Hurting the third world one latte at a time

By Alec Brandon

One of the stupidest developments to rise to prominence after the Seattle World Trade Organization riots—and that is really saying something—was the idea of fair trade coffee. Essentially, fair trade coffee took two things every cosmopolitan loves: distrust of the “exploitation” of free trade and coffee. What is better than combining the high of helping third world farmers by paying a little extra for your triple shot, non-fat, no-foam macchiato and the absurd caffeine high your beverage will give you?

Over the past few years fair trade products, and coffees in particular, have taken off. In 2005 fair-trade sales hit an all time high, increasing by 37 percent and totaling up to $2.15 million worldwide. And this self-congratulatory love-fest between consumer and café has shown no sign of cooling off, as fair trade coffee has largely become the standard in upscale cafés. Hell, even Dunkin’ Donuts sells fair trade coffee. Big chains like Starbucks can’t tell you enough about how great third world farmers are doing because of your purchase, often showcasing beautiful pictures of Colombian landscapes replete with humble farmers surveying their land—scenery that is only possible with your purchase. If you’ve never seen what I’m talking about, it is like a Christian Children’s Fund ad on crack.

The problem with fair trade coffee is that consumers aren’t actually getting what they think their purchase is getting them: a third world agrarian economy that is better off because of the extra cost of their purchase.

To be fair, fair trade products are often legitimate. There is a strong international infrastructure that oversees the certification of products that earn the privilege of using a “fair trade” label. The essence of this organization, which has different incarnations in 20 countries (in the U.S. we have TransFair USA), is to protect independent farmers from the unpredictability of international market prices. The fair trade certification group determines what a “fair” price for the good is, taking into account the market price as well as a variety of different conditions. If a raw good (for example, coffee beans) is purchased at that price, then it gets the label. If not, then it doesn’t. (There are other aspects to fairtrade goods: Farms are encouraged to use environmentally sustainable methods and not to discriminate by gender, but the promise of higher wages is what gets farmers to sign up.)

The problem is that randomly paying a select number of farmers more for their work isn’t likely to do anything to improve the lives of people in the third world and is actually likely to make them worse off. The motivating factor to pay more for fair trade products is the idea that these purchases will be making the third world better, or at least the specific third world workers that make the products being bought. But the way out of poverty for third world countries isn’t 10 percent higher wages for their farmers, it is economic development, and there is good reason to think that buying fair trade coffee will only retard development.

Inefficiently higher wages for farmers in third world countries are similar to the farm subsidies the U.S. generously lavishes on its farmers. Put simply, it encourages people to either remain farmers or become farmers when they otherwise wouldn’t. If a country is already capable of producing good coffee beans or delicious bananas, there is no point in the first world encouraging further production and investment in the supplying of those goods. Investment in the agrarian economy is rarely the way that extremely poor countries become rich.

This is especially true when a large percentage of the income those economies produce is tied to the whims of wealthy Americans and Europeans. Things might be all well and good now for fair trade coffee growers, but if a mild recession were to hit (something not out of the question), first world consumers would undoubtedly substitute cheap, ambiguously traded products for fair trade products right off the bat.

In this all–too-likely scenario, any third world country that has benefited from fair trade products would be devastated; just imagine what would happen in the U.S. if a fair number of workers suddenly had their wages cut by at least 10%. And this doesn’t even take into account the impact an actual worldwide recession would have on the economy.

Ironically, fair trade product certifications started as a way to protect third world farmers from the market, but all it has really done is create a group of consumers who are willing to pay more for a product because of a fad. In the absence of the popularity of that fad (remember “Buy American!”?), all fair trade certification organizations will have to show for themselves is that they set third world economies back a couple decades.

Let the love fest begin!

Seriously, though, working and donating money to projects that help Third World development is one of the noblest acts someone can do. But bleeding-heart liberals need to start using their heads when they decide how to donate money toward that goal. There are countless projects that are desperate for money and actually have a track record of making the people they are aiming to help better off. Do the third world a favor: Kick the fair trade coffee and donate your savings to those projects.