Fairtrade and formalisation for small-scale miners

The world's first Fairtrade and Fairmined gold is being launched in the UK. The scheme aims to help formalise the artisanal and small-scale gold mining sector. But is formalisation the best way forward?

Abbi Buxton's picture
Insight by 
Abbi Buxton
18 February 2011

This week saw the launch of Fairtraded and Fairmined gold in the UK. Twenty companies in the UK will use the gold and even Kate Middleton — recently betrothed to Prince William — may get a Fairtrade wedding band.

I wrote a blog article in August last year that looked at some of the potential pitfalls and challenges of a Fairtrade gold market. These lessons — from the agricultural sector — are still valid and should be kept in mind through the hype of this new certified market for gold.

But certification within a chain also means ‘formalisation’ of that chain, which will require miners to meets certain standards. A commonly held assumption is that formalisation of the artisanal and small-scale mining (ASM) sector is a positive move. But can we be so sure?

Support for formalisation

CASM — the Communities and Small Scale Mining body representing the sector globally — prioritises formalisation of the sector within its work plan.

The artisanal mining sector, affecting 10 million people worldwide, is largely informal — operating outside a legal framework but not necessarily illegally. Indeed, only a handful of countries in the world have explicit legislation for ASM (mineral laws tend to be focused on large-scale mining activities).

ASM may be one sector where formalisation is a necessity.

Health and safety is often poor on artisanal mine sites, with miners wearing no shoes or helmets while wielding a pick axe against a rock face.

Human rights are often violated in small-scale mining sites — child labour and inhumane working conditions are commonplace.

Trading in precious, high-value gold often goes hand in hand with high levels of bribery and corruption as well as widespread intimidation and violence by local gangs and traders.

These issues could be addressed through formal regulations — in particular, improved monitoring and governance of the chain could help reduce incidents of corruption and violence.

Another benefit of increased formalisation is that it opens up new markets for miners — Fairtrade certified markets, for example, as well as trade with large-scale mining companies who are required to operate under the law and can’t comfortably engage with miners in the informal sector.

Arguments for the informal sector

The informal economy does not have the same restrictions as the formal economy, such as paying taxes or complying with labour and environmental laws. This means lower barriers to entry and lower costs, which in some cases allows informal actors to outcompete those operating in the formal economy.

These low entry barriers also mean people can turn to mining in times of severe poverty and disaster as an alternative livelihood and coping strategy. Nearly all artisanal miners work casually, seasonally or are migrant workers — ASM often still operates as a gold rush when the presence of exploration companies signals the presence of minerals that communities might not have known existed. Formalisation would make easy entry and exit to the sector far more difficult.

The biggest challenge that faced the Cotapata Mining Cooperative in Bolivia in achieving Fairtrade/Fairmined certification was having to pay government taxes within the formalised system. To cover these extra costs, they need higher productivity to increase their income (the costs involved in Fairtrade certification — for example, to form cooperatives and attend meetings — are also not small).

Indeed, Fairtrade (a proxy for formalisation) will rarely work with existing, informal systems of production and trade. Their certification brings its own systems that will, in many cases, differ hugely from existing practices ingrained in the local social, cultural and economic context.

Few miners would be willing and able to make this transition to formalised working practices and trade – least of all the most disorganised and poorest. Many are in it for the quick wins and potentially huge windfalls (that few actually get).

Currently there are only three Fairtrade certified artisanal miner organisations in the world (all based in Latin America). These organisations had already gone a long way towards improving and formalising their activities before getting involved with Fairtrade. Africa – a potentially more complicated political, economic and social context for artisanal mining – is targeted to join sometime in 2012.

Is formalisation the only option?

I have long been reluctant to agree that formalisation of ASM is the best route for development in this sector because of some of the arguments listed above.

There are clearly benefits to formalisation but it seems naive to pin all our aspirations for the sector on this concept that remains contentious.

On the other hand the unregulated ASM sector is in many ways so dangerous and harmful to the miners and their communities that it may be naive to think that improvements can be made in any other way.