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Part of the argument in favour of Fair Trade coffee as espoused by Owen: Of the 2 pounds that you pay for a normal cappucino in London, the coffee producer may earn about 5p. The farmer is getting 2.5% of

The article is about the problem of defending the principles of Fair Trade when the big boys with disproportionate economic muscle choose to come on board.

Felicity Lawrence confuses the issue in her article by suggesting at a couple of points that Fair Trade is an issue that concerns mainly small peasant farmers and their crops. (Just to be clear, I’m using the term “Fair Trade” to refer to the general issue and “Fairtrade” to refer to the certification procedure and mark administered by the Fairtrade Foundation).

As a longstanding Fair Trade campaigner I’ve always been aware that that the Fairtrade Foundation’s certification criteria also deal with conditions of employment such as compliance with health and safety legislation, adequate housing provision, and educational provision for workers’ children on Fairtrade tea plantations, for example.

Felicity Lawrence considers the working conditions of the labour force employed by the two certified flower growers in Kenya. She acknowledges that the conditions they complained of – excessive hours, casual contracts, poor housing, dangerous transport conditions and sexual harassment – have improved dramatically. However there is still a problem with compulsory overtime, particularly around periods of peak demand in western markets such as Mother’s Day – according to Lawrence the Fairtrade Foundation accepts that this issue is a problem.

The aim of the Fair Trade movement as I understandd it is not simply to secure gains for what must ultimately be a minority of producers and workers supplying specialist brands. The long-term objective has always been to encourage major retailers, on the basis of the evidence of consumer support for ethical trading, to incorporate Fair Trade principles into their general purchasing arrangements.

In March 2004 Tesco secured a lot of publicity for their inclusion of the UK’s first ever Fairtrade flowers in a new own-label range guaranteeing “a better deal for small producers in the developing world”. Tesco’s intention to become the “biggest seller of Fairtrade products in the UK” suggests that the success of Fairtrade-certified products has convinced them that the level of demand is sufficiently high to justify this policy commitment.

However for Lawrence “the rose marks a turning point, a diversion down a road which, for the first time, I do not want to travel”. She sees the Fair Trade movement as facing the same dilemma that the organic movement had to face 10 years ago. When the supermarkets took on board the profitability of sales of organic products organic producers found themselves increasingly squeezed as supermarkets used their buying power to force down prices and through loss-leading promotion undermine the market price for organic milk.

Cut flowers are a very profitable business for supermarkets. The problem for growers is that supermarkets leave it to the last minute to confirm the volume of their orders, making it difficult to plan production effectively, hence the imposition of compulsory overtime.

So can the integrity of Fair Trade principles, involving respect for ILO labour conventions, national labour legislation, etc., be guaranteed if the demands of the big supermarkets conflict with some of those principles? That issue, Felicity Lawrence appears to be arguing, is exemplified by Tesco’s Fairtrade flowers.

A comment from the Fairtrade Foundation might be more enlightening than my rather amateur interpretation of the situation but of course since it’s Fairtrade Fortnight at the moment their shoestring staff are stretched beyond the capacity to respond – as I’ve found when trying to order some additional materials.

Finally, there’s another issue for the ethical consumer to consider as far as developing-country Fairtrade flowers are concerned – can the environmental cost of airfreighting flowers in to meet irregular peaks of demand in developed country markets be justified? As I see it this is a very minor aspect of a larger problem demanding remedial action at a global level.

All the best

Owen Beith (hope a contribution from another Owen B doesn’t bring too much confusion to the discussion)

I really don’t get the point being made here, cannot quite understand why Fair Trade coffee and chocloate are OK but Fair Trade flowers not:So I will still buy my Fairtrade coffee and bananas, knowing that my premium can help

I think we can agree that coffee is not a Giffen good.

If I understood it correctly, Alex Singleton’s argument was that Fair Trade increases the supply of coffee, and so reduces the world price.

And if I understand your point correctly, you are saying the exact opposite: Fair Trade increases the price of coffee, and so reduces the quantity sold.

Clearly, these critiques cannot both be true. Actually, i think neither is right.

In simple aggregate terms, fair trade shifts the demand curve outwards, increasing both the quantity sold and and the average price (with upward sloping supply curves). A more sophisticated version would be that fair trade creates product and price differentiation, and so allows coffee producers to capture a greater share of consumer surplus, increasing the average price of coffee. (The reason that both prices and quantities increase is that this is a shift in the demand curve, not a movement along it.)

The way to think of this is that Fair Trade is a brand. When Coca Cola invests in increasing its brand value, eg through advertising, it does so because this increases both the volume of sales, and the price it can charge. I don’t think anyone at Coke complains that increasing the price they can charge for Coke makes them worse off. And though Coke’s competitors may lose market share, it is unlikely that the price of other colas falls when the price of Coke goes up (more likely, the opposite is true).

So uncertified producers may lose, as a result of a small lost of market share and possibly slightly lower prices, though at current fair trade volumes these effects will be small. But for coffee producers overall, average coffee prices will be higher, volumes higher, and coffee producers better off.

Owen

On your point about the coffee price: given that one of the Adam Smith Institute’s other points is that the demand for Fair Trade coffee is very small, it is hard to see how fair trade would have any effect at all on the price of uncertified coffee. However, you are right: the price of uncertified coffee could, in principle, go down.

But the average price for all coffee – including certified and uncertified coffee – cannot possibly go down – it must go up, or stay the same. So I stand by my statement that it is economic nonsense to claim that fair trade depresses the world price of coffee.

On your first point, about activist students giving the issue prominence: would you – or would the Adam Smith Institute – condemn the work of the advertising industry because it gives “prominence” to products available for consumers and seeks to persuade them to buy one rather than another? If not, why are student activists who seek to persuade people to choose fair trade any different? In the end, it is still the consumers’ choice.

This statement is just plain wrong

“More importantly, it is economic nonsense to suggest that for consumers to be willing to pay more for coffee, in order to ensure a proper return for the producers, can somehow depress the world price of coffee.”

If a buyer is removed from the pool of buyers of uncertified coffee(by the action of buying certified coffee), ceteris paribus, there is less demand for uncertified coffee. Hence the price for uncertified coffee (i.e. the world price of coffee) goes down.

That is economics at its most basic, so it was incredibly rude and ill-informed of you to criticize the Adam Smith Institute for progagating “economic nonsense.” It’s actually rather ironic too, as such simple economic truth seems to escape your own conceptual grasp.

Jim