You may not have noticed, but in the UK this week is Fairtrade Fortnight – that time of the year when we are encouraged to buy ‘fair trade’ coffee and other ‘fairly priced’ products. I spent Monday going on TV and radio shows explaining why the scheme is counter-productive, much to the fury of its supporters.
For a start, we should be realistic about the scheme’s potential. In Britain, despite ten years of advertising, 97% of coffee sold is not on the scheme. Most consumers are likely to continue buying coffee according to cost and quality. Its potential for increasing wealth among coffee producers is thus extremely limited. Some argue that the scheme is taking us away from thinking about more radical solutions to poverty.
Secondly, the real problem with ‘fair trade’ is that it is based on economic illiteracy. The low price of coffee is caused by production increasing by 15% since 1990, and supply is bigger than demand. This cannot be blamed on multinational buyers of coffee. There are simply too many people employed in coffee production. With new technology, the price may well decline further. In Brazil, five people and a machine can do the work of 500 people in Guatemala. The low coffee prices are a signal to exit the market, or switch up to higher value coffee.
‘Fair trade’ – though it helps some farmers – encourages people to stay in the coffee market and gives them confidence to increase production. That is all very well, but this has a downside. More supply means a lower price on the world markets. Perversely, ‘fair trade’ makes matters worse for the vast majority coffee producers.
Criticism of the multinational buyers of coffee abounds, but these people have probably done more to help the lives of coffee producers than ‘fair trade’ has – by promoting coffee drinking to members of the public, and putting trendy coffee shops everywhere.
Instead of ‘fair trade’, we should concentrate on real solutions. Like getting rid of the Common Agricultural Policy and EU tariffs, which limit the goods overseas producers can diversify into. And coffee producing countries need to make the economic reforms that enable enterprise to flourish. ‘Fair’ pricing schemes may sound like a good idea, but they fail the market test.
Alex Singleton can be contacted via his personal website.
We are getting overproduction and stockpiles of “fair trade” coffee, just exactly as you get in any other case where you have quotas and price controls.
Fair trade = protectionism
(Admittedly though, the economic damage done by the “fair trade” movement is miniscule compared to the damage done by the rich world’s agricultural subsidies and agricultural protectionism, so the fight against that is probably a better one to fight. That said, the sanctimoniousness of the “fair trade” people is indeed irritating).
It really is that simple.
Somehow, paying three times the price for coffee is “fair”. The last time I looked into this was when I stepped into an Oxfam store. (The weird things I do when I am left on my own – surely the government ought to protect me from myself). They had an entire shelf of fair trade coffee. Made by Cafe Direct. A UK company which, of course – scratch my back and I’ll scratch yours – prominently advertised Oxfam’s entirely loony conspiracy theory report about the coffee markets on its web site at the time.
Interestingly, Oxfam owned 25% of Cafe Direct. In other words, these guys had a vested interest in this supposedly fair trade coffee. A fair conflict of interest, I guess.
Silly as I am, I am still waiting for the New York Times, the Guardian or anyone else to catch this one. Funny how conflicts of interests are OK when they’re those of certain people.
I don’t think we should surrender the phrase “fair trade” to protectionists. Free trade is fair trade, with no barriers to anyone no matter what their race, colour, creed or nationality. An open economy is there for all with the enterprise to take a risk.
If Oxfam wants to sell “Fair Trade” branded products thats fine by me, markets are all about choice. Its when they want to put up barriers to products on the basis of dubious premises that I object.
If they want to pay 30p more for a cup of coffee in Starbucks – go ahead. I congratulate Starbucks for co-opting the fair traders into the capitalist culture by stocking their coffee.
In a way the whole fair trade movement shows how much the forces of socialism have been vanquished, they are now trying to use market methods to promote their values. We should welcome that, just as many US Conservatives boycott French products, so many Greens buy fair trade products.
The political conscience of a consumer is of little concern to me – I’m not going to boycott Margaux wine or start buying mud-like coffee.
Good on you, Alex!
As you are probably aware, we have an Out sourcing issue in America right now. Policy makers on both sides of our system fail to grasp the simple concept of protectionism and the harm it produces. We are talking about educated people here.
When the Angry Economist said, “You can practically use people’s reaction to his statement as a litmus test of economic understanding.” He was referring to Greg Mankiw’s (Chairman of the Presidents Economic Advisor Comm.) senate testimony on job losses overseas. I find that statement to be extremely profound, even a bit funny. There are so many people that just DON’T GET IT ™!
Farm subsidizing here in America is probably akin to what you see in Europe, and I find it appalling. Why the hell would England join the EU’s loser orgy(tm) at this point? I mean, the state of affairs in continental Europe is frightening, and down right ludicrous. The US has problems as well(deficit, etc.), so don’t get me wrong. However, I believe the EU’s problems are very structural and lip-service will not change that.
