Manufacturing Dialogues: The Funding Of Fair Trade Projects
Introduction:
This is an ongoing documentation of a series of dialogs between members of our Manufacturing Group, charged with the task of developing exceptional standards for jewelry manufacturing. Follow this link, https://fairjewelry.org/madison-dialogue-manufacturing-committee for full review of past discussions, including the entire principles and standards document that we are reviewing.
On several occasions, our dialogs have launched into unexpected areas that may be tangential to our particular principle and standard, but are critical to fair trade issues. What we have below is a serious discussion about the validity of fair trade in context to its funding and its economic structures as challenged by Martin Rizzi. Rizzi assists in a revolutionary fair trade producer centered project in Mexico which I wrote about previously in this blog: https://fairjewelry.org/archives/2649
In these dialogs, Rizzi discusses how fair trade organizations manipulate the system in Mexico by labeling their business ventures as “cooperatives.” He questions the validity of fair trade as true advocates of producers, writing:
“I know that if I give in to the general consensus in the fair trade world today, we will be neutralized…. When I have used the term “producer” I am referring to an artisan or a small farmer. When the Fair Trade employs the term “producer”, it means a factory or a plantation.”
Patrick Schein, a board member of the Association of Responsible Mining collaborating with FLO answers some of Rizzi’s concerns. Greg Valerio, who is also bringing fair trade gold into market, and I respond to Rizzi’s as well. Read the entire fascinating dialog below.
~ Marc Choyt, Publisher, Fair Jewellery Action
Martin Rizzi wrote:
I have reviewed various sections of the linked document and recommend that others do as well always keeping into mind that The Fair Trade Foundation is funded by the commercial re-sellers.
So, where does the money to pay the salaries of The Fair Trade Foundation officials and staff come from, if not from the marginal profit derived from the buy-sell arrangement with producer organizations in the 3W?
WHY not afford the producers access to a little of that marginal profit to finance the production of a similar report in their own frame of reference and addressing this same question:: “How Do Producers Benefit from Fair Trade”?
Patrick Schein wrote:
On how the producers benefit from Fairtrade, please see:
www.fairtrade.net/impact_studies.html you can also download the word document named “Retail pricing of Fairtrade products: Questions and Answers” on the upper part of the following page where you will find helpful other docs: http://www.fairtrade.org.uk/resources/reports_and_briefing_papers.aspx
Fair trade is a business model not charity (TRADE NOT AID). It links directly the small producer organization with the consumer. A premium is paid DIRECTLY to the producer (development premium). Also the producer benefits of a shorter and more transparent supply chain allowing him to get a better price for its commodity. Finally, there is a minimum price paid when the commodity international price is weak.
Following this link you will be able to evaluate all Fairtrade premiums and minimum prices: www.fairtrade.net/list.html?&no_cache=1
Regarding the running cost, if we follow the FTF example you are mentioning, in the UK in the last 10 years FT sales went from 33 million £ to 800 m £ (X25).
To get there, you need staff, campaigning, management etc. and this is financed by the Labeling fees and the donations. Labeling fees are paid by the brands and not the producers. They serve to finance the system promote the products and assure an third party labeling system. At FLO level, labeling fees represent 50% of the income and the other half are the grants received ( see: www.fairtrade.net/annual_reports.html )
Finally, FLO, FTF and the national initiatives of the FLO family are non-profit organizations.
To conclude, yes fairtrade impacts the producers and premium is transferred to them thanks to the model. The model is financed thanks to grants and labeling fees paid by the consumer brands. Those brands in exchange get better consumer visibility that allows them to partly absorb the labeling costs and premiums. It also contribute to their CSR politics. It is a triple win solution. The producer, the consumers and the brands.
I personally believe that this is the best model for impacting the producers in the South and do not know one which has a better impact using the existing market tools.
I can understand your points but besides making a revolution, I believe that the best way to go is to use the existing market tools as Fairtrade & Fairmined gold decided to do.
Martin Rizzi wrote:
Is not the producer the craftsperson, the small farmer, the artesenal miner the reason-of-existence of fair trade itself? I support the establishment of a new ethical fair trade label if it does not mis-use the producers.
