Fair Trade Proponents Should Have More Humility
Philip Booth
January 29, 2008
The fair trade movement certainly cannot argue that they have been treated unfairly. Its claims are rarely questioned. Its proponents, as one might expect, are quick to put forward the moral superiority of their own consumption patterns and never stop mentioning the fair trade brand in general conversation. One can admit to many serious sins at a Justice and Peace group meeting, but be careful not to answer the question, “Would you like a glass of fairly-traded wine?” with the response, “No thanks, but I could murder a cup of Sainsbury’s Taste the Difference Ethiopian medium dark roast coffee.”
Fair trade’s proponents are quick to point out the good it does, often relying on evidence from particular communities that produce fair trade products. However, one should never point to particular successes to justify an economic programme. Costs are often hidden. The problem of “unintended consequences” in economics is so pervasive that if you “google” the words together you will get around 1,300,000 responses. If I buy Kenyan fair trade coffee some Kenyan farmer will benefit and the Fairtrade Foundation can go out to some farms and take nice photographs. But what happens to the producer of the Rwandan speciality coffee that I used to buy? He suffers, perhaps as much as the fair trade grower benefits.
But, is it not the case that the fair trade process brings specific benefits to producers above and beyond the normal benefits of trade? This is true, to an extent, but a degree of humility is called for on behalf of those promoting its virtues.
Focusing on the coffee market, the fair trade process does put a floor under prices so that producers are protected from fluctuations in the market price. Indeed, it was the slump in the coffee price at the beginning of this century that first brought this advantage of fair trade to the attention of many people and gave a real kick start to the market. Unfortunately a viable market cannot exist for long where the price being paid to some producers is significantly above the price paid to others. As it happens, the market price of most types of coffee today is very close to the fair trade guaranteed price. So what would happen to fair trade producers if the market price were to fall? Most people are under the impression that fair trade producers can sell all their produce at the guaranteed fair trade price. In fact, though not well publicised for obvious reasons, if market demand falls then producers of fair trade coffee are simply left with spare produce on their hands that they have to sell into normal markets. There is a price guarantee, but no guarantee that everything produced will be bought at that price. Certainly, we should not assume that fair trade is a Christian imperative because the price floor and the charitable premium, somehow equate to the Christian concept of a “just price”.
Most economists would concur that, as a niche brand, fair trade may do some good and little harm, but if it were to grow beyond its niche, there would be serious problems for all producers if there were gyrations in the coffee price.
The fair trade organisations can also help producers by providing growers with information, and sometimes with credit terms. Of course, we take such things for granted in Western markets. The real problem here is the failure of governments, especially in sub-Saharan Africa, to provide the legal infrastructure – rule of law, enforcement of property rights, uncorrupt courts in which contracts can be enforced etc. – to allow markets to function properly. The fair trade movement might help overcome these problems, but very many other businesses and business organisations do this too. It should also be noted that these problems of abject poverty and hostile business environments exist, not because of poor trading practices in normal markets, but because of poor governance of many of the countries that fair trade is involved with.
But these benefits are not cost free. There is not just the premium you pay at the supermarket for fair trade goods. The producers have to pay to join up too. The minimum initial certification charge for the smallest cooperative of producers is about eight times Kenyan average national income and the annual renewal charge is over four times Kenyan average national income. Does fair trade benefit the incumbent over the very poor aspirant, one wonders?
Wholesalers are also charged for the privilege of conveying fair trade goods. 90% of the Fairtrade Foundation’s unrestricted income in 2005 was derived from these charges to wholesalers and 50% of this income was spent on marketing and campaigning – often described as “educational activities”. It would take a whole series of articles to unpick the tangled web of information in the Fairtrade Foundation’s educational materials. But, tellingly, there is no recognition that the key to prosperity for farmers in under-developed countries is the ability to seek alternative economic opportunities, underpinned by effective legal, political and economic institutions within the countries concerned. Given the allegations of corruption that have been made against some controllers of fair trade cooperatives, perhaps more resources should be allocated to the monitoring and labelling functions and less to campaigning and marketing under the guise of education.
Thus, as far as the economics is concerned, the claims of “fair traders” are rather shallowly rooted. But the Fairtrade Labelling Organisation also claims to monitor the working conditions of those employed by its suppliers. There might be something in this. But the best working conditions in poor countries are almost always provided, perhaps surprisingly, by transnational corporations. The cooperative model encouraged by fair trade, though part of the rich tapestry that makes up the market economy, has generally been shown to stifle innovation and suppress incentives and efficiency. There are few successful cooperatives in most modern economies and those that do exist, with the John Lewis partnership being the most notable exception in the UK, are in niche areas of the economy. There is a good reason for this.
In modern society we are taught to be questioning, indeed cynical, about almost everything we are told by authority, including Church teaching. But when we are told that our parishes should become “fair trade churches” or, as Governors, that our schools should be “fair trade schools” even reasoned argument and criticism seems beyond the pale. Should one ostentatiously spread word about one’s personal charitable giving then, rightly, our fellow Christians would disapprove. But we feel obliged to tell the world about purchasing fair trade products despite the fact that only a fraction of the extra cost is likely to find its way back to the grower.
Let’s get it in context. As a niche market, like many other similar movements in the past, such as the Cooperative movement and the Friendly Society movement, it probably does some good. Fair trade can be helpful, but it is not the answer to the under-development of poor countries. It is perfectly understandable that consumers might want to have a better understanding about the supply chain of their products and fair trade might provide them with that. But, as a generalised model it is not likely to succeed and there are many other mechanisms around in the market for achieving similar objectives. Just to give one example, the mobile phone probably does more in Africa today to spread information about the best prices that primary producers can achieve than the fair trade movement. Its impact is tremendous. I await the first “Vodafone diocese” but, somehow, I think I shall be waiting a long time. Whether to buy fair trade products is a matter for personal judgement.
