Fair trade Pricing

The Fair Trade system is different from other ethical trading schemes as it provides producers two key monetary benefits: the Fair Trade Minimum Price and the Fair Trade Premium.

The Fairtrade Minimum Price is a guaranteed price that covers the cost of sustainable production. The fixed Fairtrade Price is always the minimum price paid but rises if market prices are higher.

The Fairtrade Premium is a separate payment allotted for social and economic development in the producing communities. The producers themselves decide how these development funds are to be spent. As part of the Fairtrade criteria, registered producers are accountable to FLO-CERT for the utilization of this money. It is generally used for improvements in education, health or other social facilities, although it may also be used for certain development projects that will enable farmers to improve productivity or reduce their reliance on single commodities.

Contrary to popular belief, the Fairtrade premium and the Fairtrade Minimum price do not always considerably increase the end price paid by consumers for a product. There are other factors to take into account when considering the price structure of Fairtrade products: sometimes economies of scale are absent or often the products are differentiated due to their organic farming practices, etc.