The Fallacy of "Fair" Trade
Toro @ Wed Nov 23, 2005 1:11 pm
IceOwl IceOwl:
Toro @ Wed Nov 23, 2005 4:32 pm
There is an economic problem with "fair trade" that every student learns in Econ 101 sometime in the first few weeks of class, which I explain below. But first, the problem with the concept of "fair trade."
The first "fair trade" campaign was for coffee. Someone, somewhere, came up with the idea that the "fair" price for a pound of coffee was $1.26. Coffee is currently trading at around $1 per pound but coffee was trading for around 50 cents a pound when this idea was first introduced. The proponents of "fair trade" argue that this price is not "fair" because farmers cannot live on that price, and thus, we should pay the higher price.
Now I'm not against anyone paying a higher price if they so chose. However, to implement such a policy on a massive scale, i.e. to replace free trade with "fair trade", in this manner brings problems we have seen time and again when there are price supports in agriculture.
Look at the graph below. Every first year economics student sees this and understands this. The clearing price is where supply - the purple curve - meets demand - the green curve, the intersection of the two lines. As you can see in the graph, the higher the price, the more supply, and the lower the price, the more demand. Pretty simple stuff.
However, what price supports - i.e. "fair trade" - tries to do is to alter this iron-law of economics. Instead of paying the clearing price - or the price at which supply and demand are in equilibrium as economists say - the fair traders want us to pay a higher price. This higher price is represented in the graph at P(1), on the y-axis (the side of the chart). Because the "fair" price is higher than the equilibrium price, total supply, which is represented on the x-axis (the bottom of the chart) is at Q(2) while demand is much lower at Q(1) . Thus, what happens in the real world is that farmers produce too much of the crop. This has happened over and over in agriculture where governments that have price support mechanisms wind up with literally mountains of butter and lakes of wine. With crops such as corn, those excess supplies have been dumped onto the global market, where there is no support price mechanism, thus hammering the global price of food as the iron law of economics asserts itself. This is the exact same problem that occurs today through subsidies, the same thing that the anti-poverty groups (rigthly) want to rid the world of to help African farmers who have a competitive edge in the global economy!
Now take the example of where there is no mechanism to absorb supply (the government), which is what happens in the global economy (since there is no global government). Let's say that the "fair trade" do-gooders get elected in America (a nightmare, I know!), and the new government decides that it will only buy coffee at the prescribed "fair" price. The United States consumes about 20% of all the coffee in the world. What would happen if that 20% is purchased under fair trade (assuming demand doesn't change, which wouldn't happen) ? Well, the lucky 20% would now receive higher incomes but at the expense of the other 80% who will have lower incomes! Why? In the gloabl market, the law of supply and demand will reassert itself and the global price will not change. So what happens is that to get to the global clearing price, the other 80% have to take a proportionally lower price compared to the price paid to those benefitting from "fair trade". Thus, if the "fair" price is $1, which is received by 20% of the coffee farmers, and the clearing price is $0.50 in the global market, the other 80% must take $0.40 per pound, a price below the equilibrium price! So now, "fair trade" has made the lot of the majority worse off! That's why this program can be harmful.
More on economics
Jaime_Souviens @ Wed Nov 23, 2005 5:04 pm
IceOwl IceOwl:
Toro Toro:
See, this is intelligent criticism.
Why give intelligent criticism to mindless propaganda. Please, just for once, try to start a thread where you write your own opinion first and back it up with facts, instead of waiting for someone to call you out on the fact that you're doing little more than digital plagiarism of corporate propaganda.
Let us know when you have a thought of your own.
Utterly unjustified. More facts in Toro's two recent threads than in thousands of your posts.
Have you sought counseling?
Toro @ Wed Nov 23, 2005 5:07 pm
Why thank you Jaime. That's much appreciated.
Jaime_Souviens @ Wed Nov 23, 2005 5:09 pm
He can be a pain to deal with when he's off his meds.
Blue_Nose @ Wed Nov 23, 2005 5:18 pm
Thanks (from me at least) to Toro, who didn't have to stoop to explaining the most simple of economic concepts, but took the time, nevertheless 
Now, truthfully Toro, do the fair trade "do-gooders" have anything to say to this? Surely they've been taught these concepts, or at least heard this argument.
Toro @ Wed Nov 23, 2005 5:31 pm
"Fair trade" as a marketing ploy
$1:
Small coffee brewers try to redefine fair trade
By Tim Rogers | Contributor to The Christian Science Monitor
GRANADA, NICARAGUA – Fueled by a popular taste for lattes and cappuccinos and a growing consumer-awareness campaign, the fair-trade coffee movement has tens of thousands of Americans asking for a scoop of social justice with their morning coffee.
Fair-trade coffee - beans purchased from small farmers outside the US at well above the slumping market price - is hot in the java world: The amount of fair-trade coffee sold in the US nearly doubled last year.
