A Dispassionate Economic Analysis of 'Fair Trade'
When it comes to the purchase of everyday goods such as coffee, tea and sugar, most consumers believe that sellers of Fair Trade products occupy the high moral ground. Despite its strong statements, however, the claims of the Fair Trade movement have not been tested properly.
This important study, whilst not doubting the position that Fair Trade is part and parcel of a market economy, does question the claims made by the Fair Trade movement. The market economy and free trade – often decried by proponents of the Fair Trade movement – may deliver the benefits that the Fair Trade model brings without the costs and bureaucracy involved in obtaining the Fair Trade label. Furthermore, this study questions the exclusivity often claimed by Fair Trade organisations: there are other social labelling initiatives that perhaps have more transparent objectives.
The author – a trade expert from Dundee University with broad practical experience of international trade – also finds that criticisms of Fair Trade are exaggerated, and he does accept that Fair Trade can bring some benefits to producers in particular circumstances.
This study is essential reading for all those who wish to understand better this 21st-century consumer phenomenon and whether it actually delivers the benefits its proponents claim.
• Fair Trade is part of the market economy and is not, in any way, in opposition to free trade. Fair Trade sales have grown enormously in the last few years.
• Fair Trade brings certain benefits to producers, such as guaranteed prices, a social premium and the enforcement of particular labour conditions.
• These benefits may not be as great as many of Fair Trade’s proponents imply. For example, if the market price falls below the guaranteed price level, though the guaranteed price will be paid for any Fair Trade purchases, the quantity of produce that will be bought from the producer is not guaranteed.
• The benefits of Fair Trade also come at a cost. There is a levy on the wholesaler as well as a certification charge forproducers. The certification charge starts at £1,570 in the first year – a huge sum of money for producers in the poorest countries.
• Fair Trade does not focus on the poorest countries. Fair Trade penetration is greater in middle-income than in poor countries
• Criticisms of Fair Trade are also exaggerated. At its current level of penetration it is likely to do little harm in terms of distorting markets.
• The benefits claimed by Fair Trade can also be obtained from the normal business relationships that exist between primary product producers and buyers. Attempts by proponents of Fair Trade to denigrate free trade and normal market practices are not helpful and distort realities.
• Primary product producers will often gain much more by selling speciality brands of their product than they will from adopting the Fair Trade label.
• Many other social labelling initiatives exist with objectives that are different from and often more transparent than those of Fair Trade. Attempts by Fair Trade to require schools, parishes and so on to stock Fair Trade goods can damage other social labelling initiatives or require very poor producers to suffer the bureaucracy and costs of obtaining multiple labels.
• Fair Trade is not a long-term development strategy, and the model is not appropriate for all producers. It is also unable to address structural problems within trading systems. Fair Trade’s proponents need to show some humility and accept that it is a niche market designed to benefit some producers; nevertheless, it does achieve that limited objective.