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Monthly Archives: December 2009

Why an Independent Investigation of Fairtrade is Needed

Right folks, this is more than a little inflammatory, but worth I read. Finally, someone who is more outspoken than me!! I have to state *I did not write this* and I do not agree with all of it. I found this during research for my thesis chapter, but this is nothing to do with the University of Sheffield or Doctor Coffee’s Cafe. But for the sake of argument, read on….

This is the html version of the file http://www.griffithsspeaker.com/InvestigateFT.doc.
Google automatically generates html versions of documents as we crawl the web.

      Why an independent investigation of Fairtrade is needed

Submission to Dragons’ Den
 

Start a charity. Print millions of pictures of starving children, and say how you will stop this.

Collect the money.

Spend one percent on doing up a couple of villages. Take photographs, videos. Write lots of stories and press releases.

Drive round the bush and video anyone photogenic telling you how wonderful GrabbitAid is: for a fiver they will say anything. Photograph any new schools, etc you come across.

Spend 30 per cent on advertising, telling donors that they are wonderful caring people who are doing everything they can for the Third World.

Say that you are helping Third World farmers. (True, a dozen or two.)

Keep perfect accounts within the UK, until the money leaves for a Third World bank on its way to a tax haven. Get suitable accounts prepared there. Any discrepancies can be explained away as mistakes by the ill-educated small farmers you are helping.

There is no possibility that the police will investigate: they are not investigating our banking system.

The press will not publish articles that will offend their readers who now consider themselves warm, sharing people doing everything they can to help the Third World.

If anyone asks questions refer them to your web site.

If, somehow, any criticisms get into print,

         1. Ignore them
         2. Ridicule them
         3. Make ad hominem responses, ridiculing the critic
         4. Produce anecdotes about your model villages, stories told by Sancho Panza or Adam Chibowa. Never produce overall statistics.
         5. Say, quite correctly, that you are helping farmers in the Third World, but do not mention that you are only helping two dozen.
         6. Produce incorrect facts
         7. Demand that critics produce evidence, facts that only you could have – if indeed any of your income was going to the Third World.

 

The only risk is that some busybody starts asking awkward questions, and that some of the volunteers who are collecting for GrabbitAid feel that they owe their duty to the people of the Third World, rather than to your organization.
      Duty to provide information
 

      It follows from this that any charity has an absolute duty to provide information. Hard information is required, facts and figures, not some waffle on a web site.

      Any charity has an absolute duty to respond to enquiries as to how they operate and how they are achieving their goals. It has an absolute duty to respond to any suggestion that its design or operation may be ineffective, or actually harmful.

      The response should be based on hard evidence and hard analysis. It should at least reach the standard of an academic paper – we are talking of people’s lives here.

      It must be a presumption that any organization that answers queries and concerns with a couple of sentences or a reference to a web site is trying to hide something.
      AN INVESTIGATION OF FAIRTRADE1
 

      An independent investigation of Fairtrade should investigate hypotheses. The hypotheses presented here are hypotheses which have been put forward by a range of people. Some of them have strong theoretical and evidential bases. Others have limited evidential bases because the organizations dealing with Fairtrade cannot or will not produce evidence which should be readily available from any organization soliciting public money. Some hypotheses will be rejected or considered unimportant when evidence becomes available and is properly analysed. They all raise questions that are important, and should be answered. The investigation should be carried out by people who have experience of investigating Third World marketing systems and marketing organizations, who are competent in marketing economics and, most particularly, who will tell the truth.

      This justification is drawn up by someone who has spent his career getting better prices for farmers, and who has prevented the odd famine along the way.
      ALTERNATIVES
 

         1. Most of the issues and hypotheses set out here apply to Fairtrade and not to alternatives. Very few would apply to a donation to Oxfam for instance, and of those that do, such as ‘What proportion of my donation is spent on administration within the UK?’, answers are readily found on the Oxfam website [11% is spent on support and running costs.]

 

         2. Similarly, Fairtrade is at pains to distinguish itself from other ‘ethical trading organizations’ and it has been suggested that Fairtrade is hostile to its competitors.1 This implies that many of the issues raised here do not apply to all ‘ethical trading’.

