International Development CommitteeWritten evidence submitted by The Fairtrade Foundation

1. Thank you for the opportunity to contribute to this important enquiry. We would like to offer some key points which we hope are of assistance, especially with regard to the IDC’s questions on:

The role of the international system, including food and agriculture organisations and the G8 and G20, and ways in which collaboration could be improved;

The best strategies for reducing risk from short term shocks and long term structural factors and for building resilience among the most vulnerable;

2. Background on Fairtrade

2.1 The Fairtrade Foundation is the independent non-profit organisation that licenses use of the Fairtrade mark on products in the UK in accordance with internationally agreed Fairtrade standards.

2.2 Fairtrade producers are for the most part selling cash crops such as coffee or sugar, though many will also grow staple crops as well. Many of the concerns of cash-crop producers are similar those of smallholders growing staple crops (for instance price volatility, challenges in accessing credit, and environmental degradation).

2.3 There are 1.24 million farmers and workers in the Fairtrade system, across 66 countries. 60% of all farmers and workers are in Africa.

2.4 The UK is the biggest retail market for Fairtrade. In 2012 retail sales grew by 19% to £1.57 billion. The growth in sales reflects a partnership between UK consumers, campaigners, and businesses with the farmers and workers in the developing world who grow our food for over 20 years.

2.5 We believe that the growth in Fairtrade sales over this time reflects a high level of interest from the public in the provenance of their food, and the wellbeing of those who produce it. It also reflects an awareness on the part of business that there is a good business case for social investment and fair treatment of producers.

2.6 Regional markets are much smaller, but growing fast, with South Africa trebling retail sales to EURO 7.2 million from 2010 to 2011.

2.7 In close collaboration with Fairtrade International, other members of the Fairtrade movement, and the academic community, a growing body of research and impact monitoring is helping to understand the contribution (and boundaries) of Fairtrade with respect to poverty reduction, improved livelihoods and sustainable, inclusive growth.

3. Fairtrade and Food Security

3.1 Fair prices for producers

3.1.1 Price volatility is a serious disincentive to investment by cash-crop producers in their farms, with a similar dynamic to that seen in recent years in staple crop prices. Coffee, for example, takes five years from nursery to first crop, while international prices vary considerably from year to year (see graph).

3.1.2 Fairtrade’s model seeks to address the critical problems facing small farmers in international supply of low returns and price volatility by giving growers of most commodities a guaranteed, minimum price for their produce. The minimum price is intended to ensure that farmers can earn enough to cover at least the basic costs of sustainable production.

3.1.3 A review of literature on the impact of Fairtrade Standards and interventions across products conducted by the University of Greenwich found that 29 out of 33 impact studies showed Fairtrade producers’ income benefitting from guaranteed minimum prices and 27 showing benefits in terms of improved economic stability. The study also showed that Fairtrade producers had more stable incomes and that Fairtrade could act as a buffer against the effects of price volatility in global markets. Indeed, in some areas where Fairtrade is practised, it can be the main motor for economic development in the community.i

3.1.4 The destructive effect of price volatility, and the uncertainty as to whether prices received will cover production costs are experienced across the agricultural sector in the developing world, with serious consequences for livelihoods, poverty reduction and growth. Measures to address volatility and encourage sustainable pricing should take high priority in any package of policy responses to food security.

3.2 A focus on smallholders

3.2.1 In its 2012 State of Food and Agriculture (SOFA) report, the FAO revealed that despite increased agricultural aid budgets, farmers themselves are by far the largest source of investment in agriculture. This fact alone suggests that solutions for smallholders are less about development assistance (though well-targeted aid plays a vital role) but about the importance of a supportive policy and trading environment.

3.2.2 The SOFA also stated that governments also have a special responsibility to help smallholders overcome the constraints they face in expanding their productive assets and to ensure that large-scale investments in agriculture are socially beneficial and environmentally sustainable.

