Unfair Trade

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  • Topic: Fair trade, FLO International, Coffee
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  • Published : April 11, 2013
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UNFAIR TRADE
by Marc Sidwell

Adam Smith Institute London 2008

Bibliographical information The Adam Smith Institute has an open access policy. Copyright remains with the copyright holder, but users may download, save, and distribute this work in any format provided: (1) that the Adam Smith Institute is cited; (2) that the web address adamsmith.org is published together with a prominent copy of this notice; (3) the text is used in full without amendment [extracts may be used for criticism or review]; (4) the work is not re–sold; (5) the link for any online use is sent to info@adamsmith.org . The views expressed in this report are those of the author and do not necessarily reflect any views held by the publisher or copyright owner. They are published as a contribution to public debate. © Adam Smith Research Trust 2007 Published in the UK by ASI (Research) Ltd. ISBN: 1–902737–55–5 Some rights reserved. Printed in England.

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Contents

Executive Summary Definitions 1. Introduction 2. Fairtrade: seeking a moral monopoly 3. ‘Fair’ Trade: discriminating against success 4. Free trade is fair trade 5. Fairer options for development assistance 6. Conclusion

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Executive Summary
• Fairtrade Fortnight is a marketing exercise intended to maintain the Fairtrade mark’s predominance in an increasingly competitive marketplace for ethically-branded products. The hype is necessary, because there is every reason for the shrewd consumer to make other choices. Fair trade is unfair. It offers only a very small number of farmers a higher, fixed price for their goods. These higher prices come at the expense of the great majority of farmers, who – unable to qualify for Fairtrade certification – are left even worse off. Most of the farmers helped by Fairtrade are in Mexico, a relatively developed country, and not in places like Ethiopia. Fair trade does not aid economic development. It operates to keep the poor in their place, sustaining uncompetitive farmers on their land and holding back diversification, mechanization, and moves up the value chain. This denies future generations the chance of a better life. Fair trade only helps landowners, not the agricultural labourers who suffer the severest poverty. Indeed, Fairtrade rules deny labourers the opportunity of permanent, full-time employment. Four-fifths of the produce sold by Fairtrade-certified farmers ends up in non-Fairtrade goods. At the same time, it is possible that many goods sold as Fairtrade might not actually be Fairtrade at all. Just 10% of the premium consumers pay for Fairtrade actually goes to the producer. Retailers pocket the rest. The consumer now has a wide variety of ethical alternatives to Fairtrade, many of which represent more effective ways to fight poverty, increase the poor’s standard of living and aid economic development. Fairtrade arose from the coffee crisis of the 1990s. This was not a free market failure. Governments tried to rig the market through the International Coffee Agreement and subsidized over-plantation with the encouragement of well-meaning but misguided aid agencies. The crash in prices was the inevitable result of this government intervention, but coffee prices have largely recovered since then. Free trade is the most effective poverty reduction strategy the world has ever seen. If we really want to aid international development we should abolish barriers to trade in the rich world, and persuade the developing world to do the same. The evidence is clear: fair trade is unfair, but free trade makes you rich.



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Definitions

The terminology surrounding ‘Fair Trade’ can be imprecise, as the phrase is commonly used to describe not only the Fairtrade certification system of the Fairtrade Labelling Organizations International (FLO International), but also all generic attempts to make global trade serve poor farmers and poor countries better, including other labelling...
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