What Is Fairtrade?

Living income

If smallholder farmers dedicated to producing valuable crops like coffee or cocoa cannot afford a decent standard of living from their earnings, global food supply chains will never be sustainable, rural communities won’t prosper, and the natural environment will suffer the consequences.

So what is a living income anyway?

A living income is defined as sufficient income to afford a decent standard of living for all household members – including a nutritious diet, clean water, decent housing, education, health care and other essential needs, plus a little extra for emergencies and savings – once farm costs are covered.

How do we calculate a living income reference price?

Fairtrade Living Income Reference Prices are calculated based on three key parameters:

  1. Costs to support a decent living (as established by independent experts)
  2. Costs of sustainable production
  3. Productivity benchmarks

The costs of decent living (or ‘living income benchmark’) are established for an average household in a specific country or region, and include: food expenditures (other than food that is produced on the farm for home consumption), decent housing, education, healthcare, clothing and other essentials, as well as a small provision for unexpected events.

The production costs are based on the adoption of sustainable agricultural practices required to reach the target productivity level, such as replacing old trees on a regular schedule and using adequate inputs. If hiring extra workers is needed, the costs to pay those workers a living wage are also included.

Productivity parameters are based on agreed assumptions for attainable yields, and a farm size on which the adult household labour can be fully employed.

With these variables, we calculate Living Income Reference Prices to indicate the price that a full-time farmer meeting the target yield would need to earn to have a living income.

How this affects farmers in the Global South

A family farm is a small business. Farmers live off the profit they make from their farm, following the seasonal patterns of their crops.

Smallholder farmers have virtually no control over global market prices and weak to non-existent negotiating power, at the mercy of price volatility and the goodwill of their market partners. In times of oversupply and market speculation, commodity prices can fall below the cost of production so that farmers can’t even break even. Prolonged periods of low prices, as seen lately for cocoa and coffee, have disastrous effects on farmers’ livelihoods and on the long-term sustainability of supply.

When farmers are trapped in poverty, they can’t afford to invest in more efficient or productive farming methods to improve their income. They can’t pay their workers a decent wage, or worse, they may resort to using children for cheap labour. Some may turn to illegally clearing forests or growing illicit crops in an attempt to earn more. Others abandon their land altogether in search of alternative livelihood opportunities in cities or abroad.

In addition, farmers bear most of the risks of losses caused by extreme weather patterns, pests and crop diseases, making their businesses even more vulnerable.

How Fairtrade works towards living income

Everyone involved in the global value chain has a role to play to make living incomes for farmers a reality. This includes support to farmers and their organizations to achieve sustainable yields and improve farm efficiency, as well as paying farmers a sustainable price for their crop.

In addition to the benefits of the Fairtrade Minimum Price and Premium, we have developed a holistic Fairtrade Living Income Strategy to close the income gap.

Our strategy focuses on seven areas:

  1. Sustainable pricing We developed the concept of a Living Income Reference Price, which indicates the price needed for full-time farmers with adequate, sustainable productivity levels to earn a living income. We have calculated Living Income Reference Prices for West African cocoa (see explanatory document) and vanilla. For coffee we have now calculated our first prices for coffee in Colombia (see explanatory note).
  2. Fairtrade sales The more farmers sell on Fairtrade terms, the larger the impact of sustainable pricing. National Fairtrade organizations in more than 20 countries raise consumer awareness and promote demand for Fairtrade products. Companies can now also source one or more ingredients as Fairtrade within a final packaged product, which means more demand for Fairtrade certified crops, and more sales for producers.
  3. Sustainable farm yields There is still a lot of room for improving productivity and resilience on most smallholder farms. When farmers can grow the same amount on less land, they free up space for other crops to supplement their income and reduce their dependency on a single product. Boosting productivity requires investment, which the Fairtrade Premium can provide (see below).
  4. Farm cost efficiency We are developing tools to help farmers track their actual production costs and revenues, equipping them to make informed business decisions and become more efficient farmers.
  5. Producer organization efficiency Fairtrade producer networks support cooperatives to improve their governance and management capacity, so they are strong and reliable business partners, create value for their members and gain access to important additional services such as loans.
  6. Strategic Fairtrade Premium use Small-scale producer organizations often invest their Premium funds into productivity and quality improvement, supporting their members to achieve sustainable yields. They can also choose to invest in things like business development, better service delivery or processing facilities that expand farmers’ share of the value chain.
  7. An enabling environment We are raising awareness and advocating alongside like-minded companies, governments and civil society to make living incomes for farmers the norm. See our November 2020 report on policy options for chocolate consuming countries to support progress toward living incomes for coco farmers.

We are also working with committed commercial partners on projects that include paying living income prices as well as strengthen other elements of our living income strategy.

LET’S CONNECT

Are you a Canadian business committed to living income? Contact us for more information on the shared path towards living incomes for farmers. It’s the right thing to do – for farmers, for rural communities, and for a more sustainable world.

Coffee farmers in Colombia

Global coffee prices are volatile, and haven’t increased overall in decades – in fact, when factoring in inflation, they have steadily decreased since the 1970s. In the past few years, coffee farmers have often not earned enough to cover the costs of producing their crop because of low prices and rising costs. We have established Living Income Reference Prices for coffee, starting with Colombia. You can read more about how we set the prices, and find other resources here.

West African cocoa farmers

West African cocoa farmers produce about two-thirds of the world’s cocoa. We have established voluntary Fairtrade Living Income Reference Prices for cocoa from Côte d’Ivoire and Ghana. You can read more about how we set the prices, and find other resources here.

Vanilla farmers in Madagascar and Uganda

Vanilla is a labour-intensive crop, and price volatility is extreme, meaning a lot of uncertainty for farmers. We have established voluntary Fairtrade Living Income Reference Prices for vanilla from Madagascar and Uganda. You can read more about how we set the prices here.

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