Fair trade hurts the poor

The Fair Trade Foundation manipulates the market to the disadvantage of destitute farmers

Dan Osborne, ArtSci ’12
Dan Osborne, ArtSci ’12
Starbucks is one of the biggest buyers of “Fair Trade Certified” coffee in North America.
Starbucks is one of the biggest buyers of “Fair Trade Certified” coffee in North America.
Credit: 
Supplied

Many students buy fair trade coffee on campus thinking they’re helping the poor.

But, how many students actually know what fair trade coffee is? And how many would still buy it if they knew it hurt the destitute farmer it intends to help?

Fair trade is a brand and quite simply that. Fair trade products are products certified by the Fair Trade Foundation (FTF).

As part of the certification program, the foundation requires producers wishing to participate to abide by a variety of standards. In addition, they pay a rather large fee to become certified producers.

In return, producers receive contracts to sell their products at a guaranteed price, which, the FTF argues, protects producers from market volatility.

Does the fair trade label’s guaranteed price actually protect producers from market volatility?

No, at the end of the day, producers care about their incomes—price of a good multiplied by the quantity sold—not about the price of what they are selling.

A guaranteed price, like the FTF provides, only guarantees income when there is a guaranteed quantity to be purchased at that price.

Though purchasers of fair trade labelled products might feel better about themselves for paying a higher price, there’s no assurance the producers will actually benefit.

In that respect, fair trade has no real effect on the poor. In other respects, the certification has a falsifiable negative effect on the poor.

The fees the Fair Trade Foundation imposes on certified producers have an unfortunate and unintended effect on the lives of people in absolute poverty in third world countries.

With the minimum fee for the smallest firm wishing to produce fair trade coffee resting at £1570, farmers from extremely destitute countries are excluded from participating in the program.

Dr. Susil Mohan notes in her recently published monograph, “Fair Trade Without the Froth,” that in countries with a higher average income, fair trade products account for a much larger share of production.

It’s hard for a program intended to benefit the poor to do so when they are not even able to participate.

Furthermore, as the size of the fair trade market grows, consumers are actually hurting the penurious producers they would like to help.

They unwittingly redistribute wealth from poor countries, which can’t afford to produce fair trade products, to the middle income countries that can.

It’s people from better-off countries, who have more resources to pay fees and a better capacity to organise, who benefit from fair trade.

In one sense, fair trade supporters are actually making trade less fair and hurting the truly destitute in our world.

The variety of standards and regulations that the FTF requires of its certified producers contribute to making trade more unfair.

They reflect the preferences of consumers in the Global North and the NGO’s mission instead of the needs and desire of the producers, whom the program should help.

Certification bans farmers from producing in any type of organisation other than a commune.

This reduces the farmer’s productivity and their ability to change over the medium- and long-term to adjust to changing demands and market conditions.

The lower productivity, in many cases, might actually reduce farmers real income.

Banning child labour is a similar Western moral judgment that has a negative effect on the poor.

In impoverished countries, a child’s income is often very important to the family and without it there would be starvation.

Working on the family’s farm protects a child from much more exploitative forms of labour.

No matter how much we might dislike and disapprove of child labour in the Global North, it is quite simply unrealistic to ban it in a place like Papua New-Guinea.

Financial Times writer Tim Harford noted that for several years the premium coffee bar Costa sold fair trade coffee, during which time only 10 per cent actually reached the producer.

The remaining 90 percent was pure profit and I’m afraid they’re not the exception.

I only buy coffee on campus from Tim Hortons, the only place which does not sell ‘Fair Trade’ coffee, because I’ve seen the facts. I want to actually help the poor and buy their product.

I don’t want to support the coffee chain’s bottom line or the middle class producer when I can support the truly destitute.

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