3.3 Helping farmers receive a fair share of value, and to move up the value chain

3.3.1 Much agricultural policy in the past two decades has sought to link smallholders into export markets by integrating them into supply chains. However, there remain too many international supply chains in which companies have little or no traceability back to primary producers, and few significant programmes to invest in strengthening producer capacity. The norm is that smallholders still sell to middlemen, with no knowledge of where their crop may end up. Cash crop farmers still receive only a small fraction of the final sale price of commodities such as coffee or cocoa.

3.3.2 The Fairtrade Foundation believes that governments and business need to explore ways to ensure greater transparency and a fairer distribution of value across the supply chain, helping smallholders to secure a sustainable price for their produce.

3.3.3 Intrinsic to Fairtrade is that small farmers gain more than in conventional value chains. The minimum price (where applicable), social premium, access to pre-financing and strengthening of producer organisations all offer larger benefits than to small farmers in non-Fairtrade supply chains.

3.3.4 The Fairtrade Foundation’s own research into how to make international supply chains work better for small farmers indicates how, with better business trading relationships that firmly put people and fairness at their heart, producers can be better empowered to contribute to the development of their own communities. It highlights areas of good practice that the Fairtrade Foundation is calling on business engaging with smallholder organisations to adopt.

3.3.5 These include:

Building strong and long-term relationships with farmer organisations so that farmers will be economically more secure to plan for the future.

Timely cash payments throughout the year, rather than a one-off payment during harvest season, so households are not left without any income for the rest of year.

Provide farmers with information on the entire value chain of their products, as well as with other useful information on for example commodity prices and global markets.

See the Fairtrade relationship between farmers and consumers as an asset that can be used to add value to products, for example with producer stories on packaging.ii

3.4 Investment of Fairtrade Premium income in supporting local food security

3.4.1 In additional to the minimum price or market price (whichever is higher) Fairtrade producers receive an additional sum of money called the Fairtrade Premium that they receive from the sale of their Fairtrade products. This is used by producers for investment in social, environmental and economic development projects, decided upon democratically by a committee of producers within the organisation or of workers on a plantation.

3.4.2 Evidence from our impact research shows that many Fairtrade communities have chosen to invest their Premium income in community projects that directly contribute to making them more food secure. For instance, in Malawi, one of the world’ poorest countries, many farmers are now more food secure as Premium income earned from the sale of their sugar and tea has provided for maize supplements in the lean months.

3.4.3 The Fairtrade Premium is also frequently used to invest in farms, to improve productivity, add value, or similar.

3.5 Enhancing farmers’ and farmer organisations’ access to credit

3.5.1 Timely and affordable access to credit is a key concern for smallholders. Without it, they are unable to buy inputs or technology, or diversify into new crop varieties. Innovations are needed to encourage more financial institutions to extend their services to smallholders. Businesses themselves must look closely at their own practice when offering credit to ensure timeliness, scale, and ease of access.

3.5.2 Fairtrade helps to address this through its pre-financing support for farmers (whereby producer organisations in most Fairtrade commodities are also able to request up to 60% of the purchase price of their produce as pre-finance). A number of impact studies show that Fairtrade producers are more credit-worthy and enjoy greater access to credit than their non-Fairtrade counterparts, for example to cover harvest expenses and other costs.

3.5.3 The premium received by Fairtrade growers can be used to establishing a fund for community finance. Smallholders can also use Fairtrade contracts as collateral when taking out loans from financial institutions. This can allow smallholders to access lines of credit otherwise unavailable to them. Fairtrade’s role in forming and developing cooperatives also enables small farmers to increase their access to credit though community-based finance organisations and group loan guarantees.

3.5.4 The Fairtrade system is also working on enhancing farmers’ access to credit. Fairtrade International in partnership with Incofin Investment Management and the Grameen Foundation has recently launched the Fairtrade Access Fund, a unique investment fund that will provide farmers’ cooperatives and associations with long-term loans to build their businesses. Organisations such as Shared Interest and Oikocredit also play a useful role in this regard.

