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12.9.03

Fair trade fallacies

Poor Substitutes

Fair trade activists aim to change that and get the story of how goods are made to consumers. So they certify foods as "organic" or "fairly traded" and forests as "sustainably managed." It turns out that most "fairly traded" items are low value commodities like coffee, tea, cocoa, and sugar.

In theory, there is nothing wrong with enticing consumers with such information, so long as such certifications are private and voluntary. But positive claims that a product is fairly traded can easily be interpreted as saying that competing products are unfairly traded. And what subjective standards should apply? For example, should purchasers be allowed to discriminate in favor of products "Made in America" on the basis that US labor laws are allegedly better than those of Russia or Brazil?

... The low prices in the market place are signaling to the poor producers that they should get out of growing low value commodities and produce something more valuable. The fair traders are also telling the poor producers that they can maintain their traditional ways of life.


The claim that fair trade labels implicitly badmouth non-fair-trade products is a reprisal of Monsanto's similar argument against labeling products as non-hormone. As in that case, the logic being used would equally ban any positive statements about a product.

The comment about the dangers of allowing customers to discriminate based on production process is strange coming from a libertarian magazine like Reason. Customer choice is the engine that makes the market work. So I'm not sure how restricting consumer access to information for the benefit of producers helps society. When you buy a product, you're buying everything the company produces -- both the stuff in the box and the externalities of the production process. So buying a product based on the "allegedly better" labor laws of the producing country is no different from buying it based on the "allegedly better" health benefits of the artificial sweetener in the product.

The argument about free trade distorting price signals also seems off base. It could apply if prices were being raised by fiat -- if, for example, a country mandated a certain minimum "socially just" price to be paid to coffee growers. In that case, the price being paid would not match the value of the product (though the discrepancy could be justified by other factors). However, what fair trade does is raise the value of the product. The buyers and consumers are willing to pay more for the product because of the "externalities" that are bundled with it, just like the value of the product would be raised if buyers decided they were willing to pay more for a higher-quality product. So instead of low prices for, say, ordinary coffee pushing farmers into higher-paying cocaine, it has pushed them into higher-paying fair trade coffee.

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