HC Deb 14 March 2002 vol 381 cc1116-24

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pearson.]

7 pm

Ann McKechin (Glasgow, Maryhill)

I welcome the opportunity to speak about international fair trade, especially as last week I had the honour to host the launch in the House of the annual Fairtrade fortnight. Although the concept of fair trade has been around for some time—and Fairtrade products are a familiar sight in the catering facilities of the House of Commons—it is recognised as crucial to the long sought aim of eradicating world poverty.

Let me give two quotations to support that argument. Mario Perez, a coffee grower from a Nicaraguan farmers' co-operative, said: Three years ago, we practically had to give away our harvest, we were losing money. We were in debt. But, under Fairtrade, we've paid off all our debts and we are proud". Iddi Simba, Tanzania's Trade Minister commented at the World Trade Organisation talks last November on the unfair trading system that allows Governments in the north to continue subsidising their farmers while countries in the south have been forced to dismantle protective measures and open up their markets to cheap northern imports. He said: The wrong policy on agriculture might lose elections in France, but it loses lives in Africa".

Fairtrade started as a concept 13 years ago with coffee and has developed to include tea, cocoa, sugar, honey, chocolate, mangoes, orange juice and bananas. By re-connecting consumers with producers, it ensures that farmers get a fair price for their crops and the chance of a sustainable future. It provides dignity, not desperation; fair trade rather than exploitation. From humble beginnings in charity shops, it has now entered the mainstream retail trade with a sales growth of 40 per cent. in the last financial year. Fairtrade ground coffee has more than 7 per cent. of the United Kingdom ground coffee market, and the sale of Fairtrade products in the UK benefits at least 120,000 farmers and workers throughout the third world. The staff, business associates and volunteers who support the movement deserve enormous credit for successfully expanding within a competitive market and for providing hope for so many.

As yet Fairtrade is unfortunately only a small part of the answer, but it highlights the growing gulf between the rich and poor in our international trade systems. For many developing countries, coffee is the second most valuable commodity after oil and the most valuable agricultural commodity in world trade. The final price of a cup of cappuccino in a London coffee shop absorbs the costs of insurance, taxes, transportation, processing, packaging, marketing, storage and much more. However, of the £1.75 that might be charged, the grower will be lucky to receive the equivalent of just 5p.

Hidden behind that long and complicated journey is the collapse of coffee prices on the world market and the impact of that on both ends of the trade. Between 1994 and the end of 2001, the price of robusta coffee beans, which are used mainly in instant coffee, plummeted from around 180 cents a pound to just 17 cents, a 30-year low. Although it is estimated that the world coffee trade generates $60 billion in revenue, which is double the amount in the 1980s, the producing countries have retained only 10 per cent. of that compared with 30 per cent. in the 1980s. When the world price falls, it is the growers who suffer an immediate reduction in income, yet there has been no noticeable reduction in supermarket prices for coffee in the UK.

A recent Nestle report confirmed the sunny trading situation by stating: profits increased … and margins improved thanks to favourable commodity prices". For many farmers, however, the collapse in prices means that they have failed to recover their production costs for several years running. That has had a devastating impact on an already precarious existence. Some have abandoned their land, and for those who opt to stay at home the lack of labour for crop maintenance reduces the quality and value of the coffee product, further depressing returns. So the vicious circle is complete.

The price is mainly set in the international coffee exchanges in New York and London, where future contracts are traded. Although the futures market is an important tool to protect traders from price changes and currency movements, the increasing importance of speculation means that the tail now wags the dog. Paper deals make up about 90 per cent. of the coffee trade, while only 10 per cent. is based on the sale of physical coffee.

The increasing concentration of the market means fewer bigger actors are now able strongly to influence the market. In short, the benefits of the market accrue to the traders in the north, while the costs fall in the main on the producers in the south.

