Letture

Another Way of Fair Trade

Introduction

Fair Trade offers producers a fair price for their products. The concept of fair trade is rather young and will develop in the years to come. In this text, STRO (Social TRade Organisation), a Dutch NGO working in the field of local economic development, suggests some new elements to be included in the Fair Trade concept.

Statement

In the 'foster parents' concept donors give money for one child. This money is used however, for the development of the whole neighbourhood / village of this child. The same idea should be used for Fair Trade. Fair Trade should not only include producers that are directly involved in the production process of the Fair Trade products, but also their communities. There are two basic arguments for this:

  • Only the selected producers get a good price, while their neighbours still deliver for world market prices. Especially if these neighbours are landless labourers working for a employer that is not interested in any fair deal, this doesn't seem fair.
  • Individuals tend to choose to use the premium of Fair Trade products for short term profits, while long term investments often would make a better overall effect and would also make them less dependant on the continued extra income from Fair Trade. The exception is of course when the premium is used for education, but even then in the longer term improved economic circumstances are needed to benefit from the results of the educational process.

STRO suggest to expend the concept of Fair Trade by making the premium above the normal market price as much as possible available through local complementary currencies. By this the producers are benefited but they will have to spend the extra premium in their communities and by this the local economy as a whole will benefit (STRO calls this effect “social trade”, since the expenditures will keep on circulating locally and in this way stimulating the local community).

How could Fair Trade use a complementary currency to pay fair prices to the producers and as well create community development?

A complementary currency is an exchange network of local producers and consumers. Units that are circulating in this network only have value with other members. In order to avoid stagnation, members who earn far more units then they can spend reasonably, need the possibility to spend their units outside the network. This can only be done if there is national currency backing the local currency. This cash can be the Fair Trade premium to be paid in the backing fund while the producers of the Fair Trade products are being paid in units.

Example

A buyer of Fair Trade products (let's say coffee) normally pays $400 including the Fair Trade premium. Now he pays a part of this payments ($100) to the local bank that is administering the exchange network. For this $100 he will get 100 U. He pays to the farmer $300 and 100 units.

At the same time, the local bank gives micro-credits to companies in the same region worth $100. These loans can be paid back both in dollars and units. This makes the companies that got these credits eager to earn units as payments. This demand for local units will be met by the Fair Trade producers who can spend their units at companies that received micro-credits. In practice other companies without loans will accept the units as well to compete for the purchasing power of the farmers, since they know that they can spend their units at the companies with the loans. Thanks to this method the earning of exports (in this example coffee) stimulates more economic agents in the region before it leaves the area. It creates more jobs, more investments and an overall better economy. (see www.strohalm.net/en/bonus.html for a flash animation of this method; replace the school in the example by the fair trade bonus payment).