It Sounds Like a Racket …

A recent article at Vice News reveals that so-called 'fair trade' has failed to deliver on its promise. 'Fair trade' involves the payment of prices above market prices for certain goods. Consumers in developed countries pay mark-ups on imported consumer goods that bear a 'fair trade' label to assuage their consciences, in the belief they are helping third world workers to earn higher wages.

The latter is however apparently not what actually happens. In fact, it appears the exact opposite is happening:

“A recently published four-year study suggests that many of the poorest workers in coffee and other farming industries are even worse off when employed by fair trade cooperatives.

The "Fairtrade, Employment and Poverty Reduction in Ethiopia and Uganda" study — which was published Sunday by University of London — focused on small farms in Uganda and Ethiopia and interviewed the lowest-wage freelance farm workers.

It found that even when fair trade premiums helped boost incomes for farm owners — ranging from small families to large plantation estates — the benefits failed to trickle down to workers that make up the majority of the industry’s labor force.

In some cases, the study found, improvements to working conditions such as modern toilets were reserved only for senior managers, and money that cooperatives designated for schools for the children of workers went to build teacher’s housing instead.

At one school, the farm workers couldn’t afford the fees charged by the school they said was built by fair trade dollars. Across the board, people hired to work on farms that sold fair trade products were paid less and treated worse.

“We pay extra for the premium which is supposed to support community projects,” said Christoper Cramer, study co-author and professor at University of London’s School of Oriental and African Studies (SOAS). “Often the literature says that premiums are fairly distributed in the community, but our evidence found that not to be true.”

Color us completely unsurprised. Here is what was reported about 'fair trade' undertakings in Peru back in 2006 already. It turned out that so-called 'fair trade' coffee from Peru was in many cases a scam:

“The Financial Times reports that:

“‘Ethical’ coffee is being produced in Peru, the world’s top exporter of Fairtrade coffee, by labourers paid less than the legal minimum wage.

Industry insiders have also told the FT of non-certified coffee being marked and exported as Fairtrade, and of certified coffee being illegally planted in protected rainforest.

This casts doubt on the certification process used by Fairtrade and similar marks that require producers to pay the minimum wage. It also raises questions about the assurances certifiers give consumers about how premium-priced fair trade coffee is produced…

…Though certified coffee makes up less than 2 per cent of the global coffee trade it has become increasingly mainstream as large retailers such as Starbucks and McDonald’s adopt it.”

It sure sounds like a racket.

There is of course nothing wrong with affluent consumers in developed countries wishing to experience a psychic gain from paying more for certain goods. They see it as a form of charity to buy goods labeled as 'fair trade' goods and they obviously buy such goods voluntarily.

However, it should be no surprise that paying higher prices in developed countries doesn't necessarily translate into higher wages in the third world or that the certification is misused for scams. After all, there is no way for consumers to actually check what happens with the premiums they pay. In fact, judging from the article at Vice News, it took a bunch of experts four years of 'studying' the matter in order to come to the same conclusion in Africa that was already arrived at in Latin America several years earlier (we actually wonder how the study was paid for…).

It should be noted here that neither are wages arbitrary, nor can trade ever be 'unfair'. People trade with each other, and they do so because they expect to gain from their trading activity. Meanwhile, whenever one hears about low wages in  distant underdeveloped lands, one must not forget that what strikes us as a very low wage is in fact quite often the stepping stone out of poverty for many people. 

In countries lacking capital, wages will perforce be much lower than in countries where a lot of capital per worker is invested.

In order to participate in 'fair trade' and get paid a non-market price for coffee, it was already reported back in 2004 that the requirements actually involve first paying a pretty penny to the certification bureaucracy before one is actually entitled to receive higher prices:

Under the current system, chains like Starbucks can call themselves fair-trade friendly by purchasing just 1 to 2 percent of their coffee from certified growers. [...]

“Germany's Fair Labeling Organization (FLO), which certifies all fair-trade coffee in the world, charges farmers $2,431 to certify plus an annual base of $607 for re-certification and $.02 per 2.2 pounds of coffee sold under the fair-trade label.”

The designation 'fair' is very often disguising an assault on the citizenry's wallets in favor of special interests. Although there is of course nothing wrong with people voluntarily paying above market prices, it seems to us far more likely that the best way to help people in poor countries is to offer them truly free rather than 'fair' trade.

Fair and organic – presumably means twice the premium.