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Fairtrade International

Fairtrade International

A paper about Max Havelaar and the fair-trade non profit organization.

By Tim Wuenker

Introduction

To start my paper off I will start with explaining who and what Max Havelaar is in a small introduction. And then explain what a fair-trade company does as well as where and how they operate.

Max Havelaar

Max Havelaar, or better known as the Coffee auctions of the Dutch Trading Company, is a book written in 1860 by Multatuli (who was also known as Eduard Douwes Dekker) he played a key role in changing the Dutch colonial policy. This story talks about a man who fights against a corrupt government system of the Dutch Indies.

The political lordship of the Dutch Indies was at the beginning of the 19th century given to the Dutch government by the East India Company. To increase the profit a cultural system was introduced, this allowed the state to cultivate precious agricultural products, instead of just cultivating rice what they did before. With the use of taxation system, a lot of government officials where awarded heavily. The combination of these two systems led to a lot of corruption, that led to poverty and a famine with the local population. And because Multatuli wrote this book, the people that lived in Holland got to understand that they got their wealth through the suffering of lots of people throughout the world. And thus opened their eyes. And this is still the essence of what Fairtrade Max Havelaar stands for today.

Foundation Max Havelaar

The vision of this foundation is that "there is no better medicine to poverty than the power to earn your own income by your own means.” This foundation helps small producers in developing countries to get a better place in the supply chain, so that they can live from their work and invest it in a sustainable future. Max Havelaar foundation works together with the International Fairtrade mark to realize their vision. The mark is in Holland known as the Max Havelaar mark, and this is a sticker you will see on specific products, and you will know that this product has been produced by a local person in a developing country.

At this moment the Fairtrade mark has been represented in 30 countries, and there are 1,3 million farmers connected to Fairtrade, and together they sell 27.000 products with the Fairtrade mark on it.

Foundation Max Havelaar is seated in the Dutch city of Utrecht. Here 18 people are responsible for trying to get this Foundation more well known, as well as build the foundation bigger in the Netherlands. This foundation is part of a bigger International Fairtrade movement. Together they try to get businesses as well as the consumers more known with the importance of fair trade.

How did Foundation Max Havelaar start?

They where founded in 1988 by two dutch guys named Frans van der Hoff and Nico Roozen after a couple of Mexican coffee farmers called for help. They said the following: “Help is nice, however a fair price for their coffee is even better. Because then we don’t have to hold our hand out any longer.” Because with a fair price for their coffee these Mexican farmers can keep matters into their own hands. And thus the Foundation was named Max Havelaar, after the book from Multatuli. The first bag of coffee was presented to the husband of our queen Prince Claus, with the statement of fair coffee from Mexican farmers. This coffee became a huge success. Besides coffee, chocolate was introduced in 1993 in the Dutch market. After that also Fairtrade banana’s, thee, sugar, orange juice, flowers and even Fairtrade gold became introduced. In 2013 the foundation celebrated their 25th anniversary.

How does fair trade work?

The goal of max Havelaar foundation and fair trade, is to bring products on the market for which an honest price has been paid. So the Fair trade organization tries on many levels to get fair trade. For example, they pay the producers a much higher price than other companies do. They tell the producers how they can improve their products, so that they become more attractive for the richer countries. They give this advice because usually the quality of the products isn’t even close to the quality of products from richer countries. Contracts are made with producers for a long period of time, in which way the producers are made certain that they can keep producing. The environment is also very important for these organizations, because usually when a producer has sold its product they will leave behind a mess in their own countries. Fair trade will keep the environment in check. They also try and look at the way the distribution works in the countries they export from. Equal rights for women and man is also very important.

The idea behind Fair trade is like this.

You buy a fair trade product, which will result in a higher income for companies, means higher wages and better workers, and in the end a better economy. As stated by fair trade.

However, are their any dangers to Fair trade, which could result in a worse economy?

The (potential) dangers to Fair trade.

