The Fairtrade minimum price and premium
Fairtrade minimum price
The Fairtrade minimum price is the minimum price that a buyer of Fairtrade products has to pay to a Producer Organisation for their product.
It is not a fixed price, but should be seen as the lowest possible starting point for price negotiations between producer and purchaser. It is set at a level which ensures that Producer Organisations receive a price which covers the cost of sustainable production for their product. This means it also acts as a safety net for farmers at times when world markets fall below a sustainable level. However, when the market price is higher than the Fairtrade minimum,the buyer must pay the market price.
Producers and traders can also negotiate a higher price, for example on the basis of quality, and forsome products, Fairtrade International (FLO) also sets different prices for organic crops, or for particular grades of produce.
The standards also allow producers to request partial pre-payment of the contract. This is important for small-scale farmers’ organisations as it ensures they have the cash flow to pay farmers at the time they deliver their crop. Buyers are also required to enter into long-term trading relationships so that producers can predict their income and plan for the future.
How is the minimum price set?
Fairtrade minimum prices are set by the Standards Unit at FLO following research into producers’ costs of sustainable production and consultation with traders and other stakeholders. The Fairtrade premium, is a sum paid in addition to the Fairtrade minimum price.
Do all products have minimum prices?
For most products, including coffee, cocoa, tea and bananas, the standards set a Fairtrade minimum price that covers the costs of sustainable production. Other products such as sportsballs and flowers don’t necessarily have a minimum price because they are traded in a different way. For these products, a price must be negotiated that covers the costs of sustainable production.
The Fairtrade premium is a sum of money paid on top of the agreed Fairtrade price for investment in social, environmental or economic development projects, decided upon democratically by producers within the farmers’ organisation or by workers on a plantation.
The premium is fixed by the Fairtrade International (FLO) Standards Unit in the same way as the minimum price and remains the same, even if the producer is paid more than the minimum price for the product.
The premium fund is typically invested in education and healthcare, farm improvements to increase yield and quality, or processing facilities to increase income.