Fair Trade Definition - What It Means and Why It Matters

During the previous decade, a growing number of shoppers elected to pay a premium for products labeled as fair trade. They did so with the expectation that the premium they paid would help to alleviate poverty caused by inequitable trade practices among the developing and developed worlds. While enthusiasm is growing, the precise definition of fair trade is not always understood. "Fair Trade" or "fairtrade" can be considered to be both a brand and a set of ideas.

As a brand, a fair trade certification tells the consumer that a product has been created in ways that follow fair trade requirements. To gain certification, producers must be compensated at an equitable price. Consumers depend on third-party organizations to evaluate how an item is brought to market and give it a stamp of approval. There are numerous certifying bodies that define what it means for a product to receive the brand. Each organization that defines and tracks trade practices has a different concentration and emphasis. Some common ideas that are shared include:

    Payment of fair rates and credit terms
    Good working conditions
    Non-discrimination policies
    Assistance for community development
    Environmental sustainability

Disadvantaged farmers and workers are frequently trapped in a cycle of poverty because they cannot receive an adequate price for the products they create. An essential component of fair trade arrangements is a program where a certifying organization will set a guaranteed minimum price for a product. If the market price is greater, the producer will be paid at the market price. An additional premium is often offered for organic merchandise. In many situations, the definition of a fair price is agreed upon by the producers themselves within the context of their own communities. Producers might also be provided with credit on favorable terms including pre-payment for a portion of the expected sales of their items.

The imbalance of power between the developed world and the developing countries where consumer goods are produced, often causes predatory labor practices. Fair trade advocacy groups consider forced child labor and slave labor to be unacceptable, irrespective of cultural norms. Certified merchandise must also be made in compliance with any local and national labor laws.

Providers of fair trade products may not discriminate in hiring according to gender, health status, ethnicity, religion, union membership, political views, or age. It is understood that some cultures may well tolerate attitudes that consumers in developed nations would find to be discriminatory. The challenge is to find approaches to overcome discrimination without becoming perceived as paternalistic toward the local culture.

Emphasis is placed on building self-sufficiency in areas where communities have traditionally been isolated. Producers are encouraged to invest their profits in projects that benefit their local communities such as schools, health clinics, or scholarships. Producers typically create cooperatives or other democratically structured associations to pool resources and decide how to invest the rewards of the extra sales and premiums they earn.

Additionally, producers are evaluated on their supply of raw materials, energy consumption, use of agricultural pesticides, and treatment of waste. The goal is to build a supply chain which is sustainable both economically and environmentally. The premium paid for organic items supports the aim of environmental sustainability. The challenge in this should be to avoid putting burdens on disadvantaged producers that exceed those adhered to by industrialized nations.

Critics point out that fair trade is not a substitute for political, financial, and trade reforms at an international level. Nevertheless, ethical buying and fair trade systems can encourage meaningful changes for disadvantaged producers while also generating awareness of the challenges they face. By purchasing products that make trade more fair, buyers can help raise expectations for politicians and policy makers to change trade practices that trap societies in poverty.