Syl –
You’ll be waiting a long time to hear from the times on anything like this. They are a mouthpiece for Liberals worldwide. They don’t even know what “protectionism” means, and lately I don’t think Krugman has a clue either.
NY Times Editor: “Hurry quick Krugman is drooling again!”
Voices in the background: ” Ahhh Shit, not again! This dude had one of those liberal lobotomy’s back in the 60’s”
NY Time Editor: ” Someone wipe his disgusting Jowls, and get the antidote” (which is a good helping of capitalism)
Voices in the background: “What??? there is no antidote for liberalism? Shoot his punk ass, like were going to shit on the ETA!”
The economics of coffee market speculation is bit more complicated than this article suggests.
There is a big difference between common but inferior Robusta and the rarer but superior Arabica beans, and the market segements in which they are sold.
When people think of big coffee producers, they think of Brasil , Colombia, Central America etc. and East Africa, but are not usually aware of the massive effect on the market that, for example, the World Bank subsidised new entrant Vietnam has had in recent years:
International Coffee Organisation statistics
The effect of weather on the harvest adds a huge amount of risk to the market and leads to such wild swings in supply and plantation capacity.
There is already evidence of some “Fair Trade” coffee now being marketed as a premuim, upmarket brand, analagous to Chateau/Estate bottled wine or single malt whiskey rather than as a bulk generic “coffee”.
The “Fair Trade” movement should in theory be selling coffee to the consumer with no markup, if they are truely cutting out the middlemen and speculators.
However the prices paid by the consumer in a supermarket, or in a franchise chain of coffee shops far exceeds the prices paid to the farmers for their beans, even for supposedly “Fair Trade” products.
Hypocritical, stupid, or outright goofy as “fair trade” coffee is, it is not protectionism. It is people willing to pay more for coffee to give farmers more money for their crops. It’s the embodiment of the liberal charity principle: people willing to forgo other things in order to help those less fortunate than themselves without state interference.
– Josh, not a coffee guy
I reflexively boycott all products marketed using supposed virtue. The other main category apart from ‘fair trade’ is ‘organic’. I sometimes puzzle the staff at my local supermarket by complaining if I can’t find the non-organic version of something. I strongly object to paying extra for a lower-quality fennel bulb (say) that is grown in a less efficient way that chews up more land. I don’t like buying ‘guaranteed GM-free’ products either. All this stuff is just a form of kosher for non-Jews, and just as rational.
The problem is that “fair trade” proponents don’t want this to be just one product among many, but are pressuring Starbucks, et al, to make *all* their coffee “fair trade”.
The flaws are even more obvious if you apply them to another industry, say, cars. There is serious overcapacity in the global car industry. That’s why carmakers are offering incentives to move their products at rock-bottom prices that offer only razor-thin margins. Why don’t we have “fair trade” cars that would take on an extra 5-10 percent to ensure that carmakers — important sources of jobs in many countries — can make enough money to meet their current payrolls?
In defense of Starbucks, I don’t think the coffee company has caved in making all of its beans “fair trade”. They resisted it for a long time because the bean quality wasn’t up to par, and I believe they offer it now simply as one choice, alongside other liberal-friendly products like shade-grown coffee. This is simply just good brand management. They wouldn’t offer it unless it added to the brand and the bottom line.
A lot of activists focus on Starbucks even though the company only accounts for a couple percent of global coffee trade. The grocery store coffee brands — Maxwell House, Folgers, etc — are far more influential, but they don’t have the sexy brand that Starbucks does, so they get overlooked.
An interesting article by the folks from Cato (pdf). Attributes lower coffee prices to the collapse of the International Coffee Agreement protecting large profits for a small number of farmers, and frost/drought in Brazil in the mid 1990s. As for Starbucks exploitation – according to the article coffee grounds amount to only 5-7% of variable costs.
Anyone interested in further socio-economic and political news from Brazil, I would suggest checking out http://www.brazilwatch.com
Their a weekly publication on Brazil’s economic and political climate. Interesting read
DCP
Please recognise that not all of the comments I have included here are aimed at all of the posters who have contributed to this forum, I believe that it should be fairly evident which sections of the discussion I am concerning myself with.
Some of the comments posted here about Fair Trade are to some extent reasonable, some of them are based on something that is reasonable, but most of them are nothing other than perverse nonsense.
It has been explicit and clearly understood for some time that the Fair Trade movement is designed to work within the capitalist context, to criticise people for working within the prevailing economic system to try to improve peoples’ lives is a ridiculous self-indulgence.
It has also been well-understood amongst Fair Trade advocates that this model of trade is not one which is expected to capture whole markets, so to criticise it on that basis shows an ignorance of the movement rather than a failure in it.
