Fair trade: myth and reality?


by Rumbold
3rd December, 2008 at 5:15 pm    

As Starbucks announces that it will only sell Fairtrade products, it does sometimes seem as if people are being pushed into purchasing goods labelled fair trade. We are told that free trade hurts the poorest countries, and only ‘Fairtrade’ can guarantee a fair price. Fortunately for the world’s poor, the majority of whom don’t, nor will ever, benefit from fair trade, the ethical superiority of Fairtrade was challenged in February, at least on an academic level (after a research paper from the Adam Smith Institute was published):

• Fair trade is unfair. It offers only a very small number of farmers a
higher, fixed price for their goods. These higher prices come at the
expense of the great majority of farmers, who – unable to qualify for
Fairtrade certification – are left even worse off.

• Fair trade does not aid economic development. It operates to keep the
poor in their place, sustaining uncompetitive farmers on their land and
holding back diversification, mechanization, and moves up the value
chain. This denies future generations the chance of a better life.

• Fair trade only helps landowners, not the agricultural labourers who
suffer the severest poverty. Indeed, Fairtrade rules deny labourers the
opportunity of permanent, full-time employment.

• Four-fifths of the produce sold by Fairtrade-certified farmers ends up
in non-Fairtrade goods. At the same time, it is possible that many
goods sold as Fairtrade might not actually be Fairtrade at all.
• Just 10% of the premium consumers pay for Fairtrade actually goes to
the producer. Retailers pocket the rest.

• The consumer now has a wide variety of ethical alternatives to
Fairtrade, many of which represent more effective ways to fight
poverty, increase the poor’s standard of living and aid economic
development.

• Fairtrade arose from the coffee crisis of the 1990s. This was not a free
market failure. Governments tried to rig the market through the
International Coffee Agreement and subsidized over-plantation with
the encouragement of well-meaning but misguided aid agencies. The
crash in prices was the inevitable result of this government
intervention, but coffee prices have largely recovered since then.

• Free trade is the most effective poverty reduction strategy the world
has ever seen. If we really want to aid international development we
should abolish barriers to trade in the rich world, and persuade the
developing world to do the same. The evidence is clear: fair trade is
unfair, but free trade makes you rich.

I don’t think that Fairtrade is bad per se, providing that it is just one option in a free market. If people want to buy their produce in that manner, then so be it. The problem comes with the inevitable attempt to distort free markets with calls for trade barriers and subsidies. Despite all the problems with market-based economies recently, a free market is still the best way to move goods around. Person A sells Person B something: Person A is happy because she preferred the money to the product, while Person B is happy because he preferred the product to the money. Yes, the system is far from perfect, but what is the alternative? The state interfering in what we can sell and purchase? Because that is the system that the fairtraders advocate when they call for trade barriers:

“The Fairtrade model fails because it is profoundly unfair: it rewards
inefficient farmers who produce poor quality goods. The Fairtrade model
assumes that poor farmers must always remain farmers, and it seeks to
subsidize their agrarian niche, denying them the possibility of dreams of a
better life.

By guaranteeing prices, the Fairtrade movement tries to hold back the tide.
Instead of helping unsustainable farming communities to develop new
sources of income, they encourage them to continue in the old ways. According to Oxfam, in the time it takes five hundred people in Guatemala to
fill a large container with coffee, the same amount of coffee can be picked in
Brazil by five people and a mechanical harvester. Fairtrade supports
inefficient, labour-intensive cooperatives in a battle they can never win,
trapping them in their poverty.

Imhof and Lee (2007) note blandly that, “Fair Trade-sponsored organic
production helps generate sufficient additional income and labour
opportunities, allowing more family members to stay in coffee production.”
Yet as the documentary film The Bitter Aftertaste makes clear, these additional
labour opportunities are incredibly inefficient, and by resisting mechanisation can conflict with national plans for economic development. No country has
ever become rich while remaining agrarian. Fair Trade keeps farming families
working the land: it refuses to consider that they might wish the next
generation to do better than the last.”


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  1. Muhamad — on 3rd December, 2008 at 7:17 pm  

    Never had starbucks. I find their “fairtrade” agenda suspect. I’d rather emulate Gandhi and drink cow urine. Furthermore, I’d rather eat and invest in organic produce.

  2. halima — on 3rd December, 2008 at 10:18 pm  

    I think it’s good to encourage companies to be greener and more socially responsible. I don’t really want to see a discussion on Fair trade hostage to what Starcucks is or isn’t.

