Thursday, September 28, 2006

GLOBALIZATION, TRADE AND POVERTY: Issues & Challenges facing Sub-Saharan Africa under Globalization.








Africans produce what they do not consume and consume what they do not produce; that has become the basis of African enslavement.







The root cause of poverty in Africa largely results from both internal factors
(bad governance, tribal politics, widespread corruption, institutional inefficiencies and mismanagement, exploitation of small-scale farmers, etc.) and ( external factors) unfair global trading rules and practices biased in favor of both the industrialized nations (G8) and their multinational corporations, enforced by the World Trade Organization and supported by both the IMF’s Structural Adjustment Program (SAP) and the World Bank.

As a direct result, Africans are dying…

· In the conventional so-called “free” market global trade structure, large producers and multinational corporations have access to capital, markets, information and technology, while plantation workers and small-scale farmers (+ 80% of the African population ) are isolated from the (export) market and are unable to gain the full benefits of “free” trade.

· The rules that regulate global trade are drawn by the industrialized (G8) countries and biased in their favor.

· The logic of the international rules regulating world trade are to source out the cheapest raw materials (neo-colonialism), produce in labor-cheap countries (neo-slavery) and re-export the finished products all over the globe at phenomenal profits, through the exploitation of both labor and resources in so-called Third World countries. (neo-imperialism). This strategy is referred to as “globalization”.

· Globalization in its current form creates and sustains poverty and inequalities in the rest of the world!

· Global exploitation of both labor and resources in so-called Third World countries is the foundation of globalization and leads to the globalization of poverty!

· Scientific progress resulting in recent technological advances in transport and communication has led to new forms of imperialism, colonialism and slavery. During European imperialism, slavery and colonialism, new territories were militarily conquered throughout the globe, and both African slaves and the local indigenous population were forcefully subjected to work on cash crop plantations and mines for the benefit of the imperialist nations. The cash crops were then exported to the industrial nations, processed, and re-exported throughout the world at phenomenal profits! (sounds familiar???)

· Thus, nothing has changed over the last 500 years! The rules and the objectives that regulate world trade have remained unchanged, only the methods and the tools have changed: The gunpowder of imperialism, the whips and chains of slavery and colonialism have been replaced by the Pentagon and other Western military institutions, the World Trade Organization (WTO), the International Monetary Fund (IMF) and the World Bank.

THE MAIN PLAYERS IN THE SO-CALLED “FREE MARKET” GLOBALIZED ECONOMY

• The World Trade Organization (WTO)
• The International Monetary Fund (IMF) and the World Bank
• Multinational corporations

THE WORLD TRADE ORGANIZATION (WTO)

• Created in 1994. Mandated to enforce the “free market” world trade rules.
• Objective and logic of WTO: Maximize profits in favor of the G8 countries and their multinational corporations!
• Results: *86% of global resources and wealth is owned by 20% of the world population in the G8 countries.(*UNDP)
• The WTO is creating and sustaining world poverty and leading to the globalization of poverty!

THE INTERNATIONAL MONETARY FUND (IMF) and THE WORLD BANK

• The IMF is mandated to manage the international monetary system. Its monetary and economic policies are biased in favor of the G8 countries and their multinational corporations.
• Through its Structural Adjustment Program (SAP) ( better referred to as the Strangle the African People program), the IMF dictates the economic policies of sovereign countries in favor of G8 countries and their multinational corporations

The IMF’s Structural Adjustment Program (SAP)

The IMF’s SAP is a neo-imperialist and a neo-colonialist tool whose aim it is to weaken a country’s economy so as to make it dependent on so-called “aid”, which is then granted under the following unfair and exploitative conditions:

• Removing trade barriers to imported manufactured products and highly-subsidized agricultural commodities from the G8 countries. Annual agricultural subsidies in G8 countries amount to $US 300 billion!( 6 times the total so-called “aid” amount granted to “Third World” nations.)
• Privatization of state-owned public enterprises and land for the benefit of foreign multinational corporations.
• Increase in exports of cash crops at rock-bottom low prices set by foreign multinationals, and supported by the IMF and the world bank

Results:

• Collapse of local industry and agriculture.
• Massive layoffs leading to increase in unemployment
• Increase in overall poverty among the local population.
• Country is drawn into a vicious circle of poverty, so-called “aid” and debt.

“ IMF conditionality imposed by its Structural Adjustment Program has resulted in deep cuts in government social spending in health care and education, and layoffs of public sector employees, depletion of state assets and devaluation of national currencies. In addition, IMF policies have led indirectly to the conversion of local lands into large export crop farming and cattle farming, as well as the razing of forests and widespread migration from depressed rural areas, as peasants are forced from the fields of their ancestors.” Brandt Report

Note:The world bank generates over a billion dollars in profits from so-called “aid” it gives to countries under IMF “supervision.

MONOPOLY POWER WITHIN MULTI-NATIONAL CORPORATIONS

• There are currently over 40,000 multinational corporations in the world.
• 40% of world trade is carried within these multinational corporations (“intra product trade”)
• The so-called “top 500” multinational corporations control over 70% of world trade and over 80% of foreign investments in the world.
• Annual sales of largest 100 multinational corporations (2000): $US 2,1 trillion = 7% of world GDP and 25% of world trade. Larger than combined GDP of South Africa and Sub-Saharan Africa (30% of world population).
• Wal-Mart, GM and Ford combined revenue is greater than Africa’s GDP!
• Mitsubishi and Toyota’s revenue is equal to GDP of Greece and Portugal.
• Wal-Mart, IBM, and Nestle’s revenue is equal to GDP of Mexico.
• Multi-national corporations account for 1/3 of exports for globalized economies such as Mexico, India and China and for more than 80% of manufactured exports of countries such as Bangladesh and Honduras.
• Research & D: 100 multinational corporations account for 2/3 of all R & D in USA (40% of global R & D) Through a monopoly on R & D and patenting, they dictate the terms of exchange of new technologies and their resulting profits. This issue is at the heart of the disputes over intellectual property rights (TRIP) at the WTO.

Example: Multinational monopoly power in the coffee sector

• 4 multinational corporations control over 70% of the coffee trade in the world.
• Through this concentration of monopoly power, they control the world supply of coffee and set prices on the world market.
• While small coffee farmers are struggling to survive by growing coffee for their subsistence, these multinational corporations are generating profits in the billions each year.

The “4” coffee multi-national corporations: Revenue 2001-2002

1) Phillip Moris/USA. : $US175billion
2) Nestle/Switzerland.: $US65billion
3) Procter & Gamble/USA: $US40 billion.
4) Sara Lee/USA: $US 30billion.

Coffee trade statistics demonstrating results of unfair world trade practices in the coffee sector in favor of foreign multinational corporations
source: International coffee organization

• Coffee market value 1992: $US 30 billion
• Producers’ share 1992: $US 12 billion.

• Coffee market value 2002: $US 50 billion
• Producers’ share 2002: $US 8 billion.

FACT:

• While the market value for coffee trade in the world has increased from $US 30 billion to $US 50 billion in the last ten years, the value share to producers has decreased from 40% to 16% respectively, as a direct result of unfair world trade practices biased in favor of foreign multinational corporations.

Deteriorating terms of trade

• Furthermore, since 1970, the value of commodities produced in the South has declined in relation to the cost of manufactured goods. In 1975, 8 tons of African coffee could buy 1 tractor; by 1990, it took 40 tons of the same coffee to buy one tractor*.

*source: Crowley Sarah, Teaching about Fair Trade, May 1998.

World price of cash crops

• In more than fifty so-called “third world” countries, more than fifty percent of export earnings depend on three cash crops, among them coffee. Thus, a substantial decrease in the world price of any of these leads to severe economic crisis for both the farmers and for the countries producing these crops, and throws them into a vicious cycle of poverty, “aid” and debt.

Root causes leading to poverty in Africa

External

• Unfair global trading rules and practices biased in favor of industrialized nations and their multinational corporations, and enforced by the WTO.
• Declining commodity prices on the world market resulting from unfavorable terms of global trade.
• Agricultural subsidies.( agricultural subsidies granted to western farmers in the industrialized countries (G7) amount to $US 300 billion annually)
• Deteriorating terms of trade
• IMF’s Structural Adjustment Program liberalization policies.
· Debt ( Heavily Indebted Poor Countries-HIPC- still spending more on debt servicing than in health and education)

Note: List not exhaustive

Internal

• Bad governance, tribal politics, corruption, etc…
• Institutional mismanagement, exploitative practices and inefficiencies along the local supply chain.
• Failure of farmers to organize themselves ( no access to credit, no technical assistance, no logistical support (transport, processing, storage) and no direct access to export markets.

Note: List not exhaustive

Facts from the United Nations Development Program (UNDP)

• Africa currently receives $US 14 billion in so-called “aid”. If Africa was given the means ( fair price access to markets, capital, etc.) to increase its exports by a mere 1%, it would generate $US 70 billion in export revenue ( five times the “aid” amount)
• Developing nations are receiving $US 50 billion in “aid”. If these countries are given the means ( fair price, access to markets, capital, etc…) to increase their exports by a mere 1%, they could generate $US 100 billion in export revenue (twice the “aid” amount).
• A 5% increase in their exports would generate $US 350 billion in export revenue (seven times the so-called “aid” amount)
• The developing nations represent 40% of the world population but only account for 3% of world trade, while the industrialized nations which represent 14% of the global population account for 75% of global GDP.

“ Inequalities between rich and poor, both between and within countries are widening, reinforced by inequalities in global trade. For every $US 1 generated through exports, low-income countries get $US 0,03. Thus, very small steps towards distributional equity in the global trading system could generate very large benefits for the world’s poorest regions.” (Oxfam Trade Report)

Per capita exports per region

· G8 countries: $6000/per capita
· Emerging countries: $330/per capita
· Low-income countries: Less than $100/per capita

“ Increased trade does not automatically translate into poverty reduction. However, when trade is harnessed to effective economic policies and positive poverty reduction strategies, it can act as a powerful force for change” (Oxfam Trade Report)

Example: South East Asia.

· Over the last 40 years, South East Asia has had the most rapid recorded rates of poverty reduction.
· During the mid 1970’s, 60% of population lived in extreme poverty.
· Today, less than 20% of population live in extreme poverty.
· The number of people living on less than $1 a day has decreased from 720 million in mid 1970’s to 278 million.

(Source: Ahuja et Al. 1997)

“ Rapid and broad-based income growth has driven the decline in income poverty” (Oxfam Trade Report)

Africa’s share of world trade 1979-1999 (% of total)

· In the last two decades, Africa’s share in world trade has dramatically decreased from 4% to 1.3%. Currently, Africa, with 10% of the world population, only accounts for 1.3% of global trade

Year Africa’s share in world trade (% of total)
1979 4%
1999 1.3%

(Source: Subramanian, 2001)

Trade as a force for poverty reduction.

“ When good policies enable poor countries and poor people to participate in global trade on equitable terms, trade can act as a powerful force for change and for poverty reduction” (Oxfam, Trade Report)

Trade verses “aid”

Developing nations generate more than thirty times more revenue per capita through trade ($US 322) as they receive in aid ( $US 10) and twelve times more per capita from exports ($113) verses aid. Thus, increases in exports massively outweigh any increase in aid. Moreover, aid transfer payments have drastically decreased from $34 to $20 per capita from 1994 to 1999.

Aid amount as % of G8 GNP

Year/ Aid as % of G8 GNP

1950/ 1%
1980 /0,35%
2000/ 0,21%

Note: G8 countries had committed to giving developing nations 0,7% of their GNP as aid payments.

Source: World Bank

Gain resulting from a one percent increase in trade

Expressed in income gain

· Increase of $30 per capita in low-income countries ( 7% increase)
· 20% increase in average income for Sub-Saharan Africa
· Increase of $53 per capita for South Asia ( 12% increase)
· 4% increase per capita from Latin America and East Asia

Expressed in population

128 million people lifted out of poverty ( 12% of world total)
60 million out of Sub-Saharan Africa
56 million out of South Asia
3 million out of Latin America
9 million out of East Asia

Source: World Bank

« In countries with high concentration of rural poverty, broad-based agricultural growth will have stronger effects on poverty reduction. Labor intensive manufactured exports that generate income and employment for the poor will have more impact on poverty reduction than capital intensive exports. The bigger the share of growth generated and captured by the poor, the bigger the impact on poverty reduction. » (Oxfam Trade Report.)

