Does Fairtrade help the poor?

June 4th, 2014 at 4:00 pm by David Farrar

Forbes reports:

This will come as a surprise to those who have bought into the marketing malarkey about Fairtrade products and not as a surprise to any of those who have really looked at the issue. Which is that there doesn’t seem to be any great benefit in the system for the poor peasantry that it’s supposedly designed to help. In fact, it actually seems to make people worse off, not better off. This isn’t I hasten to add, the result of a study done by some hateful neoliberal like myself. No, this is the result from a four year long research program by the impeccably liberal (and veering over into Marxian third world nonsense at times) School of Oriental and African Studies in London.

So what did they find?

What did surprise us is how wages are typically lower, and on the whole conditions worse, for workers in areas with Fairtrade organisations than for those in other areas.

Careful statistical analysis allowed us to separate out the possible effects of other factors, such as the scale of production. Still, the differences were in most cases, and especially for wages, statistically significant. Explaining why it should be that workers in areas dominated by Fairtrade organisations are so often worse off than workers in other areas is a complex and challenging task. 

Indeed. A good reminder though that good intentions often have perverse consequences.

Forbes looks at why this might be:

The first is implicit there, in the way that they talk about the scale of production. Fairtrade is really only open to people working at the level of an individual peasant. Indeed, some of the various schemes insist that mechanisation should not be allowed as one example of the resolutely small scale that they insist everyone work at. And in agriculture (where almost all Fairtrade is) is one of those sectors where there are huge, vast even, economies of scale. This matters, this matters a lot.

For the maximum amount that labour can be paid is of course the value of the production from that labour. And it might be all very well to insist that people using the most basic hand tools to grow something should get a bit more money. But their productivity is still going to be that of someone growing something using only hand held tools. Whereas mechanising the production process (which inevitably means much larger scale production) will mean vastly more productive labour and thus at least the potential for much higher wages for that labour.

So the insistence that there’s a bit of extra money but only if you stick with the inefficient methods therefore means that Fairtrade is putting a cap on the possible earnings. For they’re resolutely ruling out the possibility of using some more efficient production method. Fairtrade might make the poor peasantry marginally better paid but at the price of insisting that they remain poor peasants.

The second thing is that about the community projects. Some of that Fairtrade premium is meant to be spent on public goods in those areas. Which is just absolutely great, assuming (as in the case described, it isn’t) that the public good is actually available to those it is supposed to benefit. But even then we come back to the same old problem. They might now be poor peasants with free toilets. But they’re still poor peasants, free toilets or no. And this is something that hateful neoliberals like me have been saying for a long time now. Fairtrade is simply a vastly inefficient method of making the lives of the poorest people in the world better.

Liberalising markets has been beyond doubt the best way to lift people from poverty. China and India have shown this with several hundred million people.

All of which leads us to one final difficult question. There is a substantial premium paid for Fairtrade products. If it’s not going to those peasants and the community projects aren’t all that much either, then where is it all going? The answer being that there’s an awful lot of Sebastians and Jocastas being employed on western world middle class wages to run these schemes. And that’s where the money is going. Sure, non Fairtrade products have marketing systems too but which do you think is going to be more efficient? That of Nestle or that of some well meaning and not very driven do-gooders?

To be frank about this Fairtrade simply doesn’t do what it says on the tin. Imagine that you are worried about the poor of the world (I am, it’s a morally good thing to worry about, to try to do something about). And that you’d like to do something about it. The best answer is to go buy things made by poor people in poor countries. And if they’re not charging you enough, if you want to pay a premium over their price, then simply bundle up that extra money and send it to one of the better development charities.

It’ll make the world a better place both more efficiently and more quickly if you do that.

Good advice.

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14 Responses to “Does Fairtrade help the poor?”

  1. kowtow (8,945 comments) says:

    This was covered in an Al Jazeera story last week.

    No fair trade does not help the poor.

    What it does help is to make certain white middle class idiots feel good about themselves.And no doubt superior .

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  2. Ed Snack (1,941 comments) says:

    This is from the estimable Tim Worstall, someone worth linking to more often. And this is not new, reports of this nature have been around for a while and it’s the major reason I try to avoid buying anything marked as “Fair Trade”, because it is anything but that.

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  3. mikenmild (12,446 comments) says:

    Does this line of reasoning cover the Trade Aid shops too, or is it restricted to the ‘Fair Trade’ labels we see on commodities?

