Beyond the Price: Fair Trade Social Premiums

by zarah

Published September 28, 2008 @ 07:58AM PT

When discussing Fair Trade, conversations often focus on price and what is fair monetary compensation for the work of small-scale producers. While I think that the discussion of price is extremely important when it comes to the subject of Fair Trade, I always like to tell people that Fair Trade is so much more than a fair price. Beyond the growth in income that Fair Trade makes possible for small-scale producers, it is the social and economic development in their communities that truly speaks volumes about empowerment.

In the Fair Trade system, social and economic development is made possible through an additional payment producer cooperatives receive called the Fair Trade Social Premium. This social premium is an additional sum of money above the Fair Trade minimum price, which is paid directly to producer groups by importers of Fair Trade Certified products for investment in economic and social development in their communities. How these funds are allocated is democratically decided by the cooperative and usually depends on what they feel is the most beneficial to their community.

To break it down, the Fair Trade minimum price is used by the producer to cover the cost of sustainable production, while the Fair Trade Social Premium is used by the producer cooperative to improve their livelihood with investments in the community in areas such as healthcare, infrastructure and education.  In order to encourage transparency, these producer cooperatives are accountable to FLO-CERT, which requires them to submit reports detailing how these funds were used for socioeconomic development.

In Ghana, the Kuapa Kokoo cooperative of cocoa farmers have spent their Fair Trade Social Premiums on the building of clean water wells, mobile medical clinics and on the construction of several schools in their community to name a few.

During a recent trip to Nicaragua, I was able to meet with farmers from the coffee cooperative CECOCAFEN who showed me firsthand exactly how the community had allocated their social premium funds. I walked around the community and saw the roads they had built and toured the school that started out as a small shack, which had now developed into a series of buildings serving hundreds of students from pre-school to high school. I also visited SOLCAFE, a processing facility and quality control laboratory that CECOCAFEN built with the revenue from the Fair Trade Social Premium. The construction of SOLCAFE has enabled the cooperative to develop their brand of coffee and make sure they are growing the best coffee they are capable of.

As the Social Premiums show, the Fair Trade system goes beyond providing a fair price, but rather goes an extra step in guaranteeing producer cooperatives a chance to grow to their fullest potential by improving their livelihood. The democratic nature of the cooperatives allow both men and women to have full say in how they want their community to develop and flourish for the future.