In principle fair trade is a wonderful way of marrying markets with social objectives, achieving a better globalization as a result. Since consumers in the rich countries attach positive value to the well-being of the farmers (of coffee or cotton) and their immediate environment, it is a way of translating that value into increased incomes for the farmers. And there is no government or international organization setting down rules and imposing heavy-handed regulations. It is a market-based approach that should delight libertarian and social progressive alike.
But now consider the anomalies in how fair trade really works.
First, even though fair trade brands sell as premium products, they often do not carry a larger price tags than other premium products. Sometimes, as in the case of Starbucks, the fair trade version of the product sells at exactly the same price as the regular one. Well, this is a puzzle because farmers are supposed to get more when they produce the fair trade brand.
Here is how the industry explains this:
Michael Ellgass, the director of house brands for Sam’s Club, said the company could afford to pay fair trade’s premium because it has reduced the number of middlemen.
Coffee usually passes from farmers through roasters, packers, traders, shippers and warehouses before arriving in stores. But Sam’s Club will buy shelf-ready merchandise directly from Café Bom Dia, the roaster here in Brazil’s lush coffee country.
“We are cutting a number of steps out of the process by working directly with the farmer,” Mr. Ellgass said.
Come again? So let me get this straight. The company could actually increase profits by cutting out middlemen, but waited to do so until fair trade came around and the increased revenues could be passed on to farmers instead of the bottom line?
OK, on to anomaly no. 2. Fair trade certification requires that growers commit to various farming practices, and often to other things too. As the NYT notes,
Rafael de Paiva was skeptical at first. If he wanted a “fair trade” certification for his coffee crop, the Brazilian farmer would have to adhere to a long list of rules on pesticides, farming techniques, recycling and other matters. He even had to show that his children were enrolled in school.
Now, which one of us really know what "fair trade" certification is really getting us when we consume a product with that label? The market-based principle animating the movement is based on the idea that consumers are willing to pay something extra for certain social goals they value. But clearly there is an opaqueness in what the transaction is really about. And who gets to decide what the "long list of rules" should be, if not the consumer herself?
Finally, consider some of the requirements that the fair trade purchaser imposes. The Brazilian coffee farmer mentioned in the NYT story above has to make sure that his children are enrolled in school. Wait a minute, the economist in you should say. Isn't the farmer himself a better judge of how his extra income should be spent? Should these decisions be made by Starbucks instead? (There are of course social assistance programs where cash grants are conditional on things like this, but they are (i) meant to be aid rather than fair payment for work rendered, and (ii) designed and administered by national governments rather than foreign firms.) Is conditonality imposed by multinational companies better than conditionality imposed by the World Bank or the IMF?
Do I fret too much? Has my economics training corrupted my mind so much that I cannot leave good things alone?