Why an independent
investigation of Fairtrade is
needed
Peter Griffiths
[Peter Griffiths has spent his career getting higher prices for farmers.
He has even prevented a famine (see www.griffithsspeaker.com)]
Submission to Dragons’ Den
Start a charity. Print millions of pictures of starving children, and say how
you will stop this.
Collect the money.
Spend one percent on doing up a couple of villages. Take photographs,
videos. Write lots of stories and press releases.
Drive round the bush and video anyone photogenic telling you how
wonderful GrabbitAid is: for a fiver they will say anything. Photograph any
new schools, etc you come across.
Spend 30 per cent on advertising, telling donors that they are wonderful
caring people who are doing everything they can for the Third World.
Say that you are helping Third World farmers. (True, a dozen or two.)
Keep perfect accounts within the UK, until the money leaves for a Third
World bank on its way to a tax haven. Get suitable accounts prepared there.
Any discrepancies can be explained away as mistakes by the ill-educated
small farmers you are helping.
There is no possibility that the police will investigate: they are not
investigating our banking system.
The press will not publish articles that will offend their readers who now
consider themselves warm, sharing people doing everything they can to help
the Third World.
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If anyone asks questions refer them to your web site.
If, somehow, any criticisms get into print,
1. Ignore them
2. Ridicule them
3. Make ad hominem responses, ridiculing the critic
4. Produce anecdotes about your model villages, stories told by
Sancho Panza or Adam Chibowa. Never produce overall
statistics.
5. Say, quite correctly, that you are helping farmers in the Third
World, but do not mention that you are only helping two dozen.
6. Produce incorrect facts
7. Demand that critics produce evidence, facts that only you could
have – if indeed any of your income was going to the Third
World.
The only risk is that some busybody starts asking awkward questions, and
that some of the volunteers who are collecting for GrabbitAid feel that they
owe their duty to the people of the Third World, rather than to your
organization.
Duty to provide information
It follows from this that any charity has an absolute duty to provide
information. Hard information is required, facts and figures, not some waffle
on a web site.
Any charity has an absolute duty to respond to enquiries as to how
they operate and how they are achieving their goals. It has an absolute duty
to respond to any suggestion that its design or operation may be ineffective,
or actually harmful.
The response should be based on hard evidence and hard analysis. It
should at least reach the standard of an academic paper – we are talking of
people’s lives here.
It must be a presumption that any organization that answers queries
and concerns with a couple of sentences or a reference to a web site is trying
to hide something.
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AN INVESTIGATION OF FAIRTRADE1
An independent investigation of Fairtrade should investigate
hypotheses. The hypotheses presented here are hypotheses which have been
put forward by a range of people. Some of them have strong theoretical and
evidential bases. Others have limited evidential bases because the
organizations dealing with Fairtrade cannot or will not produce evidence
which should be readily available from any organization soliciting public
money. Some hypotheses will be rejected or considered unimportant when
evidence becomes available and is properly analysed. They all raise
questions that are important, and should be answered. The investigation
should be carried out by people who have experience of investigating Third
World marketing systems and marketing organizations, who are competent
in marketing economics and, most particularly, who will tell the truth.
This justification is drawn up by someone who has spent his career
getting better prices for farmers, and who has prevented the odd famine
along the way.
ALTERNATIVES
1. Most of the issues and hypotheses set out here apply to
Fairtrade and not to alternatives. Very few would apply to a
donation to Oxfam for instance, and of those that do, such as
‘What proportion of my donation is spent on administration
within the UK?’, answers are readily found on the Oxfam
website [11% is spent on support and running costs.]
2. Similarly, Fairtrade is at pains to distinguish itself from other
‘ethical trading organizations’ and it has been suggested that
1
This refers to Fairtrade UK
3
Fairtrade is hostile to its competitors.i This implies that many
of the issues raised here do not apply to all ‘ethical trading’.
3. There are alternatives which avoid virtually all these issues.
For example, coffee companies like Nescafe and Kenco could
put a receipt for 50p on a pound of coffee, with the money going
direct to a charity which puts money straight into the Third
World.
SOME HYPOTHESES
Fairtrade diverts resources from the big issues
1. Fairtrade is very effective in making rich westerners feel that
they are warm caring people who are doing everything they can
for the Third World.
a. This means that these people think they have done their
bit, and everything is under control. They do not, for
instance, demand action on Trade Justice and the WTO.
b. Governments see that everyone has a warm glow, and do
not feel it is necessary to take action on the Third World.
