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Philip Booth: Free trade, not Fair Trade, will pull poor people out of poverty

Philip Booth 2010 Professor Philip Booth is Editorial and Programme Director at the Institute of Economic Affairs, which recently published Fair Trade Without the Froth by Sushil Mohan.

A few weeks ago, the IEA published an in-depth study of Fair Trade, Fair Trade Without the Froth. The Hilton/Cameron-rebranded Conservative Party likes Fair Trade and there are good reasons why it might.

Fair trade products are freely bought by customers – there has been double digit growth in the sales of Fair Trade products in recent years. It is a private labelling and certification system. Private regulation is generally crowded out by government regulation whereas in this field it isn’t. No doubt, David Cameron would describe Fair Trade as the Big Society at work – I would describe it as the free market at work.

The fact that we might like the idea of private certification schemes in principle does not mean that every scheme works in practice. There are genuine questions about what Fair Trade achieves. Even researchers sympathetic to Fair Trade have suggested that only about 25% of the price premium finds its way back to the suppliers in poor countries.

In a series of extraordinary attacks on the author of the monograph – an academic with enormous experience of trading systems in poor countries – the Fairtrade Foundation said that such criticisms were biased and out of date. They argued that retailers no longer necessarily charge a price premium, citing some specific examples. This shows extraordinary naivety about how retailers operate. What the Foundation means is that the price premium is no longer visible because it is now rare to have Fairtrade-labelled products and non-labelled products that are sufficiently similar to enable customers to make easy comparisons.

Given the benefits to producers, there are extra costs involved in Fairtrade products and there are various price premiums to be paid. Unless the benefits – and costs – to producers are illusory, it is beyond belief that retailers are simply accepting lower margins from Fair Trade products. As ever, the Foundation is unable to justify its points with research, just the odd anecdote.

The author also showed how many of the benefits to producers of Fair Trade products can often be found in the traditional trade channels that are traduced by the proponents of Fair Trade; that middle income countries were the main producers of Fair Trade products; and that there is a significant cost and administration burden imposed on those farmers who choose Fair Trade.

These things do not necessarily matter. It is clear that Fair Trade benefits some specific people in some specific circumstances. Paul Chandler, the extremely fair-minded and dispassionate Chief Executive of Traidcraft (a Fair Trade company, unlike the Foundation, the role of which is different), has pointed out that Fair Trade is not for everyone. Nevertheless, he argues, not unreasonably, that it is worthwhile for some producers and can help develop financial infrastructure and networks that are useful for some poor communities. He is right.

But, in the final analysis, Fair Trade is not capable of pulling 400 million people out of absolute poverty as free trade has done in recent years. Yet traditional trade channels are strongly criticised by the Fairtrade Foundation including in literature used by very young school children who have not got the detailed knowledge of trade theory to be able to make informed judgements.

Fair Trade provides a fraction of the help to poor people that is provided by global philanthropy (probably about 0.02%). And Fair Trade risks imposing Western whims on poor producers who have to undergo the certification processes and bear the significant costs of certification if they are not to be locked out of this growing market. Fair Trade schools and parishes make a commitment to sell Fair Trade products. As such, if a farmer wishes to join schemes such as the Rainforest Alliance, or Bird Friendly – other voluntary causes that may be close to the heart of Western consumers – then they have to have join multiple labelling schemes with all the costs involved.

All in all, Fair Trade might well do some good in some circumstances. It is indeed part and parcel of the free market. Conservatives of a free-market disposition should welcome private regulation and certification in principle. But nothing justifies the extraordinary defensiveness of the movement when mild criticisms are offered. The halo-polishing and Fair Trade absolutism cannot be justified. I am a stronger supporter of private certification schemes than any Fair Trade activist and the key concern of the Fair Trade movement should be to making sure the brand does what it says on the tin.

But, perhaps the final irony in this story is that the extraordinarily effective Fairtrade Foundation publicity machine is partly funded by the British Government and the European Union – yes, that very same European Union whose tariffs do so much to keep the poorest of the poor ever poorer. But then the Co-op which claims to be the biggest retailer of Fairtrade products (a claim disputed by Sainsbury’s) is the largest recipient of CAP subsidies according to the latest figures I could find. Principles do come at quite a price.

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