One of the types of social entrepreneurship is fair trade. As this concept is researched by various scientists in the sphere of economics, politics and international relations there are different definitions of the fair trade. The most basic definition defines fair trade as a trading partnership based on dialogue, transparency, and respect that seeks greater equity in the international trade (Lyon & Moberg 2008). This definition determines fair trade as a partnership and characterises its main features. However, it may be expanded if the fair trade is determined as an emerging response to the negative effects of the contemporary globalization, and particularly to the often unjust and inequitable nature of contemporary international trade (Raynolds & Murray 2007). According to this definition fair trade is a result of globalization and economic processes of a planetary scale. Moreover, the definition also characterizes the current state of international trade. If the fair trade is determined as a privileged contractual trade agreement whereby producers and or labourers receive a degree of insulation from market and alleged market failures and which seeks grater equity in international trade (Granville 2012). The last definition expands the previous two as it not only explains, what exactly the term “partnership” means, but also defines the subject of the process, as well as its goals. Moreover, it also provides more theoretical characteristic of an international trade as it uses the term market failures, therefore it can be understood what the reasons of international trade disadvantages and inequity in particular are. According to these three definitions it can be determined that understanding of the fair trade requires determination of its main components. Therefore, generalized definition of the fair trade is contemporary social and economic phenomena in international trade in a form of a movement, which ensures greater equity at the market through giving certain privileges for producers and or labourers. This definition combines advantages of the previous ones and briefly describes the main components of the fair trade.
Characteristics of the fair trade
However, all the definitions tend to generalize the characteristic of the phenomena and explain its complex nature in several words. Taking into account that fair trade is a multifaceted concept for the further understanding its mechanism must be described.
To begin with it must be stated that fair trade is conducted through the work of various marketing organizations with vast variety of specific marketing strategies and standards. These organizations are responsible for certifying the retailers that offer fair trade services. Among these certifies are The Fairtrade International, which brand is well-known and recognized in the world; The World Fair Trade Organization, which is one of the oldest associations; The Network of European Worldshops and European Fair Trade Association in Europe; The Fair Trade Federation in Canada in America. Retailers that acquire one of the fair trade brands tend to sell their production in large supermarkets in order to ensure relatively large saes to have real positive influence over the Third World. Such retailers focus on exporting tea, coffee, bananas, cocoa, sugar, honey and cotton (Moseley 2008) from developing countries to developed ones, as these are the products that are traditionally exported from the countries of the Third World. The best example of the mechanism is that of the coffee trade.
Retailers pay one of the certifiers, The Fairtrade Foundation for the right to use the specific brand. The price of the product is set by the retailer and it can be quite high, as there are usually certain minimal prices for lb of coffee (Mohan 2010). Apart from the meeting the strict standards of the certifier producers are limited in the profits they may recover from turnovers. However, there are still many ways of spending their money, which are usually social projects as construction of schools and clinics, sometimes farmers get extra money over the usual price. Regardless of the amount of extra money farmers still experience great expenditures in order to meet the standards of a fair trade organisation (Griffiths 2011).
Behaviour/measurements of the fair trade
Supply of fair trade products is influenced by the demand of the retailers in the developed countries. The most popular fair trade product is coffee and the most demand is generated by Starbucks and Nestle (Jafee 2012). However, fluctuations of the supply and demand for coffee influence the small farmers in Latin America as their incomes are based on the prices of coffee and chemicals (Mendoza & Bastiansen, 2003). Unsustainable farming practices of using too much chemicals in pursuing of profits damages small farmers’ land.
To analyse the fair trade from the supply and demand theory point of view it must be highlighted that the demand for fair trade products is highly inelastic. Slight increase in supply leads to a considerable lowering of the price, which can be proved by a historic example. In 1980s in Vietnam the planting of coffee has been increased and the market was flooded by the fair trade coffee in the 1990s, which has resulted in price collapse (Granville 2012). As the price of the fair trade products includes the social bonus the recession or crisis economies are cauterized by the decreased demand for the fair trade products. However, as these products are targeted at the socially-conscious consumers any advertising campaign or news concerning the issues of the Third World countries immediately increases the demand for the fair trade products.
What is more, fair trade products influence the supply and demand of the conventional products (Mohan, 2010). For example, fair trade coffee decreases the responsiveness of the conventional coffee and increases the volatility and price for it (Jaffee, 2012). In other words, fair trade coffee damages the positions of the conventional coffee producers.
