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« Profiting from crime | Main | Moron-only short lists »
Monday
Nov132006

Fairtrade not fair

Gavin Ayling reckons that Fairtrade isn't fair.

Fair trade means that those lucky few who get themselves involved in a cartel can sell their products for a marginally higher price which, at least in theory, gives them dignity. What it means in reality is that a majority of food growers now must compete not only with CAP and US assisted first world producers but also cartel members.

DK agrees.

Well, it's also worth pointing out—for those who do not read Private Eye—that the people who really make the massive amounts of cash are the retailers and the Fair Trade company itself.

John Band (in the comments) takes a different view 

Fair Trade works because it takes commoditised goods and raises their value to consumers by giving them a credible brand.

Non-Fair Trade farmers aren't harmed; the extra money received by producers is entirely extracted from the Guardianista buyers who are willing to pay a price premium. It's not a socialist system at all - it's capitalism in action.

There is something to be said for both views. Fairtrade is an exercise in marketing. A brand is being built up based on the argument that to buy the brand is more moral than to buy the competing brands. It's nicer to poor people. The argument is also advanced that Fairtrade cuts out the middleman who is unfairly extracting the bulk of the profits.

The fact that Fairtrade has (presumably) a small market share suggests to me that there isn't, as yet, a cartel. If Fairtrade started to dominate the market then this would no longer be the case. What we have is the beginnings of a cartel, not the finished article. But it's hard to see a fully-fledged cartel emerging since the Fairtrade operators charge a premium to the rest of the market.

And it's voluntary too. Nobody is forced to join the collectives. If you want the Fairtrade premium you give up your right to self-determination, to expand your business and so on, but you do so voluntarily. A swivel-eyed libertarian like me is not going to argue against Fairtrade on these grounds.

But I still think it's wrong. Fairtrade is based on two great lies.

Firstly there is no unfair capture of profits by middlemen. We know this because Fairtrade has to charge a premium to the rest of the market. If they were cutting out middlemen then they should be able to at least match the free trade product if not undercut it, and still give a better price to the suppliers.

But the bigger lie is that Fairtrade makes the poorest better off. Buying Fairtrade will have to two effects and neither will help the poorest.

Firstly it should make the market smaller. Fairtrade is more expensive than free trade and basic economics tells us that a price rise will cause a drop in demand. A smaller market will tend to put some coffee farmers out of business. I would have thought that it was more moral to have two poor farmers than one rich one and one dead one. (I may be exaggerating, but you get my drift).

Secondly, unless Fairtrade manages to completely dominate the market, some farmers will remain outside its umbrella. As the market shifts towards Fairtrade, these poorest farmers will actually lose out as they see their customers are taken from them by Fairtrade cooperatives. The effect of Fairtrade is therefore a  double whammy for the poorest farmers - a shrinking market and a loss of customers to Fairtraders. This can have only one effect on their wages, and it's not a good one.

The argument the Fairtraders make to justify their premium price is misleading.  We should do the moral thing, therefore: buy exploitation coffee and bid up the wages of the poorest. 

 

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