Monday, August 4, 2008

Fair Trade: Arguments for and Against

Fair trade products are one of the fastest growing branches of food items. Initially focused on coffee growers, fair trade now includes many agricultural products such as bananas, chocolate, honey and tea.
  • In 2006, UK retail sales of fair trade products accounted for £300 million up from £20 million in 1998.
  • The market is expected to keep growing as consumers increasingly choose products based on ethical standards.

Fair Trade Foundation - Aims of fair trade are:

  • "...To achieve this vision, Fairtrade seeks to transform trading structures and practices in favour of the poor and disadvantaged. By facilitating trading partnerships based on equity and transparency... (Fair Trade Foundation)"
  • Provide farmers with a higher share of the final selling price
  • Enter into long term partnerships with farmers, helping them to deal with volatile swings in prices.
  • Fair
There are numerous examples, of farmers in developing countries who have been able to use extra income to improve the long term infrastructure of the agricultural sector.

Criticisms of Fair Trade

  • It only benefits a small % of farmers who benefit from higher prices. Other farmers will be worse off.
  • The majority of farmers who benefit are in Mexico a relatively developed country. Only small parts of the poorest African countries are included
  • Fair trade may distort market signals. For example, the coffee industry has suffered from oversupply. Giving some farmers subsidies only encourages them to remain in an oversupplied industry. The falling price of coffee is indicative of too many farmers. The fair trade subsidy only supports farmers in an uncompetitive industry. The real long term solution is for farmers to diversify into other income sources.

According to the Adam Smith Institute

  • Just 10% of the fair trade premium actually goes to the produce. Firms at other stages of the production process take the rest.
  • Fair trade helps landowners as opposed to agricultural labourers.
  • Unfair Trade: at Adam Smith Institute
Fair trade is certainly a clever marketing ploy. There is a desire by consumers to make sure growers get a fair deal. There are many aspects of fair trade which are admirable - attempts to deal with volatile markets, provide a fairer share of the cake. However, the programme also has many limitations - Doesn't address underlying problems in agriculture. Doesn't help the poorest.

The most powerful strategy for helping developing countries would be to remove agricultural tariff barriers in the West.

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