For small farmers in the third world, the price of beans on our markets is only one of the factors undermining their ability to make a reasonable living. Whereas farmers in the European Union, Japan or north America are beneficiaries of Government subsidy schemes worth around $300 billion a year, developing countries have been forced to dismantle state-controlled agricultural support programmes as conditions of loans from financial and international institutions. To add to that huge imbalance, agricultural imports from the richer countries are often cheaper, because of these subsidies, than the same product grown locally. At one stroke, farmers in developing countries are deprived of the ability to compete effectively in their home or foreign markets.

Without the means to process or transport the crop to market, limited knowledge of the frequently changing world price and a debt-driven necessity to sell the coffee the moment it is ripe—when prices are at their lowest—small independent farmers find themselves in a very weak negotiating position. With only one major harvest a year, farmers are desperate for cash by the time the crop is ripe, and they are keen to sell at any price they can get.

Over the past 20 years, more coffee has been grown as countries have been advised to expand production, clear their debts and increase export returns. Private and World Bank incentives exist for new or expanded production, yet existing farmers need better prices or, at the very least, some stability so that they can plan. Alternatively, they could diversify into other crops, but growers are understandably averse to investing in crops for which no clear market exists, especially when it can take several years to generate an income. Coffee, for all its faults, is widely traded, and the local infrastructure exists to market the crop. Most other options are fraught with greater risks for very poor farmers.

In the past 15 years, the global coffee trade has been radically reshaped. The tearing up of international quota agreements and the advent of Vietnam as a major producer has led to a market awash with coffee. In the face of oversupply, the buyer became king and prices plummeted. Among the manufacturers in the UK, Nestle and Kraft Jacobs dominate the instant coffee market, taking 50 per cent. and 21 per cent. respectively, with the supermarkets' own brands coming a close third.

Three key developments have created that situation. First, following pressure from the United States Administration to liberalise trade, the international coffee agreement was abandoned in 1989. The pact between the coffee producing and consuming nations had in the past regulated the supply of beans via a quota system to the market, keeping prices relatively stable. Since then, it has been every man and woman for themselves, a situation that penalises the weakest. With little or no resources, poor producers need to sell their crop as soon as possible, just when the price is lowest. All efforts to re-establish price control have failed.

Secondly, the unprecedented rise of Vietnam as a coffee producer in the world market has turned a difficult situation into a crisis. Government investment and World Bank loans enabled it to triple its output between 1995 and 2000 to become the world's biggest producer of low-quality robusta beans, second only in overall volume to Brazil. Vietnam now accounts for 10 per cent. of total global coffee output.

Thirdly, encouraged by the World Bank and partner institutions to restructure their economies, producer nations disbanded national coffee policy organisations which had helped to plan production and acted as intermediaries between small farmers and the market. Subsidies for coffee production and agricultural services were reduced and private exporters took on the main role in a trading market. In many instances, taxes on coffee exports were cut. Initially, some farmers received more of the export price for their beans, but such gains soon disappeared as market prices collapsed. Coffee growers, large and small, were left exposed to the vagaries of the international market and its sudden price fluctuations.

Coffee has appeared to offer hard-pressed Governments a relatively easy means of generating hard currency, but over the past decade production has increased at twice the rate of consumption. Coffee faces competition from other drinks and, despite the recent successes of coffee shops in the United Kingdom, Europe and north America, demand looks unlikely to increase substantially.

Ultimately, large corporate consumers are the only ones to benefit from that oversupply. Since the 1980s, fewer players have taken a larger share of the business. Four multinational companies that account for 40 per cent. of worldwide retail sales dominate the sales. Similarly, six multinational export firms control 40 per cent. of the world's coffee market.

Lack of access to credit has become one of the key factors undermining the position of small farmers. Without loans at a low rate of interest, it is impossible for farmers to ensure adequate care of their crops, or to look after their families before the harvest. After harvest, the need to clear punitive debts leads them to sell their crop quickly and prices are at their lowest. Lack of market knowledge and finance conspire to reduce the quantity and quality of the crop. As the biggest traders recognise, without a market that delivers a decent life to producers, they cannot deliver a quality product to the market.

