People's Recovery, Empowerment and
Development Assistance Foundation, Inc.

Chapter 1 Overview of the concept of fair trade

1.1 A brief history of the fair trade movement

1.1.1 The origin of the movement

There are several views about the origin of the fair trade movement. While some see its origin in the Mennonite Central committee in the United States in the late 1940s and 1950s, where the handicrafts from the needy artisans in the South were sold through church or home sales, others think of the establishment of S.O.S wereldhandel, in the Netherlands in 1959 as the birth of the movement (IFAT[a], Littrell and Dickson, 1999). Wherever it started, the common focus of these movements was that of ; helping poorer communities or disadvantaged people in the South by buying their products and thus contributing to their income generation.

1.1.2 Period of political solidarity

Since the late 1960s, the fair trade movement has grown up with the message of 'political solidarity', partly influenced by the 'core-peripheral model'. The products traded were seen as a 'symbol and a way of putting the political message across' (Durwael, no date) and the consumers were expected to express their political opinion by using their purchasing power, i.e. by buying the products from politically excluded countries. A typical example can be seen in a campaign for coffee from Nicaragua during the Sandinista regime.

In this context, the main concern was 'more about finding markets for products from countries that were excluded from the mainstream trading channels for political reasons than about promoting the well-being of the producers' (IFAT[a])

1.1.3 Developmental trade- encouraging self-help

In the late 1960s, there also grew up another stream which can be described as the 'development trade', a branch of alternative trade (ibid.). In this stream, the emphasis is put on supporting the livelihood of the poorer or disaster-affected people through trading. Instead of just providing them with 'aid' or 'charity' assistance, encouraging self-help by promoting income-generating opportunities and facilitating links with the market was emphasized.

This approach has been mainly facilitated by large development (or charity) organizations; Oxfam, for example, states that its way of working with producers goes beyond alternative trading to 'development', which is defined as 'a process of enlarging the range of people's choices by expanding their opportunities and realizing their potential', in Oxfam Poverty Report (Oxfam, 1995:33). This approach is still an important part of today's fair trade movement.
The collapse of the International Coffee Organization (ICO) marketing system in 1988 and subsequent decline of world coffee prices was an incident which further highlighted the need to support small-scale producers. The international market price collapsed from around US$1.30 per pound of green beans to below $0.60 per pound, while the costs of production for small-scale growers were around US$ 1.10 or more (Thomson, 1995). It hit the small producers hard and an initiative in the Netherlands (Max Havelaar) was established to provide them with an 'alternative market', where they could obtain higher economic returns for their products by eliminating intermediaries, as well as by receiving a 'social premium' which is added for developmental purposes.

The fair trade movement has also been influenced partly by the evolution of green consumerism since the late 1980s. Along with growing fear for global environmental degradation and a recognition that a considerable part of natural resources has been exploited and consumed by the population in industrialized countries, Northern consumers have become more concerned about the way in which the commodities they buy are produced and whether they are environment-friendly. This increasing demand for environmentally friendly products has been incorporated into the fair trade movement which is concerned with both the producers' conditions and the environment (Barratt Brown, 1993; Coote, 1996).

1.1.4 Competition, professionalism and international or multisectoral collaboration

Since the late 1980s, the fair trade movement has entered a new phase. Though ATOs continue to put their primary focus on improving the well-being of the producers, they have shifted their attention more towards making the products attractive and meeting the needs of the consumers. This is also the period when the necessity for professionalism on the part of fair trade organizations in trading and marketing has been increasingly recognized. On the one hand, more and more ATOs have come to recognize the necessity of expanding market opportunities beyond the traditional fair trade niche market into the mainstream cormmercial market. This was prompted by the realization that their former market, which covered only the 'enlightened' customers, was too small to transfer benefits to the large number of producers in the South.

On the other hand, in response to the demand from consumers, mainstream retailers have also become interested in introducing fairly traded commodities onto their shelves. As a consequence, fair trade products, mainly food products such as coffee and tea, have began to appear in supermarkets, which means they entered into competition with conventional commercial commodities.

In the face of this new dimension, ATOs have been recognizing that '...it is not possible to rely on good will, commitment or solidarity for continuing sales of Third World products, where they come into competition with attractive, well-designed goods made in the First World' (Barratt Brown 1993:162). In order to widen benefits to the producers by increasing their sales even in an increasingly competitive market, ATOs have become more concerned with consumers' interests, and are introducing commercial marketing techniques at all stages of trading; marketing research, pricing, designing, packaging, increasing quality, most of which used to be unfamiliar to them. In this sense, it could be said that fair trading has become closer to conventional trade at the operational level, though they are different in their principles and starting point.

Labelling organizations

Entering the conventional market also led to some new initiatives being established in European countries as well as internationally. One significant development was the establishment of fair trade labelling organizations which intended to guarantee and increase the appeal of fair trade commodities, especially those sold in supermarkets. This is also a strategy for differentiating the products traded by ATOs from those of conventional producers who started to claim that their products were just as fair without inspection by a third party. In 1988, the first labelling Organization, Max Havelaar, was founded in the Netherlands, followed by the establishment of the Fair Trade Foundation (UK) and Transfair (Germany), which also covered other European countries, the US, Canada and Japan. These labels offer a guarantee for consumers that the products so labelled are produced under 'fair trade' conditions, while setting up criteria for the commodities to be registered as fair trade products. So far, these marks have been introduced mainly for food products such as coffee, tea, chocolate and honey.