Export growth in small-holder agriculture

« Agricultural exports produced by small-holder farmers in countries with relatively low concentration of land ownership can generate important benefits for rural poverty reduction, since rural poverty accounts for two thirds of poverty worldwide.”
(source: Datt and Ravaillon, 1998)

Example: Vietnam

Vietnam demonstrates what is possible when exports support broadly pro-poor agricultural domestic reforms.

1986 Economic Renovation Programme “ Doi Moi”

· Farmers encouraged to increase agricultural export sales
· Cut in agricultural taxes
· Access to cheap inputs ( fertilizers, etc.)
· Increase in fertilizers led to increase in productivity
· Agricultural output increased by 5% per annum.
· Excess production exported
· In last 15 years, Vietnam has shifted- from a net importer of rice to the second largest exporter of rice in the world!

Export growth in manufacturing

“ The quality and success of export growth is determined by the extent to which it is built on dynamic linkages within the local economy” ( vertical/horizontal integration).
Delocalization of the means of production in low-wages countries fails disastrously to meet this principle. Oxfam Trade report

Example: Auto Industry in Mexico

· Single largest supplier of engines and passenger vehicles to the USA.
· However, only low value-added assembly of components manufactured in the USA
· Linkage with domestic economy exceptionally weak
· Low value-added ( 20% of overall production)
· Extremely low level of local inputs used ( 2% of total production)

“ Thus, export economy in Mexico generates little demand from the local economy, hence little employment and investment outside the “Maquiladore” Export Processing Zone (EPZ). Although the Maquiladore zone accounts for almost half of total employment in Mexico, it generates only about 10% of the value-added in Mexico’s manufacturing sector.” (Oxfam Trade Report)

“ Evidence from many countries suggests that the expansion of trade has often resulted in either the poor getting left behind or in the intensification of exploitation and environment damaging systems of production which challenge human development aspirations. Failure to link integration into global markets with a strategy for the redistribution of assets upon which greater equity depends will leave the poor in an increasingly marginalised position, even in countries that achieve higher levels of economic growth.” (Oxfam Trade Report)

Agriculture in the global economy

Primary Commodity trade in Sub-Saharan Africa

· Over 80% of the population in Sub-Saharan Africa are small-holder farmers who earn a living through agriculture.
· Agriculture accounts for over 50% of export earnings in Sub-Saharan Africa.
· Most countries in Sub-Saharan Africa depend on 2-3 primary agricultural commodities for their exports.
· Thus, a substantial decrease in the world price of any of these leads to severe economic crisis for both the farmers and for the countries producing these crops, and throws them into a vicious cycle of poverty, “aid” and debt.

( Source: International Task Force on Commodity Risk Management, 1999)

“Trade in this area is vital for poverty reduction since more than 2/3 of the world’s poor live in rural areas” (Oxfam Trade Report)

Factors leading to poverty within small-scale farmers in Africa

• Deteriorating Terms of Trade resulting from unfair global trading rules and practices biased in favor of industrialized countries and their multinational corporations leading to:
.declining commodity prices on the world market
.continuous increases in the price of (imported) farm inputs (seeds, fertilizers, etc.), resulting from IMF’s liberalization policies (SAP)
· Agricultural subsidies granted to farmers in industrialized nations ($US 300 billion/year)
· Damaging IMF and World Bank economic policies enforced through the Structural Adjustment Program (SAP)
• Widespread corruption and mismanagement in so-called farmers’ organizations or cooperatives.
• Exploitative practices and inefficiencies along the supply chain.
• Failure of farmers to organize themselves.( no access to credit, no technical assistance, no logistical support (transport, processing, storage) and no direct access to export markets due to import restrictions in industrialized countries ( Tariff and non-tariff barriers)

Agricultural subsidies

• Presently, the so-called “third world” is receiving $US 50 billion in so called “aid” revenue, while the industrialized nations (G8) are spending $US300 billion annually in agricultural subsidies, financed by taxpayers and consumers, leading to over-production and environmental damage
• These highly subsidized agricultural products are then “dumped” in so-called “third world” countries in the name of “free trade.” Both the EU and the USA export their agricultural products at a price 1/3 lower than the cost of production. (see tables below)
• Local (non-subsidized) farmers (+70% of the African population) are unable to compete against these highly subsidized agricultural products “dumped” onto the local market and are forced to abandon their land, entering into a vicious cycle of unemployment and poverty. As a result, the overall agricultural sector collapses and the country is drawn into a vicious cycle of poverty, “so-called “aid” and debt. (Example: Sugar, cotton, rice, etc.)

Agricultural subsidies ( % of total output )

Countries Agricultural subsidies ( % of total output) Annual subsidies amount per capita

Japan: 60% = $US 24,000
EU: 40% = $US 16,000
USA: 25% = $US 21,000

Note: African farmers struggle on an average annual income of $US400 with no subsidies. (Source: World Bank)
Export Dumping Estimate (EDE)

· Measures the gap between the export price and the cost of production

PRODUCT / COUNTRY / EDE (%) / % OF TOTAL WORLD EXPORTS

Wheat / USA / 46% / 50%
Wheat / EU / 34% / 50%
Maize / USA / 20% / 50%
Skimmed milk /EU /50% / Largest exporter
White sugar / EU /75% / Largest exporter

· EU, USA and Japan monopoly in these heavily subsidized commodity markets results in setting “dumping” prices on world market ( ie. World prices unrelated to and well below the cost of production).
· Annual direct loss to developing nations: $US 20 billion

(source: World Bank, 2001)

The root causes of price decline of agricultural primary commodity

Structural over-supply

Agricultural subsidies leading to structural over-supply are at the root cause of declining agricultural commodity prices on the world market, with disastrous economic and social consequences for small holder farmers living off agriculture and for the countries producing and relying heavily on the export revenue from these commodities. Furthermore, declining world prices lead to further increases in production to make up for the loss in income resulting from lower prices, which in turn leads to further over-supply and further price declines. This is a vicious cycle.

“Structural over supply in the commodity market lies at the heart of global poverty and instability.” ( Brandt Report, 1980)

Example: Ghana (2nd largest producer of cocoa in the world)

In response to declining prices of cocoa on the world market, Ghana increased its production from 320,000 MT to 450,000 MT between 1996 and 2000. This led to an excess supply of cocoa on the world market, with a resulting further 40% decline in the price of cocoa during the same period.

Managing structural over supply

“ Proper economic prices should be fixed not at their lowest possible level, but at the level sufficient to provide producers with proper nutritional and other standards in the conditions in which they live… and it is in the interest of all producers alike that the price of a commodity should not be depressed below this level, and consumers are not entitled to expect that it should.” (John Maynard Keynes, Economist 1946)

Keynes called for an institutional response to the problems posed by falling and unstable commodity prices in 1944. Unstable commodity prices during the 1920’s was seen as one of the major factors leading to the Great Depression of the 1930’s.

Today, many developing nations and millions of small-scale farmers remain highly dependent on the export of primary commodities.

“ Trading patterns established after the discovery of the New World and developed through slavery and colonialism remain intact. Commodity market instability and ruinously low prices are consigning whole swathes of the developing world to mass poverty. There is a growing danger that countries dependent on primary commodities will become increasingly desperate enclaves of despair.” Oxfam Trade Report

Example: coffee

In the last three years, coffee prices on world markets have drastically fallen by over 70%, threatening the lives of millions of small-scale coffee farmers (+50% of world production) around Africa, Asia and South America who rely on coffee exports for their livelihood.

The Brandt Report called for measures aimed at the “stabilization of commodity prices at remunerative levels” Unfortunately, this coincided with the start of the systematic assault on international commodity agreements which were seen as generating inflation in rich countries. However, the creation of a global supply management commodity institutions is an urgent necessity to stabilize the highly unpredictable and volatile commodity market, since all existing trade rules and institutions have failed to do so.

Low-cost technified large scale production

· Investment in low-cost “technified” production methods ( ie. heavy use of chemical fertilizers, bio-technology, industrial machinery, etc.) on large commercial farms during the last two decades has significantly increased production of primary commodities on the world market and led to over supply and severe environmental damages.

( policy favored and supported by both the IMF and the World Bank)

Examples:

Cocoa production in Indonesia (3rd largest exporter)

· Cocoa production in Indonesia has increased by 20% since the mid 1970’s.

Coffee production in Vietnam ( 2nd largest exporter)

· Coffee production doubled between 1997 and 2002.
· Market share increased from 7% to 11% ( at the expense of small-holder coffee farmers which account for over 50% of world production)

Source: World Bank

Furthermore, substitute products and advances in bio-technology has further reduced demand for primary agricultural commodities on world markets.

Example: Cocoa

· In may 2002, the EU has introduced a law that allows for the replacement of cocoa butter in the manufacture of chocolate by a range of new vegetable fats. This will inevitably have a negative impact on the estimated two and a half million small-holder farmers who rely on cocoa farming for their livelihood in West Africa.

Monopoly power in the commodity market

Coffee

Three multinational corporations control 1/3 of the global market share for coffee trade

· Newmann
· Volcafe
· Cargill

Five multinationals control over 70% of coffee processing and retailing

· Nestle
· Phillip Morris (Kraft)
· Sara Lee
· Procter & Gamble
· Tchibo

Source: Ponte, 2001

Cocoa

Seven of the largest processing multinational corporations control over 70% of global cocoa processing worldwide

· ADM
· Barry Calebault
· Cargill
· Hosta
· Nestle
· Cadbury
· Mars

(Source: ICO, 1998)

The economic and social cost of dependence on primary agricultural commodities.

· Over the last thirty years, both the share and the price of non-fuel primary agricultural commodities has been steadily declining.
· Global trade in primary agricultural commodities has been growing at less than one-third of the rate of manufactured goods and the gap is widening.
· In more than fifty developing nations, over fifty percent of export earnings depend on 3 or fewer agricultural primary commodities. Thus, a decrease in the price of any of these leads to severe income losses for both producers and countries and translates into economic collapse and poverty.
· This dependency is most pronounced in Sub-Saharan Africa, for which non-oil exports account for 75% of exports in 17 countries.
· In many cases, a larger share a larger share of export earnings is dependent on 1-2 primary agricultural commodities.

Example:

-Coffee exports account for 60%-80% of export earnings for both Ethiopia and Burundi
-Cotton accounts for an estimated 50% of Burkina Faso’s export earnings
-Cocoa accounts for 25% of Ghana’s export earnings.

(Source: UNCTAD and World Bank data 1999-2000)

Direct link between heavy dependence on primary commodities and level of debt

· The combined debt of developing nations has increased from $US 700 billion to $us 3 trillion from 1980 to 2000 respectively.
· 37 countries categorized by the IMF and the World Bank as Heavily Indebted Poor Countries (HIPC) rely on primary commodity for over fifty percent of their export earnings
· 15 of these derive 90% of their export earnings from primary commodity exports.
· Over 50% of the world’s cocoa production and over 25% of the coffee production is produced in HIPC countries.

Declining primary commodity prices

Between 1980 and 2000, prices were 25% lower for 18 primary commodities and 50% lower for 8 primary commodities. Prices for coffee, tea and cocoa have decreased by over 70% between 1997 and 2001.

Ex: Coffee exports in Uganda

It is estimated that 25% of the population in Uganda earns a living through coffee exports

Year/ Value of coffee exported

1994-1995: $US 433 million
2000-2001: $US 110 million Same qt exported as in 1994-1995

· Net Loss: $US 323 million
· Aid transfers 2000: $US 100 million

Coffee exports in Ethiopia

Year Value of coffee exports

1999-2000: $US 257 million
2000-2001: $US 110 million Same quantity exported as in 1999-2000

· Net loss: $US 147 million
· “Aid” transfers 2002: $US 58 million

Deteriorating terms of trade

· Sub-Saharan Africa has suffered the most from the effects of deteriorating terms of trade.
· Since 1970, for every $1 received in “aid” in the region, $0,50 has been lost as a direct result of deteriorating terms of trade.
· Aid transfers to Sub-Saharan Africa amount to $20 per capita
· Losses per capita resulting from deteriorating terms of trade amount to $155 per capita
· Deteriorating terms of trade cost $US 100 billion (seven times what Africa receives in “aid”- $ 14 billion )
· Declining primary commodity prices and deteriorating terms of trade is a recipe for further poverty and marginalisation for Sub-Saharan Africa.

