The Fairness of Fair Trade

I will say at the outset that my expertise on this topic is limited. Nonetheless, this recent report by Marc Sidwell at the Adam Smith Institute arguing that Fair trade is far from fair and is, on the contrary, detrimental to farmers and costly to developing countries requires response. For a far more thorough response, see the UK’s FairTrade Foundation website.

If you have not seen the report, here are some of the highlights from the Executive summary:

• 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…
• 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 only helps landowners, not the agricultural labourers who suffer the severest poverty. Indeed, Fairtrade rules deny labourers the opportunity of permanent, full-time employment…
• Just 10% of the premium consumers pay for Fairtrade actually goes to the producer. Retailers pocket the rest…
• 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.

I realize, as do most scholars who research this subject, that there are certainly problems and pitfalls associated with establishing fair trade systems to ensure they truly benefit those they are meant to help. Nonetheless, I don’t think these complexities undermine the value of efforts to move toward fair trade.

What I find most maddening about this report is the claim that free trade is fair (this claim is, in fact, the title of chapter 4). Especially in the case of agriculture, it seems almost absurd to consider trade “free” given the range and reach of government agricultural programs and regulations throughout the world. Leaving that nagging question aside, it is still fairly obvious that what passes for “free” trade can hardly be considered fair. That is, unless you view a system that reproduces extreme inequality, leaving billions in poverty and food insecure, fair.

There are many points in the report worth disputing, but this is just a blog post after all, so I’ll only raise these three issues.

1. The author describes fair trade as price-fixing. While some fair trade labels do specify a price minimum, so do many national agricultural programs. The fact that these products receive a price premium in the market-place is actually a free market process. Consumers are choosing to pay more for goods when they are assured that more of the money they spend is going to producers.

2. The author argues that fair trade makes some farmers worse off. While this is true, it is also the case for free trade. In any marketplace some people do better than others, and some are better positioned to take advantage of certain opportunities. Free trade has proven well suited for large multi-national corporations. Fair trade seems to benefit more small-scale producers.

3. The authors claims (citing a 12/7/06 article from the Economist) that only 10% of the price premium reaches the producer, with the rest going to the retailer. I am not sure how that number was calculated (I don’t have access to the full article), but I do know that the benefits producers receive through fair trade can vary widely. For some, it is increased income through a price premium, for others, it is increased stability through a price floor. Still others benefit from being a part of a fair trade network by other means – including technology, access to markets, and community support. The single determination of the % of every dollar that makes to the producer’s pocket is certainly not the only measure of the value of fair trade. In general, the concern that retailers are claiming far too large a share of the food dollar is a problem for all producers, and one that is part and parcel of our current “free” trade system.

There are many more points made in the report, but each one seems to fall flat for largely the same reason: his arguments against fair trade presume that free trade is both free and fair, and ignore the fact that agricultural markets operate in a way that benefits some players over others, maintains prices at certain levels, and does a very poor job distributing the revenue to producers. If fair trade has not yet fully succeeded in overcoming these problems, at least it is a step in the right direction.

I’ll leave it at that, knowing that I have left much ground uncovered. For a great study of fair trade, you could check out Dan Jaffee’s book, Brewing Justice.