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Trade justice - Profiting from hunger

“Speculation in basic foodstuffs is a scandal when there are a billion starving people in the world. We must ensure markets contribute to sustainable growth. I am fighting for a fairer world and I want Europe to take the lead on that." Michel Barnier, European commissioner for the internal market

Unequal trading terms

Many staple foods are produced in some of the poorest countries in the world which need the income which a foreign market provides; however there are trade barriers which prevent such produce reaching richer countries. Key factors affecting trade are import tariffs and the subsidies which exist for farmers in rich countries at the expense of the poorer farmer.

Governments of poorer nations do not have the resources to resist the pressures from richer nations and the global institutions, such as the World Trade Organisation, to liberalise their economies.  The wider impacts of trade liberalisation lead to much greater losses in national income for developing countries, mainly due to its devastating impact on domestic agricultural and industrial production. Low-income countries lost a staggering $896bn as a result of trade liberalisation in the 1980s and 1990s.

Dismantling import tariffs and other barriers to trade within the poorer nations, due to liberalisation, leaves many farmers unable to compete with the flood of cheap foods which arrive much of which is due to overproduction by the heavily subsidised farmers of the richer countries exporting artificially cheap foods.  As an additional blow, rich countries in the North still maintain their own import tariffs and other non-tariff barriers to trade in key sectors such as agriculture, making it difficult for producers in developing countries to export and sell their goods abroad.
Share the world’s resources www.sharing.org

Speculation

“It is deeply alarming that the greatest proportion of activity in the futures markets no longer involves those in the supply chain but is, instead, taken up by speculators. Food commodities are too important to be played about with by day traders and speculators” President of National Farmers’ Union, Scotland

Deregulation has enabled speculators to trade in food stuffs causing massive price swings in staple foods such as wheat, maize and soy. 

How did we end up like this?

‘Futures contracts’ have been used for hundreds of years, helping farmers deal with the uncertainty of growing crops (such as unforeseen weather conditions). A futures contract means a farmer can sell his or her crops at a future date at a guaranteed price. However, these contracts can also be bought and sold by speculators who have no interest in the actual food being traded. Instead, by buying and selling the contracts they could profit from the prices changing over time – betting on the price of food.

These markets for futures contracts worked well until the late 1990s, when aggressive lobbying by bankers led to regulations being rolled back. New and complicated financial products created more ways to make money from betting on food.  Since 1996, the share of the markets for basic foods like wheat held by speculators – who have no connection to food – has increased from 12 per cent to 61 per cent. 
World Development Movement www.wdm.org.uk

Fairtrade

Fairtrade aims to address the injustices of conventional free trade and to obtain better prices, working conditions, local sustainability, and fair terms of trade for farmers and workers in the developing world. Companies which sign up to fair trade agree to pay sustainable prices which are never lower than the market price. Having an agreed price enables farmers to improve the situation for their families and to have more control over their lives as the prices of the food commodities they produce fluctuate.

The Fairtrade movement is not without criticism with concerns about the benefits reaching developing countries, despite the premium paid, the amount of additional finance received by participating farmers and the lack of evidence of impact.

How does Fair Trade Differ from Free Trade?

Many people are familiar with the term “free trade,” which has played a major role in countries’ trade policies in the past few decades. While free trade policies need reform, Fair Trade adds a complementary business model to such reform. The table below summarizes key differences: www.FTRN.org

How does Fair Trade Differ from Free Trade?

Free Trade

Fair Trade

Main goal: To increase nations’ economic growth To empower marginalized peo-ple and improve the quality of their lives
Focuses on: Trade policies between countries Commerce among individuals and businesses
Primarily benefits: Multinational corpora-tions, powerful business interests Vulnerable farmers, artisans and workers in less industrialized countries
Critics say: Punishing to marginalized people & the environ-ment, sacrifices long-term

Interferes with free market, inef-ficient, too small scale for im-pact

Major actions: Countries lower tariffs, quotas, labor and environmental standards Businesses offer producers fa-vorable financing, long-term rela-tionships, fair prices and higher labor and environmental stan-dards
Producer compensation determined by: Market and government policies Living wage and community im-provement costs
Supply chain: Includes many parties between producer and consumer Includes fewer parties, more direct trade
Key advocate organizations: World Trade Organization, World Bank, International Monetary Fund Fairtrade International, World Fair Trade Organization

Equitrade

Fair trade provides a fair wage to farmers for cash crops. Meanwhile, equitrade attempts to take this one crucial step forward, and empower local people to turn their crops into finished goods.

The Malagasy company provides an example of equitrade. It was set up as a way of tackling poverty through the production of chocolate, not just growing the cocoa beans but the whole process - farming, fermentation, drying, roasting, winnowing, grinding, mixing, refining, conching, tempering, moulding, packaging, and transportation in Madagascar. It is usually the cash crop - cocoa beans or coffee for example, which are exported with the ‘added value’ happening in the richer countries. It is these later processing stages which offer the greatest opportunities for profits; profits which do not reach the farmers and those in the initial stages of production. www.justmeans.com