    Reports are all interesting, i can pull out one from Oxfam which will argue the opposite to what the Adam Smith Institute will say on the topic – why, because they are both ideologically opposed organizations. Depends on your world view whether you think fair trade is good or bad.

    I’ve seen, and still do see, fair trade initiatives which help with giving poor people access to markets – one of the biggest constraints to poor people trading in poor countries. You might want to see the conclusions of the Growth Commission and its panel for some serious discussion on what helps the poor.

    http://www.growthcommission.org/index.php?option=com_content&task=view&id=96&Itemid=169

    Fair trade doesn’t assume countries will stay mostly agrarian – but it works on the assumption that the agricultural sector employs mostly the country’s poorest, and helps to enable the poor to access better and more inclusive economic opportunities.

  3. fugstar — on 4th December, 2008 at 12:09 am  

    doenst make star$ucks a virtuous entity…

  4. Nyrone — on 4th December, 2008 at 12:12 am  

    I attended a meeting on CSR recently where I learnt somewhat incredibly that ’1 in 2 Brits boycott a product on ethical grounds and that Gap and Nike are still percevied as large sweatshops by 30% of the British public’

  5. Sunny — on 4th December, 2008 at 4:47 am  

    Hah! C’mon Rumbold, I didn’t think you would post that incredible piece of crap by ASI.

    Fair trade is unfair. It offers only a very small number of farmers a higher, fixed price for their goods. These higher prices come at the expense of the great majority of farmers, who – unable to qualify for
    Fairtrade certification – are left even worse off.

    Erm, yes boo hoo that only a few farmers are getting paid rightly for their produce… instead of nobody if fairtrade didn’t exist.

    In which case the answer would be to expand fairtrade rather than slate it as ‘unfair’ no?

    Fair trade only helps landowners, not the agricultural labourers who suffer the severest poverty. Indeed, Fairtrade rules deny labourers the opportunity of permanent, full-time employment.

    This is a silly point too. Fairtrade deals with producers and isn’t a big employer, which is why it helps landwoners. In many small countries the landowners are usually poor people anyway, who are tied to the cooperative who deals with fairtrade. Hopefully, more of that higher income filters down to labourers.

    And more of that income would filter down compared to a system where these landowners weren’t paid a fair price for their produce.

    Fair trade does not aid economic development. It operates to keep the poor in their place, sustaining uncompetitive farmers on their land and holding back diversification, mechanization, and moves up the value
    chain. This denies future generations the chance of a better life.

    This is just mindless bullshit without any data. Why doesn’t it aid development if farmers are paid more for their produce? This point might as well state ‘fairtrade kills babies’ for all the relevance it has.

    The consumer now has a wide variety of ethical alternatives to Fairtrade, many of which represent more effective ways to fight poverty, increase the poor’s standard of living and aid economic development.

    So? The people have the right to a choice, including fairtrade.

    Free trade is the most effective poverty reduction strategy the world has ever seen. If we really want to aid international development we should abolish barriers to trade in the rich world, and persuade the
    developing world to do the same. The evidence is clear: fair trade is unfair, but free trade makes you rich.

    Maybe you should tell that to the govts of Europe and USA that subsidise their own farmers. Not an argument against fairtrade.

    The Fairtrade model fails because it is profoundly unfair: it rewards inefficient farmers who produce poor quality goods. The Fairtrade model assumes that poor farmers must always remain farmers, and it seeks to subsidize their agrarian niche, denying them the possibility of dreams of a better life.

    the ‘model’ doesn’t assume anything. It gives farmers more money for their produce.

    This report is lame, as is the Adam Smith Institute in general.

  6. Boyo — on 4th December, 2008 at 8:02 am  

    Halima and Sunny thank you – as someone who used to be heavily involved in the Fairtrade movement you’ve saved me the bother of demolishing this nonsense.

    It is certainly ironic that at a time when the kind of model championed by Adam Smith et al has so spectacularly crashed, conservatives still seek to undermine a movement that helps redress some of the many inequalities that have been symptomatic of its failure over the years. And I know the get-out is – oh, but it’s not REALLY a free market – well, yeah, like the USSR wasn’t REALLY communism.

    As has been noted, Fairtrade competes IN the market – any success it has should encourage its less fair competitors to push for Fairtrade Certification rather than slashing their costs and exploiting their workers further.

    Fairtrade does not hinder development and is not only restricted to agriculture – why not produce Fairtrade washing machines one day? – yet the world still needs to eat and during these difficult times the smart money is actually going IN to agriculture. When workers have the liberty to choose between the Brazilian farm and becoming web designers, maybe your point about efficiency will make sense – otherwise it is just a route for further exploitation.

