Is Fair Trade really fair?

This is the fourth in a series by economics student Rebekah Hebbert on the family and economics.

Agricultural regulation and price supports tend to strike a deep nostalgic chord in many people, particularly those who benefit from the existing system.

I live in a very rural riding where local advocacy groups are more likely to tout signs reading “This Land is Our Land, Back Off Government”, than to bemoan practices frowned upon by Greenpeace. Yet for all the rhetoric against “government interference”, farmers are notoriously reluctant to abandon the incredibly generous subsidies, protections, quotas, and other market distorting varieties of government interference which happen to benefit them. At the merest hint that such protectionist policies might be touched, advocates will bring forward tender scenes of the rural family around the hearth, and cry that this nostalgic utopia is worth subsidizing to the hilt.

A similar pattern emerges when fair trade activists campaign on behalf of farmers in developing countries. While their arguments for ethical consumerism are compelling and hardly improper -- indeed it can be argued that this is free market capitalism at its best -- we need to look into whether or not these types of interventions into the market actually do improve the lives of the most needy farmers.

While fair trade products can, and often do, command higher prices in retail outlets, the percentage of that increase that goes to the farmer himself may not be that large. Hard numbers are almost impossible to come by, as percentages vary by retailer and organization, but some estimates place the percentage of the FT premium that goes to farmers as low as 0.5 per cent or less, rising to a mere 10 per cent. So, while consumers may view the difference in price between regular and fair trade products as something in the nature of a donation, any charity which sent that percentage of donations to the actual charity recipients would be widely, and rightly, regarded as a scam.

The premiums paid to FT farmers can vary from double or even triple the marketplace rate in the worst of times, to a few cents per pound above market price during good years. This is because fair trade offers a consistent price -- its major benefit -- thus cushioning farmers from devastating price fluctuations. However, even if a farmer is FT certified, not all of his crop will necessarily be sold as such. In fact, one average suggests that about 17 per cent of a FT co-operative’s crop is sold through fair trade channels, and of that money a not insignificant percentage goes to fund community projects, rather than to the individual farmers.

Adding to the complications, fair trade projects may actually discriminate against the poorest of families. While FT projects are concentrated in Central America, the poorest coffee farmers, for example, tend to be located in Africa. The certification fees, which can cost thousands, also exclude the poorest farmers and cooperatives. Therefore, the farmers who most need the premiums may be the least likely to get them. In the mean time, a prejudice against conventional coffee and increased production by the farmers who are receiving higher prices, could cause a decrease in prices offered to other farmers.

But the most ironic findings come from a German study of Nicaraguan coffee farmers, which found that, due to decreased yields, farmers who were in an organic free trade project actually made less money than those who were not free trade organic farmers. Surely not what the consumers were expecting when they eased a guilty conscience by shelling out extra cash for “fair” trade coffee.

Fair trade is, depending on your interpretation, a distortion of the free market or an example of people using the free market to achieve socially desirable ends. But there can be no denying that it is manipulating the market to achieve outcomes other than would have naturally occurred, and like every other market manipulation it benefits those who are on the right side of the coin, and harms those who are on the wrong side of the equation. The question we need to consider is, do the benefits outweigh the costs?

But as long as people are beguiled by easy answers and nostalgic or heart-wrenching images of the plight of farm families without subsidies, facts will play a minor part in any discussion of the issues.

Correction: An earlier version of this article referred to "free trade" where "fair trade" was intended.


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