Is 'Fairtrade' fair?

 

Despite its ‘do-good’ presentation  is Fairtrade really a marketing exercise.  

 

It offers only a very small number of farmers a higher, fixed price for their goods. Simple economics will tell you that these higher prices come at the expense of the great majority of farmers who are left even worse off because the Fairtrade subsidy unbalances normal market forces.

 

It stands to reason that if you subsidise an internationally traded commodity to some producers but not all, the subsidised growers will be able to undercut the non-subsidised.  This in turn encourages over-production and is a disincentive to agricultural improvement. Many of the farmers helped by Fairtrade are in Mexico, Argentina, and other relatively developed countries.

 

We recently bought oranges that we later discovered were marked ‘Fairtrade’. They came from Argentina which has a higher GDP PPP than Poland, Belgium, Austria, Sweden, Switzerland, Greece and Portugal in the top 40 richest nations. And it is blindingly obvious that oranges in European supermarkets don’t come from poor peasant farmers. They come from large commercial  estates.

 

 

The Co-op sells ‘Freetrade’ wine from South Africa. This is one of the wealthiest sectors of the South African economy

 

It doesn’t help economic development. It keeps the poor in their place, sustaining uncompetitive farmers on their land and holding back diversification, mechanization, and moves up the value chain. Just 10% of the premium consumers pay for Fairtrade actually goes to the producer. Retailers pocket the rest.

 

Fairtrade arose from the coffee crisis of the 1990s. This was not a free market failure. Governments tried to rig the market through the International Coffee Agreement and subsidized over-plantation with the encouragement of well-meaning but misguided aid agencies. The crash in prices was the inevitable result of this government intervention, but coffee prices have largely recovered since then.

 

However, it probably helps the liberal-minded to feel that they have done their bit to save mankind without actually exerting themselves. For ourselves, we refuse to buy anything marked ‘Fairtrade’, ‘organic’ or ‘GM free’.