Does Buying Fair Trade Coffee Help the Poor?

Victor Claar, an economist and a Christian, answers this question.

"The modern fair trade movement has marvelous intentions. This author has dear friends who are also dedicated brothers and sisters in the faith who believe they are saving the world by purchasing Equal Exchange’s coffees and chocolate or by staffing the Equal Exchange coffee concession between church services. They carry out those duties with joy, love, good humor, and the belief that they are agents for change acting on behalf of the “least of these.” 

Yet, the fair trade movement, for all its good intentions, cannot deliver on what it promises. Simply put, coffee growers are poor because there is too much coffee. Fair trade simply does not address that fundamental reality. In fact, by guaranteeing a price to growers that is higher than the world price of coffee, fair trade makes the supply of coffee even larger than it would otherwise be. As we have already seen, whenever coffee prices increase, there will be another coffee grower, and another, and another...

Despite its marvelous intentions, as well as the good-faith monetary contributions that consumers make when they choose higher-priced fair trade coffee over other coffee, fair trade will never lead to the long-term enrichment of the poor. Instead, it creates an additional incentive for the poor to continue to soldier on in a line of work that will never pay much better than it does right now. As long as coffee prices remain low, growing coffee—even if it is fair trade coffee—will not pay well. The reason that coffee prices remain low is because there is too much of it. The fair trade movement does no favors for the poor by encouraging even more poor people to grow even more coffee, but that is precisely the effect that a higher fair trade price is having, leading to the FLO’s reluctance to take on any more cooperatives.

Low coffee prices, like low prices for any other commodity, normally are a signal to producers to make less of it and move onto something else instead. fair trade frustrates this signal, with unfortunate consequences. First, fair trade encourages even more coffee production. Second, fair trade makes non-fair trade growers poorer because non-fair trade prices fall as new growers in places such as Vietnam are attracted into the market by artificially high prices. Entry by new growers increases the supply, and bigger supplies of anything drive prices downward.

(Tomorrow, I will share Claar's answer to the question "If fair trade won't help, what will?")

--Victor Claar, Fair Trade? Its Prospects as a Poverty Solution

 http://www.amazon.com/Trade-Prospects-Poverty-Solution-ebook/dp/B007411ADE/ref=ntt_at_ep_dpt_1