Fair Price & Premiums

Price

The trading conditions in many markets, such as those for cocoa, sugar, cotton, and tea, make it very difficult for producers to earn a living. Farmers are often paid prices which don’t begin to cover the costs of production. Trade liberalization, subsidies in developed countries, and monopolies also tilt the scales against small-scale producers.

The Fair Trade price aims to ensure that producers can cover their average costs of sustainable production. It therefore acts as a safety net for farmers at times when world markets fall below a sustainable level. Without it, farmers are completely at the mercy of the market.

When the market price is higher than the Fair Trade minimum, the buyer must pay the higher price. Producers and traders can also negotiate higher prices on the basis of quality and other attributes.

For hired labor situations, Fair Trade requires that wages for workers are at least equal to the national minimum wage.

Premiums

In addition to the Fair Trade price, organizations receive a sum of money called the Fair Trade premium. This money goes into a communal fund for workers and farmers to use to improve their social, economic, and environmental conditions.

                                                                            Photo: Eric St-Pierre

The use of this additional income is decided upon democratically by producers within farmers’ organizations, or by workers on a plantation. The premium is invested in projects related to (but not exclusive to) education and healthcare, farm improvements to increase yield and quality, or processing facilities to increase income.

As many projects funded by the premium are communal, the broader community, outside the producer organization often benefits from Fair Trade.