Any markups in the price of Fair Trade products should be expected because a) Fair Trade is acquired at ~ 4 times market price (in the case of coffee) b) Fair Trade companies largely do not have economies of scale which are enjoyed by the largest producers c) Fair Trade companies take steps to protect their producers from variation in the market and in supply potential, as most Fair Trade producers lack the capital to absorb losses without significant privation, which adds to the costs associated with running a Fair Trade business.
Several posters have commented that we should be getting rid of agricultural subsidies as a priority, neglecting to mention that it is exactly those groups some of you seem keen to associate with Fair Trade (ie. developmental charities, socialists and members of the ‘anti-capitalist movement’) whose are the most vocal in demanding a halt to agricultural subsidy and for those sectors of trade which can be considered free to include sectors from which the developing nations can benefit.
In terms of criticising producers en masse for over-production, and Fair Trade advocates for ‘economic illiteracy’, I refer you back to the comment about Vietnam and the World Bank. The institutions if liberalisation are highly culpable for increasing supply of coffee, and certainly the large companies are doing nothing to reduce the supply coming on to their markets. Given that basic education is not available to most small producers and nor do they have the capital reserves or available finance to regularly alter production, it is ludicrous to expect them to be able to alter production to follow a varying market.
Note that it is a relatively new concept to these companies that they should take basic steps to ensure that their supply chain does not include links which are in violation of local and international law (I refer you to the ‘Ethical Trading Initiative’ amongst other CSR exercises). I see no reason why we should consider a company purchasing illegally produced goods any less culpable for its failure than an individual handling stolen goods. More so indeed, as the larger companies certainly could spare the resources to make basic checks on such questions if they wanted to. It is a welcome effort, but comes rather late in the day.
I might mention that most of the correspondents above seem to have no interest or compassion whatsoever for people in exceptionally disadvantaged circumstances, but I don’t suppose that this will be any great news or insult to those of you to whom I am referring. Mentioning the thousands of lives improved by Fair Trade schemes, the many children who have been given access to education and will now have some chance of accessing careers outside of farming with that education, would probably fall on stony hearts.
I am yet to see a convincing economic analysis which will explain how unregulated trade on its own could prevent the exploitation of poverty-class labour by capital, how it will move people such as the coffee farmers you don’t care about out of their exceptionally poor living conditions, certainly within any medium-long term timescale. That you should make such an effort to rubbish the attempts of people with a kernel of humanity in themselves to take responsibility for those people who are not blessed by the trade system which produces their consumables, is a sad reflection on your own characters and what seems to me to be a bizarre reactionary fervour against anyone with good will to his fellow man. I don’t know whether you have such contempt for all good feeling, whether you would let your mothers die rather than pay for a hospital bed, or whether you restrict it to people outside your own family, class or family, but I pity you for it.
And Graham Asher, whoever you are, I think that you are an obnoxious person if you can in any way be judged by what you have posted above, and i am completely confident that in the event that god should exist, and further that he ordains to punish sinners, that you should modify your outlook with some urgency. (My own support for such initiatives as Fair Trade is in no way predicated on religion, in case you were wondering).
Fair trade is not charity it is simply paying for something what it is worth. Instead of the lowest possible price like all of the exploitive capitalist companies here in the US. Many companies sell coffee at a competative price even after paying a fair price. Most “Fair Trade” companies don’t believe in what they are selling so they jack up the price. They just want a stamp on there coffee to give the buyer a warm fuzzy feeling. Real fair trade comanies say screw the stamp and give the money it costs to ge the stamp, back to the farmer. Fair trade price isn’t really much more than the lowest price paid anyway. I roast coffee bought at higher than the fair trade price. We sell it for $6.20 a pound. Thats much cheaper than most coffee. Not to mention that these beans are premium, high altitude, shade grown beans. It depends on the company you buy from, so do your reserch before throwng your money away company that claims to be fair trade, because the owners might have two homes and a yacht.
Chris, I donate to charity organizations as much as I can. And as Graham Asher, I also
Does that make me an obnoxious person? I think you should call the movement ‘charity trade’ instead. It is not fair to the consumer to pay more for something that may not necessarily be of high quality just to pay for a supposedly charitable cause that you claim ‘fair’ trade endorses. I donate, and I pay my money for good quality product, not poor producers.
Chris, I donate to charity organizations as much as I can. And as Graham Asher, I also
Does that make me an obnoxious person? I think you should call the movement ‘welfare trade’ instead. It is not fair to the consumer to pay more for something that may not necessarily be of high quality just to pay for a supposedly charitable cause that you claim ‘fair’ trade endorses. I donate, and I pay my money for good quality product, not poor producers.