Unfair trade : download the Adam Smith Institute report

It is here

Here are the highlights of the executive summary points, which are even more damning than I expected. 10% of the fairtrade premium goes to the producer, the rest is retail markup:

• Fair trade does not aid economic development. It operates to keep the poor in their place, sustaining uncompetitive farmers on their land and holding back diversification, mechanization, and moves up the value chain. This denies future generations the chance of a better life.
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• Fair trade is targeted to help landowners, and not the agricultural labourers who suffer the severest poverty. Fairtrade rules actually make it more difficult for labourers to gain permanent, full-time employment.
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• Four-fifths of the produce sold by Fairtrade-certified farmers ends up in non-Fairtrade goods. At the same time, it is possible that many goods sold as Fairtrade might not actually be Fairtrade at all.
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• Just 10% of the premium consumers pay for Fairtrade actually goes to the producer. Retailers pocket the rest.

So I challenge the Green Party, and promoters of so called "fair trade", to present the evidence. Show it is more than spreading guilt, feeling good and paying more.

Ask everywhere if your council or employer has hopped onto this bandwagon, why. Send them a copy of the report, and tell them to stop wasting money on this fraud, and instead lobby for free trade, or support a genuine NGO charity in a poorer country.

Fairtrade damned further

Following on from yesterday's reports on Fairtrade, a comment on the Daily Telegraph website makes for sobering reading - about the reality of Fairtrade:

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"I was the acting Chief Exective of the largest independent coffee and tea trader in the world in the early 1990's and found all that you have mentioned and even worse to be true. I want to highlight some of your points toward the end of your article to make clear that the mega-growers also ship and sell their lower quality beans into the Fairtrade markets through brokers and receive the subsidized "charity price" from the "socially responsible" rather unquestioning public. This is exactly what was meant to be avoided, and it is done in huge volumes. This type of illegal activity is almost impossible to police at the level where it occurs, and where supervision has been pursued it has either failed or been simply too expensive to maintain (especially when the bribes at the storage and market delivery locations are factored in). So what happens is that the small farmers end up competing directly with the mega-producers for "shelf-and-mouth" space, which is a losing battle and exactly the opposite of what was intended to occur. Please, everyone, do not buy Fairtrade unless you (or somone you completely trust) can track your purchase back from the cup in front of you to the fields/farmers that the beans (or other produce) came from."

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So there you have it, Fairtrade markets get exploited by the large producers that Fairtrade lovers so abhor, and it is difficult to thwart this.

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One of the most damning criticisms I have of Fairtrade is that it diverts attention from the REAL "fair" trade issue - opening up of markets. Perhaps the most wealth generating and liberating move that could be made for people in developing countries would be for both developed and developing countries to open up their markets.

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Developed countries need to end export subsidies that mean their producers undercut those from competitors, they also need to end prohibitions, quotas and tariffs on imports so that the most efficient producers have a fair shot at the wealthiest markets. Developing countries need to abolish legal monopolies on imports and infrastructure, open up internal markets to competition and remove prohibitions, quotas and tariffs on imports, especially those that can aid in improving productivity.

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Fairtrade diverts attention from the fight to remove these barriers to productivity and wealth, by claiming that fiddling with prices can make people wealthier.

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Of course those in poorer countries should not be maltreated, should not have their property stolen, should not be expected to work in extremely dangerous conditions, but the answers to this are complex, and lie significantly in having governments which apply a rule of law, which protect individual rights and property rights.

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So what is "fair"? Janet Daley in the Daily Telegraph today notes how the word "Fair" has been misused by the left and is now used as a synonym for equality of wealth, yet is highly destructive.

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She said:

... even more dangerous is the peculiarly lethal principle of "fairness" that seems to prevail in the NHS (or at least at the National Institute for Health and Clinical Excellence, which determines what treatments the NHS may use): if everyone can't have it, no one should. On this basis, procedures and medications that could save or transform individual lives must be barred if they cannot be made available to every patient who might conceivably benefit from them.

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Once again, "fair" must mean "the same": so the breast cancer patient who is a young mother may be denied the drug that could lengthen her life because it would not be feasible to provide it for all the breast cancer patients who are over 80, and if she offers to pay for the drug herself she may be barred from receiving any NHS treatment (because it is "unfair" for her to use her own money to buy what others cannot afford).

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How have we come to accept such vindictive uses of the word "fair"?

