IEA author Sushil Mohan writes for The Guide to Fair Trade 2013

Fairtrade is an organised social movement that promotes social standards in areas related to production and trading of (mainly) agricultural commodities. It does so without being involved directly in commodity production or trade; rather it issues the labels and controls the observance of social standards as well as promotes the market for Fairtrade products. The movement focuses in particular on exports of agricultural commodities from developing countries to developed countries.

Fairtrade provides an additional marketing channel for commodity producers in developing countries. Information economics classifies products according to quality attributes, which include attributes that focus on the production and trading process. Examples of such products are ‘kosher or halal meat’, ‘sustainable palm oil’, ‘bird-friendly coffee’, and products certified by organisations like Fairtrade.

Fairtrade prices are a direct reflection of market supply and demand; they reflect social preferences of consumers. Fairtrade is very much a niche part of the system of free trade and cannot be blamed for causing market distortion and over-production to the detriment of non-Fairtrade producers and ultimately all producers. Indeed, Fairtrade provides an additional trade channel that, among other things, offers opportunities to particular consumers to obtain supplementary utility and to certain producers to access an additional marketing channel that offers possibilities to capture a price premium.

Read the full article here on page 14.