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Michael Zelmer/Fair Trade Canada

August 9, 2011

 

Published by mzelmer on August 03, 2011

  Michael Zelmer
 

By Michael Zelmer

An Op-Ed in the B.C. Catholic recently proclaimed that “’Fair Trade fails to live up to its message”, and presented a German study of Nicaraguan coffee farmers as proof.

 

Much has been made of this German study, at least by Fair Trade critics, and it has attracted a fair bit of press too. Unfortunately, despite only being nine pages long, it has too often been misrepresented by those seeking to discredit Fair Trade. This just doesn’t seem fair because the study appears to have been conducted thoughtfully by researchers at the University of Hohenheim and they do provide some interesting findings.

 

Instead of presenting these, the B.C. Catholic editorial presents tired allegations that appear to be based on a poor understanding of Fair Trade and no real evidence. Worse, like a similar editorial that recently appeared in the National Post, the author, Christopher Morrissey, attempts to attribute many of these allegations to the Hohenheim study when, in fact, they appear nowhere in it.

 

Below is a point-for-point explanation of how Mr. Morrissey misrepresents both Fair Trade and the Hohenheim study (for the few who actually want that level of detail). But for those interested in a more general response, it’s that he fundamentally misunderstands Fair Trade (Fairtrade certification, actually) as a top-down scheme that forces farmers down a prescribed path that is wholly insensitive to local circumstances and somehow anti-market.

 

In reality, Fairtrade certification is a system in which people, from producer to consumer, voluntarily choose to participate. Participation does mean producers and companies must follow strictly enforced standards, but those standards are constantly evolving, often through extensive consultation, and always with producer involvement.  

 

Farmers and their co-ops decide for themselves if Fairtrade certification is worth their while, and obviously we should expect that it will work better for some producers than others at different points in time. If they can find better opportunities elsewhere, then clearly they should pursue them.

 

Indeed, a basic premise of Fair Trade is that farmers are often in a much better position to know what they need and, with Fairtrade certification, farmers determine their own participation, they decide democratically how Fairtrade premiums are spent, and they can even tailor the standards somewhat to their own local realities and developmental priorities.

 

Critics of Fair Trade certainly have their part to play, but it’s unfortunate when those who know the least about the subject get the most attention. Paradoxically, it’s those who are actively engaged with Fair Trade, supporters even, who provide the best critiques and who most push the Fairtrade certification system toward fulfilling its objectives.

 

Michael Zelmer is the Director of Communications for Fairtrade Canada. The ideas presented here are his own and not necessarily reflective of Fairtrade Canada, as is the case with all blog posts on this site.

 


 

Specific Areas Where Mr. Morrissey Gets It Wrong

“A rigorous 10-year economic study… has shown that the artificial price-fixing imposed on ‘fair trade’ coffee ends up being unfair.”


The study makes no mention of “price-fixing”, though they do mention that the prices paid to farmers in the “fairtrade-organic” group were 11% higher than prices paid to farmers in the “conventional” group. These are prices paid by the farmers’ co-operatives, not prices paid to the co-operatives by traders.

 

Also, it wasn’t a “10-year economic study” – quantitative data was collected in  2007, and some interviews occurred in 2008.

 

“‘Fair Trade’ does more harm than good, says the economic data, because “fair trade” farmers stay impoverished. They end up poorer than the farmers not operating under a “fair trade” scheme.”


In fact, the data showed higher levels of poverty within the “organic” group than the “fairtrade-organic” (there was no “fairtrade” group). Even still, the authors explicitly state that relative poverty rates between the groups were not statistically significant.

 

The authors also clearly say the study, “does not provide for a causal econometric impact analysis” (which means the economic data doesn’t show what caused anything, good or bad) and, that their, “sample design does not allow for generalizations beyond the study area of northern Nicaragua”.

 

“The explanation? Coffee producers stay poor when they have to pay certification fees. A middleman has to certify the coffee as “fair trade” or “organic.” These certification fees cheat “fair trade” farmers out of maximum profit.”


There’s no mention of certification fees in the study, no doubt because individual coffee farmers don’t actually pay them. Certification fees are charged to the farmers’ co-operative though, and those fees, along with all other costs, affect the price a co-op pays to its member-farmers. However, as mentioned, this price was highest for the fairtrade-organic group.

 

After this point, Mr. Morrissey steps out on his own, and some of his ideas require a little scrutiny. For example, his idea that certification bodies are middlemen and that fees cheat farmers (or their co-ops) needs a closer look.

 

First, (as mentioned) no farmers are obligated to participate – they choose to join a co-operative if it’s in their interest, and the co-operative itself, owned and controlled by its members, chooses whether or not to become Fairtrade certified.

 

Second, there are costs that come with running a rigorous, international certification system, and those costs have to be covered somehow. There used to be no fees for producers, but this led to a sizeable backlog of producers who wanted to be certified but couldn’t due to a lack of resources in the system. In 2004, a fee system was adopted (and later revised in 2007) with the unanimous support of the producer representatives on the Fairtrade International board of directors. (Click here for more on this topic)


Third, a Producer Certification Fund (PCF) was established in 2004 to cover up to 75% of fees (or 100% during particularly difficult times) charged to producer groups who found them to be burdensome. More than 230,000 euros were paid out in PCF grants in 2010.

 

“’Fair trade’ pricing dangerously distorts market signals about true economic incentives. The artificially inflated price keeps producers from reckoning with losing business propositions for much longer than is rational.” 


A curious statement to make in an article otherwise claiming Fair Trade makes farmers poorer. One might say completely contradictory.

 

“It’s like your kids running a lemonade stand with insanely inflated prices. Eventually the dream bubble will burst.” 


In this analogy, there would be no bubble because no one, except possibly their parents, would purchase the kids’ lemonade. And this is precisely what would happen to farmers in Fair Trade if their Fairtrade certified products were overvalued.

 

Fairtrade certification guarantees a price, not a sale. This means Fair Trade products aren’t independent of market forces, but Fair Trade does change the way products are valued. Community development, labour rights, environmental standards, etc. carry value for many people, and those people often purchase Fair Trade products.

 

Again, we do actively encourage honest criticism and healthy debate about Fair Trade (we often even publish it on this website). Unfortunately, Mr. Morrissey’s editorial is neither.

 

For those interested in something more substantial, an independent review of ten years’ worth of academic studies of Fair Trade can be found here.

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