Today brings us to the end of week one of Fairtrade Foundation's "Fairtrade Fortnight", an annual rally modelled after Children in Need and Red Nose Day that seeks to engage smiling school children, church groups, and students in promoting "Fairtrade". This year, they are trying to encourage 1,000,001 people to swap a freely traded product for a Fairly traded one. They call it "The Big Swap".Before you go for their bananas, let's just revise what Fairtrade means. You might have thought that free trade and fair trade were the same thing. Not so.
The Fairtrade concept is a voluntarily imposed price floor on a globally traded commodity. It is price fixing. Consumers sanction the higher fixed price by demanding special branded goods, and Fairtrade Fortnight is about promoting this idea and the brand itself to consumers. The price is fixed for the farming co-operative which exercises democratic rather than market driven control over the extra money.
The brand is funded by a 1.8% cut of revenue taken from wholesalers, with money from the EU for specific lobbying. That lobbying includes the "Fairtrade Towns" campaign, which encourages citizens to lobby councils for more public money. This is spent through council directives to swap the coffee and other goods in the meeting rooms and canteens to Fairtrade. There are similar campaigns for Fairtrade Schools and Fairtrade Countries, so there is no getting away from them.
As a savvy group, members of this party will already smell a rat. That price floor distorts the market influencing individuals to behave differently. Quite right, it acts as a disincentive against investment in premium quality goods, and it incentivises farming as a choice of career meaning the poor are less likely to switch to more profitable industries. Also, the market demand falls for normal freely traded goods meaning 70-80% of sales are at a suppressed price. The revenue is swapped from the conventional to the favoured supplier, in exchange for a certification fee of over a thousand dollars.
In addition, all that messing about in the middle means only about 10% of the extra money goes to the coffee grower anyway (the price charged, minus the market price of the product times 10%) . The rest vanishes somewhere in the middle.
There are so many issues with this I made a list, but perhaps the most dangerous aspect is that the FLO certification regime helps local Governments' to enforce minimum wage rules, child labour laws, pro-minority discrimination rules, and Unions to enforce collective bargaining agreements. All these rules have downsides that I don't need to spell out here.
The Bitter Aftertaste is a powerful film from WorldWrite that neatly summarises some of the issues in an 18 minute presentation:
Before I let you go to finish your shopping I want to flag one more issue. I found this quote in research published by the ASI. Its from a book by Harriet Lamb, top-coordinator for Fairtrade in the UK:
Fairtrade also plays a more practical role in building a broad based movement for change… Fairtrade is an easy way in… It helps give our governments a mandate to take the big, bold steps needed to change world trade rules.
So, before you consider making a swap, reflect on what changes Fairtrade might want to make. You wouldn't swap your integrity for a cup of coffee, would you?
Update: At the time of writing, I hadn't heard about calls for the NHS to use Fairtrade medical equipment but I'm not surprised at all. The consequences for desparate children in Pakistan and desperate cancer patients here don't seem to have been thought through.
About me:
Simon is unlucky enough to live near a Sainsburys and a Starbucks and is sufficiently depressed about it to blog at Free Trade Coffee whenever he hears something juicy. The blog also promotes online sources of good freely traded brown stuff. You can usually catch him at LPUK South East's regular drinking session.
9 comments:
I generally avoid any goods labelled as fair trade. One almost instinctively recognises that there is a scam of some sort hiding behind the faux altruism.
"You might have thought that free trade and fair trade were the same thing."
I think it would be reasonable to describe fair trade as a subset of free trade. It is merely another example of people expressing their preferences in the market place by using their money to purchase goods which best satisfy those preferences.
@John here here
@Paul,there is nothing wrong with consumers choosing as you describe, this is an important and valuable function of markets that leftists tend to forget about. The specific Fairtrade scheme in the UK represented by the FLO logo has issues that run counter to this point:
1. Taxpayers money is used to fund advertising for the brand, and to pay directly for branded products. This money is obtained from you by force at the behest of a small minority with whom you may disagree.
2. It is increasingly difficult to express a choice in the market due to the number of stores and coffee shops where normally traded goods are excluded. The exclusion itself is a consequence of the advertising which contains mistaken altruist-collectivist moral messages.
3. The money used for "education" and marketing is indirectly promoting the creation of world trade regulations that will be backed by the force of law. A consequence again of mistaken altruist-collectivist ethics, as translated into politics.
As such, this particular scheme does not represent the exercise of choice, but seeks to impose choices that will have harmful consequences for the most vulnerable.
SJGibbs: "1. Taxpayers money is used to fund advertising for the brand, and to pay directly for branded products. This money is obtained from you by force at the behest of a small minority with whom you may disagree."
That's certainly true, but it's not something limited to FairTrade products. Plenty of industries enjoy subsidies, hand-outs and preferential laws. If you condemned every industry that the state gifts advantages to, you'd probably never stop! It's a fairly inevitable consequence of having an interventionist state, that almost every industry will rent-seek.
"2. It is increasingly difficult to express a choice in the market due to the number of stores and coffee shops where normally traded goods are excluded. The exclusion itself is a consequence of the advertising which contains mistaken altruist-collectivist moral messages."
Maybe, but that's because they've been so successful in the market. They've out-advertised and out-competed other suppliers. I don't see how you can condemn them, or imply it is a distortion of the free market, when it is a result of their competitors not responding effectively enough.
"3. The money used for "education" and marketing is indirectly promoting the creation of world trade regulations that will be backed by the force of law. A consequence again of mistaken altruist-collectivist ethics, as translated into politics."
Again, true, but the point applies even more strongly to world trade regulations relating to areas such as "intellectual property." The problem isn't the availability to FairTrade products, but state created impediments to free trade.
Other industries do ask for and receive hand outs, but I struggle to name another group that gets public money specifically to promote the *idea* of a class hand-outs being fundamentally good.
For example, you get automakers lobbying to be rescued but you don't get people receiving public money to campaign for the idea of bailing out corporations at the abstract level. afaik there is no EU funded pro-bailout campaign, there *is* an EU funded pro-fairtrade campaign (Fairtrade Towns). I think that is really harmful as its funding an abstract political position - that prices should be fixed and companies regulated.
Fake charities do a similar job, each within a much narrower scope.
SJGibbs,
State promotion of specific goods is wide-ranging and extensive. One example, which is probably the longest lived, is the "Buy British" campaigns which appear from time to time.
This is good stuff; I actually learned something ;)
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