Examensarbete i Hållbar Utveckling 77
Fair Trade Certification Handbook
-Small Producers’ Organizations of Fresh Fruit-
Fair Trade Certification Handbook
-Small Producers’ Organizations of Fresh Fruit-
Clara Elisa Juanita Camila Ruiz Diaz
Clara Elisa Juanita Camila Ruiz Diaz
Uppsala University, Department of Earth Sciences Master Thesis E, in Sustainable Development, 30 credits Printed at Department of Earth Sciences,
Geotryckeriet, Uppsala University, Uppsala, 2012.
Master’s Thesis
E, 30 credits
Examensarbete i Hållbar Utveckling 77
Fair Trade Certification Handbook
-Small Producers’ Organizations of Fresh Fruit-
Clara Elisa Juanita Camila Ruiz Diaz
2
Content
1. Introduction... 6
1.1. Objectives ... 6
1.2. Application and Scope ... 7
1.4. Structure ... 7
1.5. Methodology ... 7
2. Background information ... 8
2.1. Socio-economic context ... 8
2.2. Fair trade ... 9
2.2.1. Historic overview ... 9
2.2.2. What is fair trade ... 9
2.2.3. Principles of fair trade ... 10
3. Getting started: the certification system ... 12
3.2. Standards categories ... 16
3.2.1. Topic ... 16
3.2.2. Importance ... 17
3.2.3. Time frame ... 17
3.3. Certification cycles ... 17
3.4. Performance ranks ... 18
3.5. Application and certification process overview ... 18
4. Certification requirements for fresh fruit for small producers organizations ... 21
4.1. Core / major requirements year zero ... 22
4.2. Core requirements year one ... 44
4.3. Core and development requirements year three ... 50
4.4. Core and development requirements year six ... 60
5. Final reflections and conclusions ... 65
6. Glossary ... 67
Bibliography ... 68
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List of annexes
Annex 1 Fairtrade Application Form, ... 72
Annex 2 Cooperative Juristic Person ... 74
Annex 3 Non-Profit Organizations ... 76
Annex 4 Fairtrade List Of Prohibited Materials ... 80
Annex 5 Lists Of Approved Fertilizers, Pesticides And Bio-Organisms In Ecological Crops ... 86
Annex 6 Gap Integrated Pest Management ... 89
Annex 7 Decree 2811, 1974 P. Vii, Art 178-186 On Agricultural Land Use ... 92
Annex 8 Establishment And Bylaws Requirements For Non-Profit Organizations ... 93
Annex 9 Minutes Template General Assembly Meeting ... 98
Annex 10 Decree 1843 Of 1991, Chapter Ix. On Aerial Application Of Pesticides ... 100
Annex 11 Chapter Iii, Resolution 02309, 1986 On Temporary Storage Of Hazardous Waste ... 101
Annex 12 Example Fairtrade Planning And Reporting Templates ... 103
Annex 13 Recommendations For Storage Areas Of Agriculture Supplies ... 104
Annex 14 Decree 1541 Of 1978 (Excerpts) On Waste Water Treatment And Discharge ... 105
List of tables
Table 1 Core General Requirements Year 0 ... 22Table 2 Core Trade requirements Year 0 ... 24
Table 3 Production Core Requirements Year 0 ... 28
Table 4 Business and Development Core Requirements Year 0 ... 39
Table 5 Core Production requirements year 1 ... 44
Table 6 Core Business and Development Requirements Year 1 ... 48
Table 7 Production Core and Development Requirements Year 3 ... 50
Table 8 Business and Development Core and Development Requirements Year 3 ... 59
Table 9 Core and Development Production Requirement Year 6 ... 60
Table 10 Development Business Development Requirements Year 6 ... 64
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Fairtrade Certification Handbook
-Small Producers’ Organizations of Fresh Fruit-
CLARA RUIZ
Ruiz, C., 2012: Fairtrade Certification Handbook -Small Producers’ Organizations of Fresh Fruit- Master thesis in Sustainable Development at Uppsala University, No. XX, YY pp, 30 ECTS/hp
Abstract: fair trade is a business model approach that pretends to enhance the access to progress opportunities for rural populations through an empowering framework that supports small producers’ organizations and encourages investment decisions that improve welfare and sustainable development in their own communities.
The values and practices underlying fair-trading emphasize a greater sensitivity on the conditions of small growers.
The model integrates good agricultural practices, environmental stewardship, organizational transparency, empowerment, participative democracy, economic incentives and technology transfer in an alternative trade framework with the specific purpose of improving the income of rural producers of agricultural goods in developing countries.
The most distinctive mechanism fair trade models use to improve the income of these producers is the direct payment of a minimum sales price to the farmer, which is at least equal to the market price. In exchange for this price security, the farmer commits to environmentally sound and socially responsible production practices.
The main objective of this document is to provide a model for a handbook for small producers and organizations in Colombia interested in fair trade certification schemes. The paper collects relevant information for producers and organizations starting from an introduction of the fair trade system and the different labeling alternatives available in the market. It also provides general information about the background of the rural population in Colombia, useful for other audiences like researchers, and project leaders.
In addition to explaining how the world’s leading fair trade labeling organization works and the procedure to obtain a certificate from them, the paper suggests screening and organizational-fitness tests intended to help interested producers and organizations to identify the suitability of the system to their own needs and detect internal strengths and weaknesses in relation to the specific certification requirements.
The core of the document is a detailed analysis and compilation of the relevant compliance criteria producers and organizations must meet in order to become certificate holders and retain the certificate successfully. The standards set by the labeling body chosen for this work are paired to the compliance requirements of the respective auditing organization, local legal demands and practical guidance for compliance. The analysis is based on fair trade certification case studies, literature review and interviews with fair trade certified producers and experienced certification consultants in Colombia. Relevant local legislation and further informative documents for applicants are included in the Annexes.
