Blog author: jballor
Thursday, October 4, 2007
By

The Free Exchange blog at Economist.com (HT) concludes a long and thoughtful post on fair trade, specifically in response to this recent NYT article, “Fair Trade in Bloom,” by wondering:

And how does this affect coffee supply? If a premium is available for fair-trade coffee, shouldn’t other growers enter the market to take advantage of it until the price of coffee is bid down to market levels, leaving total producer take–baseline coffee price plus premium–where it stood before? Such a scenario would also raise distributional questions. If higher coffee prices attract market entrants, then coffee-growing nations will shift resources into that sector, which might be good for grower incomes, but could potentially inhibit the development of other economic activities.

Not to take anything away from the stated goals of the fair-trade movement or the well-meaning consumers who wish to do better by farmers in poor countries. Still, in any economic process, it’s often difficult to foresee the second- and third-order effects of a decision. It will be interesting to observe how growth in fair-trade products changes the structure of markets for targeted commodities.

These sorts of questions and concerns are at the heart of my past criticisms of the fair trade movement.

To the extent that fair trade certifiers are simply acting as agents to inform consumers and guarantee certain practices, to which coffee buyers can freely respond either affirmatively or negatively, there’s no real complaint. Fair trade becomes a boutique item that has to compete in the free marketplace.

But to the extent that the fair trade movement reflects a more thoroughgoing critique of market forces and the “fairness” or justice of market prices, it becomes more problematic. It becomes an entirely different paradigmatic alternative to a system of free trade.

You’ve essentially replaced market prices with arbitrarily determined prices, which are subjectively determined to be “fair.” Compare this with the traditional and classic scholastic understanding of a “just” price as the market value in the absence of any and all fraud and conspiracy.

The Free Exchange blog piece points out all sorts of negative consequences of the change from “just” to “fair” prices, not least of which is the increasing saturation of an already saturated market because of artificial subsidization of a particular commodity. Furthermore, it’s hard to see how it makes good economic and environmental stewardship to subsidize and promote the growth and production of a commodity of which we already have too much.

For more on the disconnect between the intentions and the consequences of the fair trade movement, check out this study, “Does Fair Trade Coffee Help the Poor?”


  • Marc Williams

    Studies of Fair Trade show that farmer’s are not planting more coffee, just receiving more for the coffee they already have in production. Coffee bushes produce for 15 to 30 years. Therefore they might as well get paid a fair price for something that is already in place. The neo-liberal model of economics that assumes farmers as ignorant enough to over saturate what is already saturated is outdated in the era of internet and better information extension through groups like fair trade organizations. Many farmer’s that sell fair trade are only able to move a fraction of their total production in this way and therefore have even less incentive to plant more coffee that would automatically go to the standard coffee price side. Besides Fair trade coffee is much more than just a better price. It also involves pre-payment, loans for workers to recieve ownership over means of production and develop processing capacity to capture more of the food dollar, development projects that ensure better health and education, etc. Also Fair Trade covers a host of other products besides coffee. Please do better research before detracting in a surface way from something that is helping millions of poor people worldwide.