Fair trade brand

The launch of Cafedirect by four major UK ATOs in 1991 was another new initiative in this phase. It has successfully increased its sales with a 4 % market share in the British roast and ground market (Cafedirect, 1999). Based on this success, a new brand for fair traded tea, Teadirect, was added in 1998.

Expanded interests among official agencies - ethical trade

On the other hand, the fair trade movement also makes efforts in advocacy work. It is obvious that a number of campaigns and lobbying of governments, facilitated by the organizations which support the fair trade movement, have contributed to increasing the interest in so-called 'ethical business'.

'Ethical business' or 'ethical trade' are more recent terms than 'fair trade'. They are concerned mainly with labour standards within existing mainstream trade, aiming to improve working conditions for Workers already involved in producing goods, while fair trade organizations are considered as working with marginal producers in the South with the aim of strengthening their capacity to enter the market, allowing them improved livelihoods (Traidcraft, 1998).

International collaboration

Since the late 1980s, several initiatives for international collaboration between fair trade organizations have been established. In 1989, the International Federation for Alternative Trade (IFAT) was set up to strengthen the cooperation among ATOs and producer organizations at an international level aiming at a common goal. It has grown to be a global network which consists of 143 organizations from 47 countries (December 1999) of which more than two-thirds are represented by Southern organizations.

In addition, in 1997, these labelling initiatives (Max Havelaar, Fair Trade Foundation, Transfair) also established an international umbrella Organization named the Fair Trade Labelling organizations International (FTLO), from which about 300 producers groups in 29 countries have been accredited.

As seen above, the movement has expanded internationally and multi-sectorally and a wider range of actors, such as consumers, retailers, and governments are involved. Amid this more complicated and competitive dimension, fair trade organizations, both ATOs and producer organizations, are now facing new challenges in pursuing their goals.

Box. 1 History of fair trade movement

1940s	Church-based charity sale in Menonite Central Committee in US
1959	S.O.S woreldhandel in Netherlands was founded
1965	'Bridge' programme by Oxfam started (fair trade scheme of Oxfam)
1979	Traidcraft was set up (a public limited company since 1984)
1986	Equal Exchange (largest U.S. coffee fair trader) founded
1988	Collapse of international coffee market price
1988	Max Havelaar was founded in Netherlands.
1989	IFAT was established
1990	European Fair Trade Association (EFTA) was established by European ATOs and trading companies
1991	Southern ATOs start to join IFAT
1992	Cafedirect was founded by Equal Exchange, Oxfam, Traidcrafts and Twin
1992	Transfair International was set up
1993	Rugmark Foundation was set up for carpet industry.
1994	The Fairtrade Foundation was formed in U.K.
1997	FLO international - an umbrella Organization of fair trade labelling initiatives.
1998	Teadirect was launched
1998	The Day Chocolate Company was established as a joint venture between Twin and Kuapa kokoo(a cocoa producer in Ghana) (Divine Chocolate)

1.2 Objectives

At IFAT's Annual General meeting held in May 1999, it was agreed to define fair trade as follows:

Fair Trade is an alternative approach to conventional international trade. It is a trading partnership which aims at sustainable development for excluded and disadvantaged producers. It seeks to do this by providing better trading conditions, by awareness raising and by campaigning. (IFAT[b], no date)

The fair trade movement has two main goals:
1) Improving livelihoods and well-being of the Southern producers (a) by providing them with trading opportunities under more equal partnership and (b) by strengthening their bargaining power.

2) Changing the existing international trading relationship and regulations, which work unfavourably for the producers in developing countries. Usually, campaigns and other advocacy work are facilitated by ATOs in order to raise awareness among consumers on this issue, while lobbying of governments, private companies and international organizations such as the WTO, is also undertaken.
Although most ATOs are concerned with both aspects, their primary focus is more often an improvement of the participants' livelihoods.

1.3 Key elements of fair trade
Though there is no set of criteria for 'fair trade' agreed by all the organizations which are engaged in fair trading, some common key elements can be discerned in the guidelines criteria set by ATOs or alliances of ATOs (see Table-1).

Table-1 Fair trade criteria defined by four fair trade organizations

	IFAT	Traidcraft	Oxfam	FLO
Fair Wage	O	O	O	O price covers cost of production and social premium
Advantage payment	O	O or credit facility		O
Long-term partnership		O		O
Transparency	O	O		O
Continuity of orders	O	O Providing stability	O	O
Not exploiting environment	O	O	O	O
Decent working condition	O not exploiting people	O workers' welfare	O	O
Decent working hours			O	O
No child/bonded labour			O	O
Rights to associate, negotiate			O	O
Democratic, participative environment	O	O	O	O
Assistance to develop new products , improve quality, management		O
Good quality, marketable			O
Respect producers' cultural identity	O		O
Raising consumers' awareness	O

Adapted from

IFAT, 1993, Code of Practice, Manila, IFAT cited by Tiffen, P & Zadek, S., 1998, 'Dealing with and in the Global Economy: Fairer Trade 'in Latin Amen"---"
IFAT, no date, 'Fair Trade Definition (http://www.ifat.org/fairtrade-defin.html) Traidcraft Exchange, 'Fair Trade and Ethical Trade: Distinct but Complementary', Traidcraft Exchange Briefing, September 1998
Oxfam, 'Who Does Oxfam Trade With ?' (http://www.oxfam.org.uk/fairtrad/criteria.htm)

FLO International,'Fairtrade Criteria' (http://www.fairtrade.net/criteria.htm)

These key elements are:

1) A fair price which is agreed by each party should be paid to the producers with a certain percentage of advance payment.