I hope I have not messed anything up. My purpose has always been creative and constructive; however, I know that if I give in to the general consensus in the fair trade world today, we will be neutralized.
This has been a very interesting process and the question is, how to achieve justice? Isn’t that the question? Is there anything that is being considered in this dialog, that has not been discussed in Plato’s Republic?
Doesn’t economic justice of the commercial variety have to concern the craftspeople, the small farmers, and the artesenal miners who actually produce the material content of the entire ethical and fair trade jewelry industries? …and the source of all its profits?
The big brother of Fair Trade is FLO with revenues in excess of 10 million US dollars per year – all they have to spend all this money on are the salaries of European administrators and office workers, and of course to issue fat contracts to buddies. According to the FLO website, the producers pay the costs of certification and this involves paying for a professional to fly in from Europe, spending up to several months in the research before returning to Europe in a jet plane to write up a report, that the FLO administration will finally decide on.
It’s rather obvious isn’t it? This expensive process is not designed in consideration of the farmers and artisans.
So where are the small people who are after all the primary suppliers to the growing Fair Trade distributors and whose creations and artesenal production and distinct ethnic culture are so all-important and valuable?
FLO Definitions
3.1.1. Producer
A Producer is a small holder group, plantation, or factory that is engaged in the production of the primary product.
Who controls the small holder group? who owns the plantation? who operates the factory? Surely they are not those persons whose friendly and hopeful dark faces the buying public associates with Fair Trade? whose interests Fair Trade systematically claims to champion.
These farmers and craftspeople work for those plantations and factories, and these are folks fair traders fail to acknowledge exist, preferring to arrange things with the plantation manager.
p.s. Numbers of Americans have expressed concern in response to the extensive media coverage of a supposed “narco war” in Taxco and generally in Mexico. First, is was the notorious “narcofosa”; the abandoned mine respirator shaft where dead bodies had been deposited over the years. This is at the 16th Century Rancho Hacienda Cuadra, about an hour’s walk from here. A week or two later, there was a shootout where the soldiers killed a band of armed men refusing to give themselves up. This little mini-documentary filmed, within a few hours of the shoot-out. It shows how it is really.
Marc Choyt wrote:
I share Martin’s concerns and have visited him and his project in Mexico. For those of you who are not familiar with Martin’s projects, he has enabled through hard work and conviction, a truly producer centered artisan model. You can read about it here: https://fairjewelry.org/archives/2649 and see a website which provides a direct producer to retailer and consumer outlet. http://handcrafted-ethnic-jewelry.com/
In considering these issues from a macro point of view, I see no easy solution in bridging first world demand with artisanal craft in the developing world. Often we see that fair trade does not benefit those who need it most, for numerous reasons, many of which we have discussed in these dialogues. This concern cuts across issues related to fair trade and the jewelry sector. For example, the Fair Trade Diamond study funded by Tiffany and conducted by TransfairUSA concluded that small scale artisanal communities which are most desperately in need of fair trade support were not potential candidates for fair trade diamonds.
In the mainstream jewelry sector right now, the emphasis with the RJC is on chain of custody which does not at all address the larger economic concerns we have. Greg Valerio and I wrote a critique of this approach. https://fairjewelry.org/archives/3862
The issues are enormously complex, which is why no other working group from the Madison Dialog established so idealistically in Oct. 2007 has come even close to what we have nearly done: create a standard and principle document.
I know we can do better than the mainstream approaches. I also believe that our consensus model might be useful in other tasks ahead. We are not oriented toward the corporate, but toward the producer. We know that what we do will have to be tested in the field, but that is who we truly want to benefit.
I have mentioned this before, and I would like to reiterate once again my proposed solution to address Martin’s concern. We can create a web based platform that links off a simple logo stamp that says “fair made.” This logo would link to a study about a particular workshop. This study would list our standards, and state what is accomplished and what is not. Different workshops are going to have different strengths and weaknesses. But this would allow us to have a wide variety of ethical, fair made products under broad criteria of standards. This would allow both a small shop to get exposure, as well as a fair made factory which employs many artisans. In both cases, the platform we outline would support best practices.
Our platform would provide market support for all these workshops which authentically want to be part of our fair made or fair trade manufacturing initiative. How this would be funded, I’m just not sure at this point. There is plenty of money and good will in the world. We will see this through to its successful fruition.
