We can perhaps all agree that over the last century or so at least, there has been an increased interest amongst many on how our personal economic actions affect the economy, society, and the environment. Along with the growth of automatic giving via child sponsorship and online lending platforms, individuals have been able to enjoy a more personal connection with those they are able to help.
One of the more prominent expressions of this desire to influence the world through personal economic decisions is the Fair Trade Industry. ‘Poor farmers and small-crafts producers in emerging nations who agree to certain social and environmental standards can have their products certified as “fair trade” goods by various organizations. Compassionate and just consumers in developed nations willingly pay a premium for these fair trade goods, intending to create a better life for the producers.’
There is much to applaud about this whole effort and indeed I’m guessing that the fair trade industry the world over has indeed given wonderfully fair prices to many a grower of products such as coffee, tea, chocolate, sugar…etc.
Yet, if you are like me – you have wondered where your extra dollar spent actually went and whether anyone really did get a fairer price – and if so, how much fairer was it? Or you’ve wondered what exactly qualifies a company as fair trade certified? What are the stipulations and are they enforced? Finally and most importantly, does the fair trade industry (specifically for coffee) actually make a positive difference in the lives of its growers? Is there a way to measure this effectiveness? If so, where is the data?…etcetera
Well I’m glad to say that there is a resource that has sought the answers to these very questions and more concerning the coffee fair trade industry in a very helpful manner. Victor Claar, a professor of economics at Acton University has written an excellent little book entitled Fair Trade? Its Prospects as a Poverty Solution.
The book is well worth the read. Without giving away the whole thought process, I’d like to let you preview his primary points here.
Beginning with an overview of the coffee industry, he recognizes that because of two reasons—low coffee prices (due to an overabundance of growers) and high-price variability (due to an inability to access fair buyers and information) —the fair trade movement has sought to help poor coffee growers by guaranteeing both higher prices and greater price stability.
Yet, after an overview of the workings of the FLO (Fair Trade Labeling Organization International), he observes several difficulties for poorer growers. First, it can be very difficult in places to even obtain access to a cooperative associated with the FLO as they only certify a definite (or at least, select) number of small co-ops, which leaves out a large number of people. But if a grower can obtain access, they can receive the benefit of a fixed price in advance. For example, fair trade coffee growers of arabica coffee are currently guaranteed (around) $1.30 per pound, plus an additional ten cents per pound paid as a social premium intended for local community and business development projects such as schools, sanitation, and health care. 
Therefore, in particular circumstances, a fair trade certified co-op could be very helpful for the short-term growers. But this actually creates the primary issue for long term sustainability of poorer growers.
As stated above, If the fundamental problem with the coffee market is that prices are low because there is too much coffee, then it would appear that the fair trade movement may be making matters worse rather than better because it increases the incentives to grow more coffee. This is what Victor sees as the primary long-term issue for fair trade coffee (and coffee growers in general). I think we have all seen this in the news recently particularly with Starbucks being the only provider that hasn’t lowered their prices for nearly four years. And commodity prices reveal a steady drop in price since Feb 2011.
The small help that fair trade co-ops provide on a day to day business actually works against the growers in the long-run. Rather than observing the signs of exit for coffee growers (low coffee prices) and move to another crop, they continue to remain or even worse – more growers join because of the incentives – which continues the downward spiral of prices because of too much coffee with not enough demand. This will be the long term issue for coffee growers until it is a rare enough crop (in high enough demand) to reach higher prices again.
This is not an ‘end all argument’ by any means, but you can see the consequences that follow: fair trade coffee (at least, at the moment) will not lead to long-term enrichment of poorer growers.
Furthermore, if the fair trade movement continues to exacerbate the problem without recognition or prevention (which arguably is quite difficult) then fair trade in many ways continues to keep the poorer growers more shackled then it does free them. And this will most certainly not lead to growth or reduction of poverty in any effective manner. If our continued purchases of fair trade are at the detriment of poverty-reduction and the growers’ long-term enhancement, then could buying fair trade be viewed as causing harm?
I think you will agree that this doesn’t mean we stop fair trade altogether – as I think we all well know that there are many a middlemen in every country waiting to take advantage of poor farmers in any way and we need ‘fair’ buyers if only to ensure a livelihood for the growers on even a short term basis. Furthermore, it is possible to say that while this may be largely true – there are still various markets that seem to have better auctions than others and fair prices for growers still remains a real and needed possibility.
The only other small critique of the book is that we were left wondering what to do about this whole situation. The only suggestion was for individuals and organizations to focus on the human capital and physical capital side of poorer countries. Working to build infrastructure and create situations for better education or more skills training.
But this sounds like we just came full circle again. The small gap in information and infrastructure was what led to the fair-trade industry in the first place. Where does this leave us concerning fair-trade? What can producers/consumers of coffee do to take part – if anything? Better yet, what can the development workers on the ground do to further assist the local farmers?
If anything, this book has revealed the importance of asking difficult questions and following up on where it might lead us.