Its productive and demographic structure makes of fair trade schemes a relevant model for Colombia, a net producer and exporter of agricultural products. Production and trade patterns in Colombia, in combination with relentless land ownership concentration and inequality call for the implementation of alternative strategies with the potential of improving income in the short term; and strengthening capacity building, enhancing negotiation power of small farmers’ organizations and developing their skills for agro-business management in the long term.
Keywords: Sustainable Development, fair trade certification, Colombia, small producers’ organization, agricultural management.
Clara Ruiz, Department of Earth Sciences, Uppsala University, Villavägen 16, SE- 752 36 Uppsala, Sweden
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Fairtrade Certification Handbook
-Small Producers’ Organizations of Fresh Fruit-
CLARA RUIZ
Ruiz, C., 2012: Fairtrade Certification Handbook -Small Producers’ Organizations of Fresh Fruit- Master thesis in Sustainable Development at Uppsala University, No. XX, YY pp, 30 ECTS/hp
Summary: Colombia is a net producer and exporter of agricultural products, almost three quarters of the food supply produced in the country comes from smallholders, yet land ownership concentration and inequality have been relentlessly on the rise in the last decade. Informality is the rule for small agricultural producers and the income difference between urban and rural areas is staggering: while in the cities, the households earning less than one minimum legal wage per month is slightly over a third, this figure is reported to be over three thirds in rural areas.
A rising demand for ethical products, especially in European and North American markets, matched with increasing legal requirements for exporters and importers of agricultural goods represents both an opportunity and a threat to the already sluggish competitive capacity of small producers in the global markets. Small producers in Colombia can take advantage by catering fair trade, organic niche markets and at the same time improve their competitiveness and income. One way of doing this is by following fair trade practices and obtaining a certification that requires producers to comply with good agricultural practices, demonstrate environmental stewardship and the creation of transparent, democratic structures that are respectful of human and labor rights. In exchange, individual producers are granted a safety minimum price and producers’
organizations are paid a premium for investment in community projects.
The paper provides a guidance for small producers and organizations interested in fair trade certification of fresh fruit. The document explains how the fair trade system works (based on the leading certification body in the world), presents issues that should be considered before applying such as costs and planning, and analyzes the actual standards that must be met in order to obtain a certification. Through a series of interviews and reviews of case studies, this paper collects fair trade certification experiences in Colombia with the objective of sharing practical lessons with future applicants.
Keywords: Sustainable Development, fair trade certification, Colombia, small producers; organization, agricultural management.
Clara Ruiz, Department of Earth Sciences, Uppsala University, Villavägen 16, SE- 752 36 Uppsala, Sweden
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1. INTRODUCTION
This paper is inspired on the fair trade model as a strategic approach to enhance the access to progress opportunities for rural populations through an empowering model that supports collective productive initiatives and encourages investment decisions that improve their local communities welfare and sustainable development1. The values and practices underlying fair-trading differentiate it from “business as usual” by emphasizing a greater sensitivity on the reality of small growers.
Fair-trading promotes small agricultural producers in developing countries enhancing their reach to international markets through its own network of certified fair trade buyers and licensees. Although the volume of fairly traded product is only 1% of the total volume of globally traded goods, it has shown steady market share growth in the last ten years and holds great potential for product diversification (IICA, Instituto Interamericano de Cooperación para la Agricultura, 2008).
In fair trade schemes, producers are paid directly a minim price, that is at least equal to the market price, and a social premium, that is paid to the organization for common projects. Since the premium is usually reflected on to the retail market price, consumers of fair-traded products typically identify themselves as ethical shoppers willing to pay a higher price for products with social and ecological stewardship.
In order to promote higher sales volumes at more competitive prices, and to be able to sustain the premium, the price structure of the products is improved using distribution and marketing strategies that include cost-cutting along the distribution chain through the elimination of intermediaries and by targeting customer niches interested in high quality, green and organic products.
Producers join the fair trade market through the certification of compliance of a series of labor, production and environmental standards set by one of the fair trade organizations around the world.
One of the organizations through which producers can join the system is Fairtrade International -FLO-, a network of 25 fair trade organizations that sets the standards for the certification of organizations and products under its own mark: FAIRTRADE. This is
1 The concept of Sustainable Development is commonly referred to (and argued) as lay out in Our Common Future, by the World Commission on Environment and Development, 1987. Also, see glossary.
the most widespread and well-known fair trade label in Western Europe.
The FAIRTRADE label (Fig. 1) featured on the retail product packaging certifies compliance along the value chain of social, economic and environmental standards set by Fairtrade.
Fig. 1 FAIRTRADE product mark
Source: http://www.fairtrade.net/
Whilst there is a variety of fair trade labels available, their underlying principles are the same.
The difference depends, on a great extent, to the target market chosen by the licensee.
In Colombia, there is already a group of producers and traders certified with the FAIRTRADE label, and there is interest on their behalf to increase market shares and diversify portfolios of fair traded products in the European Union and the North America.
1.1. OBJECTIVES
In this context, the main purpose of the paper is the elaboration of a model handbook for a later version in Spanish for fair trade product certification according to the standards established by FLO International and their respective compliance criteria as defined by the authorized certification body FLO-CERT GmbH.
This handbook differentiates itself from the generic standards issued by Fairtrade International in that:
the guide is tailored to the applicable Colombian local regulatory norms through the integration and articulation of the certification requirements with the legal framework and local market conditions.
It is a practical tool that provides comprehensive, yet accessible guidance through the fair trade certification.
The manual is also intended as an educational tool for currently certified producers to better understand the requirements they must comply with and share best practices from other experienced producers.
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1.2. APPLICATION AND SCOPE
This document is designed to complement, not replace, official certification guidelines provided FLO.
