Free or fair trade?

Free trade

A system of trade were buyers and sellers are not limited by taxes on imports and exports (tariffs)

Fair trade

A way of buying and selling products that aims to pay the producer a fair price

Imports

Products that are bought in from another country

What international organisation is responsible for trade? What does it do? + Example

The World Trade Organisation (WTO) negotiates international trade agreements and resolve disputes that may arise.

Banana Trade Dispute:

• The European Union favoured imported bananas (lower tariffs) from its former colonies in Africa, the Caribbean and the Pacific over those from Latin America.

• Latin American countries like Ecuador and Honduras complained it was unfair discrimination and that it violated WTO rules.

• The WTO ruled that the EU’s system broke global trade rules and pushed for a new agreement

What does free trade mean in the sense of difficulty/cost to move products between countries? Advantages and disadvantages of free trade

It means that is usually easy to move products between countries at a low-cost

• Loss of jobs: a country is exposed to competition from foreign goods and services that are often produced at lower costs than in the domestic business + some companies relocate their operations to take advantage of lower labor costs/more favourable business conditions to maximise profit.

  • First point: that is why subsidies and tariffs exist. Example if South Korea which protected local tech industry (Samsung) to be able to compete globally.

Advantages and disadvantages of fair trade

• Fairtrade actively promotes agroecological (eco friendly) approaches to enhance sustainability of farming practices

  • E.g crop rotation, natural pest controls (synthetic ones damage soil which could become infertile)

• Fairtrade standards have built in forest protection requirements (stop deforestation)

• Doesn’t benefit wider communities: rigorous standards which can be costly and hard for smaller producers in poor countries to meet

What was created in response to the disadvantages of free trade? Mainly why and how does it help them?

The Fairtrade foundation to ensure that those who make the goods receive a fair price. Normally it is the poorest producers who suffer from free-trade so this helps workers to increase standards of living (provide for themselves and family) and reduce risk and vulnerability.

Cocoa beans in Côte d’Ivoire

Why are farmers paid so little (what does it mean for the sellers to sell cocoa beans so cheap to the companies)? Why don’t farmers leave?

To reduce costs. A few large chocolate companies control a significant portion of the global market, giving them a lot of power in setting prices. There are not many big companies buying chocolate, so there is no one else to sell to while these companies could just switch farms if they think it is too expensive to buy the beans from that farm

It is an underdeveloped country and people in rural areas in Côte d’Ivoire are very poor (living below poverty line $2.15), so they are desperate to find jobs and would accept any money. Cocoa farmers here may only be paid $2 or even 1$ a day.

Where are most cocoa farms (60% of cocoa comes from these 2 countries)? What are the problems in cocoa farms?

• Ghana and Côte d’Ivoire (both are underdeveloped)

• Farmers are underpaid and exploited (including children, who are vulnerable. Policies to protect these farmers may not exist or are not enforced or their families are desperate)

  • Human rights are not respected:

    • Not enough money for food, shelter; no education

    • Inadequate working conditions (some work the whole day—right to rest/right to limitation of max working hours) (use of dangerous equipment like machetes, dangerous for children; spray of toxic chemicals to kill pests without protective gear— right to working conditions which respects thei health, safety, dignity)

    • Ghana and Côte d’Ivoire signed the CRC but there is still child exploitation/labor on cocoa farms in these two countries — right of protection from economic exploitation and harmful work.

How do changing weather patterns (climate change) affect cocoa cultivation? What does this mean?

Crops are more at risk of rain damage/disease, some die

Risky and uncertain with factors like weather impacting profitability and yields. Cocoa prices fluctuate a lot and sometimes drop a lot.

What is the worth of the cocoa industry in the UK alone a year? Even though it is so huge, workers receive the least share of profit (mostly going to exporters or retailers) and have little control about how much they seek cocoa for.

4 billion.

How does Fairtrade help when prices drop? What else do they receive when Fairtrade products are sold? What else does Fairtrade Foundation offer to farmers? + example

Farmers and workers receive the ‘Fairtrade Minimum Price’ for their crop. When prices drops the buyer of Fairtrade products must pay that price regardless of how low past that line the market price has fallen.

They receive an additional Fairtrade Premium for every ton of cocoa sold on Fairtrade terms. They can use this extra money to invest in their businesses (bigger and better warehouses, transportation trucks, equipment, measures to fight effects of climate change, etc) or communities (schools, health center, safe drinking water) or in diversification projects (grow other crops) to earn independent income so it doesn’t only rely on fluctuating cocoa prices

• Coffee and cocoa farmers from cooperative CAYAT in Côte d’Ivoire have used the Fairtrade Premium to:

  • Build nursery schools and rebuild damaged school buildings → children can receive education + mothers can work

  • Installed water pumps for access to clean water

  • Invested in large warehouses and many trucks to store and transport more efficiently

  • Diversify crops (bananas, chillies) brings more revenue so when it is not cocoa season, chill fees are still payed

• Training in good agricultural practices → greatly increased production (e.g synthetic fertilisers damages soil, sometimes makes it infertile = less land to cultivate cocoa trees = less production)

Bad side is that in the end it all depends on the customer to choose to buy from fairtrade certified products (usually expensive)