The daily
practice learns that the terms ‘fair-trade’, ‘co-operatives’ and ‘co-operative
trade’ are often used loosely and interchangeably. Different people attach different
connotations to them. However, not every ‘correctly produced’ article on the
shelves of a shop has the status of fair-trade. And, not every farmers
association is a co-operative.
Since the
concepts ‘fair-trade’ and ‘co-operative’ are not just the fruit of academic
discussions but rather the expressions of underlying social movements, good
definitions do matter.
A
conceptual clarification is even more legitimate because of the nebulous jargon
that is used by the different movements concerned. In other words how do we
define equitable trade, co-operative trade, ethical trade, alternative trade
and fair-trade?
Fair-trade
is a set of business initiatives that are run according to certain objectives
and criteria. At the same time it is an international social movement (IIED,
2000; Young, 2003; Pirotte, 2005).
The idea
of fair-trade originated in the 1960s as a response to the unequal terms
of trade
imposed upon the developing countries. In many western countries this lead
to a new social movement with the aim to alleviate poverty in the South by
building
direct, sustainable relationships with disadvantaged producers and providing
fair access to markets in the North. These aims are still very much in vigour
but meanwhile fair-trade has developed into a powerful force and a recognised
‘label’. Indeed, the labeling issue
became quite important to distinguish the fair-trade products from the other
‘ordinary’ ones. The labeling organisations became the reference organisations
and backbones of the fair-trade movement.
The definition of fair-trade as it was
developed by the joint labeling
organisations is as follows.
“Fair-trade is a trading partnership,
based on dialogue, transparency and respect, which 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 (www.bafts.co.uk and www.ifat.org )
The goals of fair-trade are therefore:
-
To
improve the livelihoods and wellbeing of producers by improving market access,
strengthening producer organisations, paying a better price and providing
continuity in the trading relationship.
-
To
promote development opportunities for disadvantaged producers, especially
women and indigenous people and to protect children from exploitation in the
production process.
-
To
raise awareness among consumers of the negative effects on producers of
international trade so that they exercise their purchasing power positively.
-
To
set an example of partnership in trade through dialogue, transparency and
respect.
-
To
campaign for changes in the rules and practice of conventional international
trade.
-
To
protect human rights by promoting social justice, sound environmental practices
and economic security.
These criteria are known as the ‘FINE’-criteria. FINE is the informal co-ordination platform composed of the
following representative bodies:
FLO (Fair-trade Labelling Organisations
International) was established in 1992. It is the worldwide standard setting
and certification organization. FLO is active in 45 countries and is based in Bonn, Germany.
IFAT (International Federation for Alternative
Trade) was established in 1989. It centralises the support, promotion and
advocacy of its 155 members in both the North and the South (all of them
involved in alternative trade or fair-trade). IFAT is now based in the Netherlands.
NEWS (Network of European World Shops) was
established in 1994. It is the umbrella of 15 national World Shop associations
in 13 European countries, representing about 2500 ‘world shop’ outlets
(“Magasins du Monde”). There is no common definition of a world shop. World
Shops are bottom-up and grassroots-based initiatives. But it seems that
offering fair-traded products and campaigning for a fairer world trade system
is what unites them.
EFTA (European Fair-trade Association) was
established in 1990. It is a network of 11 fair-trade organisations in 9
European countries which import fair-trade products. It is based in Maastricht, the Netherlands, and is active in
co-ordination of and support for its members and the promotion of fair-trade
towards commercial and political decision-makers.
Apart from those organisations, mention should be made of the
North-American counterpart of EFTA, the FTF
or Fair-Trade Federation, the Washington-based association of fair-trade
wholesalers, retailers and producers. FTF was established in 1994 and has now
115 members.
Likewise, there is also an FTA or
of Fair-trade Association, grouping and representing fair-trade importers
and wholesaling organisations in Australia and New-Zealand.
The FLO, named first here, is
in fact the youngest branch at this tree. FLO is an apex body in its own right,
gathering certifiers such as Max Havelaar
(founded in the Netherlands
in 1988) and Transfair USA (1998).
The certifiers provide us the strictest
criteria for fair-trade.
The main criteria the fair-trade organisations propose to respect are:
-
(for
workers:) decent wages, good housing, health and safety standards and the right
to join trade unions;
-
no
child or forced labour;
-
programmes
for environmental sustainability;
-
(for
small farmers’ co-operatives:) a democratic structure that allows members to
participate in the co-operative’s decision making processes.
Moreover, the
trading terms must include:
-
a
price that covers the cost of production;
-
a
social premium to improve living and working conditions;
-
partial
advance-payment to prevent small producer organizations falling into debt;
-
contracts
that allow long term production planning.
Where
exactly does fair-trade interfere in the commodity chain? Let us take the
coffee commodity chain. It is a good example because coffee was one of the
first products dealt with by the fair-trade sector. In addition it is still the
prime icon of the sector illustrating the necessity and strength of the
fair-trade approach. The ‘normal’ commodity chain for coffee looks as follows:
Source: Milford
(2004)
Importantly, in this case, 70% of the producers are small-scale farmers.
These producers only receive about 6% of the value of a pack of coffee. In the
1970s the producers retained an average of 20%. At the same time there has been
a process of concentration. Local exporters are few. They are price-takers but
have a strong position on the local market. The international coffee trading
business is still more concentrated, with the top six companies controlling
about 50% of the market. The coffee chain is characterised by more
concentration the further down the chain one goes. Just a couple of large
groups (Nestlé and Philip Morris) control about half of the market for roasted
and instant coffees (Milford,
2004).
