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An Overview of Fair Trade Labeling and Validation Programs
Nasser Abufarha, Managing Director, Canaan Fair Trade, Jenin, West Bank, Gero Leson, Director of Special Operations, Dr. Bronner’s Magic Soaps, Escondido, CA

Consumers who want to buy products made in a “fair trade manner” face a confusing range of fair trade seals and claims on product labels. Educated consumers associate the term “fair trade” with fair prices, wages and working conditions on and in the farms and factories that make a given “fair trade” product. But what exactly does a given claim mean? Does it refer to all major processing steps in the value chain or only to individual raw ingredients at the farm-gate? Are there governmental regulations or at least voluntary standards for fair trade and who verifies them?Unlike for certified organic foods, for which the U.S. (under the USDA’s National Organic Program) and many other countries have adopted legally enforceable standards, no such standards exist for Fair Trade. Consequently, the use of the term “Fair Trade” on a label is not protected by law and may well be meaningless unless it is supported by a recognized validation system. Responsible manufacturers ensure that their claims of fair trade production are independently verified under a reputable third party Fair Trade certification program. Several such programs exist and their seals increasingly decorate retail products in the North American and EU markets. These programs share certain fundamental similarities, but can vary considerably with respect to approach, substance of their requirements, labeling rules and other critical details. This article summarizes key issues in fair trade verification, and reviews the strengths and weaknesses of the most common validation systems for fair trade (FT) claims.

FT validation systems can be grouped into three major categories. The table shows their main attributes and several prominent examples.

Category Key Attributes Examples
3rd Party Inspection &
Certification
3rd party certifiers field-inspect growing and processing, possibly trading operations and compare performance against a set of FT standards. Fair Trade Labeling Organization (FLO) and their national initiatives (FT Canada); IMO’s Fair for Life
Membership Organizations Organization evaluates FT commitment and practice of companies against its membership criteria. No systematic verification of conditions along the value chain. Fair Trade Federation (FTF); World Fair Trade Organization (WFTO)
Brand Programs Major brands develop in-house FT programs and work with a 3rd party to inspect and certify the company’s operations against the standards Whole Foods (Whole Trade); Rapunzel (Hand in Hand), The BodyShop (Community Trade)

 

Membership organizations review an applicant’s practices and check trade references as indicators that a company is committed to fair trade criteria along its supply chain. However, they generally do not independently verify FT claims on the ground, relying instead on a review process that may give companies a pass who talk the talk but don’t walk the walk. To date these organizations and their members focus on crafts and the traditional fair trade commodities, such as coffee, cocoa and others.

Several socially responsible companies have adopted their own brand programs. Their substantive requirements on prices paid, content rules, payment of a community development premium and the methods of auditing vary considerably. Self-respecting brands in this category have 3rd parties conduct regular audits of their supply chains against the program’s standards. Their impact is limited to the brand’s products.

Ultimately, brand-neutral inspection and certification of products by an independent organization to a credible transparent standard is the most effective way of assuring consumers that what they buy in fact contain fairly produced and traded agricultural materials. In response to growing public concern over exploitative labor and pricing in various commodities, there has recently been a proliferation of such certification programs. Their basic elements and approaches are similar: they cover the prices paid to farmers, working conditions and wages in farm and factory, and contributions to community development. Some certifiers also audit traders and brands along the value chain for their commitment to Fair Trade at home in the West.

The detailed provisions of certification programs can vary considerably yet ultimately a program’s quality and impact depends on its implementation and follow-through, or lack thereof. Rather than comparing the requirements on paper of several certification systems, we’ll review two with whom we have first-hand project experience and that are vision-driven and commercially relevant, yet take different approaches in key areas.

FLO, the international Fair Trade Labeling Organization, is the oldest and best recognized fair trade certifier. FLO emerged out of a network of fair trade NGOs and has pioneered the development of meaningful and verifiable indicators of FT practices, thereby making fair trade coffee, cocoa, tea and sugar household names. FLO headquarters in Bonn, Germany develops standards, usually by agricultural commodity. Its independent FLO-Cert affiliate inspects and certifies producers and processors in developing countries against FLO standards. FLO is represented by country initiatives in many Western countries, including Fairtrade Canada who also inspects traders and importers in the West.

IMO, the Institute for Market Ecology in Weinfelden, Switzerland (http://www.imo.ch) is a well-respected organic and fair trade certifier whose network operates in 90 countries worldwide. IMO is known for the development of meaningful and practical organic certification guidelines for smallholder groups, the development of organic standards for textiles, sustainable aquaculture, and for the wild collection of organic plant materials. IMO released its Fair for Life FT program (http://www.fairforlife.net) as a more universally applicable Fair Trade alternative to the FLO system in 2006, and has since certified more than 50 FT projects, usually including several participants along the supply chain of various commodities (such as coffee, fruits and vegetable oils) as well as downstream consumer products and companies.

Comparing Approaches and Key Provisions of FLO and IMO Standards

Control Point Issue / Rationale FLO IMO

Type of Producer

Identifies marginalized groups and appoints them as primary actors or beneficiaries of fair trade

Trade between growers and buyers virtually limited to smallholder co-ops and large plantations w. hired labor. Buying from individual farmers, informal groups or wild collectors (contract production) not permitted for almost any crop.

Allows manufacturers to buy from co-ops, individual farmers & informal producer groups. Each scenario is subject to specific requirements, depending on the target beneficiaries. Mission-driven companies may take on key responsibilities where no prior structure exists.

