Social business in a ‘fair’ trade world
“I pity the man who wants a coat so cheap that the man or woman who produces the cloth will starve in the process.”
Benjamin HARRISON, American politician and former U.S President
Introduction
Globalized trade touches every part of our lives, but we hardly notice it anymore. Global trade is a simple fact of life linked to countless aspects of our daily routine. However, global trade has not always been this easy or ubiquitous. Before the Industrial Revolution, long travel times and primitive technology hampered efforts to expand international trade markets. Conversely, since World War II, free trade has blossomed and, in many cases, has become indispensable for modern societies. International trade has increased dramatically in the last 50 years. In the early 1960s, trade between countries accounted for 12% of global GDP, but by 2010, it had risen to 29%. It has also, unfortunately, produced both winners and losers. More alarmingly, many aspects of ‘fair’ trade indicate possibly worrying times for the foreseeable future.
A stressing point is that people have traded with one another since our ancient ancestors first began to harvest crops and manufacture essential tools. In a nutshell, as people continued to explore and expand, so did the trade routes, and nations that controlled the exchange of goods over time became global superpowers. This dominance by global superpowers has led to widespread inequality, which must be redefined and eliminated.
A case of Fairtrade
The beginning of Fairtrade on the agricultural commodity landscape can be mapped out to its concern for the producer side of the market. Moreover, it is estimated that over 40% of all agricultural workers worldwide are engaged in agricultural commodity production. As such, a commodity crisis affects over one billion producers. Considering this troubling fact, Fairtrade has played an instrumental and leading role in agricultural markets to increase producer returns. The Fairtrade movement aims to create real impacts at the “grassroots” level with farmers, producers, and labourers from the Global South.
But in layperson’s terms, what is Fairtrade? Fairtrade is a trading relationship structured to alleviate the poverty of agricultural commodity producers in least-developed countries “by offering better trading conditions for producers and workers in those countries.” Fairtrade encourages farmers to get organized in the form of cooperatives. More specifically, Fairtrade means empowerment. There is also ample evidence and studies that the Fairtrade system improves the lives of producers, workers, and immediate communities. Through their cooperatives, these producers have higher bargaining power in trade negotiations and receive higher revenue shares because of the minimum price model.
Furthermore, the Fairtrade “social” premium has significantly impacted these producers’ communities’ social development and welfare. Fairtrade is usually synonymous with a ‘fair price’ for most in the industry. This minimum price is the central pillar of Fairtrade conditions and is the most well-known.
This brings us to the question of whether or not businesses are using the Fairtrade label to market themselves as ethically driven. FLOCERT, for example, has to ensure Fairtrade standards are complied with. FLOCERT represents Fairtrade as their global independent certification body. They ensure that the Fairtrade system remains credible. FLOCERT personifies a model of responsible business. Focussed on long-term gains, it values fairness in global trade, combating poverty, fair working conditions, and sustainable growth.
The intentions of companies are not always crystal clear. Hence, whether they are using the Fairtrade system as a public relations stunt or not, the consequence is that they are somehow still making a difference for producers and labourers in the Fairtrade system.
The Fairtrade system has flaws, so some critiques are directed at the Fairtrade movement. Firstly, Fairtrade predominantly focuses on the long-term financial sustainability of its producers and labourers, neglecting environmental sustainability. Secondly, Fairtrade benefits traders in Western countries more than producers in the Global South. Fairtrade admittedly stated, “Fairtrade alone cannot meet the scale of the challenges posed by climate emergencies and the inequalities in the value chains; the current global economic system urgently needs to be transformed.”
Climate change is not ‘fair’
Everybody is talking about it. Climate change is causing havoc, but who suffers the most? Climate change will impact people’s essential parts of life worldwide – access to water, shelter, food security, health, and the environment. As the world warms, hundreds of millions, particularly in the Global South, could suffer hunger, water shortages, and coastal flooding. For example, Fairtrade stated that “farmers are on the frontline of climate change.” These farmers are already experiencing extreme temperatures, crop failures, and unstable yields, to name a few.
The rising seas bring major flooding. Already, 20 to 30% of Bangladesh is underwater regularly. In other areas, heat waves and soaring temperatures create deserts out of once productive and cultivable land. Climate change is humanity’s most significant challenge. The global response to climate change is the principal framework for all societal debates. There is agreement that climate change is finally taking the central role in public discourse that it should have held for decades. There is a need for a paradigm shift, and the right mindset makes progress possible.
