With reference to an example studied, discuss how globalisation has led to the need for fair trade in LEDC'S. Evaluate the merit of schemes of this sort. Countries have to trade with one another to satisfy the demands of their population. No country is entirely self-sufficient. They all need to produce goods they cannot produce themselves. Ideally, a country seeks to have a trade surplus (it earns more money from the goods its exports than it has to spend on imports), which make it richer. However, many countries have a trade deficient because they need to import more than they can sell to other countries.
Many of the trading patterns, which exist today, were established during the European colonial period when the richer countries of the North ruled the poorer countries in the south. The colonies were useful in trading in raw materials and cheap labour. This has led to the idea of globalisation however, political dominance from the colonial power has been replaced by economic dominance from Tran national Companies (TNC'S). TNC's play a large roll in world trading as 40% of all trading which occurs does so between TNC's.
One TNC Company is responsible for the large percentage of the banana trade in Ecuador. Ecuador is a LEDC located in South America. Ecuador's geographical location makes it an ideal location to grow bananas (Ecuador lies on the equator). Warm temperatures, fertile soil and reliable rainfall allow Ecuador to become a large producer and exporter of bananas. However, like many other LEDC's Ecuador is over-reliant on just one export of goods to produce domestic jobs and foreign income. Over 2 million of the population is involved directly or indirectly in the banana industry.
This industry is sensitive to the world price fluctuation in bananas. This has led to many problems as Ecuador relies heavily on this crop as its main foreign income source. Prices are dictated by MEDC's, which come together to form trading blocks. These trading blocks allow more buying power, which reduces the cost of buying bananas. This means that LEDC's loose out, as they have no other major export. Few people, usually the TNC's, dominate the banana market, this has resulted in small producers being squeezed out of the market.
Banana plantation workers are paid low wages for their work, which means most of the profit, is kept by the TNC's. In order to increase profits, small banana producers have adopted the policy of intense farming where wide use of pesticide is used to increase yield. Often no protective clothing is worn during pesticide use. Every banana in Ecuador is surrounded by a plastic bag in order to reduce evapotranspiration and also to reduce pests and fungus. Small producers struggle to make a living, as they cannot receive a fair price due to the large plantations producing cheaper bananas in larger quantities.
Small producers must carry out all the tasks, which are involved in harvesting bananas on their own; where as large plantations have a production line, which help to increase yield and productivity. Due to the helpless situation of the small-scale producers, it has led to the need for fair trade in LEDC's. Fair trade allows farmers to receive a decent price for their product. No longer are they paid poorly for their efforts. Fair trade organisations such as the Dutch SNV buy directly from small producers. SNV give a fair price, which helps some of the poorer banana producers. Those who have lost out due to the TNC's.
Fair trade organisations allow the farmers to improve their socio-economic status as the reliable income received can be used to improve housing and working conditions, access to better health and education, and also money can be used to feed and clothe their family. SNV also aid producers in technology, to increase yield, and also to accessing the European market, which support and buy from fair trade organisations. With fair trade come advantages and disadvantages. The advantages are that small producers can escape poverty in which one third of the population find themselves in.
Fair trade improves quality of life and living standards. Fair trade gives aid to workers who can work themselves out of poverty. The environment also benefits form fair trade as farmers change their farming methods to become more eco friendly. Fair trade also allows grater access to the global market. The disadvantage of fair trade is that organisations, which support the scheme, cannot reach the market. Fair trade organisations lack large cargo ships, which the TNC's possess. This causes transport of bananas to the market to become a major problem.
Small producers are forced to beg the TNC's for space on cargo ships to allow their goods to reach the market. On evaluation of the merit of the scheme, fair trade organisations are limited as to what they can achieve. They can give a fair price for their produce; however, they are limited on their assistance to reach the market. Fair trade organisations cannot invest in transport of produce like the TNC's, which have a well-developed transport network. This has led me to the conclusion that more is needed to be done than just giving a fair price, but more investment is needed to reach the market.