Does Buying Fair Trade Coffee Help the Poor?

Most of you will have heard of “fair trade” products—“fair trade” coffee being probably the best known. Various Christian and other organizations are active in promoting these products and, more recently, even coffee chains such as Starbucks have joined the effort. What exactly is this movement?  On its website, Fair Trade Canada, one of a world-wide group of such organizations, notes:

Fair Trade is … about making principles of fairness and decency mean something in the marketplace. It seeks to change the terms of trade for the products we buy - to ensure the farmers and artisans behind those products get a better deal. Most often this is understood to mean better prices for producers, but it often means longer-term and more meaningful trading relationships as well.

Since the 1980’s an international system of Fair Trade certification has developed:

Fairtrade certification begins with producers - usually democratic associations of small-scale farmers who grow the raw ingredients in Fairtrade certified products. Producers have to meet a variety of criteria that focus on a range of areas including labour standards, sustainable farming, governance, and democratic participation. ….

The Fair Trade price aims to ensure that producers can cover their average costs of sustainable production. It therefore acts as a safety net for farmers at times when world markets fall below a sustainable level. Without it, farmers are completely at the mercy of the market.

For many Christians supporting such a “just” cause seems self-evident. Certainly to love our neighbor includes the poor—near and far. Nevertheless, if we are to be good stewards, we need to look at the results. Does it really work? Do we really help the poor by buying “Fair Trade” coffee? Victor Claar (a Christian economist currently at Henderson State University in Arkansas but formerly at Hope College, Michigan), in a booklet entitled Fair Trade? Its Prospects as a Poverty Solution[1], suggests that, for all its good intentions, fair trade may not be of help to the poor and may in fact hurt them. In this post, I will set out Claar’s thinking. 

As an aside, I note, that it is one of the benefits of the free market that individuals can band together in non-profit organizations such as those for “fair trade” and participate in the market. All can exercise their market votes as they see fit.

The Fundamental Problem—Too Much Coffee.

Claar’s  major contention (p.51) is that “despite its marvelous intentions, as well as the good-faith monetary contributions that consumers make when they choose higher-priced fair trade coffee over other coffee, Fair Trade will never lead to the long-term enrichment of the poor”.  The basic reason why coffee prices have been too low for coffee growers to make a reasonable living and to pay their workers adequate wages is that there has been simply too much coffee[2]. In fact, some of that excess supply is due to government subsidies in some of the coffee growing countries[3]. 

Before continuing this point, a brief note on volatility is in order. Coffee prices can fluctuate widely in the short term. On the supply side, God chooses to allow bumper crops and lean years with frost, drought etc. causing significant changes in total production. Lean years cause higher prices but these do not bring out increased production immediately since it takes 2-5 years for new plants to come into production. On the demand side, coffee consumption responds very little to price changes (it is price-inelastic). You are unlikely to drink a few extra cups of coffee because it’s cheap or forego your regular fix because its price is higher. The result is significant variation in prices. To the extent that the fair trade movement ensures some stability in growers’ income with minimum prices, it may help some.

Now getting back to the longer term, if there is too much coffee production, the price of coffee will drop. Eventually, some producers will reduce their acreage and try other crops or businesses; coffee production will fall.  If demand stays the same, prices will eventually rise and some farmers will be able to make a reasonable living. The fair trade movement, however, distorts this normal market movement by masking the price signals. Fair traders, by paying above-market prices, encourage even more people to grow even more coffee.  Fair trade deals act like “golden handcuffs” because it discourages member growers from trying something new.

Moreover, fair trade makes non-fair trade prices fall and thus makes non-fair trade growers poorer. New growers enticed by the higher prices for fair trade coffee create surplus production and falling prices. A further “unintended consequence” of fair trade agreements is that they weaken the incentives of coffee growers to increase the market appeal of their product through quality improvement. Colombia, for example, has improved demand for its beans by improving its quality. Research indicates that coffee drinkers tend to buy first on the basis of quality.

The moral shortcoming of the fair trade movement (p.53) is that “ it keeps the poor shackled to activities that, while productive, will never lead to poverty reduction on a large scale—or even a modest one. Furthermore, if our purchases of fair trade really do retard the long-term rate of poverty reduction, then buying fair trade might rightly be viewed as causing harm.” 

Who gets the money?

Consumers in developed countries voluntarily pay a premium for fair trade coffee. But, does that extra amount really end up with the poor?