For farmers to benefit consistently from the sale of coffee, the buyer needs to pay a price that covers the cost of production and allows for investment. For a commercial roaster on the world market trying to compete with other companies paying low prices, offering a higher price is only possible if the consumer is prepared to pay more. So, the idea of a consumer label was born. If consumers wanted to be sure that farmers had received a fair deal for their coffee, they were invited to buy coffee—and later other products—that was guaranteed to meet criteria for terms of trade and price. The Fairtrade mark has been that guarantee.

Sadly, coffee farmers have now experienced several years of real suffering and hardship. Many are fighting for their survival. The vast majority are peasants in some of the world's poorest countries.

I take this opportunity to congratulate the Government on their commitment in recent years to consider the social impact of business in developing countries and their own substantial backing for Fairtrade. The Prime Minister's recent visit to Ghana and his statements supporting Fairtrade were an important signal of that.

Fairtrade is now calling on local authorities throughout the UK to promote its products in their departments and within local communities. A growing list of towns and cities is participating in the project. I hope that the Government will also use their resources to strengthen their support by promoting the concept among their Departments and in their contacts with our society. I am pleased to note that the Minister's Department has arranged a conference later this month to discuss the development of Fairtrade products in the Caribbean islands and the export potential.

Clearly, it is vital that the Government should also use their influence in multilateral organisations—the European Union, the World Trade Organisation, the International Coffee Organisation, the United Nations conference on trade and development—to promote solutions that involve all the parties.

It is essential to stress the priority of eradicating poverty in line with the recognised international targets. It is also very important that the impact of the decisions and policies of those organisations is properly assessed to ensure that they act in such a manner as to reduce the gap between the richest and poorest in our world.

The role of the World Bank and the International Monetary Fund in policy making needs to be reviewed to ensure that it does not run counter to our development objectives. Too often, the implementation of structural adjustment and promotion of new coffee production in producer countries has been pursued without consideration of the costs in-country or elsewhere in the developing world. In particular, where analysis shows that it would exacerbate global oversupply, the Government should challenge investment in new coffee production, whether that originates from the World Bank, international development organisations or multinational companies.

I ask the Government to encourage the few companies that dominate the trade to take a far more active role in recognising their social responsibilities and to formulate a sustainable response to the problems within the industry. Seeking to stabilise the market and improve returns for farmers is in their own interests, not only as good corporate citizens, but also to ensure the future of good quality supplies. Producer countries also need to work to increase domestic and regional consumption, decreasing their dependency on export sales.

The ICO, Oxfam and other organisations support plans to restore the balance in supply and demand, including the destruction of 5 per cent. of low quality coffee stocks. That badly needed short-term strategy would need to go hand in hand with compensation payments to farmers and assistance in developing alternative income-generating activities. That could be financed by the World Bank and multinational coffee companies. However, such programmes would require agreement between, and political commitment from, producer countries to ensure the maintenance of supply-control measures.

I urge the Government in their negotiations with the EU and the WTO to end immediately the escalating tariff systems that allow green coffee beans to enter Europe duty free, but slap tariffs on processed coffee. That prevents major players from adding value to their coffee, leaving them with little choice but to increase exports to balance their trade. Without tariff escalators, coffee producing countries could develop their processing industries. For too long, the countries of the north have hidden behind a wall of protectionism, and their undertakings to tackle that at the WTO conference last year were hardly watertight or reassuring to the countries of the south.

The Fairtrade Foundation has set a good example to our society of how we should work for a world in which every person, through their work, can sustain their family and community with dignity. The challenge is for the world's nations and the multinational companies to support this cause—not just with words but with action.

7.15 pm
The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Denis MacShane)

I congratulate my hon. Friend the Member for Glasgow, Maryhill (Ann McKechin) on initiating the debate and on making a speech of passion and care about such an important issue. Fair trade is an idea whose time has come and it is an area where the individual can make an important difference. My hon. Friend helped to launch the Fairtrade fortnight in the House and she is passionately committed to fair trade products back home in Glasgow.

