Monday, 2 May 2011

Fourth Rejoinder to Eerlijke Handel on Fair Trade or Free Trade

This is my response to Eerlijke Handel's latest post in our debate about Fair Trade.

I have asked questions, that you have not answered.
1. Did you supply proof that Fairtrade competes with other charities? Yes or No?
If you think my statement requires some kind of “proof” then you’ve misunderstood the nature of my statement. Fairtrade obviously competes with other charities, because all ways of spending my income compete with all other ways. This is a logical statement, evident just by thinking about the nature of human action in a world of scarcity. It cannot be falsified by any empirical evidence.
2. Is the 10p in your critique solely based on the one 2005 article by Harford? Yes or No?
That is the article I cited for my claim. I note that you have not provided any evidence that contradicts this, despite my asking you to do so. So I’ll ask again: are you claiming that a higher percentage of Fairtrade money reaches their desired recipients than Oxfam money reaches their desired recipients? If you are, please provide a source.
I have already given you many reasons why Fairtrade does not necessarily have to be more expensive than other branded products.(*)
(*) I have given many reasons why from an economical point of view Fairtrade does not necessarily have to be more expensive. Look at the past blogs.
Where? Are you referring to your hand-waving towards “economies of scale”, “better negotiation position”, “shorter supply chain”, “long term commitment”, etc? Because I have responded to all of these showing why they are red herrings. It seems like you are unable to respond to my scenario without invoking one of these concepts, which are not unique to Fairtrade in any way, and violate the ceteris paribus condition that must be maintained for economic analysis.

I will respond to each of the quotes you provide.
Tim Harford 2005:
“The truth is that fair trade coffee wholesalers could pay two, three or sometimes four times the market price for coffee in the developing world without adding anything noticeable to the production cost of a cappuccino.”
This particular quote doesn’t mention the final price, so it doesn’t support your claim at all. A few sentences earlier however, Harford says “the premium paid to the farmer should translate into a cost increase of less than a penny a cup,” so this supports my claim, not yours.
“There are now so many Fairtrade products available in the UK market that it is misleading to suggest that a product is more expensive simply because it carries the Fairtrade label – indeed, because Fairtrade staples such as tea, coffee and sugar have become so popular through consumer demand, the economies of scale now possible mean that they are usually no more expensive than their non-Fairtrade equivalents."
This also supports my claim, because it gives “economies of scale” as a reason that the increased production cost does not translate into a higher final price. (In other words, it explicitly says that ceteris paribus has been violated, so the implicit message is that if ceteris paribus were maintained, the final price would be higher.)

I say well done to the Fairtrade organization if they’ve found a more efficient way of producing (by utilising economies of scale), but this is something any organization can do, so it is irrelevant to any economic analysis of the essence of the fair trade model. There is no necessary connection between Fairtrade and economies of scale. That examples can be found where the final price to the consumer is equal for Fairtrade vs. non-Fairtrade demonstrates only that in the real world, all things are not always equal, and the world is in a constant state of flux.

So the Oxfam quote does not refute my claim that ceteris paribus, Fairtrade products have a higher price than non-Fairtrade products.
Ben & Jerry’s:
“The retail price of Fair Trade coffee is usually within the same price range as other gourmet coffee. Consumers should expect to pay about the same price as regular organic coffee. The main reason coffee farmers earn a better income under Fair Trade is that the farmer cooperatives export directly to importers, cutting out various intermediaries who typically capture more of the profit.”
This is another example of the same thing. This time it is “cutting out various intermediaries” that has meant that ceteris paribus has been violated. Again, I applaud the Fairtrade organization if they’ve found a more efficient production process, but any other firm could do this too, so it is not the essence of Fairtrade and irrelevant for an economic analysis of the fair trade model.
So your new question is not in line with my argument:
“Convince me personally to start buying Fairtrade chocolate… slightly more expensive than a non-Fairtrade brand?” “I have tried the Fairtrade bar an it tastes the same to me.”

I will answer nonetheless:
• If the price and the quality is the same, you might want to give Fairtrade the benefit of the doubt.
The price is not the same in the scenario I am asking you about. Anyway, even if the price was the same, I would still buy the non-Fairtrade product, because buying the Fairtrade product would send the wrong signals to the market: investment would be directed away from the neediest areas. 
• If Fairtrade happens to be slightly more expensive than your favorite (alternative) branded product,
then you might want to ask yourself the question:

Where does the non-Fairtrade branding money end up?
Why are you bringing up branding again? I am trying to do economics here, and that means assuming Fairtrade and non-Fairtrade pay the same for branding. Why do you keep violating the ceteris paribus principle? Let’s stick to economics, please.
So what will happen if you decided for non-Fairtrade rather than Fairtrade (all relative)?
You save a penny. The non-Fairtrade company will earn more… Fairtrade will earn less and a poor farmer will be paid less.
That’s right. And of course the farmer that produces for the non-Fairtrade company will (ceteris paribus) be even poorer than the Fairtrade farmer (remember that absent Fairtrade certification, investor-entrepreneurs are attracted to the very poorest areas). So by buying non-Fairtrade I will be benefiting the very poorest farmers (e.g. in Ethiopia) at the expense of those less poor (e.g. in Mexico). And of course I can donate the penny saved to a direct charity as well if I wish.

You are of course free to keep buying Fairtrade if you wish, but be aware that you would be helping the world's poorest people more by avoiding Fairtrade and encouraging others to do so as well.

1 comment:

  1. Graham I replied here: