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Fair Trade Advanced FAQ

Page history last edited by champa_gujjanudu@... 13 years ago



Fair Trade Certification

1.      What is Fair Trade Certification?

Fairtrade certification (Fairtrade or Fair Trade Certified in the US) is a product certification system designed to allow people to identify products that meet agreed environmental, labor and developmental standards. Overseen by a standard-setting body, FLO International, and a certification body, FLO-CERT, the system involves independent auditing of producers to ensure the agreed standards are met. Companies offering products that meet the Fairtrade standards may apply for licenses to use the Fairtrade Certification Mark for those products.


2.      Who does the certification?

Certification is done by an independent international certification company, FLO-CERT GMBH.

FLO-CERT GMBH is responsible for the inspection and certification of producer organisations and traders against the Fairtrade Standards. The independence of the inspections ensures that the Fairtrade Minimum Price reaches the producers and that the Fairtrade Certification Mark is only used on products coming from Fairtrade Certified Producers.

3.      Who are some of the Fair Trade Certifiers?

FairTrade Labeling Organization is the entity which certifies producers from all over the world as fair trade and ensures that producers are following the producer fair trade standards, while Transfair USA is the organization which certifies importers and processors in the USA as fair trade and ensures that they follow the fair trade standards for importers/processors. Similarly, there are other organizations in other countries (Japan, Germany etc.) certifying their importers and processors as fair trade.  For a list of these certifiers, see the Fair Trade Relevant Firms and Organizations page.

4.      Do producers pay fees for Fair Trade Certification? How much? Why?

Yes. Producer groups who wish to sell into the Fair Trade market must pass an inspection by FLO-CERT. In the early years of FLO and Fair Trade, producers were not charged for the cost of inspecting and certifying of their farms; this cost was subsidized by industry fees. Because of the overwhelming number of producer applications received and the growing cost associated with these certifications, FLO found it necessary to implement a system of producer fees to be able to address the backlog of applications and revisit the increasing number of certified farms regularly. Since implementing producer fees in 2004, FLO has been able to improve the quality and timeliness of its producer inspection and certification services. Many producer groups find that investing in certification by FLO-CERT affords them access to higher-priced Fair Trade markets and is a worthwhile business move.

5.      How much do companies pay for Fair Trade product certification and what is it used for?

TransFair USA charges licensed companies a per-pound certification fee for Fair Trade Certified products. TransFair uses its license fee revenue for five primary activities:

  • Verifying that product supply chains meet Fair Trade standards;
  • Developing the Fair Trade market through relationships with retailers and other business partners;
  • Raising awareness of the FTC label and building consumer demand. For example, TransFair provides marketing brochures, posters and other consumer-facing materials to licensed company partners, retailers and advocates at no cost;
  • Working with our partners in the international Fair Trade Labeling network to develop standards for new products; and
  • Connecting producer groups to U.S. markets. 


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Growth & Mainstreaming of Fair Trade

6.      How are large retailers becoming involved in Fair Trade?

The expansion of Fair Trade Certified products into thousands of retail outlets across the U.S. means the benefits of Fair Trade is being extended to a growing number of farming families around the world. And giving consumers the opportunity to purchase Fair Trade products wherever they choose to shop makes it possible for a broader range of consumers to be part of the Fair Trade solution. That's why organizations such as Transfair are working to make Fair Trade Certified products available everywhere; at large retailers and national chains as well as small independent stores and cooperatives.

7.      What must US companies do to offer Fair Trade Certified products?

U.S. companies must purchase from FLO-certified Fair Trade producer groups, pay TransFair USA a per-pound fee for certification, regularly report purchases and sales of FTC products, and sign a licensing agreement and Letter of Intent (LOI) with TransFair USA.

8.      As large, mainstream companies and retailers begin to offer Fair Trade Certified products, is there a danger that the Fair Trade standards will erode?

