Fair trade in times of crisis

Jiří Silný
The International Monetary Fund (IMF) expects 170 countries to suffer a reduction in per capita income this year as a result of the Covid-19 pandemic. The IMF has 189 members. By the end of April, 103 of them had already requested emergency support.
The most affected countries are of course those with the least resources to defend themselves against the effects of the crisis – the poor and indebted countries of the global South. The EURODAD network of civil society organizations shows that in 2018, a total of 46 indebted countries spent more money on debt service than on health care. Yet, in response to the pandemic, creditors still only offer a deferral of payments, instead of forgiving debts that are unpayable to the indebted poor countries and prevent them from effectively dealing with crises.

In the current crisis, many rich countries have shown both the unpreparedness to deal with a sudden crisis and the lack of solidarity, even within the European Union or the so-called Western World. Aid for economic recovery is also highly selective in individual countries, leaving aside most of the weakest and vulnerable.

All the more these states are reluctant to provide effective assistance to developing countries. Another EURODAD survey analyzes the amount of development cooperation funds provided by OECD countries: in 2019 it rose by 1.4 % in absolute terms compared to 2018, ammounting to $ 152.8 billion, but in relation to GDP average development aid spending fell from 0.31% to 0.30%.

Given the expected decline in GDP for virtually all donor countries this year, maintaining this ratio would mean a drop in aid of at least $ 14 billion. As early as in the 1970s, however, rich countries pledged to spend 0.7 % of GDP for development aid. So far, there is little hope that the UN's call for a $ 2.5 trillion development "Marshall Plan" in order to achieve the Sustainable Development Goals will be heard.
The current protests against police violence and racial discrimination also address the centuries of injustice, enslavement and exploitation of the people of the global South, on which Europe and North America have built their wealth. The reluctance or inability of politicians to address current and piled up social and economic problems, which the pandemic has ruthlessly revealed and which, combined with the ongoing environmental disaster, threaten the functioning of human society, provokes, in addition to protests, a wave of debates and policy initiatives promoting more sustainable ways of existence, such as Green New Deal, unconditional basic income, the concept of degrowth, food sovereignty or the solidarity economy and the like.

What fair trade brings

Most of these concepts are not new; they stem from the long experience of human coexistence, which the current predatory system seeks to correct. This struggle to constructively overcome the crisis should include efforts to preserve and develop what works and is threatened by the crisis. Undoubtedly, such favorable examples include fair trade.

The fair trade system is a trade partnership based on co-operation, dialogue and transparency. It imposes a number of rules on producers to comply with social and environmental standards. In return, it provides fixed purchase prices, guaranteed quantity of produce demanded, market access and, if necessary, advice and an operating loan.

In addition, the producers – usually members of a co-operative – receive a so-called premium – money intended for the development of their community. The fair trade system guarantees consumers that through their purchase they do not take part in undignified working conditions and the devastation of the environment in the places of origin of goods.

The beginnings of this solidarity-based economic system date back to the 1940s. It is developing successfully to this day. For example: In Germany alone, turnover in 2018 rose by 15 percent compared to the previous year, reaching a market share of 1 % with € 1.7 billion.

Fair trade gradually created two organizational forms. The World Fair Trade Organization (WFTO) brings together actors (producers, importers and retailers) who are exclusively involved in fair trade and at the same time act as social enterprises whose main interest is not to maximize profits but to expand fair trade, support the disadvantaged and protect nature.

In order to expand the availability of fair trade products, a system has been established since the 1990s that monitors compliance with fair trade standards and certifies producers, importers and products, and allows trademarked products to be distributed in the regular retail network. The system is backed by Fairtrade International and the independent certification organization Flocert. The described method brings large volumes of sales and allows to improve the situation for a larger number of producers, but it is accompanied by risks, which generally stem from the power of multinational retail chains.

Just before the Covid-19 pandemic broke out, the WFTO published the results of research conducted jointly by the universities of Cambridge, York and the Stockholm Environment Institute. The most important findings show that ninety-two percent of the fair trade companies surveyed reinvest all profits in the development of their mission, fifty-two percent of companies are run by women, they are four times less at risk of bankruptcy and eighty-five percent of them are economically sustainable, even though social and environmental goals are more important to them than profit.

Fair trade in crisis

After the outbreak of the economic crisis in 2008 - 2009, the resilience of solidarity-based companies and the fair trade system became apparent and helped most of them to overcome the crisis. The current threats are more serious. Every year, the effects of climate change are also more pronounced, such as extreme weather, droughts and floods, abnormal fluctuations during the production year, and plant diseases, which are particularly severe for small producers.