Minimum price and fair trade premium

Ensure that producers & processors can make a profit when market mechanisms fail

FLO sets global or regional floor prices & FT premium involving extensive research and consultation. Premium administered by co-op or workers’ assembly.

Requires and verifies that prices guarantee profitability of farms. Premium use decided upon by committee representing all stakeholders in the local value chain.

Labor laws

Ensure that compensation and working conditions for agricultural and production workers along the supply chain are fair (compensation, no child labor, safe working conditions). Equal pay and treatment for women.

Focus on “hired labor” in plantations, less emphasis on workers in downstream processing, unless conducted by farmers groups.

Focus on “hired labor” in plantations or other hired labor situations, or social standards focused on “producer groups”. Hired Labor focus extends to all key steps in value chain.

Inspection of Value Chain

Ensure that all major players along the value chain act socially responsible rather than just seeking a seal for marketing purposes

Focuses on agricultural producers and processors in developing countries. Limited review of contract processors in country of origin and of product flow and brand holder in country of destination.

Review of all key steps in value chain, including contract processors and brand holders. Contract processors who process only small fractions of FT products are not subject to full standards but must show compliance with labor laws.

Composition of multi-ingredient products and Labeling

Ensure that fair trade products contain relevant amounts of certified materials and consumers understand the label

FLO-certified FT ingredients must be used unless not commercially available; regardless 50% FT content minimum for “whole product” FT certification; 20% for “made with single/some FT ingredients” certification. The latter “fair trade lite” logo looks exactly like and may be placed on the front label exactly like the “whole product” logo: consumer beware.

FT certified ingredients must be used if commercially available, incl. those certified under other programs. Regardless 50% FT content minimum for “whole product” FT certification; 20% for “made with single/some
FT ingredients” certification. IMO FT seal shown only on front label of “whole product” FT products; the IMO seal may only appear on the back of “fair trade lite” 20% products.

Cross recognition between essentially equivalent certification programs

Cross recognition between essentially equivalent programs allows committed manufacturers to purchase the maximum amount of FT materials and get credit for it. Also allows addition of country-specific recognized labels w/o need for additional inspections and certification

Currently does not recognize other programs as equivalent, thereby effectively lowering the composition requirements for multi-ingredient products

Recognizes FLO-certified products. Case-by-case evaluation of other certification programs.

Cost of inspection, certification and licensing

Needed to finance certifiers operation. May also serve to promote marketing of FT products.

Charges
producer groups, processors and key processors in receiving countries for inspection and certification.

Key handler (e.g. coffee roasters or brand company) pay license fee per wholesale price of product for use of FT logo.

Charges for inspection and certification of the key operators in value chain.

No licensing fees.

 

Several key differences between the programs stand out. There is great value in the traditional fair trade model of smallholder farmer co-ops, and FLO’s stakeholders and standards have focused historically on the self-organization of smallholder farmers and the protection of plantation workers. Yet, the FLO system has overlooked mission-based companies’ or commerce-minded NGOs who cooperate with individual farmers or informal farmer groups in establishing FT projects, who buy and/or process agricultural raw materials and catalyze agricultural and social development around a project. Such organizations generally provide needed markets and sustainability for a project.

IMO’s Fair for Life recognizes the value of such organizations which provide: markets; financing of agricultural and processing operations; capital equipment and infrastructure; education and community development in agricultural areas; and empowerment and development of producers’ organizations and audits of their performance. In effect, FLO certifies only producer groups and primary processors against FT criteria, while downstream just audits FT material flow of key handling companies in the North without holding them accountable to FT principles. IMO’s Fair for Life audits the FT performance and commitment at all relevant steps in the value chain, from the producer groups on the ground to the ultimate FT brand in the west, thus certifying an entire product chain.

Second, FLO still relies on a time-consuming process of setting global or regional minimum prices for individual crops. This approach was driven by globally traded commodities, such as coffees, that experience periodic global oversupplies and price crashes. Yet, the process involves much research and stakeholder consultation within FLO and holds up the adoption of standards for new crops and products, thus slowing down expansion of the universe of fair trade certifiable commodities. In contrast, IMO’s Fair for Life program takes a holistic local approach to a given producer project, that unlike FLO is flexible in dealing with any mix of products and commodities produced. However like FLO, IMO stipulates that prices paid to producers at minimum cover cost of production and provide a reasonable profit to farmers and processors. IMO includes a costing, price and wage review of a specific project in its local context in their annual inspections, conducting extensive interviews with farmers, farm workers and factory workers. IMO’s approach in this regard is more efficient and better reflects reality.

Both the FLO and the IMO standards are currently undergoing revision following extensive public input. Their provisions are becoming more compatible and harmonized, notably through increased flexibility in contract production and price setting in FLO’s program. In fact, FLO recently adopted a quick entry system for new crops and projects that may fall under existing FLO product standards: the project can simply set the price at market price plus fair trade premium and work out their own floor pricing, where FLO subsequently reviews, like the IMO approach, local market conditions to confirm they are fair. This suggests that we are moving, as happened with organic agriculture and standards, towards more harmonized FT standards, as real world experience and lessons of what does and doesn’t serve producers filters back to these two excellent FT organizations. Ultimately, with enough certification experience and standards settling on the same best practices, we should see convergence on a single enforceable standard for fair trade, much as happened with the USDA National Organic Program for organics. This goal is the best way to ensure consumers that the products they buy are “truly fair trade”.