Fairtrade

[tryptych]

"Fairtrade is not charity. Just by going shopping, you can make a difference."

http://lifeandhealth.guardian.co.uk/ethicalliving/story/0,,2264187,00.html

While I do buy Fair Trade products, I struggle with the political concept of it.

Partly because of commodification-of-dissent statements like the above, which are nothing if not marvelous advertising copy, and partly because of the suspicion that supermarkets and middlemen are the ones reaping the real rewards, while liberal guilt is soothed by paying 3rd world farmers slightly more than next to nothing.

I was arguing with someone today, who suggested that Fair Trade was useful as wedge to open up discussion into moral issues about global trade, to broaden the possibilities of responses, even if it wasn't often seen as such.

What do you lot think?

 

[bun-u]

I disagree with it on so many levels
- it assumes consumers should believe what companies say about their products (why believe in a company’s claim that it was ‘made ethically’ when their claims that their product will make you ‘more sexy’ you will take with a pinch of salt) – the accountability factor is very weak
- it means that the only people who ‘consume to make a difference’ will be higher earners, because they can afford to shell out the extra amounts for products – this adds to the palpable hatred of the poor for not doing their bit
- it’s a pessimistic solution to global issues and re-enforces capitalism – I don’t want of the products I buy to be the result of slave labour – I simply don’t want a choice in the matter – having ‘fair trade’ means you create the room for unfair trade and people can ‘vote with their feet’

 

[vimothy]

It doesn't work!

 

[stelfox]

^^

well that's a good, reasoned argument.

personally, i'd like not to have the choice and just be able to depend on responsible legislation that would demand that all products be mandatorily fairly traded.

until that's the case, or all forms of capitalism are overthrown (not that i'm convinced this would be a good thing, either, and it's also about as likely as the former scenario), i'd rather fuck other people's lives up as little as my income and time contraints allow.

 

[vimothy]

Sorry, but I thought since we've done fair trade to death, there's not much point going into it again. Let me try to elaborate...

personally, i'd like not to have the choice and just be able to depend on responsible legislation that would demand that all products be mandatorily fairly traded.

until that's the case, or all forms of capitalism are overthrown (not that i'm convinced this would be a good thing, either, and it's also about as likely as the former scenario), i'd rather fuck other people's lives up as little as my income and time contraints allow.

Unfortunately, this is not how the world works, and wanting it to be so won't make it. In fact, to the extent it is successful (which isn't clear), Fair Trade does more harm than good.

Fair Trade is literally a price fixing cartel. You might think (or assume) that this is a "good thing", but it also has some unpleasant ramifications that proponents of Fair Trade never seem to consider. (Why is that, by the way)? With Fair Trade we create a system whereby there are two tiers of commodity producers. One tier is the Fair Trade producers and the other is the non-Fair Trade producers. The Fair Trade producers are paid a premium for their product. Therefore, the opportunity cost of buying Fair Trade is that money moves away from the poorer farmers towards the richer farmers. By buying Fair Trade coffee, you make the worse-off, worse-off as demand for their coffee falls and with it the price. A much better (though still bad) idea would be to buy two cups of non-Fair trade coffee and throw one away. That way, demand for coffee would increase, pushing up the price, but the benefits would not be unfairly concentrated within one arbitrarily designated group of growers.

The problem with price floors (like the problem with trying to increase aggregate demand alluded to above), is that prices change for a reason. Farmers complain because the price of coffee can fall according to the market, and they can be left getting an "unfair" price for their product. However, prices change for a reason. Prices are infomation about supply and demand. Economists say that prices "clear" markets, by which they mean, prices regulate supply and demand. Demand for coffee is relatively inelastic, which means basically means that regardless of anything else, total quantity consumed stays roughly constant. So let's imagine that lots of people decide to start growing coffee. Increased supply will not increase the amount of coffee people want to drink, it will push price down. Hence, as more producers are drawn to the coffee market (by, say, well meaning liberal advisers in Western NGOs), the size of the pie will stay the same (aggregate demand), but that pie will have to be shared out among more farmers. Inserting a price floor into this equation (which is whta Fair Trade attempts to do) will have two effects (this is all Econ101):

• Increase the amount of coffee supplied leading to a surplus.
• Attract more producers to an already oversubscribed market that provides little avenues for productive growth and so will not increase the country's chances of sustaining economy wide growth and increases in living standards.

EDIT: And both of those, btw, will cause downward pressure on price. The Third World needs to get out of these shitty commodity markets, not be encouraged to move more workers into them...

