Managing risks

Managing risks at Fairtrade

A company’s business model, and their strategies and practices, all have an influence on the sustainability of the entire value chain.

The assessment of these influences – or organisational risk factors – is a critical part of human rights and environmental risk assessment, as laid out in the OECD Due Diligence Guidance.

Hence, companies downstream in supply chains need to assess how their business model, purchasing policies and pricing practices support or constrain their suppliers’ human rights and environmental efforts.

Fairtrade considers this a crucial step. In the interest of transparency, we present this summary of Fairtrade’s own assessment.

Risk factors

Fairtrade's organisational risk factors

Fairtrade exists to advance the rights of smallholder farmers and workers and environmental sustainability in global supply chains. We utilize several interlinked tools, including standards, continuous producer support, development projects, social audits, certification, advocacy work, awareness raising campaigns and communication work.

Through our work, we bring a wide array of opportunities for producers and businesses across the world. At the same time, we recognise that any organisation has some limitations and weaknesses, which may contribute to human rights and environmental harms.

The key risks related to the global Fairtrade System – and our related responses – can be organized into seven clusters. We evaluate each risk for its potential impact and the likelihood of occurrence and rank them on a scale of high, medium, or low.

Overall operating logic

Risk: Certification schemes can slow down transformative change in global business by buoying confidence in voluntary, market-based solutions
Level: Impact high, Likelihood low

For over 30 years, Fairtrade has highlighted the need for fair prices, fair value distribution, sustainable livelihoods and, in the last decade, explicitly for living incomes and living wages. Our pioneering methodology for Living Income Reference Price – the price a farmer must receive to earn a living income – has moved the needle on this crucial issue.
Fairtrade concurs that voluntary measures are insufficient for fully addressing human rights and environmental harms in global supply chains. To contribute to a more holistic approach, we advocate for legislation, for example on Corporate Sustainability Due Diligence, Deforestation and Unfair Trading Practices (UTPs), together with other civil society and multistakeholder organizations. We seek to make concrete proposals on how these laws can advance the rights of smallholder farmers and workers upstream in global supply chains.
Our standards strive to encourage and support farmers and workers as they organize and exert a stronger influence on their workplaces, supply chains and society.
We aim to communicate openly about the limits of certification and call for our corporate partners to conduct HREDD. See our related position paper and latest guide for companies.

Risk: Certification schemes can contribute to increased consumption of products that have negative environmental impacts, even if this consumption is targeted at certified commodities
Level: Impact high, Likelihood low

Fairtrade operates primarily in the food and ingredient sectors, where the volume of consumption is relatively stable. Hence, our communications mainly encourage consumers to switch from one brand to another in favor of certified products.
Gold is an exception in our commodity portfolio. The volumes of Fairtrade gold remain minimal and it is unknown whether Fairtrade's engagement in gold increases or reduces the total global consumption for gold. Fairtrade certification may influence some consumers to opt for gold jewelry over alternatives, while others may opt to avoid gold, when Fairtrade’s engagement raises their awareness of the grave sustainability challenges in gold supply chains.
We are concerned about the footprint of Fairtrade and Fairtrade certified products and support certified producers to introduce climate friendly practices and technology. At the same time, research has shown that locally-grown products are not necessarily more climate friendly. For example, despite the air transport, Kenyan Fairtrade roses have a significantly lower climate footprint than Dutch roses, when purchased in the Netherlands.
We encourage organic production by offering a higher Fairtrade Premium for organic products. Smallholder agriculture, practiced by over 80% of Fairtrade certified producer organizations, does not lead to large monocultures and often maintains a high diversity of crops and varieties, maintaining biodiversity.

