What we know (and don’t) about the impact of Fair Trade
As readers of this blog will know, recently we decided to get involved in a Fair Trade for All pilot project in Colombia, in part because we want to understand and document the impacts of Fair Trade on independent smallholder farmers. As part of our effort to design a strong impact assessment, I have been doing lots of reading on empowerment metrics and past research into the impacts of Fair Trade. In the process, I came across an extraordinary resource published by the International Trade Centre: The Literature Review Series on the Impacts of Private Standards.
The four-part series is part of the ITC’s ambitious Standards Map process, which provides information on dozens of voluntary standards operating in more than 200 countries around the world. The second publication in the lit review series considers recent resarch into the impact of private standards on producers. The research includes multiple certifications, but most of the literature reviewed is focused on Fair Trade. The key findings resonate with us based on our 10 years of field work in Fair Trade, and also confirm some of the decisions we have made recently to improve our measurement of Fair Trade impact on smallholder farmers.
Here are the review’s seven key findings.
1. Positive financial impact.
With a few notable exceptions, research suggests that farmers who are certified tend to be better-off financially than farmers who are not. I should hope so.
2. Indirect benefits can outweigh direct financial impact.
The direct financial benefit of certification is only one of the positive effects of meeting voluntary standards — and not necessarily the most important. As we suggest in this case study on our Fair Trade coffee work in Nicaragua, the value chain relationships with Fair Trade buyers, lenders and other service providers can be as important as the financial premiums associated with certification.
3. Relationship-based trade > transaction-based trade.
This is the point I was trying to make in my recent post on the mainstreaming paradox when I suggested that what farmers get out of Fair Trade depends largely on what roasters, importers and other value-chain actors put into it. The literature suggests that Fair Trade tends to generate less positive impact on smallholder farmers when it is limited to a certified transaction than when it takes place in the context of direct and sustained trading relationships.
4. Certifications are just one tool in the toolkit.
Not surprisingly, perhaps, certification generates more positive impacts when it is associated with broader programs of support — technical assistance, access to finance, etc. — than when it is not.
5. Research remains focused on the individual producer.
Most of the research into the impact of Fair Trade remains focused at the micro level on the farming household, with little research addressing in any credible way outcomes at at the meso/collective or macro levels.
6. Is it enough?
The $64,000 question: are certifications enough to achieve systemic changes? Lift large numbers of farmers out of poverty? Alleviate hunger? Reverse deforestation? Mitigate climate change? While the research indicates positive financial impacts as a result of higher prices, there are other factors that limit what certifications can achieve on their own. Like the fact that the average coffee farmer in the area of Colombia where we are working has less than two and a half acres of land, and barely one acre planted with coffee.
7. More research is needed.
While the report concludes overwhelmingly that private voluntary standards like Fair Trade Certification generate positive impacts for producers, it also includes this sobering assessment:
The knowledge base that exists today in this area is still very thin, sparse and fragile in terms of scope, method and depth of coverage.
The report explicitly mentions the following standard weaknesses in impact assessments of voluntary standards:
- lack of transparency in research methodologies;
- weak baseline data collection;
- limited access to longitudinal data;
- generalizations made erroneously on the basis of case studies or small samples;
- limited use of credible counterfactual or “control group” data to ensure observed outcomes are attributable to certifications; and
- selection bias — the fact that many of the farmers involved in Fair Trade or other certifications are different from the general population in ways that affect observed outcomes, such as education levels, initial asset endowments, etc.
The report explicitly recommends harmonization of research methodologies into the future.