Fair Trade: Prices and premiums

Fair prices and minimum prices

The fair price is the price paid to producers as a fair remuneration (in the local context) ensuring, among other things, coverage of production costs and decent living conditions.

For many fair trade products such as coffee, cocoa or bananas, a fixed minimum price exists that covers the cost of sustainable production for each of these products in the region concerned and avoiding instability linked to price fluctuations on the international commodity markets. This price is fixed and reviewed regularly by instances such as Fairtrade International.

When the market price of a product is higher than that minimum price, the market price is paid, increased with the development premium (see below). But, when the market price is below that minimum price, the minimum price is paid and also increased with the development premium. The minimum fair trade price is like a safety net protecting producers from excessive price fluctuations on the commodity markets.

Fair trade premium

The fair trade premium is an extra sum transferred to producers which they obtain on top of the payment for their products.

This sum, usually amounting to between 10 and 15 % of the minimum price, is for a common fund of workers and/or farmers which they can use to improve their social, economic and environmental situation. The farmers and/or workers must determine their priorities: their children’s education or health, the improvement of productive activities or the construction of infrastructure such as road and bridges serving their community.

In addition to the fair trade premium, Fairtrade International has developed an organic premium, which is calculated based on the difference in operating costs between conventional agriculture and organic agriculture. This premium is only acquired after making the transition to organic agriculture; it is a kind of award for the investments agreed upon and covers the additional costs incurred over time by organic agriculture (particularly, more field work).