Decision making

Risk: Multistakeholder initiatives may pay disproportionate attention to their (potential) corporate partners’ needs and fail to find synergies between those and the needs of rightsholders
Level: Impact high, Likelihood low

Fairtrade has exceptionally close dialogue with rightsholders: We employ more than 230 in-house employees in Africa, Asia and Latin America, who maintain ongoing dialogue with local farmer and worker organizations.
At Fairtrade International, Producer Networks from Africa, Asia and Latin America participate with decision making power in all Fairtrade governance bodies and committees. They hold 50 percent of the decision-making power at the General Assembly, which takes all strategic decisions for Fairtrade.
The Producer Networks are governed by Fairtrade certified producer organisations. The latter have organized into country and product networks, which strengthens their leverage.
Producer Network and trade union representatives also hold four of the eight seats on the Standards Committee, which approves changes to Fairtrade Standards and Pricing.
Trade union contributions are also included via the Workers' Rights Advisory Committee, which advises the Board of Fairtrade International, and via Board members at several Fairtrade member organizations.
One area where further development is important, is our dialogue with trade unions at the local, national and regional levels around the world, and in locations where workers’ rights violations are common.

Standards & pricing

Risk: Certification schemes may require too little from retailers and brands, resulting in fewer resources for human rights and environmental work at the supplier level|
Level: Impact high, Likelihood medium

It is a challenge to maintain a fair balance in requirements among different supply chain actors. In many commodities, a few traders, processors or brands have a dominant influence on global trade.
Fairtrade is the only voluntary sustainability scheme to maintain non-negotiable Minimum Prices and Premiums that assure additional protections and resources for producers' human rights and environmental work.
That being said, it remains difficult to increase Minimum Prices and Premiums to a sufficient level that covers living incomes, living wages and other costs of sustainable production, including the emerging expectations of due diligence measures and related data collection. If buyers find the cost of Fairtrade compliance too high and leave the system, farmers and workers lose their markets. For example the 20% raise in the Fairtrade Minimum Price and Premium for cocoa in 2019 was followed by a drop in purchase volumes for Fairtrade certified cocoa.
We are currently revising our requirements for supply chain actors between the farms and the retail, to bolster requirements on due diligence and support for the human rights and environmental work at farm level.
We also actively encourage retailers and brands to make additional investments in support of their suppliers’ human rights and environmental work. This can mean paying the Fairtrade Living Income Reference Price, closing Living Wage gaps or contributing to Fairtrade projects in their sourcing areas.

Risk: Sustainability initiatives may neglect some salient human rights and environmental issues
Level: Impact medium, Likelihood low

The strong role of rightsholders at Fairtrade reduces the risk that some salient issues get neglected (click on Decision making to read more on this). Our on the ground support teams work hand-in-hand with producers to respond to human rights and environmental risks and violations.
Fairtrade’s Standard setting processes are highly consultative. We also commission independent gap assessments prior to all major standard reviews, including the ongoing reviews of our standards for traders and so-called “hired labour organizations” (HLOs, primarily plantations).
Fairtrade has a systematic, ongoing and participatory process for identifying and assessing the salient human rights and environmental issues in Fairtrade commodities, operating areas and operations, and feeding these findings into our various workstreams. This Fairtrade Risk Map is a summary of our findings.
Our standard setting and other workstreams benefit from Fairtrade's systematic monitoring and impact work. We analyse and capture learnings from self-reporting questionnaires submitted by Fairtrade certified producer organizations, scholarly articles on Fairtrade’s impacts – several such articles are published every year – and longitudinal data gained via household interviews.

Producer support & programmes

Risk: Development projects or producer support can be planned in a top-down fashion, which reduces rightsholder ownership and makes implementation less effective and sustainable
Level: Impact medium, Likelihood low

We are very aware of the problems that top-down planning can cause for farmer cooperatives and plantations: Due to the top-down requirements of various buyers and sustainability initiatives, many cooperatives and plantations are obligated to utilize multiple different risk assessment methods, data collection tools and reporting formats.
Fairtrade has clear principles and a process for project planning to ensure that the needs and expectations of farmers and workers are heard and prioritized.
Rightsholders also steer Fairtrade’s producer support and programme priorities at the strategic level. The strategy of each Fairtrade Producer Network is defined through an inclusive consultation process and approved by producer organisations in a General Assembly.