    I don’t think conservatives appreciate just how profoundly their system has failed. We have after all only had the economic earthquake – we have yet to be hit by the tsunami. I’m no Marxist, but at a time when nationalising the banking system is being seen as a viable and sensible option, it seems to me that democratic, demand-driven socialism – precisely like Fairtrade – could provide us with a way forward.

  7. Rumbold — on 4th December, 2008 at 11:00 am  

    Halima:

    Thanks for the link to the report.

    Sunny:

    “Erm, yes boo hoo that only a few farmers are getting paid rightly for their produce… instead of nobody if fairtrade didn’t exist.

    In which case the answer would be to expand fairtrade rather than slate it as ‘unfair’ no?”

    I have to agree- that is the weakest point of their argument.

    “This is a silly point too. Fairtrade deals with producers and isn’t a big employer, which is why it helps landwoners. In many small countries the landowners are usually poor people anyway, who are tied to the cooperative who deals with fairtrade. Hopefully, more of that higher income filters down to labourers.”

    I think that this point is well covered in the report:

    “Fairtrade not only disregards the poorest, it makes their condition worse by requiring that certified farms do not hire permanent full-time employees, reducing hired labour opportunities to infrequent seasonal work where wage levels are hard to monitor and may be illegally low. In 2007, the International Development Committee officially declared, “fair trade could have a deeper impact if it were to target more consciously the poorest of the poor.” Yet it is not easy to see how the Fairtrade model could be adapted to serve the very poorest. By its very design, it excludes the truly poor.”

    So if you want to help the worst off in society, you need to do something else.

    “This is just mindless bullshit without any data. Why doesn’t it aid development if farmers are paid more for their produce? This point might as well state ‘fairtrade kills babies’ for all the relevance it has.”

    Again, the report deals with this. Fairtrade subsidises labour-intensive projects, which discourages mechanism, and thus discourages faster economic growth. Look how much China has achieved simply by industrialising. Fairtrade restricts such development.

    “Maybe you should tell that to the govts of Europe and USA that subsidise their own farmers. Not an argument against fairtrade.”

    But fairtraders wnat developing countries to put up their own trade barriers, which hurts consumers in those countries. So the fairtrade lobby definately has a anti-free trade agenda at the moment.

    Boyo:

    We don’t really live, nor have we, in much of a free market economy,. There have always been massive subsidies, tarriffs and other restrictions of trade. How can any economy in which the government consumes 45% of GDP be considered free market?

  8. Joe Otten — on 4th December, 2008 at 11:03 am  

    I think the ASI do have a kernel of a point, but much of their polemic is laughable.

    These higher prices come at the
    expense of the great majority of farmers, who – unable to qualify for
    Fairtrade certification – are left even worse off.

    Er, no, it is not the other farmers that are buying the coffee. This obsession with equality between farmers is a bit left wing for the ASI isn’t it?

    it seeks to
    subsidize their agrarian niche, denying them the possibility of dreams of a
    better life.

    Yeah a bit of subsidy makes so many things impossible.

    Buying fair trade is a charitable act, 10% efficient, that makes a few lives a bit better, and makes no difference to the great majority. We shouldn’t scoff, but certainly shouldn’t expect it to ever deliver as much prosperity as free markets have done.

  9. Sunny — on 4th December, 2008 at 3:18 pm  

    So if you want to help the worst off in society, you need to do something else.

    Such as? And what is the ASI suggesting it do?

    We shouldn’t scoff, but certainly shouldn’t expect it to ever deliver as much prosperity as free markets have done.

    Mmm… yes and no. free trade also relies on the view that the developing country being traded with is efficient and allocating resources properly. Most of the time it isn’t.

    China has grown massively, but not by allowing resources to be allocated by the market – it has allocated resources itself and used the massive US market to export goods to and become richer. Its free trade, but not capitalism as envisioned by Adam Smith. So using that as an example isn’t a good idea either.

  10. shariq — on 4th December, 2008 at 3:43 pm  

    “Buying fair trade is a charitable act, 10% efficient, that makes a few lives a bit better, and makes no difference to the great majority. We shouldn’t scoff, but certainly shouldn’t expect it to ever deliver as much prosperity as free markets have done.”

    Spot on Joe. Obviously CAP needs to be reformed. Also, western consumers need to understand that a lot of produce with high food miles actually use a lot less CO2 than crops grown locally.

