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Big Brands and Big Boxes Undermining Fair Trade?

When TransFair CEO Paul Rice sits across from Wal-Mart (WMT) CEO H. Lee Scott, the differences in their backgrounds couldn't be more stark.

Scott has spent nearly his entire adult life working at the retail behemoth, with a mandate to increase sales and profits and keep costs as low as possible. Rice, after graduating from Yale University in 1983, spent 11 years working with peasant coffee farmers in Nicaragua trying to squeeze higher prices out of coffee buyers. He set up one of the first cooperatives, with 24 coffee-growing families, who sold their first batch of fair trade product to Europe in 1990 for $1.26 a pound, compared with the 10¢ a pound coffee was selling for in Nicaragua then. "It was an overnight legend in Nicaragua," recalls Rice.

At one time, that gap might have made it easy to place Rice among Wal-Mart's detractors, considering the criticism of the chain's treatment of its own workers, its anti-union stance, and the sweatshop issues it has faced for years. Yet these days, Rice is finding a lot of common ground with Scott-especially since Apr. 1, when Wal-Mart launched three house-brand coffees certified as "fair trade," meaning they provide a fair price to small farmers. It was a crowning achievement for Rice, now chief executive of TransFair, the U.S. fair-trade industry's labeling organization. And it was a sign that the fair-trade movement has truly arrived in the U.S. mass market. After all, Wal-Mart is not only the world's largest retailer but also the one with the broadest reach. Same Old, Same Old?

For some proponents of fair trade, however, that endorsement of their cause feels more like a co-opting. In trying to boost the participation of Wal-Mart and other large companies such as Procter & Gamble (PG), they fear the whole idea of helping small farmers is getting warped. Many of the beneficiaries, critics say, wind up being the same type of big operations that prospered under the old system.

Take Wal-Mart's warehouse-club division, Sam's Club. When Sam's started offering fair-trade tea, bananas, and roses earlier this year, it seemed like a huge win for the movement, which had already seen sales of fair-trade coffee grow tenfold from 2001 to 2006, to $730 million. "The idea of bringing high-quality items to our members at a great value that were produced in an environmentally and socially responsible way was just too compelling to pass up," says Gregg Spragg, executive vice-president for merchandising at Sam's Club, who replied to questions via e-mail.

But all the fair-trade cut flowers and a large quantity of tea, bananas, and sugar imported to the U.S. come from big plantations in places such as Ecuador and Colombia. "The large companies want to continue working with mass producers like plantations rather than going the tougher route, which is identifying small farmers and buying from them," says Carmen K. Iezzi, executive director of the Fair Trade Federation, a trade group of companies that say they are 100% committed to fair trade. The Difference Between Coffee and Tea

Wal-Mart officials declined further comment about their fair-trade practices. Iezzi and others aim much of their criticism at TransFair USA, which is expanding fair-trade certification at a frenetic pace. They say that to keep up the pace of expansion, the organization is taking shortcuts that compromise the original concept. "When large, conventional plantations get fair-trade certified for improving practices, we consider that 'fair-trade lite,' " says Rink Dickinson, president and co-founder of Equal Exchange, a West Bridgewater (Mass.) company that is committed to buying only from farmer-run cooperatives. "There may be reforms, but it is a kindler, gentler version of the same old thing and falls short of what some of us are advocating."

Rice, who started TransFair in 1999, disagrees. "The notion that the standards have been lowered is ill-informed," he says. "Our objective is to help the poor, whether they own a plot of land or not."

Part of the problem Rice and Wal-Mart face is the difficulty of applying the same standards of equity and economics to different types of crops. While half of the global production of coffee comes from small farms, it takes a larger operation to compete in bananas, tea, cut flowers, or sugar. "The disadvantaged majority would be locked out of the market if I were to look for only small farms for bananas and tea," says Rice.

TransFair sets different standards for plantations to be certified as fair trade. They have to pay workers fair wages, allow them to organize into unions, and have strong worker-safety measures. The workers form a group and get part of the premium price (8% to 12% of each sale) that comes with the fair-trade label, for social and business-development projects. "There is a rose farm on top of a hill in Ecuador where the workers wear protective equipment against pesticides, they have free health care, and have invested in their own day-care facility with their project money-and I am proud of that," says Rice. Ugly Colonial Legacy

Working against Rice, however, is the perception that plantation owners got where they are by exploiting poor farmers and workers in developing nations. Some of these plantations in previously colonized countries are still owned by colonizers-rich white Europeans. And some in Latin and Central America are owned or controlled by large corporations such as Dole and Del Monte (DLM). "Plantations are the legacy of an unfair system where the elite and the wealthy classes denied small producers their land, and small farmers always got the raw end of the deal," says Jonathan Rosenthal, CEO of Oké USA, which sells fair-trade-certified fresh fruit bought directly from growers.

Also, there are questions about whether TransFair has the resources it needs to monitor worker conditions, as labor-rights groups do. Those labor groups say it's hard to keep tabs on workers in countries like Colombia, which hasn't been a friendly place for trade unions and where workers are generally afraid to speak out. Indeed, none of the flower plantations in Colombia that are certified fair trade have worker unions. "We wonder if TransFair is equipped to deal with worker-rights violations, especially as they expand and get into more complex supply-chain industries like garments," says Bama Athreya, executive director of the International Labor Rights Forum, a nonprofit advocacy group in Washington.

TransFair's Rice says he will continue his push into other areas, even apparel. He says that when faced with criticism, he likes to remind himself of his experience in Nicaragua. The cooperative he started there had grown to 3,000 families after four years. The families' lives had improved dramatically-they had electricity and water, they could afford health care, and their children were attending high school and even college for the first time. "It was a transformative experience for me," says Rice. "And I believed that globally, I could have the same kind of impact if I grow that vision in America."