18 Feb 2019

‘Now we are leaders’: Looking more closely at the power of the Fairtrade Premium

Fairtrade farmers and workers have earned well more than half a billion euros in Fairtrade Premium funds in the past five years alone, which they spend on projects of their choice. We wanted to know: how exactly do producers decide on how to spend their Premium? What do they value most? And what are the deeper impacts that Fairtrade Premium has on their lives?

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Jose Victor, a cocoa farmer in Peru, benefits from increased productivity and more efficient water use thanks to an irrigation system bought with the Fairtrade Premium.
Image © Luca Rinaldini

School scholarships. A processing plant. A medical centre. A factory to produce biofertilizers.

These are just some of the investments that researchers explored as part of a study we commissioned to look more deeply at the Fairtrade Premium and what it means to farmers and workers. The French research institute LISIS analysed data on Fairtrade Premium, and did a deeper dive with five Fairtrade certified producer organizations through site visits, interviews and workshops with organization management, farmers and workers. The Fairtrade certified organizations included both farmer cooperatives and plantations, and spanned a range of products in Africa and Latin America: a coffee/cocoa small-scale producer organization (SPO) in Peru, a union of cocoa cooperatives in Côte d’Ivoire, a banana SPO in Ecuador, a banana SPO in Peru and a flower plantation in Kenya.

Most Premium is spent on services for farmers and workers, followed by investment in cooperatives

Overall, between 2011 and 2016, organizations chose to spend 52 percent of their funds on services for farmers and workers, which include things like direct cash payments, as well as agricultural tools, fertilizer or loans.

School scholarships and health care services were some of the highest valued Premium projects according to those interviewed.

Economies of scale can be made possible through Fairtrade Premium. For instance, the Kenyan flower workers purchased efficient cookstoves in bulk with their Premium and offered them for reduced price to employees. This Fairtrade Premium Committee also purchased a piece of land and sold parcels to workers at about a third of the market price, enabling them to own land that would otherwise be unaffordable.

Another 35 percent of Fairtrade Premium funds were spent to strengthen farmer cooperatives themselves. This includes things like building processing facilities, paying office costs, financing debt and conducting training for management and employees of the cooperative.

The banana cooperative in Ecuador worked with the regional Fairtrade Producer Network to build a factory to produce biofertilizers, compost and other products. Farmers save money by purchasing these at lower-than-market rates, and could eventually sell the outputs externally to generate additional income for the cooperative. The farmers’ environmental impact is also reduced by avoiding contaminants.

Nine percent of Premium funds were spent on community projects such as health and education infrastructure, water and sanitation, or community environmental projects.

When the researchers analysed the theoretical pathways of how Fairtrade Premium influences change that carries forward to broader impacts, they found that investment in well-managed and democratic producer organizations offer the most pathways to those bigger-picture impacts. Still, the decision on where to invest Premium funds is left to farmers and workers since they understand best heir own context.

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Linet participates in a training for flower workers in Kenya, which included how to manage and make decisions on using the Fairtrade Premium.
Image © Ola Höiden

The ‘how’ is as important as the ‘what’

One of Fairtrade’s goals is empowerment of small producers and workers. Making decisions about how to use the Fairtrade Premium is a core responsibility of – and opportunity for – producer organizations. Fairtrade certified organizations are audited to make sure that they develop a development plan that includes how they will spend their Premium for the year, and that the General Assembly of the organization approves it. At plantations, workers must set up a Fairtrade Premium Committee and separate bank account with multiple signatories to manage the Premium funds.

Beyond what is required by Fairtrade Standards, each organization decides how exactly to engage its members in creating its development plan.

For instance, the large Ivorian cocoa union has set up a finely tuned system to gather input from groups of farmers within a cooperative, and feed it up to the union level. This requires investment in human resources but enhances the flow of information. At smaller organizations, such as the Peruvian banana cooperative, members can participate directly in the annual General Assembly and voice their input.

According to the study, the more that farmers and workers can be involved in Premium decision-making, the more each organization’s plan for Premium use will match their constituents’ priorities.

Even more than that, the researchers suggest that strengthening Premium management processes fosters the structures necessary to make the organization as a whole more responsive to its members.

‘We started as normal workers and now we are leaders’

Beyond the funds themselves and the projects they support, the Fairtrade Premium offers opportunity for farmers and workers to build skills and gain leadership experience.

Workers at the Kenyan flower plantation who are members of the Fairtrade Premium Committee receive trainings on administrative and financial management, and organize and conduct meetings to collect input and make decisions. As one interviewee said, “We started as normal workers and now we are leaders.”

Fairtrade Premium can serve as a key investment for farmer cooperatives to become more competitive market actors.

The Peruvian banana cooperative prioritizes Premium investment in their own organization, including making infrastructure improvements such as a storage centre. They also spent Premium funds to subsidize agricultural inputs for farmer members, since they see increasing their productivity and quality as key to expanding their sales.

As one interviewee said, “The Premium is the motor of organizational development. Without it, [development] would be impossible.”

The researchers point out that there is also a risk in funding core businesses expenses or services out of Premium, rather than paying for these out of organizational revenue. As part of a strategic plan to increase longer-term capacity and income, however, these investments may make sense for an organization.

Producers are patrons of their communities

An additional powerful aspect of Fairtrade Premium is that it enables farmers and workers to be seen as benefactors within their communities. According to the study, community members are grateful that farmers and workers spend their own money – which is what the Premium is – on the community. As a contrast to foreign-funded charity projects, this promotes community pride and resilience.

Educational investment is also particularly valued in this context, as it can benefit all children, not just those of farmers and workers, and has a ripple effect in the community.

Making a bigger difference: more participation, more transparency

The study identifies learnings and best practices to increase involvement and transparency of Fairtrade Premium use. These include encouraging separate Premium decision-making structures (already required for plantations).

Hired workers on small-scale farms need to be better integrated into Premium decisions and benefits, and there are some examples of cooperatives that do this. Things like putting a FAIRTRADE Mark on items purchased with Premium money can help increase visibility and show where the funds are going.

From this study, we have a better understanding of the types of impact Fairtrade Premium is making, which grows with every purchase of a Fairtrade product.

While the specific Premium expenditures may be different depending on the producers’ choices, the goal we all share is to empower farmers and workers to take control of their futures and build sustainable livelihoods.

You can read more about the study and our response to it.