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Of course it was initially the fault of the Left and its special pleading lobbies, which - like some Fairtrade promoters - had a lot to gain. But the Right has been complicit: it has surrendered words like "fairness" and "opportunity" - and accepted caricatures of other words such as "selfish" and "greedy" - with scarcely a murmur of dissent."

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Indeed. Expect John Key this year, and David Cameron two years from now to talk about fairness a lot - and both will be peddling the status quo.

Fairtrade fails and deceives: Part Two

Like I posted earlier, there are a whole host of reasons why Fairtrade creates perverse incentives and can hurt more than help. However, most of them come down to one major difference between Fairtrade and free trade - Fairtrade corrupts the price mechanism. Prices aren't just about "what it costs to buy something", they are signals about whether to increase or decrease production due to demand, whether to increase or decrease consumption, they inform about quality. They are the culmination of many factors, but ultimately are the culmination of free choices to produce/sell, and to buy. It is the ultimate democracy of the market, more than voting for a politician, it is voting for a product. Sadly too many do not recognise this.

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Price sends the following key signals, Fairtrade grossly distorts these:

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1. Prices for produce are partially a function of quality: The better the produce, the better the price, and vice versa. This rewards good farmers, innovative farmers and producers, and penalises those growing in areas less suitable or those less attentive (who should probably do something else).

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2. Prices are a function of supply and demand: Very low prices for produce reflect over supply relative to demand, which is a signal that some producers should stop producing or shift to other commodities/enhance quality or the like. Paying some regardless of quality and demand, suppresses prices for all others and encourages more to produce, creating a cycle of increased poverty. This particularly hurts those unable to participate in Fairtrade, but even if all were involved in Fairtrade, it would create a glut of unsold produce. Buyers would pay high prices, but would be turning away produce - which wouldn't get paid for, which may end up harming the most productive. Think carefully how much harm this could cause.

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3. Low prices encourage higher productivity: Producers of low priced products can decide to change what they produce or could become more efficient, so that their margins over cost are better at lower prices. This means taking steps to increase productivity, such as in Brazil where in the coffee sector mechanisation can mean five people can have the productivity of 500. The price is then shared between less people. What do the others do? Well they can produce goods and services that people will pay more for - perhaps Fairtrade activists could help them out to find what these could be rather than trap them in overproduced commodities?

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4. Paying high prices for Fairtrade products damages sellers of other goods and services: While you’ve been assuaging your conscience buying Fairtrade bananas or coffee, you’ve spent money on those goods that you might have spent on other items. Not only have you lost out on not having those, so has the producer of those missed out on you not buying them. Given the amount of the Fairtrade premium milked by others along the way, you might also question whether the high price didn’t largely benefit your local supermarket as much as the farmer. You might have bought more fruit and vegetables, you might have bought more meat, you could have spent more on clothes, holidays, or paid off your mortgage. In other words, a whole chain of people could benefit from what you save paying market prices.

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So how long will this Fairtrade charade persist? As long as you keep supporting it and not asking questions. Ask those supporting this why they encourage overproduction of poor quality produce in poor countries. Ask them why they encourage old fashioned means of production that keep people stuck in labour intensive jobs. Ask them how much of the Fairtrade premium goes to retailers and wholesalers, and don't take "not a lot" as an answer, ask for number. Ask why you should pay more to buy one product and then not buy another product, which also helps people making it?

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Make THEM think too!

Ralph Nader to stand for US Presidency

Hmm well, those on the left will be a little worried he'll rob them of their entitlement at the Presidency, like they think he did in 2000 - but well, I'm not fussed. Frankly, he might help Obama as claims of Obama being on the left will be diluted by Nader standing, as if one can point at Nader and say "hey he doesn't think I'm socialist enough" (or "progressive" as statist thieving is called").

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Funnily though, Ralph Nader said to NBC according to the Sunday Telegraph "if the Democrats could not win this year by a “landslide” despite his involvement, then “they should just close down". He's probably right.

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I despise Nader, but he does have principle - he at least gives those who want more government, more taxes, more regulation, destruction of private property rights, surrendering US allies to their enemies and hatred of business, someone to vote for. Who do those who want less government, less tax, more freedom, wider application of private property rights and respect for wealth creation, along with standing with US allies against attack and oppression?