When
fair-trade labelling gets in then we get the following picture:
Source: Milford
(2004)
Thus the
producer, the international trader and the roasting company are closely
sanctioned by the FLO (labelling organisation). The producers’ organisations
have to follow a number of ‘generic fair-trade standards’. The majority of
their members have to be small farmers and their business has to be run in a
democratically and participatory way. Their business operations are closely
followed up and they have to protect the environment. The international traders
and roasting companies have to pay a guaranteed minimum price, and when the
world prices exceed this, they must pay an extra 5 US$ cents premium. They also
have to establish a long term and stable relationship with the producers’
organisations and provide them with a prepayment of up to 60% of the contract
value. The private intermediaries, the processors and the local exporters
disappear from the chain, all of them bypassed by the direct link between
producer and trader. The consumers can recognise a product as fair-trade,
either by its specific fair-trade label or by the specific type of retail
outlet.
The former
paragraph suggests that the concept
of fair-trade has been narrowed over the years. However, at the same time the connotation of fair-trade starts
covering a much wider range of activities and organisations than just the ones
labelled as such.
Some may
claim fair-trade is already embedded in the co-operative economy and the
co-operative movement since the 19th century. In this way trade
amongst co-operatives that adhere to their co-operative principles is defined
by some as “fair-trade”. However, almost all of this trade was trade between
co-operatives in the northern countries.
The South got
involved in some kind of intercontinental fair-trade during the late days of
the colonial era when missionaries brought with them suitcases full of goods
produced by members of their parishes or village in order to sell them at
‘fair’ prices to their relatives and friends in the North. This ‘suitcase
trade’ was the precursor of the modern fair-trade movement. It is generally
accepted that the Alternative Trade Organisations of the 1960s were the real
pioneers. They put forward an alternative option for the unequal trade relations
between North and South. For them the producers were to receive a just and
equitable price (above market). This ‘solidarity trade’ just like suitcase
trade, operated at a very small scale. Typically, these organisations operated
the whole trading process and were responsible for importing as well as
distribution and sale of the products, often in the already mentioned world
shops. The world shops are still a common mechanism that combines importing
and selling of ‘fair products’. But there are many variances to that model. Cafedirect in the UK, for
example, is a separate joint marketing company that was established by a
number of ‘fair’ coffee traders to keep the costs down. Cafedirect sells its
coffee in some of UK’s
major stores. The Day Chocolate Company
in the UK is
yet another example. The company is co-owned by producers in the South. Recently
a number of new types of alternative outlets for “fair-trade” products
were set up like the alternative ‘worldcafé’s’ in Belgium
(e.g. in Leuven) and France
(in Bretagne).
Mention
should also be made of the more recent phenomenon of ethical trade. Ethical trade can be described as trade that
ensures that internationally recognised labour standards, in particular
fundamental human rights in the workplace, are observed at all stages in the
production and sale of goods sold. The driving forces behind ethical trade
are mostly investor-owned companies and business who promote their ethical
trade
features either on their own (Carrefour, Sara Lee, Philip Morris and others)
or in a joint ‘club’ of ethically inclined companies. They often may do so
in
collaboration with or under instigation of trade unions, NGO’s and alternative
trade organisations. What drives profit-seeking businesses to be ethical? They
may have a genuine interest in corporate
social responsibility. However, critics will claim that their first
interest rather lays in attracting more customers by getting in the picture
with a clean image through so-called ‘cause-related marketing’. Whatever the motives, it cannot be denied
that ethical trade is gaining ground and is widely publicised. Apart from
workplace conditions, corporate social responsibility also touches aspects
related with sustainability and environmental awareness, such as animal protection,
rainforest conservation and genetically modified organisms. In France, a
number of ethically motivated persons and retailers have joined into an
advocacy structure called Minga.
Fair-trade is one of their principal objectives.
Fair-trade
labelling has given a boost to the whole trade justice movement. Both
alternative trade and ethical trade have been much influenced by the forceful
technique of labelling producers, traders and products. Fair-trade labelling
is not any more about producing its own products or creating its own distributive
network. Products are labelled and retailing is done through existing outlets
(mostly supermarkets). This makes for cost advantages. A much larger group
of clients can be reached in this way. The products are still mostly the same:
handicrafts, textiles, small furniture, tea, coffee, chocolate, bananas, wine
and fruit juice and a range of dried foodstuffs.
But in
addition, fair-trade labelling also creates an important benchmark for the
ethical traders. By labelling certain producers and products as ‘real
fair-trade’ the fair-trade movement sets higher standards to the ethical
traders who discovered workers’ and social rights only through the corporate
social responsibility movement.
Looking at
the three (competing) concepts one can see the ethical trade as the broader,
more vaguely defined effort to meet certain ethical standards and criteria in
trading relations. Alternative trade focuses on a direct link between producers
and consumers in order to guarantee a just and equitable price for the
producers. Fair-trade then is a technique that sets standards for producers,
intermediaries and traders who want to show their adherence to certain set
principles by showing a label. Fair-trade is a specific kind of ethical as well
as alternative trade. Not all ethical trade or alternative trade is fair-trade.
What is the significance of fair-trade? In 2002, the
worldwide retail turnover of
fair-trade labelled products was about 260 million Euro, whereas the turnover
of the individual members of IFAT in 2002 totalled 238 million Euro. Since
most products of the IFAT-members are non-labelled, both figures can be added
without
having too much of double-counting. Taking into account that the sale figures
of the world shops are not included in these, one could arguably estimate the
total annual turnover of fair-trade to be 500 million Euro (Young, 2003; www.fairtradefederation.com).
