Fair traders are swindling Bucknellians. The fair trade coffee brewing at Seventh Street Café and selling – for $10 per pound – in the Samek Art Gallery are just two examples of how Bucknell has bought into the illusion of helping Third World farmers.
Many on the left, including Bucknell’s Students for Fair Trade, urge consumers to be “socially conscious” and take into account not only the price and quality of the goods they buy but also their societal effects. Fair trade supporters believe producers should be guaranteed a fair price for their products to combat low wages in Third World countries.
At first this sounds like a good idea. But upon closer inspection fair trade proves to be an ineffective means of helping the poor.
Most alarming is how inefficient fair trade is at getting money to those who need it. For each pound of fair trade coffee they produce, farmers are only paid pennies more than the market price. Yet, many retailers mark up the price of fair trade products far more than the additional amount paid to the farmers.
Furthermore, the only farmers eligible to produce fair trade products are small family farms and co-ops. Plantations and other large farms cannot receive fair trade certification. Since plantations are significantly more efficient than family farms, the fair trade scheme rewards inefficient methods of production, impeding economic progress.
If groups advocating “consumer conscience” were to succeed in convincing consumers to only purchase fair trade products, the producers not accredited by fair trade would be unemployed. Since most workers in Third World countries are employed on plantations, the fair trade system actually neglects those it aspires to help.
Even if these problems were fixed, fair trade still fails on a more fundamental level. Fair trade’s model distorts the price signals of the market which communicate to producers what and how much to produce. When the price of a commodity is low, it indicates to producers that an excess of the product exists. Thus, they turn to different crops – those in higher demand. When the price is high, it suggests a shortage of the crop and directs producers to spend money on fertilizer, tools, and other items to increase yields for that crop.
Similarly, the price communicates to consumers how much to buy. With a shortage, the high price of a product discourages consumption.
The free market price matches supply and demand so that exactly the right amount of each product is produced. Fair trade arbitrarily sets an artificially high price, distorting the market’s signals. As long as the fair trade price is above the market price, there will be more producers wanting to grow a product than consumers wanting to buy the product.
Free trade is the only system that can attain substantial and sustainable economic improvement in poor countries. Countries have significantly expedited their rate of economic development by enacting free trade agreements.
Critics of the free market often point to low wages and poor working conditions in the factories that arise from economic development. But in actuality, these factories are a blessing to their workers. They are a significantly better source of employment than other available jobs.
Between 1990 and 2004 the number of people that lived on less than $1 per day dropped by more than 260 million, largely because of improvements in countries – such as China – which have embraced free trade and the economic benefits of globalization.
None of this means charitable activity is wrong; it plays a crucial role in reducing poverty. Individuals who support charitable organizations should be commended. However, it is equally clear that some forms of charity are more efficient than others. Direct donations to the poor, for example through private charities, would do far more good per dollar than paying extra costs of fair trade products.
Fair trade’s premise is irreconcilable with basic economic principles. An exclusive fair trade economy would be unable to survive. Fair trade may give some money to the underprivileged, but it is simply not a viable system for driving any significant changes. People truly interested in helping the poor must first conform to the economic realities that fair trade so carelessly ignores.