 

         3. There are alternatives which avoid virtually all these issues. For example, coffee companies like Nescafe and Kenco could put a receipt for 50p on a pound of coffee, with the money going direct to a charity which puts money straight into the Third World.

      SOME HYPOTHESES
      Fairtrade diverts resources from the big issues
 

         1. Fairtrade is very effective in making rich westerners feel that they are warm caring people who are doing everything they can for the Third World.

 

               1. This means that these people think they have done their bit, and everything is under control. They do not, for instance, demand action on Trade Justice and the WTO.
               2. Governments see that everyone has a warm glow, and do not feel it is necessary to take action on the Third World.

 

         2. The enormous amount of energy, enthusiasm, passion, effort and emotional energy going into Fairtrade means that this is not available for other development activities that would achieve far more. If the impact per person hour (or unit of enthusiasm, passion, etc.) is higher elsewhere, then Fairtrade is damaging our efforts to Make Poverty History.

      The impact that Fairtrade claims to have made is tiny
 

         3. The impact that Fairtrade claims to have made is tiny It is claimed that up to 1.5 million farmers have had been paid a higher price for just one of perhaps a dozen crops produced on a farm, coffee say. The higher price is paid only on a proportion of their sales of coffee (in fact only 20-40% of the turnover of these farmers was sold as Fairtrade, and in some cases they got no premium for it).  ‘In 2002, FLO estimated the income benefit to Fairtrade coffee, tea, cocoa, sugar, rice, fruit, honey and juice producers at £21m, of which £17m was attributable to sales of Fairtrade certified coffee.’2 This is miniscule in relation to the sums of money we talk of in aid.

 

         4. There are well established aid projects which expect to do more than this routinely, at a tiny fraction of the cost. A single short term consultancy by a marketing economist working in the Third World can make a bigger impact than the whole of the Fairtrade movement, doubling the cash income of a very large number of farmers. Examples of consultancies which have had such an impact include halving the marketing cost for a commodity in one country (a six months consultancy), ensuring that a million farmers were paid a price based on current exchange rates not two-year old exchange rates (2 ½ month consultancy), showing that 40% of the export value of a commodity was being stolen (1 month), completely redesigning a country’s agricultural policy – so affecting the prices of all crops produced by four million farmers(4 months).

      What, exactly, do farmers get?
 

         5. Fairtrade cannot answer the first and most important question anyone would ask, ‘What, exactly, do farmers get?’ They say that they only monitor money at the stage they hand it over. They monitor the amount that is paid for the coffee when it is in the ship at the port of export. They say that they do not monitor the costs up to this, inputs, assembly processing, marketing, transport, administration, export tax, etc. Typically the net cash income of farmers would be one tenth to one fifth of the price on ship, and it does fall lower than this.

 

         6. A review article to be found on a Fairtrade website found ‘There is surprisingly little research that documents how individual producers, producer organizations, grower households and communities benefit. . . No recent study addresses the impacts of Fair Trade coffee on poverty alleviation.’ 3  ‘In large associations, the Fair Trade premium may be so small as to be meaningless if it were actually divided among all producers’4

 

         7. ‘Fairtrade imposes significant costs on farmers and farmer organizations. These include the initial certification cost, annual inspection fees, and the costs of record keeping, paperwork etc to show that the product meets Fairtrade criteria. ‘They want a record to be kept of every daily activity. With dates and names, products, etc. They want everything kept track of. The small producers, on the other hand, can hardly write their own name.’5 This takes up much of the ‘extra income’ they should be making. Marketing costs and labelling costs are incurred. Inevitably this reduces the payoff from Fairtrade membership. For those organizations which sell very little through the Fairtrade system, it may remove nearly all the payoff.

                  The result may be that no increased payment actually gets back to farmers. ‘In Guatemala, an executive at Fedecocagua, the largest Fairtrade cooperative, admitted that after paying for the cooperative’s employees and programs, nothing of the Fairtrade premium remained to be passed on to the individual farmer. As a result, CoupeDota Manager, Adrian Cordero believes, “It’s not worth the trouble, Fairtrade.”’6

         8. In a cooperative most of whose members are illiterate farmers this may mean employing managers or putting all the work onto the few literate farmers. There is a cost to these farmers in lost opportunities elsewhere. Do they earn the minimum wage for what they do? There is also a moral hazard when a few literate people control the accounts.