3.6 Building stronger farmers’ organisations

3.6.1 A core characteristic of Fairtrade is building and strengthening producer organisations in terms of their democratic functioning, transparency and participation of small-scale producers. It results in organisational strengthening principally through enabling producer organisations to achieve greater influence nationally and locally, by improved democracy in decision making and levels of participation, and a greater higher ability to attract other sources of funding. Fairtrade principally results in improved individual empowerment in terms of producer self-confidence, improved market and export knowledge and greater access to training. Fairtrade’s experience of working to empower of individual producers and organisations holds lessons for broader policies to increase farmers’ participation in decisions that affect them. Features of the Fairtrade model are bottom-up, participatory consultation, with producer organisations themselves democratically deciding where to invest the social premiums.

3.6.2 The democratic and independent organisation of small producers is a key element of Fairtrade—firstly to ensure fair and transparent distribution of the Fairtrade premium, and more generally to facilitate long-term processes of sustainable development and empowerment. Fairtrade Standards follow ILO Recommendation R193 on the promotion of co-operatives as a proven model that contributes to the socio-economic development of farming communities. Fairtrade farmer organisations—co-operatives, associations or others—must incorporate co-operative principles including voluntary membership, democratic control, economic participation of members, autonomy and independence, and concern for the community.

3.6.3 Joining together in co-operatives enables farmers to pool resources, benefit from economies of scale and strengthen their position in the market. By working closer with their buyers, Fairtrade co-operatives can learn about quality requirements and consumer needs. They can invest additional income in processing and warehouse facilities to increase their share of the export price, in technical assistance to improve yields, in training cuppers to improve quality, and in skills training and better business methods to improve the efficiency of their co-operatives. All of this investment enables co-ops to negotiate higher prices for their members, allowing them to lift themselves out of poverty through trade.

4. The Role of the Private Sector in Building Food Security

4.1 Current international supply chains for most commodities are dominated by transnational corporations, who usually take the lion’s share of value, while small farmers tend to be marginalised and receive low returns for their produce. Governments and business must explore ways to ensure “fair competition” in international supply chains to avoid excessive corporate power undermining small farmers.

4.2 DFID and other international donors are increasingly placing emphasis on the potential of the private sector to support pro-poor growth and investment, and we welcome this, while keen to ensure that the benefits for poverty reduction are clear. At the same time, businesses are increasingly aware of the need to satisfy consumer expectations of ethical and environmentally sustainable products, and the need to incorporate social and environmental considerations into supply chain management beyond that traditionally covered by corporate sustainability policies. This is partly driven by security of supply concerns—that the medium to long term interests of business are not well served by business models which secure cheap prices in the short term but risk leaving cash crop livelihoods unviable. By contrast, social investment through fair pricing and supportive business partnerships has the scope to boost productivity, create attractive livelihoods and communities for smallholders, and encourage sustainable access to produce.

4.3 It is hard to underestimate the role of private business in rural development. Buyers, the first point of sale for smallholder farmers, are key actors in development. Food retailer and trader buying practices impact the lives of smallholder farmers from whom they source produce; some buying practices can facilitate a farming communities’ development while others can undermine poverty alleviation initiatives and trap farmers in poverty.

4.4 The Fairtrade Foundation is in an influential position, at the interface between smallholder famers, businesses, consumers and donors, to explore how the major actors in the supply chain including buyers, can have a greater impact on development on the ground. Its value added is being able to bring the business perspective to the development debate and vice versa.

4.5 Fairtrade’s standards present a framework that businesses comply with when sourcing from smallholder farmers, combined with the brand strength and consumer recognition levels of 78%1 in the UK market, motivates businesses to deepen engagement and help farmers move up the value chain.

