Fair Trade versus Free Trade: Their Likely Consequences

fair trade certified

On 11 August 2011, the GoLive Indonesia  project ran its fourth academic discussion. Uwe Kaufmann, a PhD candidate of School of Economics, presented “The (unexpected) consequence of Fair Trade in the Pacific’s perspective”.

Before he started his presentation, Uwe Kaufmann asked the participant whether they were familiar with the idea of fair trade, had experience of buying fair trade products, and agreed with the University of Adelaide’s interest in becoming a fair-trade university in Australia. Most of participants expressed their agreement to the idea of fair trade.

In his article published by East Asia Forum (6/8/2011), Uwe Kaufmann explained that:

Fairtrade is a certification available to products that meet the international Fairtrade principles and standards for producers and traders, set up by the Fairtrade Labelling Organisation. Fairtrade companies pay a ‘Fairtrade Minimum Price’ to producers to cover the costs of sustainable production. This amount is agreed upon prior to production. A ‘Fairtrade Premium’ is also collected and paid to the producer cooperatives that represent the respective farmers. The Premium is used by the cooperative for capacity building in every aspect of life (like education). The increased cost of Fairtrade products is financed by consumers who are willing to pay a higher price for them because of the perceived social and environmental benefits.

In the discussion session, the participants focused on research findings in the pacific countries, regarding the implementation of fair-trade movement which shows the insignificant impacts of fair-trade movement on poverty reduction.

Based on empirical evidence, Uwe Kaufmann revealed the difference between fair trade movements’ objectives and actual practice. For instance, the initial and regular fee to get a fair-trade certification is supposed to be measured in a group base. This implies the bigger the number of farmer’s group members, the lower they have to pay. But in practice, farmers in most pacific countries are working in small groups. This condition could obviously disadvantage their ‘bargaining position’ to get an affordable fair-trade certification. In addition, in many cases fair-trade-certified products are not necessarily of good quality since the term ‘quality’ does not clearly exist in the principles.

Henri Suudi focused on the impacts of fair-trade certification on small farmers. These groups of farmers have less capacity to form or join a large farmer group. He also pointed out the potential inequality of risk distribution among farmers, intermediaries, and traders. Such inequality could further disadvantage small producers.

Wahida argues that the idea of fair-trade movement is acceptable but the implementation is far from ideal. According to her research in East Nusa Tenggara Indonesia, coffee growers are dealing with an exhaustive process to get their products fair-trade certified. A numbers of principles such “the prohibition of child labour” is difficult to be met since most coffee growers in that area occupy their family members to get involved in the production. Such a practice is considered to be acceptable in this region and has been implemented since decades ago. Wahida also regretted the lack of the Indonesian government’s support and its incapability of managing various fair-trade organisations that are operating in Indonesia. The government’s role is needed in assisting coffee growers to meet demand from the world market which requires  fair-trade certified products, for example Starbucks coffee.

Other participants raised concern on other alternatives to create a ‘real fair trade’ in the region, including Indonesia. Uwe Kaufmann proposed a regional free-trade scheme which provides clear objectives to assist poor farmers in the region, the most vulnerable and least accessible group to meet the requirement of fair-trade certification.

At the end of the discussion, participants were given the same question whether they still agreed with the University of Adelaide’s interest in becoming a fair-trade university in Australia. Most of participants changed their stances and seemed to disagree with the idea.


This article is prepared by Bagus Wicaksena. He works for the Ministry of Trade of the Republic of Indonesia and is currently undertaking a postgraduate study in Global Food and Agricultural Business (Trade Policy) at School of Agriculture, Food, and Wine at The University of Adelaide. The opinions expressed are his own.



1 Comment

Filed under Economic development, Economic Integration, Fair trade, Food and agriculture, Income inequality, Indonesia, PPIA academic discussion, Trade

One response to “Fair Trade versus Free Trade: Their Likely Consequences

  1. Pingback: Indonesian Chilli Farmers and Participation at the Supermarket Channel | GoLive Indonesia

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