 

         9. Mark Varney, Head of Commercial Relations, Fairtrade Foundation said that in spite of all this, he believed that Fairtrade was producing valuable benefits for farmers, because the farmers he was introduced to told him so. This is a surprising statement from someone who, we might expect, would fire any market research firm which did not use random sampling, and who listened to people selected for them by people who had an interest in the result.

 

               1. It is good professional practice to listen particularly hard to people who tell you things you do not want to hear.
               2. Culturally aware professionals appreciate that in some cultures it is polite to tell people what you think they want to hear. They know how to listen for the omissions, for the lies that are deliberately badly told, and they have the patience to wait for ‘But . . .’

      Fairtrade provides fudged, false and misleading information
 

        10. Nearly all the literature produced by Fairtrade consists of anecdotes, the statement that one out of a million farmers or one out of 350 cooperatives did well out of Fairtrade one year. This is not evidence. Soundbites from Sancho Panza or Adam Chibowa are not evidence. Statements are of the order of ‘Fairtrade makes sure that farmers and producer organizations get a fair and stable price for their products to help them support their families and invest in a better future’ with no indication of how many or how much and certainly no indication of what happens to those excluded. The presumption is that
               1. This is the only information that exists, or
               2. Lawyers have removed any statements that could lead to prosecution under the Trade Descriptions Act.
               3. A great deal more information exists, but is being deliberately withheld because it could harm the organization.

 

        11. Documents and statements on the Fairtrade website contain a mixture of spin, non-sequitur and misstatement of fact which would make Mandelson blush.

 

        12. Much of the information is fudged or just false. One web page says that farmers ‘are often forced to sell to middlemen who pay them half the market price, generally between 30-50c per pound. Fairtrade coffee sells for a minimum of $1.26 per pound.’ This comparison is flagrantly dishonest. The Fairtrade price quoted here is the New York price. The other price is the price paid in a village in the middle of Africa. Someone has to pay the costs of assembly, processing, marketing and transport, as well as the export tax. Both the ‘middlemen’ and the Fairtrade system incur these costs, so both pay the farmer much less than the New York price.

 

        13. Criticisms of the Fairtrade system receive the full range of responses, both from the Fairtrade Foundation and from its supporters.
               1. Ignore them
               2. Ridicule them
               3. Make ad hominem responses, ridiculing the critic
               4. Produce anecdotes from Sancho Panza, Adam Chibowa or about your model villages, never produce overall statistics
               5. Produce incorrect facts
               6. Demand that they produce evidence, facts that only you could have – if indeed any of your income was going to the Third World.

 

         8. Examples of the official Fairtrade responses to criticism are attached as an appendix.

 

      Deceptive advertising
 

        14. Fairtrade is now careful to make meaningless statements “We help farmers” or to produce anecdotes by Sancho Panza. However, over-enthusiastic copy writers make statements for which they have no evidence. The Fairtrade organizations do not correct these, so they become accepted as truth. Then copy-writers go further, and again are not corrected. Some statements appear to be deliberate lies.  False statements are breaches of the Trade Descriptions Act. It could be a criminal offence to make a contract on the basis of these.

 

        15. The need to have expensive policing of advertising is a flaw in the design of Fairtrade.

 

        16. Deeply immoral statements are made by advocates of Fairtrade: ‘For example, in my own diocese – the Catholic diocese of Arundel and Brighton – I have been told that not to buy fairtrade products is a sin worse than theft; that not buying fairtrade products is making a deliberate choice to take from the poor; and that one should never buy products that appear to have the virtues of fairtrade but do not have the official Fairtrade mark: this is actually stated on the diocesan website.’7

 

        17. Deeply unethical sales techniques are used. ‘My former secretary once said to me that her Brownie group was having a competition to see how many cups of Fairtrade coffee they could serve to family and friends. My own (then six-year-old) son was told in Beavers about the benefits of Fairtrade coffee compared with coffee produced by nasty multinationals. My 12 year old was told to design an advert for Fairtrade for his geography homework. Young people are being used to promote a trademarked brand. These issues are complex. If the people the Fairtrade Foundation drag into the net in schools and Guide and Scout groups do not have the maturity to understand the issues fully, then, frankly, they are being brainwashed.’8

 

        18. The combination of innocent children marketing one’s brand and providing them with incorrect information is an innovation Fagin would drool at.

