Monday, March 27, 2006

Fair Trade or Free Trade?

Michael Stickings, a self-described Fair Trade coffee supporter, asks whether the forseeable long-term effects of price supports for coffee farmers might become a worse cure than the problems they solve.

The problem is that these high prices will encourage new entrants into coffee production, which will lead to a glut in supply that pushes global coffee prices down. Those who are already locked into Fairtrade supply contracts will do fine, but those who do not receive the benefit of Fairtrade prices will be made even worse off.

Converting every coffee buyer in the world to the Fairtrade philosophy doesn't necessarily solve the problem either, for you still have the inducement to entry provided by high coffee prices, leading to the same glut of coffee, and to strong incentives for those selling at the lower end of the market to defect out of the Fairtrade movement and reap the benefits of lower coffee prices.

I think his observations speak to the overly reductionistic approach of fair trade proponents.

The stated goal of fair trade is to raise wages for farmers, under the assumption that profiteering businessmen are cashing in on these farmers' work. But those wages are not set in a vaccuum, and the power of multinational corporations is not the only force keeping those wages low. To think that we can affect broad-based economic justice in just one industry of a complex multinational trading system, overriding the forces of labor availability, commodity supply and demand, and political requirements is a recipe for wasted time and effort. The difficulties making fair trade universal throughout the coffee industry only highlight this point; if fair trade can't be made accessible to every farmer, is it an equitable strategy at all?

While fair trade may indeed have the potential to improve raise the income of a reasonable number of farmers, to really lift a significant fraction of people in developing countries up from poverty in a self-sustaining way will require changes at the level of national trade and economic policy. Anything more reductionistic than that is, unfortunately, mostly window dressing.


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