The sector
also reports constant growth of turnover. Fair-trade certified coffee, for
example, is the fastest growing segment of the speciality coffee market and
about 2% of the world market. In 2003, 18.5 million pounds of green coffee was
fair-trade certified with a value of US$ 208 million in retail sales. This
represented a 90% increase in one year.
Still
fair-trade accounts for not much more than 0.01% of all goods exchanged
globally. This makes that fair-trade has some way to go still. However, the
significance of fair-trade could also be expressed in the number of people involved. The agencies sorting
under NEWS (the world shops in Europe
basically) lean on about 100,000 volunteers who run the outlets in the 13
European countries where they have a presence. FLO has certified about 400
producer organizations, representing nearly 800,000 families (of the employed
farmers and workers) in the third world.
It could be
argued that the real significance of the fair-trade movement relates to its indirect effects. First of all the
fair-trade movement is an important engine and promoter of changes in the
regular trade because it creates growing consumer awareness and pushes for
corporate responsibility and better conditions for producers in the third
world. But the fair-trade movement is more than a mere advocate for changes
in the unequal and inequitable trading relations between North and South. It
is
also a countervailing power by offering a concrete alternative to producers,
traders and consumers. In the countries and regions where fair-trade products
are procured the fair-trade system has also a pro-competitive effect because
it often interferes in an oligopsonistic environment where only a few buyers
determine the prices.
Summarising
what we have seen so far, one could draw a picture holding three concentric
squares.
The outer
square would indicate ‘ethical trade’. Ethical trade then refers to every trade
operation that does take working and living conditions of producers into
account. Ethical trade can originate in both the profit and the non-profit
sector.
The square in
the middle would correspond with ‘alternative trade’, indicating the
involvement of the non-profit sector and the idea of an integrated commodity
chain.
The inner
square finally would indicate ‘fair-trade’, labelled and formally recognised
as such by certification organisations such as Max Havelaar, Transfair America or FLO.
Co-operative
trade then could be presented as a rectangle crossing all sections of the
picture. Co-operatives can – in principle as well as in practice – be involved
with ethical trade, alternative trade and with fair-trade. Producer as well as
consumers co-operatives can be involved. Co-operatives can be involved as
producers or as buyers (e.g. Equal Exchange). They can be investors in
North-South joint ventures (e.g. Socodevi) or providers of credit and technical
support (e.g. Rabobank).
Let us now
look at the characteristics of
co-operatives. The International Co-operative Alliance defines a co-operative
as:
‘an autonomous association of persons united
voluntarily to meet their common economic, social and cultural needs and
aspirations through a jointly-owned and democratically controlled enterprise.’
This
definition is accompanied by seven principles that serve as criteria to determine
whether an association of persons is a co-operative:
-
voluntary
and open membership;
-
democratic
member control;
-
member
economic participation;
-
autonomy
and independence;
-
education,
training and information;
-
co-operation
among co-operatives;
-
concern
for community.
The values
on which co-operatives are based are self-help, self-responsibility, democracy,
equality, equity and solidarity. At first sight, these principles and values
seem to focus upon internal and organisational aspects of co-operative enterprises.
Still, co-operatives will stress upon their market behaviour as well, stating
they distinguish themselves by honest measurement, high quality and fair
prices.
Co-operatives
have come a long way since they originated in the 19th century. They
are active in all economic sectors and all over the world. As a recognized and
well established social movement, they have a representative body with the ICA and are officially
promoted by the ILO through the ‘Promotion of Co-operatives Recommendation 193’
(2002) and by the UN through the Committee for the Promotion and Advancement of
Co-operatives (COPAC).
If we now
juxtapose the characteristics of co-operatives with those of fair-trade, it
becomes clear that there is a long list of differences between both ideas. We
can see differences and sometimes clear divides in terms of (a) the type of
agencies, (b) the rationale, (c) the cultural values and (d) the economic
activities.
(a) Type of
agencies
Social category: co-operatives (basically associations of
people) are social and economic agents
whereas fair-trade is a form of trade, which is a process. In other words
co-operatives are actors on the market, trying to correct it in favour of its
member-shareholders. Fair-trade is one particular mechanism designed to modify
the operating system of a particular market.
Legal status: a co-operative is a social concept and at the
same time a legal formula for a society
with economic activities. Fair-trade is a social concept as well but leaves open all sorts of options as for
the society formula or the legal personalities that are involved. In the
fair-trade movement we find co-operatives, indeed, but also associations,
NGO’s, foundations and traditional businesses.
Type of agents involved: as agents, co-operatives come in all sorts. Among the primary
co-operatives (i.e. of which persons are member) one distinguishes producers’
co-operatives, consumers’ co-operatives and finance or service co-operatives.
On top of that, there are apex bodies and secondary co-operatives (of which
co-operatives are members) and regional, ideological and international representative
bodies. The agents most directly involved with fair-trade are the labelling
or certifying agencies, the specialised outlets (such as world shops
and other specialized and on-line retailers) as well of a growing number of
(national and international) representative bodies. Only they, it could be
said, have in fair-trade their reason for existence. Apart from those, there
are a lot of producers (associations and co-operatives), ethically motivated
importers, distributors and ordinary businesses (supermarkets and other) who
are also involved in fair-trade, without making fair-trade their exclusive
business. In the co-operative movement there is organisational uniformity, in
the fair-trade movement there is organisational heterogeneity.
