A few months ago I visited Padgett Station, a coffee shop in Carrboro, NC. Offering a wide selection of coffee, wine, beer, cigars, meats, and cheeses, it seems like the kind of place I’d love. And I did enjoy it, but the experience was marred by the store’s self-righteous attitude about using Fair Trade products. One sign behind the counter, for example, says something like, “Fair or Unfair? It’s that simple.” No, it’s not that simple.
A new paper by Jeremy Weber in the Cato Journal does a good job explaining why, presenting an interesting economic analysis of the system’s flaws. For instance, how requirements that grower groups operate self-sufficiently force them to lose out on gains from trade:
Since Fair Trade eliminates “unnecessary” intermediaries, producer organizations must perform the tasks previously conducted by those intermediaries. In this arrangement, an organization must obtain financing to buy coffee from its members, sort and process coffee, and coordinate export logistics. Each of those activities generates expenses which, if not managed effectively and efficiently, can consume much of the higher Fair Trade price before it reaches growers. In some cases, organizations’ export costs have been high enough to induce member producers to sell to the local market instead of to their organization for the Fair Trade market.
There’s also the predictable excess supply of eligible coffee created by setting a price floor:
Increased barriers to entry have made it increasingly difficult for marginalized producers, which Fair Trade supposedly targets, to participate. As in most industries, increasing barriers to entry benefits those already established in the market. Such is the case in the Fair Trade coffee market, which is dominated primarily by those privileged groups who entered the market in its less competitive days. The Fair Trade model based on a minimum price will inevitably produce a tension between concentrating market shares to a few groups, which leaves many out of the Fair Trade system, and distributing market shares to many groups, which results in each producer selling only a fraction of his production to the Fair Trade market.
Read the whole thing, in PDF, here.
Libertarians like to bash Fair Trade, primarily because of the stupid name that implies free trade is unfair. In truth, libertarians should embrace certification of various kinds as a free market tool consumers can use to advance their causes. That said, it’s important to look beyond the stated goals of certification to its actual effects. As this paper and other critiques have shown, the Fair Trade label in particular is of limited application. At the very least, consumers shouldn’t limit themselves to buying exclusively Fair Trade coffees. They’ll be missing out on some great coffees from other dedicated growers.
[Via Marginal Revolution. Cross-posted on STC.]
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Jacob Grier is a freelance writer, barista, mixologist, and magician in Portland, OR. He writes, eats, and drinks a lot. His articles have appeared in The Washington Post, Reason Online, The Oregonian, and other publications.
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BABY TEARS!!!!!
Your comments unfortunately excluded many cooperatives that practice Fair Trade buying, and not only pay a delegated FT rate, but well above the requirement. These do-gooders are honestly making an effort to remove the so called “middleman” or “coyote” (that’s appropriate terminology)and get well above the “fair” price of coffee to farmers that would otherwise suffer monetarily using that middleman contact. An excellent example of such a coop is Cooperative Coffees. Their website is http://www.coopcoffees.com/.
While I certainly understand your concern over Fair Trade practices, your view is skewed to one side and you obviously have excluded people who are not “righteous” and truly care about their brothers and sisters trying to survive in third world countries. BAM!
Hi Rick,
Thanks for the comment. I think we’re in agreement on this and I’m all for paying good money for good coffee. My only concern is that people understand that Fair Trade has limited application, could potentially be reformed in some positive ways, and is certainly not the last word on sustainable coffee.
I worked in several coffee shops around the DC area for the previous three years, all of which serve excellent coffee from Counter Culture. As you probably know, CCC takes pride in building relationships with its growers and paying top dollar for exceptional beans. Over the years I’ve had countless conversations with customers who nonetheless express concern that not all of the coffee we served is certified Fair Trade. I simply want them, and the readers of this blog, to know that the issue of Fair Trade isn’t as black and white as it is often portrayed.
Agreed. I guess what it all boils down to is, just who is honest and should there be an entity to keep them honest. That question is being debated by TransFair probably as we type. I do believe that too much transparency because of fear of reprisal when you as a company or individual already are trying to do the right thing, and doing your homework accordingly, is the big question. Organic certification is controlled by the federal government, and while I’m not a proponent of too much government involvement, this may come down to a necessity, if there will ever truly be, honest, across the board Fair Trade in the United States.