Does Fair Trade Coffee Help or Hurt?

If you’re devoted to the blessed coffee bean, you’ve probably come across the phrase “fair trade” dozens of times. And most of us here in the United States have at least some recognition that the term has to do with bettering the wages of coffee farmers in countries far less affluent than our own.

Given that reality, author Jay Richards asks, “Who wouldn’t want fair trade? ‘No thanks, I’ll take a cup of unfair-trade coffee.’ For a Christian it sounds like a no-brainer” (Money, Greed, and God, 39).

But is it?

Richards is just one of many who question whether fair trade is an effective strategy for alleviating poverty. To understand why, we first need to understand what fair trade entails. In their book, The Poverty of Nations, theologian Wayne Grudem and economist Barry Asmus briefly describe fair trade this way:

The promise of the fair-trade movement is that coffee growers in poor nations will receive a higher price for coffee if it’s produced in better working conditions with higher wages. Then coffee that is marketed as “fair-trade coffee” is sold at a higher price to consumers in wealthy nations. 

Seems straightforward enough: those with more resources voluntarily pay a bit more for their coffee in order to help those who often have radically less income. The reality, however, is not quite that simple. There are a few other factors to consider when evaluating the effectiveness of fair trade coffee.

A Basic Law of Economics

It’s vital to remember that the price of a commodity like coffee on the world market is determined largely by two things: supply and demand. The greater the supply of coffee, the less demand. And with less demand comes lower prices. Keeping this basic law of economics in mind helps us to see what happens when fair-trade artificially raises the price for (at least some) coffee.

The Unintentional Effect on Non-Fair Trade Growers

As Grudem and Asmus note, “Paying some growers a higher price than the world market price for coffee encourages them to grow more coffee than the market actually demands.” They continue by citing economist Victor Claar:

Thus, while there is too much coffee being grown relative to global demand in general, there is also not sufficient demand to purchase, at the fair trade price, all the coffee being grown as fair trade coffee. In both cases there is simply too much coffee. 

The result: “The larger supply of coffee then depresses the price for other coffee growers that are not part of the fair-trade movement” (94, emphasis mine). All things being equal, these farmers will actually receive less of a return on their labor and investment if they’re not involved in fair trade arrangements. 

Other Problems 

Depressing prices isn’t the only unintended consequence of fair trade. Jordan Ballor, a research fellow at the Acton Institute for the Study of Religion & Liberty, explains another:

When it is allowed to do its job, the market price of something provides a lot of good information. It can tell us, for example, that the supply of coffee far outstrips the demand, and so some coffee growers should think about getting into another product or industry. It would be in their best interests to do so, and the best interests of all of us, so that the world doesn’t end up with too much coffee and too little of something else.

Oxford economist Paul Collier notes the tragic irony for the recipients:

They get charity as long as they stay producing the crops that have locked them into poverty (quoted in The Poverty of Nations, 95).

Finally, this New York Times article also mentions instances in which fair trade can open the door both for middlemen to siphon benefits meant for farmers and retailers to artificially raise prices even higher than necessary.

Closing Thoughts

None of this is meant to argue that Christians (or anyone else for that matter) should never purchase fair trade coffee. But I hope it does point to the possibility that what we intend might not be what we accomplish in regard to coffee or any other fair trade product. And in the words of Grudem and Asmus:

Charitable contributions to the poor are more efficiently given by other means, and such charitable transfers will never lead to a long-term solution for world poverty (95). 

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