Financial Times

Need for Fair Trade in Sri Lanka

By Dr Sarath Ranaweera

Some estate workers benefit from Fair Trade

It is being debated whether there is any negative impact of globalization on the present global economic crunch. At the last G20 summit held in the UK, world leaders expressed their views and discussed green and sustainable economic approaches as a solution to the present prevailing economic and social problems in the world. Fair Trade (FT) has been identified as one of the tools for the sustainable economic development of the world.

The FT concept is one of the greatest applied across the world to maintain certain levels of sustainability among the organized producers and groups mainly in developing countries. Within the concept, ethical trade, responsible trade and fair trade are some of the terms commonly used. To make the concept more meaningful, clear definitions are needed and guidelines should be established based on the definitions.

FT is conventionally defined as an alternative approach for conventional international trade. It is the norm for poor and disadvantaged producers and workers and a reference for all trade across the world. FT labeling is seen as a tool to enable sustainable development and empowerment of disadvantaged producers and workers in developing countries. However, FT can be meaningfully defined as ‘the key to develop socio economic standards of organic small producers and workers in the South by establishing a sustainable system for all stakeholders in the supply chain from producer to consumer.’

History of Fair Trade

The concept of FT has been around for over 50 years. It is said that the Americans were first with 10,000 villages (formerly Self Help Crafts) who began buying needlework from Puerto Rico in 1946, and began to trade with poor communities in the South in the late 1940s. The first formal FT shop which sold these and other items opened in 1958 in the USA.

Now, fair coffee has become a concept. Hundreds of thousands of coffee farmers have benefited from the FT system. In Europe more and more consumers drink fair coffee. Presently, between 25% to 50 % of turnover of Northern Fair Trade Organizations comes fom this product. After coffee, the food range was expanded and it now includes products like tea, cocoa, sugar, wine, fruit juices, nuts, spices, rice, etc. Food products enable FT organizations to open new market channels, such as institutional markets, supermarkets, Bio shops and Third World shops. In addition to these food products, other non food products have been added to the FT assortment such as flowers, cotton and soft balls (footballs).


The international FT Labeling Organization (FLO) has its own role in setting standards, making policies and supporting producer developments. Key players in the FT supply chain are categorized into groups such as small farmer organizations, plantations, contract production projects and traders. All processors and exporters have also been included in the trader category. Different FT standards such as Small Farmer Organization (SFO), Hired labour (HL), Contract production (CP) and Trader are applied on the above categories respectively. Compliances of these standards are checked by FLO cert and FLO-cert has been accredited through ISO 65 since year 2008.

Compliance Criteria (CC) under many key areas under different group categories are written down so that operators are inspected respectively against set standards with written CC by inspectors attached to FLO-Cert in order to protect the credibility of the FT labeling system. It is important to note that a credible certification system is essential to build up the confidence of consumers in the FT system. As a result of implementation of a progressive inspection system and the presentation of success stories about the positive impacts of the FT system on socio-economic development of small farmers and estate workers, the FT market has been growing significantly. Simultaneously the demand for labeling of other products is ever growing in the world.


Thousands of Fair Trade products are sold in FT shops, supermarkets and other sales points in the North. Opening sales outlets in the Southern hemisphere has become a new step to promote FT products in the South. FT has made mainstream businesses more aware of its social and environmental responsibility. In short FT is becoming increasingly successful.

The following information shows the market growth of some FT labeled products:
Turnover of 1600 million euros come from sales of FT products in 2006, a 40% increase against the sales volume of FT products in 2005. It has reached up to 2.4 billion euros in 2008. FT products are distributed over 45,000 points of sales in over 21 countries.

Socio economic impact

Setting minimum prices for FT products is done based on the cost covering price and it is at least paid for a FT labeled product. Long term contracts are usually signed by trading partners and as a result market assurance is generally built up.

When products are harvested during a season, prices are dropped to a great level based on demand and product availability. Producers are compelled to sell their products at any price in order to settle financial commitments. Some farmers depend on subsidies or other external supports and automatically become spoon-fed communities. The minimum price structures established under the FT system protects farmers from exploitations. FT is not charity. In the system a cost covering price with some profit margins is assured for farmers to live without charity and other external support. Also the FT premium can be used for socio economic improvement of farmer community and workers in plantation sector.

This helps not only FT farmers and workers in the system but also the other communities in the trade sector or worker communities in the plantation sector. This is the way forward for the sustainable development of a developing country like Sri Lanka. However, it is important that all the forces in the FT system be united under one umbrella to optimize the benefit of the FT system for Sri Lanka.

(The writer is a well known expert in Fair Trade and runs his own export company in Kandy)

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