Fair trade savaged by Institute of Economic Affairs

The free trade think-tank the Institute of Economic Affairs has savaged the fair trade movement, branding it a distraction and claiming that Starbucks probably does more good for poor coffee farmers.

Philip Booth, Editorial and Programme Director at the IEA said:

Proponents of Fair Trade are guilty of overstating the impact of their movement. Fair Trade products can squeeze out from the market other socially labelled products and place heavy burdens on companies when it comes to certification. In the long term helping those struggling in the poorest countries requires much more radical reform from within. Fair Trade is a niche part of the trade system and it should not be the focus of so much attention. Lifting communities out of poverty means allowing free trade to drive development and growth.

Whilst this is not the first time the IEA have criticised fair trade, it is certainly the most comprehensive and most critical attack.

The IEA report, released last week, argues that fair trade is not a strategy for long term development and that the claims made by the fair trade movement are "seriously exaggerated".  This is pretty worrying stuff for those of us who support the movement, so these claims deserve serious attention.

The most important criticisms are as follows:

1.  Fair trade does not benefit the poorest countries, with certified producers being mainly located in "middle income" countries, like South Africa, Mexico and Columbia, rather than the very poorest;
2.  The poorest producers are excluded from fair trade due to heavy administration costs
3.  It is likely that producers see only a small fraction of the premium paid by consumers for the products

The Fairtrade Foundation have responded to these criticisms.  They have stated that the admin costs have been incorrectly stated, and pointed out that there are a number of collective schemes and subsidies which can be received.  They claim that 100% of the fairtrade premium goes to producers, and that they audit this to ensure it is fully applied.  They also argue that they do work in the poorest countries, although do not give stats on this.

The main criticism from the IEA is that fair trade is not a long term development strategy.  Mouse would agree.  Nor is it a perfect system.  But if it is all we can do right now, then Mouse reckons we should choose fair trade whenever we can.

Of course fair trade is not a comprehensive development strategy for the poorest countries and even continents.  Mouse has always seen it as a sticking plaster over a gaping wound.  Fair trade is needed, because otherwise trade is not fair.  Global trade rules simply are not fair.

Presumably the IEA, as a free trade organisation, would be amongst the first to condemn systems of domestic subsidy, which distort free trade and are often the root of unfair global trade practices.  These must be reformed, and the Fair Trade movement is amongst those leading this call.

But of course that is not all.  The twin scourges of war and corruption must be tackled.  A mammoth task in many countries, which may take decades to achieve.

In the mean time, Mouse is still very much up for adding a few extra pence onto the cost of his coffee and getting that through to some of the poorest people in the world.  Even if they're not the very very poorest, and even if there are administrative costs along the route.