Example: coffee

· Since 1970, the value of commodities produced in the South has declined in relation to the cost of manufactured goods. In 1975, 8 tons of African coffee could buy 1 tractor; by 1990, it took 40 tons of the same coffee to buy one tractor*.

IMF’s and World Bank trade liberalization policies and its effect on poverty

“Through their influence over the design and implementation of IMF and World Bank policies, industrialized countries have been able to maintain a highly unbalanced process of trade liberalization. Developing countries have been liberalizing rapidly, incurring large adjustment economic and social costs which have been compounded by the unwillingness of rich countries to open their markets. At the same time, the IMF and the World Bank have frequently undermined the ability of poor countries and poor people to integrate successfully into the global economy. Loan conditions that place a premium on rapid liberalization, without proper consideration of the consequences for short-term poverty and long-term development, are among the factors that prevent global trade from working in favor of the poor. Moreover, import liberalization can affect the ability of governments to finance and provide services that are vital to pro-poor growth.”
Oxfam Trade Report

“He who pays the piper calls the tunes…” African governments must stop dancing to the tunes of the IMF and the World Bank. Independence means self-reliance!

“ In countries with high concentration of rural poverty, the combination of rapid import liberalization in food staples and the promotion of capital-intensive export production can have profoundly anti-poor outcomes” Oxfam Trade Report

Example: Mexico

Automobile industry in the maquiladores zone of the North (capital intensive low value- added ghetto assembly export industry ) and the “poverty belt” in the south which has been victim of cheap-heavily subsidized - American corn “dumped” in Mexico as a result of import liberalization policies enforced by both the IMF and the World Bank

“ Drastic and sudden trade liberalization will not produce optimal outcomes in terms of either sustainable growth or poverty reduction. The starting point for the design of any trade reform program must be in its integration into broader national strategy for poverty reduction. In itself, trade liberalization is not a poverty reduction strategy”
Oxfam Trade Report

Unfortunately, neither the IMF nor the World Bank has applied this principle to trade policy despite the development of the Poverty Reduction Strategy Papers (PRSP), whose aim and purpose is to set out in detail how IMF and World Bank policies fit into national poverty reduction strategies.

Example: Cambodia

Import liberalization policies were implemented in Cambodia as part of the IMF’s Structural Adjustment Program with the support of the World Bank. As a result, massive imports of cheap rice produced in Thailand and Vietnam flooded the local market, driving millions of less competitive local small-holder rice farmers out of the market.
However, the impact of such policy on local small-holder rice farmers was not only not taken into account but was not even mentioned in the governments’ proposed Poverty Reduction Strategy Paper, but nevertheless approved by both the IMF and the World Bank.

Import restrictions:

· Tariff and non-tariff barriers facing developing nations in industrialized countries are on average four times higher than those facing rich countries in poor countries.
· Trade barriers in industrialized countries weigh most heavily on the poorest countries, as they target primary agricultural commodities and labor-intensive manufactured products.

Example

.The 48 Least Developed Countries (LDC) face tariffs on average 20% and 30% higher than the rest of the world on their agricultural exports and on their manufactured exports respectively to industrialized countries.
. The LDC’s are losing an estimated $US 2.5 billion annually in potential export earnings as a direct result of high tariffs in the Canada, EU, USA and Japan.
. Furthermore, this policy directly affects both the poor and women who account for 62% and 70% of employment in agriculture and in labor-intensive manufacturing in Export Processing Zones (EPZ) respectively.
· Import tariffs cost poor countries $US 43 billion annually.
· The total cost of all import restrictions ( tariffs, non-tariff barriers, quotas, anti-dumping measures, product standards, etc.) cost poor countries over $US 100 billion annually (twice the annual “aid” amount). (source: Anderson et Al, 2001)
· The annual loss associated with import restrictions within the labor-intensive textile sector to poor countries is estimated at $US 30 billion. Both the EU and the USA have only eliminated 25% of textile import quota restrictions that they have committed to remove under the WTO Agreement on Textile and Clothing (ATC).

( source: Check et Al, 1999)

“ However, reducing trade barriers in rich countries will not automatically increase the world market share of developing countries. Many producers- especially in low-income countries – lack the infrastructure, skills and capacity to take advantage of market opportunities. However, when market opening is combined with measures to develop supply capacity, major benefits are possible.” (Oxfam Trade Report)

“ Improvements to market access in these labor-intensive sectors (textile) have the potential to increase the equity and the welfare of women (1/3 of workforce) as well as reduce overall poverty as these sectors are a source of employment for millions in the developing world” ( Oxfam Trade Report)

Cost of trade restrictions verses benefits of “aid”

“Losses to LDC’s export earnings resulting from import restrictions in industrialized countries offset the benefit of aid flows to these countries. For every $4 received in “aid”, $1 is lost as a result of import restrictions through loss in export earning.” (Oxfam Trade Report)
q Example: Canada

- Aid to LDC’s from Canada in 2001: $300 million
- Loss to LDC’s from import restrictions in Canada: $1,6 billion

(source: Oxfam International, 2001)

Heavy dependence of exports to industrialized countries

REGION/ % share of exports Exported to:
Africa/ +70% EU, North America, Japan
Latin America/ +75% Idem
Asia /+50% Idem

Furthermore, extremely high import restrictions between developing nations restricts the development of South-South trade.

Note: Only New Zealand has fully opened its market to all products exported by LDC’s.

Escalating tariffs

· Tariffs that rise with the level of processing undergone.
· Acts as a deterrent to investment aimed at adding value locally- a condition needed to create local employment.
· Leaves developing countries locked into volatile and unpredictable primary commodity markets characterized by low, unstable and declining world prices. (almost guaranteed route to marginalization)
· Average tariffs on processed agricultural products exported to Japan, the EU and Canada are three times higher than those facing unprocessed agricultural products.
-Japan and the EU: 20%
- Canada: 10%

Example: Processed food sector

· Subject to tariffs twice as high in Japan and EU than non-processed foods.
· In Canada, tariffs thirteen times higher!
· In USA, the food industry tariffs accounts for 1/6 of all peak tariffs ( tariffs in excess of 10%)

Example: Orange juice: 30%, peanut butter: 132%

· EU: Food industry tariffs account for 30% of all peak tariffs (range between 12% to 100%)
· Japan: 40% of all peak tariffs protect the processed food industry.

Example: Cocoa powder, chocolate, canned meat, fruit juices, etc.

· Advanced processed food products account for only 5% and 17% of agricultural exports of LDC’s and of all developing nations respectively, verses 32.5% of the combined agricultural exports of industrialized countries.

(Source: UNCTAD, 2000)

“ Considered collectively, each of the trade restrictions help explain why developing nations have been unable to increase their share of world trade and why the links between global trade and poverty reduction are so weak. Removal of escalating tariffs would enable developing countries to capture locally a larger share of the final value of export earnings, in turn generating local employment and investment opportunities.” (Oxfam Trade Report)

Regional Trade Agreements (RTA)

Regional Trade Agreements (RTA) are systems of trade preferences in which members share with each other advantages that they withhold from others, except on negotiated basis.

· EU: Two-thirds of trade conducted within Regional Trade Agreements.
· North America: North American Free Trade Agreement (NAFTA): Free trade agreement between USA, Canada and Mexico.Over 50% trade carried within NAFTA.

RTA’s within AFrica

“EVERYTHING BUT ARMS” (EBA)

· EU’s initiative to allow duty and quota free market access to all products from the LDC’s. However, powerful corporate anti-lobby from European producers and Caribbean exporters to the EU delayed free market access to the LDC’s for 8 years on rice, bananas, and sugar. Under the EBA initiative, some LDC’s have gained limited export opportunities.

Example: Mozambique

· Under the EBA initiative, Mozambique has gained quota-limited access to the EU market for exports of sugar up to a transitional period to 2009. This will create 8000 jobs in the sugar mills and in the plantations.

AFRICA GROWTH AND OPPORTUNITY ACT (AGOA)

· Provides duty and quota “free” market access to the USA for selected products from 39 African LDC’s. However, only “non-sensitive” products qualify and they face strict conditions.

Example: The use of US fabrics and yarns must be used in African textiles and garment exports. Furthermore, African countries seeking to export under the AGOA face extensive conditions, such as opening their markets to US trade and investment and implementing market-based economic reforms.

EU/ACP AGREEMENT (COTONOU AGREEMENT)

· Preferential trade agreement between the EU and 71 nations in Africa, the Caribbean and the Pacific. Allows duty free and quota free access to the EU market.

“ RTA’s can become vehicles for protectionism and trade rules that are inherently bad for poor countries and can bias the benefits of trade in favor of rich countries. In their current forms, RTA’s are helping to increase rather than reduce inequalities in world trade”. (Oxfam Trade Report)

South-South trade

· Increase in South-South trade over the past two decades
· 26% of exports within carried within developing nations in 1980.
· Increased to 40% in 1999, but growth constrained by import restrictions within developing countries.
. Average tariff on manufactured exports is three times higher than the average tariff imposed by industrialized countries. Tariffs on agricultural exports also very high.

Crucial trade issues discussed at the WTO

The WTO’s mission is to provide an institutional framework for the conduct of trade relations between its 144 members.

1. Agreement on Trade-related Aspects of Intellectual Property (TRIP)

The aim of TRIP is to create a set of trade rules designed to protect- through patenting- and raise prices for technologies and products developed by multinational corporations. The result of such a policy would limit and increase the cost of technology transfers to low income countries, further widening the technology gap and the resulting income inequalities in the process. Furthermore, TRIP also threatens to increase the cost of basic medicines with devastating consequences on the lives of people living in poor countries. All developing nations member of the WTO must provide patent protection for all new pharmaceutical products by 2005. LDC’s have until 2016 to comply. TRIP also causes serious threats to food security in poor countries as it challenges the right of farmers to save, exchange or sell seeds, using new bio-technologies to patent biological resources throughout the world (bio-piracy).

International Convention for the Protection of New Varieties of Plant (UPOV 1991)

UPOV 1991

· requires members to grant a 20 year exclusive right to plants and other biological resources.
· Will extend corporate control over the supply of seeds to farmers.
· There are already over 900 patents on the five staple food crops that account for 75% of the world’s food supply. 50% of these patented by 4 multinationals!

Example: Monsanto

“Roundup Ready” crops: Soya, corn, cotton, sugar. Genetically modified to be resistant to the herbicide “Roundup” developed by Monsanto. Monsanto and Dupont control 75% of the corn market in Brazil. This is a classic example of the extension of corporate power over seeds and agricultural inputs through bio-technology and patenting.
(source: Wilkinson & Castelli, 2000)

2. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)

WTO agreement on liberalization of services. Biased in favor of industrialized countries in sectors such as banking and insurance at the expense of developing nations. Aims to liberalize key services such as water and transport.

“ GATTS could have devastating effects on the ability of governments to meet the needs of their poorest and most vulnerable citizens.” ( World Development Movement, 2001)

3. AGREEMENT ON TRADE RELATED INVESTMENT MEASURES (TRIM)

Rules presently negotiated at the WTO among member states to govern investments. The investment rules under TRIM prevent governments at establishing dynamic linkages between local industry and foreign investors and from locally capturing a greater share of export added value.

“ Applied in their current fashion, the investment rules under TRIM are limiting the ability of developing countries to raise the quality of productive investment and enter new, higher value-added areas of trade. Furthermore, they threaten to marginalise developing countries and the world’s poorest people within an already unequal global trading system. Overall, the WTO multilateral trading system is now little more than a smokescreen for the pursuit of private corporate interests and the subordination of developing countries to the dictates of rich countries. These rules threaten to widen inequalities associated with trade and weaken the link between trade and poverty reduction.” (Oxfam Trade Report)

Other issues and challenges facing Africa

Demography

Increases in world population

Year Population ( in billions)

-1900: 2 billion
-1980: 4 billion
-2000: 6 billion
-2020: 8 billion (projected)

Population growth in Africa

The population of Africa has increased from 300 million in 1980 to 700 million in 2000. At this rate, it is estimated that the population in Africa will double every twenty years and reach over one and a half billion people by 2020. This will obviously have tremendous negative social and economic consequences for the continent as a whole, unless political, economic, and social conditions quite different from those now prevailing are brought about.