Historical significance and appeal: co-operatives do belong to a
recognized, fully institutionalized and well established social movement, featuring not as much as an opposition
to but as a corrective mechanism for the mainstream market- and profit driven
economy. Fair-trade takes the shape of a new
social movement, thriving on the same body of ideas which also gave raise
to structural development co-operation and ecological awareness in production.
This difference does have implications in terms of the appeal to the public:
co-operatives have a rather old-fashioned image, whereas fair-trade has its
appeal to a young and globally oriented generation.
(b) Drive and
rationale
Origin and drive: co-operatives and the co-operative movement
are producer-driven in the sense that
originally, co-operatives were looked upon as an alternative mode of
production; after that, it became clear that the co-operative form of equal
shareholdership could also be applied for consumers, service-providers,
etcetera. Fair-trade is rather consumer-driven, with
campaigning NGOs as the original driving force. But both co-operativism
and fair-trade are touching the whole of the economic cycle insofar that, once
launched, they cannot be reduced to the production, the transaction or the
consumption component.
Target group rationale:
the co-operative movement aims to increase the incomes of consumers and producers in both North and
South, whereas the fair-trade movement in the first place wants to improve the
income situation of producers in the
South. Expressed in terms of ‘interests’,
one could say that co-operatives invariably are set up to create win-win situations. Fair-trade has a
clear moral assumption about who should be the winner: the producer in the
South. Put in other terms, co-operatives take the interplay of private
interests very much into account, changing only the chances for a better
outcome for those who join them. Fair-trade considers private interests as
something to be submitted to a well-defined public interest (which is a decent
income of the producer in the South).
Strategic rationale: one could state that co-operatives
feature as means to an end (whereby
co-operative ownership leads to equity and solidarity). Fair-trade, on the
contrary, is much more an end in itself
(whereby the ‘fairness’ is by definition corresponding with the decent income
of the producer). To put it into a riddle-phrase: co-operatives aim for justice by ownership, while fair-trade
tries for ownership by justice.
(c)
organisation culture and values
Logic: co-operatives thrive on a logic that combines market forces with self-help, fair-trade is driven by a support or assistance logic.
Condition: because co-operatives primarily want to
survive in a competitive market they see good management as the basic condition. Fair-trade agents will insist on
commitment (on the part of producers,
traders and consumers alike) as the most basic condition.
Objective: most co-operatives are growth-oriented. They
believe that their business operations have to expand ever again in order to
survive on an expanding market. Fair-trade agents consider human development and respect
of human rights the prime objectives of their activities.
(d) economic
activities
Economic sectors: in principle and in practice, co-operatives
are active in every economic sector
imaginable whereas fair-trade deals with a limited
(even if gradually expanding) range of products and activities (mainly
storable food and small commodities)
Location of activities: the co-operative movement first
developed in the industrialized North
and spread into the South through the subsequent involvement of
the colonisers, the newly independent states and community based organizations
(often sponsored by NGOs). It is fair to say that, although co-operatives are
present in both the North and the South, economic links and alliances between
North and South have not yet been developed into common routine. As far as
fair-trade is concerned, however, the North-South link
is the premise and the reason of existence of the phenomenon.
Having listed
the divides, it should be stressed that co-operatives and fair-trade also do
have many things in common. They
share a set of values among which: equity, solidarity, just reward for efforts
and economic activities and shared property. More specifically, we see the
following common features.
Participative structure of the organisation. Co-operatives
are businesses that allow for member-participation and seek a kind of economic
democracy. Fair-trade organisation seek economic fairness and promote equitable
participation of different stakeholders in the trading operations.
Equitable income for the producers is a price-determinant in
addition to the market price. The concern for a fair treatment of producers is
at the origin of both the co-operative and the fair-trade movement.
Co-operatives started in the 19th century when producers were
cheated by the weighers. Correct weighing is one of the basic concerns of
fair-traders as well.
Activities
are happening in a competitive market
(where competitiveness with commercial and profit-oriented enterprises can at
least always be measured). In that sense, with their mode of production not
being capitalistic, both co-operatives and fair-trade initiatives could be
labelled as ‘social economy’ but never as belonging to a socialist or centrally
planned economy.
Although
economic activities are their core business, attention is given to other spheres of life quality. In the
case of co-operatives, education and training are put forward. In the case of
fair-trade, the concern is about environmental awareness.
Finally, both
co-operatives and fair-trade agents struggle with their objective of double-targeting, i.e. establishing
ethically responsible activities and surviving in a competitive business market
(Pirotte, 2005). This requires a permanent balancing and readjustment of
decisions concerning prices and production.
These
communalities indicate that co-operatives and fair-trade agents may very well
cover each other domain. The differences mentioned before do come as complementarities
much more than as opposing forces. This calls for synergy in principle. But
do we find synergy in practice? Purely
hypothetically, we can see two possible bottlenecks.
First,
originating from a totally different environment and in a different era,
co-operatives and fair-trade agencies are embedded in a different
organisational culture. Co-operatives will often have formal and permanent
networks with other organisations within the same social movement. Fair-trade
depends a lot on informal and ad hoc networking.
Second, it
may be that the two sectors (co-operative and fair-trade) have no automatic
mechanism to meet each other, and that meeting is rather by accident, or as
a result of national ‘third sector’ policy.
