Is fair trade really fair?

Many churches in my area carry Land of a Thousand Hills Coffee. They do this because they think that it helps the farmers in 3rd world countries.

From the Thousand Hills site we are told:

In an effort to change the coffee industry – one of the most exploitative in the world – Land of a Thousand Hills participates in Community Trade, a term we coined to mean Directly Traded, paid for with higher-than-Fair Trade wages, and where investment in the farming community is our top priority. We believe that by paying our coffee growers just, Living Wages and supporting economic and community development in the region, not only does the region thrive with higher quality coffee, justice is pursued. Our special projects include building a sustenance farm for the region’s malnourished orphans, creating soccer programs to promote community and coffee education, giving microfinance loans to entrepreneurs, lending coffee bikes to ensure safer and more efficient travel, and donating shoes to farmers and their families.

What if your coffee could transform a village? It can. Embrace the power of the bean. Drink Coffee. Do Good.

This all sounds great. Who could possibly have a problem with this arrangement?

Jay Richards has an excellent section in his book, Money, Greed, and God, about the total effects of fair trade and how, by ignoring basic market principles, it ends up doing more harm than good.

The main tenant of fair trade, or “Community Trade” as Thousand Hills likes to call it1, is that goods are purchased at a “fair” price supposedly capable of producing “living wages”. The net effect is that fair trade certified coffee costs more than its free market alternatives.

Here are a few problems inherent with this arrangement:

  • Fair trade trades in the same markets of empathy that charities do.
  • It does not have the power to lift whole nations out of poverty like free trade has because it ignores basic market principles.
  • It preys on the desire to feel good (as opposed to actually doing good) that many people (mostly liberals) have.
  • It assumes an unsubstantiated predatory view of markets.
  • It encourages inefficient economic practices (by discouraging mechanization)
  • It encourages people to stay in agriculture when they could move to other industries which could produce more wealth for more people.
  • It fosters a moral hazard where lower quality goods can be foisted onto artificially captive markets (ie. moral-minded churches) while higher quality goods are sold on the free market. I’ve been the unlucky recipient of this sort of deal where a local church provides fair trade coffee which costs as much as Starbucks but tastes like burnt rubber. This is wholly unfair to the consumer.
  • Fair trade is based on a Marxist economic understanding where equality of outcomes is held to be the standard of “justice”. For this reason you’ll hear a lot of talk of “social justice” in pro-fair-trade material.

The paper, Grounds for Complaint, sums it up like this:

Critics of free markets maintain that the coffee crisis highlights the failures of globalization. In fact, however, it is their response to the coffee crisis that showcases the failures of the anti-globalization movement. That movement proclaims its sympathy for the world’s poor, but its economic illiteracy leads again and again to
the advocacy of measures that would actually exacerbate global poverty. With specific regard to coffee, those who single out particular companies as scapegoats and advocate various halfbaked schemes to prop up prices may have the best of intentions, but they are not really helping. At best they are diverting time and energy into dead ends; at worst they could end up making the situation even worse. It may feel good to ignore market realities, but it won’t do any good.

Here’s a short talk given to the European Coffee Symposium in Vienna by Dr Peter Griffiths. The gist is that “Fairtrade does very little for farmers in the Third World. It kills some. But it is very good for Western Business”.

Here is an excellent debate held by the Cambridge Union on the topic “This House Believes that Fairtrade is Unfair”. Here’s part 1 of 12:

  1. Why shy away from the commonly understood fair trade term? []

7 responses to “Is fair trade really fair?

  1. Problem is you never address anything specific to Land of 1000 Hills and you just lump them in with all the rest. Truth is they ARE raising the stand of living in Rwanda, they are giving the people almost 3x the wage they got before, and they are raising up more and more farmers in the country. They are in no way "foisting" lower quality goods either. EVERYONE I know who drinks this coffee says it is the best they have ever tasted.
    You can attack some fair trade, but don't lump in 1000 Hills without doing one bit of research on them, that is just stupid

    • Hey Rick, thanks for stopping by!

      I actually know members of Land of 100 Hills's board of directors so I can confidently say that their internal business model is inherently unstable along with their philosophy of free trade coffee being a moral obligation/good (as their motto says, "drink coffee, do good") is unsustainable. And while we can get into a subjective debate over whether their coffee tastes great or whether it tastes like crap (which is my position) we can actually look to more objective evidence in the terms of what the market has decreed the quality of their coffee to be, and I find it telling that no major grocery stores carry Lo1kH coffee and only niche/artificially restricted markets carry it. And what about the moral hazard the whole fair trade concept sets up? Its not a point in your favor at all to say that they raise up more and more farmers in Rwanda as that is exactly the problem! Because of the rich white savior complex of Lo1kH's owner/staff those farmers have a skewed view of the market's supply and demand such that they are not being helped at all by Lo1kH but are being used by them to prop up a crop through artificial price structures. If Lo1kH really wanted to help they would help these farmers transition to more profitable crops, including crops that have more of a domestic demand, so they aren't dependent on foreign saviors and foreign customers who believe that they are "doing good" by buying overpriced coffee.

      So in sum; I have actually researched Lo1kH, and its not that the people running it are evil, they are merely victims of their own self-imposed economic ignorance.

    • Here\’s some more data:
      \”Only 20% of the country’s coffee can qualify as specialty coffee today, implying that the bulk of exported product is low-grade and sells at lower prices.\”

      From this report:

      In other words, Land of 1000 Hills is attempting to sell lower grade coffee as if it were specialty coffee. And that\’s why when I go to a church or business that distributes Land of 1000 Hills coffee I can\’t help but think that the ones who made the decision to carry it have been duped.

      And just the motto alone should let us know how silly Lo1kH\’s mission is. Drinking coffee is no more doing good than consuming anything else in the marketplace.

  2. Thanks for posting this insightful, researched topic. I was sitting here with a "Theo" chocolate bar on my desk – a gift from Christmas – and wondered if Fair Trade was really fair. This inspires and merits further investigation, and your data hold up well.

    I'm not very studied on this particular subject, but I can affirm from first-hand experience what you're saying about the pervasive white-man-savior complex in Africa. I visited Rwanda's northern neighbor, Uganda, this past summer for two months, and my roommate Kenya the previous summer for three, and the biggest problem is not giving them resources. The problem is all we ever seem to do is give them resources as opposed to helping them create sustainable livelihood for themselves, and locally.

    I hope more people see this posting and ask themselves serious questions about what it means to actually help vs. feel like you're helping. May God bless you and make His Face to shine upon you, friend.

  3. First of all you need to get past the labels. In this country, the congress like to label things to be the opposite of what they really are. For example, the "patriot act" is the reverse. It removes time-honored civil liberties that our forefathers fought to achieve. These laws should be called the "repress your people act."

  4. The question often asked is whether we have "Free trade or Fair trade". Poor countries want to have free trade so that they can any and every thing to the rich countries and benefit from the foreign exchange earned.

  5. Richer countries think about the potential jobs losses when they permit all kinds of goods to enter into their domestic markets. To them, Fair trade means that the poorer countries allow them free access to their goods as much as they allow the other countries – in other words, it is a quid pro quo system or a fair bilateral trade arrangement. best cfd trading platform, best cfd platform, best cfd broker

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