The idea of "fair trade" as a practice began in a very limited way in the 1940s and 1950s. In Europe, Oxfam began importing and selling crafts made by Chinese refugees in The Hong Kong Special Administrative Region of China. In 1964, it created the first Alternative Trading Organization (ATO) to import fairly traded produce. Parallel initiatives were also taking place in the Netherlands, with the creation of the importing organization S.O.S Wereldhandel (now Fair Trade Organizatie) in 1967.[38] During this time, the market was very small and specialist, and limited by outlets open to the ATOs. Products were principally durable and non agricultural, including handicrafts and textiles.
Poor commodity prices during the mid 1980s created difficulties for small-scale producers in developing countries. In 1988, in response to this, "fairly traded" coffee was imported into the Netherlands, under the Max Havelaar Keurmerk label. This was widely regarded as the outset of the "second generation" of fair trade initiatives and the beginning of standard setting and certification by independent organizations. It also permitted fair trade products to be distributed more widely, and not solely through ATOs.[39]
In the early years, fair trade initiatives were organized at national level and so the market appeared highly fragmented. The Fair-Trade Labelling Organizations (FLO) International was created in 1997 as an umbrella organization for 17 national fair trade labelling initiatives, in Europe the US, Canada and Japan. Its aim was to establish international standards for fair trade produce, to certify producers and to licence importers. Since 2003, the various national fair trade labels in Europe are being replaced by the new International Fair Trade Certification mark, although the US and Canada will continue to use their own labels.
FLO first developed product standards for coffee. These have been followed by standards for tea, cocoa, cane sugar and bananas, and for NTAEs such as honey, tropical fresh fruits and fruit juice. For the other NTAEs, such as tropical nuts, dried fruits, spices and herbal teas, there are currently no FLO standards.[40] This tends to limit the distribution of these products to the so-called "world" shops.[41] Development of FLO criteria for such products would open the possibility of selling through conventional channels and for reaching out to a wider consumer base.
For those products for which FLO standards exist, fair trade certification opens up the opportunity for producer groups or plantations to sell to conventional retailers, including the supermarkets, as well as to the ATOs.
In 2002, FLO established generic standards for production, based on smallholder and plantation-based agricultural systems. These include the following:
labour standards - freedom of association and right to collective bargaining, criteria for wages, working hours and accommodation, occupational health and safety standards, the prohibiting of forced or child labour;
criteria for the organizational structures of producer organizations - in particular that they should be fully democratic;
trading standards - stipulating that traders should pay a "fair" price, a fair trade premium, offer advance payments and commit to a longer term trading relationship.[42]
In addition to these generic standards, there are also product-specific standards.
Within the major demand centres - Europe, the United States and Japan - the fair trade market for the main FLO-certified products (coffee, tea, bananas and citrus juice) is most developed within Europe, but still relatively unimportant in Japan[43] and the United States. In the United States market only coffee sells in any volume. Even so, the total tonnage sold is very small. FLO reports that fair trade coffee sales in the US amounted to just 2 300 tonnes in 2002.[44] In Europe,[45] current estimates indicate that fair trade coffee sales amounted to 13 500 tonnes; bananas 36 600 tonnes; tea 1 000 tonnes and single strength citrus juice 1 300 tonnes.
There is some cross-over between fair trade and organic, particularly in the banana market where it is estimated that 25 percent of all fair trade bananas sold are also organic, principally from the Dominican Republic and Ecuador. The growth in demand for fair trade produce has been quite strong, but from an initially low base. Total fair trade banana imports into the EU are estimated to have grown from 12 500 tonnes in 1997 to 36 600 tonnes in 2002.
Recent experience indicates that the fair trade market can be quite fragile. For example, in the Netherlands, fair trade bananas gained a 10 percent share of the market after only a few months (Eurofruit, 1997). Problems with quality dented consumer confidence and the Dutch market has since failed to recover. In Belgium, sales also declined and, in 2001, had only recovered to their 1998 levels. In contrast, in Finland, sales of fair trade bananas are estimated to account for 5 percent of all banana sales, and in Switzerland for as much as 20 percent (FAO, op cit).
