A Just Blend for Producers and Consumers - The Fair Trade Labelling Scheme

This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
December, 1996
(Source: Coop Dialogue, Vol.4, No.4, May-Dec., pp 15-17)

A Just Blend for Producers and Consumers
The Fair Trade Labelling Scheme
of TransFair International
Dr. Martin Kunz
General Secretary, TransFair International

In 1968, a  part of  Ambootia Tea Estate in Darjeeling crashed into
 the valley below, constituting the biggest landslide in the Himalayas
 and all of  South Asia.

In 1995, the first Fair trade premiums reached Ambootia T.E. "The 
Joint Action Committee at the garden decided that the most important 
point for the existence of the plantation was the stability of the landslide.
 You can imagine every morning a worker getting up and seeing this calamity 
and feeling insecure about himself and his future generations, because if this 
landslide is not checked it could wipe out the entire area of Ambootia T.E. 
and make all the residents of about   4,800 homeless, jobless, and that is the
 worst kind of fear a human being can have."

Fair Trade as a concept is about as old as the landslide in Ambootia T.E. 
Yet is has taken until 1995 for `Fair Trade to meet the landslide', so to say.

Early Days
Fair Trade (or, as it was originally called `Alternative Trade') is a concept 
which originated in the Netherlands in the 1960s. People there realized 
that structural injustice dominated international trading patterns to a large
 extent: The terms of trade are highly disadvantageous for producers of
 commodities like coffee and tea, who get less and less in real terms for 
their products, whereas industrial products become every more expensive,
 a major root cause of the international debt crisis. Right from the start, 
it has been the aim of Alternative Trade to address this in just structure 
and try to provide a better deal to disadvantaged producers in so-called 
'Third World Countries'.

Nowadays, there are Alternative Trading Organizations (ATOs) active
 in most Northern consumer markets. Typical for all of them is that
 they trade themselves, purchasing as directly as possible from (mostly) 
small producer groups, dealing in consumer items (tea, coffee, spices,..) 
as well as in handicrafts, and selling mostly to specialized Third World
 Shops and/or via catalogues. Recently, often in parallel with the emergence
 of Fair trade labelling, ATOs have also been branching into regular
 retail outlets and into the health food market. Combining all marketing 
channels, the biggest ATO (GEPA in Germany) last year posted an annual
 turnover of DM 55 Million. The physical limitations of this `classical' 
alternative trade were brought into painful focus, when in 1989 the 
International Coffee Agreement collapsed. This resulted in immense 
pressure from producers, who were looking for more sales opportunities 
at Fair prices instead of the world market prices, which after 1989 at times
 were as low as half the cost of production). 

Fortunately, at the same time ethical awareness among a segment of 
consumers was growing, which had its roots in health and environmental
 concerns, but which at the turn of the decade also related to the conditions 
under which a certain product was produced, too.

From Niche Market to Mainstream
Again it was the Netherlands which took the lead  in developing an
 imaginative solution. In order to increase Fair Trade, it was obviously
 necessary to sell via regular retail outlets, and to get conventional traders
 to participate. So instead of trading itself, the Duth Max Havelaar
 Foundation basically standardised the Fair Trade coffee criteria of
 the Atoms, offered these criteria by means of a licence contract to 
all traders who were interested, and in turn permitted them to use 
their seal. The seal itself was and is (like all others after it) supported 
by a wide base of non-government organizations active in development
 work, environment, consumer affairs, trade union activities, women's
 and youth organizations.

Once motivated for Fair Trade, it becomes a powerful lobby for 
disadvantaged producers. And when supported by media and interested
 traders, the idea turns into impressive figures.

Going International
In 1992, TransFair international was founded to promote the international 
spree  of Fair trade marking in general, and the use of the TransFair seal in 
particular. The international association  now has national member associations
 in Germany, Austria, Luxembourg, Japan and Italy (all already active in
 labelling), as well as Canada and the USA (at present preparing their 
market launch). Other Fair trade mark initiatives exist in the Netherlands,
 Belgium, France, Switzerland, Denmark, and the U.K. Products being
 labelled at present include coffee, tea, cocoa, sugar (i.e. chocolate), 
and honey.

