The perils of ‘fair trade’

At the very least, fair trade is an encouraging symbol of our generation’s philanthropic bent. But however comforting it might be to see that such goodwill hasn’t disappeared from the world, one can’t help but notice that goodwill seems to have replaced good ideas. And it’s the latter, and only the latter, that will alleviate dire poverty.

In August, a fair-trade store will open in Bloomington as yet another advancement of what is a very well-intentioned idea. Fair trade works to give producers (most often those who produce coffee) more money for their produce, thereby bettering their lives.
You pay a little more at the register with the understanding that the people who grew the beans that made your coffee will be suitably compensated. Giving aid, however, can be very, very tricky.

Promising an above-market price for a pound of produce has distorting effects. It attracts people to grow more than is necessary and to stop growing other crops. And when a surplus exists, fair-trade standards still mandate a certain price, which puts retailers in the sticky position of having to pay the same price for coffee that simply isn’t wanted or to tell farmers that what they were influenced to grow will not be bought this season.   

The better the price given for coffee, the less of the other crops farmers will want to grow. If the price of coffee was high enough, the comparative rarity of other sources of food might make them more expensive. This means people in developing countries – whose cheapest source of food is perhaps the farm down the street – might find themselves suddenly faced with a price they can’t afford to pay.

Even if fair trade were to apply to every crop, the effect would be the same: a sort of domestic inflation that, even for those lucky enough to sell products bought by fair-trade companies, erodes any gains the farmers might have made by making them pay a higher price for everything they used to buy cheaply. For those whose products are not bought by fair-trade companies, there will be only misery.

This is all assuming that fair trade gives a significant portion of its profits back to producers. Some estimates, however, put the increase in money that farmers receive at only 10 percent or so, meaning that fair trade is, for some unscrupulous merchants, not so much a business charity as a way to identify and take advantage of consumers willing to pay more.

In its worst form, fair trade can begin to resemble a sort of economic imperialism, which encourages farmers in developing countries not to create interconnected economies that buy and sell among themselves, but become export dependent even at the peril of domestic consumers.

Worse still, it erodes their self-reliance in favor of sucking at the teat of a social trend that, were it to disappear or become unfashionable, could be crippling. Export dependency can have disastrous consequences – witness the problem in China’s economy.

Then, imagine it being all your fault.