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 don?t 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 ?fair trade? label and other people want to buy it, I?m 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 don?t 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.