2. The enormous amount of energy, enthusiasm, passion, effort
and emotional energy going into Fairtrade means that this is
not available for other development activities that would
achieve far more. If the impact per person hour (or unit of
enthusiasm, passion, etc.) is higher elsewhere, then Fairtrade
is damaging our efforts to Make Poverty History.
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The impact that Fairtrade claims to have made is tiny
3. The impact that Fairtrade claims to have made is tiny It is
claimed that up to 1.5 million farmers have had been paid a
higher price for just one of perhaps a dozen crops produced on a
farm, coffee say. The higher price is paid only on a proportion of
their sales of coffee (in fact only 20-40% of the turnover of these
farmers was sold as Fairtrade, and in some cases they got no
premium for it). ‘In 2002, FLO estimated the income benefit to
Fairtrade coffee, tea, cocoa, sugar, rice, fruit, honey and juice
producers at £21m, of which £17m was attributable to sales of
Fairtrade certified coffee.’ii This is miniscule in relation to the
sums of money we talk of in aid.
4. There are well established aid projects which expect to do more
than this routinely, at a tiny fraction of the cost. A single short
term consultancy by a marketing economist working in the
Third World can make a bigger impact than the whole of the
Fairtrade movement, doubling the cash income of a very large
number of farmers. Examples of consultancies which have had
such an impact include halving the marketing cost for a
commodity in one country (a six months consultancy), ensuring
that a million farmers were paid a price based on current
exchange rates not two-year old exchange rates (2 ½ month
consultancy), showing that 40% of the export value of a
commodity was being stolen (1 month), completely redesigning
a country’s agricultural policy – so affecting the prices of all
crops produced by four million farmers(4 months).
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What, exactly, do farmers get?
5. Fairtrade cannot answer the first and most important question
anyone would ask, ‘What, exactly, do farmers get?’ They say
that they only monitor money at the stage they hand it over.
They monitor the amount that is paid for the coffee when it is
in the ship at the port of export. They say that they do not
monitor the costs up to this, inputs, assembly processing,
marketing, transport, administration, export tax, etc. Typically
the net cash income of farmers would be one tenth to one fifth
of the price on ship, and it does fall lower than this.
6. Colleen Brandt of George Mason University says ‘I am finding
our well-intentioned efforts have serious undesirable
consequences, most of which are completely unanticipated.’
Among these are the large bureaucracy needed to meet
Fairtrade’s criteria. She says, ‘In Guatemala, an executive at
Fedecocagua, the largest Fair Trade Cooperative, admitted that
after paying for the cooperative’s employees and programs,
nothing of the Fair Trade premium remained to be passed on to
the individual farmer.’ ‘In large associations, the Fair Trade
premium may be so small as to be meaningless if it were
actually divided among all producers’iii
7. ‘Fairtrade imposes significant costs on farmers and farmer
organizations. These include the initial certification cost,
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annual inspection fees, and the costs of record keeping,
paperwork etc to show that the product meets Fairtrade
criteria. ‘They want a record to be kept of every daily activity.
With dates and names, products, etc. They want everything
kept track of. The small producers, on the other hand, can
hardly write their own name.’iv This takes up much of the ‘extra
income’ they should be making. Marketing costs and labelling
costs are incurred. Inevitably this reduces the payoff from
Fairtrade membership. For those organizations which sell very
little through the Fairtrade system, it may remove nearly all
the payoff.
The result may be that no increased payment actually
gets back to farmers. ‘In Guatemala, an executive at
Fedecocagua, the largest Fairtrade cooperative, admitted that
after paying for the cooperative’s employees and programs,
nothing of the Fairtrade premium remained to be passed on to
the individual farmer. As a result, CoupeDota Manager, Adrian
Cordero believes, “It’s not worth the trouble, Fairtrade.”’v
8. In a cooperative most of whose members are illiterate farmers
this may mean employing managers or putting all the work
onto the few literate farmers. There is a cost to these farmers in
lost opportunities elsewhere. Do they earn the minimum wage
for what they do? There is also a moral hazard when a few
literate people control the accounts.
