What is Fair Trade?


Fair trade is an approach to business and to development based on dialogue, transparency, and respect that seeks to create greater equity in the international trading system. Fair trade businesses partner with farmers and craftspeople in developing countries who are socially and economically marginalized to find markets and customers for their goods.

The History of Fair Trade

Fair trade traces its roots to 1946 when Edna Ruth Byler, a volunteer for Mennonite Central Committee (MCC), visited an MCC sewing class in Puerto Rico where she witnessed the talent the women had for creating beautiful lace and the poverty in which they lived despite their hard work. She began carrying these pieces back to the United States to sell and returning the money back to these groups directly. Her work grew into Ten Thousand Villages, which opened its first fair trade shop in 1958 and is now the largest fair trade retailer in North America. In 1949, Sales Exchange for Refugee Rehabilitation and Vocation (Serrv) began helping refugees in Europe recover from World War II. Today, they support artisans in more than 35 countries.

In the late 1970s and early 1980s, US- and Canadian-based entrepreneurs who defined their businesses with the producers at heart began to meet regularly, exchange ideas, and network. This informal group, known as the North American Alternative Trade Organization (NAATO) would evolve into the Fair Trade Federation and formally incorporate in 1994. In 1989, the World Fair Trade Organization (formerly IFAT) was founded as a global network of committed fair trade organizations, aiming to improve the livelihoods of disadvantaged people through trade and to provide a forum for the exchange of information and ideas.

In 1988, as world coffee prices began to sharply decline, a Dutch NGO, Solidaridad, and a farmer organization, UCIRI, created the first fair trade certification initiative. Named after a best-selling 19th century book, the Max Havelaar label initially applied only to coffee in the Netherlands, but similar labeling initiatives grew up independently across Europe within a few years. In 1997, these organizations created Fairtrade Labelling Organizations International (FLO), an umbrella organization which sets the fair trade certification standards and supports, inspects, and certifies disadvantaged farmers. There are now several fair trade labor certification systems in the US market, including Fair Trade International USA, Fair Trade USA, and IMO Fair for Life.   Increasingly, these certification labels focus on large farms and factories.  They are often used by multi-national brands who cannot be fully fair trade but wish to improve pieces of their supply chain.

Since 2000, fair trade sales and consumer awareness have increased tremendously, as the range of fair trade organizations has also expanded. From the early days of lace and home decor, handmade items now include clothing, sports equipment, toys, and other items. From its initial focus on coffee, fair trade product certification has expanded to tea, chocolate, sugar, vanilla, fruit, wine, and much more. In 2002, the first World Fair Trade Day was celebrated to heighten consumer awareness and to strengthen connections among fair traders and interested citizens around the globe.

Frequently Asked Questions

The word “fair” can mean a lot of different things to different people. Fair trade is about more than just paying a fair wage. It means that trading partnerships are based on reciprocal benefits and mutual respect; that prices paid to producers reflect the work they do; that producers share decision making power; that national health, safety, and wage laws are enforced; and that products are environmentally sustainable and conserve natural resources.

The Fair Trade Federation screens and verifies companies that are fully committed to fair trade.  These organizations don’t just buy and sell a few fair trade products; they integrate fair trade practices into everything they do.  These organizations have a deep level of commitment to fair trade practices and maintain long term relationships with small producer organizations.

You will also see some products in the marketplace that carry a fair trade certification seal.  Fair trade certification involves a worksite audit and a 10% fair trade premium.  These labels increasingly focus on large factories and farms.  They are often used by multi-national brands who cannot be fully fair trade but wish to improve some of their practices.

Generally, goods sold by FTF members cost the same or a few percent more than similar quality, conventional goods.  These fair trade products don’t cost more because the large percentage taken by middle people is removed from the equation. The cost remains the same as conventionally traded goods; however, more of the sale price goes to producers.

In some cases the quality is actually higher because fair trade organizations factor in the environmental cost of production. For instance, in the case of coffee, fairly traded coffee is often organic and shade grown, which results in a higher quality coffee.