The handbook is not meant to encourage certification at any cost or conceal from its audience the risks and costs incurred in such certification, but to share experiences and provide accurate, objective information for its users to make informed decisions in their best interests.
The main target audience for this handbook are organizations of small fresh fruit growers and organizations in Colombia who are interested in obtaining a Fair trade certification.
1.3. STRUCTURE
The first part of the document is an overview of the socio-economic conditions of average rural fruit growers in Colombia followed by background information about fair trade and its relation to sustainable development; fair trade markets and why these are relevant to rural agricultural workers in Colombia.
The second part is the actual handbook. It starts with a suitability pre-screening as a decision- making aid to determine the organization’s certification suitability. Following, a listing of the standards and compliance criteria of the general, trade, production, labor condition and development potential requirements. The most important contribution in this section is the analysis, comments and recommendations for each standard.
These comments and recommendations include references to the applicable local regulation and advice provided by Fairtrade experts in Colombia, by the selected labeling organization and by the respective auditing company.
The last chapter concludes with reflections on key factors of success for a certification process derived from the analysis of the procedures and requirements analyzed throughout the paper.
A glossary of relevant terms is also provided, together with annexes in Spanish.
1.4. METHODOLOGY
Secondary and primary sources were consulted throughout the research and elaboration of this document.
Primary sources include semi-structured interviews with people experienced and actively engaged in fair trading and fresh fruit production in Colombia, including landowners and certification project leaders as well as representatives of Fairtrade International.
Secondary sources include literature reviews on and related to fair trade, Fairtrade International and FLO-CERT standards, case studies of fair trade certification in Colombia and Colombian legal regulations relevant to production and commercialization.
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2. BACKGROUND INFORMATION
2.1. SOCIO-ECONOMIC CONTEXT
Official statistics in Colombia report that around 18% of the employed population works in agriculture, hunting, forestry and fishing.
Altogether, these activities constitute one of the country’s major sources of employment -not considering that 60% of rural employment is informal-, second only to retail and hospitality (DANE, 2012).
While the exports of crude oil accounted for 44.4%
of the total value of exports in 2011, although oil extraction generates less than 0.3% of the total jobs in the country; the contribution achieved by exports from agriculture, hunting, forestry and fishing amounted to just about 17% of the total value of traded goods (DANE, 2012).
Keeping in mind the figures above, and knowing that 60% of the rural employed population is engaged in agriculture and livestock (Leibovich, et al., 2006), it is easy to deduce that the country faces serious inequity issues related to -though not exclusively about- income distribution.
The previously described situation is aggravated if in fact, the percentage of rural population in Colombia is 32% as reported by the United Nations Development Programme -UNDP- in its 2011 National Human Development Report; and not 25%, as the official government figures claim it to be (PNUD, 2011).
In either case, the numbers speak of the unbalances in the distribution of income and resources across households over the country. It is no coincidence that according to the data from 2010, published by the World Bank, Colombia scored a Gini coefficient2 of 0.56 (The Worl Bank Group, 2012).
Other measures, like the UNDP Human Development Index3 -HDI-, and Inequality-adjusted
2 The Gini coefficient measures the inequality in the distribution of income (or consumption) among the individual or households in a certain country. The index ranges from 0, indicating perfect equality, to 1, indicating perfect inequality (The Worl Bank Group, 2012).
3The HDI measures development integrating life expectancy, education and income into a composite index which serves as reference frame for social and economic development. The index is expressed
Human Development Index4 -IHDI- also reveal the limited access to opportunities and resources that would enable a larger proportion of the population to develop through the effective exercise of its freedom, rights and capabilities.
According to the UNDP Human Development Report from 2011, Colombia’s HDI was 0.71 ranking 87th out of 187 countries5.Adjusted using the inequality measure, the index drops from 0.71 to 0.48, or an overall loss of 32.5%6 and 24 places in the rank. From the top to the least, the human development dimensions dragging the HDI downwards are income, education and life expectancy. When adjusted using income equality, the value of the index dives to 0.292, losing 53.9%
of its value. It is the fourth highest loss in the group of countries with high human development and second in Latin America (UNDP, 2011). In monetary terms, this translates in an average monthly income in rural areas of roughly USD 100.00, a third of the monthly average income in urban areas7 (ICP, 2012).
Although the development indexes for Colombia have shown a positive trend in the last ten years, parallel to the global trend, improvements achieved in health, education and income are not evenly distributed across the national territory. These differences in progress -between rural and urban areas, ethnic groups, age segments and gender- and the pace at which each index improves remain dissimilar, further stretching the gap between already highly segregated society sectors. In particular, regional inequality is not just an expression of income differences but also of the increase of disparities between the capabilities and opportunities of rural and urban populations (UNDP, 2011).
Failed rural development models together with the concentration of land ownership, a lack of political will and uncertain public order circumstances - especially in rural areas- have reinforced, within the social structures, the dichotomies of development.
in a value between 0 and 1, where 1 is the least development and 1 the greatest attainable development (UNDP, 2011).
4Measure of the actual level of human development. IHDI adjusts the HDI to the level of inequality measured by the Atkinson index. Under perfect equality IHDI=HDI. IHDI falls below HDI as inequality rises and it also ranges from 0 to 1.
5 Classifies in the group of countries with high HD.
6 Compared to global average loss of 23%.
7 2009 data. Minimum legal wage in Colombia in 2009 was about USD 232.00 (Banco de la República, 2012).
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In this context, practical solutions and private initiatives like fair trade schemes address disparities through empowering models, capacity building and entrepreneurship and therefore, are highly relevant for agricultural producers in Colombia.
2.2. FAIR TRADE
2.2.1. HISTORIC OVERVIEW
The origins of fair trade as a social project to provide better livelihoods in developing countries can be traced back to the late ninetieth century, when the first attempts to parallel cooperation trade initiatives -in a free trade, market economy context- where reported between the UK and its -back then- colony, India. They referred to the solidarity and reciprocity principles embedded in barter transactions at local community levels. The legacy of these values shaped the latter development of fair trading as an alternative model within the free market system and still remain at its core.
