Better Left to The Market

Few people argue against the aims of fair-trade, but some free-marketeers have made a case against one aspect of the system. They claim that, by offering a minimum-price guarantee to, say, coffee and cocoa farmers, fair-traders are interfering with the market, and this, they claim, may do more harm than good. So is this true?

As touched on in chapter one, the idea that fair-trade in anti-market is on one level quite odd: no one is forcing the consumers, traders or suppliers to play by these rules; no one is manipulating fair-trade supply and demand. Indeed, in many ways you could see this as less of a distorted free market than the equivalent non-fair-trade goods: there is almost no fair0trade advertising, after all, and direct links with producers aims to cut out middlemen who can genuinely distort the operation of a fair market by exploiting a monopoly over delivery equipment – or even the straightforward use of force. What the people who make this case are promoting, then, is not exactly a free market, but a specific (and rather “unfree”) version of it in which low price is the only consideration consumers are allowed to consider.

That said, the argument does raise a legitimate question: if people buy a “fairly traded” product, might this not reduce demand for the non-fair-trade alternative, depressing prices and forcing uncertified producers to plumb ovoen lower depths of bad working conditions to stay afloat?

In a market where supply and demand are pretty much balanced, this argument simply doesn't stand up: if half the shoppers start purchasing fairly traded mangoes, and half the producers start producing them, then the remaining half of the market still has the same balance of supply and demand as before, and hence the price they receive shouldn't be affected. However, things are different for products where supply does exceed demand, such as the market for coffee…the most serious problem currently faced by coffee farmers is low price caused by massive oversupply. Ultimately, if there is oversupply, the free marketeers argue, there must be too many producers. So, unless consumers start altruistically doubling their caffeine intake, the problem will only really be resolved when some farmers stop producing and start diversifying into other crops. Fair-trade, they claim, can only get in the way of this essential market mechanism by propping up the inefficient producers.

As usual, the issues are not quite as simple as the free-market fundamentalists make out. True, it's essential that more coffee farmers diversify into other crops to reduce oversupply. But which farmers are best equipt to do this? According to the Harriet Lamb of the Fairtrade Foundation, diversification is often easier for those currently supplying Fairtrade coffee than for those who aren't: after all, they are likely to have access to more capital, advice and support. Furthermore, for as long as farmers are getting paid very low amounts for their products, the only response open to them will be to try and produce even more than before- hence fanning the flames of oversupply- until their reserves of money and energy are exhausted, at which point diversification may be less likely than starvation. And, indeed, many thousands of farmers and their children have died as a result of being left to the free market.

There are ways of course, to support marginalized farmers and encourage diversification without “interfering with the market”- namely through financial and other types of support from governments and individuals. But all these things require people to be aware of the issues, and there can be little doubt that the Fairtrade scheme has done a pretty amazing job at getting Western consumers thinking about something as far removed from their own lives as the plight of equatorial coffee farmers.

But even if this were not the case, there would be a more fundamental question: if some farmers are going to have to go out of the business, which of them should we do our best to save from this unfortunate fate? Or, put another way, which trade model do we want to survive? The first one (non-fair-trade) offers the potential for the lowest price and cheapest production, but might mean poor wages and substandard health and safety for farmers and farm workers; child labour and even slave labour (such as the 1000 enslaved coffee farmers set free in Brazil in 2003); environmental and therefore also economic stability sacrificed to short-term crop maximization; and large companies winning over smaller players as their deep pockets allow them to support their operations through the economic winter. The other option is a system in which the market is allowed to play out but within a set of minimum standards: small farmers paid a minimum price upfront, allowing them to invest without relying on debt; importers audited to ensure no bullying or malpractice is going on; transparency and redistribution ensured; and environment cared for. Fair-trade provides consumers with a free-market-style choice between two options.

The Rough Guide to Ethical Shopping by Duncan Clark