It is good that the House takes the issue seriously. The Under-Secretary of State for International Development gave an eloquent reply in a similar Adjournment debate initiated by my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy).

My right hon. Friend the Secretary of State for International Development visited my constituency at Christmas three or four years ago. Clare and I—that is the only time that I shall refer to her by name, as I know she should be given her ministerial title—donned Santa Claus hats and filled a handsome shopping basket with fair trade goods at Tesco. That brought us local publicity and encouraged south Yorkshire shoppers to follow my right hon. Friend's example.

My private office at the Foreign Office and the cafeterias and stores of the Foreign Office, the House and other public bodies try to buy fair trade products—as many of us do personally. Consumers can make a huge impact.

As my ministerial responsibilities include many poor parts of the world, however, it is right for me to offer one or two cautionary words. My friends in the United States steel industry—members of the United Steel Workers of America—insist that all they are fighting for at present is fair trade. That means that exports from steel plants in my constituency could drop by as much as half, if the full tariffs are applied. Fair trade for one person may mean the loss of a job for another.

Supporters of the common agricultural policy in France, associated with the A'TTAC organisation, say loudly that they support fair trade. However, the subsidies given to farmers in the north—both in Europe and the United States—amount to more than the total combined gross domestic product of sub-Saharan Africa. Their idea of fair trade would not be that of the African or Latin American peasant, producer or small farmer who wants access to our food markets in Europe or the United States.

My hon. Friend referred to the problem of coffee, but before I deal with that we need to consider some definitions. People talk about fair trade; they refer to ethical trade, or what Anita Roddick calls "community trade". The Body Shop has perhaps done more than any other franchised chain in the world to put fair trade into practice, with a continuing relationship with producers. The phrase "community trade" comes from Miss Roddick's introduction to a little book called "The No-Nonsense Guide to Fair Trade", published by Verso, which I commend to the House even if I do not agree with all its analysis. It is a further example of how the movement is growing, and we should give as much support and energy to fair trade as we can.

My hon. Friend spoke about coffee. I have visited Chiapas in Mexico, a traditional coffee-growing area, and spoken to the people who have suffered from the collapse in coffee prices, which has been one of the contributory factors to the Zapatista movement. Again, in Colombia, the absence of good coffee-production mechanisms, defined through good prices, has encouraged peasants to produce other, far more noxious, substances. In Brazil, President Cardoso is concerned about United States protectionism preventing Brazilian agricultural produce from reaching the US market.

It is not just wicked multinationals or a rigged market that have caused the collapse in coffee prices that is at the real root of the problem. As my hon. Friend said, Vietnam has massively entered the world coffee market in the past decade by growing coffee for export. Vietnam is a very poor country, and it is not for me to say that its peasants do not have the right to enter the world market for coffee, even if that drives down prices for producers in Latin America.

I am not sure that it can be right for white politicians in the north to tell one group of workers or peasants anywhere in the south—Latin America, Africa or Asia—that they do not have the right to produce for sale, including export, what they feel best able to produce. I would not be happy, and I do not think that my hon. Friend would, if some external body said that international investment could not come to our constituencies, on the grounds that the products or services proposed to be made or offered for sale were already being made or exported from somewhere else. As a constituency Member, representing, like my hon. Friend, a poor part of our nation, I want my constituents to have the jingle of as much money as possible in their pockets, and that means, for them, the lowest possible prices.

Of course we accept that trade can have cruel side-effects, but the past quarter century of increasingly open trade has produced remarkable results. In 1970, 35 per cent. of all the people in developing countries were considered to be starving. In 1996, the figure had fallen to 18 per cent., and the United Nations expects it to have fallen to 12 per cent. by 2010. That is not far enough or fast enough, and the millennium development goal of halving world poverty by 2015 is an important one, but if we compare where we were 30 years ago with where we are now, we can see that trade has helped to make the world richer.