There is a structural over-supply of fair trade produce. For example, FLO (2002) reports that of 171 certified producer organizations only 80 sold coffee under fair trade conditions. Of those 80, FAO (op cit) estimates that around 30 percent of the coffee finds a home in the fair trade market, with the balance being sold by producer organizations into the conventional market.
The same is true for tea. FLO (FLO, 2002) reports that of 49 certified fair trade producer organizations, only 37 were able to sell even a percentage of their tea under the fair trade label due to over supply.[46] In 2001, it was reported that an association of small banana producers in El Oro in Ecuador was marketing around 30 percent of its bananas under the fair trade logo, with the balance sold as conventional.[47] In Europe, the supply of fair trade bananas initially did not meet demand, but the market is now well supplied. Fair trade bananas have not yet been introduced in the US markets, but efforts are now under way to find suppliers and to identify which supermarkets would be willing to offer this fruit.
FLO has taken the unusual step, for a certification agency, of only issuing certificates to those producer groups which are able to demonstrate that they have a market for their fair trade produce. Because demand for fair trade produce is growing only slowly in absolute volume terms, and most registered suppliers are only finding a fair trade outlet for a percentage of their total output, it seems likely that any future growth in demand for products such as coffee, tea, sugar and bananas will be captured, initially, by existing registered producers. This effectively closes the door on new fair trade producers of these commodities.
The Agrofair company, which is 50 percent owned by producers, is the main importer of fair trade bananas.[48]
Agrofair has also been working to develop a market for fair trade mangoes, oranges and pineapples. It began importing fair trade pineapples from Costa Rica for the Co-op supermarket in the UK, having launched mangoes in the market in 2001 (Eurofruit, 2003).
Supermarkets, and to a very much more limited extent the wholesale markets, are likely to be the major outlets for fair trade NTAEs. This has potential advantages and possible disadvantages for fair trade produce. Because NTAEs, particularly the tropical fruits and cut flowers, tend to be perishable they are unsuited for distribution through the traditional ATOs. Supermarkets will open up a market for these products which would not, otherwise, have existed.
Supermarkets are keen to develop highly efficient and low cost supply chains. As we note in Section 5, supermarkets have played a decisive role in defining how international trade in fresh fruit and vegetables is structured. This will be equally true for fair trade products, particularly where these include NTAEs such as the fresh tropical fruits. The rationalization of the supply chain for conventional fresh produce, which has resulted in UK category managers dealing with a single exporter in a sufficient spread of countries to ensure security of supplies, is likely to be mirrored in the case of fair trade produce sourcing.
Supermarkets are already asking for a "fair trade organic" banana and it is likely that this requirement would extend to other tropical fruits. Ease of supply chain management and availability of shelf-space are factors driving this requirement, but it has implications for producers that are able to meet the fair trade requirements but are unable to produce organic fruits.[49]
Supermarkets, and currently those in the UK and the Netherlands in particular, are also requiring increased levels of compliance with a range of grades and standards. Meeting these standards can be more difficult for small scale organizations, although they will have had some experience with the fair trade certification process.
The pricing of fair trade products varies depending upon the commodity. For tea, farm gate or factory gate prices are based on market prices, and these vary according to the flavour, origin and quality of the tea. A fair trade premium is added to this price. In the case of coffee, the FLO standards set (fixed) minimum prices for robusta and arabica and add a price premium. Specific minimum prices are set for organic coffee. In the case of Cafédirect,[50] the FLO-minimum price of US$1.26 c/lb is paid for arabica coffee, plus a 10 percent fair trade premium.[51]
This price is intended to cover the costs of production (and compliance) and to give a living wage to the workers or smallholders involved in the coffee production. The fixed minimum price does help to protect producers from the particular volatility of the world coffee price, but it has been criticized for being "de-linked" from world prices and for failing to transfer market signals.