The Canadian
study group ‘Crises’ has recently undertaken an internet-based social mapping
of the principal actors within the world of fair-trade. They aimed to picture
an overview of labellers, producers, importers, wholesalers and retailers as
well as promoters of fair-trade products. The first element in the profile
of each organization was the ‘type of structure’. This enables us to get
an idea
of the relative importance of co-operatives in this sector. It should be noted
that the e-search was primarily focused on the francophone world, together
with a series of North-American organisations. Among the 19 actors identified
in the
North, only two were co-operatives (being the organisations Equal Exchange
and La Sembra). Some were quasi-co-operatives (such as the French importer
Solidar’monde). In the South (mostly in Latin American countries) 117 actors
were identified of which 40 were co-operatives.
It is clear
that quite a proportion of fair-trade goods are produced or manufactured by
co-operatives in the South. A quick
survey of companies involved in the coffee sector shows that many American
fair-trade coffee roasters or retailers (such as Human Bean, Just Us, Café Campesino,
One village…) have their coffee beans grown and harvested by co-operatives
in Latin America. Likewise,
European NGOs have formed networks of outlets (such as La Tienda Solidaria
‘Setem’ in Spain)
to allow co-operatives in the South to find consumers for their fair-trade
coffee. Although profit-seeking private companies are not accepted as
producers, many fair-trade producers feature as loose associations without
legal co-operative status. Paul Rice, CEO of the certifying organisation Transfair USA, pictures the advantage of working with co-operatives
as “co-ops provide legal structures and organizational processes that
significantly raise the level of farmer participation in decision making
related to coffee exports, investments, community development and a range
of issues about which small farmers previously had no voice” (Rice, 2002). The problem to which the combination of fair-trade
and co-operatives provides an answer is that of monopsonies or oligopsonies
in the agricultural produce market in the third world. One or a few buyers
dictate
a (severely low) price to the disadvantage of the many small suppliers. When
they have a direct access to the markets in the North, co-operatives do not
at once eliminate middlemen, but they allow farmers to ‘intermediate’ their
own
product, capture higher margins for their agricultural produce and build
economic independence from local oligarchs and traders. In Uganda, for example,
the joining together of producers into the Uganda Co-operative Alliance allowed
them to withstand the period of liberalisation (as a consequence of the
Structural Adjustment era) in their country.
At the other
hand, fair-trade co-operatives also have their share of organisational and
management challenges. A study on
fair-trade of the University of Liège (Belgium)
shows that some co-operatives in Africa are
dragging the burden of the old legacy of the state-intervention. Their
case-studies indicated that the ‘Tanzanian’ type of co-operatives were large
(over 50.000 members) and centralised, while the ‘Nicaraguan’ type were small
(averaging 2.000 members) and autonomous. The Nicaraguan co-operatives had a
clear advantage as for productivity and efficiency as well as, because of
their smaller size, a more outspoken visibility
of the fair-trade component. The already
mentioned IIED-study also uses Tanzania
as an example of suboptimal working of co-operatives (high operation costs,
delays in payments to farmers, expensiveness of domestic credit compared to
foreign capital) but blames this largely to the Ujamaa-legacy which is typical for the Tanzanian context. As
a result of the poor performance of Tanzanian co-operatives, coffee exporters
have since liberalisation started buying directly from farmers (IIED, 2000).
A comparative
study of three wine producing co-operatives in Chile showed that fair-trade is
only the first step in a long process to decent and stable living circumstances
for the workers of co-operatives. The main observation was that, due to their
different origin, their specific membership composition and their interplay
with other business partners, not every co-operative benefited in the same
way of the opportunities offered by fair-trade (Mori, 2003).
It should be
mentioned that apart from joining in co-operatives, alternatives do exist for
farmers to strengthen themselves against volatile or unfair prices. Contract farming, notably, is a system
where a central processing or exporting unit purchases the harvests of
independent farmers and the terms of the purchase are arranged in advance
through contracts. Still, this contract may be an agreement between unequal
parties and therefore co-operatives could be used to represent the farmers
collectively and support them at all stages of the production cycle (Stessens
et al., 2004).
In short, at
the producers’ end of fair-trade, co-operatives may come as an obvious choice.
But they are not per definition efficient and well-performing organisations and
they are not the only option either.
2.2.1 New ‘fair-trade co-operatives’
In the North, the involvement of co-operatives
in fair-trade is a less general feature and it is of a more varied nature. Co-operatives may assume the role of
fair-trade importers, retailers, promoters and even providers of technical
assistance. We give a non-limitative list of examples. We first look at some
co-operatives that have been created in the wake of the trade justice movement.
In 1999,
seven American roasters (including Café Campesino) decided to join the forces
and to form Co-operative Coffees, a
green coffee importing co-operative. Co-operative Coffees now comprises 17
community-based coffee roasters committed to support equitable and sustainable
trade. The coffee beans are imported from several South American co-operatives,
as well as from Ethiopia and
Timor.
Equal Exchange, a worker-owned co-operative was founded in
Massachussets as early as 1986 to create a fair approach to trade, informing
customers and offering them ‘gourmet’ coffee traded directly from small-scale
farmer co-operatives in the third world. They now promote and sell their
products (which also include chocolate) on-line.
In Canada, La
Siembra proudly claims to be Canada’s first fair-trade cocoa
co-operative and also explicitly aims to import from co-operatives.
In the UK, Out-of-this-World is a consumer
co-operative owned by 18.000 members and run by a small management team. It has
three shops in Newcastle, Nottingham and Cheltenham and a mail order catalogue. Each product
chosen must display a contribution to the following five ethical criteria:
healthy eating, community development, fair-trade, animal welfare and
environmental sustainability.
