Fair trade debate

Fair trade's increasing popularity has drawn criticism from both ends of the political spectrum. Different arguments are used by those who favour and by those who oppose fair trade, or feel that more strict standards and higher fair trade prices are needed. These arguments can be divided into different broad categories:

• The price distortion argument, advocated by the Adam Smith Institute^[1] and The Economist magazine^[2] calling fair trade a "misguided attempt to make up for market failures" encouraging market inefficiencies and overproduction.^[3]
• The creation of insider/outsider markets argument, defended by the Institute of Economic Affairs.^[4] This argument does not explicitly criticize the ideals behind fair trade, but rather current certification, production and pricing systems.
• The mainstreaming argument, defended by French author Christian Jacquiau, which criticizes segments of the fair trade movement for working within the current system (i.e. partnerships with mass retailers, multinational corporations etc.) rather than establishing a new fairer, fully autonomous trading system.

It has also been argued that the approach of the FairTrade system is too rooted in a Northern consumerist view of justice which Southern producers do not participate in setting. "A key issue is therefore to make explicit who possesses the power to define the terms of Fairtrade, that is who possesses the power to determine the need of an ethic in the first instance, and subsequently command a particular ethical vision as the truth."^[5]

A more participatory and multi-stakeholder approach to auditing might improve the quality of the process.^[6] In addition, strategic use of labeling may help embarrass (or encourage) major suppliers into changing their practices. They may make transparent corporate vulnerabilities that activists can exploit. Or they may encourage ordinary people to get involved with broader projects of social change.^[7]

Some academics have argued that rather than opposing free trade and fairtrade approaches to supporting smallholder agricultural development, these "are in fact complementary... smallholders can often benefit from both approaches."^[8]

Effects

There have been very few attempts at impact studies. It would be methodologically and logically incorrect to use these to conclude that Fairtrade in general does or does not have a positive impact. ^[9] Griffiths (2011)^[10] argues that few of these meet the normal standards for an impact study, such as comparing the before and after situation, having meaningful control groups, allowing for the fact that Fairtrade recruits farmers who are already better off, allowing for the fact that a Fairtrade cooperative receives aid from a dozen other organizations – Government Departments, Aid Agencies, donor countries, and NGOs, and allowing for the fact that Fairtrade may harm other farmers. Serious methodological problems arise in sampling, in comparing prices, and from the fact that the social projects of Fairtrade do not usually aim to produce economic benefits.

Ethics

Consumers are willing to pay more for Fairtrade products in the belief that (1) this helps the very poor and/or (2) that forced or child labour in production is excluded and that health and safety requirements are met.^{[11][12][13][14]} The main ethical criterion of critics of Fairtrade is that this money is diverted from the very poor farmers to businesses in rich countries, to moderately poor farmers, to employees of cooperatives or are used for unnecessary expenses, so there is inevitably an increase in death and destitution. This informs criticisms that there is reason to doubt that much of the extra money paid reaches farmers, and that there is reason to believe that Fairtrade harms non-Fairtrade farmers. There are criticisms of what is designated Unfair Trading under EU law. There are also criticisms using many other criteria.^{[15][4][10][16][17]}

The Fairtrade criteria are essentially political, and critics state that it is unethical to bribe Third World producers to adopt a set of political views that they may not agree with, and the donors providing the money may not agree with. In addition many of the failures of Fairtrade derive from these political views, such as the unorthodox marketing system imposed.^[15][4][10] Boersma (2002, 2009) ^[18][19] the founder of Fairtrade, and like minded people^{[20][21][22][23]} are aiming at a new, non-capitalist way of running the market and the economy. This may not tie in with the objectives of producers, consumers, importers or retailers.

Booth says that the selling techniques used by some sellers and some supporters of Fairtrade is bullying, misleading and unethical.^[15][4][24] There are also problems with the use of boycott campaigns and other pressure to force sellers to stock a product they think ethically suspect.

A lot of people volunteer to work to support Fairtrade. They may do unpaid work for firms, or market Fairtrade in schools, universities, local governments or parliament. Crane and Davies’^[25] study shows that distributors in developed countries make ‘considerable use of unpaid volunteer workers for routine tasks, many of whom seemed to be under the (false) impression that they were helping out a charity.’

Corruption

Low prices may also occur because the system provides more opportunities for corruption than the normal marketing system, and less possibility of, or incentive for, controlling it. Corruption has been noted in false labelling of coffee as Fairtrade by retailers and packers in the developing countries,^[26] paying exporters less than the Fairtrade price for Fairtrade coffee (kickbacks),^[27][12][28] failure to provide the credit and other services specified,^{[22][28][29][30][31][32][22]} theft or preferential treatment for ruling elites of cooperatives,^[31][33] not paying laborers the specified minimum wage.^[26][34][28]

Financial effects

The evidence is that little of the extra money paid by consumers reaches the farmers. The Fairtrade Foundation does not monitor how much extra retailers charge for Fairtrade goods, and retailers almost never sell identical Fairtrade and non-Fairtrade lines side by side, so it is rarely possible to determine how much extra is charged or how much reaches the producers, in spite of the Unfair Trading legislation. In four cases it has been possible to find out. One British café chain was passing on less than one percent of the extra charged to the exporting cooperative.^[10] In Finland, Valkila, Haaparanta and Niemi^[12] found that consumers paid much more for Fairtrade, and that only 11.5% reached the exporter. Kilian, Jones, Pratt and Villalobos^[35] talk of US Fairtrade coffee getting $5 per lb extra at retail, of which the exporter would have received only 2%. Mendoza and Bastiaensen^[31] calculated that in the UK only 1.6% to 18% of the extra charged for one product line reached the farmer. All these studies assume that the importers paid the full Fairtrade price, which is not necessarily the case.^{[27][28][22][29]} Many counter-examples would be needed to show that these are not typical. FLO’s own figures ^[36] are compatible with this. They claim that 1.53% of retail prices reach the Third World, and, since Fairtrade charges a 3% licencing fee at wholesale, the maximum that reaches the Third World, even if traders charge low margins is 50%. This would be unacceptable to most charities.

