Tag Archives: moral market

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? []