The premium payable on Fair Trade bananas in El Oro, Ecuador was reported to be US$1.75 per box in 2001, equivalent to an extra 30 percent on the basic price (FAO, 2001).
For most growers of fair trade produce, the price they receive will be a composite of the prices earned in the conventional market and the prices earned in the fair trade market. Producers bear the costs of fair trade compliance across all output, regardless of whether it finds a conventional market or a fair trade market. However, they do not have to bear the certification costs.
The objective of FLO is to ensure that the price paid delivers a living wage for producers or workers. The premium is intended to be used to deliver some collective benefit to the group (or to the workers in the case of plantations). Producer groups may invest in social infrastructure such as a health clinic or in environmental improvements (water management, etc.). In some cases it is distributed direct to growers to assist with poverty alleviation, or it may be used to establish a revolving credit fund.
In the El Oro example, of the US$1.75 per box premium, 30 cents was distributed direct to growers, 40 cents to a project for social and environmental improvement; and US$1.05 on various forms of administration and organizational development. One challenge is to ensure that the premium paid does not get swallowed up in managing and administering the fair trade element of the group's banana sales. This said, case studies suggest that the organizational development of producer groups is often one of the greatest benefits of fair trade, because it places growers in a much stronger position when selling into the conventional market.
Because many of the NTAEs tend to be perishable, except in dried form[52] they are likely to rely almost exclusively on the supermarkets for their distribution. This is illustrated in the case of bananas. Sales to supermarkets carry with them their own particular set of challenges. The way that fresh produce sourcing is structured and the demands for traceability tend to favour the large commercial exporters with their own production capability. Smaller scale producer groups are not generally favoured as autonomous suppliers unless they are able to demonstrate considerable management capability.
The fact that combined demand for fair trade and organic produce is still small as a percentage of total demand, and consumers who buy fair trade may also be inclined to buy organic, suggests that a composite category "organic and fair trade" may be demanded increasingly by the supermarkets. Banafair of Germany, now markets a fair trade organic banana (called a fair trade bio banana) under its Banafair logo. In the UK, a trial programme has been launched by the Soil Association and the Fair Trade foundation to create a label which combines organic and fair trade certification schemes. South African table grapes, citrus and green beans, as well as table grapes from Egypt, are expected to be among the first fruit and vegetable lines included in the scheme (Biologic, 2003).
This may well set a trend for imported produce and may be one means for developing countries to more effectively penetrate the organic market for temperate produce in developed countries, which currently tends to favour locally-grown produce over imported equivalents.
Increasingly, the organic and fair trade movements are working together to ensure their initiatives are complementary. However, with both markets in oversupply the challenge will be to retain the integrity of the "fair trade" price premium within the composite price for a fair trade organic product. In other words will the price received be the sum of the organic premium and the fair trade premium or somewhat less? Whilst the fair trade movement will be very reluctant to accept any erosion of fair trade prices, there are already examples of traders negotiating discounts on conventionally-grown coffee, in exchange for a full priced consignment of fair trade coffee.
Much of what applies to the conventional market for NTAEs from developing countries is also true for organic produce. Developing country exporters must meet strict phytosanitary requirements. They face the same constraints with regard to the availability of air or sea freight, good internal infrastructure and an efficient cold chain, as their counterparts producing conventional produce. If they are selling to supermarkets, they must achieve the same high standards of traceability, good agricultural practice, and health and safety.
In addition to the challenges that they face as exporters of a high value, often highly perishable, product they also face challenges and constraints which are unique to the organic sector. It is these challenges which are the focus of the discussion in the remainder of this section.
Growing crops organically presents particular agronomic challenges which are not present in conventional agriculture. Managing crops without recourse to synthetic pesticides and fertilizers, whilst maintaining crop quality and soil fertility, requires considerable skill. For developing country producers with limited access to technical expertise and no government support this is often a process of trial and error.
