Tuesday, 15 December 2009

FairTrade, mostly a marketing gimmick?

At Marginal Revolution Tyler Cowen offers up some Facts about FairTrade. Cowen writes,
We might think of sub-Saharan subsistence economies when we think of Fairtrade, but the biggest recipient of Fairtrade subsidy is actually Mexico. Mexico is the biggest producer of Fairtrade coffee with about 23% market share. Indeed, as of 2002, 181 of the 300 Fairtrade coffee producers were located in South America and the Caribbean. As Marc Sidwell points out, while Mexico has 51 Fairtrade producers, Burundi has none, Ethiopia four and Rwanda just 10 – meaning that "Fairtrade pays to support relatively wealthy Mexican coffee farmers at the expense of poorer nations".
The article offers many other points of interest. For instance:
By guaranteeing a minimum price, Fairtrade also encourages market oversupply, which depresses global commodity prices. This locks Fairtrade farmers into greater Fairtrade dependency and further impoverishes farmers outside the Fairtrade umbrella. Economist Tyler Cowen describes this as the "parallel exploitation coffee sector".

Coffee farms must not be more than 12 acres in size and they are not allowed to employ any full-time workers. This means that during harvest season migrant workers must be employed on short-term contracts. These rural poor are therefore expressly excluded from the stability of long-term employment by Fairtrade rules.
The Guardian article Cowen refers to also says,
However, economist Paul Collier argues that Fairtrade effectively ensures that people "get charity as long as they stay producing the crops that have locked them into poverty". Fairtrade reduces the incentive to diversify crop production and encourages the utilisation of resources on marginal land that could be better employed for other produce. The organisation also appears wedded to an image of a notional anti-modernist rural idyll. Farm units must remain small and family run, while modern farming techniques (mechanisation, economies of scale, pesticides, genetic modification etc) are sidelined or even actively discouraged.
One wonders what New Zealand's farming sector would look like if run by FairTrade.

Another point made in the Guardian article is
Another criticism is over institutional inefficiencies. The vast majority of the money from Fairtrade sales remains in the west – with only about 5% of the Fairtrade sale price actually making it back to the farmers. As Philip Oppenheim says, "any intelligent person will ask why I should pay 80p more for my bananas when only 5p will end up with the producer".


Liz (wishes) said...

Its funny, you tend to just accept what you are told 'fair trade coffee helps farmers so they don't get ripped off' and you dont question that.
I mean it sounds fair! Sounds like a good deal! we're all into helping others out arn't we?
but then an article comes along like this and makes you think 'hang on, hold up a minute'

Ill be thinking twice before buying it next time that's for sure!

Frank Ritchie said...

I was alerted to this article by a friend on Twitter - it raises some genuine concerns, but as always, these things need to be held in balance.

Liz, what would you buy instead? coffee where the farmer has been ripped off so we can force them to diversify out of sheer hardship? And if so, what should they diversify into and how should they sustain themselves whilst going through the lull in livable income that always occurs during such a shift?

Also, don't forget that FairTrade isn't just about coffee, it's about many products that we consume. It has its pitfalls, but the overall drive to give power back to the producer where they currently have none while we sip our lattes and chew on dairy milk chocolate purchased for next to nothing is a good thing.

If our philosophy is not to guarantee prices, then we should also be yelling about the subsidies provided to various industries across the western world (agriculture being the biggest culprit) that causes industries in other countries to be crippled even though they can produce the same products at better prices. If we rant and rave about FairTrade while turning a blind eye to our own propping up of false industry then we're hypocrites.

As with everything, it's not black and white, there are grey areas. The question that always needs to be asked is, do the pros outweigh the cons? I believe that with FairTrade, the pros far outweigh the cons.

You can't and shouldn't change your spending on one blog article or one opinion piece in a paper.

Frank Ritchie said...

... and just another quick thought :)

One of the problems we have in the west is that many are looking for magic bullets to solve the problem of poverty and we little people like to fix our eyes on one thing, do it and then feel like we've done our bit. For some, that's FairTrade.

There is no one magical solution to the problem. Anyone thinks FairTrade is the solution to poverty on its own is living in an idealogical bubble. The problem of poverty is an intricate matrix of issues and the solutions are many and varied. FairTrade is one part of the solution, but is only one piece in a very large puzzle... if we rest on it to solve the problem alone then its pitfalls will come to the fore and cause all to trip.

As one part of the solution it is very good... to offer it as the whole solution is blimmin dangerous.

Brent said...

The answer is not simple - the argument for an against all use effectively the same concepts - it boils down to are we pro market forces or not.

Fair trade essentially tries to act as a buffer to down years. A good thing for the poor farmers. in good years (the argument against fair trade is the rate never goes up) the market price gives a superior return.

There are two points that can be made; the shelf price of coffee does not change - so the only beneficiary of falling coffee prices are the coffee processors, the consumer will only see a material change in price when the commodity price rises.
Commodity pricing fails when there is non rational trading, and again the end consumer is hurt. Think oil.

So is fair trade a good thing - in essence yes, is it the answer, hell no.

SD said...