9. Mark Varney, Head of Commercial Relations, Fairtrade
Foundation said that in spite of all this, he believed that
Fairtrade was producing valuable benefits for farmers, because
the farmers he was introduced to told him so. This is a
surprising statement from someone who, we might expect,
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would fire any market research firm which did not use random
sampling, and who listened to people selected for them by
people who had an interest in the result.
a. It is good professional practice to listen particularly hard
to people who tell you things you do not want to hear.
b. Culturally aware professionals appreciate that in some
cultures it is polite to tell people what you think they
want to hear. They know how to listen for the omissions,
for the lies that are deliberately badly told, and they
have the patience to wait for ‘But . . .’
Fairtrade provides fudged, false and misleading
information
10. Nearly all the literature produced by Fairtrade consists of
anecdotes, the statement that one out of a million farmers or
one out of 350 cooperatives did well out of Fairtrade one year.
This is not evidence. Soundbites from Sancho Panza or Adam
Chibowa are not evidence. Statements are of the order of
‘Fairtrade makes sure that farmers and producer organizations
get a fair and stable price for their products to help them
support their families and invest in a better future’ with no
indication of how many or how much and certainly no
indication of what happens to those excluded. The presumption
is that
a. This is the only information that exists, or
b. Lawyers have removed any statements that could lead to
prosecution under the Trade Descriptions Act.
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c. A great deal more information exists, but is being
deliberately withheld because it could harm the
organization.
11. Documents and statements on the Fairtrade website contain a
mixture of spin, non-sequitur and misstatement of fact which
would make Mandelson blush.
12. Much of the information is fudged or just false. One web page
says that farmers ‘are often forced to sell to middlemen who
pay them half the market price, generally between 30-50c per
pound. Fairtrade coffee sells for a minimum of $1.26 per
pound.’ This comparison is flagrantly dishonest. The Fairtrade
price quoted here is the New York price. The other price is the
price paid in a village in the middle of Africa. Someone has to
pay the costs of assembly, processing, marketing and transport,
as well as the export tax. Both the ‘middlemen’ and the
Fairtrade system incur these costs, so both pay the farmer
much less than the New York price.
13. Criticisms of the Fairtrade system receive the full range of
responses, both from the Fairtrade Foundation and from its
supporters.
a. Ignore them
b. Ridicule them
c. Make ad hominem responses, ridiculing the critic
d. Produce anecdotes from Sancho Panza, Adam Chibowa
or about your model villages, never produce overall
statistics
e. Produce incorrect facts
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f. Demand that they produce evidence, facts that only you
could have – if indeed any of your income was going to
the Third World.
8. Examples of the official Fairtrade responses to criticism are
attached as an appendix.
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Deceptive advertising
14. Fairtrade is now careful to make meaningless statements “We
help farmers” or to produce anecdotes by Sancho Panza.
However, over-enthusiastic copy writers make statements for
which they have no evidence. The Fairtrade organizations do
not correct these, so they become accepted as truth. Then copywriters go further, and again are not corrected. Some
statements appear to be deliberate lies. False statements are
breaches of the Trade Descriptions Act. It could be a criminal
offence to make a contract on the basis of these.
15. The need to have expensive policing of advertising is a flaw in
the design of Fairtrade.
16. Deeply immoral statements are made by advocates of
Fairtrade: ‘For example, in my own diocese – the Catholic
diocese of Arundel and Brighton – I have been told that not to
buy fairtrade products is a sin worse than theft; that not buying
fairtrade products is making a deliberate choice to take from
the poor; and that one should never buy products that appear to
have the virtues of fairtrade but do not have the official
Fairtrade mark: this is actually stated on the diocesan
website.’vi
17. Deeply unethical sales techniques are used. ‘My former
secretary once said to me that her Brownie group was having a
competition to see how many cups of Fairtrade coffee they could
serve to family and friends. My own (then six-year-old) son was
told in Beavers about the benefits of Fairtrade coffee compared
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with coffee produced by nasty multinationals. My 12 year old
was told to design an advert for Fairtrade for his geography
homework. Young people are being used to promote a
trademarked brand. These issues are complex. If the people the
Fairtrade Foundation drag into the net in schools and Guide
and Scout groups do not have the maturity to understand the
issues fully, then, frankly, they are being brainwashed.’vii
18. The combination of innocent children marketing one’s brand
and providing them with incorrect information is an innovation
Fagin would drool at.
What do cafes, supermarkets, packers and
distributors do with the extra money they receive?
19. Consumers believe that if they pay more for a Fairtrade item,
the money will end up in the pockets of Third World farmers.
