FOOD“BOOM TIMES IN PARAGUAY LEAVE MANY BEHIND,” PROCLAIMED AN article in the New York Times in April 2013. The country’s 13 percent rate of economic growth was the highest in the hemisphere. But as the article pointed out, there was an enormous gulf between the expanding market for luxury lofts and the plight of urban garbage pickers. Behind Paraguay’s economic growth was a massive expansion of soy production, much of it exported for use in animal feed, but the social benefits of this industry have been scarce. The soy industry contributes little to the tax base, generates few jobs, and has contributed to a highly unequal distribution of land, the major productive asset in an agrarian country. One-third of the population is below the poverty line, while 1 percent controls roughly 77 percent of the arable land. Mechanized soy production has displaced smallholder peasant communities, unleashing a series of violent conflicts, one of which precipitated the collapse of the Paraguayan government in 2012.
For many consumers the politics of food are increasingly engrossing. Food is at once a basic requirement for material subsistence and a powerful symbol of cultural meaning and identity, which has made it a perennial object of protest and political struggle. Conscientious consumers bring numerous concerns into their food purchases, ranging from the environmental effects of industrial agriculture, to the safety of food imports, to the rights of migrant farmworkers. The effects of agri-food globalization on small farmers, who make up the majority of the world’s poor, has also attracted a great deal of attention. Critics allege that globalization is driving dispossession of small farmers from land, exacerbating inequality, and forcing the rural poor to migrate to urban areas or other countries. Might concerns among consumers have implications for dispossession and social inequality in places like Paraguay? Or is conscientious food consumption in distant markets, and the standards it supports, too weak to make a difference?
In this chapter we delve into the world of agri-food commodity chains and several attempts to make them fairer and more sustainable. Agriculture is unique among global industries because for most crops large, commercial plantations or corporate farms that rely on wage labor are less common than small, family-owned farms that rely predominantly on their own labor power and sometimes produce partly for their own subsistence. Unlike manufacturing industries, where household craft production occupies small niches, many globally traded commodities, such as coffee and cacao, remain dependent on peasant farming, as does most domestic produce in developing countries. Yet globalization is rapidly spreading corporate forms of organization to agricultural production and distribution around the world. This can create new opportunities for development, but it also places new demands on smallholders and often threatens to exclude them from economic gains.
For this reason the conditions of smallholder farmers must be central to any attempt to evaluate conscientious consumption and the standards it supports. How do standards influence the balance between forms of production that provide meaningful opportunities for smallholders and those that marginalize them? Our examination of fairness and sustainability standards suggests that some are more geared than others toward supporting small farmers’ competitiveness. Specifically, we compare the logic and impact of fair trade certification with the increasingly popular “commodity roundtable” approach to certification, as seen in the Roundtable on Responsible Soy, Roundtable on Responsible Palm Oil, and several others. Despite significant flaws and growing concerns about mainstreaming, we find that fair trade can sometimes promote and strengthen alternative production and governance structures at the local level, enhancing small farmers’ ability to profit from globalization. In contrast, commodity roundtables have taken dominant—and highly unequal—local structures as given and attempted to regulate them through global scrutiny and auditing. In the process they have abetted the marginalization of smallholders.
We base this argument on an analysis of the rules, constituencies, and documented performance of these systems as well as a close look at the sugar and soy industries in Paraguay. Our research there reveals how local structures of production shape the influence of global standards for fairness and sustainability. In addition, our examination of sugar production helps to balance a literature on fair trade certification that has focused almost exclusively on coffee.1
We begin with a look at the global structure of production and consumption in agri-food industries. Although much has been written about the growing power of retailers in the food system, we show that large non-retail companies often retain a great deal of power in these global value chains. The balance of power and the kinds of fairness and sustainability standards that take hold depend in large part on the product. In focusing strongly on the power of global retailers, scholars and practitioners have often overlooked how globalization and standards shape national and subnational power dynamics in both positive and negative ways. We highlight these influences as we describe fair trade certification and the commodity roundtables, and especially as we try to unpack “localized globalisms” in the sugar and soy fields of Paraguay.
Total demand for food in the affluent countries of North America and Europe has stagnated.2 But food consumption has become highly stratified in tandem with rising income inequality. In the United States most household incomes have been fairly stagnant (or declining with the “great recession” of 2008–2009), and these consumers continue to demand the low-cost, mass-produced food that dominated agri-food markets for most of the twentieth century. Price remains the central dimension of product competition in this part of the market, leading retailers to greatly expand their “private label” lines to complete with branded items (Burch and Lawrence 2007). In contrast, growing incomes at the top of the distribution have enhanced market niches where price is less important than quality (Hatanaka, Bain, and Busch 2006; Michel, Cecile, and Vololona 2002; Wilkinson 1997).3 In addition to the traditional sense of quality (i.e., more expensive ingredients, more attractive visual appearance), products appeal to consumer identities and lifestyle narratives, and their value derives largely from marketing. Consumer concern about personal identity (e.g., social status, connoisseurship, group belonging), convenience, health, environment, and social justice has driven a great deal of innovation in the food sector. What marketers have dubbed the LOHAS market segment (lifestyles of health and sustainability) has brought together identity-based, political, and even spiritual dimensions—as Monica Emerich (2011) puts it, “tossed together in the same sustainability salad” (xii).
It is in this context that conscientious consumerism in the food industry has exploded, as illustrated by the rapid growth of organic food and (to a lesser extent) fair trade–certified coffee, tea, and other products. (See fig. 2.1. in chapter 2.) Not only have specialized retailers such as Whole Foods grown, but mainstream grocery stores have greatly expanded their offerings of organic, eco-labeled, and social-labeled items. It should be no surprise that retailers are keen to attract and retain the loyalty of affluent consumers whose spending has continued to grow while that of others has stagnated.
Linking these two poles of food demand in affluent countries is a process by which products that began as costly luxuries have become, via global trade, staples of daily consumption.4 In roughly historical order, examples include coffee, tea, cocoa, tropical fruit, counter-seasonal/temperate-climate fruit and vegetables, and farmed seafood. Most recently, traditional products from abroad, such as the Andean pseudo-grain quinoa, have been marketed as health foods in the United States and Europe. Food brands and retailers have boosted their profits by turning niche products into mass consumption products, taking advantage of low production costs and climatic conditions in developing countries as well as consumers’ tendency to buy far more of these items when prices go down slightly. “New” agricultural exports such as seafood, fruits, vegetables, and processed foods now make up 50 percent of the exports from developing countries, while traditional products like tea, coffee, cocoa, sugar, and cotton make up a small and shrinking share (Aksoy and Beghin 2004). In spite of stagnant aggregate demand, the United States and the EU have seen increased food imports, driven largely by high-value fruits and vegetables. American companies import these products primarily from Mexico, Canada, and South America (Huang and Huang 2007), while imports to Europe come from a wider array of places, including African, North American, and South American countries.5
Figure 4.1: Total Agricultural Imports to the US, China, and EU-27, 1980–2010. Source: FAOSTAT data.
While aggregate food demand is slowing in affluent countries, it is growing rapidly in developing countries, especially in places such as China, India, and Brazil, with large populations and growing middle classes. Increased incomes have driven rising demand for animal protein and, consequently, for animal feed to permit mass production of pork, chicken, seafood, eggs, and dairy products. The South-South trade networks that have resulted are beginning to diminish the outsized influence of the United States, Europe, and Japan on the global food system (Peine 2013). As shown in figure 4.1, China has rapidly caught up with the United States and the EU as a major importer of agricultural commodities. This growth has been driven almost entirely by raw soy imports, mostly from the United States, Brazil, and Argentina.6 This is processed in China into animal feed and subsequently products such as pork meat or into edible oils.
