Updated: Aug 28, 2019
Is Fair Trade really better? This is something that I have wondered since learning about this concept a few years ago. From beverages to clothing, fair trade companies are popping up everywhere and a few things you may notice right away is that they tend to be more expensive and in most cases, better quality.
So is buying Fair Trade really beneficial in the long run?
Let's take a look at the tea industry specifically.
Tea is one of the most popular beverages in the world. Every second, 70,000 cups are drunk globally (Tea). While the global demand for tea is increasing by about five percent a year (Smallholder Tea). As the beverage becomes widely used around the globe the demand for it will rise as well. Tea can either be grown on plantations or by small farmers with over 50 million people in this industry worldwide (Tea). It takes a great deal of land to grow tea, so tea estates tend to be in remote rural areas. A majority of tea workers live on the estates. They may be descended from families who came to the region to pick tea generations ago. Workers today belong to the most underprivileged and marginalized groups in society, who lack education and other resources for numerous generations. Some of the producers who employ these laborers include, "Tetleys, Lipton, Twinings and PG Tips," and many of the workers, "are paid about $1.50 a day," (Iyengar). The small wage is cause for concern for many humanitarian groups.
Upon this it has been revealed the workers are
Not Paid a Decent Wage
May work in exploitative conditions
Reports of Child Labor
With the minuscule wage and squalid conditions, some have called for fair trade. Fair trade’s initiative aims to improve the living conditions of those workers in developing nations.
Fair Trade's Goal is to:
Attain higher prices for producers
Greater availability of financing for producers
Long-term buyer-seller relationships
Improved community development
In order to be considered Fair Trade, there is a certification process that requires that producers and suppliers adhere to a set of requirements that aims to accomplish Fair Trade’s objectives. Companies like Numi and other fair-trade activist organizations, are changing the way consumers buy tea. However, in the long run will it be sustainable? This article will explore the use of fair trade in the tea industry in India and its effects on social and economic issues.
Reasoning behind Fair Trade Tea Initiatives in India
The World Bank estimates that 80% of India’s poor live in rural areas (Overview). As stated before, we know that most of tea plantations are located in the countryside, likely employing poorer individuals. An example of this is in the town of Assam, India, which, “Is the largest tea-growing region in the world and numerous global companies source tea from the state,” (A Life of Dignity). They have been under fire for the conditions its workers have been subdued to. In August of 2009 a pregnant woman collapsed in a field, “The incident led to a labor dispute between workers and the tea plantation owner, resulting in workers being locked out for an initial two weeks, and then a subsequent three months. During the first two weeks, workers received part of their food rations, but no pay. During the second lock-out, the plantation owner said they would not provide any pay or rations,” (A Life of Dignity). This demonstrates the lack of necessities that is needed for basic survival in the world. It shows there is possible exploitation resulting from working with little to no pay or other accommodations.
This isn’t Assam’s first newsworthy story about the unfair treatments of its workers on the plantations. In 2015 a new story broke revealing horrid conditions,
Plantation owners in India are obliged by law to provide and maintain "adequate" houses, and sanitary toilets for workers. Yet homes on the tea estates were in terrible disrepair, with leaking roofs and damp and cracked walls. Many toilets are blocked or broken ... The drains are open and unlined and many clogged with effluent. In some cases, cesspits are overflowing into the living areas of people's homes … Nine out of 10 patients from tea plantations are malnourished, according to the medical director of Assam Medical College, one of the main general hospitals serving the tea region…These workers said although protective equipment was given out once a year, it would wear out within a couple of months and was not replaced. They reported side effects including breathing difficulties, numbness of the hands and face, a burning sensation on the skin and profound loss of appetite(Rowlatt and Deith).
These examples in India show it is an ongoing issue resulting in laborers more at risk for: Disease
Poor Standard of Living
As with the poor conditions, many activist groups would claim that the wage is too low. Although India was one of the first developing nations to implement a minimum wage, it is very complex. It is a country with many wage rates, which vary from states and job sectors (Rani et. al.). The national floor level minimum wage in India as of the new rates applied in 2017 is 176 rupees a day, equivalent to $2.68 US Dollars (Minimum Wage). If we take a closer look it is claimed that the estate workers’ daily wages are typically very low. An example is workers in India may be paid as little as $1 a day for plucking 20kg of tea (Environmental Damage). As a result, their wages have failed to keep pace with rising costs and continue to diminish in real value over time. With this tea workers are left in a cycle dependent upon the plantation for generations to come.
Activists argue that tea is too cheap. They yearn for companies to pay a fairer wage to plantations as well as provide better conditions for its workers. With this reasoning alone, the subject of fair trade is brought up. Fair Trade cuts out the middleman and works directly with producers. Meaning that products are still affordable for consumers and at the same time return a greater percentage of the price to the producers.
Certification and the Economics of Fair Trade
To be a fair-trade company, it requires a certification. The goal of Fair Trade certification is to improve the living conditions of farmers. Through prices, workers, institutional structure, environment, and stability. The dominant characteristic of fair trade is the price, which is envisioned to meet a broadly determined living wage in the sector and to cover average costs of sustainable production. The fair-trade buyer agrees to pay producers at least the minimum price when the world price is lower, and to pay the world price when this is above the fair-trade minimum. In both circumstances, producers and buyers are still free to negotiate higher prices. By yielding a guaranteed minimum price for tea sold as fair trade, the price floor is intended to considerably reduce the risk faced by farmers.