This is not the case. If they knew this they would believe that
they were being cheated.
20. The Fairtrade premium of 10c per pound is less than 1.5% of
the retail price of coffee.
21. Fairtrade does not know, nor apparently care, how much of the
extra price people pay for Fairtrade ends up with the farmers.
It does not monitor margins. A recent survey shows that
consumers were willing to pay an average of 14p a cup extra for
‘ethical’ coffee. A large chain of coffee shops in the UK was
charging 10 a cup extra for Fairtrade coffee. i.e. 60 – 90 times
the Fairtrade premium.viii Similarly, but less obviously, a lot of
retailers, including cafes, are advertising Fairtrade coffee, and
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are selling it at a premium price, making a higher profit per ton
of coffee, but are not passing on the additional margin. Even in
a supermarket selling both Fairtrade and normal coffee, it is
not possible for the consumer to determine how much extra is
charged for Fairtrade. Again it is probable that very little of the
additional margin is passed on.
22. Some distributors and retailers have felt that they were put
under overwhelming pressure to market a product that they
believed to be fraudulent.
23. Some distributors and retailers have felt that they were
threatened in unethical ways.
Added costs incurred by Traders, roasters, retailers
and cafes
24. There is a substantial cost to traders, roasters etc in
paperwork, monitoring etc. to ensure that only Fairtrade coffee
is labelled Fairtrade. There are further costs in advertising.
These are not made clear to the consumer, and do not appear to
have been identified.
25. The Fairtrade Foundation cannot monitor all possible fraud,
selling non-Fairtrade goods as Fairtrade. The costs of policing
the system would be prohibitive. An even larger bureaucracy
would be needed. Some frauds like a café selling one rather
than the other are impossible to police. This is a fundamental
design fault in the system.
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What is the cost of operating Fairtrade as a
proportion of the extra paid by consumers?
26. We get a clear statement of operating and administrative cost
from Oxfam. It is difficult to get it from Fairtrade. Virtually all
the income of Fairtrade goes in
a. Advertising (the so-called education)
b. Administration
c. Certification, both in the Third World and the west.
This suggests that most of the Fairtrade excess, fees plus
premium, may go on advertising and administration rather
than ending up in the Third World, compared with 11% of the
donation for Oxfam.
27. Fairtrade provides a lot of well paid jobs in rich countries.
These employees may benefit more than all the farmers put
together.
28. Fairtrade foundation’s operating costs come from
d. Fees from farmers
e. Fees from traders, roasters etc. (1.7% of their selling
price for coffee. C.f. the Fairtrade premium of 10c per
pound is less than 1.5% of British retail prices.)
f. Government donation
g. Other donations
What happens to the money between farm gate and
export?
29. Typically a good way to improve prices to all farmers in a
country, millions of them, is to reduce the marketing cost. It is
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often possible to halve the cost of a government marketing
chain or one using cooperatives. Halving costs may mean that
farmers get three or four times the net cash income. The
Fairtrade Foundation does not attempt to do this. It does not
attempt to do this even in the Fairtrade marketing system –
there are reports of corrupt and incompetent cooperatives. The
Fairtrade Foundation admits that it does not keep the relevant
information. It would be as expensive to do this for a small
group of Fairtrade farmers as for the country as a whole, so it is
prohibitively expensive.
30. Typically a good way to improve prices to all farmers in a
country is to monitor export earnings – is the price on a
western commodity market passed down to the exporting
organization and then to the farmer? The cost of doing this for a
country is much the same as doing this for the very small
Fairtrade movement. Fairtrade does not have this information,
31. Typically a good way to improve prices to all farmers in a
country is by agricultural price policy. This is beyond the
Fairtrade Foundation’s competence. It is very cheap.
32. Typically a good way to improve prices for a large number of
farmers in an industry is to improve the efficiency of marketing
organizations. This may involve investigation of corrupt and
inefficient firms and parastatals.
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The structure of Fairtrade makes corruption
inevitable
33. ‘Lead us not into temptation,’ is the first request of the Lord’s
Prayer. People who are totally honest themselves, who believe
that humanity is honest, keep their laptops next to their seat
when they travel by train, rather than leaving them with the
luggage at the end of the carriage.
