after 25 years of Fair Trade Prof. dr. Ruerd Ruben Centre for - - PowerPoint PPT Presentation

THE FAIR TRADE BALANCE: Lessons & Challenges after 25 years of Fair Trade

• Prof. dr. Ruerd Ruben

Centre for International Development Issues (CIDIN) Policy & Operations Evaluation Department (IOB) Ministry of Foreign Affairs

The Development Impact of Fair Trade

Fair Trade

• 1988: Introduction Max Havelaar coffee
• Minimum price guarantee (set by FLO)
• Pre-finance & Fairtrade Premium
• Environmental + Labour conditions
• Market share: 2-3 %
• 1996 : Fair trade fruit (bananas,mango, citrus)
• Turnover Euro 80 mln (2008)
• Annual growth 40%, Net profit 1.5%
• Market share: 5-15 %
• 2012 : €3,5 billion - 700 organizations - 1.500.000 families

Proliferation of Labels

The Development Impact of Fair Trade

Diversification of deliveries

The Development Impact of Fair Trade

The Development Impact of Fair Trade

Impact assessment

• Un-biased impact measurement (with counterfactual)
• Control for self-selection & unobserved heterogeneity
• Micro + Regional analysis
• Plot, household & village level
• Life cycle effects
• Cross-country comparison
• Smallholders & plantation production

The Development Impact of Fair Trade

Study design

• Focus on 2 commodities: coffee & bananas
• 5 countries: Peru, Costa Rica, Kenya, Uganda, Ghana
• 1000 farm households: 500 FT & 500 non-FT farmers
• Conventional & organic production
• Old & younger farmers
• Different standards (‘fair’, ‘responsible’, ‘sustainable’)
• Approach: Propensity score matching (PSM)

& Difference in Difference Analysis (DiD)

The Development Impact of Fair Trade

Impact Assessment

• Impact assessment at producers’ level
• Direct Income & welfare effects
• Expenditure effects
• Organizational impact
• Gender & Environment
• Externalities & Spillovers:
• Other household activities
• Regional level (prices, wages, FT premium)
• Risk attitudes & behaviour

The Development Impact of Fair Trade

Matching: nearest neighbour

.5 1 1.5 2 2.5 .2 .4 .6 .8 1 Propensity Score Control Treated

Before Matching

.5 1 1.5 2 .2 .4 .6 .8 Propensity Score Control Treated

After Matching ON-CS

• OFF-CS
• Total

FT 42 6 48 Organic 97 6 103 FT 39 9 48 Conventional 30 6 36 Number of observations on Common Support

Difference – in Difference Method (DiD)

Intervention group Control group Difference across groups Baseline I0 Co I0 – C0 Follow-up I1 C1 I1 – C1 Difference across time I1 – I0 C1 – C0 (I1 – C1) – (I0 – C0) = (I1 – I0) – (C1 – C0)



Change in performance before / after the program between target and control group

Measuring Impact of Development Programs

The Development Impact of Fair Trade

Results (1)

Indicator FT non-FT sign Household Net Income +

• n.s

Crop Yield +

• *

Crop Price + +/- ** Other household income

• +

* Expenditures to Education ++

• **

Expenditures to Housing +

• *

Asset ownership +

• **

Credit access ++

• **

Input use + * Soil quality investments n.s

The Development Impact of Fair Trade

Results (2)

Indicator FT non-FT sign Organizational force ++

• **

Cooperative service provision +

• n.s

Cooperative identification +

• ***

Female participation

• +

* Gender empowerment

• +

n.s Sustainability +

• n.s

Risk acceptance ++

• **

Smallholders & plantation workers

20 40 60 80 100 120 140 160 180 Salary Fringe Benefits Premium Own Plot Salary Fringe Benefits Own Plot US$

Ghana: banana workers Fair Trade Non FT

1000 2000 3000 4000 5000 6000 FT Organic Non-FT-Organic FT-Conventional Non-FT-Conventional US$

Peru: Coffee Farmers Organic Conventional

De Impact van Fair Trade

Fair Trade Premium

• Investments in community services
• Social services: education, health care
• Physical infrastructure: roads, electricity, water
• Upgrading: microfinance, crop renovation, insurance

The Development Impact of Fair Trade

The Development Impact of Fair Trade

Externalities (Peru)

10 20 30 40 50 60 70 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

FT market share

Regional prices

Fair Trade & Private Standards

Cooperative Cooperative x x x x x x x x x x x x x x x x x x Fixed minimum price Variable Market price Technical Support Organizational Support

The Development Impact of Fair Trade

Comparison of Standards (Nicaragua)

0,00 5,00 10,00 15,00 20,00 25,00 Fair Trade FT Conventional FT Organic Rainforest Alliance Café Practices Independent Farmers Coffee Price ($) Coffee Yield

The Development Impact of Fair Trade

Comparison of Standards (Nicaragua)

The Development Impact of Fair Trade

Indicator FT B2B Income

• +

Productivity & Quality

• +

Farmers Organization +

• Gender Participation
• +

Sustainable Practices

• +

Coffee renovation +

• Solidarity

+

• Loyalty
• +

The Development Impact of Fair Trade

Policy Implications

• Limited/modest direct FT income effects
• Stronger asset & credit-access effect (wealth)
• Clear behavioral changes (risk, farmers’ organization)
• Substantial externalities (through prices & wages)
• Limited spillovers (negative in coffee)
• Scarce FT ownership feelings

(limited loyalty)

• Potential regional multipliers

The Development Impact of Fair Trade

Outlook & Challenges

• Role of FT

 Providing initial market access (‘infant industry’)  Only temporary support (max 5 years)

• Support for FT

 Focus on regional market share at buyers side (>30%)

• Strengthening FT

 Focus on quality upgrading through B2B linkages  Cooperation with private labels

• Multiplying FT

 Linkages with finance & community organizations

The Development Impact of Fair Trade

Thanks for your attention