Fair Trade Certification Handbook

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1 Examensarbete i Hållbar Utveckling 77 Fair Trade Certification Handbook -Small Producers Organizations of Fresh Fruit- Fair Trade Certification Handbook Clara Elisa Juanita Camila Ruiz Diaz -Small Producers Organizations of Fresh Fruit- 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, Master s Thesis E, 30 credits

2 Examensarbete i Hållbar Utveckling 77 Fair Trade Certification Handbook -Small Producers Organizations of Fresh Fruit- Clara Elisa Juanita Camila Ruiz Diaz

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4 Content 1. Introduction Objectives Application and Scope Structure Methodology Background information Socio-economic context Fair trade Historic overview What is fair trade Principles of fair trade Getting started: the certification system Standards categories Topic Importance Time frame Certification cycles Performance ranks Application and certification process overview Certification requirements for fresh fruit for small producers organizations Core / major requirements year zero Core requirements year one Core and development requirements year three Core and development requirements year six Final reflections and conclusions Glossary Bibliography

5 List of annexes Annex 1 Fairtrade Application Form, Annex 2 Cooperative Juristic Person Annex 3 Non-Profit Organizations Annex 4 Fairtrade List Of Prohibited Materials Annex 5 Lists Of Approved Fertilizers, Pesticides And Bio-Organisms In Ecological Crops Annex 6 Gap Integrated Pest Management Annex 7 Decree 2811, 1974 P. Vii, Art On Agricultural Land Use Annex 8 Establishment And Bylaws Requirements For Non-Profit Organizations Annex 9 Minutes Template General Assembly Meeting Annex 10 Decree 1843 Of 1991, Chapter Ix. On Aerial Application Of Pesticides Annex 11 Chapter Iii, Resolution 02309, 1986 On Temporary Storage Of Hazardous Waste Annex 12 Example Fairtrade Planning And Reporting Templates Annex 13 Recommendations For Storage Areas Of Agriculture Supplies Annex 14 Decree 1541 Of 1978 (Excerpts) On Waste Water Treatment And Discharge List of tables Table 1 Core General Requirements Year Table 2 Core Trade requirements Year Table 3 Production Core Requirements Year Table 4 Business and Development Core Requirements Year Table 5 Core Production requirements year Table 6 Core Business and Development Requirements Year Table 7 Production Core and Development Requirements Year Table 8 Business and Development Core and Development Requirements Year Table 9 Core and Development Production Requirement Year Table 10 Development Business Development Requirements Year

6 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 Uppsala, Sweden 4

7 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 Uppsala, Sweden 5

8 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 development 1. 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, Also, see glossary. 6 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: 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 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.

9 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. 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. 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 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 decisionmaking 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 METHODOLOGY Secondary and primary sources were consulted throughout the research and elaboration of this document. 7

10 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 coefficient 2 of 0.56 (The Worl Bank Group, 2012). Other measures, like the UNDP Human Development Index 3 -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). 3 The 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 8 Human Development Index 4 -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 87 th out of 187 countries 5.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 , a third of the monthly average income in urban areas 7 (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). 4 Measure 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% data. Minimum legal wage in Colombia in 2009 was about USD (Banco de la República, 2012).

11 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 FAIR TRADE 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 contextwhere reported between the UK and its -back thencolony, 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 OXFAM 8 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. 9 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 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.

12 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 environmentsensitive 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 prepayment 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 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. 10

13 Box 1 World Fair Trade Organization s ten principles of fair trade PRINCIPLE EXAMPLE Creating opportunities for economically Fairtrade enhances market access opportunities disadvantaged producers that enable them to move through its own commercialization networks, from income insecurity and poverty to economic particularly to niche markets. self-sufficiency and ownership. Ensuring transparency and accountability towards all relevant stakeholders. Respecting information confidentiality, providing participatory decisionmaking systems and using open communication channels along the supply chain. 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. 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. 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 wellbeing. 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. Ensuring good working conditions that comply, at the least, with local laws and ILO conventions Providing capacity building by developing the skills and capabilities of own employees and members of fair trade producers and organizations 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. 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. Source: adapted from 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. 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. 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. 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. 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. Particularly relevant to hired labor farms: licensed employers must set social security provisions. 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. 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. 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. 11

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