      What do cafes, supermarkets, packers and distributors do with the extra money they receive?
 

        19. Consumers believe that if they pay more for a Fairtrade item, the money will end up in the pockets of Third World farmers. This is not the case. If they knew this they would believe that they were being cheated.

 

        20. The Fairtrade premium of 10c per pound is less than 1.5% of the retail price of coffee.

 

        21. Fairtrade does not know, nor apparently care, how much of the extra price people pay for Fairtrade ends up with the farmers. It does not monitor margins. A recent survey shows that consumers were willing to pay an average of 14p a cup extra for ‘ethical’ coffee. A large chain of coffee shops in the UK was charging 10 a cup extra for Fairtrade coffee. i.e. 60 – 90 times the Fairtrade premium.9 Similarly, but less obviously, a lot of retailers, including cafes, are advertising Fairtrade coffee, and are selling it at a premium price, making a higher profit per ton of coffee, but are not passing on the additional margin. Even in a supermarket selling both Fairtrade and normal coffee, it is not possible for the consumer to determine how much extra is charged for Fairtrade. Again it is probable that very little of the additional margin is passed on.

 

        22. Some distributors and retailers have felt that they were put under overwhelming pressure to market a product that they believed to be fraudulent.

 

        23. Some distributors and retailers have felt that they were threatened in unethical ways.

      Added costs incurred by Traders, roasters, retailers and cafes
 

        24. There is a substantial cost to traders, roasters etc in paperwork, monitoring etc. to ensure that only Fairtrade coffee is labelled Fairtrade. There are further costs in advertising. These are not made clear to the consumer, and do not appear to have been identified.

 

        25. The Fairtrade Foundation cannot monitor all possible fraud, selling non-Fairtrade goods as Fairtrade. The costs of policing the system would be prohibitive. An even larger bureaucracy would be needed. Some frauds like a café selling one rather than the other are impossible to police. This is a fundamental design fault in the system.

      What is the cost of operating Fairtrade as a proportion of the extra paid by consumers?
 

        26. We get a clear statement of operating and administrative cost from Oxfam. It is difficult to get it from Fairtrade. Virtually all the income of Fairtrade goes in
               1. Advertising (the so-called education)
               2. Administration
               3. Certification, both in the Third World and the west.

 

            This suggests that most of the Fairtrade excess, fees plus premium, may go on advertising and administration rather than ending up in the Third World, compared with 11% of the donation for Oxfam.

        27. Fairtrade provides a lot of well paid jobs in rich countries. These employees may benefit more than all the farmers put together.

 

        28. Fairtrade foundation’s operating costs come from

 

               4. Fees from farmers
               5. Fees from traders, roasters etc. (1.7% of their selling price for coffee. C.f. the Fairtrade premium of 10c per pound is less than 1.5% of British retail prices.)
               6. Government donation
               7. Other donations

      What happens to the money between farm gate and export?

        29. Typically a good way to improve prices to all farmers in a country, millions of them, is to reduce the marketing cost. It is often possible to halve the cost of a government marketing chain or one using cooperatives. Halving costs may mean that farmers get three or four times the net cash income. The Fairtrade Foundation does not attempt to do this. It does not attempt to do this even in the Fairtrade marketing system – there are reports of corrupt and incompetent cooperatives. The Fairtrade Foundation admits that it does not keep the relevant information. It would be as expensive to do this for a small group of Fairtrade farmers as for the country as a whole, so it is prohibitively expensive.

 

        30. Typically a good way to improve prices to all farmers in a country is to monitor export earnings – is the price on a western commodity market passed down to the exporting organization and then to the farmer? The cost of doing this for a country is much the same as doing this for the very small Fairtrade movement. Fairtrade does not have this information,

 

        31. Typically a good way to improve prices to all farmers in a country is by agricultural price policy. This is beyond the Fairtrade Foundation’s competence. It is very cheap.

 

        32. Typically a good way to improve prices for a large number of farmers in an industry is to improve the efficiency of marketing organizations. This may involve investigation of corrupt and inefficient firms and parastatals.