Scales of fair trade on the planetary scale are increasing annually demonstrating approximate growth of 30%; according to the latest available measurements in 2004 sales reached $500 million (Raynolds & Murray 2007). However, the dynamics is different in various part of the developing world, and to analyse the fair trade more profoundly these statistics must be researched as well.
In Africa fair trade is mostly developed in South Africa, Ghana, Uganda, Tanzania and Kenya and exports from these countries worth $24 million (Raynolds & Murray 2007). Tea, cocoa, flowers and wine are common products of fair trade in Africa. Meanwhile, West African countries where the fair trade is not developed suffer from the deterioration of cocoa quality and they compete with other countries for the profits (DeCarlo 2007). Among these countries are Cameroon, Nigeria and the Ivory Coast
In Latin America development of fair trade resulted in improvements of quality of producers that took part in the movement. The main product of fair trade in this region is coffee and the main producers are Brazil, Nicaragua, Peru and Guatemala. The Dominican Republic, Mexico, Ecuador and Costa Rica are largest producers of fair trade bananas (Ransom, 2001). Sales of coffee grew by 12%, bananas and sugar by 9% and tea by 8% (Granville 2012).
In Asia work of fair trade organizations is coordinated by The Asia Fair Trade Forum, which aims to improve the fair trade in Asia. However, fair trade producers of the region receive accusations of human rights abuse and usage of child labour and this is especially true for China, Bangladesh and Burma (Ransom 2001). Nevertheless, sales of fair trade products in Asia reached $27 million (Granville, 2012)
Criticism of the fair trade
To understand the fair trade better the topic of its criticism must be continued. To begin with, fair trade organizations do not monitor how much money reaches the producers. For example, in one of the cafes in Great Britain less that 1% of extra money was transferred to the producers (Griffiths 2011), similar examples were present in Finland and even the US (Mendoza & Bastiansen, 2003). Moreover, it also usually unknown how much money is transferred to farmers by the producers. In fact, many critics assume that farmers get more money from ordinary producers than from fair trade ones (Basset 2009).
Another portion of criticism is applied to the issue of the fair trade influence. There are few studies of the fair trade impact, therefore it cannot be determined if the fair trade has positive or negative impact, or no impact at all (Griffiths, 2011). In case farmers have to sell their product to producer-monopolist prices will be relatively low and they cannot choose another buyer if they want to preserve fair trade status (Mendoza & Bastiansen, 2003). In other words, fair trade deviates from the classic concept of the free market to some extent. Moreover, fair trade provides many opportunities for corruption. For example, there were cases of false labelling of products with the Fairtrade brand or not paying the labourers the mentioned above minimal price (Reed, 2009).
After the research of the fair trade phenomena certain conclusions can be made. First of all fair trade is a complex system and it demonstrated different efficiency in different markets. Moreover, as the impact of the fair trade on the producers is not determined and there is no research dealing with the issue it is practically impossible to carry out a qualifying prognosis of the future of fair trade.
However, according to an existing trend factors that can either stimulate further development of the fair trade or decrease sales significantly can be determined. Differences between licensing organizations cause division inside the fair trade movement and distract it form the main goal. Moreover, as the Northern American organizations are more influential the Northern market trends dominate the development of the fair trade. In a global concept such dominance excludes the developing market of Asian countries, which can become the new main market for fair trade goods. Failures of the certification system, bureaucracy and unfair distribution of profits between retailers, producers and farmers lead to the stagnation of fair trade. Finally, fair trade is the most developed in the coffee industry, however, other product that are objects of fair trade are not developing and certain countries of the Third World where coffee is not an exported product are excluded from the fair trade. In case these problems are not solved the fair trade volumes will considerably decrease in future.
Nevertheless, there are certain trends that prove fair trade demonstrating a positive dynamics. In the South fair trade is viewed as the key point of agrarian reforms and it is in the centre of political agenda. Therefore, governmental support and constant monitoring of business practices may lead to the increase of fair trade sales and further development of the movement. Connection of fair trade and government programs must significantly increase the efficiency of both concepts. Finally, as certain certifying organizations tend to make alliances the effort put to accomplish the goals of the movement are increased, which will positively affect fair trade in future.