L'Ombre de l'Olivier

The Shadow of the Olive Tree

being the maunderings of an Englishman on the Côte d'Azur

26 February 2008 Blog Home : February 2008 : Permalink

unFairtrade

Hitherto I had considered "Fairtrade" products to be a nice way for smart capitalists to rip of the woolly headed. My reasoning went that the smart capitalists charge a premium for "Fairtrade" branded stuff and pocket a profit margin which is greater than they can get away with for less ethical produce. Of course they would undoubtedly be spending more on the raw materials but raw materials are typically a small proportion of the overall product cost with the majority going to labour, packaging, shipping not to mention marketing and possibly government taxes and tariffs. For example say coffee beans are sold for $1 per kilo normally by the producer and the manufacturer sells the output at $10/kg at the retail store. A rough breakdown of where the consumer's $10 goes is something like this:

SalesTax/VAT		$1.50
Retailer		$1.50
Manufacturer		$7.00
	Packaging, shipping etc.	$5.00
	Coffee Producer/Middleman	$1.00
	Profit	$1.00

Now see how the sums look with a 30% markup on the price ($13) and a 100% increase in coffee bean price for "Fairtrade":

SalesTax/VAT		$1.95
Retailer		$1.95
Manufacturer		$9.10
	Packaging, shipping etc.	$5.00
	Coffee Producer/Middleman	$2.00
	Profit	$2.10

Isn't that nice. The coffee producer gets $2 instead of $1 and perhaps the $2 is actually all his instead of being skimmed by a middleman taking his 20% so yes the producer does benefit. But the manufacturer benefits more (110% increase in profit margin) and both the government and the supermarket retailer also benefit by 30% as well. In other words Fairtrade coffee is a great way to separate the woolly thinkers from more of their money than you would otherwise get.

However via Samizdata I'm led to a Torygraph blog piece by Alex Singleton where he points out that Fairtrade is in fact only selectively good for the poor peasants it is supposed to help. In fact (read the link) it turns out that only certain sorts of peasant can qualify for Fairtrade. Basically you have to be part of a farmers cooperative, if you own your own land and work by yourself you don't qualify. And neither, apparently, can certain other forms of land tenure. Only cooperatives need apply. Also, oddly enough, Fairtrade coffee seems to be processed in the poverty stricken nations of Belgium and Germany so if you happen to think that it might be a good idea to roast, grind and package the beans in the country where they are grown then you can't be part of the Fairtrade scheme.

Not at all to my surprise it turns out that Fairtrade requires lots of paper-pushing bureaucracy, so larger cooperatives have an advantage over smaller ones. Even more interestingly, I learn from this article about Tate & Lyle's fairtrade sugar that how they pay the extra is not quite as simple as you think:

To be Fairtrade accredited, producers must be paid a minimum price to cover the cost of sustainable production plus an extra premium to be invested community development projects.

In other words T&L is required to give grants to various development schemes - run, no doubt, by the usual bunch of NGOs - which may or may not spend the money on things that the farmers themselves consider important.

About the only good thing that Fairtrade does is ensure that beans from Fairtrade nations sold on the free marker are likely to be better quality (whereas those within the scheme probably are of lower quality):

While high-street chains like Starbucks and Caffe Nero have encouraged consumers to favour higher-quality, speciality coffee, there is growing evidence that Fairtrade is damaging quality, too. Fairtrade farmers typically sell in both Fairtrade and open markets. Because the price in the open market is solely determined by quality, they sell their better quality beans in that market, and then dump their poorer beans into the Fairtrade market, where they are guaranteed a good price regardless. Moreover, because co-operatives mix every farmer’s beans together, farmers who improve quality receive the same payment as those who do not, which discourages improvements. That’s worth considering next time you pop out for a double espresso.

Fairtrade. Good for third world socialists. Not necessarily good for third world farmers.

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