Given stagnant food demand in affluent countries and growing markets in developing countries, food retailers and manufacturers in Europe and North America have sought growth by merging, cultivating lower-cost suppliers in developing countries, or investing in developing countries to gain access to new markets. This has often led to the concentration of power in particular nodes of global value chains. But the structure of global value chains, and the holders of this power, vary widely in different parts of the multifaceted agri-food sector.
In many parts of the industry, multinational retail companies (e.g., Walmart, Carrefour, Metro) are playing an increasingly important role in coordinating global production, potentially at the expense of food manufacturing brands (Burch and Lawrence 2005; Connor and Schiek 1997; Kaufman 2000). Because consumers shop for groceries on a weekly or even daily basis, food is central to the strategies of globalizing retail companies. As shown in table 4.1, the eight largest retailers in the world are food retailers (at least in part), as are thirty-two of the world’s top fifty retailers. Most of the world’s largest retailers are headquartered in the United States or Western Europe but operate in dozens of countries. Companies like Walmart, Carrefour, Tesco, and Royal Ahold have simultaneously consolidated ownership in their home markets and invested in retail infrastructure abroad (Burch and Lawrence 2007; Reardon and Berdegue 2002; Reardon et al. 2003).
In the United States the market share of the top twenty retailers increased from 39 percent to 65 percent from 1992 to 2011 (James Jr., Hendrickson, and Howard 2013). The effects of multinationalization strategies are also clear in Latin American countries, where the market share of supermarkets has gone from as low as 10 percent in the 1980s to 35–75 percent by 2000. Foreign ownership of supermarkets has also increased, such that by the year 2000 multinational corporations held 43 percent of the supermarket market share in Brazil, 64 percent in Argentina, 72 percent in Mexico, and 93 percent in Guatemala (Reardon and Berdegue 2002). A similar trend is occurring in some parts of Asia and Africa, as multinational companies buy up national and regional supermarket chains. Walmart gained access to fourteen Sub-Saharan African countries by buying a controlling share of the South African retailer Massmart in 2011, and it has made large investments in China as well, including a controlling share of the online grocery retailer Yihaodian.7
Table 4.1. Top Global Retailers
Source: Deloitte 2013; Euromonitor 2013.
As supermarket chains have become the dominant gatekeepers to many consumer markets, they have also gained the ability to impose conditions “upstream” in agricultural value chains.8 This has brought about three types of changes in the governance of global value chains (Reardon et al. 2009; Reardon et al. 2003). First, there has been a shift from public standards for food quality and safety (or sometimes the absence of standards) to private standards imposed by retailers. Second, there has been a shift from agricultural goods being sold through “spot markets” and wholesale outlets toward vertical coordination through supply contracts between buyers and sellers. Third, there has been a shift from local procurement to regional, national, and global sourcing. Logistics and inventory systems that allow for “just in time” delivery and “traceability” of quality over long distances have facilitated this expansion. The systems and standards that retailers demand, though, are quite costly, and this has sometimes led to a concentration of ownership in food processing and distribution (Martinez 2007). Extensive research exists on the declining viability of small-scale farming as small farmers are outcompeted by larger landowners and agribusiness firms that can meet the scale, quality, investment, and administrative demands of complying with retailers’ standards (e.g., Van der Meer 2006).
At the same time, most large retailers center their operations in a single country or a few neighboring countries (Rugman and Girod 2003). Moreover, national regulations, land-use patterns, transport infrastructures, and consumer cultures may preserve a substantial role for traditional distribution systems (wholesale and wet markets) and small-scale (“mom and pop”) retail in some developing countries (Harvey 2007; Neilson and Pritchard 2007). As with the European countries analyzed in chapter 1, there is significant national variation in the structure of retailing.
More importantly, and often overlooked, the power of retailers is challenged for many products by the concentration of power and ownership “upstream” in the agri-food value chain. Global food brands (like PepsiCo, Kraft, and Nestlé), agricultural traders (like Archer Daniels Midland [ADM] and Cargill), and input providers (like Monsanto and Syngenta) occupy quite powerful positions, and these companies too have expanded their international reach. Researchers have documented trends toward multinationalization and concentration of ownership in food branding (Bolling and Gehlhar 2005; Wilkinson and Rocha 2009), food processing (in affluent and developing countries alike) (Farina 2002; Wilkinson and Rocha 2009), and trading and logistics activities (Gilbert and ter Wengel 2001; Vorley and Fox 2004). Large-scale land investment by agribusiness and financial companies has created enormous challenges for farmers, who also increasingly find themselves dependent on a few companies that dominate the upstream portions of the agri-food value chain (Amanor 2012; Deininger and Byerlee 2011; Zoomers 2010).
One cannot understand agri-food value chains without attending to concentrated power in both upstream and downstream locations. It appears that where power lies in these value chains depends largely on the features of the product. In particular, we see agri-food value structures as shaped by two key factors: (1) the extent to which crops are sold directly to consumers and (2) the degree of crop perishability. First, when crops have large direct-to-consumer segments, power tends to be concentrated downstream in retailing, branding, and food processing. In contrast, when crops are used primarily as industrial inputs, power tends to be concentrated further upstream, among traders, primary processors, and input suppliers. Second, crop perishability shapes the geographical location of primary processing—that is, whether it is located near farming activities or near final markets—and in turn the boundaries of companies. Highly perishable crops must be processed near the farm, which gives rise to powerful local processing companies that are often integrated “backward” into farming. Crops that are less perishable are more commonly processed near consumer markets, giving rise to large trading companies that are often integrated “forward” into food processing.
Consider what these two factors reveal about crops such as soy, corn, and wheat. They are sold overwhelmingly to industrial processors that transform them into animal feed, food ingredients, and industrial food and chemical inputs. They are the most widely produced and globally traded agricultural products in the world, and they have a low degree of perishability. Retailers play a secondary role in governing these global value chains, but other types of large companies—based in countries with large consumer markets—are extremely important. Companies such as Monsanto, Cargill, and ADM dominate upstream portions of these value chains, while food processing companies such as PepsiCo and Unilever are powerful actors at the other end.
In contrast, for fruits and vegetables that are consumed in fresh form (rather than processed into shelf-stable industrial products), supermarket retailers play a central role, setting the quality and safety standards that producers must meet. The fact that many such products are also highly perishable means they are the least globalized of the agri-food industries. National, regional, and even local companies occupy strategically important positions, in part because the international sourcing that does occur requires close coordination of harvesting, post-harvesting activities (e.g., sorting, washing, treating, packing), and “cool chain” transportation logistics that provide an unbroken chain of refrigeration from the packinghouse to the supermarket.
Of course, these factors do not completely determine the structure of production. Banana and pineapple production are dominated not by retailers but by vertically integrated brands (such as Dole, Chiquita, Del Monte) that own marketing, distribution, packing, and farming operations (Friedland 1994; Frundt 2009). The production of fresh green beans for export to the United States and Europe appears to be compatible with informal smallholder supply networks in Burkina Faso, large-scale corporate production in Zambia, and smallholder cooperatives in Guatemala (Freidberg 2004; Jay and Lundy 2008). To understand this type of variation we must go beyond the characteristics of products to consider historical legacies of developmental strategies as well as national and subnational organizational structures. As we will see, these are important for understanding not only the structure of production but the meaning of standards for fairness and sustainability.
For much of the twentieth century, governments and experts in developing countries assigned an important but limited role to agricultural development. They sought to harness industrialization as an engine of economic development and social transformation, and they viewed agriculture as the fuel for that engine (Bates 1981; B. Johnston and Mellor 1961). For instance, agriculture could provide cheap food for the urban workforce in order to keep wages low and prop up rates of profit, reinvestment, and economic growth. As development proceeded, agriculture would theoretically play a diminishing role, eventually becoming highly mechanized (Lewis 1954). To use the agricultural sector in this way, many governments created state-owned enterprises, marketing boards, ministries of agriculture, and other institutions to coordinate and set prices for raw materials and food products. Often these institutions had the result of discriminating against small farmers in favor of industry and urban consumers (Bates 1981), even as state support contributed to the growth and modernization of large-scale farmers (Grindle 1986). Some states, such as Taiwan, South Korea, and Japan, supported productivity gains among small farmers but then extracted many of the economic benefits (Kay 2002).
