Fair Trade... or Foul?

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by Gene Callahan by Gene Callahan

In my new neighborhood, I’ve noticed several store windows sporting signs that boast: "We proudly sell coffee brewed with Fair Trade coffee beans, acquired at a price that permits sustainable farming and pays growers a living wage." (I quote from memory, so this is only roughly the wording of the signs.)

These posters are part of a popular fad in left-wing circles to promote "fair trade." For some reason, perhaps because many of these leftists get really hyped up on Joe every day, coffee seems to be the chief focus of the movement.

Currently, fair trade coffee buyers must pay at least $1.26 per pound for the coffee they buy, while the world price hovers near $.50 per pound. I’m not sure why the "fair" price is $1.26, rather than $1.22, or $1. 29, or even $20.00, but there you have it. The fair traders seem to believe that growers who cannot make a profit at the free market price deserve to stay in business anyway. For example, the web site Global Exchange complains: "Many small coffee farmers receive prices for their coffee that are less than the costs of production, forcing them into a cycle of poverty and debt."

Well, I have a little tip for those farmers: If your cost of producing a product is higher than the price you receive for it, then… stop producing it! It’s ludicrous to ask, "Well, then, what else are they supposed to do?" After all, if they are losing money on every sale, then doing nothing at least stops the losses. Even relaxing in a hammock all day would be a better financial move for them than continuing to grow coffee.

Imagine if I came to you and complained that Lew Rockwell, by paying me so little – well, frankly, nothing at all – for each article I write, is forcing me into a cycle of poverty and debt. I would expect you would inquire as to how, exactly, Lew was forcing me to write articles, and why I didn’t go get a job doing something else and cease my money-losing activities.

But the fair trade folks hope to save small farmers the bother of having to find work that is actually profitable. Ironically, by doing so, they further depress the price of coffee for all those farmers who have not been adopted by fair traders, since they are lowering the demand for coffee priced on the market. Since, as we know, the quantity demanded of a good depends on its price, even if every consumer bought only fair trade coffee, the fair traders could not possibly achieve their goal of supporting all current coffee farmers at a higher level of income. At the new, higher world price for coffee, the quantity demanded would fall, and the current excess supply of coffee farmers would only be worsened.

I have a word of advice for farmers currently enjoying fair trade prices: You have been adopted as dependents by a group of "socially concerned" Americans. Generally, they are fairly nice people. They certainly mean you no harm. On the other hand, they are really more worried about their own self-image than about you. It is the fact that "fair trade" coffee is trendy that leads them to sponsor you, for now. But beware: your friends have a limited attention span. If next year, saving the Arctic woozle or campaigning for U.S. intervention into the troubled country of Hysterectomia has captured their imaginations, they will forget all about you.

At that point, you might wish you had begun adjusting to the real world market for coffee today.

September 5, 2003

Gene Callahan [send him mail], the author of Economics for Real People, is an adjunct scholar of the Ludwig von Mises Institute and a contributing columnist to LewRockwell.com.

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