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How Fair Trade Helped Indian Cotton Farmers When Government Failed

Hult Social Entrepreneurship
Hult Social Entrepreneurship | Thursday May 2nd, 2013 | 1 Comment

CottonAMRAVATI, India — Leela Pandu (inset) and her husband, Ram Kumar Pandu, are typical Indian cotton farmers from the green belt state of Maharashtra. Ram Kumar’s ancestors left him massive cotton fields that sustained his family for decades. However, between 1996 and 2010, cotton (known as “white gold”) production declined, leaving Ram Kumar and his family in a massive debt cycle and defaulted loans.

Ram Kumar’s story is not unique, but rather a representation of the millions of Indian farmers who rely on cotton farming as their sole livelihood.

In 2002, the Indian government introduced Bacillus Thuringiensis (Bt) cotton; a genetically-modified cotton seed supposedly resistant to the Bollworm. This cotton crop provides a higher yield, but is highly susceptible to damage. Despite this weakness, it sells for approximately four and half times the cost of normal cotton seeds.

Farmers plunged into the debt cycle when, due to unforeseen circumstances and weather, higher yields of cotton failed to materialize. Even when yields were higher, the high price of seeds, coupled with low cotton prices, made it difficult for these farmers to earn a sustainable living. Unlike organic cotton seeds, Bt cotton seeds do not reproduce, leaving farmers no choice but to purchase new seeds every season.

Adding to the woes, The Pesticide Action Network (PAN), a charitable organization in the UK working to eliminate the dangers of pesticides, also states that “the heavy use of pesticides by small scale cotton farmers in developing countries has unacceptable negative impacts on the health of farmers and their families and on the environment.”

This initiative started as an attempt to guarantee higher yields and protect crops against pests, but took an ugly turn when, over ten years,  an estimated 100,000 cotton farmers in India committed suicide. Indebtedness is believed to be the principle reason behind the phenomenon. Indebtedness is mainly blamed on an increase in cost for Bt seeds, the high cost of pesticides, low yields due to droughts and the declining price of cotton.

The Indian and Chinese governments have been working relentlessly for the past seven years to secure a better price for small-scale cotton farmers within their respective countries. According to these governments, the farmers will be able to get a better price if the U.S. eliminated cotton subsidies. The 2008 World Trade Organization (WTO) Doha trade negotiations failed to fulfill its agenda when the United States, China, and India could not reach an agreement on farm subsidies. The Indian representatives at the WTO attributed the meeting’s collapse to the failure of the U.S. to address its multibillion-dollar trade-distorting cotton subsidies. Since then, the WTO has been struggling to reach an agreement that would reduce trade barriers on farm protections.

The Special Safeguard Mechanism (SSM) was the main bone of contention at these meetings. Under the SSM, developing countries like India and China can legally impose the SSM tariff to curb a sudden surge in imports, therefore guarding against price devaluation of sensitive agricultural goods. In lieu of the current SSM, farmers would be more vulnerable to cheap foreign imports which could jeopardize their livelihoods.

In 2008, in an effort to invigorate cotton farming, the Indian government, under the Minimum Support Price (MSP), paid farmers an artificially high price for cotton, making Indian cotton more expensive as compared to other countries. In 2009, Indian cotton exports plummeted 72 percent, and the MSP is considered to be the catalyst behind the sharp decrease in international cotton sales.

Successful trade negotiations would have increased agricultural trade by improving access to foreign markets for all members. The Food and Agriculture Organization says China is the largest importer of the world’s cotton. An equitable agreement could have reduced China’s tariffs, enabling India to export more cotton to China. Increased access to the Chinese market could have grown India’s agricultural sector and benefited Indian farmers considerably.

Fair trade in India and China

In the absence of government policies, organizations rallied to improve the plight of the stakeholder at the base of the farming pyramid. In 2006, the international community responded to the increasing suicides, and an alternative trading system was introduced in India known as fair trade. During that year, the Fair Trade Foundation published a briefing paper, Global Imbalance: The Case for Fairtrade Certified Cotton, in which the organization explained its intent for fair trade cotton:

The aim of fair trade certification is to improve the situation of the farmers at the very bottom of the supply chains, recognizing that cotton farmers, like the many other agricultural commodity producers we work with, are at the sharp end of exploitation and injustice in international trade. Fair Trade, 2005

The goal with fair trade cotton is to empower individual small-scale producers by promoting social, economic, and environmental development within their producer organization. Proponents of the movement developed initiatives such as Fair Trade Minimum Price and Fair Trade Premium which empowered farmers by guaranteeing a minimum price for their cotton as well as educating them about safe and sustainable ways to grow cotton.

Unfortunately, in 2009, the MSP competed with the Fair Trade Minimum Price initiative and Fair Trade ended up losing the majority of their farmer loyalty. Zameen Organics, a fair trade organization located in Hyderabad, India blamed the government, saying it indulged in corrupt practices by inflating prices and claimed that they were doing it to influence farmers for the upcoming election.

Clashing ideals

On the one hand, the government is concerned about the economic impact of trading cotton on the economy, and is most concerned with prices. On the other hand, organizations like Fairtrade Cotton and Zameen Organics trade cotton by keeping socio, economic and environmental values in mind. The need remains for an acceptable global solution. In the absence of one, Fairtrade organizations and supporters are forced to create their own alternate trading system.

It is important for international trade policymakers to collaborate and reduce global subsidies in a timely manner, provide equal negotiation opportunities to leaders of developing countries, and adhere to the objectives of the original Doha Development Round. Furthermore, the fair trade cotton sector requires further research to identify the current trade barriers facing producer organizations in India.

The future of fair trade cotton in developing countries is unknown but, nonetheless, the fair trade community has awakened consumer consciousness. Global consumers, although aware of unequal trade policies, choose to continue to spend their money on fair trade cotton products and improve the lives of people, like Leela Pandu and her husband, whom they will never meet.

By Inyoung Hwang, Juanita Ossa, Paul Williams, Simona Maria Ioannoni, Theresa Hall and Niketa Malhotra. The authors are Master of Social Entrepreneurship candidates at Hult International Business School. 


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