In the latter half of the twentieth century, developing countries largely abandoned these industrial policies and shifted from “taxing” agriculture in these ways to opening it to market forces and promoting it to some degree (Organization for Economic Cooperation and Development 2013). They privatized commodity marketing boards and liberalized price controls. In the debt crises of the 1980s agricultural exports became a source of foreign exchange to pay foreign debts (Raynolds 1994). In the 1990s nontraditional agricultural exports to affluent countries grew rapidly, becoming the leading industries in some regions and leading to a reappraisal of agriculture as an engine of development. Countries like Brazil, Chile, and Thailand have become “new agricultural countries” that form the basis for agri-food global value chains (Friedmann 1991). In many countries in Southeast Asia, Africa, and Latin America, exports of specific products, such as farmed fish and shrimp, fresh-cut flowers, and counter-seasonal vegetables, have come to play an important economic role. In addition, agriculture remains important in driving other forms of economic growth, largely through its linkages to the food processing industry, which accounts for 30–50 percent of the manufacturing sector in low- and lower-middle-income countries (Wilkinson and Rocha 2009).
Diverse national histories of agricultural development and liberalization have left a varied landscape of farms that are being integrated into global value chains. As global markets are refracted through local structures, their implications for social class relations (between agribusiness owners, landowners, and workers, for instance), income distribution, and resource use can vary dramatically. Perhaps most important, the history and structure of land tenure varies greatly across countries, regions, and globalizing agro-industries. Export-oriented farming may take place on plantations owned by traditional elites, on corporate farms owned by diversified agribusinesses, on small family-owned farms, or on a mixture of these forms. Furthermore, it may take place in the context of either land scarcity or abundance. When land is scarce and export booms increase land values, the result is often “land grabbing,” wherein investors take advantage of farmers’ inability to defend their rights (Berry 2001). Where land is abundant, labor is likely to be scarce, which encourages landowners to either offer higher wages and better conditions or to engage in coercive labor practices.
The distributional consequences of global food markets and quality standards depend largely on factors like the strength of national labor regulation (Aparicio, Ortiz, and Tadeo 2008), unionization of farmworkers (Aparicio, Ortiz, and Tadeo 2008; Damiani 2003), and the organization of farmers, including the capacities of cooperative organizations (Gomes 2006; Raynolds 2004; Setrini 2011). For example, agricultural regions with strong unions and labor regulation, like Petrolina-Juazeiro in Brazil and Corrientes, Argentina, have gained export competitiveness and standards compliance through a virtuous cycle of productive modernization, skill enhancement, and improved labor relations (Aparicio, Ortiz, and Tadeo 2008; Damiani 2003). In contrast, in regions with weak regulation and labor organizations, competitive strategies often rely on low wages and the informalization of labor relations. For example, the need to comply with quality standards has come at the cost of vulnerable and exploited workers in the citrus industry of Entre Rios, Argentina (Aparicio, Ortiz, and Tadeo 2008); the Mexican tomato industry (Carton de Grammont and Lara Flores 2010); and the South African table fruit industry (Barrientos and Kritzinger 2004). If smallholder organizations are absent or weak, the “upgrading” of quality standards often results in concentrated land ownership, as seen in the Chilean table fruit industry (Carter, Barham, and Mesbah 1996; Gwynne 2003) and the vegetable industry in Kenya (Dolan and Humphrey 2000; Freidberg 2004).
The decline in state management and regulation of agri-food production and the consolidation of private power in the global food system have stimulated the growth of private standards not only for food quality and safety but also for fairness and sustainability, as we will discuss below. The legacies of distinct forms of agricultural development exert a strong influence on the meaning of these standards.
NGOs, global social movements, and civil society organizations have catalyzed criticism of the global food system as unsustainable and unjust. They have linked the increasingly corporatized global food system described above to a variety of problems: land grabs and the dispossession of local people, deforestation and the degradation of land, overfishing and species depletion, the exploitation of farmworkers, and poisoning by pesticides, to name just a few. At the same time, some segments of consumer demand have shifted toward higher-value niches and nonmaterial qualities of products, as described above. The combination of the two has helped to create a market for standards for fair or sustainable food. That demand for standards has been expressed in two ways.
One path is illustrated by the rise of fair trade certification. In this case, activists have called on retailers, brands, and food service providers to begin carrying and producing certified products. In the early 2000s the NGO Global Exchange campaigned to get Starbucks to stock Fair Trade–certified coffee, and TransFair USA encouraged Green Mountain Coffee Roasters to become a major seller of Fair Trade coffee (Conroy 2007). NGOs have sometimes mobilized conscientious consumers to make their demands heard. Oxfam, for instance, has sponsored campaigns among university students, religious organizations, and social justice activists to demand fair trade products in their schools, workplaces, congregations, and communities in the UK, European countries, Canada, and the United States.
In another path NGOs have mobilized pressure from investors more than from consumers. This has put standards for fairness and sustainability onto the agendas of food companies that are less recognizable to consumers (e.g., Unilever, Cargill) or the corporate parents of well-known outlets (e.g., Darden Restaurants, parent of Red Lobster and Olive Garden). Professionalized NGOs and socially responsible investment groups have essentially lobbied companies to adopt standards without customers even being aware of it. For example, the Interfaith Center on Corporate Responsibility, which represents faith-based institutional investors, sponsored shareholder resolutions in 2013 asking a number of companies (e.g., Darden, Church & Dwight, Kroger, Dean Foods) to adopt standards for sustainable palm oil amid concerns that the expansion of oil palm plantations was driving deforestation (see chapter 3).9 This kind of behind-the-scenes pressure has been important in spurring corporate participation in “commodity roundtables”—that is, initiatives that certify particular commodities, such as the Roundtable on Sustainable Palm Oil (RSPO), the Roundtable on Responsible Soy (RTRS), and the Global Roundtable for Sustainable Beef (GRSB).
We focus our attention on these two models. There are of course hundreds of other standards for fair and sustainable food, covering issues from organics to the humane treatment of animals. But the fair trade and commodity roundtable models are especially notable for several reasons. First, both types of standards are intended to deal with the global dimensions of food production, consistent with our focus in this book; some other food standards are more domestically oriented. Second, together they capture different parts of the agri-food industry as described above, from well-known brands and retailers to less visible commodity processors and input providers. Both initiatives certify operations and allow for the labeling of products. However, they adopt varying approaches to certification and labeling in response to the distinct value-chain structures of different global agri-food commodities. For direct-to-consumer products with short value chains that are dominated by food retailers and brands—such as coffee, cocoa, tea, and fruit—labeling products as “fair trade” is intended to inform consumer purchases. In contrast, commodity roundtables focus more on supply chain management than on consumer marketing, and they have emerged around industrial commodities such as soy, palm oil, biofuels, and livestock, where traders and primary processors occupy dominant positions in global value chains. Some industries, such as sugar, have large direct-to-consumer and industrial markets and have been targets of both fair trade and “roundtabling.” Third, as we will see, these two models also link global standards to local structures of production in different ways.
