Quick Thoughts on Old Arguments

Quick Thoughts on Old Arguments

Published by mzelmer on October 08, 2010

	By Michael Zelmer

Certain criticisms of Fair Trade periodically rear their heads, and I recently received an email from someone who'd attended a Fair Trade debate in Edmonton where some of these very criticisms were brought up. 

Below is some of the response I sent her in case it's helpful for people who are unsure how to respond to these criticisms, and so anyone who believes there's something to them has a platform to elaborate further. Not surprisingly, neither the criticisms nor my responses go into great detail here. The bits in bold are what were sent to me, presumably a quick summary of the points made at the debate.

- FT guarantees a certain price for goods and disregards market pressures: it creates an artificial demand for the product and an over supply and thus reduces market prices, meaning that non-FT farmers are worse off

This is both a misunderstanding of how Fair Trade works, and a misapplication of a counter-subsidy argument that’s often taught in intro economics.

1. Fair Trade certification guarantees a price but it doesn’t guarantee a sale. This means producers are only able to sell as much of their product as buyers are willing to purchase under Fair Trade terms, which means it is absolutely not market independent. The basic counter subsidy argument can't legitimately be used here because higher prices in Fair Trade are not equivalent to a subsidy. 


2. Furthermore, the Fair Trade price tracks with the market when the market price exceeds the cost of sustainable production. At that point, Fair Trade becomes more about who you’re buying from rather than how much the producer is being paid.


3. From a strictly business perspective, Fair Trade goods can be seen as differentiated products. People all along the supply chain (from buyer to consumer) voluntarily choose to purchase Fair Trade products because they are consistent with their values/preferences, and product differentiation is a very normal thing that doesn’t necessarily lead to over production (e.g. branding is all about differentiating one product from another). For instance, two pairs of jeans could be made in the exact same factory with about the same amount of work and material cost, and one of those pairs of jeans may end up in a discount store with no label on them and a $30 price tag, and the other could end up in a fancy store with a fancy label and a $300 price tag. Miraculously, we don't find ourselves awash in mountains of unsold pairs of $300 jeans, nor do these expensive jeans push down the price of their cheaper equivalents, and we don't find this in Fair Trade either.


4. Often Fair Trade products can only come from small scale farmers (including all coffee, cocoa and sugar cane), and small scale producers have real limits on their ability to increase production (available land being a big one). Moreover, there are incentives to move toward organic production built into Fair Trade, which generally (though not always) leads to a reduction in production rather than an increase.


5. Research (empirical and theoretical) suggests stronger farmer-controlled cooperatives lead to higher prices for non-members (and therefore outside of FT) in situations where farmers are otherwise price takers (as they often are).


6. I’ve never seen evidence to substantiate this particular critique, but I have found anecdotal evidence that works against it.


7. The implication of the critique is that the market price is the “right” price, which assumes perfect competition and information in all markets.

For more on this, you may be interested in:

http://my.ewb.ca/posts/56356/

http://my.ewb.ca/posts/56569/

- An abundance of the FTC product may force farmers to sell their FTC products as not FTC, which means the farmers are losing money by spending it to certify the products as fair trade but then have to sell them at non-FTC price. A case study was done on this involving West African Farmers with Shea nuts that exemplified this issue (but I could not find it online, maybe you are familiar with this study)

This is a strange argument to use against Fair Trade certification. It posits that Fair Trade conditions are better than the norm but demand isn’t sufficient for all farmers. It then concludes we shouldn’t buy FTC because it’s insufficient to meet all needs, which would reduce the demand and associated benefits already acknowledged to exist. It seems a more sensible conclusion would be to support Fair Trade to increase demand so more farmers benefit to a greater extent.

But where there are costs for producers, they do indeed have to balance those costs against the benefits. If producers aren’t able to get much benefit because demand for their Fair Trade (or organic, or whatever) products isn’t high enough to make it worth their while, then of course they shouldn’t maintain their certification(s). Producers do leave the system for that very reason, sometimes they come back and sometimes they don’t. Meanwhile, new producers are getting certified all the time and most stay in. It’s all a question of whether it’s advantageous for the producers at the time, and that’s their decision to make.

It’s also worth noting the latest numbers released from FLO, which claim in 2008 FTC producers were able to sell (on average) just over 60% of their products through Fair Trade.

- FTC requirements are homogenized to western culture and it is not the place of an external third-party certifier to spell out the right way for producers to run their lands and communities.

I wasn't sure how to answer this particular critique because it needs elaboration, but I can provide the following:

1. Participation in FTC is voluntary at all levels, which means producers choose to take part on their own


2. It is precisely the role of a third-party certifier to measure performance against standards


3. Producers are the most represented group on the committee that approves standards (http://www.fairtrade.net/setting_the_standards.html)

- FTC is not scalable: it helps only the farmers it serves (a relatively small percentage) but would fail to help all farmers, because the situation in which all producers of a product are FTC is nearly impossible, and the more FT producers there are in an industry, the worse off the non-FT producers become

This is a compound critique, so let’s take it piece by piece:

• FTC is not scalable

Fair Trade continues to grow and it doesn’t seem to be close to the point where it can’t bring any more benefit to producers. Even if we were at some outer limit, I’m not clear how this is a critique of Fair Trade unless someone misunderstood Fair Trade to be a magic bullet that solves all problems. It’s a simply a mechanism that can do a lot of good and can do a lot more still.

• it helps only the farmers it serves (a relatively small percentage) but would fail to help all farmers, because the situation in which all producers of a product are FTC is nearly impossible

It only helps farmers who decide it can bring benefit to them, decide they want to participate, and are able to meet the standards. Those benefits are in large part a function of the willingness of people and companies to purchase.

It may very well be true that all producers couldn’t be FTC, in fact it absolutely is (large plantations can’t enter into coffee, for instance). But again, this is a strange argument because it effectively says, "if FTC can’t make things better for everyone immediately, then it must not be good, and therefore we shouldn’t buy it".

• the more FT producers there are in an industry, the worse off the non-FT producers become

This is an assertion  (rather than a conclusion) that is only supported by the earlier unsupported claim that FTC leads to overproduction, which leads to dumping in conventional markets, which depresses prices, which isn’t a very strong argument.