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Cooperatives and Fair Trade

A Common People-Centred Private Sector in/for Development

October 2012

Cooperatives Europe, and Fair Trade Advocacy Office. 2012. Cooperatives and Fair Trade: A Common People-Centred Private Sector in/for Development. GREAT Insights, Volume 1, Issue 8. October 2012. Maastricht: ECDPM

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This short article provides a brief introduction to Fair Trade and cooperative enterprises, their common and shared principles, and how these set them apart from other private sector actors.

Corporate enterprises are already active as private sector actors in and for development and may hold some lessons for the current discussions on how better to work with the private sector in development. 

Cooperatives Europe and the Fair Trade Advocacy Office (FTAO)

Although economic activities are their core business, cooperatives and Fair Trade organisations pay attention not only to economic, but also to social and community concerns. Both promote social responsibility; principles of democratically-controlled business; education, training, and information-sharing; and putting people at the centre of their business activities. Both movements embody action and investment at the micro, meso, and macro levels of entrepreneurial and development activities. Bringing all of these aspects to the debate around engaging the private sector in development would provide a common thread throughout all levels of activity and on both sides of the development actor spectrum – profit-driven private sector enterprises and socially-driven CSOs. 

Quality versus quantity

An understanding of the private sector that takes processes and not simply scale of business into account is crucial to appreciate the diversity behind private sector actions and investments in and for development. A more qualitative understanding of different private sector models facilitates the measurement and monitoring of development impact beyond economic or monetary conceptions of growth, further highlighting the importance of the private sector with regard to development goals.

The Fair Trade and Cooperatives movements share common principles based on shared values, advocating for a people-centred business model as an alternative way of doing business. It is our view that only a private sector which favours a people-centred business model, putting people and not capital at the core of its business, can achieve sustainable development and inclusive growth that will alleviate poverty. 

The Fair Trade and cooperative business models offer just that – a qualitative, people-centred approach to entrepreneurship, which fundamentally calls for qualitative growth. These characteristics place Fair Trade and cooperative enterprises in a particularly apt position to identify innovative and sustainable roles for the private sector in development. They also prove an apt interlocutor between the structures or institutions on all sides of development partnerships: enterprises; CSOs; donors, funders, and investors; and local authorities.

Cooperatives and fair trade: A relationship with historic roots

Cooperative enterprises have contributed to the empowerment of producers, workers, and consumers since the late-eighteenth century, providing access to knowledge, markets, and finance. By the end of the nineteenth century, cooperatives were active in all economic sectors all over the world, supporting peoples’ development. Founded in 1895 the International Cooperative Alliance (ICA) unites and represents the international cooperative movement.

In the mid-twentieth century Fair Trade was established to help disadvantaged producers in developing countries access international markets at fair prices. Many of the first Fair Trade products originated from Latin America, where the cooperative movement has been particularly successful. Fair Trade Organisations looking for democratic producer organisations, built links with pre-existing cooperatives.

The people-centred approach intrinsic to both the Fair Trade and cooperative approach to entrepreneurship continues to distinguish these entities from the more traditional private sector approach, concerned primarily with growth and profit. 

Cooperatives: Definition and principles

The ICA defines a cooperative as an “autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise” (1) . In 2002, the International Labour Organization (ILO) published the “Recommendation on the Promotion of Cooperatives” (2) , stating that “the promotion of cooperatives should be considered one of the main pillars of economic and social development”, confirmed by the 2005 UN Report (A/60/138). 

An important aspect of cooperatives is adherence to a set of common values. These are: self-help, self-responsibility, self-determination, democracy, equality, equity, and solidarity. The seven core principles that determine the specific characteristics of cooperatives (3)  are: 

  • Voluntary and Open Membership
  • Democratic Member Control
  • Member Economic Participation
  • Autonomy & Independence
  • Education, Training, and Information-Sharing
  • Cooperation Among Cooperatives
  • Concern for Community: cooperatives work for the sustainable development of their communities (4)

Fair trade: Definition and principles

The Charter of Fair Trade Principles provides a single international reference point for Fair Trade through an explanation of Fair Trade principles and the two main routes (5) to implement these. This includes the definition of Fair Trade as “a trading partnership, based on dialogue, transparency, and respect, which seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to and securing the rights of, marginalised producers and workers – especially in the South” (1)
The following Fair Trade principles focus on three pillars of sustainable development and ensure stakeholder interest:

  • Market Access for Marginalised Producers
  • Sustainable and Equitable Trading Relationships
  • Capacity Building & Empowerment
  • Consumer Awareness Raising and Advocacy, which provide the vital link between producers and consumers in promoting social justice
  • Fair Trade as a ‘Social Contract’ where buyers agree to do more than is expected by the conventional market
  • Continuous Improvement of the Environmental Impact of production and trade
  • Adhering to Decent Working Conditions as defined in the ILO conventions
  • Compliance and Impact are verified through Monitoring and Evaluation

Fair trade and cooperatives: People-centred private sector for development
The cooperative and Fair Trade business models are therefore market-based models that put people at the very core of business. Both apply a people-centred business model where profit is simply a means to serve the people, not an end in itself. Indeed, these movements constitute private sector actors with development in their genes.