But as the movement has expanded in recent years to include such brands as Starbucks, Green Mountain, Procter & Gamble, and Dunkin' Donuts, dissension is percolating among some smaller roasters. They claim that the large firms, which buy only a small percentage of fair-trade beans, are turning it into a marketing ploy rather than an effort to help farmers.
Now a move is underfoot to create a new model where smaller brewers purchasing 100 percent fair-trade coffee hope to distinguish themselves as the real deal among fair traders. The rift demonstrates how some small companies feel cheated by larger corporations for infringing on their market niche, even when all parties involved insist they are working toward the same goal.
Others say the mainstreaming of the movement has helped the cause.
"If a corporate giant roasts a million pounds of fair-trade coffee in one year, they are still doing far more than some of the smaller 100-percent roasters will in their entire history," stresses Paul Rice, CEO of TransFair USA, the group that audits the US fair-trade industry.
The fair-trade model seeks to ensure livable wages as well as environmental and cultural sustainability for small farmers in Latin America, Africa, and Asia by establishing a base purchase price of $1.26 per pound - about $.75 more than the current market price. Since TransFair formed in 1998, fair-trade coffee sales in the US have grown exponentially, totaling 19 million pounds last year, according to Mr. Rice.
Several smaller 100-percent fair-trade coffee roasters in the US have broken from the establishment in recent months, claiming they can do more to raise consumer awareness by going it alone.
On Friday, Larry's Beans of North Carolina split from TransFair, the company that holds the US trademark for the term, "Fair Trade Certified." At least three other smaller roasters - Just Coffee, Dean's Beans, and Cafe Campesino - have followed suit. All the details of their new association have yet to be worked out.
"Without people outside the increasingly corporate-friendly TransFair system pushing for the original vision of a better model, [the movement] will be watered down into nothingness," says Matt Earley, cofounder of Just Coffee in Madison, Wis.
Under the current system, chains like Starbucks can call themselves fair-trade friendly by purchasing just 1 to 2 percent of their coffee from certified growers.
Starbucks, which brews fair-trade coffee once a month as its "coffee of the day" in the company's 7,834 worldwide shops, and has bags of it for sale on its shelves, acknowledges that fair-trade beans are only a small percentage of its total purchase, but explains that there are other ways to ensure farmers are treated justly.
Sue Mecklenburg, vice president of business practices for Starbucks, says the company purchases all its beans - fair-trade certified or not - at an average price of $1.20 per pound. She says that last year the company bought 2.1 million pounds of fair-trade certified coffee, double the amount from the previous year, and sold 28 million cups of fair-trade coffee as its cup of the day in 2003.
"Starbucks doesn't purchase 100 percent of its coffee as fair-trade certified, but 100 percent of the coffee we buy is under conditions that are fair to farmers," she says, noting that fair-trade certified coffee is still a relatively small market, representing 670,000 smallholder family farmers, out of an estimated 25 million coffee farmers around the world.
Another sticking point inside the movement are the requirements for being certified. Germany's Fair Labeling Organization (FLO), which certifies all fair-trade coffee in the world, charges farmers $2,431 to certify plus an annual base of $607 for recertification and $.02 per 2.2 pounds of coffee sold under the fair-trade label. (BWAHAHAHAHAHAHA! - ed.)
Stuck in the middle of the controversy is the rural Nicaraguan coffee cooperative of El Porvenir, located on a 2,000-acre swath of land in the volcanic highlands. This village of 255 people produces a modest 45,000 pounds of organic coffee beans in a good year and has been trying for three years to get certified as fair trade by FLO.
Mike Woodard of the Nicaraguan ecumenical organization Jubilee House Community, says he helped the village fill out a certification questionnaire in 2001, but never received a response. FLO did not answer questions about why they have not visited the community, but spokesman Simen Sandberg says that seldom do they certify producers who harvest less than 44,000 pounds per year - almost the exact amount El Porvenir harvested last year.
Rice downplays criticisms that the movement sold out by inviting the multinational's on board. He says his mission is to get as many roasters and retailers involved as possible.
But some are still wary of the bigger brewers. Robert Everts, co-executive director of Massachusetts' Equal Exchange, the largest 100-percent retailer of fair-trade coffee in the US, applauds efforts to bring in larger firms, but says he stands with the defectors. He says that "the verdict is still out" whether the fair-trade establishment can support both the big and small roasters under the same tent.
By Tim Rogers | Contributor to The Christian Science Monitor
GRANADA, NICARAGUA – Fueled by a popular taste for lattes and cappuccinos and a growing consumer-awareness campaign, the fair-trade coffee movement has tens of thousands of Americans asking for a scoop of social justice with their morning coffee.
Fair-trade coffee - beans purchased from small farmers outside the US at well above the slumping market price - is hot in the java world: The amount of fair-trade coffee sold in the US nearly doubled last year.
But as the movement has expanded in recent years to include such brands as Starbucks, Green Mountain, Procter & Gamble, and Dunkin' Donuts, dissension is percolating among some smaller roasters. They claim that the large firms, which buy only a small percentage of fair-trade beans, are turning it into a marketing ploy rather than an effort to help farmers.
