Fair Trade Coffee

Where economics and coffee meet, Berkeley Square Blog will be there!

Alex Singleton at Samizdata puts the cold light of reason on "fair trade coffee." Not surprisingly, this quaint little liberal custom is harmful to those it aims to protect.

For a start, we should be realistic about the scheme's potential. In Britain, despite ten years of advertising, 97% of coffee sold is not on the scheme. Most consumers are likely to continue buying coffee according to cost and quality. Its potential for increasing wealth among coffee producers is thus extremely limited. Some argue that the scheme is taking us away from thinking about more radical solutions to poverty.

Secondly, the real problem with 'fair trade' is that it is based on economic illiteracy. The low price of coffee is caused by production increasing by 15% since 1990, and supply is bigger than demand. This cannot be blamed on multinational buyers of coffee. There are simply too many people employed in coffee production. With new technology, the price may well decline further. In Brazil, five people and a machine can do the work of 500 people in Guatemala. The low coffee prices are a signal to exit the market, or switch up to higher valye coffee.

'Fair trade' - though it helps some farmers - encourages people to stay in the coffee market and gives them confidence to increase production. That is all very well, but this has a downside. More supply means a lower price on the world markets. Perversely, 'fair trade' makes matters worse for the vast majority coffee producers.