Fairtrade supporters boast of ‘The Honeypot Effect’ – that cooperatives that become Fairtrade members then attract additional aid from other NGO charities, government and international donors as a result of their membership.^{[37][38][39][40][28]} Typically there are now six to twelve other donors. Critics point out that this inevitably means that resources are being removed from other, poorer, farmers. It also makes it impossible to argue that any positive or negative changes in the living standards of farmers are due to Fairtrade rather than to one of the other donors.

Farmers

The Fairtrade Foundation does not monitor how much of the extra money paid to the exporting cooperatives reaches the farmer. The cooperatives incur costs in reaching the Fairtrade political standards, and these are incurred on all production, even if only a small amount is sold at Fairtrade prices. The most successful cooperatives appear to spend a third of the extra price received on this: some less successful cooperatives spend more than they gain. (While this appears to be agreed by proponents and critics of Fairtrade,^[41][33] there is a dearth of economic studies setting out the actual revenues and what the money was spent on.) FLO figures^[36] are that 40% of the money reaching the Third World is spent on ‘business and production’ which would include these costs, as well as costs incurred by any inefficiency and corruption in the cooperative or the marketing system. The rest is stated to be spent on social projects, rather than being passed on to farmers. There is no evidence that Fairtrade farmers get higher prices on average. Anecdotes state that farmers were paid more or less by traders than by Fairtrade cooperatives. Few of these anecdotes address the problems of price reporting in Third World markets,^[42] and few appreciate the complexity of the different price packages which may or may not include credit, harvesting, transport, processing, etc. Cooperatives typically average prices over the year, so they pay less than traders at some times, more at others. Bassett (2009) is able to compare prices accurately where Fairtrade and non-Fairtrade farmers have to sell cotton to the same monopsonistic ginneries which pay low prices.^[43] Prices would have to be higher to compensate farmers for the increased costs they incur to produce Fairtrade. For instance, Fairtrade encouraged Nicaraguan farmers to switch to organic coffee, which resulted in a higher price per pound, but a lower net income because of higher costs and lower yields.^[28][44][35] The claim that Fairtrade ‘Fairtrade guarantees a fair price for the producer’ is not supported by the evidence. Griffiths (2011) points to false claims that Fairtrade producers get higher prices, the almost universal failure to disclose the extra price charged for Fairtrade products, to disclose how much of this actually reaches the Third World, to disclose what this is spent on in the Third World, to disclose how much, if any, reaches farmers, to disclose the harm that Fairtrade does to non-Fairtrade farmers. He also points to the failure to disclose when ‘the primary commercial intent’ is to make money for retailers and distributors in rich countries.^[10]

Marketing

One reason for low prices is that Fairtrade farmers are forced to sell through a monopsonist cooperative, which may be inefficient or corrupt – certainly some private traders are more efficient than some cooperatives. They cannot choose the buyer who offers the best price, or switch when their cooperative is going bankrupt.^[31] There are also complaints that Fairtrade deviates from the free market ideal of some economists. Brink calls fair trade a "misguided attempt to make up for market failures" encouraging market inefficiencies and overproduction.^[3]

Critics argue that Fairtrade harms all non-Fairtrade farmers. Fairtrade claims that its farmers are paid higher prices and are given special advice on increasing yields and quality. Economists^{[45][4][46][3][47]} state that, if this is indeed so, Fairtrade farmers will increase production. As the demand for coffee is highly inelastic, a small increase in supply means a large fall in market price, so perhaps a million Fairtrade farmers get a higher price and 24 million others get a substantially lower price. Critics quote the example of farmers in Vietnam being paid over the world price in the 1980s, planting lots of coffee, then flooding the world market in the 1990s. The Fairtrade minimum price means that when the world market price collapses, it is the non-Fairtrade farmers, particularly the poorest, who have to cut down their coffee trees. This argument is supported by mainstream economists, not just free marketers. This argument falls away if, as critics and FLO state, farmers do not get a higher price.

Segments of the trade justice movement have also criticized fair trade in the past years for allegedly focusing too much on individual small producer groups while stopping short of advocating immediate trade policy changes that would have a larger impact on disadvantaged producers' lives. French author and RFI correspondent Jean-Pierre Boris championed this view in his 2005 book Commerce inéquitable.^[48]

Politics

There have been largely political criticisms of Fairtrade, both from the left and the right. Some believe the fair trade system is not radical enough. French author Christian Jacquiau, in his book Les coulisses du commerce équitable, calls for stricter fair trade standards and criticizes the fair trade movement for working within the current system (i.e. partnerships with mass retailers, multinational corporations etc.) rather than establishing a new fairer, fully autonomous trading system. Jacquiau is also a staunch supporter of significantly higher fair trade prices in order to maximize the impact, as most producers only sell a portion of their crop under fair trade terms.^[49] It has been argued that the approach of the FairTrade system is too rooted in a Northern consumerist view of justice which Southern producers do not participate in setting. "A key issue is therefore to make explicit who possesses the power to define the terms of Fairtrade, that is who possesses the power to determine the need of an ethic in the first instance, and subsequently command a particular ethical vision as the truth."^[5] Some of the criticisms of Fairtrade from the free market approach to economics appear to be linked to right wing political approaches.

See also

• Food price crisis

References

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