Fair trade as a social enterprise: Oversold, misunderstood or unethical?

• Date: 01 November 2019
• DOI: http://doi.org/10.1002/jsc.2296
• Author: Ridhima Durham,Arvind Upadhyay,Sushil Mohan,Nikolaos Daskalakis
• Published date: 01 November 2019

RESEARCH ARTICLE

Fair trade as a social enterprise: Oversold, misunderstood

or unethical?

Sushil Mohan

1

| Arvind Upadhyay

1

| Nikolaos Daskalakis

1

| Ridhima Durham

2

1

Brighton Business School, University of

Brighton, Brighton, United Kingdom

2

Independent Researcher, London, United

Kingdom

Correspondence

Sushil Mohan, Brighton Business School,

University of Brighton, Brighton BN2 4AT,

United Kingdom.

Email: s.mohan@brighton.ac.uk

Abstract

Although the concept of Fair Trade blends with the concept of “social enterprises,”

but a critical examination of the theory and practice of Fair Trade shows that consid-

ering Fair Trade as an obvious example of “social enterprise”would mean a dilution

of the social context of “social enterprises.”

1|INTRODUCTION

Social enterprises are commonly defined as enterprises that trade for

a social or environmental purpose. Meeting their social and/or envi-

ronmental aspirations does not qualify an enterprise “social,”for that

they have also to adopt commercial market-oriented approaches to

meet financial and commercial aspirations (Grant & Palakshappa,

2018). Fair Trade (hereafter FT) organizations and activities are widely

accepted as examples of social enterprises as they combine economic

activity and social mission in an innovative manner (Huybrechts,

2010).

1

For example, FT aims to produce social benefits for a target

group (producers and workers of primary commodities in developing

countries) utilizing market-based approaches of trade and commerce

(Mason & Doherty, 2016). FT manifests as a social enterprise in terms

of managing the tensions between commercial opportunity exploita-

tion and the pursuit of the social mission (Smith, Gonin, & Besharov,

2013). In addition, FT is engaged in campaigning for changes in rules and

practice of conventional trade to achieve greater equity in international

trade. Organizations directly trading in FT are referred to regularly as “FT

social enterprises”as FT is considered as having contributed to the shap-

ing of “social enterprises”theoretical concepts (Huybrechts & Jacques,

2008; Nicholls, 2010). The objective of this article is to evaluate to what

extent trading in FT makes an enterprise “social.”

The growth of the FT market is both unique and controversial

because FT products generally sell for more than comparable conven-

tional products without delivering extra (physical) quality. FT relies on

campaigning for growth in its market, which tends to blame “unjust”

market relationships for the plight of producers and workers in devel-

oping countries. Moreover, the campaigning tends to convey the

impression that FT's success is contingent upon increasing consumer

awareness of the exploitative nature of conventional global trade and

multinational corporations. FT enthusiasts participate in protests

highlighting the exploitative nature of multinational corporations' con-

trol and unfair advantage, although lately this is being diluted because

of the increasing participation of large corporations in the FT move-

ment. The proponents of FT claim that FT addresses the vulnerability

of producers: as a part of Trade Justice campaign, FT seeks greater

equity in international trade by challenging market competitiveness

based solely on price,challenging “the injustices of conventional trade”

and trying to create more egalitarian trade between Northern con-

sumers and Southernproducers. FT seeks to contribute “to sustainable

development by offering better trading conditions to, and securing

the rights of, marginalized producers and workers –especially in the

South.”The FT minimum priceacts as a vital safety net for farmersand

workers and protects them from fluctuations in the market prices of

the products they grow for a living. This protection ensures that they

can have an assured and stable income and plan for their future.

Fairtrade is the onlycertification scheme that offers sucha unique min-

imum price protectionfor farmers (Fairtrade Foundation,2016).

The FT claims and protestations draw reactions from commenta-

tors who believe in the many virtues of conventional international

trade and free market mechanisms including the critical role they can

play in improving the conditions of poor producers and workers in

developing countries. Moreover, as the visibility of FT has grown over

the years and as more and more organizations embrace FT to assert

their “social enterprise”activities and commitment, the claims made

by FT have attracted increased scrutiny. Moreover, a number of com-

mentators have misgivings about the vision, business ethics and prac-

tices of FT (Griffiths, 2012). This article identifies the following claims

made by proponents of FT for further scrutiny.

JEL classification codes: D11, F13, L31, M31, O13, Q13.

DOI: 10.1002/jsc.2296

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