A recently released study commissioned by the Fair Trade Platform (association of major French fair trade organizations) and carried out by the NGO Agronomists and Veterinarians Without Borders on the integration of contract farming in Fair Trade since 2005 and 2006 recommends utmost caution in the deployment of this new form of fair trade, initiated by Fairtrade International and Ecocert.
Contract farming and its inclusion in fair trade
Contract farming is a striving form of business relationship in the South. Based on a contractual relationship between farmers and a buyer who agrees to buy in advance the farms’ production at a fixed price. In the context of fair trade, it differs from the autonomous organization of farmers into cooperatives or community groups, encouraged by the Fair Trade movement, in which producers are autonomous, producer groups often having contracts with different buyers. Fair Trade also encourages the diversity of commercial opportunities, even if it is not always the case in practice. In developing countries, contract farming is supported by public and private actors, who highlight various advantages for producers and purchasers involved. But this method also involves risks, mainly for producers.
Contract farming has been introduced within fair trade by Fairtrade International (formerly FLO) in 2005, with the definition of specific standards, and later by Ecocert within the generic standards of its ESR, in 2006. It is presented by these fair trade guarantee systems as an opportunity of positive market integration for non-organized marginalized and isolated producers. According to them, this option is a way to open up access to fair trade and the positive impact it generates not only to producer organizations that are already established, but also to include new producers, while meeting the demand and the market growth. It also could help to strengthen the organization of these producers and facilitate the gradual emergence over time of producer organizations. Labelling organizations such as Fairtrade International stress that the Fairtrade and ESR standards, unlike conventional production contracts, stipulate the obligation for the business operator in partnership with producers to support the structuring and consolidation of their organization.
A new option which is seen as a breach in the usual operating rules of fair trade
Historically, fair trade was developed to enable the consolidation of producer organizations in the South through strong and independent access to international markets on favorable terms. The first Fairtrade label, Max Havelaar Netherlands, was designed to guarantee a minimum price to producers’ organizations of Mexican coffee. This system was then disseminated in more than twenty buyer countries, whose labeling organizations came together in 1997 in the Fairtrade Labelling Organizations International (FLO).
The inclusion of contract farming within fair trade, which connects a buyer with individual producers, is seen by some actors involved in fair trade as a breach in the traditional fair trade procedure. Important questions are raised by these actors on this new modality for fair trade, its consistency with the principles of the movement, its implications for the producers concerned, producer organizations and fair trade as a whole, as well as the producers under contract farming’s ability to meet the challenges of effectively structuring and consolidating their own organizations.
The methodology used in the study is based on literature reviews, three case studies with field missions in April and May 2012, as well as isolated items from another experiment of contract farming without field mission. The three cases are: COFA for the cotton industry and SUNSTAR for basmati rice in India (Fairtrade certification), and BIO PLANET / Burkinature for the sesame sector in Burkina Faso (ESR certification).
Mixed results and recommended caution in the use of contract farming in the context of fair trade
The three case studies facilitated the observation of various effects of contract farming within fair trade, including the development of supply chains. Results on organizational development are mixed. Actual consolidation process was observed in the case where the intermediate structure that accompanied the producer is an NGO (case of COFA), but the organizational process has been very partial and fragile in the other two case studies where the intermediary structure is a business.
The recommendations of the study on the integration of contract farming in fair trade are quite critical. The authors recommend to resume the debate at this level, including with regard to the sectors already certified under this option. They recommend to incorporate on the short-term new requirements to existing standards, to be cautious about extending this option before being able to study all the effects in specific situations, and to consider alternatives to this form of relationship with producers.
A discussion should take place between the members of the Fair Trade Platform, and within the fair trade movement on the integration of contract farming in fair trade.
References (in French)
“Agriculture sous contrat et commerce équitable : Identification des freins et leviers pour encourager l’émergence et la consolidation d’organisations de producteurs – Rapport final”, Plate-forme pour le Commerce Équitable, Agronomes et Vétérinaires sans Frontières, October 2012.