      The structure of Fairtrade makes corruption inevitable
 

        33. ‘Lead us not into temptation,’ is the first request of the Lord’s Prayer. People who are totally honest themselves, who believe that humanity is honest, keep their laptops next to their seat when they travel by train, rather than leaving them with the luggage at the end of the carriage.

 

        34. The structure of Fairtrade makes it profitable and risk-free to cheat. There are more incentives to cheat than there in normal markets, and many more than there are in markets designed by a competent market economist. Experience suggests that when it is profitable and risk-free to cheat, corruption will be rife.

 

        35. Where there are subsidies, like the Fairtrade premium, corruption can be expected.

 

        36. A trader may approach a cooperative and say, ‘You are losing money because you only sell 20% of your product as Fairtrade. I will buy 30% of your product as Fairtrade. But you will have to pay me half the extra price as a secret kickback.’ The manager knows that if he refuses, someone else will take the contract. If he refuses, the cooperative may go bankrupt. If he refuses some of his members, or their children may die. Such kickback arrangements are common in trade. They are even normal where there is a subsidy.

 

        37. Farmers, cooperative managers, traders, roasters, packers, retailers and cafes may sell non-Fairtrade as Fairtrade.

 

        38. Packers or retailers may pack more than they have a licence for, using non-Fairtrade coffee. Cafes may sell non-Fairtrade coffee as Fairtrade.

 

        39. Farmers and cooperative managers may fabricate evidence that Fairtrade criteria have been met.

 

        40. There is an incentive to solicit bribes from other members of the chain who are cheating the system.

 

        41. There is an incentive for inspectors, auditors and accountants to solicit bribes from people who are cheating the system.

 

        42. There is an incentive for people in the chain not to pass down the Fairtrade premium to the farmer.

 

        43. The cost and difficulty of monitoring makes this reasonably safe.

 

        44. An effective control system would be impossibly expensive.

 

        45. From time to time, Fairtrade coffee will get a much higher price than the free market price. There is no guarantee that each cooperative will be able to sell the same amount of coffee as normal, or the same proportion of the total Fairtrade market. Corrupt means may be used to see that one cooperative rather than the other gets orders. Similarly, benefits within one cooperative may be passed to favoured individuals or sub-groups.

      Intellectual Dishonesty
 

        46. Intellectual dishonesty is more damaging than financial dishonesty when we deal with the Third World. It kills.

      Fairtrade’s ‘ethical criteria’ are abhorrent to millions of people
 

        47. The ethical criteria of Fairtrade are abhorrent to 24 million coffee producers around the world. They think it is profoundly unethical that they should be paid less, that their children should die, in order to pay more to farmers who happen to be on good terms with the Fairtrade buyers. They think it is profoundly immoral that they and their friends, who are the poorest people in the poorest countries in the world, should be paid less to give more money to farmers in relatively rich countries like Mexico and Costa Rica.

      It is not ethical to confine high prices to cooperatives
 

        48. Most people who go into Third World aid start with the belief that cooperatives are a good thing. This belief lasts a year or two. Experienced professionals will share their experience of corrupt and incompetent cooperatives. In many countries we are warned never to mention the word ‘Co-operatives’ as farmers are hostile, having suffered from them in the past.

 

        49. It should take half an hour to get a print-out of abstracts of all the literature on agricultural cooperatives published in the last 50 years from CAB International (The Commonwealth Agricultural Bureau). There are review articles from time to time. In general, cooperatives are very successful when they are set up by rich commercial farmers for business reasons and they employ professional managers. They are unsuccessful when they are set up by or for small subsistence farmers – not surprisingly subsistence farmers lack the management and marketing training. These cooperatives are usually corrupt and inefficient. When the cooperatives have a political or social element, the position is particularly bad. It a matter for concern that the Fairtrade Foundation launched a massive programme without reading the literature.

 
 

        50. Cooperatives may be successful when they are closely monitored by an expensive professional, an expatriate perhaps. The cost and effort involved is greater than that of getting a government to make a major change which will benefit millions of farmers. The benefit is negligible.

 

        51. Field workers in one organization that is committed to small scale cooperatives have stated that they tried to work with Fairtrade cooperatives but found them so corrupt that they had to move on to other cooperatives. Howley argues that the farmer does not necessarily receive the price guaranteed by the Fairtrade certifier.10 Newspaper reports confirm this.