As described briefly in chapter 2, fair trade began not as a label or even a consumer movement but as an offshoot of the alternative trading organizations (ATOs) and “solidary trade” networks of the 1960s. Organized coffee producers played an important role in making certification part of the fair trade model in the late 1980s. Finding that the market for sales through ATOs appeared to be saturated, a group of coffee producer organizations in Mexico and Central America, along with the Dutch Christian development organization Solidaridad (Inter-Church Foundation for Action for Latin America), founded the Max Havelaar label, named for the protagonist of an anticolonial Dutch novel. This was a way to market the coffee of small farmer cooperatives in traditional retail outlets (Renard 1999). Around the same time, peace activists in the United States had begun selling “Café Nica” coffee imported from Nicaraguan farmers as an act of solidarity with the Sandinista government (Auld 2014; Rice and McLean 1999). Equal Exchange, the organization that had led this action, soon became the main promoter of fairly traded coffees in the United States. With the collapse of the International Coffee Agreement in 1989–1990 and subsequent volatility in coffee prices, fair trade became a way to guarantee a minimum price for coffee producers (Linton, Liou, and Shaw 2004). The Fairtrade Labelling Organization (FLO) was formed in 1997 to coordinate and oversee a growing number of fair trade labels.
As fair trade certification grew and entered mainstream markets, some charged that the FLO had abandoned the radical potential of fair trade to wrest control of global trade from monopolistic multinational corporations (Fridell 2004). FLO standards did take some structures of the global economy as a given, but at the level of production those standards codified support for cooperative modes of production and collective action among small farmers. In this sense fair trade certification sought to provide an alternative to consolidated control of land and corporate plantation farming.
Fairtrade International (as FLO was renamed in 2011) issues standards for both producer organizations (e.g., cooperatives) and trading enterprises, which allow particular products (e.g., coffee, tea, cocoa, sugar, bananas) to carry its Fairtrade logo. In order to receive certification, producer organizations must be made up primarily of smallholder farmers, engage in business and development planning, and adhere to norms of democratic governance. They must also adopt environmental management practices such as soil and water conservation, integrated pest management, and the safe use of pesticides as well as international labor norms such as freedom of association and bans on discrimination, forced labor, and child labor (Fairtrade International 2011). To sell a product that is to be labeled “Fairtrade,” trading enterprises must enter into contracts with producers, provide them with presale financing, and buy the product at a commodity-specific minimum price, plus a “social premium” to be used for producers’ collective investments (Fairtrade International 2011). Both parties must meet a variety of product-specific standards as well.10
Auditing of compliance with these standards is carried out by a separate organization, FLO-CERT. Most certification systems, including the factory certification programs discussed in chapter 5, the sustainable forestry programs in chapter 3, and the commodity roundtables discussed below, accredit multiple auditing organizations. But the fair trade system has relied on this single auditing organization, which has more than a hundred auditors based in various parts of the world.
Fairtrade International’s membership is composed of labeling initiatives in a number of affluent countries and three networks representing more than one thousand producer organizations in Asia, Africa, and Latin America. For most of the organization’s history these producer networks contributed only three votes in the organization’s general assembly, with the other twenty-one votes going to the labeling organizations. But in 2011 Fairtrade International sought to rectify this imbalance by increasing the producer networks’ share to half of the representation in the general assembly (Fairtrade International 2013).
Until recently, Fairtrade International oversaw the application of essentially all fair trade labels found in the markets of North America and Europe. But in 2011 the US-based affiliate, Fair Trade USA (previously called Trans-Fair USA), announced its exit from Fairtrade International. Fair Trade USA’s departure was largely due to its desire to certify larger coffee plantations, not just smallholder farms. Fairtrade International had already developed standards that allowed large plantations growing tea, bananas, and cut flowers to be certified, which would allow for increased volumes of certified goods for products that did not have large numbers of preexisting smallholder suppliers. But a shift toward plantation standards in coffee proved too contentious, since it would create direct competition for smallholder cooperatives in fair trade’s oldest, most iconic, most traded product. (The power of its original constituents surely helps to explain Fairtrade International’s reluctance to expand coffee certification.) In essence the debate over smallholder production and cooperatives pushed fair trade’s mainstreaming to a breaking point. Fair Trade USA’s exit has challenged not only the meaning of fair trade but the clarity of its labeling as well: consumers in the United States may notice that Fair Trade USA’s logo (a person holding a single container, which is a revision of its previous two-container version) is now facing competition from Fairtrade International’s logo (resembling a person raising one arm). Furthermore, the rise of newer “direct trade” initiatives that invoke some of the original fair trade rationales further complicates the set of choices consumers face.11 The future of fair trade is uncertain, but Fairtrade International remains the largest fair trade labeling organization by geographic scope and overall market share, and it is the historical performance of this initiative that we consider in the remainder of this chapter.
The commodity roundtable approach has a shorter history. It begins in some ways with the 1993 founding of the Forest Stewardship Council, which we discussed in chapter 3. Though unique in several respects, the FSC’s construction of a multi-stakeholder initiative to certify a particular commodity inspired later initiatives like the RSPO and RTRS, founded in 2003 and 2006, respectively.12 The roundtable approach, which brings actors from different parts of the industry together with representatives of NGOs, has become a popular way to certify sustainability for a variety of products, from seafood to biofuels (Ponte 2014).
As opposed to the ostensibly developmental purpose of fair trade, commodity roundtables have had more exclusively regulatory objectives, reflecting the interests of their main NGO constituents. The hope of WWF (previously World Wildlife Fund), a founding member of each of the commodity roundtables, is to curb environmentally damaging practices of companies operating in countries with weak or nonexistent environmental regulation. NGOs, including WWF, had previously looked to national law and international agreements to set environmental standards, but in the 1990s many sought to influence markets more directly and to engage with companies in order to do so. Many NGOs argued that a small number of oligopolistic multinational companies had gained the power to privately enforce production standards throughout the global economy. This power could be leveraged to support environmental standards, they hoped, but it would require some engagement with the very companies that bore responsibility for environmental damage. WWF’s work is increasingly aimed at “transforming markets,” by “promot[ing] Better Management Practices (BMP), and increas[ing] the supply of certified products through Multi-Stakeholder Engagements such as Roundtables and Dialogues that involve businesses, trade and industry, as well as producers and other NGOs.”13 The RSPO began, in fact, as a partnership between WWF and Unilever, and RTRS began as a partnership between WWF and the Swiss supermarket chain Coop. The membership of commodity roundtables tends to be dominated by the leading global agribusiness companies from different parts of the value chain and a few large NGOs like WWF, Fauna and Flora International, and Conservation International.
The RTRS’ agribusiness chamber includes major food processors such as Unilever and Nestlé; input providers including Monsanto and Dow Agro-Sciences; trading companies such as ADM and Cargill; retailers such as Carrefour and Sainsbury; and even energy and financial firms including Royal Dutch Shell and Rabobank. The civil society chamber features large environmental NGOs headquartered in the Global North, including WWF, the Nature Conservancy, Fauna and Flora International, and Solidaridad. Several NGOs based in developing countries participate (e.g., Instituto Ethos from Brazil and Fundación para la Conservación y el Uso Sustentable de los Humedales from Argentina), but domestic organizations advocating for small farmers are not well represented.14 The “producer” chamber is composed primarily of large corporate farming enterprises, especially in Latin America. This includes Grupo Andrew Maggi, the world’s largest soy farming enterprise, with more than 135,000 hectares planted, and Grupo Lucci, which has large farms and processing facilities in Argentina. Several associations of large commercial farmers are also members, as is one organization composed of smallholder farmers, Bijawar Producer Company from India.
