"Fair trade favours those who have already moved out of the most basic poverty"
I have long been slightly resentful of "Fair Trade" labels because of the implicit suggestion that all other trade is unfair. The slogan has seemed anti-capitalist in making this implicit suggestion and since capitalism is the source of prosperity around the world and the reason that so much of humanity has been lifted out of absolute poverty, the suggestion seems to me both inappropriate and damaging.
I have also suspected that the Fair Trade labelling could also more damage specific groups of poor people. Now, today, Andrew Alexander has provided an indication of how this could work:
In fact, the Fair Trade doctrine is pernicious, for all its genuinely good intentions - such a common feature of "cures" for world poverty.
The doctrine may bring satisfaction to a substantial bureaucracy and a sense of virtue to consumers, but it is positively harmful to the world's poorest.
FT producer acquires his label by showing he is paying a "fair" wage, is treating his workforce well and ensuring that the children get education and medicines. Obviously, this favours those who have already moved out of the most basic poverty.
The prospects for the very poor are thus made worse since they cannot compete on such terms. The right to undercut is the privilege of the poor - of poor individuals, poor countries, poor businesses. It should not be undermined.
Moreover, to obtain a Fair Trade label, a producer must buy a licence and submit to inspection - in countries where corruption is notorious. To impose a licensing cost, a tax and a powerful bureaucracy on any producer hardly seems a natural way to help the poor. It is also a barrier to those wanting to start up on their own.
Coffee production provides useful examples of cost. For coffee production co-operatives of under 100 workers, the Fair Trade people charge £1,500 for certification and annual renewal costs of well over £800. Since the average Kenyan income is under £200 a year, this is not negligible. The system also creates a significant travelling inspectorate.
The full article is the Daily Mail.
Posted by James Bartholomew • Indexed in Foreign aid
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Corruption is one of the worst features of the poor governance that afflicts nearly all of the poorest places on earth. High import duties and controls on foreign exchange are principal sources of jobbery and bribes; no wonder they are favourite policies of those in power.
It’s a pity that so many have fallen for the Fairtrade delusion. In its edition for 7 Dec 2006, The Economist wrote;
Fairtrade food is designed to raise poor farmers' incomes. It is sold at a higher price than ordinary food, with a subsidy passed back to the farmer. But prices of agricultural commodities are low because of overproduction. By propping up the price, the Fairtrade system encourages farmers to produce more of these commodities rather than diversifying into other crops and so depresses prices—thus achieving, for most farmers, exactly the opposite of what the initiative is intended to do. And since only a small fraction of the mark-up on Fairtrade foods actually goes to the farmer—most goes to the retailer—the system gives rich consumers an inflated impression of their largesse and makes alleviating poverty seem too easy.
And in The Bottom Billion - http://www.oup.com/us/catalog/general/subject/Economics/Developmental/?view=usa&ci=9780195311457 - Paul Collier writes that Fairtrade
encourages recipients to stay doing what they are doing - producing coffee. A key economic problem for the bottom billion is that producers have not diversified out of a narrow range of primary commodities. Raising their prices (albeit infinitesimally, since Fairtrade is such a small component of demand) makes it harder for people to move into other activities. They get charity as long as they stay producing the crops that have locked them into poverty.
So here are five reasons for scepticism about Fairtrade:
1. The supermarkets’ profiteering from Fairtrade has been exposed on TV. As much as 90%, of the extra that you pay for Fairtrade goods, goes straight into their pockets.
2. Only a small minority of third-world farmers benefit. The rest are worse off.
(a) Because they don’t work in co-operatives, which the Fairtrade people have decreed to be the only politically acceptable form of business organisation for commodities such as coffee.
(b) Because the subsidy to the few beneficiaries drives down the market price. This makes everyone else worse off, including the workers on commercial plantations and the merchants who tour the countryside buying small farmers’ crops.
3. It encourages over-production of third-world agricultural commodities, when the farmers would be better off by diversifying and by improving the quality of their produce.
4. It creates yet more bureaucracy and adds to the opportunities for corruption amongst officials.
5. The organisation’s anti-capitalist agenda works against the best interests of the world’s poorest countries, leading well-meaning but misguided organisations such as Christian Aid to campaign against free trade – the very route by which these countries can escape the Malthusian trap.
Posted by: Philip Talmage at November 24, 2007 10:53 AM
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Corruption is one of the worst features of the poor governance that afflicts nearly all of the poorest places on earth. High import duties and controls on foreign exchange are principal sources of jobbery and bribes; no wonder they are favourite policies of those in power.
It’s a pity that so many have fallen for the Fairtrade delusion. In its edition for 7 Dec 2006, The Economist wrote;
Fairtrade food is designed to raise poor farmers' incomes. It is sold at a higher price than ordinary food, with a subsidy passed back to the farmer. But prices of agricultural commodities are low because of overproduction. By propping up the price, the Fairtrade system encourages farmers to produce more of these commodities rather than diversifying into other crops and so depresses prices—thus achieving, for most farmers, exactly the opposite of what the initiative is intended to do. And since only a small fraction of the mark-up on Fairtrade foods actually goes to the farmer—most goes to the retailer—the system gives rich consumers an inflated impression of their largesse and makes alleviating poverty seem too easy.
And in The Bottom Billion - http://www.oup.com/us/catalog/general/subject/Economics/Developmental/?view=usa&ci=9780195311457 - Paul Collier writes that Fairtrade
encourages recipients to stay doing what they are doing - producing coffee. A key economic problem for the bottom billion is that producers have not diversified out of a narrow range of primary commodities. Raising their prices (albeit infinitesimally, since Fairtrade is such a small component of demand) makes it harder for people to move into other activities. They get charity as long as they stay producing the crops that have locked them into poverty.
So here are five reasons for scepticism about Fairtrade:
1. The supermarkets’ profiteering from Fairtrade has been exposed on TV. As much as 90%, of the extra that you pay for Fairtrade goods, goes straight into their pockets.
2. Only a small minority of third-world farmers benefit. The rest are worse off.
(a) Because they don’t work in co-operatives, which the Fairtrade people have decreed to be the only politically acceptable form of business organisation for commodities such as coffee.
(b) Because the subsidy to the few beneficiaries drives down the market price. This makes everyone else worse off, including the workers on commercial plantations and the merchants who tour the countryside buying small farmers’ crops.
3. It encourages over-production of third-world agricultural commodities, when the farmers would be better off by diversifying and by improving the quality of their produce.
4. It creates yet more bureaucracy and adds to the opportunities for corruption amongst officials.
5. The organisation’s anti-capitalist agenda works against the best interests of the world’s poorest countries, leading well-meaning but misguided organisations such as Christian Aid to campaign against free trade – the very route by which these countries can escape the Malthusian trap.
Posted by: Philip Talmage at November 24, 2007 10:53 AM