Tuesday, May 1, 2012

Kiva Innovations: Lending to support fair trade

Money is power -- and the way we use it has consequences

When you're scanning the aisles of your local super market or checking for sizes at the department store, it's easy to forget that everything we buy has been produced by someone. Even with my background in development, I rarely think about the individuals who planted, tended and picked my coffee, or sewed my underwear. More importantly, I forget that they only earn a small share of the money that I spend to buy those things.

But as the global economy sputters, demand for cheaper goods is on the rise. When prices drop, so do incomes for the people making these goods. Today, many aren't making enough to sustain their families or meet basic needs like food and health care. Meanwhile, the multi-national distributors and brokers that buy and sell consumer products are registering record profits.

Fair trade practices eliminate these middlemen, providing an alternative, more equitable system that connects producers and consumers for mutual benefit.

The fair trade system ensures that individuals at every step of the supply chain receive fair wages, that workers and their communities are treated with dignity, and that artisans take steps to preserve the natural environment during production.

This flow chart demonstrates the contrast between supply chains:

Fair trade supply chain:

Producer>> Fair trade distributor >> Store >> You!

Conventional supply chain:

Producer >> Middle-man buyer >> Processor >> Exporter >> U.S. broker >> Multi-national corporation >> Distributor >> Store >> You

So far, the "Make trade fair" movement has focused on commodities like coffee, chocolate and cotton. But recently, a growing number of nonprofits and academics have started taking a closer look at how fair trade can help artisans who produce goods like apparel, accessories, jewelry, toys, fine art and household products.

For many years, these artisan trades have offered profitable alternatives to seasonal agriculture and tourism work for the very poor in developing countries. But by the turn of the century, artisans all over the world were losing their local customers to cheaper, mass-produced products flooding their markets (a process called dumping). To survive, many artisans must sell to tourist and export markets.

As a result, many of them have started producing goods that are more "traditional" or "ethnic" to appeal to non-local consumers. This shift has been the subject of heated debate. Some say the trend has done more harm that good, effectively commodifying producers and their cultures as static and primordial. But these arguments often fail to address the structural inequalities that cause rural poverty and diminishing returns for poor producers in the first place.

Encouraging production of artisan goods is a measured response to these structural inequalities. Kiva believes that the expansion of artisan good markets will help producers diversify beyond "typical" cultural or ethnic goods, especially as consumers become more conscious of their purchasing power.

In many ways, consumers have already made these connections with commodities. Stores have gone beyond stocking fair trade goods like coffee and chocolate to offer fair trade flowers, wine and even soccer balls in response to demand.

Kiva is also doing its part to help artisans take advantage of fair trade movement. We're looking to partner with organizations that provide loans and services to help artisans bring their goods directly to global consumers via the internet or other channels.

Right now, we're launching a partnership with Novica, an online marketplace that connects local artisans directly with global consumers. It will start offering Kiva loans to help these artisans start and grow their businesses. In the future, it might even be possible for lenders to buy products created by the people they help fund.

Kiva is working with La Union Regional, a fair trade-licensed coffee cooperative in Veracruz, Mexico. This organization helps member farmers take out loans to increase coffee production and convert to higher-yield organic practices.

So when you go home tonight, look around your apartment, in your refrigerator, your closet, at the art on the walls -- think for a moment about where it all comes from and ask how much someone got paid to make it. I know I will.

Ian Matthews is an intern on Kiva’s strategic initiatives team, looking for new partners and loan products to extend opportunities and access to even more people around the world. Ian has an MSc in Global Politics from the London School of Economics and Political Science, and has previously done field work in Honduras. Send him your feedback on this blog series at blog@kiva.org.

This is part of a larger series on Kiva’s strategic initiatives and innovative loan products, which are designed to expand opportunities for more borrowers. Kiva is excited to partner with companies and organizations encouraging fair trade practices.

photos courtesy of JJ Casas, Umair Mohsin, Lost in Transliteration , IMs Bildarkiv, Ava Weintraub