Fair trade an unworkable attempt to rig the market

Good intentions used to pave the road to hell.  Now they can be found in your coffee cup, and in a host of other "fair trade" products.  Fair trade activists are celebrating Fair Trade fortnight.  They will be out pushing fair trade products with the argument that their goods help lift people out of poverty, and that fair trade can succeed where free trade appears to fail.

Fair trade is promoted as a providing environmental, social and economic benefits in developing countries by modifying consumer behaviour and harnessing market forces.  There are two components to this social justice campaign.

First, the Fairtrade Labelling Organisation (FLO) has a certification standard for using the Fair Trade brand.  Certification allows producers' products to carry the fair trade label and be identified to consumers.

Second, fair trade advocacy groups like Oxfam run campaigns to regulate international markets to promote fairer trade outcomes.  While economists have long been sceptical, there is now increasing evidence that the benefits of fair trade are not being delivered.  Indeed there are questions as to whether the FLO certification standards are actually enforced.

A study titled Unfair trade by the London-based Adam Smith Institute argued that there was no hard evidence that fair trade hadworked.  Activists tend to rely on anecdotal evidence from farmers, rather than environmental, social and economic indicators or statistics that would provide real evidence of fair trade's success.

Another recent study published by George Mason University found compliance costs absorbed much of the fair trade premium.  Advocates tell consumers the fair trade premium goes to farmers to help in the fight against poverty.  Yet Unfair Trade said only about 10 per cent of the premium got to coffee producers, who have greater compliance costs and, very often, can only sell a fraction of their crop at the fair trade price.

Fair trade is not just structurally flawed.  The certification standards keep farmers and workers poor.  For example, fair trade farmers are prevented from owning more than 12 acres (4.8 hectares) of land, and farms cannot be dependent on hired labour.  Successful farmers are prevented from expanding their business and from employing fulltime labour.  Fair trade coffee encourages casualisation.  Seasonal workers are the poorest in many developing economies.  Fair trade practices keep them poor.

FLO insists workers be paid the minimum wage, but doesn't require records of wage payments.  Further, a Financial Times study found the minimum wage standard is not always being enforced.

Overall, fair trade farms must be operated by families, with labour hired only in picking season.

A particularly troubling claim was made by a Guatamalan coffee producer, who suggested that fair trade organisations went to Guatemala to build clinics or schools and then published photos suggesting these outcomes were normal benefits of fair trade.  If true, this is an outrageous manipulation of the facts.

The problems with fair trade are not just limited to developing-world producers; consumers are also being conned.  Fair trade coffee is marketed as a speciality coffee, yet fair trade producers sell their lower-grade coffee through fair trade channels and keep better grade coffee for the free market, where they are able to get a better price.  Fair trade principles are anti-free-market principles.  At its heart, fair trade is an attempt to fix prices.

This has all been tried before,and failed.  The International Coffee Agreement operated for most of the Cold War period to help developingworld coffee producers lift themselves out of poverty.  It was a monumental failure.  All efforts to rig commodity markets end in rent seeking and failure.

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