10/15/20
Noah Wilbur | Opinions Editor
From avocados and bananas to cocoa and coffee beans, the fair trade market continues to experience substantial growth as an increasing number of consumers search for ways to support the hardworking families who struggle to make ends meet in underdeveloped countries.
The Fair Trade initiative is a global movement with the mission of eliminating poverty by ensuring that farmers and labourers across the world receive fair and just prices for the goods they produce.
By establishing a price floor and premium for products, producers receive stable flows of income that were otherwise unknown, as well as additional funds that can be invested to grow operations. In addition, a fair trade certification provides unprecedented access to international markets, and in turn, the ability to reach a wider range of consumers.
At first glance, the concept of fair trade appears to be a feasible method for improving the lives of poverty-stricken farmers. However, the theory is flawed as the truth of the matter is that they do not realize much, if any, of the intended transfer of wealth.
The rationale is rather simple: For the system to function properly, two equally important events must occur. First, individuals must be willing to incur a higher price for the goods. Secondly, the price premium must find its way to the desired party — the farmers and workers scrambling to put food on the table.
According to the study “Fair Trade and Free Entry: Can a Disequilibrium Market Serve as a Development Tool?,” the unfortunate reality is that, on average, only 20% of consumers are willing to pay the price premium. In addition, even when consumers choose to incur the additional expense, producers receive only 5¢ to 10¢ of every $1.
This phenomenon is attributable to the hefty cost that small scale producers must bear to have their products stamped with the Fair Trade label. Lasting between six and nine months, the rigorous certification process inflicts considerable financial strain as total returns from selling certified goods diminish quickly.
What’s more, due to the lack of regulation and control concerning the amount of certified output, these returns are further diminished by the enabling of arbitrage that arises from the costly over-certification of supply.
As a result, with the accumulation of unexpected costs nullifying any increase in sales, there is no real incentive to become free trade certified, especially considering that doing so can potentially lead to a decline in revenues and profits — the exact opposite of the stable income that was promised.
In fact, within the past decade, numerous farmers and low income producers reported that they actually received a higher percentage of profit from selling products that are not fair trade certified.
The overwhelming evidence clearly indicates that achieving fair trade status does not guarantee an equitable playing field for those in impoverished communities and tribes — people who are also deserving of a sustainable way of life.
For those seeking to make a difference by supporting marginalized farmers and workers in developing areas of the world, it is more important than ever to research the fair trade products that you purchase to ensure the premium price is benefiting those individuals it was intended to support.
