a blog

by Josh Nicholas

Be more skeptical about fair trade

I've always been a bit skeptical of "fair trade". Supply chains are long and complicated, there's little oversight on retailer margins and it's unclear how much producers actually benefit.

A recently published paper in World Development appears to back up some of these fears. The authors found that less than a third of the premium paid for fair trade Ethiopian coffee makes its way to producers. Exporters grab a healthy slice, and the cost to comply with certification is great for both farmers and cooperatives.

This is based on interviews with 1600 producers, cooperatives's own records (numbering some 150,000 transactions), and data from the Ethiopian Ministry of Trade.

If an average Ethiopian coffee farmer, who annually sells the equivalent of 400kg of red cherries, were to market all his or her red cherries as VSS certified, with current VSS premium transmission rates, the farmer’s annual income would increase by 6.7 USD compared to the non-certified cooperative farmer (assuming both types of farmers sell all coffee to the cooperative). Even in the case of a perfect transmission, the annual income of the average certified coffee farmer would only increase by 22USD compared to a non-certified cooperative farmer

The paper also notes that certification poses significant barriers to entry. For instance, it requires detailed documentation in areas where many have not gone to school. Environmental and labor standards are admirable, but they also increase the costs for producers.

Producers that are able to comply with all of this are likely those relatively better off in the first place. The paper notes that certified households are more likely to be located close to paved roads and coffee cooperatives, and have heads of households that are older and more likely to have gone to school.

And if that wasn't bad enough, do these standards really achieve anything?

...farmers in these settings often have diverse crop portfolios. They may be able to use sustainable production practices on their coffee plots but not on their other crops. Moreover, resources can be re-allocated within the farm from coffee to other crops, e.g., no child labor on coffee plots might mean more child labor on other plots. While coffee might have been sustainably produced and certified, it is possible that little might have changed in the aggregate at the farm, village, or country level.

Now, this is one study, and it's an analysis of just one country and cash crop. But at the very least it invites more skepticism.