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Decision and Policy Analysis Research Area – DAPA

Multi-nationals do more for smallholders than Fair trade, according to leading think-tank.

Fair trade symbol

The Institute of Economic Affairs (IEA) has today released a report launching a wholesale attack on the Fair trade movement. The study, titled ‘’Fair trade Without the Froth” has been written by Sushil Mohan, a trade expert from Dundee University in the UK.

Described as a ‘’specialty market operation’’, the report suggests that fair trade’s stringent requirements represent the views of  western consumers, rather than the needs of poor producers in developing countries.

Moreover, the notion that fair trade offers a better and more equitable relationship for producers is questioned: ‘’Fair trade’s proponents try to convey the impression that almost all the price premium they are paying for Fair Trade products is passed on to the producer, while the reality is very different.’’ For example, in some cases premium prices for goods translate into higher mark-ups for wholesalers, importers and retailers. Furthermore, fair trade has become an industry in itself with high bureaucratic costs, which are absorbed by price premiums.

Although fair trade production has grown rapidly in the past few years, it still only represents a small fraction of global food sales. Considering the fact that multi-nationals such as Kraft and Procter & Gamble are responsible for a majority of food processing activities, it may be worthwhile to target the private sector to improve rural livelihoods. Large businesses simply have the buying systems to make changes to rural communities on a grander scale.

Besides, Corporate Social Responsibility (CSR) and ethical trading are becoming more serious concerns for food corporations. More so, an ever-increasing number of companies are willing to engage in their supply chains to make them socially and environmental responsible. For example, Unilever has made a commitment to source all of its renewable ingredients from sustainable production within the next ten years. The New Business Models (NBMs) that we in DAPA are working on, also offers an ideal strategy for these companies to improve their supply chains and reduce rural poverty.

Overall, there is no doubt that the Fair Trade Movement has a valid cause, where it is working hard to improve the lives and working conditions of poor producers. However, rural poverty is major phenomena in the developing world and other options are available to reduce it on a wider-scale. Critical enquiry should be paramount and we must be careful of anti-corporative rhetoric that demonizes multi-national corporations. Instead the benefits they have on rural communities should be recognized with a greater emphasis on improving value chains and making them more transparent.

To read more about IEA’s report and its findings check out the following articles:



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