Fair Trade USA - A Case Study in Alternative Business Practices
The pandemic has unveiled the fragile nature of our increasingly globalized world. Many of the goods we consume have long and complex supply chains, with products traveling across borders and touching many hands before they reach their final destination in our stores. As consumers, we are so disconnected from the people and processes that are required to create the products we consume, that we do not understand the implications of this fragile and unequal system. For example, farmworkers around the world cultivate and provide food for the global population, however over a third of farmworkers live in poverty. COVID 19 has exacerbated these conditions, highlighting the need for systemic change.
There have been few transformative business models in this space, but Fair Trade sourcing is one approach that has shown a proven positive impact for both people and the planet. Fair Trade is a global movement that fights for justice for workers across the world by building equitable trading relationships. Founded in 1988, Fair Trade USA began certifying coffee beans from a cooperative farm in Nicaragua. Now they certify products and ingredients across many industries, including both food and manufactured goods. Products with the fair trade seal meet rigorous standards including safe working conditions, environmental protection, sustainable livelihoods, and community development funds. Fair Trade USA is a nonprofit within this global movement and they are the leading certifier of products in North America.
Image by Fair Trade USA
The basic premise of the fair trade model is that products are bought and sold at a fair minimum base price. This protects farmers from market volatility and ensures that the cost of producing the goods is covered. Additionally, the buyers of these products pay a premium fee on top of the base price that goes directly into a community development fund. This fund is managed by the community of producers and can be used in any way they see fit. Examples can include building schools, providing access to clean drinking water, better equipment, etc. What sets this apart from traditional aid-based solutions is that in this case, the recipients of this money have the agency to determine where it can be best used for their circumstances. Lastly, fair trade sourcing aims to remove as many middlemen as possible from the trade by having the purchase transaction be as close from sellers to buyers as possible.
According to Fair Trade USA, last year they empowered more than 975,000 farmers and workers in 62 countries across Africa, Asia, Oceania, Latin America, and the Caribbean to reach better terms with their trading partners. These programs have resulted in more resilient, reliable supply chains that have drawn more than 1,400 ethically-minded businesses to partner with Fair Trade USA. As a result, workers have earned more than $740 million from the sale of Fair Trade Certified products since 1999, with over $550 million going towards Community Development Funds. There is no denying the distribution of capital across the value chain in this business model is a vast improvement over traditional for-profit models.
Image by Fair Trade USA
One advantage that Fair Trade USA noticed over the two decades of operation as opposed to traditional business models is that companies are beginning to see the value not just in the consumer-facing marketing with having Fair Trade certified products, but also the value of the long-term sustainability and security of their supply chains. As climate change becomes more of an impending threat on resources and the disruptions to labor caused by horrible working conditions become more apparent in global supply chains, corporations are looking for meaningful solutions that tackle these issues immediately within their supply chains. Fair Trade USA can provide more tangible results than other certifying bodies.
Pushing for more progressive and alternative business practices such as Fair Trade can create a more equitable and resilient supply chain. With the disruptions and delays that we’ve seen recently with COVID, there is an opportunity for businesses to reevaluate their supply chain and opt for the Fair Trade model. While this may not immediately solve the current challenges, it may bolster resiliency in the future.
However, Fair Trade USA faces a challenge. This model does not tackle the root causes of the inequitable and unsustainable system that we operate within. Additionally, despite their impacts, Fair Trade USA only certifies a minuscule portion of brands and products in the marketplace. It is true that scaling is a potential opportunity to increase the positive impacts of their business model. There has been a significant increase in consumer awareness of the Fair Trade model over recent years, however, there is still a huge opportunity to expand consumer education about the benefits of this model. Brands are becoming increasingly receptive to consumer feedback regarding sustainability, recognizing the value of investing in better, more sustainable practices. Investors are becoming increasingly interested in understanding Environmental & Social Governance and Corporate Social Responsibility, and therefore want to see meaningful impact created by companies they invest in. While Fair Trade models may not get at solving the root causes of the issues that plague our society, Fair Trade models can provide a significant step in the right direction when working for a more just, equitable, and sustainable future.
Sources:
Walske, J., Tyson, L. (2015). Fair Trade USA: Scaling for Impact. B5836.
Fair Trade Impact - Impact of Fair Trade. (n.d.). Fair Trade Certified. Retrieved February 22, 2022, from https://www.fairtradecertified.org/why-fair-trade/our-impact
Why Fair Trade - Why Buy Fair Trade. (n.d.). Fair Trade Certified. Retrieved February 22, 2022, from https://www.fairtradecertified.org/why-fair-trade