Fair Trade Coffee, Again

Michael Giberson

Peter Singer posts a short piece, “Why pay more for fairness?“, critical of the views of Cato Institute’s Brink Lindsay on Fair Trade coffee. Lindsay responds at Cato@Liberty.

Lindsay quotes Singer saying:

Pro-market economists donít object to corporations that blatantly use snob appeal to promote their products…. So why be critical when consumers choose to pay $12 for a pound of coffee that they know has been grown without toxic chemicals, under shade trees that help birds to survive, by farmers who can now afford to feed and educate their children?

Lindsay responds:

I agree! If people want to produce and market coffee under a ďfair tradeĒ label and other people want to buy it, Iím all for it. Far be it from a libertarian to speak ill of capitalist acts between consenting adults.

Me too! Lindsay’s views, first expressed in a May 2003 report, are similar to those I expressed in my posts “Taking Advantage of the Fair Trade Buzz” and “Rewarding Small Producers for Quality Coffee.”

One issue highlighted in my posts that Lindsay doesn’t mention is the susceptibility of the fair trade system to a loss of trust. When consumers discover how little of the premium they pay actually reaches the coffee farmers, and how much of the fair trade premium goes to retailers, wholesalers, and the fair trade certifiers themselves, there is a potential anti-Fair Trade backlash. (Of course, fair trade organizations donít set retail prices, and may not be to blame if consumers have unrealistic expectations about how much of their money actually benefits coffee farmers.) See Tim Hartford’s discussion in The Undercover Economist for more on the issue.

Specialty coffee offers a simpler deal to consumers: try it — if you find it worth the premium, buy it again; if not, don’t. Of course, the approach places additional risks on farmers who invest in producing higher quality products without a guaranteed better price. Success here, as in other consumer-oriented endeavors, comes from pleasing a sometimes fickle public. Developing contractual relationships with specialty distributors can serve to mitigate the additional risks faced by producers and help channel information about consumer tastes back to the producer.

Note another difference. As the supply of producers seeking to produce fair trade coffee outstrips the demand for fair trade coffee (this seems to increasingly be the case), producers who want to capture the implicit surplus in effect compete against each other to better satisfy the ideals of the fair trade certification organizations. The danger here seems akin to the regulated company that caters more earnestly to the views expressed by the regulators overseeing the industry than to the needs of the company’s potential customers.


4 thoughts on “Fair Trade Coffee, Again

  1. I find Fair Trade Coffee to be one of the great externalities in modern economics. The Social Justice movement within the Catholic Church has hit on Fair Trade Coffee as a multi-year development project. Some of the wildest left-winger in the USA now keep themselves busy with tasty coffee, rather than trying to confiscate houses, condemning hard work, and demanding poverty.

    JBP

  2. Hey Mike — Been reading through your older posts on fair trade coffee — nice stuff ūüôā I too agree that improving quality is key. However, I think that fair trade’s conducive in that end.

    A lot of the reason why gross coffee’s gross is because many farmers 1) don’t drink coffee themselves, and thus aren’t taste connoseurs, 2) lack education about how quality coffee’s produced and 3) lack the resources to produce quality coffee. For ex, a farmer may not know that picking coffee cherries early will make their coffee taste really crappy and unprofitable — and also have immediate financial pressure that encourage them to pick their crops early.

    Moreover, the way conventional channels are set up, there are coffee farmers who grow excellent coffee — but without the knowledge of its worth — end up selling it for dirt cheap to middlemen who take all the profit.

    Fair trade tries to put a more direct connection between the consumer and producer. While a lot of people equate the fair trade label with a simple price guarantee, a lot of fair trade’s about education and empowerment. I’m of the opinion that for many producers, unless there’s a tangible pre-harvest guarantee of better prices, it’ll be difficult to take the leap into producing quality coffee that may be more difficult to grow and give a smaller (albeit higher quality) yield —

  3. Yes, fair trade should be conducive to better quality. In particular, when consumer-region coffee roasters and distributors get more directly involved in producer-region development, information on how to produce coffee better suited to consumer tastes gets to farmers and the price potential provides the incentive. As you note, often this information is known to middlemen but not the producer.

    I shouldn’t discount the value of a tangible guarentee of better prices. In the U.S. tobacco context, over the period 2000-2004, the majority of tobacco growers (at least for cigarette tobaccos) opted to enter into contracts directly with tobacco companies rather than selling though the traditional tobacco auction system. One advantage of the contracts is that they provide specific premiums for delivering higher quality crops. Tobacco companies had claimed that they couldn’t get enough high quality tobacco through the auctions and it is possible that growers were not willing to engage in the additional expense of growing high quality tobacco in the absence of a certain price premium (i.e. entirely at the growers own risk). Could be a similar dynamic with coffee growers.

  4. I meant to make a slightly off-point remark in conjunction with libertarians’ (and free market conservatives) reactions to fair trade coffee. I think often many of these folks seem to react negatively to “fair trade” simply because of the way it is marketed and the ideological baggage that often is associated with the fair trade movement.

    I think most libertarians would agree, along with Brink Lindsay, that so long a we are dealing with consenting adults up and down the trade of chain, that “fair trade” coffee is just another avenue for conspicuous consumption and one of the millions of variations on capitalism and globalisation. Sure, it may disguise itself as something more akin to international trade managed by left-wing bureaucrats, but that’s just the outside wrapper.

    I’m not saying that fair trade money used, say, to build schools in coffee producing areas is just window dressing. It is all a part of the plentiful world of choices that capitalism offers.

    (After all, if international trade in coffee was managed by left-wind bureaucrats, instead of “fair trade” we would likely end up with large-scale government sanctioned coffee grower cooperatives forced to market through government-owned commodity marketing boards. (Oh wait, did I just describe the system employed in much of Africa? Is it any surprise that fair trade coffee seems to flourish more in Central and South America than in the continent that was the birthplace of coffee?) But I digress…)

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