from Uganda, only sells 3% of his total produce through the fair trade movement. The fair trade sector continues to be only a tiny portion of production in the different sectors in which these companies operate.

The Fair Trade movement needs individuals, companies and organizations to invest in fair trade so that the movement can grow to include many more small farmers and artisans. People are willing to pay a premium to help the planet and to help people in the developing world, but without access to credit/finance, small farmers and artisans, and the rural communities that they live in, will not be able to capitalize on their specialty products. Invest now and don’t forget to buy fair trade!