Global Policy Forum

By Faisal Islam

If Live Aid happened today it would probably be called 'Live Trade'. The Wembley concert heralded an age of mass giving 17 years ago. This evolved into 'not taking' with the emergence of a global coalition for relief of unsustainable debts amassed by the world's poorest countries. Though the debt relief process has stalled, 'fair trade' is set to become the new campaigning issue.

Three of Britain's most credible musicians - Ms Dynamite, Chris Martin of Coldplay, and Noel Gallagher of Oasis - provided their services to Oxfam's recent sell-out concert.

The reason for this attention is that subsidies from rich nations cost poor countries $1 billion (£635 million) a day in lost trade - six times more than incoming aid. For example, Ethiopia's famine is exacerbated by the collapse in farm incomes arising out of the global decline in coffee prices. 'The slumping price of coffee has cost Ethiopia more than it gained from debt relief,' says Penny Fowler, of Oxfam.

The charity even claims that world trade could end world poverty. US cotton subsidies, it says, are 'cultivating poverty', Europe's promotion of an inefficient sugar industry is referred to as the 'great EU sugar scam' and, next week, attention will be focused on the European Union's arcane system of dairy subsidies.

The Oxfam campaign is to 'make trade fair' and in so doing it exposes the double standards of rich countries' trade barriers. But, of course, it is therefore a free trade agenda, and so brings together an unlikely coalition of liberal lobby groups, governments and the World Bank. But there are two distinct agendas being pursued. First the more tangible rise of 'fair trade' as a brand. And second, the campaign for 'fair play' in world trade rules that often appear rigged against the interests of economic development.

The Co-op chain of supermarkets has just announced that all own brand chocolate will be sourced from fairly traded cocoa, doubling the quantity of such produce available on the British market.

Chocolate, coffee and bananas have become the staples of the fair trade campaign as the price paid to farmers has slumped to as little as half the production cost, bankrupting millions of growers.

'A core part of our strategy is to put it into the mainstream by dramatically expanding the number of products with the mark on,' says Harriet Lamb of the Fairtrade foundation, which awards the 'fair trade' logo to qualifying products. 'Be it olive oil, nuts, raisins, wines, or sports balls we should be able to do it. In the early years we built a solid foundation by focusing on coffee, but there are thousands of farmers queuing up to join the system.'

Action on coffee has been having some success. Last year the fastest growing brand in the UK was Cafe Direct, which now has 14 per cent of the filter coffee market after pioneering the concept in 1989, and Sainsbury's has launched its own brand fair trade coffee.

The backdrop to the coffee growers' problems is the collapse in commodity prices, caused by oversupply, a lack of competition among buyers and hypocritical trade rules. 'It's exacerbated by international advice to developing countries to all produce coffee. And there used to be an international coffee agreement that guaranteed a fixed price,' says Lamb.

For instance, Vietnam recently began producing coffee and now supplies 10 per cent of the world market.

Coffee sells on world markets for about 35p a kilo, while a bag of coffee for use in a cafe costs around 16 times that amount. The mark-up is excellent for the end-user or the Nestlés of the world, but the price paid to coffee producers has been pitiful, especially when set against the rewards for cultivating drugs. Independent reports show that oversupply in the coffee market - and the slump in coffee prices from £2,800 per tonne in 1995 to today's £350 - has left many coffee producers selling at below cost.

The Fairtrade minimum price paid to farmers' associations and co-operatives is $1.26 per pound (£1.73 a kilo) for arabica coffee. This includes a 5 cents per pound 'premium' to be used for agreed social and commercial development projects. If the world price climbs above that minimum level, the Fairtrade price is always 5 cents per pound more.

'The heart of the fair trade standards is that farmers must be organised into cooperatives. Farmers know that if they come together they are better able to resist the passing fads of the middle man,' says Lamb.

From grower to supermarket shelf or cafe bar, it is estimated that coffee beans can change hands as many as 150 times. Producers sell to local traders, who sell on to international traders, who sell on to commodity traders. (Illegal drugs, by contrast, have a much flatter distribution network.)

This explains the relatively small cut that is received by farmers. But the slump in prices is also down to the growing power of the big multinationals that buy the produce.

'For some reason or another these markets are not competitive. Big companies can rip off farmers, using their "single buyer" power to drive down prices. In principle this phenomenon, known as "monopsony", is as bad as a monopoly,' says Alan Winters, a trade economist with the Centre for Economic Policy Research.

Companies that profit from the collapse in coffee prices are beginning to be named by campaigning groups.

'Nestlé has made an estimated 26 per cent profit margin on instant coffee. Sara Lee's coffee profits are estimated to be nearly 17 per cent - a very high figure compared with other food and drink brands. If everyone in the supply chain were benefiting this would not matter. As it is, with farmers getting a price that is below the costs of production, the companies' booming business is being paid for by some of the poorest people in the world,' says a recent Oxfam report.

Coffee aside there is the subsidy question. Take the startling example of the Haitian rice industry, put out of business by dumped overproduction from the US, courtesy of massive subsidies. Then there is the Mozambique sugar industry. A country that is desperately looking to trade, following man-made and natural disasters, finds itself up against the might of $1.6bn of subsidies for European sugar producers. Despite it being the world's least efficient place to produce sugar, subsidy has made Europe the world's biggest exporter. Oxfam estimates that British sugar firms received an effective subsidy of £120m last year.

There's also 'tariff escalation' which effectively prevents countries from exporting higher value products. Even some fair trade products, including 'polished' rice from Thailand, cannot be sold in Europe because they attract punitive tariffs.

'The EU has got to get it's act together, because it's vested interests are holding up WTO agricultural reforms,' says Fowler.

Fair trade's minor success has helped thousands of small farmers diversify production, and earn enough money to pay for an education. In South America, the fair trade premium has allowed farmers to resist the temptation to revert to growing coca and opium poppies.

'Fair trade is a fairly radical solution - not only giving a better price but giving producers a say in the supply chain. The question we ask is who has the power, and what fair trade does is give poor disadvantaged producers a bit of a say,' says Barry Coates, of the World Development Movement.

The real problem, of course, is that 98 per cent of trade is not fair.

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