The fair-trade debate concerns the ethics and economic implications of fair trade, a term for an arrangement designed to help producers in developing countries achieve sustainable and equitable trade relationships. The benefits of fair trade for farmers and workers can vary considerably and the social transformation impacts also vary around the world. However the main concerns from critics is that fair trade may give an unfair advantage to some producers over others.
Fairtrade researcher Alastair Smith argues that while some criticisms are grounded in acceptable standards of evidence (and deserve serious attention), others are less well elaborated, and that in a few cases the criticisms presented are assertions with little or no credible evidence to support them. These claims have themselves been criticized on matters of fact, theory, methodology, use of evidence and incorrect citations.Griffiths, P.: 2011, "Rejoinder: False Statements, Misrepresentation and Distortion in Defending Fairtrade", Economic Affairs, pp. 103–04
Fair-trade income One study concluded that benefits of fair trade to producers were close to zero because there was an oversupply of certification, and only a fraction of produce classified as fair trade was actually sold on fair-trade markets, just enough to recoup the costs of certification. A study published by the Journal of Economic Perspectives however suggests that fair trade does achieve many of its intended goals, although on a comparatively modest scale relative to the size of national economies.
Consumers buy fair-trade goods for a variety of reasons; some are willing to pay more for Fairtrade-certified products in the belief that this helps the very poor. Trudel, R., & Cotte, J. (2009). Does it pay to be good? MIT Sloan Management Review, Winter Critics of the Fairtrade brand have argued that the system diverts profits from the poorest farmers, that the profit is received by corporate firms, and that this causes "death and destitution". Accessed at Why Fairtrade isn't fair.
Evidence suggests that little of the extra money paid by consumers actually reaches the farmers. The Fairtrade Foundation does not monitor how much extra retailers charge for Fairtrade goods. Furthermore, 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 and so how much of that premium reaches the producers.Directive 2005/29/EC on Unfair Commercial Practices In a very few cases, it has been possible to find out. One British café chain was passing less than one percent of the extra charged to the exporting cooperative; in Finland, Valkila, Haaparanta, and Niemi found that consumers paid much more for Fairtrade, but that only 11.5% of that reached the exporter. Kilian, Jones, Pratt, and Villalobos say U.S. Fairtrade coffee gets per pound extra at retail, of which the exporter receives only 2%. Mendoza and Bastiaensen calculated that in the UK only 1.6% to 18% of the extra charged for one product line reached the farmer. Critics claim that many counter-examples would be needed to show that these are not typical. Since Fairtrade charges a 1.9% licensing fee at wholesale, the maximum that reaches the developing world, even if traders charge unrealistically low margins, is 50%, and a much smaller amount would reach the target farmers.
The Fairtrade Foundation does not monitor how much of the premium paid to the exporting cooperatives reaches the farmer. Cooperatives incur certification and inspection fees, additional marketing costs, costs in meeting the Fairtrade political standards, and possibly costs arising from the monopoly power of the cooperative. Farmers also incur additional production costs on their production, even if only a small amount is sold at Fairtrade prices. Over the years, Fairtrade producers have been able to sell only 18% to 37% of their output as Fairtrade-certified, selling the rest without certification at market prices. While both proponents and opponents of Fairtrade acknowledge this problem, there are scarce economic studies presenting the actual revenues of Fairtrade cooperatives and how they spend their money. Weber (2006) examined the additional marketing costs of some cooperatives and found, for example, that "after six years Oro Verde can cover only 70 percent of its [additional marketing] costs with its current income stream" and that the cooperative needs to double its current annual export volume in order to sustain its management team. At the time they were losing money on their Fairtrade membership.Weber, J. (2006). "Rationing in the Fair Trade Coffee Market: Who enters and How?" International colloquium on fair trade and sustainable development. Montreal: Ecole des Sciences de la Gestion, Universite du Quebec. FLO figuresFairtrade Labelling Organizations International.: 2010, Annual Report 2009–2010 . Retrieved May 27, 2011. show that 40% of the money reaching the developing world is spent on "business and production," which includes the costs mentioned above as well as costs incurred by inefficiency and corruption in the cooperative or the marketing system. The rest is spent on social projects, rather than being passed on to farmers.