How does it work?
For every product under a label, there are basic `criteria pillars', 
which are adapted to fit the specific situation of each product 

The first criteria is a specification of the (organizational) 
type of disadvantaged producers which can be accepted as partners in
 Fair Trade of a particular product. One reason for this is obviously
 practical: Fair Trade will never be able to cover all disadvantaged
 producers of a certain product. However, even more importantly, t
here is the need to ensure that the primary producers which actually 
produce a particular product are organized in such a way, that ideally 
all of them can at least participate in all decisions related to the use of 
any extra benefits (premiums) that might result from Fair Trade. In tea, 
this is why TransFair insists in every co-operating garden on the installation
 of a Joint Body, i.e. a committee in which representatives of the majority
 of the workers' decide together with representatives on how to spend any
 extra benefits of Fair Trade. Thus co-operation is a pre-condition for 
successful participation in FairTrade, but in any case no decision can
 be taken against the workers' representatives, and no schemes can be 
approved which would pay for tasks which are statutorily to be provided 
by management.

	All producers complying with these criteria are listed in a
 `producer register'.

A Fair Price: The Fair price consists of two components: It has to
cover as a minimum the Cost of  Production (COP) of the producers,
 and on top of that there has to be a margin or premium, which is meant
 to give the producer some freedom for `investment in to the future'.
 However, and in line with the first criteria, it is a cardinal principle 
of Fair Trade never to prescribe what the producers have to spend the 
extra money on.  It is money which the producers have earned, so it is 
their right to decide. Fair Trade just tries to make sure that those involved 
in the production decide together.

In line with the overall aim to help improve the living and working 
conditions of the producers, Fair Trade also tries to encourage sustainable 
production methods, which is why for all certified organic products extra
 premiums have to be paid (on top of the Fair Trade bonus). 

In the tea, the COP Rule is applied in the following way: Importers have
 to register all Fair Trade imports with TransFair international, 
specifying compliment with the trading criteria. The information 
provided by the importer is passed back for confirmation to the producer 
in question. One item asks: " The buyer has informed us that the price 
quoted by you)". If it comes to light that the buyer has put pressure on the 
producer in order to get a bargain price, his authority to act as a TransFair 
approved trader might be cancelled. On the other hand, once the producer
 confirms that a COP-price has been paid, it increases the pressure on him
 to meet all statutory requirements (something which at the time of loss
 making naturally does not always happen). On top of this COP-related 
market price, the importer has to pay an additional Fair Trade premium 
of DM 2.50/kg (irrespective of the type of tea purchased). For tea
 marketed as `certified organic', the premium is DM 3/kg. For 
monitoring purposes these premiums have to be paid into separate
 accounts at the garden level.

Lastly: TransFair forfeits 1/3 of its licence fee in all cases where
 packing takes place in the country of origin. This, of course, is in
 line with trying to promote a higher level of value addition in the 
countries of origin.

The other two basic criteria relate to areas which are usually 
not critical in tea-trading, so it suffices to just briefly mention
 them: One concerns a provision for (partial) advance payment, 
so that producers may not fall into debt until sales can be realized, 
and the other aims to promote longer term trading relationships, so
 that producers will have some planning security.

Trust is good, Monitoring is better
The value of criteria depends totally on the strictness with which 
they are being monitored. In the buying countries TransFair makes
 use of one of the most respected legal companies for all contracts
 and court-related work. In the producer countries TransFair has right 
from the beginning taken on highly qualified local consultants, who
 check out new applicants who are in charge of the ongoing monitoring
 of the decision making processes (Joint Bodies) and the use of Fair
 Trade premiums.

The First Year
Exactly one year after the launch, on December 6th, 1995, TransFair-Germany 
organized a press conference in the press club in Bonn to provide figures and
 background information for the first year of tea had been registered TransFair-label:
 Within  twelve months, 401 tons of tea had been registered with TransFair 
InternationaL, as having been imported under Fair Trade criteria.