The institutionalization of fair trade as a business practice characterized by the ethics of partnership and justice is marked by the establishment, back in the forties, of alternative trade organizations like Ten Thousand Villages and SERRV International in the United States. Later in the fifties, the movement took off in Western Europe with the inauguration of the OXFAM8 shops, first in the United Kingdom and later, in other countries. These shops commercialized mainly products handcrafted by war refugees and artisans in less developed countries (Bowen, 2001).
As initiatives from the USA and the UK, the first steps towards a fair trade system focused on charity and paternalism approaches, the usual North-South assistance dynamic. The 1964 UN Conference on Trade and Development -UNCTAD- took a step away from this paradigm when the leaders from solidarity-recipient countries asked for trade partnerships instead of charity, for better conditions to market their products in developed countries (IICA, Instituto Interamericano de Cooperación para la Agricultura, 2008). This opened the door to an extended understanding of the meaning of trade cooperation, in which all the business parties compromise and deliver.
8 OXFAM stands for Oxford Committee for Famine Relief, an independent organization founded in Britain in 1942 with the purpose of providing emergency food aid to the Greek civil population during the occupation of the Axis Alliance.
Today, the fair trade movement has institutionalized in a network of associations of producers, traders, licensees, retailers and consumers with their own distribution channels and are actively engaged in building new markets through conventional distribution channels like corporations and traditional retailers.
2.2.2. WHAT IS FAIR TRADE
The concept of fair trade is at times elusive to pin down, as it stretches over multiple topics. Fair trade relates to as many and varied themes like rural development, environmental stewardship, consumer liability, good agricultural practices, transparency, labor rights, income equity, empowerment… It is a productive activity and a social project, a civil movement and a cooperation initiative, all at once.
Ii is usual to find different expressions as exchangeable synonyms for fair trade: solidarity trade, ethical trade, ethical and solidarity trade, alternative trade, non-conventional trade, organic and environment-friendly trade. The choice of words in each expression reveals at the same time a more or less generally accepted understanding of fair trade and the priority issue addressed by each, be it equity, solidarity, environmental stewardship...
This paper refers to fair trade as consensually defined by four leading international organizations dedicated to labeling, advocacy, promotion and networking in this area. In 1998 the World Fair Trade Organization-WFTO-Fairtrade International - FLO-, the Network of Workshops in Europe - NEWS!- and the Fair Trade Association in Europe - EFTA- introduced a unified definition that could be communicated to producers, traders, retailers, consumers and the public in general.
Their definition describes fair trade as a commercial alliance built upon open communication, integrity, and respect. The objective pursued by these commercial partnerships is to guarantee fairness along the entire supply chain and in particular to farmers in disadvantaged negotiation positions. In doing so, fair trade positively influences the sustainable development of marginalized producers because it ensures respect for human and labor rights. (FINE, 1998) The definition clearly states the core aspiration of fair trade practices: to achieve greater equity at different, yet mutually reinforcing levels: economic, ethical, social, environmental and political.
Economic. As fair trade practices address activities along the entire value chain, from production to retail.
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Social. As it states that fair trade practices strive for greater equity. The recognition of the inequitable conditions in the global marketplaces motivates a parallel system that attempts to fill equity gaps through better participation opportunities for small farmers in developing countries.
Political. As it is concerned human rights compliance. In practice, respect for these rights translates into specific demands by fair trade certifying bodies regarding labor conditions consigned in the International Labor Organization conventions. Some of these requirements include, for example, non-discrimination, no physical or mental abuse, no forced work, no employment of children under 15 and the provision of healthy and safe.
Ethical. As it refers to a set of values (dialogue, transparency and respect) that permeate all the fair trade related goals, initiatives and activities. In practice, the ethical pillar materializes in the requirement of democratic, transparent structures with clear, equal voting rights; the establishment of consensually defined bylaws; and the practice of regular recording and reporting, to cite a few.
Environmental. Even when the definition does not make an explicit reference to natural resources, it does incorporate sustainable development.
Sustainable development stems from a triple bottom line foundation: social welfare, economic growth and environmental conservation. These three components are, typically, in mutual conflict: the gain for one is the loss for another. Therefore, one of the major challenges of designing a development model that delivers social welfare, economic growth and environmental conservation is that of figuring out the of achievement level combination that optimizes the outcome and maximizes its reach, both in the present and in the future.
In relation to environmental stewardship, fair trade standards are provided in order to ensure safe agricultural practices, which do not threaten, but rather protect and improve biodiversity.
Specifically, standards address environment- sensitive issues such as pest control and fertilizers;
soil, water and waste management; biodiversity,
genetically modified organisms -GMO-, and emissions of greenhouse gases.
All of the previous issues are addressed in practice through the fair trade certification process and adoption of its requirements in the long term.
However elusive the definition of fair trade may be, it actually entails very concrete business practices in production, logistics and sales. This translates in the payment of a social premium on top of a minimum price. Also, in some cases, the pre- payment of up to 50% of the crop to finance the producers’ ability to acquire raw material and other resources without having to incur in debt with third parties and compromise their ability to honor the orders in terms of volume and time.
In order to benefit from this trade model, producers have to demonstrate compliance to the requirements established by the fair trade organization, may it be Fairtrade International or similar.
2.2.3. PRINCIPLES OF FAIR TRADE
Today, the stated principles for fair trade organizations (Box 1) still preserve and reveal its roots in solidarity but reflect an evolution towards an empowerment and post-welfarism approach, consistent to the operation of today’s global market economy. Particularly significant to this progress are principles number one, Creating of opportunities for economically disadvantaged producers; number four Paying a fair price; and number eight Providing capacity building. The following box displays the principles and how are they implemented in practice.