 

        52. It would be unacceptably expensive for the Fairtrade Foundation to provide the detailed supervision and management to make their cooperatives efficient and honest. It is questionable whether this paternalistic approach is ethically desirable.

 

        53. Cooperatives have received massive subsidies from governments and donors over the last hundred years. These have paid for investments in plant, machinery, storage, offices etc. as well as training and hands-on administration. Whatever cooperatives are achieving now is due to this investment, not to anything Fairtrade has done.

 

        54. Cooperatives fail because of the business practices of private traders. Farmers prefer to sell to private traders because they may get higher prices from them, payment in cash, honest scales, and input credit, among other advantages. The traders are usually able to provide these where cooperatives are not because they are more efficient.

      It is not ethical to insist on minimum wages
 

        55. Minimum wages are arbitrary. In some countries they are set low so that government can claim that everybody gets the minimum wage. In others they are set high for prestige reasons or as an aspiration, but not enforced. Inflation means that in practice they are frequently very low indeed. It is unethical that poor subsistence farmers on the verge of starvation should be paid a lower wage because the government does not have minimum wages.

 

        56. Minimum wages are irrelevant to subsistence farmers who use family labour, or farmers who use village labour on a traditional basis, usually involving some reciprocation. Subsistence farmers are at the bottom of the pile: they get the residual after all other factors of production have taken their cut.

 

        57. There are ethical problems in requiring farmers to pay labourers a higher wage than family members earn.

 

        58. There is no inspection or enforcement of the requirement to pay seasonal labourers the minimum wage.

      Child labour
 

        59. Subsistence farmers use child labour. It is that or starve.

      It is not ethical to concentrate Fairtrade on farmers in richer countries
 

        60. It has been stated that many or most Fairtrade farmers are in relatively rich countries such as Mexico and Costa Rica. This is unethical in the view of many people.

 

        61. Fairtrade pays different prices in different countries, giving higher prices in countries with higher cost of living and production cost.11 This means higher prices in rich countries. (Their method of calculating cost of production shows an ignorance of basic economics.) This is unethical in the view of many people.

 

        62. Some Fairtrade farmers are commercial farmers, plantation owners, rather than subsistence farmers. They can afford the membership fee, unlike small cooperatives. This is unethical in the view of many people.

 

        63. The South African Fairtrade wine producers are precisely the people whose produce we boycotted for 30 years.

      It is not ethical to discriminate against some producers, many of whom are the poorest in the world
 

        64. Orthodox agricultural marketing and agricultural policy aims at benefiting all farmers in a country equally. It is considered unethical to give special favours to special groups. Fairtrade aims at benefiting a small sub group, chosen on the basis that they are friendly with a Fairtrade official.

      It is not ethical to confine benefits to countries with trade unions
 

        65. Farmers in countries without trade unions cannot be Fairtrade. They are discriminated against for reasons outside their control.

 

        66. Trade unions are irrelevant to subsistence farmers, who seldom employ non family members, and who normally exchange labour with neighbours.

 

        67. Countries with effective agricultural trade unions are extremely rare, which would suggest the criterion is meaningless.

 

        68. Trade unions in developing countries tend to be in skilled trades or in industries like the mines. Their objective is to get more money at the expense of non-unionized people, including farmers. In many countries the urgent task is to move money from these people to the poor farmers.

      The environmental impact of Fairtrade is not good.
 

        69. Printing all that glossy, and misleading, advertising destroys even more forest than the illegal cutting of rainforest by Fairtrade farmers.

      Fairtrade is a monopoly, which is unethical
 

        70. Fairtrade is a successful attempt to get monopoly profits from charitable people by market discrimination.

 

        71. Fairtrade membership is a monopoly. Cooperatives are not allowed to join just because they meet the criteria. They must have a letter of intent from a committed buyer for Fairtrade produce before they are allowed to join.

 

        72. The bulk of the income of the Fairtrade organizations is spent on protecting this monopoly, and preventing anyone else from benefiting:

 

               1. By advertising (disguised as education), whose main thrust is to denigrate the marketing systems used by competitors, even though many of these are ethically superior to those of Fairtrade. The advertising also denigrates competing producers who meet the Fairtrade criteria but are not members, or who are selling some of their produce outside the Fairtrade system. This pushes down demand, and reduces world prices for coffee.12
               2. By a certification scheme which excludes competitors, even competitors who meet all the Fairtrade criteria.