Arms expenditure

The annual spending on armament has doubled from $US 450 billion to $US 1 trillion in the last twenty years- despite the end of the Cold War- and over 98% of all wars since WWII have been fought in developing nations. It is well worth noting that, according to the UNDP, an annual budget of $US 80 billion ( equivalent to 8% of total annual armament expenditure ) would be sufficient to eradicate poverty worldwide!

“ If only a fraction of the money, manpower and research presently devoted to military uses were diverted to development, the future prospects of the so-called Third World would look entirely different.” Brandt Report

Making trade under globalisation work for the poor

“ Policies which aim to strengthen the links between trade and human development must accord priority to the rural poor. Seventy five percent of those living in extreme poverty worldwide live in rural areas. The rural poor have unequal access to the physical and financial assets needed to take advantage of trade opportunities. Weak marketing infrastructure is another barrier to participate on global markets. Furthermore, distance to markets and poor roads lead to high transport cost. In Kenya, for instance, the marketing cost for food grains are 40% higher than in Indonesia- a fact that demonstrates the huge impact of infrastructure on competitiveness in both local and international markets. Remoteness from markets and inadequate access to roads raise the cost of marketing output, reduce farm-gate prices and increase the cost of inputs such as fertilizers. Moreover, when markets are liberalized, it is often impossible for poor farmers to compete with the price of imports ( subsidized and non-subsidized)
Finally, without access to the proper infrastructure, extension services and financial resources, the poor farmers are equally ill-equipped to respond to export market opportunities.

Rural poverty strategies need to place far more emphasis on investment in infrastructure used by the poor in areas characterized by high concentration of rural poverty. Extension services and research priorities need to be geared to crops produced by small-holder farmers in marginal areas. Access to rural savings and credit institutions is very undeveloped in many poor countries and so access to capital is constrained.”

Source: Oxfam Trade Report


RECOMMENDATIONS ON REFORMS TO BE IMPLEMENTED FOR THE ECONOMIC INDEPENDENCE AND FOR THE “RENAISSANCE” OF AFRICA


Reforms within the World Trade Organization

· African governments MUST unite to speak as one voice within the WTO and should promote and defend trade policies that will benefit the African continent as a whole, rather than look after their own individual and particular economic interests.
· An immediate end must be put to the agricultural subsidies granted to western farmers by the G8 countries.
· Current trade negotiations within the WTO in multilateral trade related investments (TRIM, GATS), and new technologies (TRIP) MUST take into account the long-term impact of such policies on less favored developing nations and should not result in further marginalisation and increased world poverty.
· Removing import restrictions and damaging trade policies such as “escalating tariffs” imposed on developing nations’ exports of processed agricultural commodities to developed nations.
· The decision-making process for the design and implementation of multilateral trade
· rules should be made more democratic.
· Multilateral trade agreements should be designed to be mutually beneficial to all member countries.

 “Aid” and financial dependence on the IMF and the World Bank.

“ He who pays the piper calls the tunes…” African governments MUST stop dancing to the tunes of the IMF and the World Bank! Independence means self-reliance. Africa must stop relying on so-called “aid” from both the IMF and the World Bank and other foreign governments and institutions. They MUST organize themselves – by setting up their own financial institutions - to fund their own development in the interest of the whole continent.

“ Essentially what has been called “aid” is money lent at interest rates that is often repaid to developed nations at two or three times the initial investment in a negative cash flow from poor to wealthy nations. In effect, aid is an inducement by developing nations to generate cheap exports from developing nations, which are obliged to acquire more and more foreign exchange to pay off their loans. This arrangement is simply winked as good business, a double standard that passes for charity. International aid is a classic example of a perpetrator-victim relationship: the one manipulates but claims to act in good faith, the other pays twice for his own oppression. To add insult to injury, the austerity conditions required by the IMF for development loans – known as the Structural Adjustment Programs (SAP) – have led to social breakdowns in scores of poor nations.”

(Source: Brandt Report)

Mutinational corporations

· Given the tremendous and ever-growing economic, financial and monopolistic power of the multinational corporations throughout the globe, a global anti-trust and anti-monopoly institution must be set up and laws must be enacted and enforced to protect the national interest of both countries and their citizens where multinational corporations operate.

“ International corporations continue to locate in nations where wages, taxes, trade, financial and environmental restrictions are lowest. There is virtually no regulation of corporate practices, which are often at odds with the development objectives and national interests of poor countries.” Brandt Report

Setting up of an International Commodity Institution

· Given the highly unpredictable and volatile agricultural primary commodity world market and the severe economic and social cost associated with a decline of their prices on world markets by countries highly dependent on primary commodities for their export earnings, a global International Primary Commodity Institution must be set up to manage the structural over supply of primary commodities, which is at the root cause of price instability and decline, for the mutual benefit of producers and consumers alike.

Cancellation of the debt

· A bankruptcy law protecting countries who are no longer able to meet their financial obligations vis-à-vis creditors should be passed to allow them immunity and legal protection from their creditors. A mechanism similar to the one operating under commercial bankruptcy law should be put in place to compensate the creditors.

· Meanwhile, developing nations who are spending a large proportion of their annual revenue in servicing the debt should unite to lobby for the reduction or cancellation of the “public” debt, and should take necessary concrete actions to build strong financial institutions and implement sound economic policies to break free from the vicious cycle of poverty, “aid” and debt.

“ Forgiveness of sovereign debt would trigger both an enormous boost and a historic turning point in international development. Poor nations could could break the vicious cycle of borrowing, producing for exports, …and repaying their debt. By reversing the net outflow of capital to developed economies through the stimulus of debt forgiveness, poor countries would enjoy the possibility of real development and growth, many for the first time.” Brandt Report

REFORMS WITHIN AFRICA

Accountability of African governments

· African governments MUST provide the proper economic, political, social, institutional and legislative framework needed to ensure, protect and promote peace, stability and the economic welfare of the countries which they have been mandated to manage.
· African governments MUST be held accountable vis-à-vis their citizens for economic policies implemented within their respective countries, just as corporations are held accountable to their shareholders. Furthermore, they MUST publish and make available to the public detailed accounting and financial reports concerning the affairs of the country on a quarterly basis.
· African governments MUST inform the public on issues relating to the welfare of the country and MUST obtain unanimous majority approval from the people before implementing them.
· Last but not least, government leaders ( Presidents, Ministers and other high officials within the government) should be hired based on competence and merit. This would not only save considerable financial resources drained in the electoral process, but would also considerably improve the quality of leadership. Furthermore, all government officials should be hired on a contractual basis with rights and responsibilities clearly defined and sanctions for breach of contract enforced.

African Union: Africans must speak with a common voice

· Africans MUST unite together and work for the common welfare of the African continent as a whole. They must speak with one strong, united voice on the global scene to promote and defend Africa’ political, economic, social, cultural interests.

Free Trade Zone

· African countries MUST unite to create a free trade zone on the continent that allows the free flow of goods, services, capital, technology and people. Artificial borders and trade barriers inherited from colonialism only serve to act as barriers to development and must be put down. Trade among and between African countries MUST be increased and encouraged. Furthermore, consumers need to be educated and encouraged to purchase African made goods as a way to contribute to the economic development of Africa.

African common currency

· Africa MUST create and use a common currency. This measure will not only facilitate trade among African countries, but will also strengthen the value of the currency and make it less vulnerable to fluctuations on the international currency markets.

Setting up an “African Bank”

· Africa MUST set up its own “African Bank” to break free from the financial dependence and the dictates of foreign governments and institutions such as the IMF and the World Bank. The objective and mission of such an institution would be to finance development projects in Africa for the common and mutual benefit of the continent as a whole.

“Not Uhuru Yet…”

· Africa has fought and gained its political independence during the course of the last century. The struggle for Africa in the twenty first century is the struggle for economic independence. There is urgency, as everyday millions of people in Africa are being crushed under the oppressive wheel of economic and social injustice. Africa’s future and very survival is at stake…

Global integration and global economic reforms

A global economy needs a global institution and global tools to manage it. A framework for integrated global economic decision making must be set up to achieve an equitable international economic system mutually beneficial to all countries.

As it is, decision about global integration are left entirely to the private sector and to the G8 governments, which are distrustful of multilateral forums and strategically opposed to representative negotiations for international development.
The reality of the ever-growing and inevitable interdependence of nations under globalization puts the issue of global integration and global economic reforms high on the twenty first century agenda.

“The achievement of economic growth in one country depends increasingly on the performance of others. The South cannot develop adequately without the North. The North cannot prosper or improve its economic welfare unless there is greater progress in the South.” (Brandt Report , North-South)

“Interdependence seems self-evident, but today there is still no international consensus or collective action on vital economic matters and other global interconnected issues. It is a contradiction in terms to have a global market without a standard unit of account, an orderly system of exchange rates, or a global regulating trade body. Future generations will look back in astonishment at the ultimate irony of the post-modern era. In a global economy, there is no global board of managers, nor decision-making power vested in the majority of the global partners.” (Brandt New Equation. A blue print for the 21st century)



















































 

DARFUR: NO WAY THROUGH, GENOCIDE IN PROGRESS...



INACTION ROOTED IN INDIFFERENCE IS FAR WORSE
THAN INACTION STEMMING FROM IGNORANCE.

 

Wednesday, September 27, 2006

THE GLOBALIZATION OF POVERTY...

Imagine a boardgame called Globalization...; The object of the game is to
amass as much wealth as possible at the expense of the "opponent".

There are two players; one player we will refer to as G8 and the other as Rest of the World.



The G8 player sets the rules of the game in his favor, and is allowed to "cheat" when the rules are not working to his advantage; The Rest of the World has to strictly adhere to those rules even if they are unfair and biased in favor of
the G8 player. The motto of the G8 to the rest of the world is "
do as I say, not as I do...
"



The pawns of the G8 are given tremendous power over the pawns of the Rest of
the world; they are allowed to move freely accross the globe, while the pawns 
of the rest of the world 
are severely restricted in their freedom of movement. The pawns of the G8 are allocated a highly valued moneraty currency of exchange
and are paid high wages for their labor; The pawns of the Rest of the world are allocated a worthless monetary currency of exchange - whose nominal value is set by the G8 player - and are paid "slave" wages for 
their labor.



The G8 player use powerful corporate and commercial pawns called MULTINATIONAL CORPORATIONS to exploit both natural
resources and human labor in the rest of the world.
They use a
tactic - which they call "delocalization" - to tranfer technology,
machinery and capital
practices and then sell them back in high-wage countries, 
pocketing the difference.



According to the rules of the game, machinery, technology, capital, goods, services  and information are all allowed to move freely accross
the globe. However, humans from the Rest of the Word ( with the exception of the favored human pawns from the G8 countries) are severely restricted 
and/or banned in their migration accross the globe. 



The G8 player has a set of powerful economic, financial
and commercial pawns called IMF, WORLD BANK, WTO to design, implement and inforce the rules of the games upon the Rest of the world. 


In the event that these pawns are unable to enforce the rules of 
the game, powerful armed pawns are called upon to enforce the 
rules of the game upon the rest of the world.

The stage is set for the globalization of poverty...  

MAX HAVELAAR FAIR TRADE CLOTHING: HOW "ETHICAL" IS FAIR TRADE CLOTHING...?

"Ethical" Fair Trade clothing

A number of Fair Trade garment companies targeting a rising number of environmentally and socially conscious consumers in the West are selling “clean” clothes– i.e, clothes supposedly produced in an environmentally sustainable manner and in a non-exploitative social manner- and labeling and marketing their garments as “organic” “ethical", "alternative" or "Fair Trade”.

As far as the environmental aspect of cotton production is concerned, companies dealing with organic cotton are indeed making a significant and positive environmental impact - as clearly documented by a number of research - by helping farmers switch from the extremely environmentally damaging conventional cotton sector to the more environmentally sustainable organic cotton sector.