2.2.2 The Co-operative Movement jumps on the
bandwagon
The British
Co-operative Group heavily promotes fair-trade, e.g. under the recent slogan
‘Fair-trade coffee: what a difference a penny makes’. The Co-operative Group is
the largest consumer co-operative in the U.K. It employs over 75,000 people
and has more than 3,000 high street outlets. One of the businesses in the Group
is the Co-operative Bank, proclaiming an outright ethical policy. This includes
initiatives like the Customers-Who-Care campaign, wherein 1.25 pence for every £ 100,- transaction is spend to ethical issues, including fair-trade. Forthcoming
the Co-op Bank will co-launch (with the NGO Christian Aid) the Trade Justice
Campaign. In the UK, which
has the largest fair-trade market in Europe,
60% of fair-trade goods are sold in supermarkets (which to a large extent are
co-operative owned).
In
continental Europe, the Italian co-operative Legacoop (commonly known as COOP) claims
to be the first Italian chain of supermarkets to sell fair-trade products.
At the moment their range consists of 12 products: coffee, honey, cacao, tea,
fruit juices and a variety of balls for sport. Since 2003 these products have
been inserted into the co-operative brand products with their own line called
‘solidal’. This choice enlarges the current selection to 25 products compared
with the previous 12 with a relevant increase in product turnover. COOP is
a founder member of Transfair Italy,
the only certification authority in Italy for fair-trade products.
Fair-trade products come from Central America, South
America, Kenya, India, Pakistan
and Palestine.
Sales have been in constant increase since 1996. In 2002 they totalled
3,5 million Euro.
With its 10
co-operatives, Migros operates
Switserland’s largest retail store chain that includes over 580 sales outlets.
Apart from supermarkets and specialist stores, the Migros group also owns a
number of production and service companies (e.g. travel organisations). Migros,
with approximately 80,000 employees (and among the world’s 500 largest firms)
makes sustainability one of its trademarks. As a policy, Migros works together
with external partners such as the Clean Clothes Campaign for the safeguarding
of minimum social standards, WWF for the furtherance of environment-friendly
use of forests and the Max Havelaar Foundation for the support of fair-trade.
In Japan, the Seikatsu Consumers’ Club Co-op (SC), an
organization founded by ordinary housewives now manages an advance ordering and
joint buying system, serving over 230,000 households. One of their fundamental
principles is to abolish differentials and discrimination. Realising that
prosperity should not be based on sacrifices of other people, SC promotes and
encourages fair-trade.
2.2.3 Other ways of co-operative involvement in
fair-trade
Some
co-operative initiatives from the North regarding fair-trade are in assisting
production features and trade technicalities. U.S.
co-operatives (coordinated through OCDC) have technical assistance programmes
in Central-America, as well as other parts of the world, including East Timor where coffee co-operatives are the leading
employer, foreign exchange earner and rural health provider. With the support
of the National Co-operative Business Association (NCBA) since 1994, some
20,000 small-scale coffee growers in East Timor have
organised into 16 organic co-operatives and 493 producers groups to create
a national co-operative structure known as the Coopérativa Café Timor. In
September 2003, NCBA assisted Coopérativa Café in signing an agreement with
Starbucks to sell organically grown, fair-trade certified coffees to Australia and New Zealand under the brand of
Timor Lorosa’e (Weihe, 2005).
Because of
their market position and long-term experiences and networks, northern
co-operatives can indeed help southern fair-trade co-operatives to penetrate
new markets inside the fair-trade circuit, but also outside of it. The North
American Co-operative Business International (CBI), inc., for example, is a
market development company working together with some of the American
co-operative development agencies. CBI itself has offices in Indonesia, Nicaragua
and Russia
and trades in a variety of grains (corn, food-grade soybeans, coarse grains),
spices (vanilla, black pepper, cloves), speciality and high grade commercial
coffee and high quality home furnishing. CBI seeks benefits for everyone, from
the producer to the end user. Producers enjoy higher prices due to improved
system marketing efficiency as well as sharing the reward for the delivery of
consistent quality products to exacting specifications. CBI also assists
producers and exporters with their specific financial needs.
The Dutch Rabobank Foundation for some years works
together with the Green Development Foundation in supporting 122.000 coffee
growers in 7 Central-American countries. Rabobank gives support to the credit
divisions of the farmers’ co-operatives and participates in risk-bearing
capital and trade financing for the fair-trade networks.
While the
Rabobank does give financial backing to southern co-operatives, the National
Co-operative Bank in the U.S.A.
provides working capital to the North American Co-operative Coffee and Equal
Exchange so that they can buy in bulk and cover the gap in their costs from
shipment to consumer sales.
The
Canadian co-operative development agency Socodevi sees
its role as a broker and assists its partners in penetrating the fair-trade
market. But it also explicitly broadens the concept of fair-trade
by favouring co-operative to co-operative trade and North-South co-operative
joint ventures. In this way in 2003 it helped Ivorian cacao co-operatives to
sell 3 million tons of cacao on the international market through
interco-operative trade. In Guatemala Socodevi assisted in the creation of
a co-operative factory handling cabbage and leek. This co-operative is co-owned
by Guatemalan co-operatives (51%) and a Canadian co-operative retailer (49%).
Some Canadian co-operatives used the CIDA Industrial Co-operation Programme
(CIDA Inc.) to do feasibility studies on potential inter-co-operative trade.
Similar
business-twinning arrangements are stimulated by the Norwegian Norcoop. Consumer co-operatives of Honduras have business relations with Norwegian
consumer co-operatives and housing co-operatives in Guatemala are involved in joint
ventures with Norwegian housing co-operatives.
