A free-market thinktank, the Institute of Economic Affairs (IEA), has just published a research paper slamming Fair Trade. We have never carried Fair Trade coffee at Mercanta – simply because we don’t think the model works for the specialty coffee business – so we were very interested to see what the IEA has to say.
The IEA’s in depth report into Fair Trade describes it as ineffective, costly and largely unproven. “Fair Trade’s requirements and the administrative burdens it imposes on poor producers often better reflect the prejudices of western consumers than the real needs of poor producers.”
The IEA argues that farmers only end up with a small portion of the additional margin that consumers pay: “Even analysts sympathetic to the movement have suggested that only 25% of the premium reaches producers.” It says that heavy administration requirements and fees involved in becoming a certified producer means that Fair Trade doesn’t actually help the poorest farmers (“The certification charge starts at $1,570 in the first year – an unaffordable sum for most producers in the poorest countries”).
The report says that Fair Trade is not a long-term development strategy, and the model is not appropriate for all producers. “Fair Trade’s proponents need to adopt some humility and accept that it is a niche market designed to benefit some producers; and is only capable of achieving a very limited objective.”
It concludes that open, subsidy-free international trade is the best way to help the world’s poorest region’s to develop (though it’s worth noting that the IEA exists to promote the free-market so this conclusion is quite predictable!).
Mercanta and Fair Trade
Mercanta has never carried the Fair Trade label as, put very simply, we believe that our sourcing model works far better! We pay our growers premium prices – prices far above their cost of production or the Fair Trade minimum guarantee – in return for premium coffees. And wherever possible we negotiate prices directly with the growers themselves*. This encourages a sustainable business model which benefits both the farmer and the coffee consumer, and everyone in between.
In our opinion, the big problem with Fair Trade (however well-meaning it may be) is that it does nothing to reward quality or discourage overproduction – and therefore does not promote long term, sustainable development. Plus, Fair Trade only certifies cooperatives, which excludes many many excellent growers. Plus, as it is pegged to the commodity market price, it does nothing to divorce coffee buying from the vagaries of market prices controlled largely by suits in New York! Quite simply, the Fair Trade model just does not fit the specialty trade (in our opinion!).
For more information on the report from the IEA click here: www.iea.org.uk/record.jsp?type=release&ID=217
For an interesting article in the Guardian newspaper about the report click here:
*In a few markets, such as Kenya, Ethiopia and Indonesia the local market structure makes establishing direct links more difficult – for more info please see the country info in Our Specialty Coffee Portfolio.