Although the commodity roundtables share the FSC’s discursive commitment to multi-stakeholder representation (see chapter 3), their governance structures and standard-setting procedures generally privilege the interests of agribusiness over civil society. While the FSC gives those with environmental and social interests in forests two-thirds of the voting power, the RTRS gives two-thirds of the voting power to producers and industry representatives. The RSPO divides representation on its executive board across seven groups, but environmental and social/developmental NGOs comprise only two of the seven (with the other five groups being growers, processors/traders, manufacturers, retailers, and banks/investors) (RSPO 2004). Moreover, researchers have found that commodity roundtables often eschew debate among stakeholders with opposing views and instead structure deliberations around technical questions and expert scientific recommendations. Observing RSPO meetings, Stefano Ponte and Emmanuelle Cheyns (2013) find that roundtables marginalize organizations with “local” knowledge as well as social scientific perspectives that could bring issues such as “migrant work, land conflicts and rights, and the living conditions of people affected by palm oil expansion to the discussion table” (470). Furthermore, the meeting organizers use technology and agenda setting to preclude debates over questions perceived as “too political or controversial such as . . . production models or a common definition of sustainability” (470).
In the RTRS the veto power of agribusiness and the avoidance of polarizing topics has led the organization to adopt flexible and vague standards that lack enforceable provisions (Elgert 2012). For instance, the criteria for certifying soy producers fall into five categories: (1) legal compliance and good business practice, (2) responsible labor conditions, (3) responsible community relations, (4) environmental responsibility, and (5) good agricultural practice. The last two categories are ostensibly the core of the standard, but they often lack specific enforceable criteria, instead providing general principles such as the following: “pollution is minimized and production waste is managed responsibly”; “efforts are made to reduce emissions and increase sequestration of greenhouse gases on the farm”; and “soil quality is maintained or improved and erosion is avoided by good management practices.” One of the few specific, enforceable provisions is the banning of polluting and hazardous chemicals listed in the Stockholm and Rotterdam Conventions, multilateral treaties that regulate chemical production and trade.
The weakest provisions of the RTRS standards are those involving social responsibility. Like most multi-stakeholder initiatives, the RTRS includes an array of labor standards, such as those discussed for the apparel industry in chapter 5. But the most serious social impacts of soy farming have little to do with labor exploitation and much to do with the concentration of land assets and income. Mechanized soybean production utilizes vast expanses of land while employing relatively few workers for tasks like tractor driving and the application of chemicals. But soy expansion has often come at the expense of smallholder communities whose cropping and farming practices generate much greater labor demand. The soy industry’s greatest threat to social conditions is its potential to exacerbate elevated levels of economic inequality and to dispossess economically and politically weak actors of their livelihoods. The RTRS standards do require producers to demonstrate clearly defined land use rights. But legal regimes for land rights in developing countries are often illegitimate and highly contested, and soy farmers have frequently relied on legal manipulation, corruption, intimidation, and lethal violence to secure and exercise land rights (Hetherington 2011). The RTRS standards ask producers to maintain channels of communication to resolve conflicts with neighboring communities, but they give no guidance about what specific measures must be taken. Moreover, the vagueness of these standards suggests that the roundtable members may be lacking expertise on smallholder, peasant, and indigenous production systems.
Like the mainstreaming of fair trade, the rise of commodity roundtables has provoked controversy. Critics see them as insufficiently stringent, corporate-controlled exercises in greenwashing.15 Some opponents argue that they are exclusionary because they do not effectively include the voices of small farmers and indigenous populations, especially those opposed to the expansion of large-scale mechanized agriculture.16 For example, the Southern Brazilian Family Farmworkers’ Federation (FETRAF-Sul) participated in early negotiations to draft “social responsibility criteria for soy,” but they declined further participation in the RTRS in opposition to the use of genetically modified soy, which they worry contributes to the dominance of input providers like Monsanto. Small farmers and their advocates have held a series of protests against the RTRS, a “counter conference,” and campaigns to pressure NGOs to abandon the system (Schouten, Leroy, and Glasbergen 2012).
At the same time, as Stefano Ponte (2014) notes, commodity roundtables compete with more commercially driven organizations that are generally “less democratic, leaner, quicker, and more attuned to industry interests” (2). Competitors to the RTRS, such as the International Sustainability and Carbon Certification (ISCC) system; the ProTerra Certification System; and the Biomass, Biofuels Sustainability Voluntary Scheme (2BSvs), currently have less stringent criteria and smaller market shares than the RTRS (KPMG 2013). In addition, the RTRS found itself competing with national sustainability initiatives after some leading agribusiness groups withdrew their support. The Brazilian Association of Vegetable Oil Industries (ABIOVE), the National Association of Grain Exporters (ANEC), and the Mato Grosso Soybean Producers Association (Aprosoja), which together represent the largest and most powerful actors in Brazil’s soy industry, partnered with the Responsible Agribusiness Institute to organize “Soja Plus.” This initiative supports compliance among Brazilian companies with federal environmental laws that are less stringent than global sustainability standards (Hospes, Van der Valk, and Mheen-Sluijer 2012). At the same time, these groups supported a successful moratorium on soy expansion in deforested land in Brazil in 2006, demonstrating that the RTRS is not the only relevant reform project. Ponte (2014) suggests that commercial certifications may be gaining the upper hand over commodity roundtables but that criticism of the commodity roundtables has generated pressure for commercial certifiers to be somewhat more responsive and inclusive.
There is potential for both a “ratcheting up” and a “watering down” of soy standards over time. But more important than the standards on paper are the effects of these systems at the point of production. Have commodity roundtables altered how industries operate? Do fair trade standards actually benefit smallholder farmers? How should we understand the meaning of these standards on the ground? It is to these questions that we now turn.
Both fair trade and the commodity roundtables certify producers that are found to be in compliance with standards. While FLO-CERT is the sole auditor for fair trade certification, the commodity roundtables rely on multiple accredited certifiers, including some that also certify forests (see chapter 3) or factories (see chapter 5).17 Although both types of initiatives have grown, the share of global trade that is certified remains small. In 2011 the market share of fair trade–certified products was less than 2 percent of global exports, even for the most successful products, such as coffee and bananas. Fair trade tea and sugar account for 0.7 percent and 0.4 percent of global volumes, respectively.18 The commodity roundtables similarly apply to fairly small portions of global trade. RSPO-certified palm oil now accounts for approximately 15 percent of the global total, but the RTRS’ market share is much smaller. Roughly 2 percent of globally traded soy has received sustainability certification of any kind (KPMG 2013). RTRS-certified producers accounted for just 0.3 percent of the land devoted to soy production (as of 2012) and 0.8 percent of soy global soy imports (as of 2011).19 Furthermore, we suspect that there are serious limits to the growth of roundtable certifications. Demand for responsible soy and palm oil comes primarily from European markets.20 But the growth in soy production in South America is being driven by demand from Chinese meat producers, and most oil palm plantations in Southeast Asia are selling to markets in India and China.
Even within their small niches, how much difference are these two models of certification making? To evaluate the effects of fair trade, much research focuses on the prices that farmers in the coffee industry receive. Do certified farms receive higher prices than noncertified farms, are price premiums enough to improve farmers’ material conditions, and can fair trade certification make global trade viable for smallholder farmers in developing countries? Generally researchers have found that owners of certified farms do receive higher prices for their crops than do those of comparable noncertified farms (Arnould, Plastina, and Ball 2009; Bacon 2005; Barham et al. 2011; Fort and Ruben 2008; Jaffee 2007). However, when world market prices are not depressed, the differences may be negligible (Fort and Ruben 2008). Furthermore, organizations of certified farms are often unable to sell all of their products through certified channels, so only a portion of their members’ production receives a price premium (Carranza et al. 2010). In addition, fair trade premiums are often less than premiums for top quality and organic coffee. Thus, what appears to be an effect of fair trade on farmers’ incomes can sometimes be a result of higher yields (Barham et al. 2011).
Farms that are certified as both fair trade and organic can typically fetch the highest prices for their coffee, but the ultimate benefits of this are often ambiguous, since farmers must spend more (and sometimes hire casual labor) to meet organic standards and must manage the new administrative burdens of inspection (Jaffee 2007; Mutersbaugh 2002; Wilson 2010). This raises questions about whether coffee production, even with multiple certifications, is profitable. In southern Mexico Bradford Barham and his colleagues (2011) found that household investments in coffee production were far less profitable than investment in child education or migration to areas where nonagricultural work was available. Similarly, in Nicaragua both Christopher Bacon and his colleagues (2008) and Bradley Wilson (2010) found high levels of household debt, poverty, food insecurity, and migration among fair trade–certified farmers, despite positive impacts of fair trade on education and household savings.