 

        73. The staff of the Fairtrade organizations benefit significantly, with comfortable, safe jobs at a salary Third World farmers could not imagine.

      Fairtrade pushes down prices to most farmers, particularly the poorest.
 

        74. The overproduction argument depends on the assumption that the Fairtrade system is working well and is achieving its objectives as claimed. To the extent that it fails the harm is lessened.

                  In the 1980s there was an International Coffee Agreement which kept world prices high and stable by restricting production and controlling stocks. Then in 1988 I did a job for the UN in Vietnam, which had produced virtually no coffee before the war. I discovered that they had a very secret coffee industry plan and were paying farmers well above the world price. The plan was so secret that they did not know what they had achieved. They were surprised and delighted to hear that they would be the second biggest producer in the world when the trees they had already planted came into full bearing over the next six years. They were shocked to hear that there was an ICA and that they would not be able to sell their coffee because they were not members.

                  In fact the ICA collapsed immediately after this, so Vietnam was able to sell its crop, and over the next few years the world wholesale price halved, falling by more than 50c per lb. And because coffee trees last 25 years, the effects are still being felt today.

                  As total world production rose five to ten percent, the robusta price halved. Our demand for coffee is pretty fixed, and we do not by any means double consumption as prices halve. A fall of 50c a pound in our supermarkets is a hardly noticeable 5 or 6%, and has little effect on sales, but a 50c drop in farm gate prices is devastating to farmers. Nearly all the costs of coffee are fixed –  procurement, processing, packing and transport to Europe, roasting, advertising, distribution and retailing –  so the 50c fall in price is passed on to the farmer. And for most farmers in most years a 50c fall in price would mean destitution.

                  The Fair Trade brand is doing just what Vietnam did, paying a selected group well over the world price. They pay the Fair Trade farmers the world price plus 10c. This ten cents could mean a doubling or trebling of the farmers’ net cash income, so we can expect them to increase plantings as fast as possible, just as the Vietnamese did. At first, this appears to have no effect on world price, as it takes six years for their trees to come into full bearing. When the new production hits the market, we can expect a price fall of a lot more than 10c, so all farmers suffer.

                  This is not just a matter of paying one lot of farmers a little more and paying an equivalent number of others a little less. It is a matter of paying 25 million farm families around the world a lot less. Most of them are subsistence producers, who grow the food they eat, and get a tiny cash income from coffee. The fall in income means that children die from malnutrition or malaria.

                  And it is the poorest farmers who are hit hardest, those who get the lowest farm gate price because of expensive marketing systems or export taxes.

                  But it gets worse. When world prices collapse because of overproduction, the Fair Trade brand pays a minimum price, currently $1.01 per pound for Robustas fob New York. This is substantial: the International Coffee Organization reports a free market price below this 60% of the time, so in effect the Fair Trade farmers are getting an extra 24c over and above the 10c already mentioned. And they do not have the risk that other farmers do. So they carry on planting at a time when other farmers are getting so little that they chop down their trees or let them revert to jungle.

                  And again, it is the poorest farmers in the world who suffer most.

                  Most of the advertising for the Fair Trade brand suggests, wrongly, that the system helps the Third World. It has pictures of Sancho Panza and Adam Chibowa smiling, and saying something heartwarming about what Fairtrade is doing for them.

                  It does not have pictures of Foday and Mary Kamara burying their four-year old daughter and saying,

                  ‘Is it fair that we should be paid less, that our darling baby girl should die, so that whitemen can pay higher prices to their friends in the Fairtrade cooperatives?

                  ‘Is it fair that we and our friends, who are the poorest people in the poorest country in the world, should be paid less so that farmers in rich countries like Mexico and Costa Rica can be paid more?’

      Fairtrade reduces the demand for coffee
 

        75. Fairtrade’s policy is to denigrate all other coffee, and to sell its own as the only one it is ethical to buy. As a result, people avoid drinking coffee that may have been marketed with a different trade mark. This has the effect of cutting demand for coffee, which reduces world prices. Is it purely coincidence that demand has fallen in many western countries over just the period of Fairtrade and Bitter Harvest publicity?13

 

        76. One example of this is that sellers of expensive coffee, who pay very high prices to producers, are losing trade to Fairtrade coffee, which pays much lower prices to producers.

