NEWS

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February 28, 2007

More on fair trade coffee

Here is what this blog has to say about my fair trade coffee column:

While I completely disagree with some of his logic and predictions (e.g., that first world economies will resort to garbage coffee in a recession), he makes the case that Fair Trade offers the same economic incentives as farm subsidies. Could Fair Trade essentially incent third world nations to remain impoverished by keeping them beholden to agrarian economies?Unfortunately, somebody has to grow good quality coffee. Because if the past is any indicator, it is not going to be the Vietnamese: Nestlé to buy quarter of Vietnam’s coffee exports - Vietnam latest news - Thanh Nien Daily.
I have two big objections to their characterization of my column.First of all, it is absurd to say that in a recession people would not cut back on their purchase of fair trade coffee. It is possible that the authors of Espresso News and Reviews would not, but I don't think it is silly to claim that people's elasticity of demand for fairness of fair trade coffee is really really high. What does that mean? That I value almost everything else I already consume a hell of a lot more than I value the fairness of my coffee beans and in a recession (when my income would drop or stagnate) if I had to make a choice between getting "fair" coffee or more milk for my kids. When you extrapolate that out to an enormous market we are talking about pretty significant reductions in the quantity demanded (and price) of fair trade coffee. That, would then kill the third world farmers that thought they were getting a sure thing when they became one of the lucky few "fairly" treated farmers.Second, arguing against fair trade coffee is not arguing for low quality coffee. Workers don't have to insulated from the international market price of coffee in order to produce high quality beans. In fact, "fair wages" could end up discouraging the sorts of risks and innovations that would otherwise be undertaken by farmers to improve the quality of their beans. But regardless, I was not arguing against high quality coffee beans, I was arguing against the labor standards that get wrapped up in those high quality beans.Update: Via Daniel Drezner, there have apparently been pretty big problems with the implementation of fair trade coffee.Update 2: Some interesting, but not all that generalizable/applicable economic analysis (in my opinion) by Tyler Cowen of Marginal Revolution on the impact of segmentation in the coffee market.