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Box 1 World Fair Trade Organization’s ten principles of fair trade
PRINCIPLE EXAMPLE
Creating opportunities for economically disadvantaged producers that enable them to move from income insecurity and poverty to economic self-sufficiency and ownership.
Fairtrade enhances market access opportunities through its own commercialization networks, particularly to niche markets.
Ensuring transparency and accountability towards all relevant stakeholders. Respecting information confidentiality, providing participatory decision- making systems and using open communication channels along the supply chain.
Licensees must keep a faithful record of their operations in the matters required by the labeling organization and provide any information required by the certification body, which, must keep the data confidential.
Fair trading is concerned with the social, economic and environmental well-being of producers. It does not maximize profit at their expense. Trading partners strive to increase volumes, value and diversity of products to improve producers’ income.
It is forbidden for traders to restrict the quantities of licensed product bought by demanding from the supplier to provide a minimum amount of ordinary products under openly unfavorable terms.
Paying a fair price that is mutually agreed, is regarded by producers as just and provides adequate remuneration in the local context and is marketable.
A fair trade price is a price that covers, at least, the costs of sustainable production along all the value chain from field operation to exporting.
Ensuring no child and forced labor in the production of fair trade products, by following the UN Convention on the Rights of the Child, and national laws on child and forced labor. Any involvement of children in the production of fair trade products must always be disclosed and monitored and shall not negatively affect their well- being.
Licensees are audited against the 182 ILO convention addressing work which might harm wellbeing, security or morals of the under aged.
For example exposure to toxic chemicals, operation of dangerous or at dangerous sites.
Committing to non-discrimination, gender equity and freedom of association by providing equal employment opportunities regardless of gender, race, nationality, religion, political views, age…, and giving attention to special needs of pregnant and breast feeding women. Not obstructing workers’
right to join unions and bargain collectively.
Ensuring same-pay for same-work between women and men.
In practice, and particularly for hired-labor farms, this principle translates into, for example, requirements to record all contract terminations and reasons.
It is mandatory for contractors to educate employees about their collective bargaining rights during paid working time.
Ensuring good working conditions that comply, at the least, with local laws and ILO conventions
Particularly relevant to hired labor farms: licensed employers must set social security provisions.
Providing capacity building by developing the skills and capabilities of own employees and members of fair trade producers and organizations
In the specific case of FLO International, they provide support services free of charge such as access to tools and information. Training activities are coordinated by local Fairtrade offices.
Promoting fair trade by raising awareness of fair trade activities and its aim to improve justice in world trade through honest advertising and marketing techniques. Information provided about the products and producers is always truthful and verifiable.
Promotion of fair trade is largely a responsibility assumed by the labeling organization. The strategy of FLO International includes the development of partnerships to address institutional, business, producer and knowledge development issues.
Respecting the environment in all the stages of the product value change from raw material sourcing to final consumption by implementing energy- and material-efficient production technologies and minimizing the emission of greenhouse gases and waste streams. Bottom line is to strive for the least negative environmental impact possible.
It is required from licensed producers to demonstrate that their practices do not jeopardize, but rather protect the natural environment. For an instance, there are specific requirements as of how to dispose of hazardous waste from fertilizers and pesticides.
Source: adapted from www.wfto.org
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3. GETTING STARTED: THE CERTIFICATION SYSTEM
Fairtrade International is a network of fair trade organizations that awards a FAIRTRADE certification to producers’ organizations, traders and retailers who meet product and organization standards defined by Fairtrade International and independently audited by FLO-CERT.
To be certified means that the applicant has demonstrated its present and future ability and willingness to comply with such standards.
In exchange for its efforts, the producer –as a member of a certified organization and through trade with Fairtrade certified buyers (see Box 2) is always entitled to the economic incentives summarized in Box 3.
Box 2 Finding a Fairtrade buyer
In order to prevent organizations from incurring in certification costs without having certainty that the product will be sold at a Fairtrade price and under Fairtrade terms, the auditing body, FLO-Cert only audits applicants that have a letter of intent from a certified Fairtrade buyer.
Some suggestions to find potential Fairtrade buyers are:
a) Contact the FLO local representation office and request information about buyers interested in the product(s)
b) Contact local certified Fairtrade buyers or licensees in the selected target markets Source: adapted from (Elzakker & Eyhorn, 2010)
Box 3 Fairtrade economic incentives for fresh fruit producer
1. Minimum fair trade price: the producer is paid at least, the floor price established by Fairtrade International. It is important to underline that:
There is not a minimum fair trade price for all the range of certifiable products.
Minimum fair trade prices may vary from region to region
Terms of trade agreed with the buyer largely influence the price paid to the producer
The main goal of minimum prices is to ensure adequate revenues for producers when market prices plummet or weak bargaining power drives prices downwards. Adequate revenues are revenues that cover the sustainable cost of production and provide income for a dignifying livelihood: education, health, leisure…
Example:
USD 1.53/kg = FOB, fair-trade, world minimum price for fresh avocado
USD 0.70/kg = average FOB price of avocado in Colombia (2010-2011)
2. Social premium: To be paid a social premium on top of the selling price. The premium is established directly by Fairtrade International.
The premium is not negotiable
The premium is not part of the minimum price
The premium is handed to the organization and not to the individual producers
The main goal of the premium is to provide a source of revenue to finance community projects. The investment decision is the result of a participative process in which all the members of the organization of producers have a say and agree upon the destination of the funds that can be used for schools, health care, training…
USD 0.12 = Premium per kg of avocado (regardless of terms of trade or organic quality of the product) Sources: FLO international, Proexport Colombia. Own construction.
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A third financial incentive also available for organic products is the Organic Differential. On top of the social premium, producers can also improve their revenue stream by simultaneously applying fair trade and organic methods of production. Fairtrade International also acknowledges and encourages environmental sustainability efforts undertaken by producers through a premium for organic crops.