The merit and import of private sector development as a process that strengthens local communities serves as a basic building block for healthy economies that function without detriment to social, cultural, and right-based considerations. At the local micro-level, the Fair Trade and cooperative movements offer myriad structures and entrepreneurial practices that marry the sometimes diverging interests of the public, private, and local sectors. But these models are not limited to the local and micro context.

The Fair Trade movement constitutes an alternative to often-monopolized regional and global trading relationships– ensuring that the inter-connectivity of globalization does not fail to protect disadvantaged groups from falling through the cracks. Indeed, any implication of the private sector with regard to development and development goals should not neglect the macro-policy issues that have a direct and often deleterious impact at the ‘bottom of the pyramid’. Fair Trade and cooperatives tackle poverty alleviation and provide accessible and empowering tools to the ‘new bottom billion’

Cooperatives also represent a diverse base of entrepreneurial activity – including financial institutions. Cooperative banks have proven particularly resilient to shock and financial crises, and thus may also provide innovative forms for risk-mitigation of development investments. Acting according to people-centred principles, cooperative financial institutions can act as an intermediary between, or alternative to, two frequent models: 1) models aiming to develop capital markets, and 2) models establishing policy banks to carry the brunt of risk.

Measuring quality
A purely quantitative understanding of the private sector falls short of capturing the development additionality of specific private sector actors. It is paramount to make clear that development embodies socially and human-driven goals that go beyond mere financial measurements. For this reason, people-centred entrepreneurship such as the Fair Trade and cooperative models should be implicated in conversations that develop partnership schemes. A qualitative understanding based on processes and principles helps to bridge the gap between seemingly disparate actors.

The marriage between profit-driven and socially-driven actors proves a challenging one. There is a need to mitigate risk, to channel and incentivise investments based on need rather than profitability, and to anchor the notion of growth on human and social measures. All of these aspects present challenges to identify and build points of synergy where divergent interests converge. The Fair Trade and cooperative movements can be an apt interlocutor to bridge such gaps and implement innovative actions and policies that protect the interests of all. 

How and who & What is next?
One of the priorities of the European Commission’s (EC) Agenda for Change (7)  for European Union (EU) development policy is sustainable agriculture (in particular support to small holder farmers). The EC also considers the EU should promote Small and Medium Enterprises (SMEs) and cooperatives and has proposed a new package to promote trade for small operators, including “support participation of small businesses in trade schemes that secure added value for producers, including those responding to sustainability (e.g. fair, ethical or organic trade).” (8)  These are areas that fall entirely within the remit of our two movements. 

Yet this is only part of the overall picture. The Fair Trade and cooperative movements call on the European Union to encourage an informed public debate at the EU level on the role of the private sector in / for development, which does not only focus on private sector development and private sector finance for development (including blending instruments) but also covers how the core operations of businesses operate; how businesses are organised; and whether, when, and how the private sector can serve as a tool to achieve poverty reduction and sustainable development objectives.

 

This paper was written by staff of Cooperatives Europe and the Fair Trade Advocacy Office (FTAO).

Footnotes:
1. http://www.ica.coop/coop/index.html 
2. ILO 193/2002: Recommendation concerning Promotion of Cooperatives, R193
3. http://www.ica.coop/coop/principles.html 
4. http://www.ica.coop/coop/principles.html 
5. Integrated supply chain route and the product certification route. 
6. World Fair Trade Organisation and Fairtrade Labelling Organisations International (2009): A charter of Fair Trade principles, p. 6. 
7. European Commission Communication “Increasing the impact of EU Development Policy: an Agenda for Change” COM(2011) 637 final. Brussels, 13 October 2012. 
8. European Commission Communication “Trade, growth and development: Tailoring trade and investment policy for those countries most in need” COM(2012) 22 final. Brussels, 27 January 2012.

This article was published in Great Insights Volume 1, Issue 8 (October 2012)

 

Economic Transformation and TradeFair tradePrivate sector

External authors

Cooperatives Europe and the Fair Trade Advocacy Office