Nevertheless, there is evidence that fair trade can support managerial upgrading within farmers cooperatives, supporting activities like grading, sorting, and extension services. These in turn help farmers improve yields, increase quality, diversify crops, and ultimately increase their incomes in ways that are not dependent on the fair trade premium. For instance, Ruerd Ruben and Ricardo Fort (2012) found that fair trade–certified farmers in Peru had greater agricultural assets; more access to credit (via buyers); greater satisfaction with prices, technical assistance, and management services; and more optimism about their future economic prospects than did noncertified farmers. These effects tended to increase with the length of time a farmer had been a member of a fair trade cooperative. Similar effects have been detected through qualitative case studies of fair trade cooperatives in Latin America (Bacon 2005; Calo and Wise 2005; Jaffee 2007; Raynolds, Murray, and Leigh Taylor 2004). Many of fair trade’s successes depend on cooperatives that can effectively assist and coordinate farmers in a way that steers them toward higher-value markets and activities. In Latin America cooperative institutions often predated fair trade, originating in state-driven agrarian reform and rural development policies. Importantly, fair trade has provided a key source of revenue and support to cooperative institutions at a time when government support has almost disappeared.
On the other hand, farmer cooperatives generally fail to live up to the democratic ideals that the fair trade system espouses. Fair trade cooperatives often inhabit rural economies with deep histories of inequality and authoritarianism. Elections for cooperative boards of directors are often uncompetitive and dominated by large farmers or other economic elites. Similarly, professional managerial staff can use their educational and social advantages to avoid accountability. Members sometimes have little understanding of the democratic principles of cooperatives and fair trade, and their participation in decision making is often shallow or nonexistent (Setrini 2011; Wilson 2013). Even when cooperatives are not captured or corrupt, intense competition with private agribusiness firms may significantly narrow the space for democratic management.
The auditing and certification model encounters serious limits when it comes to organizational democracy. Even if fair trade certifiers were to collect sufficient data to measure the quality of cooperative governance and incentivize democratic decision making, it is unlikely that this would spur significant democratization. Cooperative governance is bound up with local politics and factional struggle more than with outside incentives.
The commodity roundtables have a shorter track record, but emerging research raises concerns about the implementation of their standards. This is especially the case with social standards pertaining to the use of land, the resolution of land conflicts, and the effects on neighboring communities. In the Indonesian palm oil industry, John McCarthy and his colleagues (2012) found that land deals between the Indonesian government and oil palm plantation developers dispossessed small farmers of their land rights in ways that violated the RSPO’s standards for informed consent for land use. The RSPO lacks “capacity to affect micro-processes in upstream production networks” (McCarthy et al. 2012, 565), and the state policies and civil society structures that do shape land use are beyond the RSPO’s reach. (As described in chapter 3, similar problems have plagued FSC certification in Indonesia.) Moreover, as Laura Silva-Castañeda (2012) documents, when auditors for the RSPO assess conflicts over land rights, they privilege forms of evidence that companies can provide (e.g., formal permits) and disqualify evidence that indigenous communities provide (e.g., the physical existence of graves and certain trees). As we will see, when it comes to the RTRS in Paraguay, smallholder farmers have also been marginalized in the implementation of standards, despite assurances to the contrary from RTRS and companies that support it.
Comparing the commodity roundtables with fair trade, one can see how the histories and constituents of each are embedded in their standards. Fairtrade (as defined by Fairtrade International standards for most products) privileges a specific way of organizing production: the cooperative (or similar organization of small farmers). Farmer cooperatives fall short of Fairtrade’s democratic ideals, but Fairtrade nevertheless provides support for the expansion and institutionalization of cooperative farming in the global economy. In regional economies that are dependent on the export of agricultural commodities, cooperatives can have important distributional, social, and political consequences. They can limit the concentration of land ownership and equalize market access among farmers, for instance. In contrast, commodity roundtables generally endorse practices rather than structures and are agnostic about the organization of production. In so doing, they take as a given structures of production that emerged historically through local processes of exclusion and global concentrations of power. In the case of Paraguay, this means that roundtable standards (wittingly or unwittingly) contribute to the marginalization of smallholders.
Paraguay has experienced an extended soy boom over the past two decades. Soy plantings and harvests grew by roughly 40 percent per year on average from 1992 to 2012, making Paraguay the world’s sixth-largest producer and fourth-largest exporter of soybeans for much of this period.21 The government’s extremely permissive trade, tax, and land use policies have encouraged the rapid expansion of soy plantations, as had the development of global value chains that link South American production to demand for soy in East Asia and Europe.
Yet smallholder farmers have been losing ground economically and politically. Before the 1990s smallholders had been central figures in government-sponsored land colonization and agricultural development programs. In exchange for loyalty to the authoritarian regime, tens of thousands of farmers received small parcels of land and access to agricultural inputs, credit, and markets. To be sure, smallholders endured severe limits on their rights and were subordinated to political and commercial elites who controlled agricultural policy and trade (Turner 1993). Still, small farmers, especially those in cotton farming, served as the basis for Paraguay’s insertion into the global economy (Weisskoff 1992). Then in the 1990s a slump in cotton prices, the spread of the cotton boll weevil, and the withdrawal of government support severely damaged the profitability of small-scale farming. All of this occurred just as the soy boom began to inflate land prices and subject small farmers to unprecedented competitive pressures.
The result has been the extreme inequality mentioned at the beginning of this chapter. Paraguay has abundant productive farmland, high levels of private investment, and rising agricultural outputs, but the share of the population without adequate access to food has risen from 11 percent to 23 percent from 2002 to 2012.22 Paraguay remains one of the most rural countries in Latin America, but soy expansion has stimulated more migration to urban areas, contributing to unemployment, international migration, and dependence on remittances for income.
Because it is dependent on international soy prices, currency fluctuations, and weather conditions, Paraguay’s economic growth has also been extremely volatile, fluctuating from –4 percent to 13.1 percent in 2009 and 2010 and from –1.3 percent to 13 percent in 2012 and 2013. This instability has made it difficult to lay foundations for economic diversification and steadier growth. Moreover, Paraguay does not tax raw soy exports, unlike Argentina, which taxes them at 35 percent or more. Thus, although soy production contributes roughly 20 percent of Paraguay’s gross domestic product, it accounts for only 2 percent of tax receipts, most of which are value-added taxes on internal transactions (Borda 2013). The Paraguayan government has made no attempt to harness the windfall profits of the soy industry in order to make public investments to manage vulnerability, diversify the economy, or reduce inequality. The recent construction of soy processing plants by Cargill, ADM, and Louis Dreyfus could reduce the country’s dependence on raw soy exports and alter the fiscal scenario, but it will also leave Paraguay’s economy dependent on the decisions of a few powerful trading-processing companies.
Sugarcane is among the few crops that are viable for smallholder farmers in Paraguay, and expanding their competitiveness in this industry can help to stem the negative effects of soy dependence. In many countries sugarcane is grown on large plantations, but in Paraguay it historically has been grown by small farmers. The sugar industry in Paraguay developed late compared to the rest of Latin America, during the nationally oriented authoritarian developmental period of the twentieth century. Because the market was small and grew slowly, sugar producers had few incentives to increase productivity or modernize their technology. The political economy of sugar in twentieth-century Paraguay was a contest to divide a fixed amount of profits between the sugarcane farmers, a small number of sugar mills, and industrial users and retailers of sugar. A state-appointed commission set prices and distributed production quotas. Sugar mills were given a guaranteed share of the domestic market and thus protected from competition, but they were prevented from investing in their own plantations and obliged to purchase raw materials from small farmers nearby. In turn, small farmers were guaranteed an outlet for their crops but were economically and politically subordinated to a single mill. The result was a stable but technologically backward industry. Compared to Brazil and other countries, sugarcane yields in Paraguay were low—because of limited use of agrochemicals—and sugar mills were small and inefficient. As the economy integrated with the regional and global economy in the 1990s, the Paraguayan government expected that the sugar industry would gradually disappear.
