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Source link: http://archive.mises.org/5654/big-surprise-fair-trade-coffee-is-a-scam/

Big Surprise: Fair Trade Coffee is a Scam

September 21, 2006 by

The Financial Times reports that:

“‘Ethical’ coffee is being produced in Peru, the world’s top exporter of Fairtrade coffee, by labourers paid less than the legal minimum wage. Industry insiders have also told the FT of non-certified coffee being marked and exported as Fairtrade, and of certified coffee being illegally planted in protected rainforest.

This casts doubt on the certification process used by Fairtrade and similar marks that require producers to pay the minimum wage.

It also raises questions about the assurances certifiers give consumers about how premium-priced fair trade coffee is produced…

…Though certified coffee makes up less than 2 per cent of the global coffee trade it has become increasingly mainstream as large retailers such as Starbucks and McDonald’s adopt it.”

{ 12 comments }

Mark Brabson September 21, 2006 at 9:56 pm

Delaware North Companies, has quite a racket going in “fair trade” coffee’s, through their distributer, Seattle’s Best. DNC, for anybody not aware, has Federal concession’s contracts at greater than 90% of National Parks and other federal facilities. They are pushing this “fair trade” coffee exclusively at all federal concessions. With DNC involved, the fact that scams are underway is not suprising in the least. They also get benefits from the Feds for using this bogus coffee.

P.M.Lawrence September 22, 2006 at 4:32 am

According to my own researches, growing coffee in developing countries causes harm in most cases regardless of whether it is “fair” trade or not.

The thing is, those are developing countries, and almost by definition they lack the right sort of institutions to maintain equitable results during the development transition. Subsistence farmers get displaced as land and/or water resources get taken up by export-oriented cash crops like coffee, and so on.

Looking at what happens to coffee growers is missing the inherent spillover onto those who really are at the bottom of the heap, the newly marginalised and dispossessed (with sound institutions already in place, they would have been bought out for fair compensation – but that doesn’t happen).

Apart from anything else, there is a spurious appearance of improvement for the few who make the career change into cash crops; they go from (say) $2 per week but with food and lodging supplied by subsistence activity to (say) $5 per week but needing to live off that.

That is, the usual formulation “…have to live on $N per day…” is faulty for semi-subsistence farmers – their income is more nearly discretionary and they don’t live on it.

Anyhow, there are exceptions, e.g. in East Timor where coffee growth usually does not displace subsistence resources but instead reclaims resources abandoned during endemic fighting. But usually, cash crop production in developing countries hurts and marginalises subsistence farmers, and this does not show up in looking at cash crop labour wages.

Incidentally, sweat shops do not inherently produce this behaviour. That is, creating a sweatshop in a developing country does not have the built in complement of reducing alternative ways of living. However, it is quite possible for these enterprises to do that quite separately, e.g. through local lobbying to drive more locals into the cash economy (fairly standard colonialism and neocolonialism).

Francisco Torres September 22, 2006 at 10:31 am

The thing is, those are developing countries, and almost by definition they lack the right sort of institutions to maintain equitable results during the development transition.

What they lack is property rights. We in Latin America are drowning in institutions. However, even with the “right” kind of institutions, I fail to see how is it unfair to the peasants what others are doing with their own property, even if it is growing coffee.


Subsistence farmers get displaced as land and/or water resources get taken up by export-oriented cash crops like coffee, and so on.

Again, this indicates that the problem is one of property rights. The US should have the “right” kind of institutions (being a developed country) and yet private property rights are not assured either – I do not believe that not having the “right” kind of institutions is the problem here.

with sound institutions already in place, they would have been bought out for fair compensation – but that doesn’t happen.

Only problem is that “fair compensation” is a subjective term. The only sound compensation is that which the market provides, and not some institution, the reason being that institutions fall into the economic calculation problem whenever they try to make decisions on what is “fair” and what is not.

Growing coffee by itself should not displace peasants. If I own a piece of land and a coffee grower wants to have it, he or she should offer to buy it at a price I like. That is the market solution. The “Institutional” solution would be one of expropriation, a la Eminent Domain or through bribing a State bureaucrat.

P.M.Lawrence September 23, 2006 at 3:31 am

I think there’s a language barrier here. Property is an institution of the necessary sort. And, while bureaucracy is another sort of institution, it’s not the only thing “institution” can refer to – and, as you note, it’s entirely the wrong sort of institution.