In the first place, Claar notes (p.22), the fair trade movement covers only a small proportion of coffee growers. The international organization certifying growers is limited to cooperatives of small coffee growers. Larger plantations are excluded—no matter how well they treat their workers. Moreover, the movement limits the number cooperatives that may join and charges relatively hefty fees for the privilege of membership. “Fair Trade International requires farmers in low-income countries to pay thousands of dollars in order to participate in a network presumably intended to provide poverty relief to its producer organizations.”[4] The restrictions and cost imply that(p.22) “fair trade misses the majority of coffee growers—whether large or small.”

Moreover, Claar writes (p.50) that it is unclear how much of the premium paid for fair trade coffee actually reaches the coffee workers. “Of the extra dollar or two that you pay for a bag of coffee, at least some tiny part remains by the time it travels all the way back through the entire supply chain to the needy growers that you are seeking to serve.”In 2015, he adds[5], “A growing literature suggests that the benefits of fair trade coffee accrue mainly to those in the supply chain who are already well-off by global standards. Apparently, a larger fraction of the retail price of fair-trade coffee remains in the consumer country compared to that fraction for regular coffee. While the gains to the growers are debatable, there is little doubt that the traders and roasters benefit immensely from the fair-trade labeling.

How Might a Caring Christian Respond?

In his final chapter, Claar calls for a “thoughtful, careful and prayerful response”. We must respond to urgent needs not only with speed but also with an understanding of what is needed most and where we can serve most effectively. For the longer term, his answer is the free market. When prices are free to act as signal showing people what to make either more or less of, poor people begin to flourish. Rapid improvement in poverty reduction has occurred in China and India when markets could operate more or less freely;  prices signal us to stop doing the things that pay little and begin doing things that pay more. A key role for concerned Christians, is to permit and even encourage the markets to do the heavy lifting of the poor from poverty. One encouraging tool, he notes, is the Internet and mobile phone access. Rather than relying on greedy middleman, poor growers have access to more potential buyers and accurate information as to current prices. For example, the introduction of internet kiosks in the Indian State of Madhya Pradesh supplied valuable information to soybean farmers and resulted in significantly higher prices to them. It appears to have accomplished more for them than any fair trade program could.

Poor countries grow richer as their human capital (education and relevant experience) grows and as they invest in physical capital: the machines, tools and infrastructure that make the product of each hour of labour more valuable. We need to help poor countries to wisely grow their stock of human and physical labour while remembering that markets and their prices send the best available signals as to where our efforts can have the greatest impact. Examples are micro-lending efforts such as Kiva and Compassion International to further education—the human capital.  

Moreover, economic freedom, the freedom to make personal choices, freedom to buy and sell and the protection of private property is essential. People must become confident that the fruits of their labour cannot be taken away arbitrarily or by force. Working towards basic human rights plays a critical role. 

Finally, Claar notes that we must work domestically to get rid of protectionist agricultural policies of already rich nations. The poor in many nations simply cannot compete with American growers of many crops because the trade rules are “so utterly slanted against those in other nations”. For example, U.S. sugar buyers may not purchase their sugar from outside the U.S.-- although the world price is lower than the government mandated minimum price for sugar. A great deal for U.S. sugar beet growers at the cost of poor sugar producers elsewhere (and the American consumers of sugar, confections and soft-drinks)! Similar barriers exist for peanuts, cotton and other products (as well as in Canada with its dairy marketing boards).

Recommended

Claar makes a convincing case. This inexpensive booklet is well worth reading. If you favour “fair trade” products, you need to read this.

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[1] Victor V. Claar, Fair Trade? Its Prospects as a Poverty Solution, Studies in Christian Social Ethics and Economics, Acton Institute, Grand Rapids, Mich.2010.

[2] Prices have been somewhat higher since Claar’s booklet but that doesn’t change the basic argument. If higher prices, in fact, continue, the “fair trade” movement would be obsolete.

[3]  As my former colleague, Rob Harvey, pointed out some time ago in a presentation on this issue at Redeemer University College in Ancaster

[4] Victor v. Claar & Colleen E. Haight, Correspondence, Journal of Economic Perspectives, Winter 2015, p. 215

[5] Ibid.

Inequality is Not the Issue

In my recent post Minimum Wage: Good or Bad?, I concluded that “increased minimum wages will, no doubt, benefit those who remain employed, these benefits come at the cost of putting people out of work”. That post generated a number of questions concerning wage determination e.g. “why, biblically, is it fair for persons in certain professions to end up earning twice as much as those in other professions that work just as hard and require the same amount of education?” In this post, I begin to examine a few biblical givens concerning income determination^[1] and hope, in the future, to draw on that to say a few words about wage determination. I’ll start with looking at the issue of equality/ inequality—an issue that seems to be at the forefront of discussion again. In his recent State of the Union address, President Obama, for example, signaled that income inequality will be his domestic focus during the remainder of his term in office.