It is crucial to realize as unpredictable weather patterns become more common, they will affect crops worldwide. As a result, we could see shortages of everything from fruit and grains to coffee and significantly higher prices for the limited available supplies.
A dynamic landscape of social enterprises
Today’s Global North business leaders face a credibility crisis. In addition, public opinion shows that trust in corporations is near historic lows. Many feel companies prioritise profits over people and the planet.
Executives in Western countries struggle to motivate disengaged workers. How can businesses recapture respect and inspire excellence? It is one where business uplifts humanity—the idea of conscious leadership that unlocks creativity and care. The reputation of the businesses has suffered as a result.
A root issue is that too many businesses operate with low consciousness about their true purpose and impacts. In a narrow pursuit of profits, some companies have caused unintended negative consequences for people, communities, and the planet. Many businesses fail to recognize their significant environmental and social impacts, treating these as externalities.
Social enterprises seek to create financial, intellectual, social, cultural, emotional, spiritual, physical, and ecological wealth. They have a deeper purpose that goes beyond short-term profits. Social enterprises realise capitalism’s heroic potential. They start with dreams of creating positive impacts, not just making money. Think of Patagonia. It exemplifies what it means to be purpose-driven and a responsible business leader. It is a brand that melds profit with purpose.
Contrary to the common notion, people think that businesses exist to do one thing: make money. But this isn’t entirely true. When enterprises have a higher purpose in mind, they have the potential to not only maximize their profit but also do good in the world. Of course, businesses strive to make money; otherwise, they couldn’t exist. However, doing better didn’t mean making more money. It meant creating a profitable enterprise that also lived by the virtue of integrity and trust. This implies doing right by the poor and marginalized communities and the environment. Therefore, it is imperative to pursue win-win situations. For example, a win-win solution could be that when a trade happens, both producers and traders do well; one receives a product they want, and the other gets a gain on the exchange. Then, there are win-win-win solutions that go even further. One could even go further to find ways to create value for the broader community, a third win.
While mission-driven social businesses have the added reason to consider ‘fair’ trade, the practice has relevance for Global North businesses and traders, even those with a ‘finance first’ orientation. Values aside, ‘fair’ trade means more people are lifted out of poverty and become self-sufficient. This can be viewed as a strategic advantage for traders in the Global North with a long-term sustainability horizon.
As consumers, your decisions can significantly impact agricultural workers’ working and living conditions in developing countries. Consumers worldwide, particularly those in Western countries, as they are the most extensive consumer base of these Fairtrade products, have to believe that the power to change the status quo is in their hands. Think about it: when you buy something, you exercise your economic power. Should we not think more about the people behind the products?
Conclusion
The future is unknown, and social enterprises have realised they are a part of society. As such businesses are expected to make positive contributions; otherwise, they will cease to exist and be replaced by enterprises that operate fittingly in society.
It’s possible to accomplish ‘fair’ trade with thoughtful implementation and putting resources toward the right technologies. While mainstream adoption of ‘fair’ trade will require broader market advancement, the Global North can propel this further. Success will depend on imagination, continuity in producer cooperatives, and desire to scale up cooperation in technology and multi-stakeholder involvement. Climate risk insurance should be a definite option to explore to protect vulnerable farmers from further losses due to climate change. Critics argue that a crucial element of Fairtrade should be realigning social business with society’s values and optimizing its contribution. Of course, this is easier said than done.
Who can say how the global playing field will shift in the coming decades?
References
- Bernstein, William. J (2009). A Splendid Exchange: How Trade Shaped the World. Grove Press.
- Chang, Ha Joon (2015). Economics: The User’s Guide, Bloomsbury Publishing
- https://www.flocert.net/
- https://www.fairtrade.net/
- Mackey, John, McIntosh, Steve and Phipps, Carter (2020). Conscious Leadership: Elevating Humanity Through Business. Portfolio.
- Mackey, John and Sisodia, Raj (2013). Conscious Capitalism: Liberating the Heroic Spirit of Business. Harvard Business Review Press.
- Ronchi, Loraine (2006). “Fairtrade” and Market Failures in Agricultural Commodity Markets, World Bank Policy Research Working Paper 4011.
- STERN REVIEW: The Economics of Climate Change.