Indeed, although the sugar industry remained partially protected within the Southern Cone Common Market (MERCOSUR), in the 1990s low-cost Argentine and Brazilian sugar regularly flooded Paraguay’s market and led to the near collapse of the domestic industry. But at the same time, niche markets for “natural,” organic, and fair trade foods were beginning to expand. Importantly, the small scale of Paraguay’s sugar mills and the de facto organic production methods of its farmers made it among the world’s only locations where it was possible to source organic crystallized sugar produced from smallholder sugarcane.23
Companies in Paraguay currently process sugarcane for sugar, molasses, cane liquor, fuel ethanol, and a number of other products (Republic of Paraguay 2011). Fifty-five percent of the sugarcane land that supplies these industries is planted in small and medium plots (less than 50 hectares) by more than twenty thousand farmers (Republic of Paraguay 2008). Currently as many as seven thousand growers have organic certification, and approximately twenty-five hundred have received fair trade certification.24
However, the history of authoritarian rural social relations and hierarchical economic relations between farmers and the sugar mills has left many of Paraguay’s smallholder farmer organizations poorly prepared to take advantage of fair trade. While at least fifteen producer cooperatives, associations, and committees are active in sugarcane growing, they vary greatly in their managerial capacities and their political independence and representativeness. The gains that small farmers can obtain from participating in global value chains depend in part on the performance of sugar mills. But as we will see, it also depends on the effectiveness of farmers organizations in mediating between pressures for efficiency from sugar mills and demands for improved terms from their members. The case of one mill, Azucarera Paraguaya, and the farmers that supply it illustrates how fair trade certification can contribute to the effectiveness of farmers organizations. This outcome is far from inevitable, but the case points to certain conditions under which conscientious consumption of fair trade products can support meaningful change on the ground.
Azucarera Paraguaya (AZPA) is the largest sugar mill in Paraguay. The family that owns it has modernized management and taken advantage of organic sugar export markets. The company has expanded its plantations and processing capacity, implemented quality and safety standards required for export, expanded ethanol production from sugar by-products, and launched a set of additional agribusiness enterprises. Small farmers are mostly absent from the company’s vision of modernization. The mill purchases about half of its raw materials from a roster of more than two thousand farmers, but as an organic sugar purchasing agent put it, “Maintaining small producers is not a priority for AZPA. . . . The owners and their relatives can make much more money with their own production than by externally buying sugarcane, and they have capital to invest.”25 AZPA’s commercial manager claimed that sourcing from small farmers is “to help the social environment,” but admits that “it isn’t better for the company because logistically it is difficult.”26 But demand for fair trade–certified products has allowed smallholder farmers to retain their position. As the purchasing agent put it, “This [the mill’s disinterest in small farmers] makes Fairtrade really important and one of the only ways small growers survive—at least with the big mills.” The AZPA manager explained that “Fairtrade is a very small niche, even compared to organic. Honestly we do it in order to meet the demands of our clients . . . and will do it as long as they demand. We don’t get any benefit.”27
Fair trade initially generated a divide between winners and losers. One activist grower organized a group of approximately two hundred suppliers from one region into a Fairtrade-certified association. This group received social premium payments and made investments in transport and harvesting equipment that increased their efficiency. But the vast majority of the mill’s other suppliers did not have an association or were part of nominal but inactive associations. Many in this latter group found their access to the mill increasingly uncertain as the company expanded its own plantations. This inequality initially led to tensions, but it soon encouraged the formation of three additional fair trade farmers associations among AZPA’s suppliers. Apart from the resources that these associations receive directly through fair trade premiums, the associations are able to both represent farmers’ collective interests to the mill and invest in improving farming processes in ways that make small farming operations more efficient and responsive to market demands. For AZPA the creation of these associations shifted the supply chain from a set of inefficient individual relationships with sugarcane farmers to a more manageable set of transactions mediated by the associations.
This case illustrates both how fair trade interacts with preexisting institutional structures and how it can help small farmers to effectively participate in global agri-food industries. The very existence of the smallholder sugarcane farms, some of which came to be fair trade certified, is a legacy of Paraguay’s path of agricultural development. As demand for fair trade products grew, one group of small farmers was well poised to take advantage of this opportunity, and other groups were soon able to join in by organizing new associations. This is just one of several similar cases in Paraguay (Setrini 2011). Certainly the capacity to form effective, productivity-enhancing associations varies with the local political and economic context and should not be taken for granted. But at least in some circumstances it is clear that fair trade can help smallholder farmers become more viable and serve as a counterweight to the concentration of power in large agribusiness companies. This stands in contrast to the performance of the RTRS.
As described above, the main social problem associated with soybean production in general and in Paraguay in particular is the displacement of small-scale farming. The RTRS social standards give minimal guidance as to how this problem should be mitigated. But Paraguay’s lone RTRS-certified company, Desarrollo Agricola Paraguaya (DAP), has demonstrated a commitment to corporate social responsibility that goes beyond what is required by RTRS. DAP thus provides a most likely case for finding positive impacts of soy standards. However, nearly a decade of experience with this company has demonstrated how the soy industry’s production model severely limits the benefits that small farmers receive.
DAP is the Paraguayan subsidiary of NFD Agro, a multinational agribusiness investment group bankrolled by private investors, financial companies, and the World Bank’s International Finance Corporation (IFC) (Leperouse 2012). The company purchases and develops agricultural land, which it then sells or uses to grow soy, corn, and sunflower.28 Beginning in 2005 the company chose to invest heavily in Paraguay, because productive land there can cost 50–75 percent less than in Argentina and Brazil. NFD Agro boasts that land values have appreciated by 30–50 percent in two years, permitting the company to reinvest its substantial profits.29 Compared to Paraguay’s historical reliance on the re-export of imported manufactured goods, companies such as DAP are indeed forcing a particular kind of economic progress. DAP has converted low-productivity grazing land into mechanized farmland for grain and oilseed production, allowing two annual harvests. It has introduced new management systems, such as the outsourcing of production activities to contractors. And it has incorporated Paraguayan agriculture into international business and financial circuits, leading Paraguayan land prices and production practices to converge with those in the United States, Brazil, and Argentina. For instance, it has popularized crop rotation, no-till production methods, genetically modified seeds, agrochemicals such as Roundup, and mechanized planting and harvesting.
For these reasons the leaders of DAP and its parent company view themselves as modernizing and progressive forces. Moreover, DAP has adopted a “triple bottom line” approach, linking economic returns to environmental sustainability and social responsibility. The company has pursued a range of internationally recognizable certifications, including the ISO 14001 environmental management standard, OHSAS 18001 occupational health and safety standard, and RTRS certification for its soy farms.