Distributive Justice

Income inequality is, in fact, a matter of distributive justice--how society's benefits and burdens are to be fairly divided. That, at least according to some, is what economic justice is all about^[2]. A Lutheran Church statement, for example, states:

Economic justice denotes the fair apportioning of resources and products, of opportunities and responsibilities, of burdens and benefits among the members of a community. It includes the provision for basic human need, fair compensation for work done, and the opportunity for the full utilization of personal gifts in productive living^[3] .

The fundamental principle of distributive justice, according to Velasquez^[4], is that equals should be treated equally and unequals, unequally. Or, more formally:

Individuals who are similar in all respects relevant to the kind of treatment in question should be given similar benefits and burdens, even if they are dissimilar in other irrelevant respects; and individuals who are dissimilar in a relevant respect ought to be treated dissimilarly. 

This principle is similar to the apostle Paul's exhortation in Romans 13:7 to "render to all what is due them" (RSV)^[5]. The question is, however, "what is due to each person?" In terms of Velasquez definition, "what are the relevant respects, the criteria that must be considered?" There are several different views as to which criterion should be employed. In the future I hope to deal with the concepts of contribution, need and opportunity. In this post, I begin with considering economic equality.

Equality

 One view of distributive justice, egalitarianism, stresses equality. It holds that every person should be given exactly equal shares of society's benefits and burdens. That is, there are no relevant respects that would justify different income distributions. In today's society there may be few who would hold to strict egalitarianism. However, the focus on inequality between the top and bottom segments of society does have strong egalitarian tendencies--a striving towards income-levelling--"a lawnmower that ensures that incomes become as equal as pos­sible so that no blade of grass can continue to exalt itself above the others"^[6]. Is such striving a matter of biblical justice?

I recognize, of course, that all people are, in principle, of equal worth or value as image-bearers of God. Relating equal worth to the concept of image-bearer makes this point of departure fundamentally different from the sociali­stic equality concept which focuses only on people and their inter-relationships^[7]. The implication of this "image-bearer" principle is that:

No one has, on the basis of "natural status" (race, sex, birth), special privileges over another. Therefore, income differences that are based only on differences in sex, race, nationality, birth, tradition, power, respect, relationship or age should be rejected.

While being of equal worth before God implies equal access to the law, it does not, necessarily, lead to economic equality, equality of outcome--as, for instance, in equal net income after tax. In fact, we must recognize that God has created people different and unequal. Inequality in aptitude and performance results in different distributions. As Douma has noted^[8]:

Just as there are differences in the splendour of the sun, moon and stars (1 Cor. 15: 41ff), so there are differences among people, even when they will live on a new world with God. Also there, the one will show more lustre than another (Dan. 12:3) and the reward of one will be greater than the other (Luke 19:16ff; 1 Cor. 3:12ff). Why then would it--speaking generally--be wrong that in our existing relationships there are differences in income?

Griffiths^[9], similarly, points to "the basic differences that exist in creation" as the Christian starting point:

One person differs from another in appearance, personality, energy, temperament and ability. The fact of economic differences between people is not defended but assumed in the New Testament. In the parable of the talents...our Lord makes no attempt to justify the initial unequal distribution of talents.

He quite rightly notes, however, that not all inequalities are just. "Inequality which results from exploitation, violence and corruption is inimical to a Christian world-view".

Advocates of equality sometimes refer to 2 Cor. 8:13,14:

Our desire is not that others might be relieved while you are hard pressed, but that there might be equality. At the present time your plenty will supply what they need, so that in turn their plenty will supply what you need. Then there will be equality.

Grudem^[10], however, notes that the word translated here as equality (isotes) is better translated as "fairness". It is used in that sense in the only other time it is used in the New Testament (Col. 4:1). In addition, Grudem argues that Paul was not here asking the wealthy Corinthians to divide their possessions equally with the poor Jerusalem Christians. Rather, the focus appears to be on meeting need rather than on equality. Moreover, Vickers has noted^[11] that in 2 Corinthians we find a directive to the church as church--not to society at large.

