From coffee at our favorite coffee shops to bananas at the grocery store, most of us have seen the "Fair Trade" label on products we use regularly. With its noble aims of providing farmers with higher prices, setting high production standards, and reducing poverty (Fairtrade International, n.d.), the Fair Trade movement has blossomed over the last couple decades. As excellent as the Fair Trade movement's goals are, some of its unintended consequences have led some to wonder if Fair Trade is as fair as it intends to be.
For instance, one key component of the Fair Trade movement is that it seeks to attain a minimum price for members' produce. While it is honorable to ensure that farmers receive fair wages, as Nunn (2019) notes, Fair Trade prices for coffee (just one example) are typically higher than the global average market price for coffee (Fig. 2). This is problematic since it serves as a type of price floor, reducing incentives for farmers to compete for higher quality (possibly even higher standards than set by fair trade, if competition were good enough) and creating the possibility of surpluses (unemployment of resources) (Cowen & Tabarrok 2018, p. 154). Thus, while Fair Trade may help increase wages for some farmers, its price floor disrupts the delicate balance between supply and demand. A second problematic aspect of Fair Trade price floors is that they crowd producers out of the market—while Fair Trade's aims are wonderful, there is simply not enough resources to ensure that every producer can participate in the program. This means that smaller producers who might have had a chance without Fair Trade may not have the opportunity to enter the market.
Thus, in conclusion, while Fair Trade has noble intentions and has benefitted many farmers, its broader economic implications suggest that perhaps an alternative method could accomplish these goals in a more effective way with more widespread benefits.
References
Cowen, T., & Tabarrok, A. (2018). Modern principles of economics (4th edition). Worth Publishers.
Fairtrade International. (n.d). "Aims of the Fairtrade standards." Fairtrade International. https://www.fairtrade.net/standard/aims.
Nunn, N. (2019). The economics of Fair Trade. The Reporter, 2, National Bureau of Economic Research. https://www.nber.org/reporter/2019number2/economics-fair-trade#4.
Wow, I enjoyed reading your post. Fairtrade is something we can all talk about for days. Fairtrade gives the ability for people to build their company and expand as they desire. With everyone loving coffee I believe it would be easy to expand as long as there is a successful model generating a large amount of revenue. The price between supply and demand Definity has to be considered. I believe understanding if fair trade is fair has everything to do with how you look at it. I believe the products we use should have checks and balances to protect the consumer. Therefore labels, instructions, ingredients, etc. are all necessary to consider the product fair to the consumer seeking a product.
cited source Karjalainen, K., & Moxham, C. (2013;2012;). Focus on fairtrade: Propositions for integrating fairtrade and supply chain management research. Journal of Business Ethics, 116(2), 267-282. https://doi.org/10.1007/s10551-012-1469-1