But it’s not as simple as “property”. It’s necessary for the property institution to be mature and to apply to the right resources.

And there is nothing subjective about “fair” once you are away from a middle ground; a settlement that leaves someone without survival resources is obviously worthless, no matter how much it nominally costs.

There is no inconsistency between this and the market concept, since clearly nobody would make a free market transaction that conflicted with that. The point is, even absent any market comparisons, we can see that some sop of compensation that turns people out to starve is clearly not a fair compensation.

B. Smith October 2, 2006 at 4:05 am

There are some great points here. There is a Website from South Africa you all should look at on why Fair Trade is a “myth”

http://www.aidc.org.za/?q=book/view/163

http://www.aidc.org.za/?q=book/view/361

http://www.aidc.org.za/?q=book/view/154

arya October 9, 2006 at 7:50 am

According to information published on Fair Trade Labelling Organization’s (FLO) website http://www.fairtrade.net (Fair Trade’s umbrella organization), the Fair Trade price paid to coffee farmers is set at $US 1.06 per pound or $US 2.35 per kg (inclusive of a Fair Trade “premium” of $US 5 cents/Ib to be used for development projects within the community).

The same coffee – after having been processed in northern countries – is marketed and sold to socially-conscious (and naive) consumers under the Fair Trade label at an average retail price of $US 40- $US 50/kg, which means that the HUGE difference between the price paid to small-scale farmers ($US 2.35/KG) and the average retail price of coffee labelled, marketed and sold as Fair Trade ($US 40 to $US 50 per KG) generated from value-addition has ended up enriching the numerous mostly foreign economic agents within the supply chain(i.e. traders, exporters, shippers, processors, marketing agents, wholesalers and retailers, etc.)In this context, one wonders who is helping who…?

Furthermore, the coffee has not been processed in the country of origin, thus failing to create much needed local employment and to generate income within the local economy. Processing the coffee in the country of origin would also enable coffee producing nations to break free from the dictate of the world market and from the vicious trap cycle of declining prices of coffee on the world market accentuated by increases in production to offset the initial price decline, thus further decreasing world prices and further impoverishing coffee and other primary agricultural commodity producers in poor nations. This is a vicious trap cycle, which the Fair Trade “business” is brilliantly using to its advantage…The Fair Trade “business” is capitalizing and prospering on both declining prices of primary commodities on the world market and on the good conscious and naivete on Western consumers…

Fair Trade coffee statistics

-The Fair Trade price paid to coffee farmers ($US 2.35/kg) only represents about 5% of the average retail value of coffee beans sold to consumers under the Fair Trade label ($US 40/kg -$US 50/kg).

-1 KG of coffee makes on average 50 cups of coffee.

-The average starting retail price for a cup of coffee in coffee shops or restaurants in the West is $US1-$US2: Thus, the equivalent price paid for a cup of coffee is $US 50/kg to $US 100/kg. The “Fair” Trade price paid to small-scale farmers only represents 2.5%-5% of the average retail price of a cup of coffee in the West.

In this context, one wonders how “fair” the Fair Trade price paid to coffee farmers is and who is helping who…?

daniel February 17, 2009 at 1:35 pm

Hi, I just found a new web page that sells only Fair Trade Flowers from Colombia. the link is:
http://www.betterearthflowers.com/

Trade Expressions October 20, 2009 at 4:35 am

The recent evolution of the Fair Trade movement has been towards a more clearly defined, universal set of Fair Trade standards. As these standards continue to evolve and gain clarity, the commitment is to always meet or exceed recognized international standards.

Randa January 8, 2010 at 2:13 am

Coffee producers do benefit a minimum from Fair Trade. However, the value-added remains in the processing, the packeging and marketing. So one wonders who is truly benefiting.
On the other hand, coffee is not consumed in the same way all over the world; we don’t enjoy the same coffee in France, US or UK… etc
So one explanation given by the biggest FT coffee retailers is the diverse and traditional taste they develop regarding their clients.