“Fair” price?

What is not so clear, however, is the so-called “Fair Trade” aspect of the venture. In fact, companies that market their garments under the “Fair Trade” label claim that the farmers from whom the cotton (both organic and conventional) has been purchased have been paid a “fair” price. One such company, MAX HAVELAAR, has recently ( 2005) launched a line of “fairly” produced clothing bearing the “Fair Trade” label, although the cotton used is not organic. They claim that the West African cotton farmers from whom they purchase the cotton have been paid a “fair” price. Their definition of a “fair” price is a price which is around 20% above the “market” rate. In this case, the “fair” trade price paid by Max Havelaar to West African small-scale cotton farmers from whom they purchase the cotton is Euro 0,36/kg. The normal world market price paid to these same farmers was Euro 0,32/kg at that time. Thus, the difference or Fair Trade “premium” is only Euro 0,04/kg.

I have written to Max Havelaar and to other "ethical" Fair Trade clothing companies to inquire about this venture. Please find below a copy of my written inquiry and their responses. I welcome your comments. Thank you.

TO PAN UK: in charge of cotton project
SIMON FERRIGNO
simonferrigno@pan-uk.org
Copy: info@cleanclothes.org
IFOAM ( b.geier@ifoam.org)
FLO
MAX HAVELAAR
Sustainablecotton.org
Organic exchange: terry@organicexchange.org
Copy: m.v.esch@boweevil.nl

Re: “ Clean” clothes

A number of garment companies targeting a rising number of environmentally and socially conscious consumers in the West are selling “clean” clothes– i.e, clothes supposedly produced in an environmentally sustainable manner and in a non-exploitative social manner- and labeling and marketing their garments as “organic” “ethical", "alternative" or "Fair Trade”.

As far as the environmental aspect of cotton production is concerned, companies dealing with organic cotton are indeed making a significant and positive environmental impact - as clearly documented by a number of research - by helping farmers switch from the extremely environmentally damaging conventional cotton sector to the more environmentally sustainable organic cotton sector.

“Fair” price?

What is not so clear, however, is the so-called “Fair Trade” aspect of the venture. In fact, companies that market their garments under the “Fair Trade” label claim that the farmers from whom the cotton (both organic and conventional) has been purchased have been paid a “fair” price. One such company, MAX HAVELAAR, has recently ( this year) launched a line of “fairly” produced clothing bearing the “Fair Trade” label, although the cotton used is not organic. They claim that the West African cotton farmers from whom they purchase the cotton have been paid a “fair” price. Their definition of a “fair” price is a price which is around 20% above the “market” rate. In this case, the “fair” trade price paid by Max Havelaar to West African small-scale cotton farmers from whom they purchase the cotton is Euro 0,36/kg. The normal world market price paid to these same farmers was Euro 0,32/kg at that time. Thus, the difference or Fair Trade “premium” is only Euro 0,04/kg.

Processing of cotton and manufacturing of garments?

Furthermore, Max Havelaar and other companies marketing and selling “Fair Trade” labeled garments do not provide any information on where and how the garments were made (i.e. the processing stages relating to the production of fabrics and garments ). Although the Fair Trade movement (FLO) has (recently) defined a set of Standards for the production of garments, there is no mention or information publicly available on the actual implementation, enforcement and independent monitoring of these standards. Thus, consumers are made to believe that garments labeled as “Fair Trade” have been made according to Fair Trade non-exploitative standards, which is not always the case. It is highly dishonest, morally repressible and fraudulent to market and sell garments as “Fair Trade” simply on account of the so-called “fair” price paid to cotton farmers, and then use sweatshop practices in the processing stages of the cotton and the manufacture the garments!

In view of the above, the following questions arise:

1) Does the so-called “fair” price paid to small-scale cotton farmers in sub-Saharan Africa by Max Havelaar and other such companies labeling and marketing “Fair Trade” garments REALLY contribute to the economic and social welfare of the small-scale cotton farmers, as they claim? (no quantitative data available.)

2) The “market” rate which is used by Max Havelaar as a reference in setting the “fair” price paid to cotton farmers is distorted by global cotton subsidies, and as such is not an appropriate parameter to determine or set the so-called “fair” price. A “fair” price should rather be set based on the actual cost of production of the farmers, taking into account the realities of the global Terms of Trade faced by the farmers.

3) Under this scheme, who benefits the most? The farmer who is paid a Fair Trade “premium” of Euro 0,04 cents/kg of seed cotton or Max Havelaar who labels and markets the garments at a much greater price in proportion to the “fair trade premium” paid to the farmers? What percentage does the “fair” price paid to cotton farmers represent in the final retail price of Fair Trade labeled garments sold to consumers in the West?

4) Simply buying the raw cotton from African cotton farmers and shipping it abroad for further processing (beyond ginning, and to a limited extent spinning as is currently done in sub-Saharan Africa), as is the case with Max Havelaar in Mali ( only ginning done locally- not organic), Boweevil in Uganda ( ginning and spinning to a limited extent) and Biore in Tanzania ( ginning only), fails to add-value locally to the cotton and as such fails to create much needed local employment and generate income along the supply chain and create economic growth within the sector – thus failing to “fight” poverty, contrary to claims made by these companies.

5) Fair Trade labels tend to limit their considerations strictly to the so-called “fair” price they pay the farmers and pay little attention in practice to the way the cotton is further processed along the supply chain ( i.e. spinning, weaving, knitting, dyeing & printing, garment manufacturing, etc.) Although Max Havelaar says that Fair Trade Standards have been recently defined for the processing stages of the cotton by FLO, no mechanisms have been put in place to effectively monitor and enforce these standards, as is reflected in the Clean Clothes Campaign overview presentation and remarks of “ethical” companies. ( see www.cleanclothescampaign.org).

6) Finally, as noted above, Fair Trade labeled garments do not necessarily integrate the environmental or ecological standards within their supply chains. Thus, while pretending to help the farmers, they do not help farmers improve the environment in which they work, by failing to help the farmers adopt organic sustainable practices in farming methods.

7) Similarly, “organic” labeled textiles and garments fail to take into account the Fair Trade non-exploitative social aspect of production. Thus, while improving farming methods, they do not necessarily improve the working conditions of those involved in the processing stages of the cotton and the manufacture of textiles and garments.

Are there any companies that respect both the ecological standards of organic cotton production as well as the non-exploitative Fair Trade social standards throughout their entire supply chain in the production of garments and textiles in sub-Saharan Africa?

I have written to Max Havelaar several months ago to get feedback on these issues, but have been met by utmost silence…Boweevil also admits that it processes only 30-35% of its organic cotton locally in Uganda and claims that it is processing its garments according to “Fair Trade” Standards, although it fails to provide any information on how and where the garments are made, and to describe what mechanisms are in place to effectively monitor and enforce Fair Trade Standards in the processing stages of the cotton. Failure to reveal this information - which ought to be made widely and openly available to environmentally and socially global whom they target and sell their garments to -would tend to indicate that these companies have a lot to hide about their “clean” activities. Hopefully you can shed some light on these issues…

Response from Pan-UK

Thank you very much for your very interesting and well-informed email. We are aware of all the issues you have raised, and are considering all of them. It is true that the multiplication of “eco” or “Fair” standards and labels may sometimes lead to confusion for the consumer. This is one of our main concerns. It is also true that a lot of work still need to be done with both Organic and Fairtrade textiles, which should be viewed as good (if not perfect) steps in the right direction.

I will assess your comments and discuss them with the direction, and get back to you.

Best Wishes

Damien Sanfilippo

Cotton Project Officer

Pesticide Action Network UK

Development House

56-64 Leonard Street

London

EC2A 4JX

www.pan-uk.org

Tel: +44 20 7065 0905/Fax: +44 20 7065 0907

Direct: +44 20 7065 0915

I have not forgotten about your letter expressing your concerns about fairtrade cotton. I am preparing a response to the issues you have raised. However, I would like to discuss some of those with the fairtrade organizations, before responding. I will meet with Fairtrade Foundation (UK) soon, and I am hoping to discuss those issues with max Havelaar France as well in the near future.


I will then be able to respond to your letter. I am considering publishing your letter and our response in our newsletter, or on our website, providing that you agree of course. Our goal is to provide fair and balanced information to consumers, as it will benefit the market for organic cotton. I need to emphasize on the fact even though we do share some of your concerns to some degree, we support fairtrade cotton initiatives. We aim to collaborate with them, and we hope that they will consider our comments, in the interest of small-scale cotton farmers.


Thank you for your patience,


Best Wishes


Damien Sanfilippo


Cotton Project

Pesticide Action Network UK

Development House

56-64 Leonard Street

London

EC2A 4JX

www.pan-uk.org

Tel: +44 20 7065 0905/Fax: +44 20 7065 0907

Direct: +44 20 7065 0915

Response from Max Havelaar

Dear Mr. Tajdin


Enclosed you find the answers to your challenging questions. To our view there is no competition between organic and fair-trade-movements, neither one between Clean Clothes and Fair-Trade. We all have the same idea – more equality for developing countries – but we start from different positions and points of view. Max Havelaar Switzerland is in close contact with the responsible person of Clean Clothes in Switzerland . Let’s work together!


Kind regards


Regula Weber

---------------------------------------------

Regula Weber Engweiler

Marketing/ Kommunikation

Max Havelaar-Stiftung (Schweiz)

Hornbachstrasse 50

CH-8034 Zürich


Tel.: ++41 (0)44 389 84 73

Fax: ++41 (0)44 389 84 14


Mail: r.weber@maxhavelaar.ch

Web: www.maxhavelaar.ch



A
rif Tajdin a écrit :

Date: Sat, 14 Jan 2006 11:51:21 +0100 (CET)
De: Arif Tajdin
Objet: "CLEAN" CLOTHES...?
À: simonferrigno@pan-uk.org
Cc: info@cleanclothes.org, b.geier@ifoam.org, terry@organicexchange.org,
info@fairtrade.net


TO: PAN-UK

ATT: SIMON FERRIGNO ( in charge of cotton issues)


Mr. Ferrigno,


Re: “ Clean” clothes


A number of garment companies targeting a rising number of environmentally and socially conscious consumers in the West are selling “clean” clothes– i.e, clothes supposedly produced in an environmentally sustainable manner and in a non-exploitative social manner- and labeling and marketing their garments as “organic” “ethical", "alternative" or "Fair Trade”.

As far as the environmental aspect of cotton production is concerned, companies dealing with organic cotton are indeed making a significant and positive environmental impact - as clearly documented by a number of research - by helping farmers switch from the extremely environmentally damaging conventional cotton sector to the more environmentally sustainable organic cotton sector.


“Fair” price?

What is not so clear, however, is the so-called “Fair Trade” aspect of the venture. In fact, companies that market their garments under the “Fair Trade” label claim that the farmers from whom the cotton (both organic and conventional) has been purchased have been paid a “fair” price. One such company, MAX HAVELAAR, has recently ( this year) launched a line of “fairly” produced clothing bearing the “Fair Trade” label, although the cotton used is not organic. They claim that the West African cotton farmers from whom they purchase the cotton have been paid a “fair” price. Their definition of a “fair” price is a price which is around 20% above the “market” rate. In this case, the “fair” trade price paid by Max Havelaar to West African small-scale cotton farmers from whom they purchase the cotton is Euro 0,36/kg. The normal world market price paid to these same farmers was Euro 0,32/kg at that time. Thus, the difference or Fair Trade “premium” is only Euro 0,04/kg.


Answer

Information about the FT-prices paid by the producers clients (not MH is paying) you will find in the Fairtrade standards of FLO (www.fairtrade.net). The Fair-Trade-Price for cotton as well as for other products is fixed by FLO for a certain period (around two years). Every region (Africa, India ) has its own price. The price is counted bottom-up according to the costs of living in a region. The price is fair because it is counted bottom-up and because it is stable. If the world market price rises above the FT-Price, the buyers have to pay the higher price. Additionally there is also a Fair-Trade-Premium which goes to a special fund. Thus, the farmers have some extra money which is invested in better living and working conditions. For example wells, roads, medical treatment etc. So, the farmers get a stable price and the whole region can profit from the premium-projects.