Another significant characteristic is the price premium, which is paid in addition to the sales price. The average premium for tea from India is about $.50 (Minimum Price). It is stated that, “The price premium is predetermined for economic, social and community projects/investments which are decided on by the community,” (Langen and Adenaeuer). Since it is prearranged, the specifics of how the premium is to be used must to be decided in a democratic manner by the producers themselves. Projects that are funded through this can include the building of roads, schools, and health clinics. This allows for communities to further their development.
To be considered fair trade, all actors in the supply chain, including importers and exporters, must obtain the fair-trade certification. To attain this, organizations must apply to FLOCERT. If the application is accepted, the organization goes through an auditing period. FLOCERT, states that, “There’s a three-year ‘certification cycle’, during which we carry out at least two more audits – one ‘surveillance audit’ and one ‘renewal audit’. If the first certification cycle is concluded successfully, we can issue a new certificate,” (How the Fairtrade). This keeps the organizations reliable and the information clearer to the consumer of the tea.
Consumer and Producer Findings and Reasoning
The base assumption behind Fair Trade is that consumers care about the nature of the production process. A study sampled in Michigan regarding if consumers were willing to pay more for Fair Trade, “Suggests that the current premiums asked on fair trade products may be too high for some consumers to bear. Moreover, the finding that over 62% of respondents are unwilling to pay any premium at all suggests that the fair trade movement is viewed suspiciously by many. Our regression analysis finds that those who are politically liberal, young, female, and have attained higher levels of education are, other factors constant, willing to pay a higher premium for fair trade products,” (Taylor and Boasson). This shows that many people who were surveyed are unwilling to pay the extra price tag for these goods. Although many who are young, educated, liberal thinking, and females are more likely to respond positively to such labeling. It should also be taken into consideration that this study only samples from one state and not a larger grouping of the population; Therefore, the accuracy of these results may not be the same for others across the country.
On the other hand, a group of researchers conducted a study with a national grocery chain, and found that, “The findings are consistent with a Globescan study conducted in 2010, which revealed that 75 percent of consumers said Fair Trade certification makes them feel "very positive or positive" about products; 30 percent said Fair Trade is "likely to increase their purchase interest;" …the tests suggest that there are plenty of consumers ready to vote with their shopping dollars to support Fair Trade when it is offered as an option by retailers," (Anonymous). This reveals there is evidence supporting the claims that people are willing to pay more for goods that are labeled Fair Trade. The idea of purchasing a product that is more social and environmentally responsible makes people feel good and increases their interest in the goods they will consume. The differences in the results of the studies could be to numerous factors, yet it should be noted that the studies should be further pursued to enact a better consensus on the issue.
As for the producer’s side, we see that, “Fair Trade is seen by producers and analysts as being beneficial in increasing economic stability and strengthening markets by breaking down oligopolistic structures … One of the most valuable inputs from Fair Trade is that it builds economic capacity as producers ‘learn by doing’ in a context that protects human lives against poverty and unacceptable hardship,” (Smith). This demonstrates that having fair trade allows many of the individuals to learn new skills regarding their work. It will also help with the stability in their economy.
Nonetheless there are some who argue that the certification is unproductive. They say, “With regard to the licence fee usage … [they] argue that around 40 percent of the fee wholesalers pay for using the Fair Trade label is not spent to conduct educational activities, licensing and product development but to cover the expenses of the organization itself. They also claim that consumers are not aware that such a high proportion of their paid price premium (wholesalers pass the cost of using the labelling directly on to the consumer) is spent on marketing and is not used to directly help the poor,” (Langen and Adenaeuer). This reveals that there could be a misuse of money. Furthermore, this shows that this will lead to inefficiencies in the market as well as information the consumer is not aware of. However, some will counteract this by responding that the, “Amount of money needed to support the certification system, Fairtrade is less efficient than making direct financial transfers to poor communities ... However, we should not assume that Fair Trade purchases and charitable giving can be seen as substitutable acts … many of the leading experts in the area argue that replacing aid programmes with an opportunity to trade under beneficial conditions would be a positive move,” (Smith). As stated before, the use of fair trade can allow many unskilled workers to advance their knowledge and capabilities by using this prospect. The higher prices due to fair trade create more financial stability.
From my research, I have found that there are many alternating views on this issue. The answer to the question of is it better, the honest answer is yes AND no. The tea industry comes from a long line of oppression and cycles of poverty. As many of the workers continue to live in destitution. Although the premiums on Fair-Trade items are supposed to go to community projects, studies have found it goes into marketing or keeping the organization afloat. Even if the notion is to create more skills and entrepreneurs of the workers, many of the workers may not be that receptive to this notion. Fair Trade has criticisms that appeal to both ends of the spectrum, resulting in no solid consensus on the issue. Lastly, the method of Fair Trade has contrasting outcomes that should further be looked into and studied.
However, I will say that Fair Trade is a complex issue that varies in effectiveness from industry to industry. For example, this model works amazing in the Coffee Industry, but as we see in the tea industry in India, it is more complicated.
If you choose to buy Fair Trade or want to try here and there, I suggest research the company before buying.
What are your thoughts on buying Fair Trade goods? Let me know in the comments below!