One of the latest trends gripping apologist Americans is the “Fair Trade” movement whereby they basically agree to pay more money for a good or service (Fair Trade Coffee is one of the more popular categories) than what it’s actually worth. In doing so, the story goes, these higher margins ensure better working conditions for workers in foreign countries, more sustainable process which are less damaging to the environment, etc. Following the numerous stories about abuses in garment factories and in the fields around the world, this seems like a noble cause. The problem is, in aggregate, it’s a farce. It doesn’t really make the world a better place net-net and it actually harms more people than it helps. Here’s how, using Fair Trade Coffee as an example:
There are numerous coffee plantations around the world. Some are larger than others, some have better connections than others. Some end up getting the Fair Trade designation while others do not. The certification process is costly for owners, so many choose not to pursue it, or don’t have the means to. In a given country, let’s consider a few plantations that get the designation and a few that don’t. The Fair Trade certified farms end up with increased demand, must increase their output as a result, and achieve increased margins of course. While this is great for the farms that do, what about the farms that didn’t (after all, not everyone can get this designation or it loses its appeal as a differentiation). The workers and owners of the existing farms that kept doing business as usual are harmed in numerous ways. First off, they see declining demand as it shifts to the Fair Trade farms. That in turn puts pressure on their margins. Conceivably, this translates into even worse conditions or joblessness for their existing employees. See, when small farms in the US are crowded out by the major players and the small mom-and-pop hardware stores are put out of business by Walmart, Americans cry foul. When it’s small farms in the third world? Americans feel good about purportedly making the world a better place. If they only knew.
Then, let’s consider the local economy. By increasing both the output and the pricing of Fair Trade goods in-country, now the local cost of this commodity is increased substantially. In effect, it acts as a tax on the citizens of the country (so we can feel good). Then, there are the numerous other problems we shouldn’t be surprised by – corruption, false claims of the Fair Trade label when not certified, the fact that middle income countries benefit much more than poor countries (by looking at where the volume is), failure to actually monitor standards after certification, etc. In many cases, it’s a sham.
Don’t forget, Fair Trade USA gets plenty of revenue from fees derived by certifying the Billions of dollars in goods certified each year. So they definitely have a horse in the race. My biggest problem with some of these movements isn’t that people don’t mean well. It’s that their efforts are not effective and they’ve convinced the public that they are. This has cost, policy and human implications.
Spread the word, by paying more for Fair Trade, you’re not making the world a better place.
Disclosure: I actually buy Newman’s Own Coffee which has the Fair Trade label. I happen to like the flavor and they have good marketing which reeled me in initially before I research this topic. Just wanted to share that.
If you enjoyed this criticism of Fair Trade, check out the rest of my criticism section for similar themes.
What Are Your Thoughts on Fair Trade?