FAIR TRADE

A viable alternative for small farmers

Antecedents of the Fair Trade Labelling Initiatives of FLO-International

The main cause of underdevelopment can be found in the existing world trade practices. For survival and development most developing countries depend on the exportation of raw materials. And while the prices of these raw materials on the world market are systematically decreasing, the prices of the goods these countries import from the industrialized countries are going up. Besides world market prices are highly unstable and, in the case of coffee and cocoa for example, for years prices reached historical depths, which did not even allow producers to cover their production costs. The principal victims of these price falls are the producers, and especially hundreds of thousands of small producers, who lack the capital to survive economically and for whom the consequence are even worse, since they don't have direct access to the market, but depend on intermediaries for the commercialization of their products.

Conscious of this unfair and unequal situation, the Fair Trade Labelling initiatives have looked for ways to contribute to the solution of these problems, since every producer needs and has the right to certain income guarantees, permitting an equilibrated agricultural and social development. Not on the basis of donations, but giving them the instruments they need to take their development into their own hands and live a life of dignity, as independent producers, just as some organizations of small producers from Latin America pointed out to us mid eighties. And this is how in 1988 in the Netherlands the Max Havelaar initiative came to existence, followed by Belgium two years after and by Switzerland in March 1992. In the same year a somewhat different concept was launched under the name of Cafédirect in the United Kingdom where the Fairtrade Foundation is the labelling initiative. In Germany, at the beginning of 1993, TransFair started its campaign under the umbrella of TransFair International, a joint structure of TransFair Germany and the European Alternative Trade Organization EFTA. Since then national TransFair Labelling initiatives were founded in Austria, Luxembourg, Italy, Japan, Canada and USA. Max Havelaar Denmark was founded in 1994 and Max Havelaar France officially joined in 1996. The swedish inititiative Rätvisenmärkt introduced their label in 1997. This is also the year that the new umbrella organization FLO-International - FairTrade Labelling Organizations International came into existance. From that moment on the Labelling Initiatives work together for the improvement of the situation of unequal distribution of wealth between North and South.

The Fair Trade Labels

Many consumers in the industrialized countries are aware that in this world wealth is distributed very unequally, and that the products that are being offered to them are much too cheap to possibly guarantee the producers in the developing countries a decent living. They would like to contribute their piece in order to change this situation, making it fairer, but they just don't know how. Since many years the socalled Alternative Trade Organizations have dedicated themselves to close the gap between producers in the developing countries and consumers in the industrialized countries, on the basis of understanding and mutual respect, and on the basis of justice. The Fair Trade Labelling Initiatives have added a new dimension to this experience of Alternative Trade, parting from the following principles:

To be effective, alternative trade should procure that all the consumers actually have optimal access to the promoted products. This means in practice that Alternative Trade can only be a real alternative when the products are available in every supermarket, in every grocery store, at every street corner, there where the average consumer usually is doing his/her shopping, and not only in special Third World shops through which the Alternative Trade products are sold. Actually, Alternative Trade should develop into 'normal' trade. The European Alternative Trade movement is increasingly successful in pursuing this objective.

We are convinced that it is of the interest of all sectors of society that new, effective models are being implemented to close the global gap between rich and poor, not on the basis of charity but on the basis of equal exchange in dignity. In fact, the interests of the producers in the Third World coincide with the long term interests of consumers, trade, industry and governments in these countries. Especially, we are convinced that, in the case of coffee, commercial coffee traders, coffee roasters, wholesalers and supermarket chains can and should play a crucial role, on the basis of converging interests. Our experience over the last years has proven that we were correct.

Finally, for a lasting success of our common objectives, it is of crucial importance to fight all the prevailing prejudices related to Alternative Trade. Small farmers coffee is excellent coffee; small farmers are highly reliable trading partners; commercial coffee roasters and coffee traders are not necessarily exploiters. A lot of attention should be paid to build up a public image of Alternative Trade and Fair Trade Labelling, of quality and reliability.

On the basis of this analysis, it was decided not to develop proper institutional capacity for those activities for which this capacity is already available. As long as the producers are not in the position to take care of this part of the production process themselves, the role of every participant in the chain between producers and consumers should be respected: coffee roasters know best how to make a quality blend; wholesalers and supermarkets are the most indicated organizations to be take care of the distribution, and coffee importers can continue in their traditional role. All of them will act on the basis of commercially reasonable - not excessive! - margins. In this way, everybody will be working towards a common goal: to sell the largest volume of coffee possible of small coffee farmers at a fair price: fair for the producers and fair for the consumers. The best way to be able to realize all this was through the creation of a Label, leaving all the logistical and financial problems related to the commercialization, processing, distribution and sales to the direct responsibility of the importers, roasters and distributors involved in the Fair Trade market. A Label which can be found on every pack of coffee sold as Fair Trade coffee, guaranteeing the consumer that the price they pay for this coffee is a fairer price, which gets where it should get: directly to the producers.

