Blame the consumer who is willing to pay MORE if you must blame someone. No where in free trade is there a guarantee to income or profit. Your above statements are great examples of supply vs demand. No EVIL there. So people want to pay more to feel good, let them. I don't buy organic because it costs me more. When my local market switched to all organic for some of their produce, I simply switched to a different market in the shopping center next door. I feel good because I can buy MORE for my family. Law of Substitution.

The Czech +1

I agree with The Czech, but I don't find diplomat's analysis faulty or anything. What contradiction (if any) between the two posts am I missing?

@diplomat61 - in general I would agree that market prices are the way to go, I do this in trying to follow a strict "right-wing" libertarian political stance. However I have an issue with "market price" coffee and other similar commodities.

Companies such as Craft and Nestle control gigantic amounts of the total production in the world, however they have no need for a large amount of the coffee they grow (same case with Banana crops and several other commodities). They grow large amounts of excess crops cheaply to buffer and steady their supply, however the leftover product is sold off below cost. This drives market prices for unprocessed commodities down, choking suppliers, and making it impossible to enter the market, but it doesn't affect prices on our end because roasters are able to pick up excess Craft and Nestle supply at fire-sale prices - they then get accustomed to artificial margins. Craft and Nestle can then produce their various brands of coffee with the coffee they needed for much cheaper than most coffee producers because they have the means to preform every step in the processing of the coffee (harvesting, shipping, processing, packaging, distributing, marketing) - this allows fair competition for basically everyone except for the producers... hence fair trade is born to compensate.

Therein lies the nature of the conundrum. I support (for the most part) a companies right to exercise its will over the capital that belongs to it, and to acquire new capital as its resources see fit. But a free market relies on competition, and when a polyopoly exists (such is the case with almost all imported commodities) you prevent the possibility for competition.

I can't make a formal conclusion though because I really haven't made up my mind on the issue, I just buy whatever tastes the best right now.

I've always felt distinctly uncomfortable with the idea that we can somehow improve the world by subsidizing 3rd world farmers to produce crops using inefficient farming practices and then shipping them halfway across the planet. It screams "waste" about as loud as it's possible to do. A waste of money for the western consumer, a waste of the third world farmer's ingenuity and initiative as there is no need for him to improve his methods, and a huge waste of oil (complete with carbon footprints etc) moving the stuff across the globe. The only justification I can see is that it is an attempt at balancing out the hideously anti-competitive subsidies that the US and the EU give there own farmers.

A free market is what's needed. Alas, as neither the EU or the USA believes in such things a complicated mess of subsidies and protectionism is what we get :(.

@Octavious - Just want to point out that most 3rd world farmers that produces for the international market are not inneficient, in fact they have rates of productivity even higher then US and EU because they have larger areas (thus have more scale wins)and less ambiental regulation. But the subsidies given to US and EU farmers make for a complete screwed international market. And then come this fair trade bullshit.

@ rdrivera

Perhaps, although I've always been led to believe that fair trade tends to support the smaller scale family business of farmer more so than the 3rd world version of western industrial farming. I would happily be proven wrong on that, so if I am please do so. I've also always believed that you could exceed the weekly productivity of your average French farmer with a lazy afternoon's blackberry picking, so in many circumstances I dare say you're right. Either way, the system sucks.

Fair trade businesses almost always reference a third world (or second world) country rather than the local home guys. Now, buy local is something I do try to do. I support my local farmers market which has a requirement that the produce and flowers sold *be* locally grown and any canned goods (like pickles and what not) be locally canned from local produce as well. Now local allows some leway when talking canned goods. Normally it means within the county, but as long as a canned good carries the "Kentucky Proud" seal, they will allow it's sale in conjunction with local produce as at least it is a product of Kentucky.

@Kaptinkool: "
Companies such as Craft and Nestle control gigantic amounts of the total production in the world, however they have no need for a large amount of the coffee they grow . They grow large amounts of excess crops cheaply to buffer and steady their supply, however the leftover product is sold off below cost."

Having spent a year as a coffee cost accountant for Kraft I can assure you that they do not control production, and I do not believe Nestle do either. For the UK operation at least, and I am pretty sure the US also, we bought coffee on the open market (NY for Arabicas and London for Robustas). If you want to discuss control of supply look to the ICO (essentially a producers' cartel) who set limits on the quantity members could export (like OPEC does for oil).

@Kaptinkool
"Craft and Nestle can then produce their various brands of coffee with the coffee they needed for much cheaper than most coffee producers because they have the means to preform every step in the processing of the coffee (harvesting, shipping, processing, packaging, distributing, marketing)"

It seems like I am picking on you, sorry it is not personal, just that you bring up some common misconceptions.

I spent eight years working on the world's leading tea brand. Once upon a time we owned the plantations, the shipping lines, the packing plants, the packaging company, the trucking company, the advertising company and the high street store. Twenty years ago, when I joined the company, the only things left were the packing plants and a few of the plantations.

