Americas Quarterly - Winter 2009

to demand and depressing normal market prices. Guaranteed prices, ^WHAT’S ^BEHIND ^THE ^LABELthey add, could encourage poor pro- ne of the largest and most ducers to stay in declining activi- prominent of the initia-ties with little future, rather than tivestoharnessconsumer respond to market signals to shift power to help the poor to more productive economic ac- Oin developing countries tivities. is the network of 21 national groups Thus far, fair trade markets are still organized under the umbrella of the too small for these criticisms to be Fairtrade Labelling Organizations tested. But more analysis of the fair International (FLO). FLO determines trade model is clearly needed. Are which products will be eligible for gains for low-income producers suf- labeling, sets standards for both proficient to overcome the obstacles in- ducers and traders and created FLO-volved in scaling up these markets? CERT, which certifies compliance Are significant numbers of consum- with FLO standards. The main na-ers really willing to pay more and, if tional group in the United States, for so, how much more? And there is a instance, is called TransFair USA. more fundamental question: is fair Ensuring the credibility of the fair trade a viable tool in anti-poverty trade label is facilitated by short sup-growth strategies? To answer these ply chains that are easier to monitor questions, we must first understand than supply chains with many links how fair trade has evolved in today’s that have to be certified. Thus, certi-global trading environment. fied producers can sell only to certified traders, and the firm that applies the label to a final product must be licensed by one of the national initiatives and buy only from a certified producer or trader. Participants must meet several requirements before a product can be marketed with a fair trade label. The

first is that traders must pay a minimum price plus a “social premium”— an add-on to the fair trade minimum price that varies by product—sign contracts for more than one growing season and provide credit if requested. Under the FLO model, any price premium, the difference between market prices and the fair-trade minimum, is supposed to be distributed among producers while the social premium is to be used for community development.

Second, producers must comply with a set of environmental standards. While their goods are not required by FLO to be organic, many consumers expect it, and about 60 percent of fair trade-labeled coffee in the United States is also certified organic. Third, producers must meet basic labor standards, including a prohibition of goods produced by forced labor or children. Child labor on a family farm is acceptable provided it does not interfere with a child’s education.

FLO and its nationally based member organizations focus on small producers. To make certification feasible, they require producers to form democratically run organizations that will sign the contract and determine the allocation of the social premium. FLO-CERT inspectors deal mainly with the producer organization’s