The trouble with implementing fair trade

The Financial Times' Hal Weitzman has an interesting story about the failure to enforce "fair trade" labels on items like coffee: ?Ethical? coffee is being produced in Peru, the world?s top exporter of Fairtrade coffee, by labourers paid less than the legal minimum wage. Industry insiders have also told the FT of non-certified coffee being marked and exported as Fairtrade, and of certified coffee being illegally planted in protected rainforest. This casts doubt on the certification process used by Fairtrade and similar marks that require producers to pay the minimum wage. It also raises questions about the assurances certifiers give consumers about how premium-priced fair trade coffee is produced. As the board member of one Peruvian Fairtrade-certified coffee producer told the FT: ?No certifier can guarantee they will purchase 100 per cent of a co-operative?s production, so how can they guarantee that every bag will be produced according to their standards?? Though certified coffee makes up less than 2 per cent of the global coffee trade it has become increasingly mainstream as large retailers such as Starbucks and McDonald?s adopt it. The FT visited five Peruvian smallholdings, all of which have Fairtrade certification. Each farm hires 12-20 casual coffee pickers during the harvest season. All house and feed their workers, which allows them to deduct 30 per cent from their wages. After that reduction from the legal daily minimum wage for casual agricultural workers of 16 soles ($5), farm owners are still obliged to pay at least 11.20 soles a day. In four of the five farms visited by the FT, pickers received 10 soles a day, while the other farm paid workers 12 soles a day. Luuk Zonneveld, managing director of Fairtrade Labelling Organizations International, the Bonn-based body that sets fair trade standards, told the FT that the certification system ?is not fool- and leak-proof? but said the problem should be put in context. ?Poor farmers often struggle to pay their workers fairly,? he said. ?Why are casual labourers there at all? There are wider issues here. We need to ask why this goes on and what we can do to help.?Click here for a companion story by Weizman that gets at the details of the problem. The most interesting section of the latter piece comes here: ?No certifier is able to check that at no time are workers paid below minimum wage,? says Luuk Zonneveld, Managing Director of Fairtrade Labelling Organizations International (FLO) in Bonn. ?This issue comes up everywhere. Poor people struggle to pay their workers fairly.? The FT?s findings cast doubt on the certification process. ?The low pay issue wasn?t picked up in our audit because it wasn?t done at harvest season,? says Chris Wille, Chief of Sustainable Agriculture at Rainforest Alliance. However, Mr Wille says his organisation is aware of the problem and is developing a plan to tackle it. ?There no way to enforce, control and monitor ? in a remote rural area of a developing country ? how much a small farmer is paying his temporary workers,? says the founder of one Peruvian Fairtrade-certified coffee producer. ?Many farmers are earning less than minimum wage themselves.? Although farmers were paying casual labourers less than the minimum wage in four out of the five certified farms visited by the FT, Mr Zonneveld contends that low pay is not systemic in the coffee sector. That is a view contradicted by Eduardo Montauban, head of the Peruvian Coffee Chamber, a private exporters? group. ?No one in the industry is paying minimum wage,? says Mr Montauban. ?It?s simply not feasible for producers.? This suggests the following: 1) If fair traders really want workers to receive what they believe is a living wage, they're going to have raise the price of properlylabeled coffee; 2) The Rainforest Alliance can't be all that serious about enforcement -- why conduct an audit during off-harvest time unless you are trying not to find violations? 3) Simply demanding that coffee owners pay higher wages won't work -- that's not the market price for labor. This isn't because of evil multinational corporations -- it's the nature of commodity markets in general, plus the labor market in Peru Is there a solution to the problem? My solution would be to raise the price of fair trade coffee such that everyone in the distribution chain can receive higher wages, and let consumers decide whether the higher price is worth it. A perfect solution? Hardly -- but it's the one that is the most honest while not restricting employment in poor economies like Peru.