During an interview on the BBC last week, at the start of ‘Fairtrade Fortnight’, I made a number of arguments against ‘fairtrade’. This produced a response from Barbara Crowther, Director of Policy and Communications at the Fairtrade Foundation, in which she sets out and criticises the specific claims I made in the interview. Below I list these arguments and defend them.

Fairtrade locks poor people into agriculture, producing the same crops

Fairtrade sustains many low-yield farms in Guatemala (Haight 2007). And proponents of Fairtrade generally agree that ‘Fair Trade-sponsored organic production helps generate sufficient additional income and labour opportunities, allowing more family members to stay in coffee production’ (Imhof and Lee 2007). Furthermore, ‘Aranda & Morales (2002) show that participation in Fair Trade has increased employment opportunities for family labour, especially for those engaged in organic coffee production, which requires nearly twice the working days relative to conventional production’ (ibid.).

But an abundance of ‘employment opportunities’ in agriculture should not be a priority in developing countries. Fair trade, alongside most conventional wisdom, simply ‘ignores one key necessity for labour productivity growth: successful migration out of agriculture and rural areas’, as Collier and Dercon (2009) argue.

Fairtrade is not effective, as only 5% of the price of a product we buy trickles back to farmers in developing countries

In my view, consumers should have transparent information on just how much of a difference the extra quid spent on a chocolate bar, or a bag of coffee, makes to the farmers. The existing estimates are modest:

‘Valkila, Haaparanta and Niemi (2010, p. 266) […] found that consumers in Finland paid considerably more for Fairtrade certified coffee than for alternatives, but that only 11.5% of the extra paid went to the exporting country. The amount reaching the farmer is not calculated. Kilian, Jones, Pratt and Villalobos (2006) talk of US Fairtrade coffee getting $5 per lb extra at retail, of which the exporting cooperative would have received 10c, or 2%. Mendoza and Bastiaensen (2003, p. 38) calculated that in the UK only 1.6% to 18% of the extra charged for Fairtrade reached the producers for one product line.’ (Griffiths 2011)

Consumers need to confront the fact that the premium prices they are paying are partly used to fund a large-scale marketing operation, with substantially higher overheads than many charities would dare incur.

Fairtrade doesn’t make people better off, but forces them into less efficient farming

‘Many Fair Trade cooperatives are in areas where conditions are not favourable for growing high-grade coffee’(Haight 2007). ‘[L]ow-intensity farming produces very little coffee in the case of the most marginalized farmers, keeping these farmers in poverty. With higher intensities of management, the economic advantages of Fair Trade organic production largely depend on prices in the mainstream markets’ (Valkila 2009).

Often, ‘yield losses ranging between 40–50% are observed’ in Fairtrade-related farming (Killen et al.). A similar conclusion is reached by Beuchelt and Zeller (2011), who conclude that ‘organic and organic-Fairtrade farmers have become poorer relative to conventional producers’, and note that ‘conventional and organic-Fairtrade certified coffee yields are more than 50% below national average, and yields from organic coffee on average are 43% lower’.

Fairtrade doesn’t target the poorest, the majority of beneficiaries are in countries like Mexico

‘Simply untrue’, says Ms Crowther. And, indeed, she has a point. There are more farmers in Africa involved in Fairtrade than in Latin America (some 568 thousand, compared to roughly 262 thousand).

Yet, 509 Fairtrade cooperatives are in Latin America and the Caribbean, compared with 253 in Africa. According to FLO International (2011), the sales revenues to farmers in Latin America and the Caribbean were €382 million in 2009–10, compared with €134 million in Africa. The same pattern is observed in the premia paid to farmers, with those in Latin America and the Caribbean receiving roughly €34 million and those in Africa receiving just €13 million.

Farmers must pay $2-4,000 to get certified, so only the richer ones can afford to join

This does not seem a significant entry barrier for sizeable organisations, but we should realise that this is not the only cost that the farmers are facing. According to Weber (2007):

‘Most organizations need around $15,000 in financing to export one container of Fair Trade coffee. That short-term financing is needed to complement the prefinancing offered by the Fair Trade importer. (The FLO requires Fair Trade importers to provide a minimum prefinancing of 60 percent of the value of the export contract.)’

Dalibor Rohac is the deputy director of economic studies at the Legatum Institute and an economics fellow at the IEA. The IEA has published more on the subject of fair trade here.