Fair Trade: from oppressed to oppressors?

Fairtrade accused of failing to deliver benefits to African farmworkers screams the Guardian headline. Alright, the headline doesn’t exactly scream, but if they can use journalistic clichés then so can I. Either way it’s certainly not good news for Fair Trade.*

So where’s that precious premium going, then, you might ask? Why into the hands of that holy grail of much development aid: the “rural capitalist” smallholder. That terminology comes from the conclusions of the the DFID-commissioned SOAS report behind the headline. That conclusion, however, switches the quotation marks, putting quotes around “smallholder” (presumably on the basis that are not all farmers so classified have operations that are especially small) and not around “rural capitalist”. It is an interesting indicator of possible cognitive bias.

But a premium for smallholder farmers is exactly what I always thought was the main point to Fair Trade, so what’s the problem? I see a whole raft of issues bundled up here, not all of which necessarily reflect badly on Fair Trade, but which nonetheless do lead to some uncomfortable questions about where now.

  1. Have FLO and their brethren just become too successful for their own good? The bigger you are, the harder it is to maintain the highest standards everywhere. Especially when you are relying on economies of scale to make the business proposition feasible.
  2. The myth of the noble peasant. I suspect most people in FLO know it’s nonsense, but their marketing plays right up to it.
  3. Even if they knew the myth is codswallop, how much did FLO, its senior people and backers, know about the high prevalence of wage labour in some of their agricultural producer sectors? Not much presumably because the report claims to demolish another myth: that “very little wage employment has been created by smallholders in Africa.” One might suggest that, given their business, FLO ought to have understood better, but it seems the failing might be rather more widespread than just the FLO.
  4. Who better to hold down the wages of casual labourers than people living in the same village, who know exactly how much work you can extract from someone for a few shillings, and know exactly how desperate their fellow villagers are for work?
  5. Lots of aid projects try to stimulate rural capitalists. Why? Because every project needs to identify local leaders and other agents of change: local entrepreneurs are highly prized. (Who do you think all those micro-financiers are lending to?) Plus, other things being equal, a greater proportion of profits earned by such people is likely to stay in and circulate within their communities. Newly minted capitalists may spot other business opportunities in their communities, and invest, which would be missed entirely by outsiders. Conversely, it is hard to design economic development projects that specifically benefit the poorest of the poor that aren’t either incredibly expensive or just hand-outs in disguise.
  6. What’s the counterfactual? According to the report many of these labourers are amongst the very poorest in local society, and often disadvantaged for other reasons. Maybe they struggle to get employment on other farms with better wages and employment conditions? They might be no better off as a result of Fair Trade, but it seems hard to argue they are any worse off.
  7. All of which might suggest a storm in a teacup were it not for the fact that the Fair Trade Foundation say fair trade is “about better prices, decent working conditions, local sustainability and fair terms of trade for farmers and workers in the developing world” (my emphasis added). Whoops! Did they over-reach?

So what now? The report contains a whole raft of recommendations for fair trade organisations, donors and governments, and yet many of these recommendations, especially to the latter groups, the authors themselves acknowledge are highly difficult if not downright infeasible to implement in the setting of smallholder agriculture. For FLO they include a bunch of technical corrections which may help to a degree, but which will probably also make the whole Fair Trade standard that much more complicated, and therefore more intimidating to smallholders.

The authors also suggest fair trade organisations should invest more in research (now there’s a surprise coming from a bunch of professional researchers!), and better monitoring. However, where will the money come from? The report implies where it thinks there is some fat that could be trimmed:

“These recommendations are unlikely to be welcomed by Fairtrade organisations, or by the supermarkets that profit from the important public relations and product differentiation opportunities that certified products provide.”

And so we’re back to one of the main criticisms of fair trade over the years: a great proportion of the consumer product price premium stays with supermarkets, and only a very small proportion makes its way back to the farmers. As indeed is true for the non-premium bit of the price. The trouble with much fair trade labelling, alas, is that it implies that this normal law of economics is somehow reversed in the case of the price premium on fair trade labelled products.

Would fair trade work without those excess profits for supermarkets? I know too little to tell, but one has to guess that market penetration would surely be lower if it were less profitable for the supermarkets, and so, at the very least, there is a trade-off that fair trade organisations need to weigh up.

Ultimately, the bigger problem seems to be the question: can fair trade live up to all its claims reliably on a tiny slice of the product price? If fair trade organisations take a bigger slice how ethical will that be judged? Do we view this as money taken from the consumers (who are paying more) or from the producers (who could receive more if the fair trade organisations’ slice was smaller)? Fair traders have a real problem any time the debate shifts towards the latter consideration.

Many economists think the basic premise behind ‘fair trade’, namely paying a higher price than you have to, is just plain poppycock. But the many achievements of the fair trade movement to date suggest that its rationale is no more poppycock than assumptions of rational economic decision makers, and indeed that it fits very well that gap between theory and reality. The problem is that those assumptions of economic theory work well enough in so many other cases to suggest the gap (and thus its market value) is quite thin.

That does not bode so well for fair trade, but I would not write off the power of human willing self-delusion so quickly. Yes we might all be better off buying the cheaper coffee and then sponsoring a child, but consumers like to think they are doing good when they buy ethically labelled products. It’s part of the modern feel-good sales pitch. If someone is going to trade off that, better they have the moral intentions of the FLO and its peers. The next time I have the option, I’ll probably choose to buy fair trade. There are far worse ways to indulge oneself in this world.

* The Fair Trade Foundation have their own response alleging some methodological flaws in the study. Through the grape vine I gather the researchers are pushing back strongly. I am not in a position to judge how serious is the flaw nor how significantly it might affect the final conclusions.

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5 responses to this post.

  1. Posted by am on May 29, 2014 at 5:33 pm

    I referred to this post on Blattman. I apologise for not asking for permission.

    The point about agricultural workers is difficult. In low yielding fields the pay always becomes a percentage of what is harvested. If a person is hired to do cultivation which is only a small part of crop production then not much pay will be given. Where the person is permanently hired or for more than piece jobs then some arrangements can be made. E.g. a herder of cattle can get $50 a month which seems very little but quite a few calves are needed to pay for it. But I don’t know what the profits are on a fair trade field.

    Pressure can be put on supermarkets but British dairy producers haven’t had much joy against them so I don’t see how anyone else will. Supermarkets always have the advantage of saying to their supplier go and sell it to someone else then. There are a number of companies who went bust as a result.

    Reply

    • No permission required! Especially not for a complementary comment like that, promoting this blog. But negative comments equally allowed; all is fair in love and war … and blogging! Cheers, MJ

      ps. I quite agree that trying to pressurise supermarkets is a mug’s game.

      Reply

  2. Somebody is perpetrating an act of *capitalism* in a poor country?!!?? TO THE BARRICADES!! The Guardianistas demand development, except OF THE TYPE THAT LEAVES EVERYONE EXACTLY AS POOR AS THEY WERE BEFORE!!

    OK, ok, I’m being hysterical, but you see my point: the problem is that Guardian readers think they can upturn the basic structure of capitalism by switching the brand of coffee they pick at the store. This is narcissistic and ridiculous. Only someone terminally divorced from reality could be surprised that people with the resources to pursue a market orientation in a very poor setting (e.g., “rural capitalists”, a.k.a., the kulaks, c.f., off with their heads) would capture the bulk of the local rents from Fair Trade.

    #FFS

    Reply

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