 

[bun-u]

^^

well that's a good, reasoned argument.

personally, i'd like not to have the choice and just be able to depend on responsible legislation that would demand that all products be mandatorily fairly traded.

until that's the case, or all forms of capitalism are overthrown (not that i'm convinced this would be a good thing, either, and it's also about as likely as the former scenario), i'd rather fuck other people's lives up as little as my income and time contraints allow.

...but I think doing this lets Governments off the hook - we're not even waiting for capitalism to be overthrown, just expecting our Governments rather than companies to legislate for fair trade

 

[vimothy]

...but I think doing this lets Governments off the hook - we're not even waiting for capitalism to be overthrown, just expecting our Governments rather than companies to legislate for fair trade

Can you explain to me why we should expect our governments to do this?

 

[IdleRich]

"..unfairly concentrated within one arbitrarily designated group of growers."

But can't anyone take the steps necessary to be Fair Trade? Why do you say it is an arbitrarily designated group?

 

[john eden]

Well we've talked before about govts providing health care, health and safety legislation and the minimum wage so it isn't a big stretch from there to fair trade stuff.

I know you don't agree with this approach tho, Vim.

Globalisation does rather screw it all up tho because you are dealing with other govts or overseas companies who have a different agenda.

Is it useful to think of "fair trade" as a top up extra commodity that people can choose to purchase? It certainly has very effective branding and a quite easy to define demographic.

 

[Mr. Tea]

- it assumes consumers should believe what companies say about their products (why believe in a company’s claim that it was ‘made ethically’ when their claims that their product will make you ‘more sexy’ you will take with a pinch of salt) – the accountability factor is very weak

Well for one thing, you can't quantify how 'sexy' something makes you, but you can most definitely quantify how much some third world producer is being paid per tonne of bananas, coffee etc. produced, and a producer who can sell goods for a higher price is unequivocally getting a better deal.

 

[droid]

Is it useful to think of "fair trade" as a top up extra commodity that people can choose to purchase? It certainly has very effective branding and a quite easy to define demographic.

Or as a kind of agricultural subsidy enjoyed by farmers all over the first world?

Interesting article here taking a pro-fair trade approach but acknowledging the free trade/economic argument:

http://www.cognitivedissidents.org/mitterko-1.html

But what of higher quality Fair Trade goods, such as particular types of chocolate and coffee? This is not a concern for those worried about Fair Trade as a subsidy, but it is for those advocating trade liberalization. These higher quality goods must have a higher value conferred to them from the production of the goods. This is exactly the case in specialty goods like Swiss milk chocolate and artisanal cheeses. The diets of the cows and processing of the milk clearly change the character of such products. The same applies for shade-grown Fair Trade coffee, which establishes an environmental benefit to certain species of birds.

It is shortsighted to forego a discussion of the benefits such goods contribute to disadvantaged workers. Instead of compromising the environmental health of their communities by growing cheap coffee, they can live in a cleaner environment. One shouldn’t be required to pass up living in a healthy community in order for short-term economic gains based on negotiations that ignore the externalities imposed on one’s community. This is where the Fair Trade movement truly benefits those it targets, independent of those concerns Kurjanska and Risse were concerned with. Only focusing on Fair Trade goods as a subsidy is unnecessarily limited in scope, and overlooks the general contributions of the movement. In addition, even if we are distorting the market in this case and possibly hindering the economic development in a particular developing nation, it is clear that overlooking growth may be important in order to secure those benefits for disadvantaged peoples that the Fair Trade movement affords them.

Theres also the point that fair trade goods need not be more expensive than non-fair trade. Take Blue mountain coffee. A 16oz bag costs approx ¢US30 in a supermarket, yet the workers who sort the beans in appalling conditions are paid $JA400 (about $4-5US) per 100 pound bag, and have no job security or any other benefits. The coffee company have also invested nothing in physical or social infrastructure development in the areas that produce the coffee.

Why cant the coffee company treat its workers more fairly, keep the price the same and marginally reduce its profits? I know why they WONT do it, but why CANT they do it?

 

[swears]

Fair Trade is literally a price fixing cartel. You might think (or assume) that this is a "good thing", but it also has some unpleasant ramifications that proponents of Fair Trade never seem to consider. (Why is that, by the way)? With Fair Trade we create a system whereby there are two tiers of commodity producers. One tier is the Fair Trade producers and the other is the non-Fair Trade producers. The Fair Trade producers are paid a premium for their product. Therefore, the opportunity cost of buying Fair Trade is that money moves away from the poorer farmers towards the richer farmers. By buying Fair Trade coffee, you make the worse-off, worse-off as demand for their coffee falls and with it the price....