2) There should be a commitment to long-term partnership and to keeping continuity of orders to enhance the stability, predictability and security of trade.

3) Decent working conditions should be provided.

4) There should be proper concern for the environment.

5) Fair trade means working with organizations to ensure a democratic environment for the producers.

6) The relationship with partners (producers) should be made equal and transparent.

7) Consumers need to be well informed about the products, including production methods, the producers and the meaning of their purchase.

8) There should be respect for the cultural traditions of the producers.

1.4 Fair trade and livelihoods of the producers

1.4.1 Livelihoods and poverty

In recent arguments about poverty reduction, poor people (individuals or households) are no longer regarded as passive victims. Instead, they are now considered to have the capability to manage the portfolios of various assets, which are interrelated with each other, in order to maintain their livelihoods (Chambers 1995; Moser 1996; Carney 1998). While there are various classifications of assets, this paper uses the concept of the five capitals (financial, natural, human, physical, and social capital), which is used in DFID's sustainable livelihood framework (see Figure-1 and Box.2).

Figure-1 Capital-assets in sustainable livelihood framework Natural Capital Source: Carney (ed.) 1998

Box.2 Five types of capital assets Natural capital The natural resource stocks from which resource flows useful for livelihoods are delivered. (e.g. land, water, biodiversity, environmental resources) Social capital The social resources (networks, membership of groups, relationships of trust, access to wider institutions of society) upon which people draw in pursuit of livelihoods Human capital The skills, knowledge, ability to labour and good health important to the ability to pursue different livelihood strategies Physical capital The basic infrastructure (transport, shelter, water, energy and communications) and the production equipment and means which enable people to pursue their livelihoods. Financial capital The financial resources which are available to people (whether savings, supplies of credit or regular remittances or pensions) and which provide them with different livelihood options Adapted from Scoones, 1998, by Carney (ed), 1998

Poverty reduction is considered to include 1) strengthening the assets base of poor people as well as 2) reducing vulnerability to shocks and trends. Taking this as a basis, the next section will examine the relationship between the key fair trade aspects and the livelihoods of the poor producers.

1.4.2 Relationship between fair trade practice and the producers' livelihoods

For the purpose of analyzing how access to fair trade marketing channels could contribute to better livelihoods for poor producers, which is the first research question in this paper, this section will examine an expected impact on their livelihoods by the various key fair trade practices classified in section 1.3.

1) A fair price or wage agreed by each party paid at an agreed time with a certain advance payment when required.
A 'fair' remuneration for their products is the main principle which is agreed by almost all ATOs. However, their interpretations of what constitutes a 'fair price' varies with each other as shown in Box 3.

Box 3. Various translation of 'fair' wages a) more than the local price b) more than the price available from other international traders c) enough for the producers and their families to attain a reasonable or remunerative living standard d) a price that enables the Northern partner to be no more than barely viable e) at the very extreme, an universal value, which would recognize a trading regime that allows Southern producers to earn the same as their Northern trading partners f) All parties involved directly in the chain receive comparable returns, reflecting not only bargaining positions, but input, skills and risk Source; Zadek and Tiffen (1996:49)

Nevertheless, the minimum standard seems, judging from the criteria defined by four fair trade related organizations (see Table -1), to be the price which covers the cost of raw materials and production and should be agreed by the producers and the ATO. In addition, consideration is generally given to providing sufficient remuneration to meet, at least, the basic needs of the producers, especially when they are engaged in full-time production. Furthermore, a minimum price is guaranteed to food producers, such as coffee growers, regardless of the international market price, in order to reduce the vulnerability of the small producers to price falls.

Advance payment, where required, is also a common principle of fair trade practice. This is considered important since advance payment helps the producers to purchase the inputs which are necessary for their production (e.g. raw materials for crafts, seeds). Without this, marginal producers with little capital to start production might easily be excluded from trading opportunities.

Advance payment may also contribute to reducing the vulnerability of income-poor producers; in evening out their income by paying a certain ratio of the total amount in advance, it may help them to sustain their livelihoods until they receive the balance on completion of the order. Furthermore it could prevent needy producers from falling into debt, which would endanger their future financial capital.

Adding a 'social premium' to the price for the purpose of encouraging development activity is also agreed by fair trade organizations to be a key element. This might be utilized by intermediaries (NGOs) or otherwise managed by the producers' groups themselves. Traidcraft, plc., an ATO in the UK, emphasises that the use of funds from this premium should be decided by the producers themselves.

2) Commitment to long-term partnership / enhancing stability, predictability and security of trade.

ATOs' commitment to a longer-term trade relationship is considered necessary since it would provide the producers with more income stability and enhanced predictability for future earning, which would allow them 'proper planning and sustainable production practices' (Fairtrade Labelling Organization International, no date).