34. The structure of Fairtrade makes it profitable and risk-free to
cheat. There are more incentives to cheat than there in normal
markets, and many more than there are in markets designed
by a competent market economist. Experience suggests that
when it is profitable and risk-free to cheat, corruption will be
rife.
35. Where there are subsidies, like the Fairtrade premium,
corruption can be expected.
36. A trader may approach a cooperative and say, ‘You are losing
money because you only sell 20% of your product as Fairtrade. I
will buy 30% of your product as Fairtrade. But you will have to
pay me half the extra price as a secret kickback.’ The manager
knows that if he refuses, someone else will take the contract. If
he refuses, the cooperative may go bankrupt. If he refuses some
of his members, or their children may die. Such kickback
arrangements are common in trade. They are even normal
where there is a subsidy.
37. Farmers, cooperative managers, traders, roasters, packers,
retailers and cafes may sell non-Fairtrade as Fairtrade.
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38. Packers or retailers may pack more than they have a licence
for, using non-Fairtrade coffee. Cafes may sell non-Fairtrade
coffee as Fairtrade.
39. Farmers and cooperative managers may fabricate evidence that
Fairtrade criteria have been met.
40. There is an incentive to solicit bribes from other members of
the chain who are cheating the system.
41. There is an incentive for inspectors, auditors and accountants
to solicit bribes from people who are cheating the system.
42. There is an incentive for people in the chain not to pass down
the Fairtrade premium to the farmer.
43. The cost and difficulty of monitoring makes this reasonably
safe.
44. An effective control system would be impossibly expensive.
45. From time to time, Fairtrade coffee will get a much higher price
than the free market price. There is no guarantee that each
cooperative will be able to sell the same amount of coffee as
normal, or the same proportion of the total Fairtrade market.
Corrupt means may be used to see that one cooperative rather
than the other gets orders. Similarly, benefits within one
cooperative may be passed to favoured individuals or subgroups.
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Intellectual Dishonesty
46. Intellectual dishonesty is more damaging than financial
dishonesty when we deal with the Third World. It kills.
Fairtrade’s ‘ethical criteria’ are abhorrent to millions
of people
47. The ethical criteria of Fairtrade are abhorrent to 24 million
coffee producers around the world. They think it is profoundly
unethical that they should be paid less, that their children
should die, in order to pay more to farmers who happen to be on
good terms with the Fairtrade buyers. They think it is
profoundly immoral that they and their friends, who are the
poorest people in the poorest countries in the world, should be
paid less to give more money to farmers in relatively rich
countries like Mexico and Costa Rica.
It is not ethical to confine high prices to cooperatives
48. Most people who go into Third World aid start with the belief
that cooperatives are a good thing. This belief lasts a year or
two. Experienced professionals will share their experience of
corrupt and incompetent cooperatives. In many countries we
are warned never to mention the word ‘Co-operatives’ as
farmers are hostile, having suffered from them in the past.
49. It should take half an hour to get a print-out of abstracts of all
the literature on agricultural cooperatives published in the last
50 years from CAB International (The Commonwealth
Agricultural Bureau). There are review articles from time to
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time. In general, cooperatives are very successful when they are
set up by rich commercial farmers for business reasons and
they employ professional managers. They are unsuccessful
when they are set up by or for small subsistence farmers – not
surprisingly subsistence farmers lack the management and
marketing training. These cooperatives are usually corrupt and
inefficient. When the cooperatives have a political or social
element, the position is particularly bad. It a matter for concern
that the Fairtrade Foundation launched a massive programme
without reading the literature.
50. Cooperatives may be successful when they are closely
monitored by an expensive professional, an expatriate perhaps.
The cost and effort involved is greater than that of getting a
government to make a major change which will benefit millions
of farmers. The benefit is negligible.
51. Field workers in one organization that is committed to small
scale cooperatives have stated that they tried to work with
Fairtrade cooperatives but found them so corrupt that they had
to move on to other cooperatives. Howley argues that the
farmer does not necessarily receive the price guaranteed by the
Fairtrade certifier.ix Newspaper reports confirm this.
52. It would be unacceptably expensive for the Fairtrade
Foundation to provide the detailed supervision and
management to make their cooperatives efficient and honest. It
is questionable whether this paternalistic approach is ethically
desirable.
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53. Cooperatives have received massive subsidies from
governments and donors over the last hundred years. These
have paid for investments in plant, machinery, storage, offices
etc. as well as training and hands-on administration. Whatever
cooperatives are achieving now is due to this investment, not to
anything Fairtrade has done.
