x Abu Dhabi, UAEThursday 27 July 2017

Fair trade need not be reviled, despite its shaky economics

Dark protectionist thoughts are far from the minds of the benevolent organisers of the United Kingdom's annual "Fairtrade Fortnight". But the Fairtrade movement has its detractors.

Fair-trade products such as cocoa and coffee do not compete with domestic European production. Y T Haryono / Reuters
Fair-trade products such as cocoa and coffee do not compete with domestic European production. Y T Haryono / Reuters

Historically, the term "fair trade" has meant many things. The Fair Trade League was founded in Britain in 1881 to restrict imports from foreign countries. In the United States, businesses and labour unions use fair-trade laws to construct what the economist Joseph Stiglitz calls "barbed-wire barriers to imports". These so-called anti-dumping laws allow a company that suspects a foreign rival of selling a product below cost to request that the government impose tariffs to protect it from unfair competition.

Such dark protectionist thoughts are far from the minds of the benevolent organisers of the United Kingdom's annual "Fairtrade Fortnight", during which I bought two bars of fair-trade chocolate and a jar of fair-trade chunky peanut butter. Their worthy aim is to raise the price paid to farmers in developing countries for their produce by excluding the inflated profits of the middlemen on whom the farmers depend for getting their goods to distant markets. Fair-trade products such as cocoa, coffee, tea and bananas do not compete with domestic European production and therefore do not have a protectionist motive.

This is how it works: in exchange for being paid a guaranteed price and meeting "agreed labour and environmental standards" (minimum wages, no pesticides), farming cooperatives in poor countries receive a Fairtrade mark for their products, issued by the Fairtrade Labelling Organization. This certification enables supermarkets and other retailers to sell the products at a premium. Farmers in the developing world get a boost to their income, while consumers from developed countries get to feel virtuous.

The fair-trade movement, launched in the 1980s, has grown rapidly. In a notable breakthrough in 1997, the British House of Commons decided to serve only fair-trade coffee. By the end of 2007, more than 600 producers organisations, representing 1.4 million farmers in 58 countries, were selling fair-trade products. Today, a quarter of all bananas in UK supermarkets are sold under a Fairtrade mark. But Fairtrade-labelled products still represent a very small share - typically less than 1 per cent - of global sales of cocoa, tea, coffee, etc.

The target of all versions of fair trade is free trade, and the most damaging attacks on Fairtrade have come from free traders. In Unfair Trade, a pamphlet published in 2008 by the Adam Smith Institute, Marc Sidwell argues that Fairtrade keeps uncompetitive farmers on the land, holding back diversification and mechanisation. According to Mr Sidwell, the Fairtrade scheme turns developing countries into low-profit, labour-intensive agrarian ghettos, denying future generations the chance of a better life.

This is without considering the effect that Fairtrade has on the poorest people in these countries - not farmers but casual labourers - who are excluded from the scheme by its expensive regulations and labour standards. In other words, Fairtrade protects farmers against their rivals and against agricultural labourers.

Consumers, Mr Sidwell argues, are also being duped. Only a tiny proportion - as little as 1 per cent - of the premium that we pay for a Fairtrade chocolate bar will ever make it to cocoa producers. Nor is Fairtrade necessarily a guarantee of quality: because producers get a minimum price for fair-trade goods, they sell the best of their crop on the open market.

But despite its shaky economics, the fair-trade movement should not be despised. While cynics say that its only achievement is to make consumers feel better about their purchases, this is to sell fair trade short. In fact, the movement represents a spark of protest against mindless consumerism, grass-roots resistance against an impersonal logic, and an expression of communal activism.

That justification will not convince economists, who prefer a dryer sort of reasoning. But it is not out of place to remind ourselves that economists and bureaucrats need not always have things their own way.

Robert Skidelsky, a member of the British House of Lords, is a professor emeritus of political economy at Warwick University

* Project Syndicate