I have spent much of my life working to get higher prices for third world farmers, and I support trade justice. So why am I so anti the Fairtrade brand?
Take coffee for instance. In the 1980s there was an International Coffee Agreement that kept world prices high and stable by restricting production and controlling stocks. Then, in 1988, I did a job for the UN in Vietnam, which had produced virtually no coffee before the war. I discovered that they had a very secret coffee industry plan and were paying farmers well above the world price. The plan was so secret that they did not know what they had achieved. They were surprised and delighted to hear that they would be the second biggest producer in the world when the trees they had already planted came into full bearing over the next six years. They were shocked to hear that there was an ICA and that they would not be able to sell their coffee because they were not members.
In fact the ICA collapsed immediately the news of the Vietnam coffee planting leaked out: it would no longer be possible to control supplies or stocks. So Vietnam was able to sell its crop, and over the next few years the world wholesale price halved, falling by more than 50c per lb. And because coffee trees last 25 years, the effects are still being felt today.
As total world production rose 5 to 10 per cent, the price of robusta (one type of coffee plant) halved. Our demand for coffee is pretty fixed, and we do not by any means double consumption as prices halve. A fall of 50c a pound in our supermarkets is a hardly noticeable 5 or 6 per cent, and has little effect on sales, but a 50c drop in farm gate prices is devastating to farmers. Nearly all the costs of coffee are fixed—procurement, processing, packing and transport to Europe, roasting, advertising, distribution and retailing—so the 50c fall in price is passed on to the farmer. And for most farmers in most years a 50c fall in price would mean destitution.
The Fairtrade brand is doing just what Vietnam did, paying a selected group well over the world price. They pay the Fairtrade farmers the world price plus 10c. This ten cents could mean a doubling or trebling of the farmers' net cash income, so we can expect them to increase plantings as fast as possible, just as the Vietnamese did. At first, this appears to have no effect on world price, as it takes six years for their trees to come into full bearing. When the new production hits the market, we can expect a price fall of a lot more than 10c, so all farmers suffer.
This is not just a matter of paying one lot of farmers a little more and paying an equivalent number of others a little less. It is a matter of paying 25m farm families around the world a lot less. Most of them are subsistence producers, who grow the food they eat, and get a tiny cash income from coffee. The fall in income means that children die from malnutrition or malaria. And it is the poorest farmers who are hit hardest, those who get the lowest farm gate price because of expensive marketing systems or export taxes.
But it gets worse. When world prices collapse because of overproduction, the Fairtrade brand pays a minimum price, currently $1.01 per pound for robusta. This is substantial: the International Coffee Organization reports a free market price below this 60 per cent of the time, so in effect the Fairtrade farmers are getting an extra 24c over and above the 10c already mentioned. And they do not have the risk that other farmers do. So they carry on planting at a time when other farmers are getting so little that they chop down their trees or let them revert to jungle. And again, it is the poorest farmers in the world who suffer most.
The Fairtrade brand farmers are not poorer, more virtuous or more deserving. They are farmers who meet a set of criteria that are arbitrary, that some would say are irrational, and that many people, including 25m subsistence farm families, would consider unethical. I note, for example, that the white South African wine growers who we were told to boycott for 30 years are now Fairtrade.
Most of the advertising for the Fairtrade brand suggests, wrongly, that the system helps the third world. There is no shortage of alternative ways of giving to the third world, ways which do not devastate whole industries, and which do not harm the very poorest people in the world. There is an easy alternative, one that gets money to the most needy without distorting the market like this. Offer an Oxfam version of each brand of coffee, with 10p of the price going straight to Oxfam, who can use the money for hospitals, roads and schools.