OK, in the short term. But Isn't the main goal of the Fair Trade movement to bring wages up across the board in the long run?

EDIT: And both of those, btw, will cause downward pressure on price. The Third World needs to get out of these shitty commodity markets, not be encouraged to move more workers into them...

What markets do you think would be beneficial to third world nations to get involved with , then?

 

[vimothy]

But what is the effect of Fair Trade? I know that we all (myself included) want to change the world for the better and alleviate poverty, but how will Fair Trade achieve this?

From Wikipedia:

But can't anyone take the steps necessary to be Fair Trade? Why do you say it is an arbitrarily designated group?

Arbitrary in the sense that there's one group of Fair Trade farmers and one group of non-Fair Trade farmers, but there's not necessarily any reason to suppose that the Fair Trade farmers are more deserving of a premium.

 

[crackerjack]

Arbitrary in the sense that there's one group of Fair Trade farmers and one group of non-Fair Trade farmers, but there's not necessarily any reason to suppose that the Fair Trade farmers are more deserving of a premium.

Presumably the farmers are being paid more for their product by the company buying the, say, coffee. It's not the farmers who are more 'deserving', it's the company paying a fairer (ie higher) price.

 

[john eden]

I think what Vim is saying is that in most cases there is no discernable difference in the quality of the product? So on an economic level it doesn't make any sense to pay more for it.

But in my book the product also contains whammo free trade powder, which gives people who purchase it the warm glow of do-gooding. So paradoxically, it justifies a higher price.

 

[IdleRich]

"Presumably the farmers are being paid more for their product by the company buying the, say, coffee. It's not the farmers who are more 'deserving', it's the company paying a fairer (ie higher) price."

Yeah, that's what I thought, to be designated Fair Trade means that you are paying a high/fair price doesn't it? I thought it applied to companies such as Starbucks not to a supplier. Are you (Vim) using the phrase Fair Trade supplier to apply to a producer that deals with a company that has been designated Fair Trade?

 

[vimothy]

Yeah, that's what I thought, to be designated Fair Trade means that you are paying a high/fair price doesn't it? I thought it applied to companies such as Starbucks not to a supplier. Are you (Vim) using the phrase Fair Trade supplier to apply to a producer that deals with a company that has been designated Fair Trade?

When I said "Fair Trade producer" upthread, I meant the actual farmer being paid buy the coffee producing company like Nestle or whatever. Sorry for the confusion. Price floors are just bad economic policies, for the reasons I've already stated. Subsidies (for example) are much less harmful.

What markets do you think would be beneficial to third world nations to get involved with , then?

Markets with elastic demand, markets where productive increases can be translated into improved living standards -- manufacturing, not agriculture.

 

[IdleRich]

"When I said "Fair Trade producer" upthread, I meant the actual farmer being paid buy the coffee producing company like Nestle or whatever."

OK, I see what you're saying - since two given producers cannot compete on price then it is arbitrary which one Nestle deals with. Unless one is better quality I guess.

 

[vimothy]

OK, I see what you're saying - since two given producers cannot compete on price then it is arbitrary which one Nestle deals with. Unless one is better quality I guess.

Yep, but then there's no reason for the premium, unless they are paying a premium in excess of the one necessary for higher quality coffee. Otherwise, it's not "Fair Trade", it's just more expensive.

OK, in the short term. But Isn't the main goal of the Fair Trade movement to bring wages up across the board in the long run?

Won't happen -- in the long run, Fair Trade will reduce wages, by increasing supply (both quantity of coffee and -- even worse -- number of cofee producers) in an inelastic market.

Why cant the coffee company treat its workers more fairly, keep the price the same and marginally reduce its profits? I know why they WONT do it, but why CANT they do it?

For the same reason that people who support higher taxes don't just give 20% of their wage every month to charity: self-interest. To make lasting change, you need to institutionalise a system that is incentive compatible for all parties, IMHO.

 

[bun-u]

Well for one thing, you can't quantify how 'sexy' something makes you, but you can most definitely quantify how much some third world producer is being paid per tonne of bananas, coffee etc. produced, and a producer who can sell goods for a higher price is unequivocally getting a better deal.

But who is quantifying anything? do you know at the point of purchase how much the farmer is being paid for the product you are buying? No - so your buying into a brand, a notion that something good is being done somewhere, somehow...a similar vague notion to your chances of getting laid will somehow be improved by buying something