3) Not exploiting the well-being of the workers or producers
A decent working environment is required in all aspects related to the workers' wellbeing, such as lighting, space, safety, hygiene of the workplace as well as appropriate working hours.

It is also a vital that child or forced labour is not involved. However, considering the local situations where children play important roles in sustaining the livelihood of their family rather than being merely dependents, Oxfam, for example, makes an exception saying that '...children may be employed part-time in non-formal situations provided they continue with schooling and undertake light work only, and provided the employment is caring and in the best interests of the child' (Oxfam fair trading).

4) Avoiding negative impacts on natural resources in the production process
An environmentally friendly way of production is also regarded as an essential aspect of fair trade schemes since it contributes to preventing pollution, deforestation and soil erosion, which would harm the livelihoods of the producers (and also other people living in that area) in the future.

In principle, the use of locally available and abundant raw materials and the avoidance of chemical dyes or agricultural inputs are required for the products traded in fair trade channels. However, in contrast with environment-driven movements, such as organic agriculture or eco-labelling, which have stricter environmental standards in order to protect natural resources as well as to provide healthy food for consumers, most fair trade organizations prioritize improving the livelihoods of poor and disadvantaged people over environmental sustainability.

Instead of just defining environmental standards, the importance of providing sufficient information and alternative techniques has been increasingly emphasized. This is especially important in situations where the use of toxic materials prevails as normal practice without its risks being known, or where the consumption of natural resources is regarded as the only option in order to survive by marginalised groups of people. In other words, setting strict environmental criteria without providing the producers with information or access to the alternatives would provide nothing more than a higher barrier for poor producers to overcome in order to reach the fair trade channels.

On the other hand, another question has been raised by those who are concerned with sustainable consumption, namely whether fair trade itself can be environmentally sustainable, when one considers the total energy consumed during long-distance shipping and transportation (Zadek and Tiffen, 1996). In response to this question, more attention has recently been paid to the possibility of promoting a local 'fair trade market', which would require less energy consumption.

5) Working with democratic and participative organizations
Partner organizations of ATOs might be local NGOs, co-operatives, producer groups, women's associations, people's organizations, or sometimes local enterprises. Whichever form they take, partner organizations are expected to be committed to improving the participants' well-being and livelihoods.

In addition, they are expected to be sufficiently democratically managed to value the participants' own decisions. For example, it is regarded as necessary that the workers' rights of association or participation in trade unions should be safeguarded. Also, important decisions on production or working conditions should be agreed by the participants, and equal treatment should be given to all participants regardless of gender, age or social status.

6) Making the relationship with partners (producers) equal and transparent
The relationship between the producer groups and ATOs should be an equal partnership. Information-sharing and transparency between each party should be maintained. These are important aspects of the fair trade criteria since buyers generally hold the stronger position in terms of decision-making and control.

7) Providing sufficient information to consumers about the products, as well as good quality products.
It is a principle of fair trade that consumers are, well informed about the products, including the methods of production, the producers and the meaning of their purchase. This is intended not only to provide information of benefit to consumers but also to encourage them to use their purchasing power in order to 'make a difference' in the existing structure of international trade.

On the other hand, providing the consumers with good quality products is also considered important. This has been a relatively recent focus within the fair trade movement, which has been increasingly recognized as ATOs have become more concerned with consumers' interests.

8) Respecting the cultural traditions of the producers
In the case of handicrafts, some ATOs appreciate the importance of preserving the traditional culture of the producers. However, this principle has caused them a dilemma since completely 'traditional' and ethnic products do not always meet the market demands in the North, In practice, Northern ATOs are often told by producers that they do not mind introducing completely new elements into their traditional design provided that it leads to more orders (Littrell and Dickson, 1999). Furthermore, some argue that 'traditional' culture is itself in a constant state of flux (ibid.). Based on these claims, most ATOs seem to adopt a compromise where new elements in design are developed on the back of culturally-based products.

Chapter 2: The Impact of Fair Trade on disadvantaged Producers - Case Study: Preda Foundation and its Partners in the Philippines

Fair Trade Practice and Impact on Producers

This section will examine the impact of fair trade practice on Preda's partner producers though there are limitations on measuring the exact impacts. In addition to the constraints inherent in a short-term research by an outsider, analyzing impacts has an element of uncertainty because of the reasons below:

1) Some impacts would be observed in the short-term, but others might happen as a part of longer-term process.

2) Some impacts would be intangible, such as raised self-respect, dignity, trust, etc.

3) There might be difficulty in distinguishing the impact of fair trade practice from others (problems of attribution).

Nevertheless, some of the direct of indirect impacts of fair trade on the livelihoods of the producers can be observed in the study. The following section will discuss these impacts under the five types of capital referred to in Chapter 1: financial, human, natural, physical and social capital.

2.2.1 Financial capital

The most obvious and significant impact of Preda's fair trade scheme is the impact on the financial capital of the participants through income generating opportunities. The participants in handicraft trading projects used to be bonded plantation workers, casual labourers or the unemployed. The decent prices paid for their products, which are agreed by Preda and the producers, have contributed to increasing the financial assets base of these income-poor people by generating additional or substantial income. The most clearest example can be seen in the case of the buri-rattan handicraft producers in Pangasinan, who were able to pay off their debt to the plantation owner, a debt which had bound them to sugarcane plantation labour.