For smallholder growers that have traditionally used little or no artificial inputs the transition to certified organic production often requires little change in current practices. Equally, the larger commercial farms and plantations tend to have access to greater technical expertise, the scope to build fertility through green manuring or running parallel livestock enterprises, and the cash flow to withstand the drop in yields that can occur when no agrochemicals or artificial fertilizers are applied.
Growers that appear to face the greatest difficulties in managing the transition from conventional agriculture to organic are those have become accustomed to using agrochemicals and artificial fertilizers, lack the knowledge to produce crops without recourse to these inputs and have production systems which are not self-sufficient in nutrients.[54] On the other hand, traditional low-input production systems may experience yield increases if correct organic practices are applied.
A lack of knowledge of the principles and methods of organic agriculture was one of the problems cited by FAO in its case studies of organic production in Zambia and Madagascar. In the Dominican Republic diseases in bananas (black sigatoka and crown rot) and vegetables (whitefly) are reportedly difficult to manage, whilst a lack of composting material to maintain soil fertility was also identified as a constraint.
The phytosanitary requirements for imported organic produce in the major end-user markets are the same as those for conventional produce, and these are described in more detail in Section 3 and Section 5. However, their strict enforcement has special consequences for consignments of imported organic produce. For example, in Japan, the high phytosanitary requirements can routinely require methyl bromide fumigation of imported produce. Tough rules also apply at United States customs posts where, if "actionable" pests are found, the consignment must be fumigated, destroyed or returned. For exporters of organic produce fumigation is particularly costly because the organic status of the consignment is lost.
The International Federation of Organic Agriculture Movements (IFOAM) has established private voluntary basic standards for organic production, while the FAO/WHO Codex Alimentarius Committee has adopted guidelines for the production, processing, marketing and labelling of organic foods. However, in practice, neither of these is used as a universal standard, and many developed countries, including the United States, Canada, Japan and the EU, have defined their own organic standards. Producers and exporters of organic fruit and vegetables seeking to sell their produce to developed countries, have to meet the rules established by the importing country concerned and to gain organic certification from a body recognized by the importing country.
In the United States, any fruit and vegetable labelled or shipped as organic will require certification by an approved certifier based on the US National Organic Standards (NOS). In the EU, produce from the seven countries on the Article 11 list[55] can be imported straightforwardly, as for conventional produce. For countries not on the Article 11 list, which include the vast majority of the EU's suppliers, an importer will need an individual permit to import.
Certification can be costly. In addition, organic producers worldwide cite the vast amount of paperwork involved in meeting and maintaining organic status as a major cost to their business.
The market for organic produce has grown strongly in the EU and the United States, albeit from a relatively low initial base. The United States and Europe now have markets of roughly equal size, with retail sales forecast to reach, respectively, some US$12 billion and US$ 10.5 billion in 2003.[56] Japan's sales of organic produce are expected to reach only US$400 million in 2003, although sales in the more important "green" product[57] category were of the order of US$2.5 billion.[58]
From initially high annual growth rates during the late 1990s - 20 percent to 30 percent cited in many markets - the growth in demand is slowing. There are marked country and regional differences. In Germany, organic fruit and vegetable sales are still estimated to be growing at 8 percent and 15 percent per annum, respectively. In Denmark and Austria, both relatively mature markets where organic produce already holds a fairly high market share, the growth in organic food sales was found to be low or zero.
The potential for growth in the organic fresh produce sector, has to be judged against the potential for growth in the retail sector overall. European consumers' growing preference for eating out has meant that retail sales of food and drink are reported to be at a standstill (Eurofruit, 2003). This means that in the retail (principally supermarket) sector growth in the sale of organic produce will have to take place largely at the expense of conventionally-grown produce.