For coffee, as far as I know, neither Kraft or Nestle were ever so vertically integrated.

interesting.

I don't know what to say about fair trade really, except as far a branding goes is i not possible for Kraft or nestle to produce their own 'fair trade' coffee and thus compete in the fair trade sub-market.

Meanwhile on the producer side EU/US subsidies make a much bigger difference to sale prices, and if any sort of reform should be made it is there. (if market prices rose due to a loss of production in the EU+US then all producers in developing countries would see an increase in sale prices, probably bigger than the fair trade deals...)

So to subsidies

'A free market is what's needed. Alas, as neither the EU or the USA believes in such things a complicated mess of subsidies and protectionism is what we get'

Sure, but subsidies are not what 'the EU' or 'the US' believe in, they are the law and policy for historical reasons. Post world war they were implemented to ensure security (food production being vital to a nation during times of war) this threat may be completely different now, however the policy has it's own momentum now. In Europe, farmers are organised, they can vote, and they want to keep their livelyhood. In a democracy there is political capital to be had for supporting 'rural communities' and 'helping the economy'. It is harder for opponents to change the system than it is for the status quo to remain. Thus we are stuck with subsidies, whether 'the EU' wants them or not (actually they are split on the issue, just not split enough to change things...)

We talk of these subsidies, but most of the "fair trade" products don't grow well outside of tropical regions, so the US and most of the EU don't have a real subsidy for these particular products. Farm subsidies in ther US consist of paying farmers to grow specific crops versus other crops (I live in the farmers' heartland: one side of the river I live on is corn and the other side tobacco). The big cash crop in the south is citrus fruit.

http://geography.about.com/od/geographyintern/a/coffeegeography.htm makes a good case as to where the primary coffee growing regions are.

"Generally, there are three primary coffee growing and exporting areas throughout the world and all are in the equatorial region. The specific areas are Central and South America, Africa and the Middle East, and Southeast Asia. National Geographic calls this area between the Tropic of Cancer and the Tropic of Capricorn the "Bean Belt" as nearly all of the commercially grown coffee in the world comes out of these regions.

These are the supreme growing areas because the best beans produced are those grown at high altitudes, in a moist, tropical climate, with rich soils and temperatures around 70°F (21°C) - all of which the tropics has to offer."

And as for teas (another popular fair trade product)...

From http://www.teamuseum.org/tea.php

"The Geography of Tea
Five Asian nations produce the finest tea
The tea plant — Camellia sinensis — is a tropical evergreen, with glossy dark-green leaves. It grows best in tropical and sub-tropical regions that have hot, steamy weather, slightly acidic soils, and good soil drainage. Tea is grown and processed in Asia, Africa, and Australia, but the finest teas currently come from five Asian countries: India, China, Sri Lanka (Ceylon), Japan, and Formosa.

China, the birthplace of tea drinking, has produced tea more than a millennium longer than the other tea growing countries. Although China makes only about ten percent of the tea sold throughout the world (down from almost half before World War II), it produces the greatest number of unusual teas, including an enormous assortment of green tea (roughly 60 percent of Chinese teas are green teas).

India, which produces about a third of the world's tea, is currently the market leader. Only about half of the total is exported each year; India's enormous tea-drinking population consumes the rest. Most Indian teas are black. Interestingly, some tea historians hold that the Indians didn't drink tea until Britain colonized India and introduced wide-scale tea cultivation.

Sri Lanka (often still called Ceylon in tea catalogs) was noted for coffee production until the wholesale destruction of its coffee crop by "coffee rust" disease forced plantation owners to switch to tea cultivation. By 1875 all the coffee was gone. Since then, the country has become the third leading tea producer in the world. One of the people responsible for the shift to tea was Thomas Lipton, who invested in Ceylon to establish a direct source of tea he could sell in his English shops. Like India, most Ceylon teas are black.

Japan, a nation of avid tea drinkers, produces a large crop of green tea that mostly stays at home. A variety of high quality packaged Japanese teas are available, including sencha (ordinary packaged green tea), sen-cha (a steamed green tea), matcha or matsu-cha (a powered green tea used in tea ceremonies), and gyokuro (a sen-cha style tea made from leaves grown under shade).

Taiwan also consumes most of its tea locally, but the island nation does export a variety of high quality green teas and partially oxidized teas, including Oolong, Jade Oolong, and Pouchong, a nearly green tea. Many are noted for the fruity/floral/nutty flavors, and a few are among the most expensive teas available."

^Posts like the one above in particular, and the ones in this topic in general, are what I love about this forum: there's actually some insight to be gained here. Kudos to all of you for this.

Orathaic's point about subsidies is spot on.

Kraft, Nestle, Lipton could market

*ones above, referencing orathaic and Draugnar

fair trade product at high end but are unlikely to do so in mainstream for a combination of cost, taste and logistical reasons that I cannot explain on an iPhone keyboard. If they did it would exacerbate the position of non fair trade growers.

