The World Fair Trade Organization declared “fair trade week” in mid-November, both to draw attention to and improve the plight of (mostly agricultural) workers worldwide. The fair trade movement is an attempt, at root, to encourage consumers in developed countries to pay more for certain products in order to help lift the people who produce them out of poverty. This happens through better prices and access to financial markets for sellers, and through contracts that smooth short-term fluctuations in price, which help producers to plan for the future.Economists are a rather fractious bunch much of the time, but they are in near unanimous agreement regarding the benefits of free trade. When one person voluntarily exchanges with another, both walk away better off. And if those two people specialize their labor, each producing what his skills or circumstances make him better at producing, both become better off still. Best of all, free trade doesn’t require government involvement. In the end, everyone who plays, wins. They are not nearly as sanguine about fair trade, and this is largely because it is not clear what benefits fair trade brings that free trade doesn’t already provide.
Those concerned with the poor will point to trade as a tool for bringing people out of poverty, which it is. But fair trade doesn’t offer anything new here, and might even introduce difficulties. Studies show that workers in the coffee industry - the industry with the largest number of producers and workers affected by fair trade policies - receive little to no benefit for the higher prices fair trade makes possible. In Costa Rica and Nicaragua, fair trade farmers do indeed receive higher prices for their coffee, but their workers are paid the minimum wage with no health or retirement benefits. Direct comparison of fair trade certified coffee farmers to conventional coffee farmers in Oaxaca, Mexico reveals that fair trade certified farmers receive a price 130 percent higher than that received by conventional farmers. Workers at fair trade farms, however, are paid only 7 percent more. At least where coffee is concerned, fair trade appears to put the lion’s share of the extra money in business owners’ pockets. And, where fair trade certification is costly to obtain, the actual effect is to create cartels.The good news is that fair trade certification requires that workers have freedom of association, safe working conditions, and not be forced to work. But even here, the benefits aren’t different from what one could attain with free trade simply.In the end, the benefits of fair trade are actually benefits of free trade. This is made clear by the fact that the entire process is voluntary. Producers, importers, and exporters think it is in their best interest to achieve the fair trade label, and consumers think it is in theirs to support those who do. A concern with social justice is one reason among many to choose one product over another, and if producers want to advertise their bona fides they should be able to do so. But in the end, the greatest contribution fair trade offers is to encourage people to engage in free trade.
Antony Davies and James R. Harrigan host the weekly podcast, Words & Numbers. This article first appeared in the Pittsburgh Tribune-Review.