The annual Fairtrade Fortnight is underway. This year’s theme is ‘Show off your label’ and the message is to be loud and proud about Fairtrade. So, with all the shouting and label-flashing going on, will anyone notice a few small, dissenting voices? Well, they might percolate through eventually when the caffeine wears off and the coffee goes cold.
On the face of it, Fairtrade seems so altruistic. It purports to be a market based approach to ensuring sustainable livelihoods for the poorest producers in the world, lifting them out of poverty, hardship and exploitation. But does it work? And is it actually fair?
What if the only producers who can qualify for Fairtrade certification and/or afford the fees are relatively large corporate growers? If that’s the case, it’s divisive and gives an unfair advantage to those companies who benefit from the capricious beneficence of wealthy nations, leaving the really poor farmers worse off than ever. Paying a guaranteed Fairtrade premium, over and above the market price, encourages over-production and an inflated market, leading to excess supply. This must eventually drive down prices and make non-Fairtrade farmers poorer still. Guaranteeing a minimum price also means there’s no incentive to improve quality. How much do you actually enjoy drinking Fairtrade coffee?
What if Fairtrade franchises simply lock poor farmers in primitive working conditions producing goods that would not otherwise be sustainable in the global marketplace? All for the benefit of wealthy people indulging in a bit of philanthropic largesse.
What if the Adam Smith Institute (ASI) is right and no more than 10% of the Fairtrade premium actually goes to the producer? And what if retailers are simply identifying and exploiting consumers who are prepared to pay uncompetitive prices for lower quality products? Might they not be tempted to boost their mark-ups and mislead consumers into thinking that this extra premium is being passed on to Fairtrade producers?
Disparities of wealth are not intrinsically wrong. The free market is good at determining the value of something. At any given moment in a dynamic free-market economy, some sectors expand while others contract. Look at the transformation in the economic fortunes of China and India in the last half a century. Nevertheless, a totally free market can never be a fair one. Hardship marginalises people and leaves them vulnerable to exploitation. Mature societies do not wish to flourish at the expense of the less affluent if it means inflicting pain. They can never agree, however, on a suitable redistribution formula that does not undermine the economy. As it happens, I believe Fairtrade is a well-intentioned attempt at market based redistribution. But it will fall victim to the law of unintended consequences. And we could make a much bigger difference by removing unfair, pernicious trade barriers.
When the noise of the Fairtrade lobby abates a little and all the consciences have been well and truly salved, it should be opportune to consider the truly heartless Unfairtrade going on in our name. It is not a level playing field. Farmers in poor countries cannot sell their agricultural produce to us because we bestow trade-distorting subsidies upon our own inefficient and uneconomic producers. Scrapping the protectionist agenda pursued by the US and the EU would have a far greater impact on the economic prospects of poor third world farmers than Fairtrade could possibly achieve. The Common Agricultural Policy (CAP), for example, boasts a cotton subsidy regime that has distributed $7 billion to cotton farmers in Greece and Spain over the past nine years, leaving West African cotton farmers destitute.
Rather than indulge in pseudo-philanthropy by paying a few pennies more for Fairtrade products, we should wake up, smell the coffee and scrap the CAP!