Now a move is underfoot to create a new model where smaller brewers purchasing 100 percent fair-trade coffee hope to distinguish themselves as the real deal among fair traders. The rift demonstrates how some small companies feel cheated by larger corporations for infringing on their market niche, even when all parties involved insist they are working toward the same goal.
Others say the mainstreaming of the movement has helped the cause.
"If a corporate giant roasts a million pounds of fair-trade coffee in one year, they are still doing far more than some of the smaller 100-percent roasters will in their entire history," stresses Paul Rice, CEO of TransFair USA, the group that audits the US fair-trade industry.
The fair-trade model seeks to ensure livable wages as well as environmental and cultural sustainability for small farmers in Latin America, Africa, and Asia by establishing a base purchase price of $1.26 per pound - about $.75 more than the current market price. Since TransFair formed in 1998, fair-trade coffee sales in the US have grown exponentially, totaling 19 million pounds last year, according to Mr. Rice.
Several smaller 100-percent fair-trade coffee roasters in the US have broken from the establishment in recent months, claiming they can do more to raise consumer awareness by going it alone.
On Friday, Larry's Beans of North Carolina split from TransFair, the company that holds the US trademark for the term, "Fair Trade Certified." At least three other smaller roasters - Just Coffee, Dean's Beans, and Cafe Campesino - have followed suit. All the details of their new association have yet to be worked out.
"Without people outside the increasingly corporate-friendly TransFair system pushing for the original vision of a better model, [the movement] will be watered down into nothingness," says Matt Earley, cofounder of Just Coffee in Madison, Wis.
Under the current system, chains like Starbucks can call themselves fair-trade friendly by purchasing just 1 to 2 percent of their coffee from certified growers.
Starbucks, which brews fair-trade coffee once a month as its "coffee of the day" in the company's 7,834 worldwide shops, and has bags of it for sale on its shelves, acknowledges that fair-trade beans are only a small percentage of its total purchase, but explains that there are other ways to ensure farmers are treated justly.
Sue Mecklenburg, vice president of business practices for Starbucks, says the company purchases all its beans - fair-trade certified or not - at an average price of $1.20 per pound. She says that last year the company bought 2.1 million pounds of fair-trade certified coffee, double the amount from the previous year, and sold 28 million cups of fair-trade coffee as its cup of the day in 2003.
"Starbucks doesn't purchase 100 percent of its coffee as fair-trade certified, but 100 percent of the coffee we buy is under conditions that are fair to farmers," she says, noting that fair-trade certified coffee is still a relatively small market, representing 670,000 smallholder family farmers, out of an estimated 25 million coffee farmers around the world.
Another sticking point inside the movement are the requirements for being certified. Germany's Fair Labeling Organization (FLO), which certifies all fair-trade coffee in the world, charges farmers $2,431 to certify plus an annual base of $607 for recertification and $.02 per 2.2 pounds of coffee sold under the fair-trade label. (BWAHAHAHAHAHAHA! - ed.)
Stuck in the middle of the controversy is the rural Nicaraguan coffee cooperative of El Porvenir, located on a 2,000-acre swath of land in the volcanic highlands. This village of 255 people produces a modest 45,000 pounds of organic coffee beans in a good year and has been trying for three years to get certified as fair trade by FLO.
Mike Woodard of the Nicaraguan ecumenical organization Jubilee House Community, says he helped the village fill out a certification questionnaire in 2001, but never received a response. FLO did not answer questions about why they have not visited the community, but spokesman Simen Sandberg says that seldom do they certify producers who harvest less than 44,000 pounds per year - almost the exact amount El Porvenir harvested last year.
Rice downplays criticisms that the movement sold out by inviting the multinational's on board. He says his mission is to get as many roasters and retailers involved as possible.
But some are still wary of the bigger brewers. Robert Everts, co-executive director of Massachusetts' Equal Exchange, the largest 100-percent retailer of fair-trade coffee in the US, applauds efforts to bring in larger firms, but says he stands with the defectors. He says that "the verdict is still out" whether the fair-trade establishment can support both the big and small roasters under the same tent.
Next time I go to Starbucks, I'm going to ask that my latte NOT be made with "fair trade" coffee. And, mmmm boy, is it going to be delicious!
Blue_Nose @ Wed Nov 23, 2005 5:33 pm
IceOwl IceOwl:
Should we also stop paying minimum wage? Because, you know, that drives up the cost of operating a business. Maybe we should reinstate child labour while we're at it. Why not? "Free trade" will willingly turn a blind eye to it happening in Asia and Africa if it means lowering the cost of production.
I asked Toro specifically because I know what kind of answer I'd get from you. Child labour is a completely seperate issue.
Toro @ Wed Nov 23, 2005 5:34 pm
IceOwl IceOwl:
Just what I suspected. You've got nothing, you empty-headed animal, food trough wiper! I fart in your general direction! Your mother was a hamster, and your father smelt of elderberries! Now go away, or I shall taunt you a second time!
'Tis but a scratch!
