RESOURCES: What's the Difference Between "Ethical" Trade and "Fair" Trade?

Making sure that your suppliers are providing your organization with socially and environmentally responsible products can be a daunting challenge. Common questions include:

  • Where can I buy environmentally friendly products at competitive prices?
  • How can I be sure that basic labor and human rights are respected by our vendors?
  • Do we have the time and resources to make sure our ethical purchasing policy is really being implemented?

And now, a new question: what's the difference between "ethical" and "fair" trade?

For the answer we go to Ergon, an independent network of labour rights, human rights and governance experts "committed to working with leading-edge organisations that are serious about addressing their responsibilities". Ergon's October 2006 newsletter explains in simple terms the difference between "ethical" and "fair" trade (check out the whole article on page 4 for a great analysis), but what you really need to know is this:

‘Ethical trade’ is commonly used to describe the work of multi-stakeholder supply chain labour standards initiatives, such as UK Ethical Trading Initiative (ETI), US Fair Labor Association (FLA), Social Accountability International (which has developed the SA8000 model), and the Dutch Fair Wear Foundation. Adopting a non-premium paying, non-certification model operating in the mainstream economy, these initiatives aim to achieve incremental improvements in supply chain labour standards through the use of influence derived from trading relationships.

The ‘fair trade’ model, exemplified by Fair Trade Labelling Organizations International (FLO) or The International Fair Trade Association (IFAT), emanates from the ‘alternative trade’ movements of the 1950s and 60s. Generally speaking, it is a premium-paying, niche-market model of certification, commonly working with agricultural smallholders in developing countries, although FLO has in recent years developed a standard for hired labour, such as plantation workers. Under this model, payment to producers is determined by reference to a fixed and regularly updated commodity price and a ‘social premium’ which is invested by collective agreement of the producers.

What does this mean for your organization? In most cases, your organization will focus on "ethical" trade—developing a system where social and environmental criteria are included in a purchasing policy. A program to ensure compliance is then designed, and usually includes voluntary disclosure and/or auditing of suppliers, as well as remedial plans for those suppliers who may just need a little help. Those who continue to meet the ethical criteria receive "preferred supplier" status; those who fail to uphold basic social and environmental criteria are ultimately de-listed from approved supplier lists.

Complicated? It can be. At Strategic Sustainability Consulting, we help clients design ethical supply chain standards that are easy to manage, are cost competitive, and ensure that socially and environmentally-preferred products make it to your doorstep. If you'd like a complimentary consultation to find out more about how to implement an "ethical" trade policy, email me at for more information.