Anyhow…I wanted to set light on a small country that isn’t a historic fair trade supplier : Lebanon
I work in an NGO called Fair Trade Lebanon, that develop, trains and sells the products of food-processing cooperatives. We always refused to sell raw materials only, and decided to maintain the value-added in the South.
You check our whole product line and news on our website, and our blog:
http://www.fairtradelebanon.org
http://www.bloggingfairtradelebanon.blogspot.com

Thank you….

Robert Kirbo April 14, 2010 at 3:36 am

There is so much that is in error and wrong with the entire approach of this article and many of the respondents. First of all, the lack of knowledge regarding coffee growing and processing is just breathtaking. Most processing does not occur at plantations (growers) because in order to assure freshness, and control of roasting (each grade and style of coffee require different roasting methods) so that consumers get the freshest packaged coffee possible. There is no hidden agenda or sinister motive to cut out the grower and deprive them of profit. The growers are expert at growing coffees, but they are not wizards of roasting or packaging coffee in wholesale or retail packages.

It is indefensible to argue against minimum wages and humane standards in work places anywhere in the world, and the US and other western nations are signatories to UN mandates for ethical treatment, fair working conditions, and health and dignity standards, that yes, regrettably are not enforced in all emerging nations, but such violations or regrettable circumstances in no way invalidate attempts to set and achieve better working and pay conditions by Fair Trade advocates. How anyone writing here could cynically profess that “Fair Trade is a Scam” because some developing countries violate these provisions or ignore the spirit of Fair Trade Certification is totally wrong.

Furthermore, Fair Trade efforts are not and should never be a “political issue” in any partisan sense, as all efforts at establishing these fair and humane certifications are values that all decent human beings should embrace and strive to see achieved in our lifetimes. To suggest otherwise is both evil, diabolical and smacks of 19th Century Imperialism, to put this in a kindly context.

The people writing so ignorantly about Fair Trade efforts, and being absurdly critical, seem to be of the same mindset that Slave Owners in the Confederacy shared, that Business Owners who depended on Child Labor argued for (“We are just giving families a chance to make a bit more money”), and many very wealthy Americans now seem to think is their just due, simply by virtue that “they made their own wealth and are entitled to all of it…and the government should keep out and keep away from all of it.” May I point out the absurd fallacy in the “Self Made” wealth arguments, which is that none of us make our own wealth, it requires both an environment where wealth and Fair Trade can occur (Like the US, as made stable and prosperous not by capitalists, but by a stable government, a secure national border, vast natural resources and an educated workforce, which has been the product of public education, grants, etc.) and the support and prior art and work of thousands, even millions of other people who came before them. No one is self made, and even if we cede the fact that millions have opportunity, but only a fraction truly achieve vast success (I suppose wealth is equal to success from this metric), it still in no way suggests that any of these successful, often obsessed individuals were “self made.”

So, really, take a hard look at reality and stop listening to that drivel on Conservative Radio and
any extreme Partisan talking heads of any and all political groups. Coffee is a very refined art,
and developing nations only benefit in the long term when better developed nations make efforts to establish higher standards and ethical treatment of people everywhere. And, here is the statistic per cup of coffee…

A per pound increase of $ 3.00 per pound results in a price per coffee cup at the retail restaurant level of about .5 cents (US) per cup. Retail restaurants and cafes usually (and naturally) must also account for other costs and “round” this increase up to about .25 cents (US) per cup of coffee.

That $3.00 per pound means that workers in developing countries can now afford to buy new clothes for their families and have medical care for their children and pay for schooling.

I think it is a price we are all not only willing to bear, but one that we should gladly grin and bear with pride, rather than complaint and rumor mongering of conspiracies and constant obstruction of progress in the world.

Hey, have a nice cup of cappuccino and have a nice day!

Robert Kirbo
California

One World Flowers August 25, 2010 at 3:01 pm

Fair Trade Certification empowers farmers and farm workers to lift themselves out of poverty by investing in their farms and communities, protecting the environment, and developing the business skills necessary to compete in the global marketplace. TransFair USA verifies industry compliance with Fair Trade criteria. Fair Trade is a great route to take when concerned about the environment and humanity. One World Flowers believes in sustainable business practices, human rights compliance, and fair compensation for workers in countries all over the world. We educate consumers about Fair Trade practices, and how to be aware of the human rights happening everyday in the global supply chain. oneworldflowers.org

J. Murray August 25, 2010 at 3:03 pm

P.S. – Please send us your money.

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