Co-operatives
could be a vehicle for fair-trade. In the South, the practice shows that
co-operatives are the most desired and clearly the most accountable and stable
kind of partner for fair-traders. A co-operative structure gives a farmer’s
association the advantages of institutionalised ownership, institutional
sustainability, a decision-making structure and socialisation of the fair-trade
premiums. If the co-operative becomes a part of a larger national or
international co-operative network, there is a greater chance to avoid the
so-called fair-trade trap, i.e. being dependent of just one Northern buyer
(Pirotte, 2005). Many southern producer co-operatives sell their products at
the same time on the international market, through the fair-trade network as
well as through traditional intermediaries. This plurality of outlets gives
them negotiation power and a competitive edge.
Co-operatives
can also help in penetrating the domestic markets that very often remain
untapped by the internationally oriented fair-trade circuits. The largest
Italian co-operative beekeeper’s consortium CONAPI, for example, owns different
brands that stand for quality, identity and innovation. Since 1998 CONAPI is
trading with apiarists in Mexico,
Guatemala and Nicaragua. In
1999 some 40 tons of fair-trade honey was traded by CONAPI. In 2004 this
amounted to 170 tons or some 6% of honey turnover of CONAPI. Concerned with
the limited access to the domestic and regional markets of the fair-trade products,
CONAPI established the ‘Association of International Co-operatives Sin
Fronteras’ with 15 co-operatives, 2 NGO’s and one ethical banker. The
association seeks for a maximum of added value in the producing country by
favouring treatment and packaging in the country itself.
There are
also some little exploited avenues for co-operatives to be involved in
fair-trade, or equitable trade for that matter. Agencies working on behalf of
the co-operative movement could provide their southern counterparts with
agricultural inputs (seed and fodder) or credit.
But it is
towards the northern consumer market that co-operatives may play a much bigger
role than they do now. They could widen the range of fair-trade products. Also,
they could serve as a positive challenge to both the Fair-trade Labelling
Organisations (who are sometimes criticized for imposing terms too severe
on fair-trade producers) as well as to the private ‘ethical’ traders who sail
on
the benefits of the prosperous fair-trade current without investing in it and
sharing its ‘burden’.
Knowledge gap
Very little comparative research has been done on the scope, operations
and impact of fair-trade and co-operatives in developing countries. We can
deduce the following major lessons from the existing case studies.
Fair-trade does create a lot of opportunities in terms of work and
revenue for small farmers and artisans.
Fair-trade helps local co-operatives to become more professional.
The just price is not always at the centre of the relationship in
fair-trade. Often fair-trade offers only a marginal bonus but makes the
business of the southern co-operatives and their members more viable because of
increased volumes.
Fair-trade is at the origin of many southern export organisations. They
do not have the monopoly for trading with the local co-operatives. Many
co-operatives trade with fair-trade and traditional traders simultaneously.
Local fair-trade organisations that are set up as co-operatives have
more institutional sustainability.
Co-operatives tend to have a pro-competitive effect because they often
interfere in an environment where monopolists or monopsonists control the
market.
Fair-trade is not an all-in-one solution for inefficiency, lack of
participation or moral hazard in local organisations and co-operatives.
Conversely,
fair-trade could be an opportunity of quite some proportion for co-operatives
and the co-operative movement. In her study Anna Milford (2004) compared two
kinds of support to Southern co-operatives: ‘traditional’ subsidies and
fair-trade. She wanted to know what the effect was of these support mechanisms
on the efficiency or inefficiency of co-operatives in the South. The inefficiency
of co-operatives appears fist through the ‘free rider’ phenomenon.
[i]
The members might leave the burden of management to the others. But inefficiency
also comes with a lack of incentives for co-operative management to improve its
performance. Thirdly, inefficiency appears when there is a lack of long-term
investments as members living close to poverty tend to prefer receiving any
sale surplus immediately rather than to make profitable investments. The key for well performing co-operatives is
thus active membership. It is found, however that financial support that often
comes in conjunction with technical and management support has the tendency to
increase the problem of free-riding and reduce the productivity of the
co-operative. The question is, therefore, whether this is also a problem in
fair-trade. Through a case-study of a co-operative in Chiapas, Mexico,
the author comes to the following tentative conclusions. (1°) The minimum price
guaranteed by fair-trade functions as a subsidy per unit sold. This makes the
fair-trade premium more market related and holds a self-correcting mechanism of
some sort. Still, if the management turns a blind eye to the co-operatives’
long term viability, risks of inefficiency, moral hazard and free riding remain
immanent. (2°) The cases studied did not show that co-operative members tend
to lean back and rely on the fair-trade premiums to guarantee them a decent
income for years to come. This may have to do with the selection of the
co-operatives (being ‘fair-trade-able’) or with the moral-boosting effect of
non-economic activities (credit schemes and political activities) launched by
the co-operative on the basis of the fair-trade financing. (3°) Apart from
these ‘efficiency’ questions, another effect of fair-trade was illustrated. The
oligopsonic cartels seem to become destabilized because of the increased level
of information among farmers. Also, the author advocates fair-trade if only
because it allows to support co-operatives from the consumers side in
situations where producers and consumers cannot communicate directly with each
other. Finally, she puts things in perspective as fair-trade alone cannot solve
the problem of falling international commodity prices and the effect this has
on the living standards in Third World
countries. She advocates that more research and involvement is needed
concerning co-operatives in developing countries.
