TCS Daily


Fairly Caffeinated

By Colleen E. H. Berndt - May 18, 2007 12:00 AM

"Kids need Fair Trade," ran the slogan of this month's World Fair Trade Day. And as you belly up to the coffee bar, images of whimsical and woeful waifs and thoughts of your own dear mother may lead you to tell your barista, "Make mine a Fair Trade coffee." Before you do, though, bear in mind that while your purchase might stimulate your synapses and support your ego, it does little to support needy kids.

The "Fair Trade" label indicates that producers have followed a set of specific business practices required by organizations working under the umbrella of the Fair-trade Labeling Organization (FLO).

FLO markets Fair Trade coffee, purchased from farmers in developing countries, to consumers in developed countries, such as the 161 million U.S. coffee-drinkers who consume at least one cup of coffee per day. With the idea of helping the poor become financially secure and self-sufficient, FLO sets a price floor for coffee purchased from farmer co-ops that meet its standards.

Reducing poverty is a laudable goal, but in practice the FLO's standards do little to achieve this. For one thing, the FLO exclusively targets small landowners working in a cooperative organization governed by democratic principles. While small landowners are indeed poor, they are not the poorest segment of the coffee industry: seasonal laborers are.

Too poor to own land, these laborers supply the much needed labor for the harvest period. While Fair Trade notes that farmers should pay seasonal labor at least the country's minimum wage, FLO does not require the farmer to keep records of such payment nor does it verify the wages paid during the certification or annual inspection processes. Additionally, as migrant workers are migratory by definition, they are not members of the stationary Fair Trade cooperatives that receive the Fair Trade premiums. Thus, even if the premiums do filter down to the target population specified by Fair Trade rules-small landowners-the needs of the poorest of the poor's children remain unaddressed.

Does Fair Trade address the needs of the children of poor farmers? According to FLO, the answer is an unqualified yes. "Fair Trade certification empowers farmers and farm workers to lift themselves out of poverty," insists the FLO's web site, which also offers producer profiles, detailing, for example, how in Huehuetenango, Guatemala, farmers are given scholarships to send their children to school.

However, Gerardo Alberto de Leon, the manager of Fedecocagua, the largest Fair Trade certified cooperative in Guatemala, says this is not the whole story. "The social premium, we use here [at the cooperative].You saw our coffee lab, it is very professional. But if I tried to give you the five cents from the Fair Trade, just for you [meaning the small farmer], probably it's nothing."

He went on to say that many organizations come to Guatemala, build a school or clinic and take pictures for the web site. In his experience, this was not a normal benefit of Fair Trade.

Moreover, Fair Trade certification is a designation open only to co-operatives composed of farmers owning fewer than 12 acres of land and who do not employ any full-time workers. The co-operative must then pay the FLO to certify that the co-operative, not the member farms, meets specific standards for socially and environmentally sound coffee growing and accept the FLO's mandated organizational structures. No matter how well run or how benevolent a non-cooperative private organization is, no matter how well paid or well treated its employees are, that organization cannot obtain Fair Trade certification. That's a whole lot of poor children, who don't even get a shot at enjoying the so-called benefits of Fair Trade.

As Philip Sansone, the president of the Whole Planet Foundation argues, "Fair Trade farmers might receive some initial benefits for the charity program, but when a retailer participates in the Fair Trade Movement, essentially, this is the message that he communicates to his customers: 'Some of our products are 'Fair Trade' and all the rest are based on the exploitation of peasants by an unjust and exploitative economic system.' And that is simply untrue, deceptive, and unfair to the vast majority of producers who are working just as hard in the market economy to satisfy the requirements of their customers by producing the best product possible as the best price possible." This position, Sansone asserts, does little to help the overall goal of eliminating poverty.

Countries that want to eliminate poverty don't need a poster child. They just need to support entrepreneurship. Coffee growing countries like Guatemala and Costa Rica, for example, provide very little protection for investors, impose high taxes on business and have low levels of contract enforcement and lengthy licensing processes. If these countries would encourage trade and entrepreneurship, they could produce benefits that would not be limited to the children of coffee farmers who are members of a particular co-op. Kids don't need Fair Trade. Kids need free trade.

Colleen E.H. Berndt is a lecturer in economics at San Jose State University and part of the faculty network of the Mercatus Center at George Mason University, which is publishing her forthcoming report "Is Fair Trade in Coffee Production Fair and Useful: Evidence from Cost Rica and Guatemala and Implications for Policy."


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2 Comments

If it didn't work for the farmers then they would not do it.
I do not particularly care for the concept. But if it did not provide more than the amount the farmers pay to be part of it then no farmers would be part of it.

So you can feel good that the FTO provides at least as much benefits as it costs.

Free trade
This so called 'fair trade' seems to be just another phoney issue, with a phoney solution. Free trade is already subsumed under capitalism, because if you don't have voluntary eschanges, then it's some other system, maybe feudalism, socialism, or command economies, etc. Has it ever happened that farmers thought they weren't getting enough for their produce? Are there success stories from it? Yes and yes. It's governments that are the ones that prevent free/fair trade because of the normal meddling with the economy by distorting in many ways like subsidies, marketing boards, etc. All these collectivist dirigiste policies have been tried and failed all over the place; just look at the crappy CAP in the EU, or the the Soviet style, or even the countries with 'Stalinism-lite' like canada and cuba. There are many vested interests that do not want any free trade and will do anything to prevent it.

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