Fair trade ethics questioned

In a coffee-scented conference room near Lake Geneva, Ramon Esteve, a sixth-generation commodities trader, sits amid his father's collection of centuries-old grinders and explains why he's helping impoverished farmers grow more coffee, cotton and cocoa.

He's embracing a goal, first laid out by fair-trade activists, so he can secure more sustainable supplies for his company and clients such as Nestle, the world's largest food company, and Starbucks, the biggest coffee-shop operator.

"For us it was survival," said Esteve, 56, chairman of Ecom Agroindustrial, one of the largest coffee traders. "We're not philanthropists. We're businessmen."

Esteve's blunt acknowledgement shows how a mission-driven movement is transforming into a corporate push for productivity and profit. The cause begun in the 1980s by a Dutch priest and his activist-acolyte to help coffee farmers in the southern Mexican state of Oaxaca now includes some of the world's biggest sellers of coffee (Nestle), lingerie (Limited Brands), chocolate (Kraft Foods' Cadbury unit) and bananas (Wal-Mart stores), to name a few.

New research has quantified the benefits to the bottom line: In a study released this year, researchers at the Massachusetts Institute of Technology, Harvard University and the London School of Economics found they could boost bulk coffee sales by 10 per cent just by adding a fair-trade label on the packages. Sales of goods approved by Fairtrade International, the world's largest certifier of such products, soared 27 per cent in 2010 to more than US$5.7 billion ($7.3 billion).

The push to increase sales of goods deemed to be free of child labour and other practices has divided the movement, raised questions of whether going mainstream will undermine the co-operative farmers it was created to help and, most of all, strained the integrity of the certification systems that vouch for the fair-trade stamps that allow companies to charge consumers more.

"The fair-trade movement has profoundly lost its way," said Aidan McQuade, who has advised Cadbury on cocoa buying as director of London-based Anti-Slavery International, a human rights organisation founded in 1839. "Its focus on volume - unless they have got all their systems in place to address fundamental issues like ethical trade, child labor and child slavery - is problematic."

The strains are evident in the work of Fairtrade International, a Bonn-based network of 25 organisations that certifies more than 100 products from cotton to gold around the globe. The labelling group approved cotton in a Burkina Faso programme that was recently found to be using child labour.

Fairtrade also signed off on soccer balls made in Pakistan by suppliers that violated fair-trade standards, according to an International Labor Rights Forum report last year. Over the years, Fairtrade's auditors have found breaches of standards in the industry that led to the suspension of certification until the necessary corrective action was taken, said Barbara Crowther, spokeswoman for the Fairtrade Foundation.

Fairtrade International took a year and a half to commission an independent review after BBC disclosures in March 2010 that children harvested Ghanaian cocoa certified by the group for suppliers to Cadbury and other companies, McQuade said.

Fairtrade International said that as the organisation has grown, "we have strengthened our certification systems and our global operations so that Fairtrade is more robust now than ever before".

The group's struggles to police its own system come as the number of so-called ethical labels has mushroomed. The creation of 202 new ones in the past decade boosted the total tracked by Ecolabel Index to 424. That includes those created by companies, such as Starbucks' own stamp for its producers, CAFE Practices.

The growth has thrown into question the very definition of fair trade and exposed rifts between the movement's founders.

What evolved into Fairtrade International began in 1985 when Frans van der Hoff and Nico Roozen developed a system where coffee farmers were guaranteed a minimum price and a social premium to be used for projects such as health clinics and schools. Fairtrade International still uses their model. It estimates 1.15 million farmers and workers were in the system last year.

Today, van der Hoff and Roozen are at odds over how best to help producers amid the surge in demand for fair trade goods.

"The two founding fathers of the movement are taking different positions," said Roozen, 58. "He is criticising fair trade because it is making compromises with big companies like Nestle. And I am criticising fair trade because they haven't taken the lead in mainstreaming fair trade."

Farmers must be trained to partner with major corporations so they can boost volume, said Roozen, director of the Dutch nonprofit Solidaridad. He works with Ecom. They say they can offer farmers better prices and help in boosting yields without a formal fair-trade system.

Van der Hoff and his allies say corporations will offer those prices only until fair-trade co-operatives wither and die.

Fair trade is increasingly becoming a marketing strategy where the farmers' poverty is a necessary ingredient to make consumers feel good about themselves, said Bill Fishbein, who founded Coffee Kids in 1988 to provide health and education services to poor coffee growers.

"We are way overpromising and under-delivering," Fishbein said. "Those farmers have become a sales tool."

HOW BIG IS FAIR TRADE?

* Sales of goods approved by Fairtrade International, the world's largest certifier of such products, soared 27 per cent in 2010 to more than US$5.7 billion.

* The push to increase sales of goods deemed to be free of child labour and other practices has divided the movement, and possibly undermined its goal to help farmers.

* In New Zealand it is estimated that more than $16 million of Fairtrade goods are sold, with coffee making up 90 per cent of that.

- BLOOMBERG