I fortuitously came across this back-and-forth exchange while looking for something almost entirely unrelated: Free trade supporters have long faulted the fair trade movement and vice-versa. Whereas the fair trade movement often presupposes that--for the lack of a better term--"conventional trade" fails to give proper remuneration to farmers in the developing world, free trade supporters cast doubt on whether the fair trade agenda can achieve a scale that can result in material improvements for developing world farmers. In a series of posts, Dani Rodrik cast doubt on the efficacy of the fair trade movement because (1) it fails to achieve a large-scale presence and (2) it imposes IMF-style conditionalities on farmers.If you are familiar with the institution, the you shouldn't be suprised that the UK's Adam Smith Institute has an even dimmer view of fair trade than him. Whereas Rodrik called it "a ruse," the Adam Smith Institute labels it as ultimately "unfair." Following their reasoning, fair trade deters these farmers from pursuing improved farming technologies, keeping them in a low-level equilibrium trap. Is fair trade romanticizing LDC farming for the benefit of developed world consumers in such a way that ultimately hurts these farmers? What follows is the executive summary, though the entire report is worth reading if the topic interests you:
- Fairtrade Fortnight is a marketing exercise intended to maintain the Fairtrade mark’s predominance in an increasingly competitive marketplace for ethically-branded products. The hype is necessary, because there is every reason for the shrewd consumer to make other choices.
- 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.
- Most of the farmers helped by Fairtrade are in Mexico, a relatively developed country, and not in places like Ethiopia.
- 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.
- That Fairtrade producers only benefit at the expense of other producers outside the system. No evidence is cited for this other than two economists who say that “this must happen because free market theory says so”. In fact, Fairtrade farmers say their co-operatives often bring competition into local markets for coffee for the first time, forcing other traders to match their prices so that more farmers benefit.
- That Fairtrade helps farmers in Mexico (a relatively prosperous country) while ignoring the plight of very poor countries like Ethiopia. Leaving aside the fact that the coffee producing regions of Chiapas in Mexico are some of the poorest in Central America, anyone who has seen the film “Black Gold”[2] will know that Fairtrade through partnerships with people like Tadesse Meskela of the Oromia Co-operative Union is working with thousands of small farmers across Ethiopia.
- Fairtrade keeps people trapped in their traditional poverty instead of diversifying into new ways of earning a living. Again this ignores the feedback from hundreds of producers that the stability and security offered by Fairtrade enables them to invest in diversification which otherwise would be too big a risk.
- The consumer now has a choice of ethical alternatives to Fairtrade. Many of these are promoted by the Adam Smith Institute precisely because they do not attempt to intervene in the free market. However, Fairtrade remains unique in ensuring farmers a price for their crops that covers the cost of sustainable production, a premium for investment in future improvements and support for small-farmer organisations that enable them to compete more effectively in global markets. That is why charities like CAFOD, Christian Aid, and Oxfam, with decades of practical experience of fighting poverty in the developing world back Fairtrade as a model for development through trade.