Overall then, Biblical distributive justice does not mean an equal sharing of all goods. In fact, a striving for economic equality may well be anti-scriptural--motivated by the sin of envy, of jealousy^[12]. When the landowner in the parable of the workers in the vineyard (Matth. 20:1:16) chooses to pay all his workers equally, he responds to the complaints of those who worked longest with "Don't I have the right to do what I want with my own money? Or are you envious because I am generous?".

Justice and the Poor

That is not to say that Christians should not be concerned for the poor or that government should not be.  Biblical texts such as Jer. 22:3,15; Ps. 82, make clear that caring for the "weak"--the poor, the widow, the stranger--is an important aspect of biblical justice^[13]. As the Oxford Declaration notes:

(Par. 38) In Biblical passages which deal with the distribution of the benefits of social life in the context of social conflict and social wrong, justice is related particularly to what is due to groups such as the poor, widows, orphans, resident aliens, wage earners and slaves...One essential characteristic of Biblical justice is the meeting of basic needs that have been denied in contradiction to the standards of scripture.

Biblical justice is very closely related to Neighbour-love as Deut. 10:17-19, for example, makes explicit:

For the Lord your God is God of gods and Lord of lords..He defends the cause of [executes justice for] the fatherless and the widow, and loves the alien, giving him food and clothing. And you are to love those who are aliens, for you yourselves were aliens in Egypt. 

Showing concern for the poor should not, however, be confused with seeking equality. David Brooks, in an article entitled “Don’t call it ‘income inequality’”, argued that so-called ‘inequality’ is caused by two different “constellations of problems.”[14]  In the U.S., at least, the growing wealth of top 5 percent of workers is, according to him, “linked to things like perverse compensation schemes on Wall Street, assertive mating (highly educated people are more likely to marry each other and pas down their advantages to their children), and the superstar effect (a few superstars in each industry can reap global gains while the average person cannot). At the bottom, on the other hand, there is “a growing class of people stuck on the margins, generation after generation. This is caused by high dropout rates, the disappearance of low-skill jobs, breakdown in family structures and so on.” 

However, the growing affluence of the rich is not related to the marginalization of the poor[15]. Reducing inequality by taxing the rich does not automatically help the poor. The economy is not a pie of fixed size so that someone can get a bigger slice only if someone else gets a smaller one. The economy, unlike the pie, can grow. Focussing on inequality introduces class conflict. Instead, Brooks argues, we should all focus on creating opportunity and social mobility; on individual and family aspiration, not class-consciousness.

A lot more needs to be said on the causes and solutions of the poverty problem. Let us, as Christians, focus on that instead of reinforcing the focus on inequality. Inequality is not the issue; poverty is!

Related Posts

Minimum Wage: Good or Bad?

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[1]. We are concerned here with the general notion of income distribution. That is not the same as income determination. Income distribution refers to the allocation of net income received by everyone after taking account of all taxes and transfers from others including the government. Wage determination deals with establishing the gross payment to be made between employers and employees. We hope to deal with wage determination in the future.

[2]. For example, Beversluis in Bernbaum, p.26: "I use economic justice and distributive justice as synonyms".  

[3]. In Stackhouse, ed. p. 433. See also CPJ, Guidelines for Public Justice, which define Economic equity as "the right of all persons and communities to adequate access to the resources necessary for a full life, including access to worthwhile work, fair employment conditions and income-security provisions, and our communal responsibility to use such resources responsibly". 

[4]. Manuel G. Velasquez, Business Ethics: Concepts and Cases, Third Ed. Prentice Hall, Englewood Cliffs, 1992, p.91

[5].See Beisner, Prosperity, p.44,50 and in Schlossberg et. al. p.68

[6]. Douma, Vrede, p.149

[7]. See also Griffiths, 1989, p.37

[8]. ibid. p.142

[9]. 1984, p.78.79

[10]. in Chewning, Vol. 2, p.47

[11]. 1982, p.152; see also Beisner, 1988, p.69 for a detailed discussion

[12]. Douma, 1985, p.149; Beisner, 1988, 173

[13]. Cf. Pierard, in Chewning V.2, p.68 and Richard Chewning, John W. Eby, Shirley J. Roels, Business Through the Eyes of Faith, Christian College Coalition & Harper & Row, San Francisco, 1990, p.28ff

[14]  David Brooks, “Don’t call it ‘income inequality’”, National Post, Jan. 18, 2014, p. A22-reprint from the New York Times. 

[15] See also, Joe Carter, “What Every Christian Should Know About Income Inequality”, http://blog.acton.org/archives/65172-every-christian-know-income-inequality.html