  11. Muhamad — on 4th December, 2008 at 4:23 pm  

    If one genuinely wants to be charitable one could do without starbucks (or is that charity in its self?).

  12. MZ — on 4th December, 2008 at 5:19 pm  

    I too think the report is riddled with assumptions, which have been addressed well enough here that I don’t need to repeat.

    As someone who’s actually done research on coffee farms (Nicaragua directly, secondary research on other parts of Latin America), I can say the assumption that mechanization leads to greater efficiency is problematic.

    Mechanization is only appropriate on full-sun farms where coffee trees are planted in neat hedge-rows with nothing but other coffee trees, and it helps if the terrain is relatively flat.

    Assuming all coffee is the same and a short time horizon, mechanized farming could be considered more efficient (without getting into the costs of an unemployed rural workforce, and assuming that “something” will absorb them).

    However, farming in this way rapidly decreases the fertility of the land, and increasingly requires chemical inputs (fertilizers to deal with fertility; pesticides as well). Having a longer time horizon (beyond 5-10 years) significantly (and negatively) affects productivity/efficiency calculations, and this method of farming leaves you with poorer land in the end (diminished asset)

    By contrast, small-scale coffee farming often occurs within a mixed-strata agro-ecosystem. This means farmers use shade trees that have other uses (additional food/income, nitrogen-fixing (improves fertility), species habitat (supports fertility, natural predators for coffee pests), etc). You also get into the more environmental themes of better biodiversity, carbon sequestration, etc.

    These systems have much longer productivity and, if managed well, can actually improve the quality of soils over time. They provide greater regional food security, and more diversified income for the farmer that peaks at different times of the year.

    So if we’re talking about efficiency of just coffee production and on a very short time horizon, then yes, mechanization is more efficient. If we extend the time horizon, or include total production (coffee + all other produce), then I don’t think it’d be a fair claim.

    Going back to the assumption that all coffee is the same, Fair Trade only really exists within the specialty coffee world. As far as I know, coffee that’s grown within the conditions required for mechanization is of too poor a quality to enter this market (requires a “cupping score” of at least 80 points/100).

    So pushing the “Fair Trade promotes inefficiency by inhibiting mechanization” is inappropriate.

    Of course, there are all of the internal inconsistencies that have already been alluded to. For instance, how can Fair Trade be both too small to help anyone while simultaneously being big enough to significantly impact global (even regional) production?

  13. Rumbold — on 4th December, 2008 at 5:44 pm  

    Sunny:

    “Such as? And what is the ASI suggesting it do?”

    Free trade. Create genuine markets. And target charity at the very poorest.

    “China has grown massively, but not by allowing resources to be allocated by the market – it has allocated resources itself and used the massive US market to export goods to and become richer. Its free trade, but not capitalism as envisioned by Adam Smith. So using that as an example isn’t a good idea either.”

    So in short, China has become rich by producing things that people want to buy? Sounds like the hidden hand of the market to me.

    Shariq:

    “Also, western consumers need to understand that a lot of produce with high food miles actually use a lot less CO2 than crops grown locally.”

    Excellent point Shariq.

    MZ:

    “I can say the assumption that mechanization leads to greater efficiency is problematic.”

    Fair point. I (and the report) were being simplistic.

    “Going back to the assumption that all coffee is the same, Fair Trade only really exists within the specialty coffee world. As far as I know, coffee that’s grown within the conditions required for mechanization is of too poor a quality to enter this market (requires a “cupping score” of at least 80 points/100).”

    But other speciality coffees command higher prices than Fiartrade, so perhaps the answer lies there?

  14. ian lowe — on 4th December, 2008 at 5:44 pm  

    I enjoy buying fair trade & thinking about how it winds libertarians up. Silly of me, maybe, but fun.

  15. Sunny — on 4th December, 2008 at 5:54 pm  

    Ian – lol, that’s a bonus. I’m going to think that next time.

    So in short, China has become rich by producing things that people want to buy? Sounds like the hidden hand of the market to me.

    Its still regulation, but very targeted. If you think the UK is over-regulated, China is way worse. Of course, no one denied capitalism makes people richer, my point is that getting rid of regulation isn’t always the answer. And invoking China doesn’t really help your case… :)

  16. MZ — on 4th December, 2008 at 6:07 pm  

    Rumbold – You’ve zeroed in on a key misunderstanding regarding the importance of Fair Trade.

    Specialty coffees do frequently exceed the Fair Trade floor, which also means the prices paid for Fair Trade coffee (as specialty coffee) is frequently above the floor as well.