54. Cooperatives fail because of the business practices of private
traders. Farmers prefer to sell to private traders because they
may get higher prices from them, payment in cash, honest
scales, and input credit, among other advantages. The traders
are usually able to provide these where cooperatives are not
because they are more efficient.
It is not ethical to insist on minimum wages
55. Minimum wages are arbitrary. In some countries they are set
low so that government can claim that everybody gets the
minimum wage. In others they are set high for prestige reasons
or as an aspiration, but not enforced. Inflation means that in
practice they are frequently very low indeed. It is unethical
that poor subsistence farmers on the verge of starvation should
be paid a lower wage because the government does not have
minimum wages.
56. Minimum wages are irrelevant to subsistence farmers who use
family labour, or farmers who use village labour on a
traditional basis, usually involving some reciprocation.
Subsistence farmers are at the bottom of the pile: they get the
residual after all other factors of production have taken their
cut.
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57. There are ethical problems in requiring farmers to pay
labourers a higher wage than family members earn.
58. There is no inspection or enforcement of the requirement to pay
seasonal labourers the minimum wage.
Child labour
59. Subsistence farmers use child labour. It is that or starve.
It is not ethical to concentrate Fairtrade on farmers
in richer countries
60. It has been stated that many or most Fairtrade farmers are in
relatively rich countries such as Mexico and Costa Rica. This is
unethical in the view of many people.
61. Fairtrade pays different prices in different countries, giving
higher prices in countries with higher cost of living and
production cost.x This means higher prices in rich countries.
(Their method of calculating cost of production shows an
ignorance of basic economics.) This is unethical in the view of
many people.
62. Some Fairtrade farmers are commercial farmers, plantation
owners, rather than subsistence farmers. They can afford the
membership fee, unlike small cooperatives. This is unethical in
the view of many people.
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63. The South African Fairtrade wine producers are precisely the
people whose produce we boycotted for 30 years.
It is not ethical to discriminate against some
producers, many of whom are the poorest in the world
64. Orthodox agricultural marketing and agricultural policy aims
at benefiting all farmers in a country equally. It is considered
unethical to give special favours to special groups. Fairtrade
aims at benefiting a small sub group, chosen on the basis that
they are friendly with a Fairtrade official.
It is not ethical to confine benefits to countries with
trade unions
65. Farmers in countries without trade unions cannot be Fairtrade.
They are discriminated against for reasons outside their
control.
66. Trade unions are irrelevant to subsistence farmers, who seldom
employ non family members, and who normally exchange
labour with neighbours.
67. Countries with effective agricultural trade unions are
extremely rare, which would suggest the criterion is
meaningless.
68. Trade unions in developing countries tend to be in skilled
trades or in industries like the mines. Their objective is to get
more money at the expense of non-unionized people, including
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farmers. In many countries the urgent task is to move money
from these people to the poor farmers.
The environmental impact of Fairtrade is not good.
69. Printing all that glossy, and misleading, advertising destroys
even more forest than the illegal cutting of rainforest by
Fairtrade farmers.
Fairtrade is a monopoly, which is unethical
70. Fairtrade is a successful attempt to get monopoly profits from
charitable people by market discrimination.
71. Fairtrade membership is a monopoly. Cooperatives are not
allowed to join just because they meet the criteria. They must
have a letter of intent from a committed buyer for Fairtrade
produce before they are allowed to join.
72. The bulk of the income of the Fairtrade organizations is spent
on protecting this monopoly, and preventing anyone else from
benefiting:
a. By advertising (disguised as education), whose main
thrust is to denigrate the marketing systems used by
competitors, even though many of these are ethically
superior to those of Fairtrade. The advertising also
denigrates competing producers who meet the Fairtrade
criteria but are not members, or who are selling some of
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their produce outside the Fairtrade system. This pushes
down demand, and reduces world prices for coffee.xi
b. By a certification scheme which excludes competitors,
even competitors who meet all the Fairtrade criteria.
73. The staff of the Fairtrade organizations benefit significantly,
with comfortable, safe jobs at a salary Third World farmers
could not imagine.
Fairtrade pushes down prices to most farmers,
particularly the poorest.
74. The overproduction argument depends on the assumption that
the Fairtrade system is working well and is achieving its
objectives as claimed. To the extent that it fails the harm is
lessened.