Risk: Fairtrade’s training and support for cooperatives and plantations may prioritize passing audits rather than increasing their influence in supply chains and the society
Level: Impact low, Likelihood low

Fairtrade’s training and other support to producer organizations is extensive, compared to many other certifications. In addition, producer organizations only pay a certification fee and do not pay for additional support services from Fairtrade. For example in 2020, our training or other support reached 93 percent of the 627 Fairtrade certified producer organizations in Africa and the Middle East.
Satisfaction with Fairtrade’s support activities is high among certified producers. In 2020, 75-84 percent of producer organizations were highly satisfied, according to Fairtrade’s annual producer satisfaction survey (among 75 percent in Asia, 81 percent in Africa and 84 percent in Latin America).
Most support does not focus on Fairtrade Standards. For example, 37 percent of the direct support to Latin American producer organizations in 2020 was focused on human rights and climate change, another 31 percent focused on organizational strengthening, planning and accounting, and 16 percent was focused on Fairtrade Standards.
Farmers understand that our focus goes well beyond preparing for audits. Asian producer organizations report that after Fairtrade support, 65 percent of them have undertaken advocacy work, 86 percent have worked to improve women’s participation, and 78 percent have identified their organizations’ development needs (Survey results for 2020).
The dichotomy between passing audits and influencing supply chains and the society is often exaggerated. Fairtrade Standards create structure that helps producer organizations become more democratic and effective. The standards and audits are tools for advancing this development. In our work, we have found that effective, democratic organizations have greater influence on their supply chains and society.

Audits & certification

Risk: Audits may fail to detect sensitive violations like sexual harassment, forced labour or discrimination
Level: Impact low, Likelihood medium

Audits are not a singular tool for detecting human rights violations, especially in the case of the most sensitive violations. Fairtrade regularly undertakes and commissions analyses of “hotspots” – geographic areas where some risk is high – and the effectiveness of our detection work.
Given our permanent presence in many producer areas and frequent exchange with producer organizations and other local stakeholders, Fairtrade is highly attuned to many sensitive issues. The Fairtrade System has more than 230 in-house employees in Africa, Asia and Latin America. When a violation is identified or alleged, we act to protect the affected person(s) in line with our Protection Policy.
We encourage individuals and groups to use our allegation procedure to bring grievances related to Fairtrade or a certified organization to our attention. We implement innovative reporting approaches, including a method for lodging allegations through a messenger service.
The depth of audits also varies widely among audit schemes. Fairtrade maintains high standards and our certifier is certified to ISO Standard 17065 for bodies certifying products, processes and services. For example, our standards state that certification can be suspended if an organization keeps an auditor from interviewing some people or visiting production sites. The website of Fairtrade International shares further information on how our assurance and certification work.
Please see salient issue pages for further information on Fairtrade’s efforts on gender rights, forced labour and discrimination.

Risk: Audits or corrective action planning may be conducted without meaningful rightsholder engagement, rendering audit results unreliable or corrective action plans meaningless
Level: Impact medium, Likelihood medium

All Fairtrade audits are carried out by an independent audit company FLOCERT, which allows Fairtrade to maintain a good oversight of the strengths and challenges of auditing. Our Requirements for Assurance Providers and Oversight Committee minutes are publicly available.
FLOCERT audits include farmer and worker interviews, and aim to establish a comfortable, confidential situation where farmers and workers can share their concerns without fear of adverse repercussions. For example, in large farmer cooperatives that are directly involved in farming (first grade organizations), at least 40 farmers and 15 staff members must be interviewed. On large plantations, at least 30 workers must be interviewed. Further information is available in this procedure
FLOCERT is compliant with the ISO standard 17065 for bodies certifying products, processes and services. Further information on FLOCERT procedures is available on this website. When audits are robust and corrective actions relevant, auditing and corrective actions are useful tools to ensure continuous improvement. At Fairtrade, certified organisations are motivated to identify relevant and effective corrective actions, because repeated non-conformity with the same requirement may lead to suspended.
One area for improvement is consultation of trade unions with representation in audited workplaces. At the moment, such consultation is recommended, but not required for auditors.

Risk: Audit costs may be shared inappropriately across supply chain actors, making audits too expensive for most vulnerable actors
Level: Impact medium, Likelihood medium

In Fairtrade, participating retail, trading, manufacturing and brand companies subsidise producers’ certification fees, to lower the cost of participation for farmer organizations. We are also transparent about the certification costs, to help producer organizations make informed decisions about whether Fairtrade certification could provide sufficient value.
Unlike other certifications, Fairtrade does not charge for producer support, customer attendance, audits or related travel. Fairtrade and FLOCERT apply an “all-in” fee model, where the annual cost is fixed.
Nevertheless, it is true that certifications are not best suited to advance the rights of the very poorest communities. People living in extreme poverty are seldom part of global supply chains, and development cooperation and public services are needed to advance their rights.

