In my last post I wrote “that all of this (i.e. Fair Trade) is just a load of bullshit” this might need some additional clarification.
First of all I am not against “Fair Trade” per se. It is a (free market) way to increase the living standards of farmers and more importantly laborers. Consumers in Europe and elsewhere seem to have accepted the system; otherwise you wouldn’t find a staggering amount of Fair Trade products in supermarkets.
There clearly is a demand for social responsible consumption, regardless if one might perceive it as BoBo or not.
On Pickled Politics you find an interesting and somewhat controversial stance regarding Fair Trade (I do not happen to agree with all of the points raised).
Fairtrade arose from the coffee crisis of the 1990s. This was not a free market failure.
Governments tried to rig the market through the International Coffee Agreement and subsidized over-plantation with the encouragement of well-meaning but misguided aid agencies. The crash in prices was the inevitable result of this government intervention, but coffee prices have largely recovered since then.
Quite interesting look at the root of all these Fair Trade measures, if I had the time I would definitely love to go deeper into that particular subject.
Regarding the effects of Fair Trade, the author summarizes a study by the Adam Smith Institute, stating that pricing floors and other measures worsen the conditions for laborers because farmers are not willing to employ permanent workers. To me this argument seems a little bit far fetched since most laborers in the agrarian sector are and always have been seasonal workers, thus not permanent. He also states that Fair Trade was counterproductive to modernization of facilities, with the purchase of machines. I agree in general because NGOs that hand out the Fair Trade badges do prefer to support farms that are intensive on labor rather than capital. But especially coffee harvest suffices a great deal of man power. Experts (coffee aficionados and farmers that is) do have ambiguous views on the employment of machines for the harvest of coffee beans (according to what I’ve read so far). They say the marginal increase in economies of scale achieved by machines would not always justify the capital expenditures. Furthermore, that is the coffee aficionado speaking, they claim that the taste would suffer.
All in all I think that coffee is a special good that has to be looked at in a different way. However one statement on Pickled Politics I do agree with wholeheartedly is the following:
Free trade is the most effective poverty reduction strategy the world has ever seen. If we really want to aid international development we should abolish barriers to trade in the rich world, and persuade the developing world to do the same.
As I often argue, peasants in third world countries do produce competitive products. Their climatic and environmental settings are beneficiary for the product. But European Trade barriers and subsidies take away their chance to prove themselves and their produce to the world. If we have had Free Trade with African or Latin American countries, the recent food crisis would not have been as severe. Furthermore increasing prices would have been beneficial to the people who produce corn and other crops. Food shortage would not have occurred and not caused the death of people.
Unfair Trade -Adam Smith Institute, 2008