The major outlet for fresh organic produce remains the supermarkets. In Finland, for example, it is estimated that 90 percent of organic foods are marketed through the supermarket chains. The figure is not so high elsewhere in Europe. In the UK, the mainstream supermarkets are believed to account for around 70 percent of sales of organic produce, with farm shops and local vegetable box schemes contributing a significant 16 percent. However, they are likely to account for the majority, probably well over 90 percent, of sales of imported produce.
This means that exporters of fresh organic produce must meet all the stringent demands of the supermarkets as well as the additional challenge of supplying quality produce without recourse to artificial inputs. The supermarkets are also highly demanding, judging (probably unfairly) the quality of organic fruits and vegetables in exactly the same way that they judge their conventionally-grown alternatives.
One of the barriers to the export of fresh organic produce is at consumer level. Many consumers of organic produce are also concerned about "food miles". In many European countries, consumers tend to opt for locally-grown conventional produce in preference to imported organic produce. In the UK, the highest level of penetration for organic produce is achieved for temperate crops that are traditionally grown domestically, although penetration levels are reasonably high for traditionally consumed (and imported) fruits such as oranges and bananas. This is true also in Germany. In Switzerland, the rules of Bio-Suisse, the leading national organic label, expressly forbid air freighted organic food. The preference in Europe is for domestic fruits and vegetables, or for vegetables from neighbouring countries.
Many European consumers are reported to be sceptical about the reliability of certification mechanisms abroad. Strong marketing efforts may be required to offset the current mistrust and bias against imported organic produce. Some countries have already succeeded in establishing a "green" or "fresh produce" image, such as Chile and Costa Rica, and this should help the marketing of their organic produce.
Because of the difficulties and costs involved in storing and exporting relatively small quantities of organic produce, one option for developing countries is to transform more produce at origin. This is not without its problems and there are issues, such as tariff levels on processed products and the management (and cost) of installing separate organic processing lines, which have to be taken into account.
The FAO case studies indicate that there is already some moderate success in exporting processed products. The major single market is the citrus (orange) juice market. Brazil dominates the supply of organic frozen concentrated orange juice (FCOJ). The single strength organic orange juice market is dominated by Israel, with Brazil and Costa Rica also being important suppliers.[59] The Dominican Republic has developed organic export markets for dried coconut, mango puree and concentrated mango juice. Madagascar's exports of organic fruit (papayas, mangoes, guavas, pineapple and passion fruit) are made solely in the form of juice and pulp.[60]
There is a view that organic production methods are more suited to developing country agriculture and that this is an area of potential growth both for TAEs and NTAEs. In practice, with the exception of small scale traditional agricultural systems which have used little or no artificial inputs, most developing country agricultural systems have come to rely on artificial fertilizers and agrochemicals in order to maintain the yields and quality of produce. The transition to organic farming represents as big a challenge to developing country producers as it does to producers in developed countries. Arguably, the challenges are greater in developing countries: pests and disease are more difficult to control in wetter, more humid growing conditions, and in perennial crops; whilst the transition to organic farming is made harder by the absence of adequate research and extension advice.
Producing and exporting conventional fresh produce is a high risk business. The risks are even greater when it comes to the production and export of organic produce. At the producer level, there is the risk of substantial yield or quality reduction, additional costs of organic certification and compliance and considerable uncertainty about the final value of the produce. At the exporter level, rigorous quality control is necessary both to meet the standards of the importers but also to ensure that phytosanitary standards are met. Again, this is costly and high levels of rejection may be necessary to maintain standards.[61] Nevertheless, Harris et al. (2001) argue that the rigours of organic certification make small-scale organic farmers more likely to be acceptable as a source of produce than smallholder conventional farmers.[62]
The organic market also remains small-scale and vulnerable to over-supply and declining price premiums. This is an added risk. In Europe, there has been support for farmers during the conversion process, which is intended to compensate for the reduced yields during this period. In some European countries ongoing payments have been made to organic farmers on environmental grounds. Developing countries do not benefit from equivalent support. They may also be hampered by poor macro-economic policy which discourages investment or further increases investor risk. For example, unstable land tenure systems may deter farmers from converting to organic cultivation, since a transition period of two years is often required before products can be sold as organic. Farmers consider this period of low yields and prices as an investment which is worth making only if they can keep the land long enough to benefit from higher prices once they have obtained certification. Subsidies on agrochemicals may have a similar effect.