These quantities were supplied by 32 `approved sources' (mostly tea estates) in 
Darjeeling (12), Assam (4), South India (3), Sri Lanka (7), Nepal (1), Tanzania
 (3), Zimbabwe (2). When tea labelling started, the register had consisted of 
15 sources. Expansion was the result both of producers approaching TransFair 
on their own, as well as of interested traders suggesting traditional suppliers for 
inspection and inscription. TransFair has refrained from actively canvassing for
 additional producer groups, since it aims to keep a reasonable balance between 
the numbers of suppliers and the opportunities for Fair Trade. In other words:
 Only if further consumer markets start to Fair Trade labelling of tea, will it 
make sense to expand the register much beyond its present size.

Just under 50% of the Fair Trade imports so far were also certified by organic 
inspection agencies (foremost amongst the producers: Makaibari T.E. in 
Darjeeling and Stassen's Indulgashinna in Sri Lanka). In other words:
 Tea Traders using the TransFair-seal were quick to spot the tremendous 
marketing advantage of selling a product which is both environmentally 
and socially sound.

Quite early on in the history of Fair Trade labelling, the manager of a 
German supermarket had encouraged his colleagues at a conference in 
Paris to participate in Fair Trade: Labelled products might not turn as 
fast as loss leaders, but they provide a Fair share for retailers, too. The 
retail figures for TransFair - Germany bear him out: 23 authorised 
importers and 33 licensed packers (including the two market leaders, 
as well as most of the speciality trade) have signed contracts with TransFair.
 Out of the total registered imports, 170 tons of tea have already been sold 
under the(TransFair label, a quantity which equals more than 2% of all
 black tea consumed in German households.

From Sportsday to Pension Funds: First Fair trade premium results
The 401 tons imported under Fair trade also stand for DM 1.1 Million
 in Fair Trade premiums paid to the producers. As explained above, the 
only ones authorised to decide on how this money will be spent are the
 Joint Bodies of the gardens which supplied the tea. And as was to be 
expected, a new scheme like TransFair had to overcome quite a number 
of obstacles, both technically as well as psychologically. To give an 
example: it came as no surprise, that most of the projects approved 
by Joint Bodies in the first year were suggested by managers, although 
the TransFair monitoring system makes sure that no decision is taken
 against the interest of the workers' representatives. It also makes sure 
that the Fair Trade premium is not spent on schemes which would subsidise
 statutory obligations of the garden owners (which is why housing projects
 were not permitted in Sri Lanka). Even so, the range of schemes undertaken
 or started is quite impressive in range and imagination: A number of 
projects focus on alternative training opportunities (computer education 
in the gardens), or employment for unemployed youth (vegetable growing
 under glass; orchid growing). For the age group below stipends are
 provided. A pioneering idea is the pension fund, which will provide
 a reliable additional income for retired workers (who increasingly 
can no longer expect to be taken care of by joint families, since these
 are often falling apart). In this particular garden, workers and 
management have decided to save up the Fair Trade premium until
 early 1997, when the fund (which is the first of its kind in the plantation
 sector) will become operational.

Not all gardens have received premiums large enough to even contemplate
 such far-reaching concepts. Smaller benefits have paid for musical 
instruments for workers' clubs, or a sports and cultural day for the
 whole garden (with the management paying the wages) - the first
 such event after almost 30 years!.

Other options include improvements over statutory requirements, 
like providing for specialized medical treatment, or speeding up the 
provision of electricity to villages. And there are some social 
afforestation projects going on, which provide not only additional 
income for the workers, but also a healthy environment for all 
those who live and work in that garden.

Physically the biggest scheme is to use TransFair money in the
 long overdue attempt to arrest landslide in Ambootia, the 
biggest in South Asia, and a threat to the health of the garden
 and the future of the workers. And while, looking back after 
just one year, the TransFair scheme has not exactly taken on
 landslide proportions yet, it has nevertheless developed faster 
and stronger than expected.