Greg Valerio Wrote:
I feel that I have to correct some of Martins inaccuracies.
FLO is owned by the producer networks in the south and the labeling initiatives where product is sold.
Salaries and other expenses are defined by the board who are made up of producer networks and labeling initiatives.
Salaries in the small scale mining sector and corporate business are a lot bigger in many cases than those at FLO.
As to ownership, it is misleading to suggest one form of business model is operational within the FLO network. Within the fairtrade system there are many forms of business model, of which the dominant one is cooperative ownership by the producers.
With thanks
Martin Rizzi wrote:
With all respect, amigo, maybe this confusion is caused by the use of the ambiguous term “Producer”
FLO Definitions
3.1.1. Producer
A Producer is a small holder group, plantation, or factory
that is engaged in the production of the primary product.
When I have used the term “producer” I am referring to an artisan or a small farmer;
when the Fair Trade employ the term “producer”, it means a factory or a plantation.
Another source of confusion is the use of the term “cooperative”. The very familiar Fair Trade narrative suggests that “cooperative” refers to a collaborative social production community, one where everybody puts in their share, and then the profits are shared among everybody. This idealized system is not common in Europe and the united states where most people naturally are working in the familiar old capitalist model.
It’s true Mexicans are quite communalistic, but Mexican communalism is an ancient social tradition having nothing to do with contemporary commercial legal fiscal formulas for the mitigation of taxes and labor rights.
In Mexico (and i believe in the other Iberoamerican countries) a “cooperative” is merely a legal-fiscal figure; a cooperative (SC de RL) is similar, nearly identical, in its essence to an ordinary “corporation” (SA de CV)
Just because a business is legally structured as a cooperative does NOT in itself signify that the workers control the cash flow. Hardly. Perhaps the single most attractive feature of the SC de RL over the SA de CV is this fact: it allows cash flow to be controlled by the capitalists, while attributing ownership to the workers.
The ordinary way in which accountants in practice handle SA de CV corporations, also SC de RL cooperatives, is to zero-out profit over the course of the fiscal period. Often Anglo American people are not familiar with the way in which the kind of fiscal invoicing employed in Mexico (etc) works in practice.
The high rate of taxation applying to legal-fiscal entities (the SA de CV and the SC de RL) is avoided by spending the money out of the operation before the final day of the reporting period.. The nominal ownership of cooperatives by the workers only signifies that the workers get a minimalized amount as determined by the accountant and whoever is handling the money. In other words, that individual who is in contact with the international buyers and is, in effect, their representative.
Cooperatives are used to shield real ownership by suggesting that the enterprise is really owned by the workers. However, in a commercial operation, the buyer is god, or, at least, the buyer generally thinks of himself as a god and the people ordinarily treat the buyer as a god, since the common workers depend on the prospect of orders.
FLO’s Definition: “A Producer is a small holder group, plantation, or factory that is engaged in the production of the primary product.”
If the Producer (using the FLO definition) is styled as a cooperative, that only begs the question of who controls the cash flow. In reality the cash is king and the international buyers are astute enough to know their interests, and so are the people in the South. The workers know their job in the plantation depends on humble discretion. The buying agent puts on the robes of a cooperative president, and the international buyers are in effective control.
The idea that workers on these fair trade plantations are in the position to negotiate anything, is quite dubious. The small farmers and artisans get what is offered to them by the buying agent, as that is how the system works.
Again, nominal ownership of a cooperative is not important. All that matters really is who controls the cash flow. I don’t doubt the claim made that FLO is owned by the Producers (the holder groups, plantations and factories). These legal fiscal entities styled as “cooperatives”, or whatever, are set up and controlled by the foreign buyers. to provide a legal structure for tax-free commercial operations in the 3W country, also to shield themselves from legal responsibility for various benefits due to workers under the Constitution, when acknowledged as employees.
That FLO is owned by the “holder groups”, plantations and factories established in 3rdW agricultural communities is a claim that should be questioned, if these legal fiscal entities are purported to represent artisans and farmers.
With thanks to all for your forbearance and interest in this topic
from Tecalpulco Mexico
Martin