In the case for avocadoes, for example, the FOB price per kg of ordinary product is 1.53 USD vs.
1.65 USD/kg of organic product. In either case, organic or conventional, the FLO-certified buyers must pay the highest price, may it be the minimum price established by FLO or the prevailing market price.
Engaging in organic production, in addition to complying with fair trade standards, can work as a strategic approach to manage the risk involved in not selling at fair trade prices.
Even if the product does not sell as fair trade, it can still sell for a premium price in the market for organic products.
Pre-financing, as a part of the Fairtrade scheme, is not available for fresh fruit producers.
Fairtrade International offers a variety of certifications depending on the certified activity (trade, contract production, hired labor or small producers’ organizations) and the product (fruits, vegetables, gold, timber, preserves, sports balls…)The standards included in this handbook are specific to fresh fruit produced by organizations of small producers.
Certification is restrained to a geographic scope and a specific range of products. Colombia falls within this geographic scope. The varieties of fresh fruits for which Fairtrade minimum prices currently exist are:
Avocadoes
Bananas and plantains Cantaloupes and other melons Dates
Deciduous fruits (apples, peaches, nectarines, pears)
Grapes (wine and table) Grapefruits
Mangoes
Lemons and limes Lychees and passion fruit Pineapples
Tangerines and other soft citrus like satsumas, clementines, mandarins and hybrids
Fairtrade International awards certificates only for hired labor and small producers’ organization in the category of fresh fruit.
Producers are also encouraged to process fresh fruits and sell them in the form of pulps, juices, jellies and conserves and dehydrated. Through the transformation of fresh fruit, growers add value to their product, thereby improving their revenues.
Product range diversification can be implemented as a strategy to reduce dependence on a single product and few markets. Furthermore, product development through raw material transformation is also a way to enhance the skills and knowledge pool of producers and has the potential to generate local jobs.
In Colombia, the National Learning Service (SENA, Servicio Nacional de Aprendizaje) for example, offers a range of free training programs for the industrial transformation and commercialization of food products.
The following chapters will analyze the steps certification candidates undergo before, during and after the certification process. The purpose is to provide practical and meaningful insight and execution ideas that help to improve the performance on the required standards.
3.1. INTERNAL ASSESSMENT TOOLS
The decision of applying for a fair trade certification is a decision that transversally affects each individual producer and the organization of producers as a whole. Certification requirements are concerned with the form of association, traceability of the product, production practices, labor conditions and development plans.
Certification does not only demand a monetary investment reflected in the fees that must be paid to the certification organization (Box 4) FLO-CERT in this case, but also an investment of time in training, organization and adaptation of the existing producers, organizational structures and production facilities.
It is important to keep in mind that, even though an organization of small producers might hold a FAIRTRADE certificate for one or more products, it does not necessarily mean that the total volume of production will be sold at the minimum price set by Fairtrade International; or that producers will receive the corresponding social premium, even if the entire crop or crops have been produced under the Fairtrade standards.
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Box 4 Costs associated to certification
Fees and expenses of paperwork associated to setting up a certifiable form of producers organization (if not existent yet)
Costs associated with the compliance of the certification requirements:
a. General b. Trade c. Production
d. Business and development
Costs associated with providing evidence of compliance with the standards such as book- and record keeping or the implementation of systems to track and adjust performance on the different certification requirement tracks. These are fixed and variable costs, fixed costs are related to hiring staff or outsourcing services such as book-keeping or cyclic maintenance; variable costs are associated to corrective measures that might be necessary to apply in order to achieve or improve compliance of the certification standards.
Auditing fees (payable to FLO-CERT):
a. Application fee: EUR 525
b. Initial certification fee (charged once, covers first 12 months): ranges between EUR 1,430.00 - 3,470.00 depending on the amount of active members in the organization.
c. Annual certification fee (recurrent): ranges between EUR 1,170.00 - 2,770.00 depending on the amount of active members in the organization.
Keep in mind that some costs are fixed while other costs depend on the production capacity of the organization, the number of members.
The organization is responsible for raising and cancelling the fees payable to the auditing body.
After the third or four year, the cost of certification should not represent more than 2-3% of the exporting price (Elzakker & Eyhorn, 2010).
Source: own construction
Minimum prices and social premiums are paid to producers by certified Fairtrade traders and such payment is agreed under contract, specifying quantities and terms of payment. It might be, and it is not rare, that a share of the crops produced under fair trade standards is commercialized at ordinary market prices.
For this reason, it is of paramount importance to ensure the marketability of the product(s) to be certified. This can be figured out through a market research study that can help to identify the best geographical locations to sell the product according to the size of the potential market, its purchasing power and the willingness to pay a premium price for the product.
Think outside the box, if you are a fresh fruit producer, your only market is not necessarily restricted exclusively to fresh fruit consumers.
Avocado, for an instance, is a very good example of fresh fruit that can be successfully
marketed to the cosmetic industry as raw material. Fair Trade USA has 17 partners in the body care branch including worldwide known brands as Avon International.
There is a range of available certification labels for fair trade. They are awarded by different, unrelated organizations, which independently set their own standards and requirements (although they are very similar) and they vary in their geographical scope and product assortment. The degree of label recognition in the target market(s) is a key variable in the selection of the label the producer wishes to opt for. The markets for fair trade products are, mostly, OECD countries and there are two leading labeling organizations each with their own labels, one in the USA (FAIR TRADE USA) and on in the rest of the world (Fairtrade International). Fig. 2 shows the geographic scope of each organization. The countries marked in green depict fair trade exporting countries; the areas in blue show fair trade importers.