Another obvious example is the financial impact on the mango growers in Cebu. In addition to higher prices for their fruits, Preda's intervention has stimulated competition in local markets, resulting in the improved bargaining position for mango growers and higher farm-gate prices.

In the areas where supported mango growers live, their harvest is usually traded at mango buying stations in the towns. As the industry was formerly monopolized by transnational companies (e.g. General Foods, Sunkist) and those owned by the local elite, or, as in another case, there existed a cartel, the farm gate price for mango tended to be set at an unfavourable price for the producers. Mango growers also often complained of being cheated by the buyers in the process of a crop being gauged and weighed. In such cases, however, small-scale producers had little bargaining power and so had no option but to sell their produce via local buyers.

However, as the sale of dried mango through fair trade channels has grown, Preda's intervention by volume buying of mango has generated competition in the local mango market which was previously monopolized or controlled by the cartel. This has caused the local buyers to start to offer higher gate prices which exceed those paid by Preda's partner processing factory. As a consequence, the farm gate price of fresh mango has increased; the average price of mangoes in 1996, after being adjusted for seasonal fluctuation, was 18 Philippine pesos per kilo. It rose to 20-21 peso/kg in 1998 and to 23 peso/kg in 1999.

This circumstance led to mango growers of the supported co-operatives selling their produce to the 'rival' buyers who started to offer attractive prices. Preda's reaction is to see this situation as 'a sign of success' so long as it leads to benefits for the producers; that producers are free to choose the highest bidders for their products is one of Preda's tenets (Preda Foundation[a]). In addition to the impact on the assisted mango growers cooperative members, Preda sees a wider impact on all the mango growers in the area caused by the boost in the fresh mango price, described in the words 'a rising tide lifts all boats' (Preda Foundation[b]).

Advance Payment
Generally, advance payment, at least 30% of the total amount of the order, is available to all the Preda's partner producer groups with the balance being paid upon the delivery of the commodities. The percentage varies depending on the producers' economic condition. This advance payment has contributed to sustaining livelihoods of the producers during production. It also enabled the poor producers to purchase the materials and inputs without having debts.7) One member of the Cabalan basket weaving group in Olongapo referred to this advance payment as the biggest benefit for him comparing it with his former job in a factory in Manila. As the payment of wages was often delayed, he often had to borrow money from the manager at high interest (sometimes 50%) which was deduced from his wages.

Box 4 How much of financial benefit can producers obtain from fair trade practice ? The extent of financial benefit from fair trade may vary depending on the form of partner producers group. While all the advance payment and 'premium' added to fair trade products are likely to be transferred directly to individual producers when a groups is organized as a producers association, a certain portion of financial benefit might kept aside for administrative or developmental purposes by managers of enterprises or NGOs. On the other hand, the portion taken by intermediaries such as NGOs might be delivered to the producers in the form of social services (e.g. health services, informal education programme, building social capital). Since enough information on what extent fair trade premium (including advance payment) really has provided benefits to the individual producers was not collected during this case study, a further research would be required.

Although economic benefits may be observed as stated above, it could fairly be said that the longer-term financial stability of the producers is still highly dependent on the amount of orders throughout the year and the timing of income. While it would be possible for mango growers to anticipate the timing and the amount of income they receive from their produce to a certain extent, it appears to be more difficult for handicraft producers to do so as there is no particular pattern in terms of the timing and the amount of the orders from Northern buyers, except for some seasonal goods such as Christmas ornaments. This could be a more serious problem for those handicraft producers who receive only small orders as well as for those who do not have other reliable financial sources.

Furthermore, intensified competition in the handicrafts market, including that in the fair trade market, has made the situation more serious. For instance, while the basket weavers in Olongapo could obtain a good income from their products before, the volume of orders has gradually declined in the last few years as competition has hotted up, especially after cheaper baskets from China entered the market (key informant interview, Preda staff member). The order obtained last year was for only about 500 baskets and fruit trays. In the face of this situation, the producers are encouraged or are independently trying to diversify their livelihoods. However, this is difficult since job opportunities are restricted because of the low level of educational attainment as well as limited financial capital.

Income allocation
In the past, some cases were found in which income from handicrafts production was not allocated to investments for building up people's own livelihoods but instead went on drink or gambling, or was given to poorer relatives or friends who come to 'borrow' from them. While the latter case could be seen as having an indirect impact on the poorer people through social relations, the need for arranging workshops on appropriate financial management has been recognized and carried out by Preda.

Reduced costs for agricultural inputs
It is also hoped to increase economic returns for mango growers through a reduced use of chemical inputs. In order to obtain a good mango harvest, flower inducer (potassium nitrate), which is sprayed on mango trees, and insecticides have been used by the growers. The costs of these inputs have been quite considerable for small-scale mango growers because without enough capital, they have to depend on 'contract spraying,' which is conducted by the local traders. Usually, under such contracts, the growers who want their trees to be sprayed have to give up 60% of their total mango harvest in return for the spraying, thus receiving only 40% of the harvest for themselves. As the supply of flower inducer and other inputs is often monopolized by the same family or conglomerate, who are also mango traders, the growers are likely to have no option but to buy from them. Otherwise, very small producers have to do without the inputs thus risk obtaining a much reduced harvest.

