Everything you wanted to know about Fair Trade

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Considering starting out as an Entrepreneur? Deciding which business model is for you? Some of the business options are mainstream business, social business, and fair trade. The mainstream for-profit business model, operating more or less the same in most capitalist societies, is based on the principles of maximizing profits for investors.

Apart from mainstream, the two common (but not the only) alternatives to for-profit models are, social business and fair trade.

Which model is right for you? We will walk you through the differences between the two.

Overall there are four similarities:

  1. Both models work to ease poverty levels and increase job creation through collaboration with local communities and businesses
  2. Both place your business ahead of the curve in terms of gender equality and inclusiveness
  3. Both negate the need for a CSR policy, as the whole premise of the business and modus operandi are inherently socially responsible
  4. Neither are brands; they are both financial models for conducting for-profit business in a socially responsible and fair manner for the betterment of all stakeholders

Two major differences:

  1. Fair trade is more comprehensive than social business in its certification criteria and social responsibility demands on all stakeholders.
  2. Social business is a system that can support local producers and community in any country (regardless of the economic developmental level of a particular country), whereas fair trade is an economic system open to small, marginalized producers only of the South.

Fair Trade, like social business, is not just a name or a label; it is an economic model for fighting poverty and trade inequities through a fair trade financial system: a system that works FOR the producers and their environments, NOT at the producers’ personal or environmental expense.

To ensure these goals are met, organizations are asked to meet the 10 principles of fair trade set by the WFTO (World Fair Trade Organization). These principles encompass a sharing of key responsibilities between producer and buyer, as well as between sellers and consumers (click here for full coverage of the goals).

Social business came into the forefront much to the credit of the Nobel prize winner, Muhammad Yunus of Gremeen Bank. Its role was to fill the gap in the economic system between the private sector where companies sell products or services to make money, and non-profit organizations financed by the government to provide basic social services like education and hospitals. Although noticeable gaps and inadequacies are often filled by charities, pressing daily needs of the poor were often not recognized by any of these 3 models. Hence,

Yunus introduced a new dimension to the existing models: “ the business model that does not strive to maximize profits but rather to serve humanity’s most pressing needs.” (click here for full coverage of the article)

Basically, this is how they compare:

Social Enterprise Fair Trade
#1. Operate in both niche & mainstream markets Operate in both niche & mainstream markets
#2. Producers can be worldwide, generally in developed economies (global north)

 

Small and marginalized producers in under or developing economies (global south)
#3. Reinvests in local businesses & community with interest free loans Invests in small, marginalized local producers through prepaid orders and post-sale donations to pre-identified community projects
#4. Improve communities, people's life chances, or the environment Trade that works for the producers and their environment, and not at their personal or environmental expense; Steps are established for capacity building
#5. Goal is to assist producers achieve financial stability

 

 

 

Goal is to assist producers to become financially independent and sustainable
6. Gender sensitive Gender equality and equal pay for equal work
7. Environmentally conscious Evidence of environmentally production techniques and practices, local resources, and benign waste streams
8. Producers gets market wage and better working conditions Fair trading practices, based on dialogue of true production costs, living wages, distribution channel, and selling prices; Safe and healthy work place

 

9. No child or forced labor

 

10. Transparency and accountability at all levels of transactions and to all stakeholders

 

 

The Take Away:

Social business can operate solely within (north) and between developed economies; it does not necessitate a link to the (south) world’s poorest countries. Fair trade had a humbler beginning and relies on a direct link to the economic south and works on the premise of the north (privileged country) and retailer directly aiding producers and communities in less fortunate in struggling countries. Fair trade’s governing regulations and hence compliances, are more stringent than those expected by social enterprises.

So, where are your producers? Which will you choose?


by Sharon Vipond, Founder of the social enterprise, Knots & Strokes, which supports fair trade producers. Sharon is currently crowdfunding an urgently needed workspace for female entrepreneurs in Sri Lanka. A situation made even more desperate by the monsoon devastation of May 18. You can donate here:

https://nextchapter.com.hk/camapign/working-shelters-a-game-change