Today Economies of Fair Trade

Social justice? Does promoting social justice in the supply chain undermine the long-term prospects of the poor producers? - Pushing prices upwards are not beneficial to long-term economic development - Prices are manipulated by: - Agreement of above market minimums - Efforts to pay more by fair trade intermediaries.

Need for change? - Fair trade works primarily with agricultural commodities - Real value is declining - Does extending agricultural production increase/decrease the problem? Why? - Southern economies need to diversify from lower to higher value economic exports - People in the North should facilitate this change, rather than promote fair trade

To meet the challenges Going from producing low value to high value quickly – Difficult to change from producing coffee to making automobiles. – Need to make incremental changes Need to increase returns from current products; Create products of higher value What can be done? 1. improve quality and efficiency – better oranges for less\ 2. process raw goods at source – make apples into juice; roast coffee beans 3. shift to higher value goods – from bananas to avocadoes

Making change -Low earnings and poverty are ‘push’ incentives; other livelihoods are a ‘pull’ incentive. While prices for avocadoes are known in North supermarkets are higher than coffee; this will not be known by producers. Even if it was known, there is no guarantee that producers have an opening to export avocadoes as distribution channels tend to be strongly historically conditioned. What can be done?

Making change - Moving from the production of raw coffee beans to roasting, farmers need both financial capital and knowledge. - Unfortunately they do not have resources at hand and is unlikely that they can get a bank loan and the necessary training at the local agricultural college - these services are part of the condition of working within an area of low economic capability. - What can be done?

Making Change -Risks of the change -The price for any product is only realized when it can be sold. -In the developing world new investments are risky -natural (landslides and droughts) and human (political and economic volatility) disasters which bring great probability of failure. - producers will not assume that they will be effective in new livelihoods - there is a time lag between diversification into a new product and economic remuneration for its sale. -developing world producers are renowned for being conservative in their investment decisions as they accept lower remuneration for greater stability. -diversification that takes place by entrepreneurs in developing countries is primarily concerned with risk reduction and not capital accumulation. - Is fair trade the best way for this situation?

Summary -Fair trade has potential to improve the welfare of producers in developing countries, -Positive impact on producers’ prices and income, -Importance of limited market access and changes in productivity -Fair Trade does not necessarily encourage producers to change production practices to improve productivity and thus revenues -What are the takeaway points from today. -What are the the strengths and shortcomings of Fair Trade as an economic model.