Direct trade vs fair trade

For the past few years there has been a lot of discussion about how to help producers in developing countries improve trading conditions, which would encompass the payment of a higher price to exporters as well as higher social and environmental standards. The answer seemed to be fair trade, an organised social movement based on paying “fairer” prices to producers from developing countries who grow their crops such as coffee, tea or cocoa for export to developed countries. But is fair trade really the solution to improving trading conditions, or should we look elsewhere?

 

Is fair trade in fact fair?

FINE, an informal association of four main fair trade networks (Fair-trade Labelling Organisations International, World Fair Trade Organization, Network of European World shops and European Fair Trade Association) came up with a definition of fair trade, describing it as

a trading partnership, based on dialogue, transparency, and respect, which seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions and securing the rights of marginalized producers and workers. Fair trade organizations, supported by consumers, are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade.

Although fair trade organisations are trying to convince the world that their main goal is to protect the environment and pay the farmers and producers what they are due, there is no secret that all fair trade products are usually priced higher than regular products. These products are basically very profitable, as consumers are willing to pay more for products that supposedly ensure the fair treatment of their producers. With that in mind, the question has to be asked if the fair trade system is truly as fair as it claims to be.

 

Who does the money go to?

When you pay the right to use one of the fair trade brands and logos, nearly the entire amount you pay goes towards marketing. Retailers can consequently charge as much they like for the products in question.

The question of supply and demand is what usually sets up the price; this means that in most cases, after you cut other expanses, there is barely any money left for the farmers and producers. According to some calculations, they are still left with no more than 5 to 10%. In some cases the farmers certainly do not get enough additional funds to cover the extra costs of conforming to fair-trade standards. Moreover, competitors are quite often offering the same price as Fairtrade.

Enter the increasingly popular idea of direct trade.

 

Direct trade: cutting the middleman

Direct trade is quite similar to fair trade, but it is seen as its alternative. It represents the interests of those who disagreed with some of the fair trade terms, such as the lack of increase in fair trade premiums paid to farmers, the lack of what direct trade perceived as sufficient quality-incentives for farmers, the limits on fair trade participation and the payments involved in being a fair trade company.

Direct trade does not have an official definition yet, but we can say that it cuts the middleman and respects and advocates personal and direct communication between buyer and producer.

Direct trade is attempting to achieve long-term relationships directly with individual farmers and producers in an attempt to avoid working with the cooperative. It also promotes price negotiation between both parties and encourages farmers to achieve the best quality. The whole supply chain, including the transactions is transparent to both buyer and supplier.

Farmers and other developers working with direct trade purchasers usually earn more money that they would through fair trade, since direct trade focuses on quality and not quantity and encourages farmers to produce higher quality products which will bring more revenue. Buyers dealing with direct trade often visit the farms and work closely with producers to ensure the quality of the product.

 

Conclusion

Whereas both fair trade and direct trade are based on the same idea of farmers receiving a fair share, fair trade has not been able to cut the middlemen in the form of cooperatives and the labelling organisation. Direct trade is therefore a promise of more genuine trading relations not focusing on the ‘aid for the poor’ but instead on giving the farmers a proper reward for their work and quality produce.

 

Read this article in Slovene

Anuša Žagar

Anuša Žagar

Anuša Žagar is Aphaia’s guest blogger. She attended Munich Business School and holds a degree in marketing from the Faculty of Economics at the University of Ljubljana.
Anuša Žagar

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