Jo Christie-Smith has questioned what non-"Fair Trade" coffee is if we don't have free trade. In doing so, she raises the whole question of “Fair” and free trade, and invites me to (finally!) write about one of my bugbears.
Ultimately, “Fair Trade” coffee is a misnomer, because it is no different in trade terms form any other coffee. The terms of trade are identical. The difference is that the wholesaler/distributor has chosen to pay above the market price for the product. This is not really “Fair Trade” but (depending upon one’s perspective) a form of charitable subsidy or a misguided means of convincing farmers to keep producing coffee when their labour would be more usefully turned to some other product. I think a more honest title would be “Generously paid for” coffee, or perhaps “We left a tip” coffee.
Note that this would not be the case if “Fair Trade” became a matter of policy, as the Trade Justice Movement would like. Then it would be either a subsidy or a tariff, depending how it was applied, and would be very different from freely traded coffee.
When provided by government, subsidies take money off taxpayers to pay producers to ignore the price signals in the market, which are telling them that they would be better off producing something else. If the price is artificially inflated (be it by a “Fair Trade” label or by a government tariff), it is consumers rather than taxpayers who are being… well… taxed.
Coffee is an excellent example of what causes this and the effect it has. The reason that the price farmers receive for coffee is so low is not (as anti-globalisation movements would have us believe) because nasty Western firms are bullying the farmers into accepting lower payments. It is because there is overproduction of coffee in the world – a coffee glut, basically. What is needed is less production, which would be achieved by letting marginal producers respond to the low prices by swapping to produce something else. Subsidies (voluntary or mandatory) disrupt the price signals farmers receive, so they keep producing, the glut continues, and the problem is perpetuated. Meanwhile, those not getting artificially inflated rates are left even poorer as the overproduction continues and even escalates.
The arguments being used by the Trade Justice Movement and others are basically the same as those used by domestic protectionists. They seek to get a better deal for the producer at the expense of the consumer. In the process, they actually harm the producer as well, because producers are discouraged from progressing to produce more lucrative products. Instead, they are encouraged to stay in a business that is reliant upon subsidy. If the subsidy is ever withdrawn, they are suddenly without a livelihood. They become subsidy addicts, supplicants at the doors of government or charities. On top of this, all of society suffers as well, because wealth is diverted from hard-working people to pay valuable workers to produce things that are not needed (in this case, too much coffee) when they could be producing more useful products and so enriching everyone.
My chosen solution is to stop the “Fair Trade” nonsense and encourage the Third World’s farmers to produce all the things that inefficient First World farmers are currently producing, but won’t be producing once we take away their subsidies and tariff protection.
It’s a great system.
It’s called “Free Trade”.