Business Glossary

Fair Trade Explained.

Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.

Fair trade is a movement among producers and distributors to ensure fair and ethical commerce across international borders. The aim of the fair trade movement is to ensure a fair deal for farmers, producers and their workers in developing nations, ensuring that their operations are sustainable and that their pay and working conditions are equitable.

Fair trade products are commonly found on store shelves. Fair trade coffee and chocolate are mainstays in small-scale retail outlets and big supermarkets alike and many of the foods and drinks we consume bear the fair trade Mark.

How does fair trade work?

Research by McKinsey shows that consumers care about ethical trading. But what exactly do we mean by fair trade? How can producers of goods achieve fair trade certification? And what organisations are responsible for maintaining fair trade standards?

There are several organisations that are involved in the sourcing and certification of fair trade products, working with governments to ensure more ethical, sustainable trade and working with retailers, wholesalers and suppliers.

These include:

  • Fair trade International: This is the umbrella non-governmental organisation that creates the internationally agreed fair trade standards and coordinates fair trade organisations worldwide

  • The World Fair Trade Organisation (WFTO): The WFTO is a global community of social enterprises that practise and promote fair trade

  • Flocert: The main independent body responsible for fair trade certification and inspecting producers and suppliers to ensure compliance with fair trade standards

  • The Fairtrade Foundation: This is the organisation responsible for marketing and promoting Fairtrade products in the UK, including government lobbying and informing policy. It is one of 25 such national organisations in consumer countries around the world

  • Producer networks: There are three producer networks representing farmers and workers in Africa, the Caribbean, Asia and the Pacific, Latin America and the Middle East

Fair trade standards and principles

The fair trade movement aims to:

  • Ensure fair prices for producers that cover the cost of sustainable production

  • Provide fair trade Premiums to invest in projects that enhance economic, social and environmental development

  • Facilitate pre-financing for producers where necessary

  • Facilitate long-term trading partnerships

  • Establish clear criteria to for the conditions of production and trade of all fair trade certified products

The standards by which fair trade is measured and certified and built upon several principles. These include:

  • Social and economic development for small-scale producers

  • Environmental development and maintaining ecologically sound practices

  • The prohibition of forced and child labour

Benefits of fair trade for businesses

Today, ethical supply chains are a key component in most companies’ Corporate Social Responsibility. The fair trade mark on a product is a widely-recognised shorthand that shows consumers that the product comes from a company that cares about ethics and sustainability. But the benefits of fair trade for business go beyond consumer goodwill.

Partnering with fair trade organisations empowers businesses to:

  • Gain insights from producer networks on the ground

  • Better future proof and risk-manage their supply chains

  • Be proactive in taking action on climate change

  • Make operations more agile and resilient

Fair trade FAQs

How does fair trade affect a product’s price?

Fair trade organisations ensure a fair price for farmers and suppliers. However, research from the fair trade Foundation demonstrates that fair trade does not necessarily make products more expensive. Indeed, some fair trade products are actually cheaper than their non-certified counterparts.

Who awards the fair trade mark?

The fair trade mark is awarded by Flocert– an independent organisation that ensures compliance with fair trade standards.

Are fair trade products better for the environment?

Yes, fair trade products are invariably more ecologically sound because ecological stewardship is a key part of fair trade standards. In order to comply, farmers have to take active steps to improve soil and water quality, manage pests without the use of harmful chemicals, manage waste responsibly, protect biodiversity and reduce their greenhouse gas emissions.

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