Yesterday afternoon, James Delingpole e-mail blasted his latest of 365 Ways to Drive a Liberal Crazy:
218. On being served Fair Trade coffee, take a sip, then spit it out in horror and disgust. Gag: “My God! This is Fair Trade! Don’t you know I never do Fair Trade stuff? Fair Trade is evil.” Explain the reason for your principled objection: by overpaying certain favored suppliers, Fair Trade sends out incorrect price signals that distort the market. If coffee prices are low, it’s not a sign that well-meaning liberals should be emotionally blackmailed into paying more; it’s a sign of over supply which — were the market allowed to work correctly — would send a signal to farmers to diversify their portfolio of crops.
There are a few problems with Delingpole’s spitting rant. First of all, coffee trees aren’t a crop like wheat or potatoes that can be freshly planted in a year’s time and harvested later in the year. It takes a number of years between the planting of a coffee tree and the year that berries can first be harvested.
The price per pound paid to coffee farmers varies significantly over time:
So coffee farmers do not know what the conditions of the coffee market will be when they plant their coffee trees… and after they’ve planted their trees, they need to follow through with years of work before they get compensation.
Second, as Oxfam points outs, there aren’t a lot of lucrative agricultural alternatives in the places where coffee is made:
Diversification out of coffee, advocated by Northern governments, is rarely profitable nor feasible given current market conditions. First, most cash crops (such as cocoa for instance) have seen a drastic decline in prices. Moreover, food crops are not much more profitable than coffee, which would not justify the significant costs involved in switching production, in the absence of access to credit or technical support. This low profitability of food crops results from dysfunctional local markets as well as lack of market access in OECD countries. Therefore, as long as coffee harvesting costs are covered (harvesting is usually done by the family), farmers keep on producing, even with rapidly falling prices.
Third, James Delingpole doesn’t consider that the fair trade aspect of production is an aspect of the product that people buy. A cup of fair trade coffee is a product with branding and quality claims above the level of regular coffee just like a Mercedes Benz car is a product with branding and quality claims above the level of a regular car. The fair trade coffee product offers features that valued by consumers that regular coffee does not offer. The willingness of fair trade consumers to buy coffee at a premium cost is an indicator of the value of that premium product. This is not a distortion of the market; it is part of the market. It’s just a part of the market that James Delingpole does not like or understand.
While the Fair trade system is not a perfect way to assure coffee growers a livable wage, in the aggregate it does lead to higher payments for farmers. But James Delingpole is right about one thing: markets aren’t all there is to life, and markets aren’t necessarily the best way to help people who are struggling as a consequence of the cruelties that markets can inflict. If you’re a coffee drinker and you want to really help out the struggling people who grow your coffee beans, then consider a donation to a charitable effort like Coffee Kids that helps build infrastructure in coffee farming communities. At Irregular Times, we pledge to donate a buck toward international poverty alleviation for every made in the USA shirt we sell. We’ve just sent a donation to Coffee Kids and encourage you to do the same.