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  4. KiwiGreg (3,279 comments) says:

    I listened to the author of this; it seems most of the “Fairtrade” goes through co-operatives and, in the ones they looked at, the benefits were captured by the management of the co-op (who were typically the larger producers anyway).

    Fundamentally this is just a branding exercise to try and capture a higher price at the shop shelf, it falls apart when that price is attempted to be apportioned to the “deserving” producer.

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  5. ross411 (906 comments) says:

    mikenmild (9,759 comments) says:
    June 4th, 2014 at 4:20 pm
    Does this line of reasoning cover the Trade Aid shops too, or is it restricted to the ‘Fair Trade’ labels we see on commodities?

    The research was on Fair Trade labels. Trade Aid is unknown at this time. But personally, after seeing years ago how much some charities spent on overheads vs. value delivered, I refuse to give or buy from outfits from these unless their books are open.

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  6. mikenmild (12,446 comments) says:

    I can’t tell from Trade Aid’s website and reports whether it might be susceptible to the same kind of rort.

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  7. davidp (3,585 comments) says:

    I would have thought it was obvious that if commodity prices were low, the worst thing you could do would be to pay a premium to encourage extra producers to enter the market. If coffee prices are really low you don’t want to incent peasants to produce more coffee, or to move from some other crop to coffee.

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  8. Odakyu-sen (871 comments) says:

    “What did surprise us is how wages are typically lower, and on the whole conditions worse, for workers in areas with Fairtrade organisations than for those in other areas.”

    Let’s see now. New Zealand doesn’t have Fairtrade organisations and conditions for workers are better than in some Indian states that do have Fairtrade organisations.

    No, that can’t be it.

    Perhaps the Fairtrade organisations are setting up shop in places that are the worst for workers to begin with.

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  9. RRM (10,104 comments) says:

    I don’t believe this for a minute. There’s always some elaborate argument about how ONLY the long-established christian propaganda / missionary charities do any good for the fuzzy-wuzzies, and anything else is liberal pinko crap and a waste of money.

    I would support a charity that drops ex-SAS dudes into these places to kill all the Joseph Konys, et al who are the main reason most of these hell hole countries are as bad as they are.

    That’s MY kind of charity. Fight nasty fuckers with guns, not bibles.

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  10. HB (332 comments) says:

    Could it be that the peasants who aren’t fair trade are making more money because of all that slave labour they use? Definitely helps keep costs down.

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  11. FeralScrote (256 comments) says:

    When I looked thru the Uni prospectus I could`nt find the Degree in Stating the Bleeding Obvious course,so I had to get a real job instead.
    How the hell did we get to the state where every numpty is so gullible?
    Now ,I `ve just got to go and do some shopping,you know at one of those specialty grocery stores where I can buy $5 a kilo sausages for 20 bucks a kilo.

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  12. PaulL (5,450 comments) says:

    @Odakyu-sen: no points for reading comprehension. The article says they controlled for that, otherwise equivalent places some who had fair trade and some who did not.

    @HB: no points for reading comprehension. They talked about the returns to peasant farmers, no non-family labour there.

    @RRM: I disagree with your contention. I think most charities, including the christian ones, aren’t achieving most of what they claim to. If we cared about poor people in third world countries we’d stop blocking free trade with them, the fact that we do block free trade (and that the left are most active in blocking that free trade) tells me that we just like to pretend we care. I guess fair trade is a great way to pretend you care.

    Going one further step, if we believed our social justice and equity propaganda, then there’s no logical reason for that to stop at the NZ border. Surely we should be aiming to transfer income from those who are rich (i.e. every NZer) to those who are poor (i.e. a large proportion of people in India, as an example). The reality is that many people who are all into equity mean that the people richer than them should transfer money to them. Once they work out that genuinely applying it would mean transferring their money to the genuinely poor, they come up with some really interesting justifications.

    I can get alongside the idea of knocking off some of the crazies who keep these countries down. My main problem is who gets to decide who deserves killing – western govts don’t have a great record of that. I’d suggest that I should do the deciding, but I’m not sure that you’d be supportive of that. :-)

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  13. HB (332 comments) says:

    PaulL – usually the slaves are a secret… it is illegal to steal young boys from Burkina Faso to come work in your cacao plantation in Ghana etc

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  14. jakejakejake (143 comments) says:

    I never purposely buy Fair Trade after a friend paid to use the crappy FTANZ logo for 3 years and his supply and sales were never audited in that time!

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