"Wealth will increasingly be defined by our ability to go offline whenever we want." - Fernando Gros
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Blog // Thoughts
December 10, 2008

A Fairtrade Future?

For a long time now, I’ve been an advocate of ethical capitalism. Or, to put it another way, voting with your wallet. I’m not sure when I started making my consumer and recreational decisions based (at least in part) on ethical categories, but I can say with confidence that it was before I left High […]

For a long time now, I’ve been an advocate of ethical capitalism. Or, to put it another way, voting with your wallet. I’m not sure when I started making my consumer and recreational decisions based (at least in part) on ethical categories, but I can say with confidence that it was before I left High School and before I came to an understanding of the Christian faith.

The idea of fairly-traded goods providing a commercial support to aid and development work is far from new, it predates my birth. I can recall back in the ’80s buying such goods, typically cards and handicrafts from a number of NGOs. The idea of fair-trade labelling of foods gained traction from the late ’90s onwards, particularly in the UK, as more and more supermarket goods were offered in fair-trade alternatives.

Christian thinkers have been early adopters of the fair-trade programme and with good cause. It’s an attempt to practically tackle the problem of trade justice from within the existing structures of globalisation and consumerism.

Fair-trade works best where the cost of production of a raw components of a good reflects only a small percentage of the final cost to the consumer of that good. That’s why fairly-traded beverages are such a no brainer and why there is no market for fairly-traded aluminium. The cost of the coffee in typical upmarket latte or cappuccino is tiny compared to both the final price and the associated costs of delivering the coffee in a clean, well located and modern store. Thus a small marginal cost in the raw material has little effect on the consumer but can, over the course of a year provide a significant increase in the conditions of the producer in a developing country.

Not that fair-trade is a perfect solution – it isn’t. There are always problems when markets provide selective advantages. Someone has to regulate access to the programme on the ground, which as you can guess, leads to instances of corruption and favouritism. In fact, fair-trade is less like free trade and more like subsidised trade, with all the concomitant inefficiencies and problems that brings.

Moreover, fair-trade often fails to factor in either true carbon cost or diversity cost. Both of these are now major (and mainstream) economic and ethical concerns.

Are fairly-traded goods the right goods for economic development? Why don’t we have markets for fair trade wine, or fair trade cars, or fair trade guitars? All these have, historically, been the employers of poor, or poorer workers. In each case, as economies have developed, quality has trumped price as being the determining factor for many consumers. The best path out of poverty is not to perpetually supply low value goods, but to grow markets for higher value and value added goods.

For example, when we endorse fair trade, are we supporting dying markets and market inefficiencies? Are we supporting the drive to quality, or halting it? As Caffe Nero commercial director Paul Ettinger put it to the BBC,

“A lot of the coffee which comes out of Africa, India and Vietnam is low-grade Robusta, the sort used in instant coffee and the large conglomerates which purchase that coffee are responsible for the drop in world prices.”

Alongside fair trade, we need fair development and fair value increases. Consider this quote from the Chicago Maroon,

Inefficiently higher wages for farmers in third world countries are similar to the farm subsidies the U.S. generously lavishes on its farmers. Put simply, it encourages people to either remain farmers or become farmers when they otherwise wouldn’t. If a country is already capable of producing good coffee beans or delicious bananas, there is no point in the first world encouraging further production and investment in the supplying of those goods. Investment in the agrarian economy is rarely the way that extremely poor countries become rich.

This is especially true when a large percentage of the income those economies produce is tied to the whims of wealthy Americans and Europeans. Things might be all well and good now for fair trade coffee growers, but if a mild recession were to hit (something not out of the question), first world consumers would undoubtedly substitute cheap, ambiguously traded products for fair trade products right off the bat.

Well, since I started writing this piece, that recession has hit with brutal force. One of the first things that happens to consumer patterns in a recession is the down-trading of everyday goods.

If by fair-trade, we just prices and working conditions for workers in the developing world then that is not just a noble goal, it is the right. We shouldn’t accept a situation where the lottery of birth is the primary determinant of someone’s economic prospects.

But, if by supporting fair-trade we are simply trying to cocoon workers in a safer version of their currently limited economic horizon, cutting them off from both the benefits and risks of markets and thus leaving them with little by way of exit-strategy from their present life – then we may be doing our brothers and sisters a disservice by perpetuating fair-trade.

Responses
Toni 14 years ago

It seems odd to mention it, but it is related.

We tried fairtrade coffee a while back – it proved dreadful stuff really. I wonder how many would buy this stuff ‘to help the poor man’ and not because it reflects an inherent quality in the product in the manner I’ve heard some fairtrade personnel mention it should. Which also begs the question: if we try to buy ethically, will we also end up with a shiny conscience and crappy goods?

This passes by the ‘righteous wages’ argument a little, but is pertinent to whether said people are making things anyone actually wants. I have the same issues over elephant rides in exotic countries. Why would I want to ride an elephant except that it helps local people ‘earn’ a living (or receive donations with dignity).

Fernando Gros 14 years ago

Toni – That’s exactly on the point. We might pay a “fair” price for bad coffee, to salve our conscience. But, have we really put people on a path to more long term wealth?

MZ 14 years ago

If you’re still getting poor quality Fairtrade coffee, then you need to look elsewhere.

For a time quality was a real issue and you had to grit your teeth to get through the stuff. But coffee from co-ops in the Fairtrade system often places highly in international competitions (“Cup of Excellence” comps).

Quality improvement is a big focus of FT coops. It helps them get better prices.

There have also been big improvements among the people now roasting Fairtrade coffee.

So if the last cup you had was vile, look for another option… it’s out there.

Fernando Gros 14 years ago

MZ – thanks for your comment. Quality is still an issue. Sure, as a consumer I can “look elsewhere.” That doesn’t really invalidate the argument as long as poor quality fairtrade still exists. It’s about the intermediary steps in wealth creation, which is an issue that also arises in the other popular anti-poverty strategy, micro-loans.

My view is that the best way forward for fairtrade is greater vertical integration, into brands and chains. That puts more money in the pipe.

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