As a part of its assistance to fair trade partners, Preda is now encouraging the growers to take low-cost and environmentally friendly measures (see details in natural capital section) in order to reduce the need for the costly inputs, while trying to maintain a good harvest.

2.2.2 Human capital

In terms of the impacts on the human capital of the producers, those on education can be observed; increased income enables the parents to send their children to school. In addition, there is also a case where the young workers of a women's accessory-making group in Cebu, who were willing to study, have been given opportunities to take vocational courses at night school. A part of their tuition fees is paid by the project.

While this could be seen as having a positive impact in terms of education, this seems to be volatile depending on the amount and stability of income. For example, the children of some producers who participate in basket-weaving in Cabalan, Olongapo, have been withdrawn from school as the amount of the order declined. While an advance payment could well be of help to keep children in school if there is an order already placed, the unpredictability of future income as well as a present shortage of money might be a sufficient reason for their dropping out.

Also it may happen that the family income, even if sufficient, is not always allocated to education, as was mentioned in an earlier section. Being a NGO which aims to protect the rights of children, Preda encourages the producers to allocate enough of the income to their children, while at the same time lobbying governments to reduce the economic burden of parents wishing to send their children to school.

2.2.3 Natural capital

The impact on natural capital which is promoted by most fair trade organizations can be classified into two aspects; providing positive effects on the environment and avoiding negative effects, both of which contribute to maintaining the natural capital at its existing level.

In the case of the positive impact, it has been found that planting mango trees contributes to preventing soil erosion as the network of the roots of the trees fixes the soil. As most members of the supported co-operative in Cebu live and cultivate on the steep hillsides of the mountains, where many trees have been cut down, this has an important impact on maintaining their natural capital.

On the other hand, the efforts to pursue 'environmentally-friendly' ways of production could be said to have helped the producers to protect the natural capital as well as their own well-being by avoiding chemical material as much as possible. It has been a principle that natural materials which are locally available and abundant are used for handicrafts to avoid exploiting the natural capital of the producers as well as that of others.

Furthermore, mango growers in Cebu have been encouraged to introduce various alternative devices by which the use of chemical pesticides can be reduced or eliminated. As pesticides and chemical flower inducers were widely used in the past to obtain rich fruits, less use of them, under proper control, could be considered to contribute to reducing negative environmental impacts.

2.2.4 Physical Capital

Most of the observable impacts in terms of physical capital are those provided by Preda. For its partner producers, Preda has provided warehouses to stock products safely, toilet facilities and low-cost housing materials. These projects are financed by the profits of fair trade schemes which Preda are facilitating. In other words, provision of these physical assets by Preda is carried out as a part of its fair trade schemes.

2.2.5. Social capital

In terms of social capital, the establishment of producer groups is considered to be one impact from the fair trade projects. However, except for some NGOs and co-operatives, many groups of producers have not yet been well organized. For most of these producers groups, working together to make the artifacts seems to be their only functions) Although there might be some intangible impacts such as enhanced trust and dignity, increased gender equity in the communities and co-operative activities among members, signs of these aspects were not observed during this study.

In terms of access to information, which could enhance the producers' bargaining power as well as increasing the 'fairness' of the trading relationship for the producers, little obvious evidence was observed. At least, Preda seems to have enough access to information, judging form its communication facilities (e.g. internet, e-mail, fax) as well as its affiliation to the international network of fair trade organizations. 12) However, it could not be discovered to what extent the information is utilized by the producers.

2.2 Impacts at Southern ATO level

For Preda, the fair trading projects they facilitate are also 'a part of income generating project' of NGOs (see Preda's criteria in Appendix -5), which supports its other activities, from social services to advocacy work. For example, in 1992, about 85% of Preda's fund for social projects and administration costs was covered by profits from fair trading projects. This is a point of controversy between some Northern ATOs and Preda. Some Northern ATOs do not accept this practice, as can be seen in the argumet by Bob Thomson, the Managing Director of Fair Trade Mark Canada, who says 'making profits from one group of producers and distributing them to another groups of "disadvantaged" partners, with the mediation of development NGOs or marketing organizations, is not an acceptable definition of fair trade' (Thomson, 1999).

From the perspective of the producers, it might not seem to be 'fair' to redistribute the profits from their products to other disadvantaged groups. On the other hand, it could be said that as long as the producers can obtain decent returns for their produce with consideration to local market price or wage levels, redistributing the 'excess' profits to other disadvantaged people might be seen as entirely acceptable and indeed important in promoting the development of the whole society. Otherwise, the practice of fair trade, if successful, would just create 'islands of wealth' (Thomson, 1999:59) while leaving others with no opportunities. In other words, it could cause another disparity between some lucky less-disadvantaged people and other more-disadvantaged people who have no access to fair trade projects because of physical weakness, gender, remoteness, or just not knowing about the fair trade channels.

Appendix

Appendix - 1 Fair Trade Definition / Cord of Practice of IFAT

Fair trade bridges the gap between southern producers and northern consumers.