In the 1980s there was an International Coffee Agreement
which kept world prices high and stable by restricting production
and controlling stocks. Then in 1988 I did a job for the UN in
Vietnam, which had produced virtually no coffee before the war. I
discovered that they had a very secret coffee industry plan and
were paying farmers well above the world price. The plan was so
secret that they did not know what they had achieved. They were
surprised and delighted to hear that they would be the second
biggest producer in the world when the trees they had already
planted came into full bearing over the next six years. They were
shocked to hear that there was an ICA and that they would not be
able to sell their coffee because they were not members.
In fact the ICA collapsed immediately after this, so Vietnam
was able to sell its crop, and over the next few years the world
wholesale price halved, falling by more than 50c per lb. And
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because coffee trees last 25 years, the effects are still being felt
today.
As total world production rose five to ten percent, the
robusta price halved. Our demand for coffee is pretty fixed, and we
do not by any means double consumption as prices halve. A fall of
50c a pound in our supermarkets is a hardly noticeable 5 or 6%,
and has little effect on sales, but a 50c drop in farm gate prices is
devastating to farmers. Nearly all the costs of coffee are fixed –
procurement, processing, packing and transport to Europe,
roasting, advertising, distribution and retailing – so the 50c fall in
price is passed on to the farmer. And for most farmers in most
years a 50c fall in price would mean destitution.
The Fair Trade brand is doing just what Vietnam did,
paying a selected group well over the world price. They pay the
Fair Trade farmers the world price plus 10c. This ten cents could
mean a doubling or trebling of the farmers’ net cash income, so we
can expect them to increase plantings as fast as possible, just as
the Vietnamese did. At first, this appears to have no effect on
world price, as it takes six years for their trees to come into full
bearing. When the new production hits the market, we can expect
a price fall of a lot more than 10c, so all farmers suffer.
This is not just a matter of paying one lot of farmers a little
more and paying an equivalent number of others a little less. It is
a matter of paying 25 million farm families around the world a lot
less. Most of them are subsistence producers, who grow the food
they eat, and get a tiny cash income from coffee. The fall in income
means that children die from malnutrition or malaria.
And it is the poorest farmers who are hit hardest, those who
get the lowest farm gate price because of expensive marketing
systems or export taxes.
But it gets worse. When world prices collapse because of
overproduction, the Fair Trade brand pays a minimum price,
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currently $1.01 per pound for Robustas fob New York. This is
substantial: the International Coffee Organization reports a free
market price below this 60% of the time, so in effect the Fair Trade
farmers are getting an extra 24c over and above the 10c already
mentioned. And they do not have the risk that other farmers do. So
they carry on planting at a time when other farmers are getting so
little that they chop down their trees or let them revert to jungle.
And again, it is the poorest farmers in the world who suffer
most.
Most of the advertising for the Fair Trade brand suggests,
wrongly, that the system helps the Third World. It has pictures of
Sancho Panza and Adam Chibowa smiling, and saying something
heartwarming about what Fairtrade is doing for them.
It does not have pictures of Foday and Mary Kamara
burying their four-year old daughter and saying,
‘Is it fair that we should be paid less, that our darling baby
girl should die, so that whitemen can pay higher prices to their
friends in the Fairtrade cooperatives?
‘Is it fair that we and our friends, who are the poorest people
in the poorest country in the world, should be paid less so that
farmers in rich countries like Mexico and Costa Rica can be paid
more?’
Fairtrade reduces the demand for coffee
75. Fairtrade’s policy is to denigrate all other coffee, and to sell its
own as the only one it is ethical to buy. As a result, people avoid
drinking coffee that may have been marketed with a different
trade mark. This has the effect of cutting demand for coffee,
which reduces world prices. Is it purely coincidence that
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demand has fallen in many western countries over just the
period of Fairtrade and Bitter Harvest publicity?xii
76. One example of this is that sellers of expensive coffee, who pay
very high prices to producers, are losing trade to Fairtrade
coffee, which pays much lower prices to producers.
77. Fairtrade’s marketing, which suggests that anything that does
not have the Fairtrade brand is not ethically marketed, and
that all other marketing systems reduce prices to 24 million
farm families.
Fairtrade is discriminatory
78. Fairtrade membership is not open to all organizations that
meet the Fairtrade criteria. ‘ Would-be Fairtrade producers
report being told that they can only become Fairtrade-certified
if they bring a buyer with them.’xiii Many people would consider
this unethical.