4.6 When good practice is undertaken, businesses build long term relationships with producer organisations to build food security in their communities. At scale this effect can be substantially amplified. Responsible business partnerships with smallholder farmers through Fairtrade can dramatically increase productivity (as demonstrated by Tate and Lyle’s partnership with the Belize Sugar Cane Farmers Association) build sustainable grower communities, add value addition at origin in projects such as the Marks and Spencer/FRICH funded product with Iria-ini tea growers and build producer organisations themselves, for example Cafedirect’s support for the establishment of the CECAQ—11 cooperative in Sao Tome.

5. Focus in Donor Spending

5.1 Earlier in this submission we noted that farmers themselves are the dominant investors in their own farms, and that therefore solutions are less about aid and more about the policy and trading environment. At the same time, well targeted aid is crucial, and investment in agriculture is currently far too low.

5.2 The Fairtrade Foundation is a member of the Enough...If campaign, and supports the Enough If analysis on financing for agriculture. This identifies a US$ 42.7 billion funding gap, of which Enough...If is calling on G8 member states to commit US$21.3 billion.

5.3 We are concerned that many donor initiatives risk focusing on overly-technical solutions, without paying sufficient attention to the “quick wins”. Agricultural extension services, for example, are very poorly supported, despite being essential for the adoption of improved farming methods, or business expertise. It has been estimated for example that less than 2% of Nigerian farmers have access to extension services.

5.4 Women farmers need to be specifically targeted in extension services, subsidy programmes, credit schemes and agricultural research. It has been estimated that if women had the same access to productive resources such as land and inputs as men, they could increase yields on farms by 25–30%.

5.5 Alongside investment in increasing farm productivity, capacity building in marketing, food safety or integrated crop management are also essential.

5.6 While welcoming many of the commitments made as part of the New Alliance for Food and Nutrition Security (such as the measures aimed at smallholders including crop insurance) we are concerned that the initiative may risk falling into the trap of underinvestment in low tech but high return elements. We would also welcome greater transparency around the engagement of the various business participants of the New Alliance, and the use to which their contributions to the initiative will be put. We also note that the funding allocated appears very low by comparison with the scale of the challenge as assessed by the FAO.

6. Summary of Key Messages

6.1 The Fairtrade Foundation believes that the following five points are key to improving the livelihoods and food security of smallholders. The background to these points is explained further in our recent report “Powering Up Smallholder Farmers to Make Food Fair”iii (Fairtrade Foundation, February 2013).

6.2 Farmers first: Increase smallholders’ voice, influence and organisation—where smallholders are organised, they are better able to influence policy, negotiate for better deals, and pool resources to boost productivity and market access.

6.3 Fair share of value: Ensure farmers are empowered in value chains and receive fair prices—enabling farmers to move up the value chain trade their way out of poverty.

6.4 Fair access to finance: Ensure access to timely and affordable credit—crucial for farmers who wish to invest in their farms and businesses, but are prevented from doing so by poor access to credit.

6.5 Future proofed farming: Prioritise environmentally sustainable agriculture and climate resilience—helping farmers adapt to pressure on natural resources and a changing climate.

6.6 Focus in government funding: increase and target national and donor government spending on agriculture—sufficient investment, targeted towards the real priority needs of smallholder farmers

6.7 In view of the opportunity presented by the forthcoming G8 summit in the UK in June 2013, and the Event on Food and Hunger which will take place alongside the G8, we are also asking the G8 to adopt the above 5 point agenda within future commitments on food and agriculture.

March 2013

References

i Valerie Nelson and Barry Pound, The Last Ten Years: A comprehensive review of the literature on the impact of Fairtrade, Natural Resources Institute, University of Greenwich, September 2009, pp. 6–7

ii “Business must understand how to better work with smallholder farmer to ensure global food security”, 12 May 2012, http://www.fairtrade.org.uk/press_office/press_releases_and_statements/may_2012/new_research_for_world_fair_trade_on_how_to_best_work_with_small_farmers.aspx

iii http://www.fairtrade.org.uk/includes/documents/cm_docs/2013/F/FT_smallholder%20report_2013_lo-res.pdf

1 Globescan

Prepared 3rd June 2013