What about Fairtrade? Its aim is to address “the injustice of low prices” by guaranteeing that producers receive a fair price “however unfair the conventional market is”, according to FLO International's website. In essence, it means paying producers an above-market “Fairtrade” price for their produce, provided they meet particular labour and production standards. In the case of coffee, for example, Fairtrade farmers receive a minimum of $1.26 per pound for their coffee, or $0.05 above the market price if it exceeds that floor. This premium is passed back to the producers to spend on development programmes. The market for Fairtrade products is much smaller than that for organic products, but is growing much faster: it increased by 37% to reach €1.1 billion ($1.4 billion) in 2005. Who could object to that?
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Economists, for a start. The standard economic argument against Fairtrade goes like this: the low price of commodities such as coffee is due to overproduction, and ought to be a signal to producers to switch to growing other crops. Paying a guaranteed Fairtrade premium—in effect, a subsidy—both prevents this signal from getting through and, by raising the average price paid for coffee, encourages more producers to enter the market. This then drives down the price of non-Fairtrade coffee even further, making non-Fairtrade farmers poorer. Fairtrade does not address the basic problem, argues Tim Harford, author of “The Undercover Economist” (2005), which is that too much coffee is being produced in the first place. Instead, it could even encourage more production.
Mr Bretman of FLO International disagrees. In practice, he says, farmers cannot afford to diversify out of coffee when the price falls. Fairtrade producers can use the premiums they receive to make the necessary investments to diversify into other crops. But surely the price guarantee actually reduces the incentive to diversify?
Another objection to Fairtrade is that certification is predicated on political assumptions about the best way to organise labour. In particular, for some commodities (including coffee) certification is available only to co-operatives of small producers, who are deemed to be most likely to give workers a fair deal when deciding how to spend the Fairtrade premium. Coffee plantations or large family firms cannot be certified. Mr Bretman says the rules vary from commodity to commodity, but are intended to ensure that the Fairtrade system helps those most in need. Yet limiting certification to co-ops means “missing out on helping the vast majority of farm workers, who work on plantations,” says Mr Wille of the Rainforest Alliance, which certifies producers of all kinds.
Guaranteeing a minimum price also means there is no incentive to improve quality, grumble coffee-drinkers, who find that the quality of Fairtrade brews varies widely. Again, the Rainforest Alliance does things differently. It does not guarantee a minimum price or offer a premium but provides training, advice and better access to credit. That consumers are often willing to pay more for a product with the RA logo on it is an added bonus, not the result of a formal subsidy scheme; such products must still fend for themselves in the marketplace. “We want farmers to have control of their own destinies, to learn to market their products in these competitive globalised markets, so they are not dependent on some NGO,” says Mr Wille.
But perhaps the most cogent objection to Fairtrade is that it is an inefficient way to get money to poor producers. Retailers add their own enormous mark-ups to Fairtrade products and mislead consumers into thinking that all of the premium they are paying is passed on. Mr Harford calculates that only 10% of the premium paid for Fairtrade coffee in a coffee bar trickles down to the producer. Fairtrade coffee, like the organic produce sold in supermarkets, is used by retailers as a means of identifying price-insensitive consumers who will pay more, he says.
As with organic food, the Fairtrade movement is under attack both from outsiders who think it is misguided and from insiders who think it has sold its soul. In particular, the launch by Nestlé, a food giant, of Partners' Blend, a Fairtrade coffee, has convinced activists that the Fairtrade movement is caving in to big business. Nestlé sells over 8,000 non-Fairtrade products and is accused of exploiting the Fairtrade brand to gain favourable publicity while continuing to do business as usual. Mr Bretman disagrees. “We felt it would not be responsible to turn down an opportunity to do something that would practically help hundreds or thousands of farmers,” he says. “You are winning the battle if you get corporate acceptance that these ideas are important.” He concedes that the Fairtrade movement's supporters are “a very broad church” which includes anti-globalisation and anti-corporate types. But they can simply avoid Nestlé's Fairtrade coffee and buy from smaller Fairtrade producers instead, he suggests.