The conditions roasters have to comply with to be an authorized user one of the Fair Trade Labels

Any coffee roaster that complies with the next conditions can apply for the right to use of one of the Fair Trade Labels of FLO-International

All green coffee processed to be sold with a Fair Trade Label must be purchased directly from organizations of small coffee producers inscribed in the FLO-International Coffee Producers' Register

The purchasing price must have been fixed in accordance with the conditions established for this effect by FLO-International, of which the following are the most significant⁽¹⁾:

For Arabicas the New York "C" market shall be the basis of calculation. The price shall be established in US$-cents per pound, plus or minus the prevailing differential for the relevant quality, basis F.O.B. origin, net shipped weight.

For Robustas, the London "LCE" market shall be the basis of calculation. The price shall be established in US-dollars per metric tonne, plus or minus the prevailing differential for the relevant quality, basis F.O.B. origin, net shipped weight.

Over the established prices, there shall be a fixed premium of 5 US$-cents per pound.,

For certified organic or biological coffee with officially recognized certification, that will be sold as such, an additional premium of 15 US$-cents per pound green coffee will be due, on top of the FLO-International price.

*Guaranteed minimum prices have been defined, differentiated according to the type and origin of the coffee. The next minimum prices, including quality differentials, the fixed FLO-International premium of 5 US$-cents per pound and the organic premium of 15 US$-cents per pound, apply: (all prices in US$-cents per pound F.O.B. port of origin)

The roaster/buyer is obliged to facilitate the coffee producers access to credit-facilities at the beginning of the harvest season, up to 60% of the value of the contracted coffee at Fair Trade conditions, at regular international interest rates. The credit will be cancelled upon shipment of the coffee

Producers and roasters/buyers depend on reliability and continuity. For that reason, relations between both should be based on long term contracts (1 to 10 years)

The coffee roasters have to accept and facilitate external control on the compliance with these conditions.

1.     For more details, see "FLO-International Conditions for the Purchase of Coffee"

The role of the Fair Trade Initiatives and FLO-International

The main responsibilities of the Fair Trade Initiatives and FLO-International in this framework are:

Promote the sales and the consumption of the coffees with a Fair Trade Label;

Inform and mobilize the consumers and guarantee that the Fair Trade Label represents what we say it represents

Identify the producer groups for the FLO-International Coffee Producers' Register, maintain the communication with them and accompany them in their development process to the extend possible

Carry out the verification and control on the roasters that sell their coffee with a Fair Trade Label, in order to protect the interests of consumers and producers

The producer organizations that participate in the framework of FLO-International

The organizations of small coffee producers that participate in the framework of Fair Trade meet the following criteria:

the majority of the members of the organization are small scale producers of coffee. By small producers are understood those that are not structurally dependent on hired labour, managing their farm mainly with their own and their family's labour-force;

the organization is independent and democratically controlled by its members. This means that the members of the organizations participate in the decision-making process which determines the general strategy of their organization, including decisions related to the destiny of the additional resources which result from operations in the framework of this agreement;

administrative transparency and effective control by the members and its Board over the management is secured, minimizing the risk of fraud and offering members the necessary instruments to be able to act adequately in case of fraud;

the philosophy motivating the organization is based on the concept and practice of solidarity;

no form of political, racial, religious or sexual discrimination is practiced;

the organization is statutarily open to new members;

the organization is politically independent, and there are sufficient guarantees that the organization will not become the instrument of any political party or interest;

the organization shares with the FLO-International and with the other organizations inscribed in the Producers' Register the following principles and general objectives:

integral economic development, concentrating on improvement of production techniques and diversification of the production, in order to diminish dependency on one single product as a cash crop;

integral organizational development, improving the managerial and administrative capacity of the actual and future leadership of the organization and ensuring full participation of the members in the definition of strategies and the use of extra income resulting from fair trade;

integral social development, for instance through health care and educational programmes, improvement of housing and water supply, thus creating better living conditions for the members and their families and the communities they live in;

sustainable development strategies, applying production techniques which respect the specific ecosystems and contribute to the conservation and a sustainable use of natural resources, in order to avoid as much as possible - or even totally - the use of chemical inputs;

integral human participation, offering especially women the opportunity to play a more active role in the development process and in the decision making process and management of the organization;

improvement of the quality of the products as a strategic requirement for the small producers to defend themselves on both the Fair Trade Market and the regular market.

Logically, it is necessary that the quality of the coffee offered for exportation complies with the minimum quality standards as required by the different markets, and the organization must count with the management capacity to effectively export the coffee and act as a reliable commercial partner.

The FLO-International Coffee Producers' Register

Any organization of small coffee farmers that complies with the above mentioned criteria, can apply for inscription in the FLO-International Coffee Producers' Register, shared by all the Labelling initiatives members of FLO-International. The central administration of the Coffee Producers' Register is in hands of Max Havelaar Netherlands, responsible for the co-ordination of all activities related to the Coffee Producers' Register. In order to improve the communication with and the accompaniment of the producer organizations inscribed in the Register, it was decided to share the responsibilities between the differentFLO-International initiatives (see enclosed list).

