An Unfair Deal

Fair trade is overrated.

BY JOSHUA E. KEATING | JULY/AUGUST 2011

If paying an extra buck or two for the "fair-trade" option at your local coffee shop makes you feel more virtuous about your place in the global economy, you're not alone. Ethical beans are big business: In 2010, the United States imported 108 million pounds of fair-trade-certified coffee -- purchased directly from small producers, who have to abide by agreed-upon standards including shorter hours and no child labor. That total represents 1,385 times more of the stuff than came into the U.S. in 1998. But does fair trade actually do anything to help the people who grow coffee escape poverty?

In Nicaragua -- a country that earns nearly a quarter of its export income from coffee -- many family farms participate in "organic" and "fair-trade" certification systems, under which they submit to inspections of their labor standards and environmental practices in exchange for higher prices for their beans. Unfortunately, according to results recently published by economists Tina Beuchelt and Manfred Zeller in Ecological Economics, higher prices only go so far. The certified beans bring in more money, but once you take into account increased production costs, such as bringing the maintenance of farms up to code and shorter labor hours, the final profit is no higher, and in many cases is actually lower: Some Nicaraguan fair-trade farmers were taking home as much as $55 less per harvest than their noncertified competitors. Worse, while 60.9 percent of the "unfair" coffee-producing households observed were below Nicaragua's official poverty line, 68.6 percent of the fair-trade farmers were. The results were even starker for organic farmers, with 71.3 percent below the poverty line.

So is fair trade a myth? Not necessarily, says Beuchelt, who has found much more promising results in Colombia, another top coffee producer. The difference between the two countries is that the Colombian farmers have much better access to roads, technology, and other infrastructure than their Nicaraguan counterparts, making it much easier and cheaper to comply with fair-trade rules. "There's still a need for government intervention," Beuchelt says. "Certification can't solve the basic development problems these countries have."

And nor, it seems, can paying for the more expensive latte at Starbucks. 

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Joshua E. Keating is an associate editor at Foreign Policy.

SWAGV

1:16 AM ET

June 20, 2011

And this is news because...?

It's taken you 20 years to uncover something the coffee industry itself has claimed about Fair Trade since its inception?

 

RAMROD07

10:29 AM ET

June 20, 2011

Really?

Whoa, whoa, wait am I reading this right? Not allowing child labor, having to follow guidelines for standard wages, safe working conditions, and how many hours worked, all while allowing transparency, increases production costs? My mind is blown! I mean what is this? The USA? Increasing product price to help raise the workers quality of life? That's just a poor business decision right there. Sounds like they need to outsource their production to lower costs and thus raise their profits. Laissez-faire capitalism man let the educated and privileged take advantage of the ignorant and desperate. Ah, remember when the economy was awesome and we didnt have to pay our workers because they were sub human? But those damn human rights activists had to step in and call them savages, then 2nd class citizens, then three fifths of a man, and then we got affirmative action. Give them an inch and they want a mile eh?

 

JEFF

10:44 AM ET

June 20, 2011

Lack of child laborers would account for some of this

Child laborers add to yields and household incomes. Due to the loss of child labor combined with Fair Trade requirements to divert some money to health and education, these statistics may not be surprising, but they may also be misleading.

The author mentions that Fair Trade in Colombia has a better track record due to access to infrastructure. Since Fair Trade certification also requires certain investments in infrastructure, there may be a correlation with how long the Fair Trade system has existed in each country (that is, Fair Trade-funded infrastructure improvements in Colombia are now paying off). Either way, if Colombia Fair Trade is beneficial, the title of this article is poor.

 

DASNEONLICHT

8:36 AM ET

June 21, 2011

Human Capital

As Jeff observes, accounting costs do not measure everything. A part of that lost $55 in income should be considered an investment in human capital.

Mr. Keating's argument would be stronger if it had quotations from interviews with farmers that said something like, "Things were better for us before Fair Trade." Can we not assume that since farmers participate in these programs, they must see some benefit not reflected by monetary income?

 

PALMER

4:03 PM ET

June 20, 2011

Mistitled

This article should be titled, "Fair Trade coffee benefits proven in Colombia," or "Fair Trade coffee benefits uneven," or "Benefits of Fair Trade coffee require infrastructure investment."

But "An Unfair Deal: Fair Trade is Overrated" is false and misleading. This headline is inconsistent with the content of the article, and so is the last line: "And nor, it seems, can paying for the more expensive latte at Starbucks."

I am really disappointed that Foreign Policy published this shallow and misleading piece.

 

FAIR TRADE USA

6:42 PM ET

July 6, 2011

There's more to the Fair Trade story

Fair Trade USA welcomes honest and open debate about Fair Trade standards and practices, as we are continuously working to improve the system in order to deliver more impact back to the farmers and workers whom we serve. However, Mr. Keating's article provides readers with a misleading representation of both the study conducted in Nicaragua and the overall impact of Fair Trade in more than 60 developing countries around the world.

We agree that "higher prices only go so far" and that government must play a role in delivering basic services to communities. Said another way, Fair Trade is not the only solution to poverty alleviation; Fair Trade is one important piece of a very complicated puzzle. The author incorrectly correlates Fair Trade certification with loss of profits, when there are many other factors at play including poor harvest seasons, a weakening global economy and the overall challenges associated with organic farming. Fair Trade doesn't solve every issue that farmers face, but it is a step in the right direction.

Fair Trade certification is an opt-in program that helps farmers to compete in the global market. Achieving certification is an investment on the part of a farming community, as Fair Trade certified farms comply with rigorous environmental and social standards. Today, there are more than 870 producer organizations in Latin America Asia and Africa, representing more than 1.2 million farmers, workers and their families, who are part of the growing Fair Trade system - a sign that the investment pays off.

Farmers receive many benefits from Fair Trade certification. The first is economic: Fair Trade Certified farmers get more money. Farmers are guaranteed a minimum price for Fair Trade coffee, which acts as a safety net when commodity prices drop below the cost of production, along with a required premium for coffee that is also certified organic. Buyers also pay a community development premium, which the farming communities use to invest in much-needed projects from improving roads and infrastructure to supporting education and quality improvement. In 2009 alone, the global Fair Trade system returned nearly $77 million in Fair Trade premiums. Other elements of the Fair Trade system include access to credit, long term contracts, safer working conditions, protection from dangerous agrochemicals and the prohibition of child labor.

Could Fair Trade be doing more? Yes. Our goal is to bring more impact to more farming communities around the world. We strive to make Fair Trade standards more relevant and impactful and to increase consumer awareness, so that with every purchase, we really can a make difference.

 

JJCALE

9:45 PM ET

July 17, 2011

Generalising from specifics is dangerous....

The points made re Nicaraguan coffee are well taken but It is inappropriate to extrapolate from there to question fair trade generally. The Fairtrade Foundation quotes 33 separate economic studies of which 31 showed Fair trade had had substantial benefits. It would be unwise to let events in one country for one commodity for one time period distract us from the excellent overall track record fair trade has had.