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    Fairtrade: New business model taps markets in the South

     

     
     
    International Trade Forum - Issue 3/2010 
     

    Photo: Sascha Przyklenk A wine grower in South Africa

    With the emergence of new markets in the South, Fairtrade Labelling Organizations International's standards are adapting to become more than a doorway to export markets in the North.

    With the continuing shift in economic activity from developed to developing countries, the trend towards consumer growth in emerging markets requires transnational corporations to rethink the way they do business in the South. Fairtrade Labelling Organizations (FLO) International sees these global changes as an opportunity to introduce its international social certification system to consumer markets in the South.

    While this move has the prospect to increase the impact of Fairtrade on producers, it also challenges FLO's traditional business model.

    The traditional Fairtrade model - based on consumers in developed countries buying Fairtrade-certified products from disadvantaged farmers in the global South - is undergoing change as the growing number of consumers in emerging markets opens up new opportunities for Fairtrade producers in the South. With the increase in South-South trade, the Fairtrade Certification Mark is acquiring meaning as a quality standard for consumers in the South. This is because, unlike in the North where consumers relate the meaning of Fairtrade certification primarily to support for disadvantaged producers in the South, the newly emerging class of consumers in producer countries places high confidence in the quality and safety of domestic products that are certified in accordance with international standards.

    India is a case in point. Despite a rapidly growing middle class currently estimated at 300 million people, India is still home to one-third of the world's poor,1 and more than 70% of the working-age population depends on agriculture for their livelihood. Small-scale farmers and workers from close to 100 Fairtrade-certified producer organizations currently benefit from Fairtrade's improved terms of trade on export markets, but they still sell an often larger share of what they grow to domestic markets on conventional terms. Tapping the potential of India's growing consumer market has the potential of increasing the impact of Fairtrade for Indian producers while giving consumers domestic products of high quality and safety due to the traceability and environmental standards associated with Fairtrade certification. For FLO International this presents a strong case to invest in the Indian Fairtrade market. In 2009, Fairtrade products with a combined retail value of almost €50,000 were sold on the Indian market. With the plan to establish a national Fairtrade initiative that provides marketing support to Indian producers, traders and distributors, we expect our current market position to strengthen considerably.

    Fairtrade is already seeing the value of investing in emerging consumer markets in the South. Fairtrade Label South Africa (FLSA) is an example. Established in 2009 as the first Fairtrade marketing organization in a producer country, FLSA made almost €500,000 in domestic retail sales from 14 certified producers in its first year of operation. By becoming licensees of the Fairtrade mark, they are able to sell a larger share of what they grow on Fairtrade terms and are less dependent on demand from consumer markets in the North. FLSA also shows that domestic products with international certification appeal to consumers in the South.

    The new opportunities presented by consumer growth in emerging markets are challenging the way in which the Fairtrade system traditionally works. Firstly, it requires accommodating differences in consumer sentiment towards Fairtrade between developed and developing countries. While Fairtrade is seeking to empower consumers in developed countries to contribute to the fight against poverty in developing countries by purchasing Fairtrade products, poverty is still an everyday reality for consumers in the South. In emerging markets, consumers care more about the development of their own country and people, and the domestic marketing of locally produced Fairtrade products offers them a way to do so in an equitable and sustainable manner.

    Secondly, Fairtrade standards were originally designed with the model of South-to-North trade in mind. Empowering producers to enter domestic markets has required a rethink of our product and pricing policies to better align with the specific needs, conditions and consumption patterns characterized by emerging consumer markets in the South. FLO has recently launched the New Standards Framework (see box) - the first revamp of its standards to be more responsive to the needs of producers and enable them to plan their own business and development strategies.



          
    Small Indian produc-ers (such as this pepper farmer) benefit from fair prices and better trading conditions in export markets. Through the new national Fairtrade initiative and the proposed changes to the Fairtrade standards, sales on the domestic market should also increase. Photo:François Guénet 


     
     

    Scaling up: Emerging markets, such as India, offer a great opportunity for Fairtrade to increase its impact on small-scale farmers and workers.
     

    Photo: Didier Gentilhomme 


     

    Finally, the face of poverty is changing in emerging markets and with it the core target groups of the Fairtrade system. The shift in economic activity from agriculture to manufacturing, which has spurred economic growth in many developing countries, means that poverty is increasingly becoming an urban phenomenon experienced most severely by migrant workers and landless labourers. To fulfil its mission in the more rapidly growing developing countries, FLO will have to account more directly for workers engaged in the processing of Fairtrade-certified products by broadening the scope of its standards beyond agriculture to other sectors such as manufacturing.

    1 Measured by the percentage of the population that lives below the new international poverty line of US$ 1.25 per day. 

      

    NEW STANDARDS FRAMEWORK 

    Fairtrade 

    Fairtrade Labelling Organizations (FLO) International's New Standards Framework (NSF) will be built on the current standards model but it aims to help strengthen producers' social organization and self-determination, reinforce the unique features of Fairtrade standards and build the basis to create an even more effective Fairtrade system.

    Unique to Fairtrade

    Under the current model, Fairtrade standards are divided into generic and product-specific producer standards. The generic producer standards cover small producer organizations, hired labour set-ups and contract production. There are also generic and product-specific trade standards that lay out the requirements for traders. The new framework reorganizes existing standards into Production, Trade, and Business and Development standards. The Business and Development standards will include all requirements and features that are unique to Fairtrade, while the Production and Trade standards will consist of standards that could eventually be benchmarked with other standards and certification schemes. This reorganization of standards may serve as a first step in working towards mutual recognition of certificates with other schemes.

    The concept of Business and Development for both producers and traders is to maintain requirements that are unique to Fairtrade, such as mandatory social organization, the Fairtrade Minimum Price, Fairtrade Premium and pre-financing. But with the NSF, in addition to these requirements, a Business and Development plan is introduced that provides the space for producer, workers and traders to define their own development paths. Lists with proposed topics for development activities are provided that producers, workers and traders can choose from according to their own development strategies and needs.

    It is expected that the new standards will be published and implemented in the first quarter of 2011.

    For more information, visit www.fairtrade.net/standards_in_progress.html.