Yet DAP’s operations are fraught with potential for conflict with peasant farmers. As soy producers have monopolized land and other productive assets, traditional subsistence-oriented peasant farming has been threatened. Large landholders and agribusiness corporations often buy land from the beneficiaries of earlier agrarian reform policies, although this technically violates Paraguayan law and results in invalid land titles. Large farms commonly suffer land occupations by organized peasant farmers claiming ownership of the land and contesting the legitimacy of the company’s purchase. Some lead to violence, and in June 2012 one such conflict escalated into a national political crisis that precipitated the impeachment of Paraguay’s president.30
DAP/NFD Agro has interpreted “corporate social responsibility” (CSR) primarily in terms of maintaining good relationships with neighboring communities, which is highly consistent with the RTRS standard. It also appears to follow through in its actions. NFD Agro chose the location of its land acquisitions to minimize the chance of conflict, and as a result it is one of the few companies that has not experienced land occupations. The activities of DAP’s full-time sustainability manager have also taken the company well beyond the RTRS requirements. The company has progressively expanded the scope of its social engagements, according to its manager passing through phases of philanthropy, to corporate social responsibility, to the integration of social values into the business model.31
In one early program DAP worked with the environmental NGO Fundación Moises Bertoni to address deforestation, poverty, and compliance with environmental laws, but the company’s sustainability manager described this “transactional” approach to CSR as unsustainable. Projects like this helped to spread new, more environmentally friendly farming methods to small farmers. However, the gains were lost once the project ended, but commercial and financial barriers to small farmers’ viability remained.
DAP then moved toward working directly with small farmers, incorporating them into the company’s supply chain and production model. The company offered agricultural inputs and services to small farmers—to be repaid after the harvest—in order to address the scale barriers that small farmers face in selling to a large buyer. However, the capital-intensive model of farming that the company was supporting proved too risky for small farmers. As described by DAP’s sustainability manager, in a good year farmers could repay their debts and even expand production, but in a bad year, when climate or price variation reduced earnings, farmers were left with debts they could not repay and the threat of losing their land. An Oxfam report on DAP’s projects confirms this problem, citing cases where debts of $US 1,000–2,000 forced farmers to divert productive resources to making interest payments or to default, cutting them off from credit altogether (Guereña and Riquelme 2013). Rather than planting crops and risking further failures, small farmers have often rented their land to large producers, which brings a more secure but smaller income.
Over time, DAP has moved further toward investing in unique structures to support the viability of small farmers. For example, DAP has proposed taking the money that companies usually spend on short-term CSR projects and putting it toward a small farmer investment trust fund. This fund would provide longer-term credit (five years) at below-market rates and technical assistance to implement organic production methods that are less capital-intensive and better suited to small farmers’ competitive advantage. In some ways DAP’s projects have moved closer to the principles of fair trade, far beyond what is required by the RTRS.
Yet even a company as dedicated to social responsibility as DAP has so far failed to meaningfully contribute to making smallholder farming viable in Paraguay. The problem is, even as the company has provided some support for smallholders, its core business strategy has made it very difficult for smallholder farmers to survive. DAP/NFD is essentially in the business of “land arbitrage”—that is, purchasing cheap land in frontier regions, converting it to productive farmland, and then selling it at a substantial premium. This has internationalized Paraguay’s land market, raising land prices even in the most remote and undeveloped regions. In fact, NFD’s success in Paraguay has accelerated the purchasing of Paraguayan land by other foreign investors who are less concerned than they used to be about “investment risks” in the country. As cross-border land prices have converged, small farmers have been priced out of the land market and pushed further toward the margins of the agricultural frontier—onto ecologically fragile land, into conflict with other landowners, or into urban and international migration.
In short, DAP/NFD’s investments are helping to institutionalize the financial, managerial, political, and physical structures of the soy economy and to foreclose developmental trajectories that are more compatible with smallholder farming and the kinds of alternatives that are emerging in the sugar industry.
This development pattern is damaging not only to economic and social equality but also to economic efficiency. Soy production is an efficient use of land relative to the cattle grazing that it has often replaced, but not relative to the high-value and labor-intensive food crops (fruits and vegetables) that can boost the incomes of well-managed small farms.
The globalization of agri-food industries has expanded the choices of consumers in affluent countries and has often lowered the prices they pay. For investors, globalization has brought an opportunity to find financial returns in underutilized economic assets (e.g., farmland) in developing countries. Yet both consumers and investors have sometimes feared that they are complicit in exploitation and environmental degradation perpetrated by global companies and their suppliers in developing countries. In the food and agriculture sector, such concerns are heightened by histories of slavery, colonial exploitation, persistent poverty, and political subjugation of peasant farmers.
As consumers and investors have voiced these concerns and pressured global companies for responses, the result has been the growth of initiatives to certify fairness and sustainability in agri-food value chains. One approach, exemplified by fair trade, seeks to support farmers’ livelihoods through the labeling of high-value consumer goods. Another approach, exemplified by the commodity roundtables, focuses on mass commodities that are often at the base of industrial supply chains. Albeit in different ways, both types of initiatives are “market-driven” mechanisms for creating fair and sustainable trade.
However, as this chapter suggests, this view of conscientious food consumption overlooks a key fact: farm-level outcomes are driven in large part by the local political economy of agriculture and nonmarket institutions, not merely by incentives rooted in northern consumer markets. The interactions and struggles of national industry organizations, farmers associations, and government agencies in agricultural exporting countries matter at least as much as the content of standards adopted by global companies and supported by conscientious consumers. This is not to say that global standards are irrelevant. Instead, the key is to consider how standards for fairness and sustainability intersect with the local politics of land tenure and smallholder farmer development. To retain their land, small farmers must be able to keep pace with profitable and efficient global agribusiness firms. At the same time, small farmers are best able to compete when they are organized to demand that companies and governments support their alternative production systems and respect their land claims. When it comes to the politics of food, then, a key question is whether standards for fairness and sustainability enhance the political and economic capacities of small farmers.
One way that fair trade certification matters is in the premium prices that certified farms receive (albeit to varying degrees). But importantly, fair trade also bolsters institutions of market coordination and interest representation (like cooperatives) where they already exist and sometimes supports the creation of such institutions where they do not exist. Farmers can use these institutions to articulate their economic and political interests, adjust to the demands of globalization, and counterbalance the power of large companies as gatekeepers to the global economy. In Paraguay’s sugar industry, fair trade stimulated the formation of new associations among largely atomized farmers that are helping them negotiate with a large and expanding sugar mill.
By contrast, the regulatory approach of commodity roundtables does little to support the capacities and rights of small farmers. The RSPO has struggled to address conflicts over land tenure, and the RTRS has largely sidestepped the representation of small farmers, while soy expansion continues to threaten their livelihoods. The RTRS takes as a given the technologies, production structures, financial arrangements, and commercialization practices that favor large-scale agribusiness companies, and it deliberately steers clear of the politics of national development. As we saw in Paraguay, even when a large soy company takes CSR seriously, small farmers remain vulnerable and marginal.
What does this analysis mean for the practice of conscientious consumption? First, it suggests that consumers should not expect great change simply from “voting with their forks.” Demand for fair and sustainable food can sometimes spur marginal improvements by companies and sometimes create new opportunities for farmers. But consumer demand is only one of many conditions that must be met in order for significant improvement to occur at the point of production. Many of the other conditions lie beyond the influence of consumer choice—in the domestic political economy of agriculture, for instance. Recall, in addition, that markets in the United States and Europe, where conscientious consumption campaigns have been focused, are becoming less influential in the global agri-food system with the rise of Chinese and other rapidly growing economies. Second, some conscientious food choices are more linked to alternative models of production than are others. Fair trade certification certainly does not guarantee effective, democratic farmers cooperatives, but it does sometimes support such structures, and it brings the organization of production to the fore rather than just nudging companies to use “best practices.” That said, recent moves by Fair Trade USA to certify corporate coffee plantations (and large apparel factories, as discussed in chapter 5) suggest that this component of the fair trade model may be dwindling, at least in the US market.
Regardless of the fate of the fair trade model, a third practical point must be kept in mind. If conscientious consumption of food is to significantly alter conditions in agri-food global value chains, then it must be coupled with transnational social movements and revisions to world trade policies that create space for robust domestic agrarian reforms. The political and economic choices of agricultural producers should be at least as central to discussions of fair and sustainable food as are the preferences of consumers.