Branded Fair trade products tend to be positioned at high end where they appeal to wealthier consumers. Cadbury do some FT chocolate, partly to compete with niche companies like Green & Black.

Go to the "liberal" universities like UW Madison and you find fair trade coffee houses but the coffee and tea is still at an affordable price for a college kid. It's not always marketed to the upper and upper middle class 6 figure income households.

I read an argument against fair trade that went like this. Prices are low because there is an over supply; supporting fair trade encourages this over supply to continue; thus perpetuating the problem. No doubt there are other arguments which should be considered but I can see the logic.

Oops I just realized that diplomat presented this as an argument in his post.

Some guys here are getting econimic mechanisms very wrong :-(
Fair trade does not lead to an oversupply, where do you get that from?

Here is a link which discusses the price distortion argument (leading to over supply).
http://en.m.wikipedia.org/wiki/Fair_trade_debate?wasRedirected=true#cite_note-economist-1
I have an open mind myself. It could be an effective marketing strategy, for example.

@miro - read the post for explanation of why over supply occurs. If that doesn't make sense to you explain why not.

I read the article from spyman, and already had read the post.
The main problem the critics have is taht they don´t get that Fair Trade is a new product, and differs from the products of Nestle. It´s not only coffe you pay for it´s a premium for the farmers too. So they can not be enslaved by the big corporations.

The only real point of critizism is exactly this issue. Big corporations like Nestle complain about not getting FairTrade licenses. But what do they think these licenses are for :-)? They are for fair payment of producers and against bad working conditions and marketmonopolies, so even this critic is not founded.

@diplomat
"So, is fair trade a good thing or a market distorting evil?"

I don´t know how you were taken in by this criticism of FairTrade, but the whole criticism comes from journalist and economist who were paid by big corporations
"The Economist" or some "institues" claimed as "think tanks of capitalism" are bringing this criticism up.

I can only say there is no "market disorting evil" that´s bullshit.

@diplomat and his whole argumentation

"The supply of coffee has increased but the demand has not changed (consumers do not drink more coffee, they only pay more) so the price goes down. Ouch!"

That´s wrong because:

First, in many cases the exchange between producers and intermediaries does not occur in a competitive framework. In such case the market price is a distortion because it does not reflect the productivity of producers but their lower market power.

Second, the price distortion argument does not take into account the principles of product differentiation. Coffee, for example, cannot be compared to other commodities such as oil: there is not one single type of coffee but instead many different brands that are differentiated from one another in terms of quality, blends, packaging, and now also "social responsibility" features.
Consumer demand and taste defines what different market prices are acceptable for each of these products. In this sense, fair trade can be considered as a market-driven innovation in the food industry that creates a new range of products for which a growing segment of consumers are willing to pay more based on environmental and social responsibility claims.

@Miro:
"the exchange between producers and intermediaries does not occur in a competitive framework"
Almost all coffee is bought and sold at auctions in NY (Arabicas) and London (Robustas). Most tea which exported is bought and sold at auctions either in country of origin or either London or Dubai. To suggest that these are not "market prices" is ridiculous.

"the price distortion argument does not take into account the principles of product differentiation." The differentiations that you describe relate to the product on the supermarket shelf. You are confusing these with the raw ingredient. There is one type of tea (camelia sinensis) and two types of coffee (robusta and arabica). The growing conditions and processing does create some difference in the final taste (which is where the blenders come in) but within the types they are broadly substitutable (for example, in a tea blend you might use tea from Vietnam instead of from Indonesia, from Tanzania instead of Kenya).

Labeling a product as fair trade, eco-friendly, sustainably grown are indeed tools of the marketeer but they will be backed up by demonstrable facts, woe betide any company which lies about these things.

@diplomat

"Almost all coffee is bought and sold at auctions in NY (Arabicas) and London (Robustas)"
But NOT FairTrade...

"The differentiations that you describe relate to the product on the supermarket shelf. You are confusing these with the raw ingredient. There is one type of tea (camelia sinensis) and two types of coffee"
Once again, NOT FairTrade!

You should know that when you open a thread about it.

@Miro: you really are off target here.

1) Yes, the price that fair trade farmers get is fixed by the FT buyers but the price that most growers get is determined at the auctions, this is a market price.

2) Are you suggesting that fair trade has found an entirely new type of tea or coffee? I repeat: there is one type of tea (black tea & green tea are the same plant, the difference comes in processing) and two types of coffee.

@Miro: "I don´t know how you were taken in by this criticism of FairTrade, but the whole criticism comes from journalist and economist who were paid by big corporations"

Actually, this criticism comes directly from my own mind based upon knowledge of economics and the coffee & tea business. Until today I have never read the article that Spyman provided or anything similar to it.

Further, if you think that a newspaper like The Economist is paid by corporations to write articles like that then you really are off your mind.