There is no evidence that Fairtrade farmers get higher prices on average.Farmers are allegedly paid more by traders than by Fairtrade cooperatives while others state that they were paid less. Few such anecdotes address the problems of price reporting in developing world markets,See Bowbrick, P, "Are price reporting systems of any use?", British Food Journal. 90(2) pp. 65–69 March/April. 1988. or appreciate the complexity of different price packages. A different price package may or may not include credit, harvesting, transport, processing, etc. Cooperatives typically average prices over the year, so they may pay more or less than traders, depending on the day. Basset compares prices only where Fairtrade and non-Fairtrade farmers have to sell cotton to the same monopsonistic ginneries, which pay low prices.Bassett, T. (2009). "Slim pickings: Fairtrade cotton in West Africa." Geoforum Prices would have to be higher to compensate farmers for the increased costs of producing Fairtrade. For instance, when Fairtrade encouraged Nicaraguan farmers to switch to organic coffee, they earned a higher price per pound but a lower net income because of higher costs and lower yields.Wilson, B. R. (2009). "Indebted to Fair Trade? Coffee and Crisis in Nicaragua." Geoforum
Fair-trade research Some critics argue that there have been few fair-trade impact studies to confirm the benefits claimed and there have been calls for more evaluations as the movement has grown. A 2009 literature reviewNelson, V., & Pound, B.: 2009, "The Last Ten Years: A Comprehensive Review of the Literature on the Impact of Fairtrade" . found 33 studies that met the criteria for impact studies. Griffiths (2011) says that few meet the normal standards for an impact evaluation, such as comparing the before and after situation, having meaningful control groups, and allowing for the facts that Fairtrade recruits farmers who are already better off, that a Fairtrade cooperative receives aid from other organizations (government departments, aid agencies, donor countries, and NGOs), and that Fairtrade may harm other farmers. Other 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.
Due to the snapshot nature of research, few studies include how long producers have been involved with fair trade. A further problem is that most studies ignore the agency and perspective of producer decision makers, especially those farmers excluded from the Fairtrade system. Capturing such socially constructed benefits, including that of confidence in business relationships, is difficult.
There is a difference between impact studies and case studies. Case studies are valuable for, among other things, researching specific systems and sub-systems, constructing models, and identifying problems. However, the impacts noted cannot be extrapolated generally. For instance, if a hundred dairy farms lose money, this does not mean that all or most dairy farms do. There are a lot of case studies on Fairtrade, but many are erroneously referred to as impact studies.
Fair-trade market issues One reason for is that Fairtrade farmers are forced to sell through a monopsonist cooperative, which may be inefficient or corrupt. They cannot choose the buyer who offers the best price, or switch when their cooperative is going bankrupt. Fairtrade deviates from the free market ideal of some economists. Brink calls fair trade a "misguided attempt to make up for market failures" that encourages market inefficiencies and overproduction.Brink, Lindsey. (2004). "Grounds for Complaint" . URL accessed on September 25, 2006. Sometimes goods are overproduced, leading to the sale of a fair-trade product in a non–fair–trade market, causing potential issues with customers who are paying for fair-trade products despite the fact that the same products are available for lower amounts.
Critics argue that Fairtrade, but not all other fair-trade businesses, harms non-Fairtrade farmers. Fairtrade claims that its farmers are paid higher prices and are given special advice on better techniques, both of which lead to increased output being sold on the global market. EconomistsGriffiths, P. (2008) "Why Fairtrade Isn't Fair", Prospect, August 2008. Accessed at Why Fairtrade isn't fair Sidwell, M. (2008) Unfair Trade, London: Adam Smith Institute. Brink, Lindsey. (2004). Grounds for Complaint . URL accessed on September 25, 2006.
Harford, T: "The Undercover Economist." 2005. assert that, as the demand for coffee is highly inelastic, an increased price for Fairtrade which produces a small increase in supply means a large fall in market price. In addition, 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 illustrated with the example of Vietnam paying its coffee farmers above the world market price in the 1980s, planting much coffee, then flooding the world market in the 1990s. Smith (2010) questioned the relevance of the Vietnam example, and Griffiths later published a response.
Low prices may also occur because the fair-trade marketing 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 labeling of coffee as Fairtrade by retailers and by packers in the developing countries, importers paying exporters less than the Fairtrade price for Fairtrade coffee,de Janvry, A., McIntosh, C., & Sadoulet, E. (2010). Fair Trade and Free Entry:The Dissipation of Producer Benefits in a Disequilibrium Market". Retrieved December 24, 2012 failure by importers to provide the credit and other services specified,.Barrientos, S., Conroy, M. E., & Jones, E. (2007). Northern Social Movements and Fair Trade. In L. Raynolds, D. D. Murray, & J. Wilkinson, Fair Trade: The Challenges of Transforming Globalization (pp. 51–62). London and New York: Routledge Mendoza, R. (2000). The hierarchical legacy in coffee commodity chains. In R. Ruben, & J. Bastiaensen, Rural development in Central America. New York: St. Martin's Press, p.34–39 theft or preferential treatment for ruling elites of cooperatives, and not paying laborers the specified minimum wage.Weitzman, H. (2006, September 9). "'Ethical-coffee' workers paid below legal minimum." Financial Times
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