Are you familiar with “Fair Trade” products from the Third World? Those can be any number of products but mainly coffee that are supposed to be bought at a “fair” price for the producer. The implication is that everything else we buy is bought at an “unfair” price.
The reality seems to be different as discussed in the research paper by the Adam Smith Institute titled Unfair Trade
Here is the executive summary:
* 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.
* Many 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 is targeted to help landowners, and not the agricultural labourers who suffer the severest poverty. Fairtrade rules actually make it more difficult for labourers to gain 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.
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