The standards will not erode. Fair Trade standards are established by Fairtrade Labelling Organizations International (FLO) and address social and economic development, environmental management, and labor conditions on Fair Trade farms. For example, the Fair Trade standards require that producer groups receive the established Fair Trade floor price for their products. Therefore, all US companies licensed to sell Fair Trade Certified products must pay Fair Trade floor prices to Fair Trade farmer groups for those products. TransFair USA, the only independent certifier of Fair Trade products in the US, verifies industry compliance with the Fair Trade criteria.

9.      What are some of the issues with Fair Trade?

Like any system, there are some criticisms and issues with fair trade.

  • Producer certification fees

Producers (coops, associations, unions, etc) have to pay a fee for initial fair trade certification and then another fee, every year to keep certification. Given that most producers in the developing world are small and poor and often even do not have enough money to feed themselves properly, the fees are extremely excessive and takes hard earned, much needed money away from the producers to pay for certification. The current system also precludes small family farmers and producers who cannot form cooperatives or associations for various reasons and hence cannot be certified as Fair Trade.


  • No Importer Certification Differentiation

TransFair has certified Starbuck's, Green Mountain, Proctor & Gamble as fair trade importers, though they only import a very small percentage of their coffee as fair trade and the amount they import and the prices paid are not public information. This serves as "green/social washing" by big corporations, who can claim that they are fair traders, while importing only a fraction of their total products as fair trade and unfairly disadvantages the small importers, many of whom, import 100% of their products as fair trade. Both 100% importers and 1% importers are deemed as fair trade importers. As a result many small importers have pulled out of the TransFair certification process and chosen to make all their contracts, purchases totally public information.


  • One Fair Trade Price Fits All

FLO mandated fair trade pricing does not take into account for the most part the wage and living disparities which may exist in different parts of the world, or even in countries which are in the same geographical region. The fair trade pricing set by FLO, therefore could be too low for certain producers and farmers and not enough to meet their basic needs.


  • Lack of Transparency

Lack of transparency applies more to goods which are being sold as "fairly traded", but where the producers have not been certified as "fair trade" producers. Handicrafts, clothing, paper and many other items are currently being sold as "fair trade", but the businesses importing and selling them have almost no transparency as to what they are paying to the producer for a particular item. For fair trade certified products, the prices are set by FLO, but for others goods, there is no set price and hence it is easy for businesses to claim that they are "fair trade".


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Economics of Fair Trade

10.  Do individual farmers receive the entire Fair Trade price paid to the cooperative?

No. Just like any business, farmer cooperatives must deduct operating costs, administrative expenses, business reinvestments, and the cost of social and other programs before determining profits. That's why the final price paid to individual cooperative members is lower than the Fair Trade price received by the cooperative. Also, since most cooperatives are only able to sell a portion of their harvest on Fair Trade terms, the final price received by members is often comprised of an average of all prices received throughout the year, including Fair Trade prices and lower conventional market prices, minus expenditures. It is important to remember that since co-ops are democratically organized, members approve all financial allocations and payment structures.

11.  What is the Fair Trade minimum price?

For most products, including coffee, FLO calculates a minimum Fair Trade price that is intended to cover the cost of sustainable production. For e.g. with washed Arabica, the highest quality coffee, the Fair Trade minimum price is set at $1.25 per pound, plus an organic differential of $.20 if the coffee is certified organic. Should the world market price rise above these prices, the Fair Trade minimum price rises accordingly and becomes the world market price. In addition, importers pay farmer groups a Fair Trade premium, which is $0.10 per pound, over and above the Fair Trade minimum price. The Fair Trade premium is spent by cooperatives on community and business development projects. NOTE: The Fair Trade premium and organic differential were recently raised by $.05 cents each.  In addition, the Fair Trade minimum price for coffee was raised by four cents in Africa, Asia, Mexico, and Central America, and by six cents in South America. 