Processing of cotton and manufacturing of garments?


Furthermore, Max Havelaar and other companies marketing and selling “Fair Trade” labeled garments do not provide any information on where and how the garments were made (i.e. the processing stages relating to the production of fabrics and garments ). Although the Fair Trade movement (FLO) has (recently) defined a set of Standards for the production of garments, there is no mention or information publicly available on the actual implementation, enforcement and independent monitoring of these standards.

Answer


There is no “standard for processed product situations” at the moment; but FLO is working on it. The overall aim of this project is to develop a standard that enables FLO to extend the impact of Fairtrade along the supply chain and to improve traceability of products in the chain. FLO expects to get stakeholders’ feedback during the next weeks on a first concept paper. The standard should be finished by the end of this year.

Max Havelaar Switzerland works with the FLO standard for fair-trade cotton. Furthermore we have our own monitoring system in order to control also the supply chain. The whole supply chain is controlled through external audits.



According to information published on FLO's website: "FLO guarantees that products sold anywhere in the world with a Fairtrade label marketed by a National Initiative conforms to Fairtrade Standards and contributes to the development of disadvantaged producers and workers."

Thus, consumers are made to believe that garments labeled as “Fair Trade” have been made according to Fair Trade non-exploitative standards, and " contributes to the development of disadvantaged producers and workers." However, there is no publicly available data to prove that claim. It would seem senseless ( if not dishonest ) to market and sell garments as “Fair Trade” simply on account of the so-called “fair” price paid to cotton farmers, and then use sweatshop or other exploitaive labor practices in the processing stages of the cotton and the manufacture the garments!

Answer

This is certainly not the case. Max Havelaar and FLO are well aware the process has to be controlled as well and we are working on this issue in order to consolidate the system.


In view of the above, the following questions arise:


1) Does the so-called “fair” price paid to small-scale cotton farmers in sub-Saharan Africa by Max Havelaar and other such companies labeling and marketing “Fair Trade” garments REALLY contribute to the economic and social welfare of the small-scale cotton farmers, as they claim? (no data available)


Yes, there is a contribution on two sides: The stable price is for the farmer, the fair-trade-premium is for projects. Furthermore the fair-trade-certification functions as a door to the European market. Take for example Senegal . Since they are fair-trade-certified they can sell their cotton to a big licencee in Switzerland . Since the cotton-project is new, we do not have impact stories on our website yet. But we know that in India f.e. they started first premium projects such as drinking water facilities.



2) The “market” rate which is used by Max Havelaar as a reference in setting the “fair” price paid to cotton farmers is distorted by global cotton subsidies, and as such is not an appropriate parameter to determine or set the so-called “fair” price. A “fair” price should rather be set based on the actual cost of production of the farmers, taking into account the realities of the global Terms of Trade faced by the farmers.

Answer

The price is calculated bottom-up and differs from country to country. You can check the actual minimum prices in the cotton-standards on www.fairtrade.net


3) Under this scheme, who benefits the most? The farmer who is paid a Fair Trade “premium” of Euro 0,04 cents/kg of seed cotton or Max Havelaar who labels and markets the garments at a much greater price in proportion to the “fair trade premium” paid to the farmers? What percentage does the “fair” price paid to cotton farmers represent in the final retail price of Fair Trade labeled garments sold to consumers in the West?

Answer

Max Havelaar does not market products. The final retail price is defined by our licencees, we can not influence the sales prices. The cost structure is similar to conventional imported products.



4) Simply buying the raw cotton from African cotton farmers and shipping it abroad for further processing (beyond ginning, and to a limited extent spinning as is currently done in sub-Saharan Africa), as is the case with Max Havelaar in Mali ( only ginning done locally- not organic), Boweevil in Uganda ( ginning and spinning to a limited extent) and Biore in Tanzania ( ginning only), fails to add-value locally to the cotton and as such fails to create much needed local employment and generate income along the supply chain and create economic growth within the sector – thus failing to “fight” poverty, contrary to claims made by these companies.

Answer

The complete supply chain of some of our partners is located in Africa (Marokko).



5) Fair Trade labels tend to limit their considerations strictly to the so-called “fair” price they pay the farmers and pay little attention in practice to the way the cotton is further processed along the supply chain ( i.e. spinning, weaving, knitting, dyeing & printing, garment manufacturing, etc.) Although Max Havelaar says that Fair Trade Standards have been recently defined for the processing stages of the cotton by FLO, no mechanisms have been put in place to effectively monitor and enforce these standards, as is reflected in the Clean Clothes Campaign overview presentation and remarks of “ethical” companies. ( see www.cleanclothescampaign.org).

Answer

Not true. See answer above.



6) Finally, as noted above, Fair Trade labeled garments do not necessarily integrate the environmental or ecological standards within their supply chains. Thus, while pretending to help the farmers, they do not help farmers improve the environment in which they work, by failing to help the farmers adopt organic sustainable practices in farming methods.

Answer

Some farmers are producing organic cotton and some conventional cotton. From the point of foreign aid it would not be a good point to restrict Fair-Trade to organic production since one would exclude many producers. The system wants to be open for all small farmers. However, the fair trade-standards and the criteria for the supply chain which takes SA 80000 as a reference include also ecological criteria. The farmers are assisted by promoting bodies.




7) Similarly, “organic” labeled textiles and garments fail to take into account the environmentally sustainable and the Fair Trade non-exploitative social aspect of production in the processing stages of the cotton. Thus, while improving farming methods, they do not necessarily improve the working conditions of those involved in the processing stages of the cotton and the manufacture of textiles and garments or the production methods themselves.


See answer above. The production chain is always controlled.




Are there any companies that respect both the ecological standards of organic cotton production as well as the non-exploitative Fair Trade social standards throughout their entire supply chain in the production of garments and textiles in sub-Saharan Africa ?

Answer

If you buy organic Max Havelaar-certified cotton you have both.




My response to Max Havelaar


Dear Mr. Weber,


Thank you for responding to my email dated 14 January with reference to the issue of “clean clothes”. I have noted down your answers and wish to briefly say the following.


It seems evident from your responses that the fair trade movement has yet to consolidate its action throughout the entire processing stages of the cotton supply chain in the production of textiles and garments to achieve a perfect balance between both the ecological aspects of (organic) cotton production and the social non-exploitative aspects relating to the processing stages of the cotton. However, I am happy to learn that Max Havelaar, FLO and other fair trade organizations are working towards achieving this end.


I. As far as the “fair” trade price of cotton is concerned:

I understand from your response that it is determined by FLO “bottom-up according to the costs of living in a region.”

According the FLO: "FLO guarantees that products sold anywhere in the world with a Fairtrade label marketed by a National Initiative conforms to Fairtrade Standards and contributes to the development of disadvantaged producers and workers."


However, it would be useful to evaluate the REAL impact this price has on improving the living standards of the small-scale cotton farmers in sub-Saharan Africa (SSA) using quantitative data. To my knowledge, there is no available quantitative statistical data to measure the real impact of the “fair” price vis-à-vis the cotton farmers, the cotton sector and the economies of the cotton producing nations in sub-Saharan Africa .


Finally, FLO should publish and make openly and publicly available the cost structure of the fair trade pricing mechanism along the entire supply chain so as to make the pricing process fully transparent. Furthermore, it would be useful to know what percentage the “fair” trade price paid to cotton farmers in SSA actually represents vis-à-vis the final retail price of the fair trade labeled garments sold to final consumers?


II. As far as the processing stages of cotton are concerned, you say:

You say:


There is no “standard for processed product situations” at the moment; but FLO is working on it. The overall aim of this project is to develop a standard that enables FLO to extend the impact of Fairtrade along the supply chain and to improve traceability of products in the chain. FLO expects to get stakeholders’ feedback during the next weeks on a first concept paper. The standard should be finished by the end of this year.

Max Havelaar Switzerland works with the FLO standard for fair-trade cotton. Furthermore we have our own monitoring system in order to control also the supply chain. The whole supply chain is controlled through external audits.


Unfortunately, Max Havelaar does not provide any information relating to the implementation, monitoring and enforcement of these external audits relating to the processing stages of the cotton along the entire supply chain. This information aught to be made publicly available to the public and to socially conscious consumers who purchase “clean” clothes.


Finally, you cite “Marokko” as an example of complete vertical-integration within the entire supply chain of cotton production in Africa: “The complete supply chain of some of our partners is located in Africa (Marokko).


Could you please tell me where I can get more information on “ Marokko”?.


My previous email and the following observations are not meant as criticism. They are only issues that I feel need to be raised and solutions found to if the Fair Trade movement is to effectively and successfully achieve its mission of combating poverty and helping the millions of small-scale farmers in sub-Saharan Africa and around the globe break free from the vicious (and ever-widening) cycle of poverty, misery and hunger.


However, I do not limit myself to pointing out the weaknesses within the system. I am also actively working at finding solutions. In fact, I have been conducting research on the collapse of both the cotton and the textile sector in sub-Saharan Africa . As you well know, the conventional cotton sector in SSA is near collapse mainly as a result of massive illegal cotton subsidies paid to cotton farmers in rich cotton producing nations and is seriously threatening the survival of both the cotton sector in SSA and the millions of farmers who rely on cotton farming for their livelihoods.


Structural over supply of cotton on the world market resulting from trade distorting cotton subsidies are driving down prices of conventional cotton on world markets, making it unprofitable for non-subsidized African farmers to grow conventional cotton, despite their absolute Comparative Advantage in growing cotton. As a direct result, the cotton sector in sub-Saharan Africa is near collapse and millions of small-scale cotton farmers throughout sub-Saharan Africa have been thrown deeper into poverty as they cannot sell their cotton on the world market.


Furthermore, the influx of cheap clothing from China and other high-volume/low-cost garment producing nations in the Far East coupled with the massive influx of cheap used clothing “dumped” across Africa over the last three decades have led the collapse of the entire textile sub-sector in SSA, further deepening the crisis within the entire sector. This has led to massive job losses within the entire textile sector, from cotton growing to garment manufacturing.


Finally, the expiry of the Multi Fiber Agreement (MFA) on 01 January 2005 and the expiry of the 3rd Country Clause of the African Growth and Opportunity Act (AGOA) in September 2007 is further threatening the future of the textile sector in SSA and the jobs of those employed within this industry.


Given the grim future prospects facing both the cotton sector and the textile industry in SSA, it is crucial and urgent to find and implement solutions to prevent the total collapse of these vital sectors.


I am presently working on a project to revive both the cotton and the textile sector in sub-Saharan Africa . Based on the findings and the evidence from organic cotton projects worldwide and in Africa, organic cotton production is proving to be an economically, socially and environmentally viable alternative to revive the cotton sector in sub-Saharan Africa . However, although organic cotton provides an economically viable and environmentally sustainable alternative for cotton farmers in Africa, efforts must be made to further process the organic cotton locally, from spinning yarn to weaving cloth to manufacturing garments, so as to create employment and generate income along the entire supply chain.


Processing the organic cotton locally would add-value to the cotton thus enabling African cotton producing and exporting nations to break free from the vicious cycle of cotton subsidies and from the dictates of the world market. Furthermore, adding value locally would create local employment and generate income throughout the local supply chain –from cotton growing to garment manufacturing – and enable African cotton producing nations to achieve self-sufficiency in garment production and consumption, thus saving much needed scarce foreign exchange currently being depleted to import (used) garments for local consumption. Thus, the production and local processing of organic cotton would revive both the cotton and the textile sector and positively reduce poverty among the local population.

I wish and aim to lay the foundation for the revival of both the cotton and the textile sector in sub-Saharan Africa through the development of a vertically-integrated economically viable, socially non-exploitative and environmentally sustainable textile and garment industry in sub-Saharan Africa- from organic cotton growing to garment manufacturing- for both local & regional consumption and export markets, while respecting both the ecological standards of production as well as the non-exploitative social standards set by the Fair Trade movement, thus reaching a perfect balance between ecological standards of organic production and Fair Trade standards throughout the supply chain in the production of garments and textiles. This would set a new standard and an example in the global textile industry and garments thus produced would find a ready local, regional and export market within the growing number of socially and environmentally conscious consumers worldwide.

