The Fight for a fair deal
Jan 30 2009 Agenda
Finance professional John Higgins looks at Birmingham’s contribution to international Fairtrade.
Have you ever thought why our consumer goods have been getting so much cheaper over the past ten years or so?
It is all down to international trade and most of us will realise that our consumer products are now made almost entirely overseas where costs are lower. Take China, for instance.
Twenty years ago, Europe imported almost nothing from China but by 2006 it had grown to €191billion of merchandise.
China is expected to carry on growing its exports and will provide 15 per cent of world trade by 2030. Its growth has been remarkable and other developing nations are keen on exports, too.
The countries which make these products for us are inevitably the poorer, developing nations.
The “costs” are cheaper because labour is cheaper. In China, an accountant can expect to earn £4,677 a year and a production worker £1,241 whilst in India the same jobs would pay £2,956 and £964 a year respectively.
Not only are wages a good deal less but you might not have the right to join a trade union or expect health and welfare benefits, keeping labour costs down further. Long working hours are the norm, further improving productivity.
Given the above salaries it is easy to see why our clothes, food, toys, gadgets and everything else can be created so cheaply.
Proponents of Fairtrade say that this is just not equitable and that we should ensure that the workers who produce our goods are treated better.
A fair day’s work deserves a fair day’s pay and the price paid to a producer should be at least sufficient to provide for a reasonable standard of living.
More than that, workers should have the right to join a trade union and bargain collectively and there other standards to do with such things as health and safety that everyone should enjoy. We like to have our employment protection laws so everyone else should, too.
The Free Trade lobby argues that Fairtrade is protectionist and that the market should be left to decide the price of a product. This promotes competition and efficiency.
Oversimplifying it, the theory says that any two trading countries should do what they are best at and we are all better off.
Besides, simply carrying on trade with a country will help it climb out of poverty.
Surely, trade of any sort is a good thing and can only help people over the long term. Foreign trade brings in money and creates employment and that supports the local economy. Given time, such an economy will grow and the incomes, wealth and working conditions of its workers will improve.
Against this, Fairtrade supporters strongly argue that many of the products that are produced by third world countries, like coffee, are highly volatile in price.
This makes business planning difficult to impossible and cash flow erratic. The overall prices of such goods show no long term increase, either, and developing economies need much more support than simply trade at any price. They go on to say that the role of large international companies can keep the wages and working conditions of overseas workers very low as they strive to meet consumer demand for increasingly cheap goods.
Others criticise Fairtrade as creating inefficiencies in the market, that it lowers product quality because the best produce is kept back for sale on the open market. There are other ways of helping the world’s poor rather than just giving them a reasonable price.
Most of the value in a product is added when the raw material is processed and the finished item is produced, but that part of the process normally takes place in wealthier countries.
Roasting coffee beans before exporting them would create much higher income for producers but it rarely happens.
There are so many facets as to how world trade is organised, subsidies paid by rich countries to their own producers, the relative negotiating strength at international trade talks, the causes of inequality, the effect of globalisation and so on, all of which add to the complexities of Fairtrade.
The good news is that both sides agree that trade is key to helping alleviate poverty in poorer nations. It is just how things operate that separates them.
The eventual answer will probably lie in consumers, and how they choose to make their purchases. It will not be easy for consumers, though, should they choose to buy Fairtrade for more expensive items.
Take jeans as an example. A reasonable pair can cost £15-£20 at the supermarket, but you can get them a lot cheaper if you wish. Want something Fairtrade? Expect to pay £80-£100 for your jeans. Want them designer styled and made from organic cotton, too? Try something on for around the £200 mark.
Retailers face a huge dilemma in all of this, too. Competition on the high street means that if one store does not import cheap goods from overseas then it will lose out against a competitor that does so.
On top of that, consumers have come to expect low and ever decreasing prices and these expectations need meeting. It is all very well supporting a good cause but the recent spate of well known stores going under illustrates just how real the possibility of failure a retailer can face.
Some retailers may see that there are still many consumers who want to be supplied with ethical goods even if the economy is doing badly.
Sales of Fairtrade Certified products in the UK were under £17million in 1998 but had grown to £493million by 2007. So it may have a significant part to play in the economy in the added value niche.
Government has a key role to play but is in a difficult position. It wants to see our own economy doing as well as possible and agreeing to Fairtrade demands at international trade talks might get in the way.
Local government can take a lead, though. Birmingham was declared the biggest Fairtrade city in the country, for the second time, last August. Birmingham’s Fairtrade City Status means that all tea and coffee served at Council meetings are Fairtrade whilst similar produce is served at the Museum and Art Gallery’s Edwardian Tea Rooms, the Banqueting Suite, Central Library and Highbury Hall.
Fairtrade goes hand in hand with environmental and organic issues. The type of products that Fairtrade suppliers can produce lends themselves to such matters and might actually help their cause.
Small, family-based growers based overseas have great knowledge of how to cultivate fresh produce using organic techniques, for instance.
These products can be sold at better prices because it gives added value that many people in the consumer markets seek.
We are all likely to have to take a hard look at our lifestyles during the credit crunch. Our spending has already changed and we may have a great deal further to go.
The squeeze on the high street might not appear to be good news for Fairtrade, with many people watching every penny and putting price first, but time will tell.
* You can find out more about Fairtrade at www.my-fair-trade.co.uk