 

        77. Fairtrade’s marketing, which suggests that anything that does not have the Fairtrade brand is not ethically marketed, and that all other marketing systems reduce prices to 24 million farm families.

      Fairtrade is discriminatory

        78. Fairtrade membership is not open to all organizations that meet the Fairtrade criteria. ‘ Would-be Fairtrade producers report being told that they can only become Fairtrade-certified if they bring a buyer with them.’14 Many people would consider this unethical.

 

        79. Small cooperatives in the very poor countries cannot afford Fairtrade membership and inspection fees.

      Do training and aid projects help anyone at all?
 

        80. Fairtrade has a range of training and other interventions. It is not clear whether they are paid for out of the Fairtrade premium.

 

               1. There has been enormous investment in cooperative training over the last century or more. This has not led to an efficient and honest agricultural marketing cooperative sector. It has been wasted. The assumption must be that any training by Fairtrade will be at least as ineffective.

 

               2. The main international development agencies use top professionals for such interventions, and they are professionally monitored and evaluated. Their costs will be much lower, providing the services to everyone in a country, rather than to a small number of cooperatives in one country. Without evidence to the contrary, it should be assumed that Fairtrade is doing a worse job at higher price per person contacted.

 

               3. Even so the failure rate is high. The development agencies would reject at least 9 out of 10 proposals, because in their experience they will not work. 9 out of 10 of those that pass the initial weeding out and are implemented fail the test of ‘Would it have been more productive to drive through the villages chucking the money out of the windows?’ and few survive the test of ‘Why don’t the donors just write 40 cheques on 1st January, and send them to the governments of the poorest countries?

 

               4. Without evidence to the contrary, it should be assumed that farmers would prefer cash to any NGO project.

      Monitoring and Evaluation
 

        81. Starbucks’ corporate social responsibility report publishes details of the number of suppliers who failed to meet its standards, even though these are necessarily embarrassing to the firm. It is not clear that Fairtrade does this.

 

        82. It is not clear that there is any enforcement.

            APPENDIX I

      Fairtrade is fair 13th August 2008

      Peter Griffiths’s suggestion (August) that the demise of the International Coffee Agreement in 1989 was all down to a secret plot by the Vietnamese government does not stand up, especially given the huge expansion of Vietnamese coffee production in the following decade.

      Griffiths also fails to grasp the basics of Fairtrade. Like most coffee growers, members of Fairtrade groups are small-scale or subsistence farmers. The difference is that they can sell part of their crop on Fairtrade terms: this means at a minimum price covering the cost of sustainable production and an additional sum for business development or community improvements. Rather than encouraging the planting of more coffee, this brings the opportunity to improve quality and diversify into other income sources. So if the Fairtrade market expands, more farmers will have a better chance to work their way out of poverty, rather than relying on charity.

      Harriet Lamb  Fairtrade Foundation 

      Note that

   1. I did not talk of a “secret plot”. This statement is designed to dismiss me as a nutty conspiracy theorist. Vietnam had an agricultural policy, as does every other country. It was secretive because the USA was carrying out economic warfare at the time. Even so it is far less secretive than the British Government.

 

   2. The “huge expansion of Vietnamese coffee production in the following decade” does not, as she suggests, refute my argument. On the contrary, it is exactly what I said happened. The increase in plantings continued as long as Vietnam paid a very high price for coffee, well over the world price. Even if they had stopped planting the day they received my report, the production would have continued to rise for six years: it takes four years for a tree to come into bearing, six years to come into full bearing.

 

   3. “Griffiths also fails to grasp the basics of Fairtrade”. An ad hominem sneer: stupid man. Look up “Peter Griffiths economist” in Wikepedia. Then Google “Peter Griffiths stupid”.

 

   4. This shows Fair Trade’s total lack of interest in the number of people that die as a result of their intervention in the market, the children who die because the price of non-Fairtrade coffee falls.

 
 

      APPENDIX II is after the endnotes

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Posted by on December 9, 2009 in Uncategorized