May 24, 2010

Fair Trade

Does buying Fair Trade help coffee producers in the developing world? It would seem to help some of them at least. Perhaps only a minority though?

Maxim Institute sent a link to this in their email a while back. Skimming it and Maxim Institute's summary of the issue, it is a little concerning. I was going to draw a fancy diagram showing an over-supply of coffee in the world market (as they claim is the case currently), but then I couldn't decide on what the market for Fair Trade coffee would look like, or if I could lump it all into one and just show a bigger over-supply (with the new high price which Fair Trade brands charge).


From the M.I. email:
The philosophy of fair trade stems from the argument that free market prices are often not high enough to cover production costs, forcing farmers and their families off their land and into poverty. We should therefore pay a higher price for our coffee so that these farmers can maintain their lifestyles with dignity. Using the common example of coffee, fair trade certified coffee farmers are paid a minimum price of US$1.26 per pound whereas the free market price for coffee is around US$0.70 per pound. The intention is great, but the sustainability of this approach is questionable. The price of coffee is low because there is an oversupply in the market. If we then artificially raise the price of coffee to $1.26 per pound, fair trade farmers will continue to oversupply the market with coffee because they know they will receive a good price regardless of demand. Those farmers who do not have fair trade certification will see the price of their coffee dropping even further on the back of an even bigger increase in global supply. This oversupply means human, land, energy and environmental resources are effectively being wasted on producing a product the world doesn't need any more of.There are many farmers who produce their coffee ethically, but they cannot gain fair trade certification for any number of reasonsóthey may be too big, or be situated in an area or country not covered by fair trade. Their produce, lacking a fair trade sticker, may end up being overlooked by many customers. The marketing of fair trade thus becomes misleading and problematic.

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