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Fair-trade market growing but new issues are emerging in some sectors

07 May 2012

A short analysis has been published on the Freshplaza.com website on how the fair-trade market has evolved. It notes that there are now some 6,000 fair-trade products being sold in 25 countries, and some 900 fair-trade projects under implementation worldwide. Some 21% of these fair-trade initiatives (around 230) are in Africa. The report notes that about two-thirds of fair-trade products now also carry organic certification.

While fair-trade labels still account for only a very small share of the market – e.g. less than 1% of global sales of cocoa tea and coffee, their share in certain market segments is very significant. Sales of fair-trade bananas now account for 25% of banana sales by UK supermarkets, while fair-trade-branded sugar now accounts for ‘a third of the entire sugar market’. According to the Faitrade Foundation, ‘Fairtrade sugar sales in the UK rose to 230 million pounds ($363.9 million) in 2010 from 99 million in 2009.’ With the Fairtrade Foundation aiming ‘to increase retail Fairtrade sugar sales to half of the UK sugar market’, sugar looks set to play an even bigger role in overall fair-trade sales in the UK in the coming years.

Criticisms of the fair-trade movement however have arisen on two levels. The first is that by ‘holding back diversification and mechanisation’, the movement ‘turns developing countries into low-profit, labour-intensive agrarian ghettos, denying future generations the chance of a better life’. The second criticism is that ‘only a tiny proportion’ of the consumer price premium (as little as 1%’ in some cases of fair-trade certified chocolate bars) ends up in the hands of the producers of the primary product which received fair-trade certification.

These criticisms neglect two aspects noted in a recent article published on the Consultancy Africa Intelligence web portal:

  • the general trend towards a reduction in the share of the final product price which accrues to agricultural producers (in the late 1980s the share of the final price of a chocolate bar accruing to Ghanaian cocoa producers had fallen from 16% to between 3.5 and 6.4%);
  • the benefits that can accrue to particularly well-organised groups of fair-trade producers such as the Kuapa Kokoo co-operative in Ghana , which brings together 63,000 small-scale farmers across Ghana and is directly supplying fair-trade cocoa to Cadbury’s as part of the latter’s decision to produce a fair-trade product range.

Editorial comment

The issue of the distribution of the price premium paid by fair-trade consumers along the supply chain is likely to gain increasing prominence in the coming years, as the share of fair-trade sugar increases in major markets such as the UK. Within sugar supply chains, large multinational companies play a major role. In some supply chains, a single corporate family controls the milling, refining and marketing of fair-trade sugar.

In an ACP context, while this was relatively non-controversial during an era of guaranteed prices (with the fair-trade premium being paid on top of this), from 1 October 2012, prices paid for ACP raw sugar will no longer be supported by an administratively determined floor price and will be determined by market forces.

This will draw attention to the functioning of ACP-EU fair-trade sugar supply chains and in particular the basis for determining the price for sugar cane delivered by fair-trade farmers. While this issue reaches beyond the issue of the distribution of the consumer price premium, its significance cannot be underestimated – for how will prices be determined in supply chains that are dominated by a single corporate family, with no play of market forces determining price formation?

This issue is further complicated by the multiple uses for sugar cane – sugar cane is used to produce not only sugar and molasses, but also electricity, ethanol, and alcohol. Income from these new revenue streams can be of considerable significance, yet in most countries that supply fair-trade, proceeds from the sale of these new products are not part of the common revenue pool divided between growers and millers (the exception to this is Mauritius). This takes on added significance, as the balance of the specific product mix desired by the mill will influence the varieties of seed cane distributed to smallholder farmers.

In this context, the fair-trade premium paid by consumers may simply compensate in part for lower prices being paid to smallholder farmers for their sugar cane, which would remain based solely on revenues from sugar and molasses and not the whole range of incomes streams generated from the sugar cane delivered by smallholder farmers (both fair-trade and non-fair-trade) to the mill. 

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