79. Small cooperatives in the very poor countries cannot afford
Fairtrade membership and inspection fees.
Do training and aid projects help anyone at all?
80. Fairtrade has a range of training and other interventions. It is
not clear whether they are paid for out of the Fairtrade
premium.
a. There has been enormous investment in cooperative
training over the last century or more. This has not led
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to an efficient and honest agricultural marketing
cooperative sector. It has been wasted. The assumption
must be that any training by Fairtrade will be at least as
ineffective.
b. The main international development agencies use top
professionals for such interventions, and they are
professionally monitored and evaluated. Their costs will
be much lower, providing the services to everyone in a
country, rather than to a small number of cooperatives in
one country. Without evidence to the contrary, it should
be assumed that Fairtrade is doing a worse job at higher
price per person contacted.
c. Even so the failure rate is high. The development
agencies would reject at least 9 out of 10 proposals,
because in their experience they will not work. 9 out of
10 of those that pass the initial weeding out and are
implemented fail the test of ‘Would it have been more
productive to drive through the villages chucking the
money out of the windows?’ and few survive the test of
‘Why don’t the donors just write 40 cheques on 1st
January, and send them to the governments of the
poorest countries?
d. Without evidence to the contrary, it should be assumed
that farmers would prefer cash to any NGO project.
Monitoring and Evaluation
81. Starbucks’ corporate social responsibility report publishes
details of the number of suppliers who failed to meet its
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standards, even though these are necessarily embarrassing to
the firm. It is not clear that Fairtrade does this.
82. It is not clear that there is any enforcement.
‘The most high-profile examples included the Rain Forest Alliance, Utz Kapeh (at
Ahold supermarkets), and the Common Code for Coffee. However, it is important that
consumers realize that these labels are not analogous with Fairtrade and that the latter is
the only market-driven mechanism that offers real positive impacts for disenfranchised
producers.’ Alex Nicholls
http://www.fairtrade.org.uk/includes/documents/cm_docs/2008/a/alex_nichols.pdf
ii Nichols, Alex, ‘Thriving in a hostile environment: Fairtrade’s role as a positive
market mechanism for disadvantaged producers.’
http://www.fairtrade.org.uk/includes/documents/cm_docs/2008/a/alex_nichols.pdf
iii IEED (International Institute for Environment and Development) 2000 ‘Fair
Trade: Overview, impact, challenges.’ Unpublished paper prepared for DFID. Quoted in
Raynolds.
iv Quoted in Berndt.
v Berndt.
vi Philip Booth, The Economics of Fairtrade: a Christian perspective.
http://www.iea.org.uk/record.jsp?type=book&ID=437
vii Philip Booth http://www.iea.org.uk/record.jsp?type=book&ID=437
viii This chain stopped doing this the moment I started asking them awkward
questions about it. Note that it was me, not Fairtrade that threatened to blow the whistle
on them.
ix Howley, (2006) ‘Absolution in Your Cup: the real meaning of Fairtrade coffee,’
Reason, March 2006 pp 41-48
x Alex Nicholls op.cit. p10
xi E.g. ‘Recently a number of competing ‘ethical’ labels have emerged to challenge
Fairtrade certification in such product groups as coffee and tea. The most high-profile
examples included the Rain Forest Alliance, Utz Kapeh (at Ahold supermarkets), and the
Common Code for Coffee. However, it is important that consumers realize that these labels
are not analogous with Fairtrade and that the latter is the only market-driven mechanism
that offers real positive impacts for disenfranchised producers.’ Alex Nicholls op.cit.
i
xii ICO Price-elasticity of demand and coffee consumption in importing countries
2004
“A comparison of average per capita consumption figures for the period 1990-1993
with those for the period 2000-2003, representing an interval of ten years (Table 2b), shows
that per capita consumption fell in the following 11 countries: Austria, Denmark, Finland,
France, Germany, the Netherlands, Norway, Sweden, Switzerland, United Kingdom, and
the USA. In ten years, per capita consumption fell by 4.74% in importing countries as a
whole.” Prices remained low over the period.
xiii Colleen Berndt, Is Fairtrade in Coffee Production Fair and Useful? –
Evidence from Costa Rica and Guatemala and Implications for Policy. George
Mason University. http://www.chaight.com/Research.htm [now Colleen Haight].
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