The procedure for application for inscription in the Register is as follows:

the applying organization directs its request for inscription to the initiative responsible for the contacts with the country or region it belongs to, or to the Co-ordinator of the Register, i.e. the Max Havelaar Foundation Netherlands;

relevant information and a questionnaire will be sent to the applying organization, on the basis of which the most elementary information on the organization is collected;

you are requested to send a sample of one pound (half a kilo) of the coffee you want to export;

if the first evaluation of the information received is positive, the organization will be visited in order to get to know each other better;

the information received and the result of the visit will be presented to the FLO-International Register Committee (FLO-CR), who decides on inscription of new producer groups. The FLO-CR is integrated by representatives of FLO-International. The inscription always starts with a provisional period of two coffee seasons.

the applying organization will be informed on the decision of the FLO-CR by the Co-ordinator of the FLO-International Coffee Producers' Register; the inscription will be formalized by means of a signed Agreement between the organization to be inscribed and FLO-International - represented for this purpose by the Max Havelaar Foundation in its quality of Co-ordinator of the Register - in which the rights and obligations of both signing parties are reflected.

This procedure shouldn't take longer than three to six months.

Conclusion

We as Fair Trade Labelling Initiatives united in FLO-International believe that Fair Trade can be a viable alternative for small producers of coffee - and other products - that so much suffer the consequences of the unjust international trading structures. We believe this on the basis of our experiences of the last eight years, in which the Fair Trade Labels have become a reality, to be taken into account by the international coffee trade, and is being recognized more and more by national and european politics. In absolute numbers we're talking about some 7,000 tons of green coffee imported in 1992, 9,600 tons in 1993, and growing to a turnover in roasted coffee in 1996 was of 10,900 tons, equivalent to almost 13,000 tons of green coffee. Nevertheless, the demand is not sufficient yet to be able to absorb all the coffee produced by small farmers. Many small farmers are not participating yet; and even some of the organizations already inscribed in the Register haven't managed yet to sell their coffee, because of insufficient demand on the one hand, and quality problems on the other hand. For this reason the continued success of Fair Trade depends on all possible effort and dedication from us as well as from you, organizations of small farmers, in this our common struggle for justice, independence and human dignity.

LIST OF FAIR TRADE LABELLING INITIATIVES SHARING THE

FLO-INTERNATIONAL COFFEE PRODUCERS' REGISTER

Administrator of the FLO-International Coffee Producers' Register (FLO-CR)

Max Havelaar Foundation Netherlands
Attn. Marjoleine Motz, Coordinator FLO-CR
Postbus 1252, NL-3500 BG UTRECHT, NETHERLANDS
Tel: +31/30/2334602 / Fax: +31/30/2332992
Email: icreg@euronet.nl

* FLO-International
Attn. Ose Nielsen/Ruediger Meyer/Olaf Paulsen
Poppelsdorfer Allee 17, D-53115 BONN, GERMANY
Tel: +49/228/949230 / Fax: +49/228/2421713
Email: o.nielsen@fairtrade.net; r.meyer@fairtrade.net; o.paulsen@fairtrade.net
Monitoring responsible for the following countries:

in Latin America:	Mexico, Costa Rica, Panama (Ose Nielsen), Brazil (Ruediger Meyer)
in Asia:	all (Olaf Paulsen)

* Max Havelaar Foundation Netherlands
Attn. Guillermo Denaux/Jos Harmsen
Postbus 1252, NL-3500 BG UTRECHT, NETHERLANDS
Tel: +31/30/2334602 / Fax: +31/30/2332992
Email: denaux@maxhavelaar.nl or harmsen@maxhavelaar.nl
Monitoring responsible for the following countries:

in Latin America:	Guatemala, Honduras, Nicaragua, El Salvador, Dominican Republic, Haiti (Guillermo Denaux)
in Africa:	English speaking countries, Angola (Jos Harmsen)

* Max Havelaar Switzerland
Attn. Max Leuzinger/Jan Suter
Malzgasse 25, CH-4052 BASEL, SWITZERLAND
Tel: +41/61/2717500 / Fax: +41/61/2717562
Email: maxhavelaarstiftung@access.ch
Monitoring responsible for the following countries;

in Latin America:

Bolivia, Peru (Jan Suter) Ecuador, Colombia, Venezuela (Max Leuzinger)

* Max Havelaar Belgium
Attn. Luc de Weerdt
Leopold II laan, 184 D, B-1080 BRUXELLES, BELGIUM
Tel: +32/2/4116462
Fax: +32/2/4116005
Email: luc@maxhavelaar.be
Monitoring responsible for French speaking countries in Africa

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