Hopefully my observations will serve as constructive input for both the organic and the fair trade movement for the welfare of the cotton farmers and cotton producing nations in sub-Saharan Africa and throughout the world.

Regula Weber a écrit :

Dar Mr. Tajdin

Thanks for your response which I am going to forward to the communication department of FLO.
Kind regards
Regula Weber
----------------------------------------------
Regula Weber Engweiler
Marketing/ Kommunikation
Max Havelaar-Stiftung (Schweiz)
Hornbachstrasse 50
CH-8034 Zürich
Tel.: ++41 (0)44 389 84 73
Fax: ++41 (0)44 389 84 14
Mail: r.weber@maxhavelaar.ch
Web: www.maxhavelaar.ch














































































 


















 

Can Equitrade REALLY "end poverty..."?

I have recently discovered a new trading concept called "EQUITRADE" which claims that it can "end poverty..." According to information published on its website ( www.equitrade.org ), it claims that:
“ Equitrade facilitates added value international trade to end poverty in poor nations and aims to end poverty through sustainable commercial international trade.” It further claims that "Equitably traded product creates a more equitable share of the value for the poor nation", by adding-value to local commodities in the country of origin, instead of exporting raw agricultural commodities to be processed in the industrialized countries.
Please see www.equitrade.org for details.

Unfortunately, there is no quantitative data to support the poverty eradication rhetoric preached by the Equitrade model. I have written to Equitrade to obtain quantitative data, figures and facts to demonstrate how the wealth generated though local value addition is shared equitably, “more widely” and “fairly” among the different local actors within the supply chain ( i.e cocoa farmers, plantation laborers, factory workers, etc.), thus allowing to effectively and accurately measure the impact of this model on "ending poverty".

Unfortunately (but not surprisingly), Mr. Terry Horne ( Chairman of Equitrade and of Malagasy (the first Equitrade chocolate company in Madagascar) has failed to provide quantitative data, figures and facts to support his poverty eradication rhetoric.

Please find below a copy of the letter addressed to Mr. Terry Horne on this and other important issues and questions relating to the Equitrade model and his response. I welcome your comments and reflections. Thank you.

COPY OF LETTER ADDRESSED TO EQUITRADE AND RESPONSE BY MR TERRY HORNE, CHAIRMAN OF EQUITRADE AND OF MALAGASY.

---------- Original Message ----------------------------------
From: Arya
Date: Fri, 18 Aug 2006 13:51:47 +0200 (CEST)

>TO: EQUITRADE
> Langthwaite House
>Lancaster
>LA2 9EB
>United Kingdom
>
> To whom this may concern,
>
> I have recently discovered and read about the "equitrade" trading system. I agree in principle that the solution to reducing poverty in so-called developing nations is to add-value locally to primary commodities. However, I would like to get more information on this initiative as I could not find any information relating to the following important issues:
>
> 1) Equitable distribution of wealth generated through local value-addition
>
> According to information published on your website, you claim that: "Equitably traded product creates a more equitable share of the value for the poor nation".
>
> However, could you provide quantitative data to demonstrate how the wealth generated through local value addition is shared among the different local actors throughout the local supply chain ( i.e. farmers, laborers, factory workers, etc.) Furthermore, how is the price paid to local farmers for their commodities determined (ex: cocoa in Madagascar) and what percentage does the price paid to farmers for their commodities represent vis-a-vis the final retail price of the final product sold to consumers? What is the average monthly wage paid to factory workers in your chocolate factory in Madagascar?
>
> 2) Martket access
>
> How does Equitrade overcome the insurmontable trade barriers ( i.e. escalating tariffs, import tariffs, quotas, etc. ) erected in industrialized countries such as the EU against value-added products originating from developing nations?
>
> 3) Local tax revenue
>
> In your model, ( with the madagascar chocolate example), 11% of the revenue generated from local-value addition would be allocated to tax revenue for the government with the stated objective to: "Pay local taxes in a due and timely manner, so that education and health needs can be funded by local government."
>
> How can you guarantee that this amount will in fact be dedicated to "education and health" and other social development projects by the recipient government? What mechanisms have you put in place to make sure that the tax revenue generated from your project will indeed benefit the local population and serve the development needs of the country as a whole?
>
> I thank you for shedding some light into these interrogations and I look forward to hearing back from you in the near future.
>
> Best regards,
>
> Arya Tajdin.
> An environmentally and socially conscious global consumer.

>Dear Arya Tajdin,

Thank you for your interest in Equitrade and your interesting and useful questions.
Not all your questions are new and many we have needed to ask ourselves. Some we have answered already for other organizations.

I will take your questions in the order they appear in your letter:

1. Distribution of Wealth
(a) Share between farmers and labourers
We encourage the formation of co-operatives, governed by the rules of the International Cooperative Movement. Cooperative surpluses are shared between farmers and labourers, according to these rules.

(b) The price paid for commodities e.g. fermented cocoa beans in Madagascar
The price is determined by local market conditions and, since Malagasy have the opportunity to add value locally, Malagasy can afford to pay more than the export agents. This is turn enables growers to bargain for a better price from the exporters, since they have an alternative outlet.

Last year, beans typically traded at around £400 a ton (a premium over average world commodity prices-perhaps because of our promotion of Malagasy chocolate and Madagascar products generally?).

Fairtrade buyers (mainly from France) paid around £500 a ton-a premium of around 20-30%.

At the moment, we are paying the farmers about £600 a ton which is better than the best
fair-trade price available in Madagascar.

(If market conditions so dictated, Malagasy might be able to pay up to £800 a ton (double the world commodity price for similar beans) and still create sufficient added value in the Malagasy chocolate factory to support its inward investment in market and product development. This would again increase the bargaining power and price for other growers and pickers on the island and could positively affect the world price of beans, especially Criollo beans).


(c) The percentage of the final consumer price
As a percentage of what?
Equitrade cannot control the end prices paid by consumers- that is determined by retailers.

When Malagasy Mora Mora chocolate sells at a premium in gourmet London West End shops like Fortnum and Masson, that makes the percentage paid in Madagascar seem smaller, but when Sainsbury retails a 100gram bar for £1.27, or Booths wish to do a promotion of 2 bars for £2, that makes the local percentage seem higher. What Malagasy people need, is not percentages, it’s money. And that amount of money stays the same, whatever the retailer does.

The money received is about 10 times more than the money previously received for unprocessed beans. The percentage that that money represents of the UK consumer price, depends on the promotional policies of the UK retailers.

Equitrade cannot (and do not wish to) control the pricing policies of retailers. That is the retailer’s business and the retailer’s expertise.

(d) The average monthly wages paid to factory workers in Madagascar

Again these are determined by local market conditions. Any different arrangement would make Equitrade an unsustainable solution to poverty.
Having said that, Malagasy factory workers earn about 5 times more than pickers and growers. On the other hand, the living costs of factory workers are higher. Unlike their rural cousins, they need to rent housing and pay for utilities, electricity, local taxes etc. Their rural cousins often have no utilities and often their taxes are not collected.

[Incidentally, Arya, teams of investigative journalists from the Guardian newspapers group have visited the growers and the pickers, the plantations and the factory, and have written lengthy (and positive) evaluations of the quality of Malagasy and the economic impact of Equitrade. Perhaps, you can trace their reports on their websites (www.societyguardian.co.uk and www.observer.co.uk/food-monthly)]

2. Market Access
How does Equitrade overcome insurmountable trade barriers?
Equitrade does not overcome insurmountable trade barriers.

By definition, if the barriers are really insurmountable, Equitrade cannot surmount them.

In the case of Malagasy chocolate, marketing techniques were used to create consumer demand and an economic case for entry to the European market. EU officials were very helpful- they too have targets to meet for percentages of trade from developing countries and many local government authorities have set targets for the availability of Fairly Traded or Ethically Traded goods in the towns and cities for which they are responsible.

For example, our local town, Garstang, was the first Fair Trade Town in the world, and Preston, our nearest large city, has just become the 50th Fair Trade City in Europe. [Incidentally, Arya, the limitation on the spread of Ethical status to EU towns and cities is availability of supply!].

In the case of dairy products, the barriers remain unsurmounted, for the moment. Madagascar does not collect sufficient tax to provide the veterinary control infrastructure required to meet EU standards. (Eventually, Equitrade will help with that, because factory processors are easier to tax than rural pickers .You cannot pick up a factory and disappear with it into the forest!).

Equitrade is based on Noetic Applied Thinking (see www.noeticassociates.co.uk) and ways have been found through the barriers that could not be surmounted.

For example, the populations in the rural areas- especially in the coastal forest- were found to be decalcified. Cows were imported from New Zealand and ways found to keep them cool. Cheese and yoghurt are made from the milk. Cheese and yoghurt can be traded for commodities which can be processed and exported to the EU. In this way, hard currency is still earned for Madagascar and the bones of the Malagasy children are healthier on the higher calcium diet.

3. Local Tax Revenue
Can Equitrade guarantee that tax will be spent on education and health

No, Equitrade cannot guarantee that tax will be spent on education and health.
What we can say is that no taxes collected equals no pay for teachers and doctors.
When there is tax revenue, the people in developing countries want it to be spent on health and education, not on arms and palaces, for example. The task is to help government to be more responsive to the wishes of their people.
Noetic analysis indicates that political change is more likely to follow economic change and that economic change is more likely to be led by technological change. Hence, Equitrade emphasizes the use technology and knowledge transfer, especially marketing knowledge, to enable the economic retention of higher added value in developing countries. Political changes driven by government’s desire or need, to please or appease, the people, will follow (as Noetic thinking predicted they would in Eastern Europe, and today predicts that they will do in China).

In the case of Madagascar, workers in food factories helped to organize the rural vote for a democratic President. As the time now approaches for the President to seek re-election, the President is able to demonstrate to the people the progress that has been made in the areas of jobs, health and education.

Finally………………,
I am sure that our responses are not all that you hoped or expected.

However, we do hope that you will continue to help us think about the important issues which your useful questions have raised. You ask questions that are already in our minds and surely, in the minds of others.

May we print your letter and our reply (and perhaps your subsequent responses!) on our website?

Thank you.
Terry Horne
Chairman, The Equitrade Foundation


COPY OF MY RESPONSE TO MR. TERRY HORNE'S ABOVE RESPONSE

Dear Mr. Terry Horne,

Thank you for your response to my inquiry dated 18 August with reference to Equitrade. I have gone through your answers to each one of my specific questions, but unfortunately you did not provide answers to the following formulated specific questions:

1) Equitable distribution of wealth generated through local value-addition


Previously formulated question:

According to information published on your website, you claim that: "Equitably traded product creates a more equitable share of the value for the poor nation". However, could you provide quantitative data to demonstrate how the wealth generated through local value addition is shared among the different local actors throughout the local supply chain ( i.e. farmers, laborers, factory workers, etc.)

Your answer

1. Distribution of Wealth

(a) Share between farmers and labourers

We encourage the formation of co-operatives, governed by the rules of the International Cooperative Movement. Cooperative surpluses are shared between farmers and labourers, according to these rules.

There is no available information on your above-stated claim in your model (i.e. what mechanisms have you put in place to encourage the formation of co-operatives? Furthermore, are these cooperatives encouraged to take part in value-addition activities ( if so, what support do you or your model provide to enable cooperatives to process & market processed commodities?) or is their role simply to supply Equitrade companies such as Malagasy with non-processed primary commodities?

With reference to my initial question:

According to quantitative information published on your website, you claim that under Equitrade ( with the Malagasy chocolate example/model), 51% of the value of the product is retained in the country of origin, out of which 11% of the revenue generated is paid in taxes to the government and the remaining 40% is retained and distributed within the local supply chain.

QUESTION?
Local value-addition wealth distributional breakdown

Can you provide quantitative data to demonstrate how the 40% wealth generated through local value addition is distributed among the different local actors within the local supply chain: (i.e farmers, pickers, etc., transporters, factory workers, etc.)?


