Fair trade, once the pet cause of social activists, has gone mainstream. As concepts like global awareness and social responsibility penetrate the mass consumer market, “fair trade” labels have spread beyond gourmet shops to neighborhood grocery stores and supermarket aisles. Wide acceptance of the idea that consumers can also help others with their purchases is changing the way we shop, drink and eat. With fair trade-labeled goods, such as coffee, the goal is to raise the incomes of small producers in developing countries by guaranteeing a “fair price” for their goods.
But are the cost-benefits of the practice as good as advertised? The jury is still out.
Europe and the United States account for virtually all fair trade sales. In the United States, that means coffee. In 2006, Starbucks accounted for more than a quarter of the fair trade-certified coffee sold in the United States. Dunkin’ Donuts announced in 2003 that it would use only fair trade-certified coffee in its espresso drinks, and some Sam’s Clubs (Walmart) have also begun to offer fair trade coffee and bananas.
Believers in free trade argue, however, that the central tenets of fair trade—offering above-market and guaranteed-minimum prices—distort markets by stimulating increased production out of proportion to demand and depressing normal market prices. Guaranteed prices, they add, could encourage poor producers to stay in declining activities with little future, rather than respond to market signals to shift to more productive economic activities.
Thus far, fair trade markets are still too small for these criticisms to be tested. But more analysis of the fair trade model is clearly needed. Are gains for low-income producers sufficient to overcome the obstacles involved in scaling up these markets? Are significant numbers of consumers really willing to pay more and, if so, how much more? And there is a more fundamental question: is fair trade a viable tool in anti-poverty growth strategies? To answer these questions, we must first understand how fair trade has evolved in today’s global trading environment…