It is already clear that the number of people affected by extreme poverty will increase. More children will be forced to work to support their families. In West Africa, even before the crisis, an estimated two million children worked on cocoa plantations, although all the multinational companies that make money processing cocoa and chocolate boast about their social policies.

Since 2019, fair trade has again increased the guaranteed purchase prices of cocoa beans and the fair trade premium by twenty percent. But the expansion of the system depends on the size of the demand for fair trade products.

The current crisis is affecting fair trade producers in Asia, Africa and Latin America in a variety of ways. Quarantines and social isolation have disrupted the production of craft co-operatives and caused a shortage of workers in agriculture, in many places transport has been interrupted, sales are falling.

In response to the Covid-19 pandemic, Fairtrade International has set up funds to support affected producers with an initial contribution of € 3.1 million, to which national organizations and traders also contribute.

There were also problems at the other end of the solidarity system. Die Tageszeitung informs about the situation in Germany. Twenty-four percent of the eighty-two German fair trade importers have serious problems. Nine hundred specialized fair trade shops have been closed for several weeks and it remains to be seen how many of them will survive economically.

Most of them work with volunteers, but they have to pay rent and operating costs. Although they realize only 78 million of the above-mentioned turnover of 1.7 billion euros, they see their role as irreplaceable: “It is small producers who have a chance only in fair trade. In addition, the people working in these shops are also committed to a fair change in the economic system. Large food chains have no interest in that,” Steffen Weber from the umbrella association of fair trade stores told the newspaper.

What about us?

Much has changed since the first (and for ten years the only) fair trade shop One World was established in 1994. It is still open and run by the eponymous o.p.s. In 2004, other civic organizations (Ecumenical Academy, NaZemi - then under the name Society for Fair Trade) began to focus on fair trade, and then others that successfully informed the public about the concept of fair trade as part of development education projects and also focused on sales.

Later some entrepreneurs joined in and gradually established about ten specialized stores. In the meantime, however, most of the stone shops also disappeared - only the historically first One World shop and the shop of the Ecumenical Academy remained. The Fair Trade Centrum wholesale store, which supplies health food stores, has also survived, and a number of e-shops have been set up.

Thanks to the awareness-raising activities of civic organizations, demand has risen, which is increasingly being used by retail chains, which contribute to the dynamic growth in the turnover of some fair trade products. The promotion of fair trade was gradually taken over by the umbrella organization Fair Trade Czechia and Slovakia (FTČS), which is part of Fairtrade International and is financed from royalties associated with granting the fair trade trademark.

Because retail chains and multinational companies sell the most, the annual report, for example, only talks about them, as if there were no other distribution channels. The critical approach of fair trade, which, in addition to the direct support of specific producers, also seeks systemic economic change, as Steffan Weber mentioned above, is represented in the Czech Republic by only a handful of small organizations that are currently at risk.

The Ecumenical Academy has been one of the pioneers of education and promotion of fair trade in our country since 2004, and it has also been involved in trade - it has been running a shop in Prague for ten years. The current model with one paid position of store manager and two part-time jobs for people with disabilities (in co-operation with Green Doors clients) had to be re-evaluated due to a loss of income during the epidemic. The two sheltered places remain, and the rest of the shortened sales time is currently covered by volunteers.

The Fair & Bio co-operative operates a fair-trade coffee roasting house, which works as a social enterprise - it employs people with disabilities and reinvests the profit in the development of the enterprise. After several years of slow but steady development of a unique project, the current crisis meant a sharp drop in turnover, as the majority of customers are cafés and corporate offices, which were closed for many weeks. Currently, the roastery provides work for nine people with disabilities and job retention depends on how quickly it is possible to resume coffee sales to a sufficient extent.

Fair trade is a unique long-term and successful experiment that shows how a socially, economically and ecologically sustainable economy can work. Especially in the form represented by the WFTO it is based on co-operation, not on competition, where the winner takes everything. It is based on a cost-and-profit-sharing agreement between producers, traders and consumers. It is based on a long-term partnership, personal experience and testimonials: many products also bear the faces of those who made them.

A sustainable economy also pays attention to non-economic factors, such as a healthy environment, democratic business organization or women's equality. Fair trade deserves support in difficult times because it shows what the economy of the future could and should look like.
Czech version of this article was published in online daily Deník Referendum, (https://denikreferendum.cz) on June 22nd 2020: https://denikreferendum.cz/clanek/31357-fair-trade-v-dobe-krize
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