Fair trade is better than aid. It builds a sustainable future on producers' own abilities, with the main objective being to improve the producers' quality of life. Several aspects of fair trade include:

• Producers receive a fair price for their goods and advances on orders
• ATOs work with producers to provide quality products
• Purchase and marketing of producers' goods are conducted according to high ethical standards; continuity of orders is important
• Sources, production and workplaces do not exploit people or the environment
• Products have meaning above their tangible attributes; consumers are informed about the people who make the products they purchase, increasing their loyalty and understanding that their purchasing power makes a difference
• Cultural exchanges between people in the South and people in the North are encouraged

Source International Federation of Alternative Trade IFAT), no date, Fair Trade Definition (http://www.ifat.org/fairtrade-defin.html)

IFAT members share the following practices:

1. Commitment to Fair Trade - To trade with concern for the social, economic and environmental well-being of marginalized producers in developing countries. This means equitable commercial terms, fair wages and fair prices. Unfair trade structures, mechanism, practices and attitudes will be identified and avoided. To cooperate and not compete. To promote fair trade and social justice in the interest of the producer, and not to maximize profit at the producers expense.

2. Transparency - To openly share financial information; management policies; business practices; product sources; production, marketing and development program plans on a regular basis. This enables both members and the public to assess IFAT'S, and each organization's, social and financial effectiveness. This openness is tempered with respect to sensitive commercial or political information.

3. Ethical Issues - To reflect in their structures a commitment to justice, fair employment, public accountability and progressive work practices. To seek the greatest possible efficiency at the lowest cost while involving workers in decision making and management as appropriate to each organization. To aim for adequate income for workers to meet their basic needs, including health care, education and the capacity to save.

4. Working Conditions - To ensure a safe working environment that satisfies at a minimum all local statutory regulations. To provide the opportunity for all individuals to grow and reach their potential. To ensure that work is carried out under humane working conditions, using appropriate materials and technologies, while following good production and work practices.

5. Equal Employment Opportunities - To oppose discrimination and ensure equality of employment opportunities for both men and women who suffer from the exploitation of their labor and the effects of poverty and racial, cultural or gender bias.

6. Concern for People - To promote development which improves the quality of life and which is sustainable for and responsible to both people and the natural world. There will be no exploitation of child labor. Trading activities should not violate indigenous peoples claims on land or any resources of vital importance to their way of life.

7. Concern for the Environment - To encourage the trading of goods which are environmentally friendly. To manage resources sustainably and to protect the environment.

8. Respect for Producers' Cultural Identity - To encourage production and development of products based on producers' cultural traditions and natural resources. To promote producers' artistic, technological and organizational knowledge as a way of helping preserve and develop their cultural identity

9. Education and Advocacy - To promote fair trade by encouraging people to change consumption patterns based on issues of social justice and concern for the environment. To support campaigns or campaign for national and international
policies that will improve the living conditions of the poor in developing countries. To increase public and corporate consciousness of alternative trade as an effective means to change unfair international trade structures and attitudes. To increase awareness of cultural and traditional values of the South in order to promote intercultural understanding and respect.

Source International Federation of Alternative Trade, 'Code of Practice' (http://www.ifat.org/what-code.htm)

Appendix- 2 The key principles and criteria of fair trade - Traidcraft

• Paying a price that is agreed by the producer and Traidcraft to be fair. This will cover the cost of raw materials and production. Where producers are working full time producing the products in question, the price paid will provide a living wage. In some cases fair trade alone may not provide a 'living wage' - for example for an artisan working at home making handicrafts part-time, but, also earning income from other sources (e.g. farming). The important thing here is to agree fair prices for the goods produced. In some circumstances a specific premium payment is made, over and above the price, to support development activities. Decisions on the activities to be supported are made by the producers themselves.
• Working with organizations that explicitly aim to provide benefits to their workers. These may be producer-controlled co-operatives, NGOs or community groups that are trading to generate income to support social and development programmes, or private businesses with a genuine commitment to their workers welfare.
• Making a commitment to long-term relationships with producers, providing stability and security of trading, and seeking a transparent trading relationship in which information is exchanged and decision-making is shared to the greatest extent possible.
• Making advance payments, or facilitating credit, where requested, and paying the agreed price at the agreed time.
• Providing assistance to producers to develop new products, develop their businesses and gain access to mainstream northern markets beyond those provided by fair trade organizations.
• Seeking to ensure that production and trading cause the least possible environmental damage.
  

Source: Traidcraft Exchange, 1998 Fair Trade and Ethical Trade: Distinct but Complementary,Traidcraft Exchange Briefing, September 1998

Appendix-3 Oxfam Fairtrading Criteria

In the early stages, Oxfam's trading partners may not be well-organized, their earnings may be very low, and working conditions may be poor. While some producers have a formal work place, many others, especially women, work part-time at home, fitting craft or food production into their domestic routine.

However before Oxfam enters into a trading relationship with anyone, potential trading partners are visited by Oxfam staff to determine whether they meet Oxfam's Fairtrade partnership requirements. These criteria are that Oxfam's trading partners should:

• Work with marginalized producers.
• Produce a good quality, marketable product.
• Allow producers to associate freely and negotiate their pay.
• Involve producers in decision making and management.
• Pay producers at a rate which they consider to be fair, which meets, or exceeds, the legal minimum and is sufficient to provide basic needs.
• Pay producers directly, promptly and in full.
• Provide a safe working environment, satisfying at a minimum all local statutory regulations.
• Restrict normal working hours to a maximum of 48 per week (or the legal maximum if lower). Overtime should be voluntary. Provide at least one full day of rest per week.
• Provide equal treatment to men and women.
• Not use any bonded or forced labour.
• Not recruit any children under the age of 14 (or the legal minimum age if higher) to work full-time in formal employment situations. Children may be employed part-time in non-formal situations provided they continue with schooling and undertake light work only, and provided the employment is caring and in the best interests of the child,
• Children under the age of 18 should not work at night or in hazardous conditions.
• Use raw materials and production methods which do not damage the environment.
• Respect and promote cultural values and identity.