Not
only co-operatives in the South can benefit from fair-trade. Fair-trade
can also
mean a lot to co-operatives in the North. Fair-trade is an excellent
opportunity for co-operatives in the North to get on the international market
in a way that is consistent with their own values and modes of operation. In
addition, fair-trade gives northern co-operatives an additional chance to take
up ‘co-operative social responsibility’. In this way they can show that the
co-operative sector is bound to go beyond traditional corporate social responsibility
because their fair and responsible trading is inherent to their mission, is
more than social marketing and is based on equal and long-term partnership.
Many northern co-operatives are presently trying to identify the distinctive
characteristics of modern co-operatives. Involvement in fair-trade is one
excellent opportunity to show that ethics is at the hart and core of
co-operative distinctiveness. In addition, fair-trade can help co-operatives
to
respond to the increasing demand for transparency, accountability and
traceability in the commodity chain.
Some research centres involved in
co-operative and fair-trade research
The Manchester
based Co-operative College (www.co-op.ac.uk
) offers in the first place a training curriculum on co-operative management.
The College is linked to the academic world and carries out case-studies on
best practices in co-operative participation. The college is also the leading
agency of the COSRAFT-project (Co-operation, Social Responsibility and
Fair-trade). COSRAFT looks at the variables that determine the involvement of
co-operatives in fair-trade in four European countries (U.K., Sweden,
Belgium and Italy).
One of the leading research units on fair-trade is the Colorado State University Fair-trade
Research Group (www.colostate.edu).
This team of academics basically focuses on producer co-operatives and
associations involved in fair-trade and their effectiveness in reducing poverty
in the third world.
The University of Quebec in Montreal
hosts the study network ‘C.R.I.S.E.S’
(which means Centre for Research on Social Innovations). Studies and working
papers by doctoral or post-doctoral students on all aspects of social economy
initiatives, including fair-trade belong to its core business.
In Belgium, the University of Liège
has a study team specialised in social change and development matters. In the
past, they have been carrying out studies on the Co-operative Movement and on
fair-trade. Likewise, the Leuven-based HIVA
Institute (www.hiva.be)
does have a track record in these subjects as well, producing an overview on
social economy in both the North and the South (Develtere and Fonteneau, 2001)
as well as a survey on the involvement of co-operatives in development
co-operation (Develtere and Pollet, 2004).
Some research centres on development co-operation have carried out
theoretical studies as well as impact studies on the economic and social significance
of fair-trade. We already mentioned the study of Anna Milford of the Norwegian Christian Michelsen Institute (www.cmi.no).
From the
above it is clear that the worlds of co-operatives and fair-trade are still
very separated but have much in common. They can mutually reinforce each other.
However, how can they do this when they work out separate agenda’s, when there
are little or no efforts to learn from each others successes and mistakes, when
there is even no systematic encounter between the two movements? We therefore
advance the following policy recommendations.
Fill the information gap
Co-operatives
and fair-trade organisations are action-driven institutions. They have gained
their respectable position in both Northern and Southern countries through
continuous and consistent social and economic engineering. Both movements are
convinced of the value of their work as well as their track record. The
involvement of millions of shareholders, members, clients and volunteers is an
indicator that there is societal support for what they do and achieve. However,
in the emerging information society legitimacy and public recognition does not
come solely with the value of what you do, but increasingly with the
evidence-based confirmation and good marketing of what you do. Co-operatives
and fair-trade organisations have to blend their action-processes with
information-processes. Knowledge generation and utilisation then becomes
extremely important. Both the co-operative and the fair-trade movement have to
come up with the scientific evidence that they make a difference for their
stakeholders (the shareholders, the poor, the clients) and have comparative
advantages over other kinds of organisations operating in the same kind of
environment and claiming to produce the same benefits (some NGOs, businesses,
…).
Create institutional bridges
The
co-operative movement and the fair-trade movement are still two worlds apart,
notwithstanding the many collaborative arrangements that we have discovered.
The representative bodies should create institutional bridges between the two
movements. This is a task for the international bodies such as the International
Co-operative Alliance and the Fair-trade Labelling Organisation, but also for
the national apex bodies of co-operatives and their fair-trade counterparts.
When establishing these contacts, the two movements will discover the
differences in organisational culture and modus operandi, but will probably
also discover that they have more in common than they thought.
Make a joint agenda
The
co-operative movement and the fair-trade sector face similar and sometimes
identical challenges. They both have, for example, a weak institutional
position and lack recognition by governments, international organisations and
the corporate sector. They both also need to justify their ‘alternative’
approach in an economic environment that fosters homogeneity and uniformity.
But they know that being different can pay off. The two movements can develop a
joint agenda to prepare and create a better position for both in both the
institutional and the market environment.
Recognise each other’s strengths and
contribution
Co-operatives,
we have seen, can benefit from fair-trade. Fair-trade can benefit from
co-operatives. Both movements have to get to know each other’s strengths. The
co-operatives can benefit from fair-trade because it gives privileged market
access for southern co-operatives and helps them in becoming efficient economic
actors. Northern co-operatives can also use fair-trade to advance in their
search for co-operative social responsibility. Co-operatives can also bring a
lot to the fair-trade sector: institutional stability and sound management for
southern fair-trade partners, access to northern markets, help in penetrating
the domestic markets, banking support, product development, new niches for the
fair-trade sector and even the mainstreaming of fair-trade.
Working apart together
The foregoing
is no plea for a merger between the two movements. As we have seen, the two
movements have different origins, raisons d’être, structures, operations and
cultures. They are two movements in their own right. Their respective
stakeholders demand different things from them. Both movements thus have to
keep on working out their own agenda. However, as will be clear by now, be helpful
for each other’s advancement.
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