Previous question: How is the price paid to local farmers for their commodities determined (ex: cocoa in Madagascar)


Answer

The price paid for commodities e.g. fermented cocoa beans in Madagascar
The price is determined by local market conditions and, since Malagasy have the opportunity to add value locally, Malagasy can afford to pay more than the export agents. This is turn enables growers to bargain for a better price from the exporters, since they have an alternative outlet.
:
Since prices of primary commodities “dumped” (i.e. sold at prices below and unrelated to the cost of production) on the world market are distorted by global agricultural subsidies (+300 billion/year), using “local market conditions” ( which are simply a reflection of world market commodity prices) to set prices of local commodities seems an inappropriate and an ineffective approach to “end poverty…” since ruinously low world commodity prices are at the root cause of poverty in rural economies around the world.

Agricultural subsidies leading to structural over-supply are at the root cause of declining agricultural commodity prices on the world market, with disastrous economic and social consequences for small holder farmers living off agriculture and for the countries producing and relying heavily on the export revenue from these commodities. Furthermore, declining world prices lead to further increases in production to make up for the loss in income resulting from lower prices, which in turn leads to further over-supply and further price declines. This is a vicious cycle.

Example: Ghana (2nd largest producer of cocoa in the world)

In response to declining prices of cocoa on the world market, Ghana increased its production from 320,000 MT to 450,000 MT between 1996 and 2000. This led to an excess supply of cocoa on the world market, with a resulting further 40% decline in the price of cocoa during the same period.

“Structural over supply in the commodity market lies at the heart of global poverty and instability.” ( Brandt Report, 1980)

Setting prices of local commodities based on actual local cost of production (using –non-exploitative labor practices) seems – in my humble opinion - like a more appropriate and consistent approach to attain your ambitious stated aim “to end poverty through sustainable commercial international trade.

Also, can you please provide quantitative data relating to the actual cost of production for small-scale cocoa farmers in Madagascar?

Also, what percentage of the cocoa currently processed by Malagasy is respectively grown by small-scale cocoa growers and by private cocoa plantations?

Question: what percentage does the price paid to farmers for their commodities represent vis-a-vis the final retail price of the final product sold to consumers?

Answer:

The percentage of the final consumer price

As a percentage of what?

Equitrade cannot control the end prices paid by consumers- that is determined by retailers.When Malagasy Mora Mora chocolate sells at a premium in gourmet London West End shops like Fortnum and Masson, that makes the percentage paid in Madagascar seem smaller, but when Sainsbury retails a 100gram bar for £1.27, or Booths wish to do a promotion of 2 bars for £2, that makes the local percentage seem higher. What Malagasy people need, is not percentages, it’s money. And that amount of money stays the same, whatever the retailer does. The money received is about 10 times more than the money previously received for unprocessed beans. The percentage that that money represents of the UK consumer price, depends on the promotional policies of the UK retailers. Equitrade cannot (and do not wish to) control the pricing policies of retailers. That is the retailer’s business and the retailer’s expertise.

Let me rephrase this question:

What is the percentage cost of the price paid to farmers for their cocoa vis-à-vis the export price (FOB Madagascar) of the chocolate produced and marketed by Malagasy?

Question: What is the average monthly wage paid to factory workers in your chocolate factory in Madagascar?


Answer:

(d) The average monthly wages paid to factory workers in Madagascar

Again these are determined by local market conditions. Any different arrangement would make Equitrade an unsustainable solution to poverty.
Having said that, Malagasy factory workers earn about 5 times more than pickers and growers. On the other hand, the living costs of factory workers are higher. Unlike their rural cousins, they need to rent housing and pay for utilities, electricity, local taxes etc. Their rural cousins often have no utilities and often their taxes are not collected.

Question 2:

Can you provide quantitative data (i.e. actual average monthly salary paid to Malagasy factory workers, farm/plantation laborers, and other local laborers working within the supply chain.)


[Incidentally, Arya, teams of investigative journalists from the Guardian newspapers group have visited the growers and the pickers, the plantations and the factory, and have written lengthy (and positive) evaluations of the quality of Malagasy and the economic impact of Equitrade. Perhaps, you can trace their reports on their websites (www.societyguardian.co.uk and www.observer.co.uk/food-monthly)]

I read with great interest all the articles written on the Equitrade model (with Malagasy taken as a reference) in both the sources quoted above. Unfortunately, I did not find any quantitative data to support the “poverty eradication” rhetoric that your model preaches… Hopefully you can support these claims with supportive quantitative data.

Final words…

lthough I agree in principle that the solution to breaking the vicious cycle of poverty in sub-Saharan Africa - and in other non-industrialized countries heavily dependent on producing & exporting non-processed agricultural commodities - is to process their commodities locally so as to break free from the dictate of the world market and from the vicious trap cycle of trade distorting global agricultural subsidies, which result in continuously declining prices of commodities on the world, thus further marginalizing and impoverishing small-scale farmers throughout the so-called “Third World”.

However, what I question in Equitrade is the EQUITABLE DISTRIBUTION of the wealth generated from local value-addition among the poor local economic actors throughout the supply chain (i.e. farmers, laborers, factory workers,etc.) Local value addition without distributional justice in the wealth created will NOT “end poverty” contrary to claims made by Equitrade. Hopefully, you will provide quantitative data – with quantitative figures and facts – to support these claims and demonstrate the real economic benefits that Equitrade brings to those it claims to help – the millions of poor who are daily exploited, marginalized and excluded from the fruits of global trade.

I look forward to hearing back from you in the near future.

p.s. You are welcome to publish my inquiries and your responses on your website or on any other media. Thank you for informing me and providing the reference of the source if you chose to do so. Thank you.

Truthfully,
Arya.

COPY OF EMAIL ADDRESSED TO GUARDIAN AND OBSERVER NEWSPAPER RECENTLY WITH REFERENCE TO THEIR ARTICLES OF EQUITRADE. ( Have not heard back from them yet; will post their response as soon as I get it).

September 24, 2006

TO THE GUARDIAN & OBSERVER


I am writing to you with reference to a series of articles published in the Guardian on Equitrade and the Malagasy chocolate model in Madagascar. In an article called “A square deal” written in the Observer by Lucy Siegle on August 21, 2005, Terry Horne of Noetic Associates (also the chairman of Malagasy) is quoted as saying that “ equitrade will eradicate poverty in Madagascar in 10 years.”

Andrew Purvis, in his article on Equitrade published in the Observer on August 14, 2005, further writes:

“Terry Horne has advised Tiko ( a company owned by president Ravalomanana of Madagascar) on the management of its factories and shared with President Ravalomanana his strategy for ending poverty in Madagascar.”

Excerpts of the article on Equitrade/Malagasy titled “Full of beans” by Andrew Purvis

“It is one of the poorest countries on earth, but a chocolate production scheme that involves local people, from growing the beans to shipping the finished product to Fortnum & Mason, could make poverty history on one tropical island, discovers Andrew Purvis

If a system new to Britain, called Equitrade, takes root on the Indian Ocean island 250 miles off Africa, its people could shake off the legacy of being among the poorest 10 nations on earth - by making gourmet chocolate. Jaomanoro's daughter, Rasoaricalaina Anistitia, 15, could realise her dream of becoming a doctor instead of helping with the cooking at home; her mother, Volanosy Augustine, could feed her four children better. Young men such as Tsiminday Wenceslas, 21, might finish their education and not feel compelled to work through their teens. 'It's a back-breaking job,' he says, 'helping my father on the plantation. I cut down 750 pods a day and carry them in 50kg sacks, so I have to be fit….Yet these farmers are the lucky ones…Fifty per cent of Madagascar's population earn less than one US dollar per year, scratching a living from the parched red earth or feeding themselves by fishing. In coastal areas especially, Madagascar seems like a palaeolithic time warp, the fishermen returning by dugout canoe to primitive huts of mud and reeds, lit by lanterns and without running water.

Even in the capital, Antananarivo - a shadow of its French colonial past, and brought to its knees by frequent power cuts - people go to extraordinary lengths to earn a crust. When we stop at traffic lights, our 4x4 is besieged by children begging and there are other signs of inventiveness - or desperation. On one side, men shuffle through the rain carrying garbage and bales of collapsed cardboard boxes on their shoulders, hoping for a resale. On the other, a young mother stands under an umbrella with her toddler, trying to sell two bananas and a handful of cashews. She is unlikely to make a dollar a day - the minimum required for a city dweller, according to aid workers.

All this could be about to change, however - thanks to a British management firm, Noetic Associates, which is advising Madagascar on how to bring its quality foods to the European market. It has helped set up Malagasy, a company that sells and markets finished chocolate bars. under the system known as Equitrade. A distant cousin of Fairtrade, equitable trade (to use its full name) is likely to bring huge financial benefits to the people of Madagascar - simply by dealing in finished, packaged products rather than cash crops like cocoa beans.

According to Neil Kelsall, Malagasy's marketing director,With Equitrade, the proportion of revenue remaining in Madagascar would be 51 per cent (87p per bar) - 40 per cent in added value retained by the manufacturer and packager, plus a further 11 per cent paid by them in taxes to the Madagascar government. This would then be reinvested in the country's Equitrade business.

'All it would take to end poverty in Madagascar is £750m a year,' Kelsall maintains, 'but there aren't enough cash crops to do that.' Ninety per cent of the cocoa grown on the 6,000-hectare plantation that Malagasy uses in Ambanja goes to the northern hemisphere. 'If we changed all that to equitable trade, poverty would be ended,' says Kelsall.

Eequitable trade relies on private companies - and national governments - to distribute 'added value' fairly. It is a capitalist system that lacks transparency but, by maximising the money in the economy, is said to benefit more people than Fairtrade.

The idea that Equitrade can end world poverty is an important change in the message coming from the northern hemisphere. Before, it was all about cancelling the debt of poorer countries which, in my view, isn't the right way forward. Now, it is about those poorer countries actually helping themselves, working with private enterprise to end poverty.' says Marcel Ramanandraibe, head of the group,

Finally, in another article called “ New Choc on the Block” published in The Guardian Society by John Vidal on May 25, 2005, Vidal writes “According to Neil Kelsall, Malagasy's marketing director, “Equitrade tries to improve the quality of life of the majority of people in a poor country by increasing the money in the economy…We need more companies to add value in poor countries. That way the benefits are shared more widely and more tax can be collected.

REFLEXIONS/QUESTIONS?

Terry Horne of Noetic Associates and chairman of Malagasy claims in the above quoted article that “ equitrade will eradicate poverty in Madagascar in 10 years.”

Neil Kelsall, Malagasy's marketing director, says that “equitrade tries to improve the quality of life of the majority of people in a poor country by increasing the money in the economy….We need more companies to add value in poor countries. That way the benefits are shared more widely and more tax can be collected.

Marcel Ramanandraibe, head of the group says that “the idea that Equitrade can end world poverty is an important change in the message coming from the northern hemisphere. Before, it was all about cancelling the debt of poorer countries which, in my view, isn't the right way forward. Now, it is about those poorer countries actually helping themselves, working with private enterprise to end poverty.

Furthermore, the Equitrade website ( www.equitrade.org) claims that “ Equitrade facilitates “added value” international trade to end poverty in poor nations” and “aims to end poverty through sustainable commercial international trade.”

Unfortunately, there is no quantitative data to support the poverty eradication rhetoric preached by the Equitrade model. I have written to Mr. Terry Horne to obtain quantitative data to demonstrate how the wealth generated though local value addition is shared “more widely” and “fairly” among the different local actors within the supply chain ( i.e farmers, farm laborers, factory workers, etc.), thus allowing to effectively and accurately measure the impact of this model on poverty alleviation.

Unfortunately (but not surprisingly), Mr. Terry Horne has failed to provide quantitative data, figures and facts to support his poverty eradication rhetoric. I am also disappointed to read the same poverty eradication rhetoric in your articles on Equitrade without ANY quantitative data, figures and facts to support these claims.

I am hereby enclosing a copy of the letter addressed to Mr. Terry Horne on this and other important issues and questions relating to the Equitrade model and his response.

Hopefully, you too ( Andrew Purvis) can provide some facts and quantitative figures to support your claims on how Equitrade “could make poverty history on one tropical islands…” and “ is likely to bring huge financial benefits to the people of Madagascar…”

I look forward to hearing back from you in the near future.

Truthfully,

Arya Tajdin.


A seeker after Truth...

THE WORLD IS NOW TOO SMALL FOR ANYTHING BUT TRUTH…