Why Pay More for Fairness?
Project Syndicate, April, 2006
Marks & Spencer, a supermarket and clothing chain with 400 stores throughout Britain, recently announced that it is converting its entire range of coffee and tea, totaling 38 lines, to Fairtrade, a marketing symbol of “ethical production.” The chain already sells only Fairtrade tea and coffee in its 200 Café Revive coffee shops. It is also boosting its purchases of shirts and other goods made with Fairtrade cotton. The announcement came during “Fairtrade Fortnight,” a two-week promotion of Fairtrade products that included speaking tours by farmers from developing countries, telling Britons how Fairtrade has assisted their communities.
The movement toward more ethical consumption has made significant gains in the United States as well, as consumers increasingly turn to organic, locally produced foods, and eggs from hens not kept in cages. In the UK, a survey has found that half of those shown the Fairtrade symbol recognized it and understood that it refers to products that give a better deal for Third World farmers. There is no comparable US research, but related data, and discussions with my own students, suggests that the figure would be much lower.
Traders seeking Fairtrade certification must pay producers a price that covers the costs of sustainable production and provides a living wage. For example, the minimum price for coffee is $1.26 per pound, no matter how low the market price may fall. If the market price rises above that figure, the fair trade price will increase so that it remains five cents per pound higher.
Small farmers, for their part, are required to be organized in cooperatives or other groups that allow democratic participation. Plantations and factories can use the Fairtrade label if they pay their workers decent wages, comply with health, safety, and environmental standards, allow unions or other forms of workers’ associations, provide good housing if workers are not living at home, and do not use child labor or forced labor.
Not every one approves of Fairtrade. Brink Lindsey, director of the pro-market Cato Institute’s Center for Trade Policy Studies, believes that the campaign for Fairtrade coffee is a “well-meaning dead end.” With some justification, he argues that the real cause of the fall in coffee prices was not the profiteering of multinationals, but big increases in coffee production in Brazil and Vietnam, combined with new techniques that make it possible to grow coffee with less labor and hence more cheaply.
In Lindsey’s view, if we want to assist coffee growers, we should encourage them either to abandon coffee and produce more profitable crops – and here he rightly points to rich nations’ trade barriers and subsidies as obstacles that must be dismantled – or to move into higher-value products, like specialty coffees, that bring higher prices.
What is curious about Lindsey’s argument, however, is that the Fairtrade coffee campaign can be seen as doing just what he recommends – encouraging coffee farmers to produce a specialty coffee that brings a higher price. Pro-market economists don’t object to corporations that blatantly use snob appeal to promote their products. If people want to pay $48 for a pound of Jamaican Blue Mountain coffee because that’s what James Bond prefers, economists don’t object that the market is being distorted. So why be critical when consumers choose to pay $12 for a pound of coffee that they know has been grown without toxic chemicals, under shade trees that help birds to survive, by farmers who can now afford to feed and educate their children?
Economists might reply that if you want to help people feed and educate their children, you can pay $10 for a pound of non-Fairtrade coffee that tastes the same and give the $2 you save to an aid agency that provides food and education to poor children.
That’s a possible strategy, but there are advantages to Fairtrade. The growers know that they have to provide a product that consumers like, both for its taste and for the way it is grown. If their product sells well, they can take pride in having produced something that is sought after around the world. From the growers’ perspective, receiving a premium by selling a Fairtrade product is preferable to receiving a charitable handout that they would get whether they worked or not and regardless of the quality of what they produce.
Paying more for a Fairtrade label is no more “anti-market” than paying more for a Gucci label, and it reflects better ethical priorities. Fairtrade is not a government subsidy. Its success depends on market demand, not political lobbying. Fortunately, in Europe, that market demand is growing rapidly. One hopes that it will soon reach similar levels throughout the developed world, and wherever people can make choices about their discretionary spending.