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Fig. 2 Fair trade leading labels and geographical scope
Source: adapted from http://www.fairtrade.net Depending on the target market chosen, a producer may opt to apply for a certification with Fairtrade International or with Fair Trade USA. From the map above, it is obvious that, from a market size perspective it is more efficient to apply for a certification with Fairtrade International. On the other hand, Fair Trade USA recognizes FLO-CERT certificates, so their holders are encouraged to sell their products in the United States.
Since the standards developed by Fairtrade International have been developed and established for some years now, while Fair Trade USA standards are still undergoing a pilot phase in 2012, this handbook will focus on the standards provided by Fairtrade International.
GUIDING PRE-SCREENING QUESTIONS FOR FRESH FRUIT SMALL PRODUCERS
ORGANIZATIONS
The following questions mean to provide guidance on a first self-evaluation, helping you to identify where does your organization stands from multiple, relevant perspectives, on which resources do you count on, and which resources are missing or need further strengthening.
ORGANIZATIONAL RESOURCES
Are we a legally constituted organization?
Are we a non-profit institution?
Would the non-profit status change once we reach a certain volume in our business?
Do we have a formal managing structure within the organization with assigned roles and responsibilities?
As an organization, do we have an action plan for the future?
FINANCIAL RESOURCES
Which are our assets and liabilities? That is, which are the resources available -cash and others- and how much money do we owe?
Do we need pre-financing to produce?
How is our relation with banks and other sources of credit like trade partners?
Do we have enough funds to increase our volume of production or will we have to apply for loans for this purpose?
Institutions like Finagro, promote the development of the agricultural sector making funds available through commercial banks.
Have we got detailed financial records of our operations as an organization?
Processing and packaging (∑cleaning, sorting, packaging materials)
Administrative expenses
Exporting costs
Do we know are the average production costs per hectare for our members?
Average establishment costs per farmer (∑land preparation, temporary hired labor, planting…)
Average operation costs per farmer (∑labor, agrochemicals, seeds, fuel, equipment and land maintenance, rent, harvesting and post-harvesting temporary hired labor…)
Have these record been audited by an external agent?
Do we follow the prevailing legal accounting norms?
General accounting principles accepted in Colombia are specified by the Decree 2649 of December 29, 1993
RECORDS OF OPERATIONS
Which is our sales record over time in terms of volume and revenues?
Do we know which is the profit we realize per unit sold?
Do we know what is the return on our investment?
Do we know (in average) how similar organizations / the sector perform in these aspects?
Do we know our cost structure?
OUR PRODUCT
Do we have knowledge about the demand for our products in international markets?
Which is the degree of flexibility of our production systems? Can we easily switch crops to meet market demands?
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Do our products meet export quality standards, for example traceability?
Traceability, a precise, detailed record of chemical compounds involved in the product’s value chain are of paramount importance to ensure its access to international markets, particularly the European. Additionally, some of the fair trade standards deal directly with mandatory traceability requirements.
Quality control systems are a helpful tool to meet traceability demands.
Which is our production capacity? Is it possible to develop it in a sustainable manner?
Does our production scale suffice to engage in exporting activities?
METHODS, KNOWLEDGE AND TECHNOLOGY
Which are our main areas of expertise in the production process?
Which areas need technical assistance?
Before undertaking any certification project it is vital to assess the organization’s capabilities, expertise and skills in a realistic, objective manner.
A careful internal assessment provides a good insight of the feasibility of the project, the expected outcomes and the time frame. Other common methods for internal assessment are the GAP and SWOT analysis. GAP analysis compares the current situation against the desired situation.
Throughout this document and the systematic review of the certification requirements your organization will be able to determine the gaps it will need close in order to become a certificate holder. The analysis of these gaps is a valuable tool for calculating the resources (particularly of staff, time and money) needed to overcome detected discrepancies.
3.2. STANDARDS CATEGORIES
To become a certificate holder, the applicant organization will undergo a series of audits performed by FLO-CERT, the independent auditing body appointed by FLO International.
To be awarded a certificate, the applicant organization will not only need to be familiar and implement the necessary actions to meet the standards established by FLO International, it will also need to be prepared for the actual auditing and
certification process and understand how will its performance be graded in order to be better prepare for the audits.
A good understanding of the different standard categories and of the grading system used by FLO- CERT is useful when assigning priorities and allocating resources for the accomplishment of the large amount of requisites which will need to be met in order to become certified and hold the certification over the years.
Standards can be categorized according to the topic they address, how important they are top the Fairtrade system and the time frame assigned for their attainment.
3.2.1. TOPIC
To know how the standards are divided into different topics helps to assign responsibilities depending on the different areas of expertise and interests of the participants in the project.
It also helps to identify the strengths and weaknesses of the organization; this kind of information provides a good guidance as of the areas for which the organization needs to devote more resources and effort in order to achieve compliance.
a. General requirements: concerned mainly with the legal nature of the organization and its membership, that is, what is considered as a small producers’ organization according to the standards. Product packaging, labelling and description considerations are also included.
All of the general requirements are core.
b. Trade requirements: deal with traceability, sourcing and composition of the product, contracts, use of Fairtrade mark. These requirements are intended to help producers to engage and implement fair practices of commerce. All of the trade requirements are core.
c. Production requirements: refer to production practices, environmental protection practices (pest management, soil and water, waste, genetically modified organisms, biodiversity) and labour conditions. Requisites dealing with different aspects of production practices aim at
enhancing the working standards of producers.
d. Business and development requirements:
standards that address the business growth potential through the development of trade relations and the decision-making processes within the organization of small producers.
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Decision-making processes are expected to be democratic, transparent and participatory. The compliance of these requirements is expected to bring about in visible, concrete ways, a higher degree of empowerment and organization within the community of producers.
“One approach for the design, execution and control of plans to achieve the requirements is to create task groups and delegate responsibilities .Remember to keep a close coordination and open communication between task groups as you will find that, more often than not, requirements are interconnected and influence one another.
