Free Trade, Fair Trade, Direct Trade: What’s the Difference?
By Amy Carniol | October 10, 2011 at 6:30 am
We all want to do our part for the world, but sometimes it’s not so simple. Socially conscious consumers have to navigate through store shelves sporting abstract terms like Free Trade, Fair Trade and Direct Trade. Deciphering these labels can be confusing, and misunderstanding them can prevent us from helping those in need. So what does each of these terms mean? How are they similar? How do they differ? We spoke with Fair Trade USA to help break it down for us.
Free Trade
Free Trade is the economic theory that the market should be allowed to flow without government intervention. This laissez-faire theory aims to reach market equilibrium – where supply meets each demand.
Historically, Free Trade has left small-scale producers behind as large, subsidized companies start to take over their industries. While large contracted farms can afford to sell commodities at lower prices, local farmers, who have traditionally supplied these products, are driven into debt. The only way these farmers can compete with subsidized farms is to lower their product prices to the point where labor is free and quality of life is unsustainable. Small producers lack information on the real market value of their commodity, which easily makes them victims of unfair market deals that take advantage of their inexperience. Additionally, these farmers often lack access to credit and are forced to take quick cash from buyers who offer to pay a fraction of what their crop is worth.
Fair Trade
Fair Trade helps level the playing field by equipping the farmers with the information and training they need to receive fair prices for their products. The Fair Trade system aims to provide greater market access to farmers, which gives them a larger say in how much their product is worth. Fair Trade is “market-based” because it relies on socially conscious consumers to support the movement by purchasing Fair Trade products. Through their conscious purchases, consumers tell companies that they care about the farmers and workers who produce their products. Fair Trade aims to address the underlying inequities caused by poverty and lack of access to market information that Free Trade ignores.
Direct Trade
Direct Trade focuses on delivering the best quality products to consumers by enabling farmers to deal directly with buyers, thus retaining more value in the supply chain. In this way, Direct Trade is similar to Fair Trade. But Fair Trade is interested in developing and delivering quality as a means to alleviate poverty and improve the overall quality of life for rural farmers. For this reason, you’ll only find a premium for community investment when you buy Fair Trade items.
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