Producers receive a fair wage when they are paid fairly for their products. This means that workers are paid a living wage, which enables them to cover basic needs, including food, shelter, education and health care for their families. Paying fair wages does not necessarily mean that products cost the consumer more. FTF members bypass exploitative middle people and work directly with producers.

Living wages vary widely between regions of the world and individual communities.  Therefore, there is no set percentage given to artisans.  Rather, open communication ensures that pricing is transparent and meets the full needs of artisans.   A fair trade relationship is a true partnership, allowing all to make a fair profit margin.

Cooperatives and producer associations provide a healthy alternative to large-scale manufacturing and sweatshop conditions, where unprotected workers earn below minimum wage and most of the profits flow to foreign investors and local elites who have little interest in ensuring the long term health of the communities in which they work. FTF members work with small businesses, worker-owned and democratically run cooperatives and associations which bring significant benefits to workers and their communities. By banding together, workers are able to access credit, reduce raw material costs and establish higher and more just prices for their products. Workers earn a greater return on their labor, and profits are distributed more equitably and often reinvested in community projects such as health clinics, child care, education, and literacy training. Workers learn important leadership and organizing skills, enabling self-reliant grassroots-driven development.

Small-scale farmers and artisans in the developing world lack access to affordable financing, impeding their profitability. FTF members buy products directly from producers and provide advance payment or pre-harvest financing. Unlike many commercial importers who often wait 60-90 days before paying producers, FTF members ensure pre-payment so that producers have sufficient funds to cover raw materials and basic needs during production.

FTF members provide critical technical assistance and support such as market information, organizational development and training in financial management. Unlike conventional importers, FTF members establish long term relationships with their producers and help them adapt production to changing trends.

Fair Trade Myths

As awareness of fair trade grows, so do misconceptions. These are some popular myths about fair trade and the realities behind them.

Reality: Wages are designed to provide fair compensation based on the true cost of production, and are not based on North American wage standards.

Fair wages are determined by a number of factors, including:

  • The amount of time, skill, and effort involved in production
  • Minimum and living wages where products are made
  • The purchasing power in a community or area
  • Other costs of living in the local context

Reality: Fair trade seeks to improve the lives of those in developing countries who frequently lack alternative sources of income. Most fair trade craft products stem from cultures and traditions which are not represented in North American production. Most fair trade food products do not have North American-based alternatives. Also, as North American fair trade organizations grow as successful small businesses, they employ more and more individuals in their communities.

Reality: International exchange lies at the heart of fair trade.  FTF members seek to maximize the positive elements of globalization that connect people, communities, and cultures through products and ideas. At the same time, they seek to minimize the negative elements that result in lower labor, social, and environmental standards that hide the true costs of production.

Reality:  Fair trade promotes positive and long-term change through trade-based relationships that build self-sufficiency. Its success depends on independent, successfully-run organizations and businesses–not on handouts. While many fair trade organizations support charitable projects in addition to their work in trade, the exchange of goods remains the key element of their work.

Reality: Most fair trade products are competitively priced in relation to their conventional counterparts.  FTF members work directly with producers, cutting out middlemen, so they can keep products affordable for consumers and return a greater percentage of the price to the producers.

Reality: While handmade products naturally include some variation, FTF members continuously work to improve quality and consistency. Through direct and long-term relationships, producers and fair trade organizations dialogue about consumer needs and create high quality products. Fair traders have received awards at the international Cup of Excellence and Roaster of the Year competitions, SustainAbility in Design, the New York Home Textile Show, and other venues.

Reality: Fair trade encompasses a wide variety of agricultural and handcrafted goods, including baskets, clothing, cotton, home and kitchen decor, jewelry, rice, soap, tea, toys, and wine. While coffee was the first agricultural product to be certified fair trade in 1988, fair trade handcrafts have been sold since 1946.

Interested in becoming a verified fair trade enterprise? Learn more here!