The Flaws of Fair Trade

On the surface, fair trade seems like a simple, profitable solution to the perils of free trade. With just a small premium, farmers in developing countries are assured a spot in the competitive global market. Also, by paying a little extra for their coffee or chocolate, consumers can rest easier knowing they are helping out people in some poor, third world country. However, fair trade does not necessarily help the people so much as hurt them. First, by artificially making prices higher than the established market, fair trade creates obstacles to free competition. Case in point: only “Fair Trade Certified” coffee farmers receive the raised prices for their coffee beans. Furthermore, farmers can only get certified if they meet certain quantity requirements. This means that if a farmer’s land exceeds certain acreage, he is cut out of the entire deal and is forced to trade at the lower market price. These farmers find it harder to compete, since many coffee companies that would normally buy from them are buying from fair-trade certified farmers instead. In addition, the issue has risen of whether or not fair trade organizations such as the Fairtrade Labeling Organizations International (FLO) or the International Fair Trade Association (IFTA) have adequate regulations in place. Currently, in coffee farming, for example, it is difficult to tell whether all the coffee beans come from certified farms, or if fair-trade farmers merely bought them from non-certified farms to redistribute. This creates an ideal setting for possible corruption in the fair-trade industry. Other regulations regarding possible abuse of the fair-trade logo should be put forth so that farmers will not be able to claim they make fair -trade items without proper inspections. Since consumers are willing to pay the price for fair-trade items instead of non-fair-trade items, they clearly value the product’s association with the fair-trade organizations. Another thing to take into account is the fact that because of the artificially inflated prices, farmers participating in fair-trade business have an incentive to remain cocoa farmers or coffee growers. Instead of moving into alternate industries that would be more profitable in the long run, they choose to continue working with the fair-trade organizations. Fair trade might also act as an incentive for a wider range of people to produce fair-trade products. This could result in an oversupply of such products that would lower prices in the long run. So if the fair-trade movement goes out of fashion, its aftermath could be grim. In short, fair trade is a well-intentioned pursuit with many unintended consequences that do more harm than good. According to Foster Jebsen ’08, co-president of Andover Economics Society, instead of encouraging farmers to continue their backbreaking work with uncertain stability, industrialized countries should “work with their governments to create a friendlier economic environment for growth in the global market. [This would] enable their country to be swept forward by the wave of globalization that is changing the interaction between domestic industries in a global economy.” By focusing on achieving fair prices for the farmers in developing countries, advocates of the fair trade movement are ignoring other possibilities such as industrialization and mechanization. These radical changes could allow them to end their poverty cycle and participate actively in the global market.