Between 1990 and 1999, adult illiteracy rates in low-income countries, for males aged 15 and above, decreased from 35 to 29 per cent., and the percentage for females aged 15 and above decreased from 56 to 48. Again, that is not far enough or fast enough, but without the material benefits that come with open trade, not even those reductions would have been possible.

In 1970, only 30 per cent. of people in the developing world had access to clean drinking water. Today, about 80 per cent. do. That is why we need to make the case for open trade. Yes, we need fairer trade, but we must not give the final say to the protectionists, the anti-globalisers and those who would restrict trade to the profit of existing groups only. That would only make our world poorer. It is also why the world trade agreement at Doha was important. The new three-year trade round launched at Doha now has a development agenda at its core. If we can succeed, as Doha suggested, in opening up trade in agricultural products and removing subsidies, defeating protectionism, developing countries stand to gain substantial commercial benefits under the negotiating mandate.

Today, rich countries pay out $1 billion a day to their farmers in agricultural subsidies. Annually, the figure is more than four times all the development assistance that goes to poor nations. Our Government are at the forefront of advocating the need for change; the Prime Minister has spoken eloquently in Latin America and at the Dispatch Box about the need to defeat protectionism and open up trade in different countries. Markets will be opened up, as was said at Doha, with a view to phasing all forms of export subsidies and trade-distorting domestic farm support.

My hon. Friend the Member for Glasgow, Maryhill spoke about the increasing trade in processed foods; it is not raw materials which arrive here, but processed foods, which have been value-added in developing countries. She is right, which is why the Government are taking the lead in every international forum in seeking to remove those tariffs. I invite her to persuade the anti-globalisation campaigners that open trade—the lifting of tariff barriers—is the right way forward.

We have been at the forefront of pushing the European Union to to agree the "everything but arms" initiative for duty-free and quota-free market access for the least developed countries; there are now phase-in periods for rice, sugar and bananas. I would like those phase-in periods to be shorter, but I must take on, intellectually and politically, colleagues on the left in France and Germany, and many people in this country, who oppose the removal of protectionist tariffs and the fight for free and open trade. Government support for fair trade therefore has to be seen in the context of their wider commitment to reforming national and international trade to benefit the poor. Examples of that commitment include Traidcraft Exchange; the Government support business agencies and individual enterprises in developing countries with exporting, wholesaling and importing facilities, linking them to commercial buyers in Europe. Countries that the Government are helping through that initiative include Malawi, Zambia, Tanzania, India, and the Philippines.

We are supporting the start-up costs of the Day Chocolate Company in Ghana; manufacturers and markets which trade fairly get access to markets in the United Kingdom. We are seeking to help southern producer groups to meet changing market demand and assist with sustainable improvements to their livelihoods. We want capacity-building programmes for business service providers in developing countries which link producer groups with domestic and international markets. We want to support marketing campaigns to promote the principles of fair trade, and we want to support further the fair trade labelling system. Labelling a product, whether a T-shirt or a packet of coffee, to show that it was produced in accordance with the values of fair or ethical trade is one of the best ways of making progress. We want independent auditing of the fair trade label to ensure the validity of its guarantee to consumers and to prevent it from being suborned by some of the companies to which my hon. Friend referred. Shoppers in Britain should be sure that when they pay a little extra, it will get to the producers.

I am therefore particularly proud that, in the past five years, the UK, alone of the G8 or the major EU countries, has increased its share of gross domestic product devoted to aid; it has increased by 45 per cent. That, if nothing else, is an achievement of which every Labour MP and the Labour Government can be truly proud.

The fair trade debate will continue. The House has my pledge and, I am sure, the pledge of all Ministers, that the Foreign and Commonwealth Office and the Department for International Development will co-operate closely and continue to promote fair trade in the context of open trade, so that all the world can grow and we can finally defeat the scourge of poverty which, as the Prime Minister said of Africa, is a scar on the conscience on the world.

Question put and agreed to.

Adjourned accordingly at twenty-nine minutes past Seven o'clock.