Taken together, the risks inherent in the production and export of fresh produce are such that they may only be absorbed by the much larger scale, commercial farming operations in developing countries (possibly in concert with smaller scale out growers) which already have a track record of producing and exporting fresh produce to supermarket standards. In some cases, however, groups of small farmers supported by an external organization (e.g. development agency or trading company) have been able to set up internal systems that enabled them to export successfully.
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[38] Bowen (2001). [39] Excerpt from forthcoming publication: Voluntary environmental and social standards, certification and labelling for tropical and horticultural products. Commodity and Trade Division, FAO, Rome. [40] It is not envisaged that FLO standards will be introduced for temperate fruits and vegetables because they are produced in both developed and developing countries. [41] In the UK, further trading opportunities have been opened up for mail order sales through charities such as the Save the Children Fund and Oxfam. Whilst the bulk of the produce sold falls into the category of handicrafts and ethnic clothing, there are numerous fair trade food products, including dried fruits, chocolate, nuts, tea, coffee and sugar. [42] Excerpt from forthcoming FAO publication: Fair trade tea: concepts, criteria and markets. Commodities and Trade Division, FAO, Rome. [43] In Japan, there have been imports of fair trade bananas into Japan since the late 1980s by the ATO Altertrade. These bananas are sourced in the Philippines (so-called "Balangon" bananas) and are also organic, even though they do not bear the official "JAS organic" label. [44] FLO (2002) statistics, Bonn, Germany (personal communication to FAO). [45] The EU 15 + Switzerland and Norway. [46] FLO (2002) Report 01/02: Mainstreaming fair trade labelling, Bonn, Germany. [47] FAO (2001). [48] Fair trade bananas are also imported into the UK by supermarket category managers such as Mack Multiples. [49] For example, black sigatoka disease and crown rot remain major constraints to organic banana production. [50] The company Cafédirect is a joint venture between four UK ATOs, it markets roast and ground coffee and instant coffee under the Cafédirect label. [51] Tallontire (2000). [52] As in dried banana chips, dried mango etc., for snacks. [53] The FAO/ITC/CTA report published in 2001: World markets for organic fruit and vegetables: opportunities for developing countries in the production and export of organic horticultural products is the major document source for this section. [54] Many smallholders in developing countries do not have access to livestock manure and so are constrained to produce under a "stockless arable" system. Such systems can be managed organically but to be successful they need to include legumes which are cut and mulched in-situ as part of a rotation. [55] The Article 11 list includes countries that are able to export products certified by an approved domestic certification body to the EU without the need for additional certification or accreditation. The countries on this list include Israel, Switzerland, the Czech Republic, Hungary, Australia and two developing countries, Argentina and Costa Rica. [56] ITC (2002) [57] Japan has a catch-all category of "green labelled" products. This category includes products grown with no artificial inputs, but it also includes products grown with some artificial inputs. Produce in the "reduced use of agrochemicals category" accounted for around 68 percent of green label produce in 2001. New Japanese Agricultural Standards (JAS) for organic agriculture were implemented in 2000. [58] ITC, op. cit. [59] FAO (2003). [60] An attempt to export apples to Germany failed because the apples were found to be infected by "bitter bit", which resulted in spotting throughout the apple. This illustrates the difficult of exporting high quality organic fruit, particularly when it is in competition with apples grown in, or close to, the export markets themselves. [61] Savid of Germany, which imports organic bananas, comments that organic bananas must undergo a strict selection process at the pack-house and then again at the destination port (Biologic, 2003). [62] Harris et al. (2001). |
