The bitter side of Fair Trade

By Anders Loven-Holt

I almost never buy Fair Trade coffee -- and I say "almost" because occasionally, it's the only option. It's not because I'm stingy, racist or ignorant. On the contrary, I'm guessing that I've given more thought to the plight of the world's poor than most readers who are holding a cup of Fair Trade coffee at this very moment.

It's because coffee certification systems such as Fair Trade are hollow marketing apparatuses wrapped in charitable skin that injure the very population they ostensibly protect. I suggest you find a different outlet for your guilt-driven charity as well.

Coffee growers get paid very little for their product because there are too many people growing it, which causes excess supply and low prices. This would suggest a solution that involves reducing the amount of coffee produced. Fair Trade's solution, however, is to pay certified growers more than market price for coffee on the condition that they pay their workers a higher wage. The first problem with this is that it gives growers an incentive to grow more coffee, compounding the fundamental problem of excess supply.

By marketing Fair Trade to Western consumers who have more money than sense, the system puts non-certified coffee growers at an insurmountable disadvantage. These non-certified growers, who account for approximately 98 percent of all the growers in the world, now face reduced demand for their already over-supplied coffee, further depressing their wages. Why don't they get certified? For the same reason they weren't able to sell their coffee for more money in the first place: The market can't be tricked.

Certification is expensive -- in some cases as much as $2,500 -- and additionally requires a tax per pound produced. If everyone was to become certified, all the economic profit from doing so would be eliminated by competition, and growers would be presented with the same excess-supply problem that was depressing wages in the first place. This means that as a rule, the growers who become certified are those who can afford it, and those who it puts at a disadvantage were poorer to begin with.

One simply can't fix poverty by rigging prices in the market. If it could be done, food would be free, the minimum wage would be $100 per hour and the nominal tax rate over $100,000 would be 100 percent. What one can do with price controls is make several people better off at the great expense of many more.

But at least some growers are doing OK, right? Maybe. According to The Economist, about 10 percent of the premium that consumers pay for Fair Trade coffee makes it back to the growers. Luckily, however, this small amount also relieves the guilt of thousands of Western coffee drinkers who have found a relatively painless way to reaffirm their commitment to a vague concept of global solidarity.

The success of the Fair Trade stamp proves that ethics are an exceptionally viable commercial good. And since the Fair Trade premium accounts for only a fraction of a percent of the cost of a latté, that small expense in exchange for the ability to self-promote as socially conscious and eco-friendly is one of the wisest investments a business can make.

There are many ways -- easy ways -- that we could help the poorest among us. However, doing so would involve political and social action that would not be nearly as fashionable as Fair Trade, and certainly more difficult for Starbucks to market.

The direct, grossly misrepresented benefits of the Fair Trade system have significantly contributed to the success of what is, at best, a counterproductive waste of resources; an anemic charity that arbitrarily doles out inconsequential aid. Fair Trade is a harmful marketing device that makes the poor poorer, perpetuating the injustices of the system that Fair Trade is supposed to correct.

I hope that the next time you order a coffee you request "unfair trade," and take a little time to consider what you can do to truly help those who need it. I'll give you a hint: You probably won't find it at Starbucks.

Anders Loven-Holt is a sophomore economics major.