    More important than the floor is that Fair Trade enables producers to get a larger share of the value of their product.

    Conventional coffee markets, as many agricultural markets, are riddled with power asymmetry, which means correspondence between “international prices” and “farm gate prices” isn’t always strong.

    A better way to think about Fair Trade is as a facilitator of market information and more equal power relations (two things free trade theory assume, but don’t frequently exist).

    On the quality front, I’ve seen more upward pressure caused by Fair Trade than downward. It’s complicated, but that’s been the trend.

  17. MZ — on 4th December, 2008 at 6:08 pm  

    Rumbold – You’ve zeroed in on a key misunderstanding regarding the importance of Fair Trade.

    Specialty coffees do frequently exceed the Fair Trade floor, which also means the prices paid for Fair Trade coffee (as specialty coffee) is frequently above the floor as well.

    More important than the floor is that Fair Trade enables producers to get a larger share of the value of their product.

    Conventional coffee markets, as many agricultural markets, are riddled with power asymmetry, which means correspondence between “international prices” and “farm gate prices” isn’t always strong.

    A better way to think about Fair Trade is as a facilitator of market information and more equal power relations (two things free trade theory assume, but don’t frequently exist).

    On the quality front, I’ve seen more upward pressure caused by Fair Trade than downward. It’s complicated, but that’s been the trend.

    I think the floor price, though important to Fair Trade Certification, is too often misunderstood, and triggers the visceral response and arguments people often have to subsidies. In fact, it doesn’t really work like a subsidy.

  18. halima — on 4th December, 2008 at 6:19 pm  

    “So in short, China has become rich by producing things that people want to buy? Sounds like the hidden hand of the market to me.”

    No. Even neo-liberal economic institutions like the IMF and the World Bank have come around to accepting that China’s growth has been state-interventionist.

    You might want to read about the Beijing Consensus – the current rationale and thinking on China’s growth.

  19. sonia — on 6th December, 2008 at 1:33 am  

    a lot of misnomers we have.

    free trade doesn’t exist. neither does ‘fair’ trade obviously.

    fair trade can be seen as ‘fairer’ trade than so-called ‘free-trade’, isn’t particularly free as it is within the same economic system which is based on cartels. nothing ‘laissez-faire’ about it.

  20. sonia — on 6th December, 2008 at 1:39 am  

    there’s just a lot of confusion about terminology. some clever people have decided that if you tell people there is no regulation, they’ll believe you. its hardly as if all these ‘emerging’ countries were WANTING to have their arms twisted to ‘liberalise’. who was doing the arm twistwing? oh the people who like the ‘laissez-faire’ approach. hilarious! i would say to them, but dahling – why so bothered? take a chill pill..you sound so regulatory!

    shakespeare would have been having a field day.

    let’s call a spade a spade and have some honest terminology. what we are in favour of and what we are not. all this sham telling people something is free when there is no such thing in sight and there is a lot of ‘not very obvious’ regulation – if you don’t do this, we won’t do that. yes its a different kind of regulation than what we understand ‘within’ the State level. so bloody what -fine, let’s come up with a new name for it. supra-state regulation, as carried out by the WTO, World Bank, and IMF and everybody else. regulation that is not defined as regulation, because its unwritten?

    why otherwise intelligent people can’t see this i don’t understand. people are arguing about surface terminology – not ‘real’ operational issues. ‘free trade’ – what’s that anyway? can someone define please.

  21. BOD — on 9th December, 2008 at 7:59 pm  

    Fair Trade is good. It seems relevant to support Fair Trade where you are certain of the social, economic, and environmental practices; however I think it goes without saying that we the consumer can rarely rest assure that these practices are top notch.

    This is why I try to support Direct Trade coffee vendors, who themselves check out the practices and do not simply rely on the Fair Trade seal of approval.

    I personally live in Scranton, PA, and here in Scranton we have a coffee importer/roaster by the name of Electric City Roasting. This company also has to local cafes which sells this coffee. Anyways, the owner of this company goes directly to coffee farms and checks out their practices herself. If she deems them to be above the Fair Trade standard she then decides to purchase from the farm. And it is this, that is known as Direct Trade.

    From the consumer perspective, I there again can not ensure that the practices are perfect, but I can at least see the farm and staff via the pictures that adorn the cafes, and it seems to be a bit more traceable than even Fair Trade can purport.

    So check out Direct Trade vendors, and look into http://www.electriccityroasting.com …. There great!

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