DEFINITION of 'Fair Trade Price'
Fair trade price is the minimum price paid for certain agricultural products imported from developing countries. Fair trade is a movement that believes it is unethical to pay producers in developing countries the market price if that price is too low to provide a sufficient quality of living. Instead, certain importers agree to pay producers in the developing world at least a minimum price for their goods. The goods are then imported to developed nations where they are promoted as fair trade products and, normally, sold at a higher price.
BREAKING DOWN 'Fair Trade Price'
For goods to be labeled as Fair Trade Certified, they must comply with standards outlined by the non-governmental organization FLO-CERT and/or other local fair trade labelers. These set of standards, put in place by FLO-CERT, are broken up into five different categories with standards for small producer organizations, hired labor, contract production, traders, and climate. Within each one of these categories there is a set of specific standards for products; for example, within the small producer standards, there is another set of standards for products like coco, cane sugar, cereals, coffee, fresh fruit, honey, nuts, tea, and so on. These specific product standards cover issues like product composition, production, contracts, pre-financing, and pricing. However, these standards aren't set in stone.
Fair Trade International Standards Committee
The body responsible for setting these standards is the Fair Trade International Standards Committee, a committee appointed by the board of the FLO, which constantly review how individual international markets shift and economies change. Yet, while the specifics of these standards are always subject to change, the principals that inform them are much more firm. It's FLO-CERT's mission to provide producers in developing countries living wages for their work, and to make sure that their livelihood isn't put at risk. While the intentions of FLO-CERT are virtuous, not all believe that the Fair Trade system to be completely fair to producers.
Fair Trade Opposition
Opponents of the fair trade system argue that establishing a price floor results in oversupply. It is argued that this oversupply can actually lead to lower market prices for producers that are not able to sell to fair trade buyers. For example, many in the North American coffee industry have shifted from using the Fair Trade system to buy and source beans to a Direct Trade model. By forming direct business relationships with the farmers, many roasters and coffee suppliers find they can get a better product and ensure fair pay to producers.