Source: Oxfam, "Who Does Oxfam Trade With?"

(http://www.oxfam.org.uk/fairtrading/criteria.htm)

Appendix-4 Fairtrade labelling Organizations International - Fairtrade Criteria

The Fairtrade Label guarantees

Fair trading relations, including:

• a price that covers the cost of production
• social premium for development purposes
• partial payment in advance to avoid small producer organizations falling into debt
• contracts that allow long term production planning
• long term trade relations that allow proper planning and sustainable production practices
  

Fair production conditions, including:

for small farmers' co-operatives a democratic, participative structure

for plantations/factories the workers should have:

The FLO monitoring programme ensures that all the trading partners continue to comply with Fairtrade criteria and that the individual producers really do benefit. There are FLO criteria developed according to these principles for the following products: coffee, tea, cocoa, honey, sugar, orange juice and bananas.

Source: Fairtrade Labelling Organizations Internationa1, 'Fair trade Criteria' (http://www.fairtrade.net/criteria.htm) Last updated October 15, 1999

Appendix-5 Preda Foundation'

By Fr. Shay Cullen and Alex Corpus Hermoso
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PROMOTES PRODUCERS WELFARE
- decent working conditions and sanitary facilities and healthy environment
- absence of unfair labour practices, exploitation and deprivative child labor
- labor price based on scientific calculations with respect to the minimum wage for
cottage industries
- aimed at financial and economic sustainability of the members
- income derives help in getting better education, health, food, shelter and other basic
needs

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PROMOTES PEOPLE'S PARTICIPATION
- existence of a process by which participation in decision making by members of the production group

- special attention to the participation of women people in all aspects of production

- special attention to the participation of indigenous people and the physically handicapped in all aspects of production

- promote self-help and autonomy of the Organization

- encourage local initiative, counterparting and community resourcefulness

- participation in community activities to promote social justice and overcome exploitation
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PROMOTES ENVIRONMENTAL SUSTAINABILITY

- use of energy-saving production methods that are health/environment friendly production systems and management
- use of local renewable materials
- conservation and utilization of natural resources
- priority given to agricultural and farm products
- production with less waste and the recycling of materials
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PROMOTES LOCAL AND EXPORT MARKET

- products with competitive quality at reasonable price- pricing of product based on scientific calculations with respect to regional competitiveness
- produces generally functional items satisfying consumer needs to sustain a strong market for producer sustainability- continuous development of sufficient production quantity:
- with marketing plan
- with reasonable delivery time- provide and share product research, design and product development- capability to forge long term business partnership with buyers/traders
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PROMOTES SOCIO-ECONOMIC DEVELOPMENT

- production or manufacturing is part of the income generating project of the Fairtrade organization

- direct beneficiaries belong to the impoverished families and communities.

- create alternative job to augment income from regular livelihood

- provide skills training and appropriate technology transfer

- enhancement of entrepreneurial development

- provide financial and technical assistance in production

- assist in developing local and export market for its products

- promotes responsible consumerism

- Advocates for Fair Trade practices

- contribute toward socioeconomic progress of the country

These criteria may be applied in different ways and degrees depending on the nature of the organization, its' organizational development and its ability to generate income and
deliver services.
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KINDS OF FAIR TRADE ORGANIZATIONS

1. A grass-roots producer group. Usually village or urban based production group or small scale family led project.

2. A registered cooperative or an NGO.

3. A recognized community association or People's Organization.

4. Training production workshop for socially disabled or physically handicapped.

5. A private business organization striving for social objectives and goals similar to an ATO or IMO.

6. An Alternative Trading Organization (ATO) or Intermediate Marketing Organization (IMO) that provides marketing, distribution, export and developmental services for several small scale producer groups or cooperatives.

7. A commercial company that work with established Fair Trade organizations, ATOs or IMOs providing processing facilities to cooperatives and grass-roots producer groups. --------------------------------------------------------------------------------

IMPLEMENTING GUIDELINES

1. In applying and implementing the criteria, the local economic and social circumstances plus the condition of the producer group or organization must be taken into consideration. These can differ from one group, region or locality to another.

2. Not all the criteria can be fulfilled at the same time. It is recommended that a gradual development in the group's ability to practice fair trade be recognized and assisted to meet the most essential criteria.
"Perfection in meeting all the criteria is seldom possible."

3. The essential principle of practicing Fair Trade is that the welfare of the producers is the primary consideration. That their basic expectation be met through their own efforts in partnership with other organization such as the national ATOs, IMOs or Fair Trade Organizations doing international importation and distribution.

4. That the creation of work with dignity, decent healthy surroundings, fair remuneration with security of work, workers participation, free from exploitation and environmentally safe and with expanding markets are the most fundamental criteria to be implemented.

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