12.  Does paying farmers a fair price encourage overproduction and create an oversupply problem?

While in theory, higher Fair Trade prices might incent farmers to increase production, in practice we have often seen the opposite. Fair Trade farmers invest Fair Trade revenues into improving their homes, sending their children to school, and on farming methods and equipment that improve crop quality -- rather than on increasing production. In fact, many Fair Trade farmer groups have successfully implemented crop diversification and income generation projects in order to reduce their dependence on a single crop as their primary source of income. Fair Trade revenues provide a safety net that allows farmers to explore alternative income generation projects such as beekeeping, ecotourism, and handicraft production.

Another reason Fair Trade does not lead to overproduction is that most Fair Trade farmer groups are currently only able to sell a fraction of their production on Fair Trade terms; they must sell the rest to conventional buyers and local traders at lower prices. In other words, most Fair Trade farmers have no incentive to increase production only to sell the majority of their harvest at low prices. As demand for Fair Trade grows, certified farmer groups will be able to sell a larger share of their production on Fair Trade terms and extend the benefits of Fair Trade to a greater number of farmers. 

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Fair Trade Products

13.  What are the basic elements buyers look for when choosing product?

First and foremost, Fair Trade buyers need to ensure that the products they buy are produced ethically. Once it is determined that a product meets Fair Trade criteria, avoid relying on a charitable mission to sell product, because buyers look for products that will sell on their own merits.

Buyers consider the following factors (Fair Trade Federation’s list of criteria ) when choosing product:

  • Quality & Consistency: Products need to meet high quality standards.
  • Presentation: Buyers love when products are packaged well, because it’s easier for them to merchandise and sell. Presentation includes the packaging, labeling, and how it will display on the store shelf.
  • In style: Buyers pay heed to current trends, so you should too. Since crafts play an important role in keeping cultures and traditions alive, Fair Trade buyers are drawn to products that apply traditional production techniques and materials to current trends.
  • Sizing: Products like clothing and bedding should be sized according to industry standards of the consumer market you are targeting.
  • Whether a product is unique and/or fills a niche: The best way to identify product niches is to simply ask buyers if there are items that they would like to offer that they have been unable to find.
  • Price feasible: When determining price, first you need to factor in the cost of materials and labor, and then determine whether the price is feasible. Every product has a maximum retail price it will fetch. Investigating the pricing of similar products, and finding out the average retail markup in the market you are interested in is crucial.
  • Dependability of Seller: Buyers and Sellers develop a relationship over time. If a seller is able to deliver on their promises, buyers are more likely to re-order. It’s that simple.

14.  Why are there not more Fair Trade products?

It takes a great deal of time and money to develop FairTrade Standards to ensure that new FairTrade Products really will benefit producers. The initial focus of FairTrade was on agricultural commodities, such as coffee and tea, which have the most widespread impact on the livelihoods of small producers and workers in the developing world. Since then, the scope of FairTrade is continuously being extended to other agricultural products and some manufactured products such as sports balls.

15.  How are new Fairtrade products introduced?

 Introducing a new product into the Fairtrade system is slow and costly. That is because we try to get it right and this takes a great deal of research. In addition, a product needs to sell in considerable volume before a producer begins to benefit from these sales.

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Fair Trade Agreements

16.  What are Fair Trade agreements?

Importers and producers both have to follow certain standards to be certified as fair trade.

Importer Agreements

  • Pay a price to producers that covers the costs of sustainable production and living - also referred to as the 'living wage' in the local context.
  • Pay a premium that producers can invest social/economic and other development projects.
  • Partially pay in advance, when producers ask for it
  • Sign contracts that allow for producers to do long-term planning and follow sustainable production practices, so that they know in advance that their produce will be bought by the importer.

Producer Agreements

  • Small scale farmers/producers can only be certified Fair Trade if they have formed cooperatives, associations or other organizational entities which are democratically controlled and contribute to the social and economic development of its members.
  • Workers can only be certified Fair Trade, if they are organized, normally in unions, and if the company they work for is prepared to promote workers’ development and to pass on to the workers the additional revenues generated by Fairtrade.


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