The concept of fair trade is a honest one of course. However, could there be a potential dark side behind buying that product with that nice logo on it? Would it really help farmers in developing countries?

As stated before fair trade is an initiative that tries to aim on improving the living conditions of producers in these third world countries. As of 2013, Fair Trade operates in around 70 countries and has 1.3 million farmers working for them. Because fair trade started off in the coffee business it is the most commonly certified product. So let’s focus on that product and the specifics of this industry. There are some important differences between the products that are under the fair trade organization. The goal of the fair trade certification is to improve the living conditions of famers and workers in third world nations. However, this certification has the workers and farmers put through some requirements. For example, the farmers are guaranteed a minimum price for the good, as well as a fair trade premium. The workers must have freedom in which they choose for whom they work. They are given safe working conditions and good wages. Child labor for kids younger than 15 is not allowed.

The farmers have to work together and make decisions democratically and with a transparent administration that can export their product effectively.

About the environment, certain chemicals that are harmful and GMOs are not allowed to be used. And these criteria are made to ensure that the members work toward a healthy environmental approach.

The most central characteristic of Fair Trade is the minimum price, and this is done with the living wage in the sector and to cover the average cost of production. There is however, no guarantee that all coffee that meets the certification requirements is sold. Therefore, it is not a guarantee that consumer will buy these products and thus the benefits are a danger for the producers. A product can only be sold as fair trade when everyone in the supply chain keeps to the rules applied by the certification.

On to the next question, Does Fair Trade work?

This is the most important question to potential consumers. Given the price of the products and the premium that is seen with fair trade, we will examine the price because of that.

There is enough evidence that Fair trade products receive higher prices normal farm products. A study from Weber and Bacon in 2005 examines the sale price of coffee during a harvest in 2000, their sample consisted of 228 coffee farmers and they find that fair trade farmers obtain significantly higher prices for their coffee. With an average price of $0.84 per pound. Farmers who sold their produce as organic receive around $0.63 per pound, while farmers who produce the normal way receive around $0.41 per pound. This is perhaps not surprising that they receive higher prices because this the aim of fair trade. So looking at the essence of what fair trade stance for you can say that it works.

What are the benefits of Fair trade in the long run?

For a lot of people, the benefits behind fair trade is appealing. Consumers have always had a weakness for third world countries because of sentimental reasons, and they find the idea that their consumption of goods will provide better livelihoods to the producers in developing countries. Consumers will gain access to new goods that they value and the producers will thus earn higher incomes.

There is however, the problem that as soon as other farmers get to see that their neighboring farmers earn more money, they will want to become fair trade as well. And this can result in the supply outgrowing the demand. And in this case not all farmers can sell their products. And in this instance, farmers are no better off being with Fair Trade, because consumers will only buy as much as the demand. So in the long run It could potentially ruin itself. Of course regulations on the size of the firms etc. could limit the amount of farmers in every country but what is the fair trade in that.

Does fair trade provide greater stability to the farmers?

As stated before one of the goals of Fair Trade is to create an increase in the stability for the farmers. This is done trough different mechanisms, for example, higher prices are paid to provide greater financial stability. This system wants to create long term ties with the producers and the consumers. Buyers are expected to try and create more than short tem relationships. Fair trade also aims to give farmers a greater access to credit. There is also the price floor that guarantees a minimum price for which the coffee cannot be sold.

And this is also the greatest safety net from Fair Trade, they guarantee this price floor. Because if coffee prices fall the farmers still receive some money.

And thus have greater economic stability to the farmers who work with Fair Trade than conventional farmers. Conclusion

While overviewing this paper about Fair Trade you’ll see that what this organization does is providing farmers with a better chance of selling their products oversees.

As stated before, farmers who work with fair trade will receive higher prices, better access to credit, think their economic environment as being more stable.

I think that fair trade if it is used in the right way, it can become a market based tool that can improve the welfare of consumers and the lives of producers and the environment.