A case against Fair Trade

Poverty is certainly a problem that must be addressed, but Fair Trade cannot do it.

Shortly before break, your correspondent was eating his lunch when a lovely young lady approached with a survey on Fair Trade. Explicitly, UDS is considering expanding the amount of Fair-Trade-certified products that are offered on campus. Coincidentally, this was soon after St. James’ Street ran its first piece, on “Fair Trade Apologetics,” for which we received both praise and criticism. It is a shame that the word “fair” is used in such a deceptive context. Thus, we are impelled to maintain our protest.

Indeed, we were criticized for the “countless flaws” in our “simplistic economic analysis.” That is odd, considering Fair Trade was born out of the (apparently simplistic) belief that economic market failure was delivering farmers “unjust” wages. Economics, as it happens, is the science of making the best choice, which Fair Trade is not. So in that light, we agree our analysis was simplistic.

Apropos to our previous piece, we highlighted that Fair Trade is ineffectual. Its goal is to provide a minimum price for its farmers ($1.24/lb), and an extra .5¢/lb if the market value exceeds the minimum. Curiously, this fixed artificial price does nothing to compensate for the dynamics that actually influence a foreign farmer’s purchasing power (inflation, standard of living, exchange rates, etc.). Still, while it remains to be seen what constitutes a “just” or “living” wage, there is a deeper problem.

Fair Trade guarantees a minimum price to cooperatives of producers, not individual farmers or workers. In fact, individual farmers, no matter how poor, are not eligible for Fair Trade certification. In 2006, the Financial Times did a survey of Fair-Trade-certified farmers in Peru and found 80 percent still received incomes below the minimum wage. The Fair Trade Labeling Organization could only respond by reiterating its norms and goals, and produced no countervailing evidence.

Contrary to our critics, the artificial price is in effect a subsidy. Like all subsidized markets, it causes a “simplistic” market distortion that leads to overproduction. Coffee is only second to oil as the most abundant commodity, and expectedly the price is low. Former officials of Fair Trade organizations have admitted that there is demand for only 13 percent of the coffee produced by Fair Trade farmers. The rest gets dumped onto the regular market, depressing average prices further.

This imbalance creates even more problems. Because prices are suppressed by overproduction, the Fair Trade Labeling Organization has resorted to denying certification for farmers in an attempt to control supply, and charging up to $3200 per application. If the goal of Fair Trade is to help impoverished farmers, that is a curious means of doing so. By growing vertically at a much more rapid pace than horizontally, the Fair Trade market has become a cartel of the producers lucky enough to be certified early. This stagnation creates a very deep hole to climb out of, as the Fair Trade market is a very small proportion of the whole. Incidentally, the largest purchaser of its coffee is Starbucks, and that only accounts for 3.7 percent of the chain’s inventory.

Another part of the Fair Trade scheme is to remove the middleman, with the intention of more money reaching the producers. This is a requirement of the Fair Trade Labeling Organization, and it places a large burden on farm cooperatives. Those “unnecessary” middlemen typically would find and connect markets to the producers, as well as handle the export duties. By assuming these duties, farmers often use up the extra money Fair Trade offers them just to keep their businesses running, simply because they are not as efficient.

Without question, a bulk of the Fair Trade movement is an example of anti-corporate armchair activism. When Nestle moved to offer a Fair-Trade-certified line in 2006, many members of the movement were up in arms. As it happens, mainstream coffee producers are the best way to get Fair Trade sales to take off, yet it is exactly what the movement fears. How can it accomplish its goals then? Indeed, as we pointed out last time, it has been calculated that only 10 percent of the premium charged to products with the certified label reach producers. The label has become a marketing tactic as much as anything else.

Poverty is certainly a problem that must be addressed, but Fair Trade cannot do it. It exacerbates and perpetuates poverty. The coffee market cannot grow enough to achieve the goals Fair Trade seeks. Fair Trade should be credited for raising consumer awareness, forcing companies to broaden their scope of costs and benefits. But the cause needs redirecting. The “fair” label should not preclude the existence of a superior development model.

There is profound evidence that focusing on quality increases income much more than Fair Trade. The movement misses this fact by treating coffee as a homogenous commodity, when it is anything but. Similarly, mass coffee manufacturers routinely mix the byproduct of coffee processing – known as triage – into its packages. That fills up the demand for the real coffee of producers elsewhere. Eliminating triage coffees could effectively reduce oversupply. So there are other causes worthy of the attention.

As a matter of course, if in the long run something is ineffective, it should be abandoned. When a practice is so entrenched, it takes outside criticism to bring light to its flaws. In 2004, Jon Stewart appeared on the show Crossfire and criticized it of failing to live up to its goal of providing genuine public debate. His hosts rejected being labeled partisan hacks. Soon after, CNN cancelled the show, citing that Stewart was right. Similarly, we seek to underline Fair Trade’s flaws, and remove it from this University.

St. James’ Street welcomes comments at [email protected]