Scheduled follow-up meeting, centralized monitoring and regular reporting are vital for a timely and successful accomplishment of the standards” (Gonzales, 2011).
3.2.2. IMPORTANCE
A second categorization for certification criteria is the degree of significance they bear in relation to the achievement of the objectives pursued by the Fairtrade system.
The FLO International guiding documents classify standards as CORE STANDARDS and DEVELOPMENT STANDARDS; FLO-CERT calls them MAJOR COMPLIANCE CRITERIA and REGULAR COMPLIANCE CRITERIA respectively.
a. Core Standards / Major Compliance Criteria: achievement of these requirements is essential for the successful attainment and renovation of a certificate. Conformity is absolutely necessary and adherence considered vital for the attainment of the objectives of the Fairtrade system. Failing to comply with requisites considered as core/major is regarded as a major threat to the Fairtrade system, leading to an application denial or suspension /decertification.
b. Development Standards / Regular Compliance Criteria: the fulfilment of these requirements is also mandatory, and a condition to be certified and ratified. However, non-compliance, unlike for core standards, does not automatically leads to the denial of an application or decertification / suspension.
When the organization fails to meet these kinds of requirements, the applicant is given a period to take the necessary corrective measures.
Improvement methods must be developed by
the organization; the auditing body authorizes and controls the progress.
3.2.3. TIME FRAME
A third way to categorize standards is according to the time allowed for the aspiring organization to meet the criteria. Some of the criteria are applicable from the first moment the candidate organization submits an application. Some other criteria are verified at a certain point in the future.
The classification of requirements according to verification time frames provides excellent guidance for planning and timing. This classification is also a good indicator for the kind of results an organization and its members can expect to attain within realistic time frames.
Compliance with the criteria will be verified either at moment 0 or after the first, third or sixth year.
3.3. CERTIFICATION CYCLES
Until all the requirements are met, the time to issue and ratify a certificate takes, at most, six years by the end of which the aspiring organization is expected to have fulfilled all of the requisites stipulated by FLO International. Of course, organizations are encouraged to work towards meeting the standards earlier whenever possible (FLO-CERT GmbH, 2011).
a. Year zero: the auditing body, FLO-CERT, will make two on-site audit visits to verify the fulfilment of core/major requirements at the beginning of the certification process. These core requirements are known as entrance criteria and must be met in order to obtain an initial certification valid for three years. All the general and trade requirements are considered core and are due on year zero.
b. Year 1: first off-site, desktop surveillance.
One year after the first on-site audit, the certification body verifies compliance with development requirements due on year number one and continued compliance with all applicable core requirements. Corrective measures are agreed upon if necessary. All of the requierements due in year 1 are CORE.
c. Year 2: second off-site, desktop surveillance.
Two years after the first on-site audit, the certification body verifies compliance with development requirements due on year number two and continued compliance with all applicable core requirements.
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Corrective measures are agreed upon if necessary.
No follow-up of development requirements and corrective measures from year one.
d. Year 3: first on-site renewal audit. This visit takes place at least five (5) months before the certificate issued in year zero expires. During this visit, conformity with any applicable core and development criteria by that moment is verified as well as the effectiveness of any corrective measures implemented. If all the standards are met, the certifying body renews the certificate for three more years.
Fig. 3 Three-year certification cycle
The same three-year cycle as shown in continues into year number six.
Source: adapted from FLO-CERT Certification Standard Operating Procedure, 2011
3.4. PERFORMANCE RANKS
Compliance with major and regular requirements is given a numeric grade by the auditor. Instead of plainly laying out whether the applicant meets or not these requirements by stating yes or no; the auditing organization assigns a mark from 1 to five depending on the degree of fulfilment achieved by the aspiring association.
A score of 1 or 2 means that the concerned requirement has not been fulfilled, not even to the minimum satisfactory level.
A score from 3 to 5 means that the standard has been met.
Whenever a score between 3 and 5 is awarded to a major compliance criteria, no action needs to be taken and they are simply regarded as fulfilled. A rank between 1 and 2 for major compliance criteria is automatically translated into no. Any rank equal or above 3 for major compliance criteria is automatically translated to yes.
Whenever the average score for all regular criteria is 3 or more, no corrective measures need to be implemented. If the average grade for regular criteria is below 3, then corrective measures need to be put in place. Since the intent of the score system is to reflect the different shades of accomplishment an operator can achieve, pointing out potential for improvement, the organization should always aim at scoring the higher grade possible, not merely complying with the criteria. This strive for excellence, especially in relation to product quality is beneficial for the operator itself, giving it a competitive edge which translates in the renovation and expansion of contracts, and a better price- bargaining position. It is also beneficial for the entire Fairtrade system as a whole if all of its participants strive for quality excellence, as this translates into a better reputation of Fairtrade products in general, and trust in its producers’
competitiveness.
All major and regular compliance criteria and the average score on regular criteria MUST score at least 3 in order to issue/renew a certificate.
In those cases where requirements do not apply, the auditor will simply give a not applicable. These criteria are not included in the calculation of the average.
3.5. APPLICATION AND CERTIFICATION
PROCESS OVERVIEW
Fig. , on the right, is a flow chart illustrating the sequence in which the major steps towards certification (and on a later point in time towards confirmation and renewal of certification) take place. The diagram integrates actions undertaken both, on the side of the candidate as well on the side of the auditing body. After issuing the first three- year certificate, the process repeats itself every third Year 0
• On-site, physical audit
• Verification of entry requirements
• Issue of 3-year certificate
Year 1
• Off-site, desktop surveillance
• Verification of applicable core and development requirements
• Introduction of corrective measures
Year 2
•Off-site, desktop surveillance
•Verification of applicable core and development requirements
• Introduction of corrective measures
Year 3
• On-site, physical audit
• Verification of applicable core and development requirements and of corrective measures
• Renewal of 3-year certificate
