The sub-sector context

Moderating the worse effects of globalization: the Fair Trade movement

Over the last decade, several organizations in the developed world have responded to the challenge of globalization by introducing innovative marketing methods and market access channels for producers in poor countries, in an attempt to show that globalization can be turned to the advantage of producers in poor countries and of consumers in rich countries as well. These organizations have created the Fair-Trade network. The network includes non-profit and minimum-profit organizations, motivated by the objective of promoting sustainable development of producers’ communities. They act as intermediaries with respect to commercial companies that view long-term economic growth and stability in producing countries as a necessary condition of expanding business and prosperity for all.

The thrust of the FT organizations is in the specialty markets where products are sold under an internationally accepted label that guarantees origin, quality, and eventually other features such as organic production, and command a significant price differential. These markets are currently expanding at over 12% per annum, but are still only a small share of the overall market.

A major thrust of Fair Trade strategy is to exploit the opportunities provided by the diversification of consumer demand in favor of quality products, and to ensure that the extra trading margins in these markets are paid to producers and used for development by the communities of producers. Currently, Fair Trade (FT) organizations are established in 16 highly developed countries. In each country, there are FT trading partners and national federations. The FT network works with 10 products; namely, coffee, tea, cocoa, bananas, honey, mangoes, sugar, rice, orange juice, and cut flowers, but not all FT organizations trade in all of these products. Rwanda has the potential to become a good supplier of top quality coffee, tea, bananas, fruit juices, and cut flowers.

The FT trading partners purchase the products from smallholder cooperatives in the producing countries, and sell them to retailers that agree to put the products on their shelves under true labeling and at special prices. Trading partners invest in developing the image of their products, and the market niches where the required price for value can be obtained.

In 1997, the national FT federations established “FLO International” with headquarters in Bonn, Germany. FLO sets standards which must be met by producers to obtain the internationally recognized FLO certification of the produce. Independent officers recruited by FLO provide a transparent certification of the products marketed under true labeling by FLO members’ and by their registered trading companies. The certification concerns four main tasks:

As an indication of the impact of the innovative marketing system of the FT organizations, the following table shows the breakdown of the price of a pack of coffee of 250 gr. marketed by the traditional system as compared with one marketed under the Fair Trade system (figures in Euro, average 2001 data).

Table 2

Traditional marketing system		Fair Trade marketing system
Consumers prices (supermarket)	1.83-3.04	Consumers prices (supermarket)	2.29-3.35
Import charges, cost of roasting packing and distribution	1.37-2.58	Import charges, cost of roasting packing and distribution	1.31-2.38
		FT label fee	0.05
Export charges	0.15	Export charges	0.15
Intermediaries	0.18
		Cost of cooperative operations	0.09
Producers price	0.18	Producers price	0.69

Source: Max Havelaar - France

In these markets niche, Rwanda faces the competition of other well established producers, and, with respect to coffee, must overcome the poor reputation surrounding the quality of its produce. This requires a two pronged action: one prong is the need to improve the quality of the products from the way it is grown and harvested to the way it is processed. The other is the need to develop effective marketing techniques, and the international trading relationships required to sell in the specialty markets or to traders interested in buying the best of the only slightly inferior qualities. That is, to transform a commodity into a product, with its specific characteristics, sold to the extent possible under internationally recognized labels that certify quality and origin.