Communication, campaigns & advocacy

Risk: Where certifications exaggerate their impact, citizens and companies may underestimate the depth of human rights and environmental challenges in supply chains, resulting in neglect and underinvestment
Level: Impact high, Likelihood medium

This Risk Map is designed to boost corporate and citizen awareness and action on the salient human rights and environmental problems. In the coming years, we seek to utilize this Map widely in our communications work and dialogue with commercial partners.
We try to communicate openly about the human rights and environmental challenges in global supply chains. Increasing consumer and corporate awareness about the challenges in global supply chains, allows for more in-depth messaging and encourages the development of movements like Fairtrade.
We support our corporate partners to communicate about sustainability and their partnership with Fairtrade as a journey and ensure that consumers understand that the use of certification is not a guarantee of 100% sustainability <to be added: link to our upcoming communications guidance for licensees>

Risk: Many certification schemes fail to share information about risks, actions and progress sufficiently and fairly. Rightsholders’ data ownership and concerns must be respected – but at the same time, awareness of issues must be raised among downstream business actors and consumers
Level: Impact medium, Likelihood high

Fairtrade publishes regular monitoring reports about Fairtrade’s scope and producer satisfaction, and multiple thematic or product-specific impact studies every year. We also share tailored, annual monitoring reports with many retailers and brands every year, including information about the use of Fairtrade Premium, slightly aggregated audit data and/or tailored monitoring work.
Even for those efforts, many companies are insufficiently informed about the human rights and environmental risks in their supply chains. We need to do much more to show where and to what extent certification mitigates human rights harms – and how due diligence compels retailers, brands, manufacturers and trading companies to take additional action and offer farmers and workers additional support.
We are working hard to improve our data collection, management and sharing. The publishing of this Risk Map is an important component of our efforts.
We have paid careful attention to farmers’ and workers’ needs and concerns in producing this Risk Map. Transparency is not automatically beneficial for farmers and workers, especially when companies are unaware of the realities in various regions. When farms and factories become more transparent about their human rights risks and challenges, buyers must commit to long-term business relationships, collaboration and fair purchasing practices that support constant improvement.

Human resource management

Risk: Some groups of staff in the Fairtrade System may face discrimination in recruitment, wages, professional development or promotion
Level: Impact low, Likelihood medium

No organization can be completely devoid of discrimination – it always exists – so it’s important to take active steps to prevent and mitigate its impact.
Employees in the Fairtrade System are very diverse. Staff representation comprises six continents and heterogeneous backgrounds in terms of ethnicity, religion, gender, age and other characteristics. Our professional backgrounds are in business, activism, academia, public services and many other fields.
In July 2019, every Fairtrade organization committed to establishing a policy on equality of opportunity and whistleblowing. Annual work environment surveys are also common. Discrimination related internal grievance cases are rare.
Like in many organizations, Fairtrade’s internal work on diversity and anti-racism was re-energized in 2020. Examples of the related reflections and commitments can be found on the websites of Fairtrade Foundation and Fairtrade International.

Risk: Staff in the Fairtrade System may engage in misconduct, such as harassment, sexual abuse, corruption or fraud
Level: Impact low, Likelihood medium

Some minor cases of fraud by staff in the Fairtrade System have been identified and successfully rectified by local Fairtrade organizations in recent years.
In July 2019, Fairtrade member organizations unanimously approved the Fairtrade Code, committing to put in place policies on child protection, sexual exploitation and abuse, harassment and anti-bullying, amongst other issues, and to take action to prevent and remediate these violations. Members also have whistleblower policies, and Fairtrade International is setting up a global whistleblower channel.
An important area for further development is to strengthen the internal monitoring of Code implementation to ensure that all Fairtrade member organizations, without exception, have an adequately structured safeguard system. At the moment, the effectiveness of responses varies among Fairtrade member organizations.

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