Fairtrade fails and deceives: Part One

"Fairtrade is about better prices, decent working conditions, local sustainability, and fair terms of trade for farmers and workers in the developing world. By requiring companies to pay sustainable prices (which must never fall lower than the market price), Fairtrade addresses the injustices of conventional trade, which traditionally discriminates against the poorest, weakest producers. It enables them to improve their position and have more control over their lives"

That’s the legend sold with Fairtrade, on the Fairtrade Foundation website. It is about to be heavily promoted big time in the UK through Fairtrade Fortnight. However, Fairtrade isn't fair, or good, it is ignoring basic economics and is highly deceptive. It is hindering development far more than it helps.

It is often treated by the likes of the Green Party as an alternative to free trade, so it excuses protectionism (bans and tariffs on imports). You see they are ignorant of economics too.

What Fairtrade actually is about is an ideology of guilt-mongering to brand products on the basis of being “ethical” which are marked up for the “good” of all those involved, grossly distorting price signals and producing perverse results. In the Sunday Telegraph today, the Adam Smith Institute has announced the release of a damning report about “Fairtrade” called, aptly, “Unfair trade”. The Institute states “At best, Fairtrade is a marketing device that does the poor little good. At worst, it may inadvertently be harming some of the planet’s most vulnerable people”.

How so, you say? How can it be unfair to pay producers more for making what they do, in such poor countries? Well the report points to a number of major issues:

• Fairtrade pays farmers to maintain uncompetitive farming methods rather than using modern techniques that can enhance production. Environmentalists might argue that those techniques are more environmentally sustainable, but the Fairtrade Foundation admits it has no programmes to encourage the use of technology in farming, of any kind. It even gives counterproductive advice, encouraging crop mixing, which hinders mechanisation.
• A fraction of the Fairtrade premium charged to consumers reaches the producer, retailers pocket the rest as Fairtrade products are perceived as high yield and less price sensitive. In short, customers are more willing to pay for the “Fairtrade” label, oblivious as to whether the premium reaches the producer. The Fairtrade Foundation insists it ensures farmers are paid more than they would otherwise (no doubt retailers are too!), but do consumers accept the premium paid to everyone is fair?
• Fairtrade only accredits farmers if they join together as co-operatives. Farmers working for Café Britt in Costa Rica are self-employed small business people who own the land they farm, but this is “unacceptable to ideologues at FLO international” Fairtrade’s certifiers. Café Britt has been refused Fairtrade status, even though its Costa Rican farmers have increased incomes by processing, roasting, packaging and branding locally as well. Fairtrade coffee, by contrast, is roasted and packaged in the EU.
• The Fairtrade Foundation is seeking to dominate the trade, by seeking to monopolise the concept of “ethically branded” produce by persuading local authorities, companies, schools and the like to declare themselves “pro Fairtrade” at the expense of other brands claiming the same thing (like Café Britt). This has effectively limited the range of "pro producer" activities as the brand itself limits innovation to that approved by the brand. It also inflates the price by not having competing "fairtrade" brands.
• Fairtrade supporters ignore the real causes of poverty amongst many growers by pursuing an ideological crusade against world market prices and multinational corporations. According to the Sunday Telegraph, coffee growers in Kenya interviewed by Alex Singleton of the Globalisation Institute told of being forced to used the monopoly milling and fertilizer companies, imposed by the state, and the high tariffs on imported tools that could assist production. Of course this could be addressed by free trade, but Fairtrade supporters are not interested in confronting poor country governments.
• Fairtrade encourages poorer quality produce. As many farmers sell produce in both Fairtrade and open markets, farmers will often sell their best produce on the open market to secure the best price (as the open market is quality driven), and sell poorer quality produce on the Fairtrade market, as the price is guaranteed. The effect this has on quality for those selling entirely on the Fairtrade market is questionable at best.

Fairtrade is another example of good intentions paving a road to hell, as it is driven by an ideology distant from reality. It is driven by faith that the world would be a far better place if only those mean old markets paid people more for what they produce (low prices are unfair!!), with even more ideological baggage along with that. Part of it is environmental – the old adage that organic is better than mechanisation, and fertilisers are “bad”. Part of it is simply socialism – companies are bad, so farmers should all be in co-operatives. Beyond that is the basic rejection of the price mechanism.

Ah, you say, but if I want to pay more so that a farmer gets more, shouldn't I be allowed to? Of course you should. I'd let you set fire to your money if you wanted to (you're not allowed), but that doesn't mean you should necessarily feel better, or those that don't buy fairtrade are immoral - the truth may be quite the opposite.

So what does ignoring the price mechanism do?