IN THE REST OF EUROPE,
MARKET SHARES
FOR FAIR TRADE PRODUCTS WERE GENERALLY
LESS THAN 2 PERCENT.
With such a relatively limited mar- are grown and, in the case of cocoa,
ket, can fair trade practices really what kind of chocolate is produced.
improve the lives of the millions of Fair trade-certified coffee, tea, and
poor farmers around the world? The chocolate tend to be sold as specialty
fact that fair trade-certified produc- or gourmet products, rather than as
ers are willing to pay the costs of mass-market items. This complicates
THE PRICE OF CONSCIENCE
certification suggests that they see t comes as no surprise that those price comparisons because gourmet benefits from participating in this who buy “fair trade” are willing retailers or brands selling into gour- market. But the story is often notthe to pay more for the label. But how met markets can already extract a simple one of paying a guaranteed many consumers are willing to price premium for their goods with- higher price and thereby raising the Ido so? In surveys, large majori- out adding additional charges for a
incomes of smallholder producers. ties have said that they would pay fair trade product—if they are will-In cases where the certified share of more for an item if it was made un- ing to accept a lower profit. Note
sales is relatively small, studies have der good working conditions. When also, however, that retailers can ex-found that the fair trade premium is researchers probed more deeply, how- ploit the fair trade label by raising
generally invested in improving the ever, they found that this was not prices far above what is required by
producer organization, rather than always borne out by real-world ex- actual fair trade costs, and squeeze
being distributed to co-op members. periments. Consumers particularly additional consumer surplus out of
This could entail buying or upgrad- were reluctant to pay prices that the transaction. Conversely, fears of
ing processing equipment, investing were much higher than more con- being “ripped off” could deter some
in other quality-control equipment, ventional goods. consumers and be a barrier to expan-providing training to producers on Typically, how much more the sion of the market.
quality improvement or better envi- consumer actually pays depends In the end, unless someone in the
ronmental practices. Producers may on how differentiated the products supply chain is willing to take a lower
still ultimately gain, by improving are, including whether the product profit margin, prices for fair trade-their ability to sell even their conven- is branded. Quality is also a poten- certified products should be higher
tional products more readily in ex- tial constraint: consumers might than comparable conventional prod-port markets and perhaps at a higher pay a bit more, but only if the prod- ucts by at least the amount of the
price if quality improves. But this is uct tastes good. Bananas sold in “social premium” that is added to
not the direct channel bet ween poor northern markets, for example, are the price of the product for commu-producers and consumers willing to almost all of the same variety and, nity development, plus the margin
pay more to do good that the model unlike coffee, there are economies between current world prices and
envisions. of scale in banana production and the guaranteed minimum. On top
There are also potential benefits distribution. The U.S. labeling ini- of the fair trade price and premium
accruing to nearby conventional tiative, Transfair USA, concedes on there are the auditing costs that the
growers. If fair trade buyers provide its website that fair trade bananas fair trade-certified trader must pay,
information and competition, it will may be more expensive than con- plus the licensing fee that the firm
allow producers to bargain more ef- ventional bananas, especially if applying the label on its packaging
fectively with conventional buyers, they are from small producers. The pays. Fair trade goods entail higher
especially when those buyers are same is likely true for many other costs even when conventional mar-few in number and markets are not fair trade products. ket prices are at or above the guar-competitive. One study of rural mar- Coffee, cocoa and tea exhibit anteed minimum for the fair trade
kets in Uganda4 found that just an in- wide quality and taste differences, product.
crease in the number of traders (not depending on where and how they High shelf prices aside, there are
involving any fair trade initiative in
this case) lowered export costs, increased the volume of exports and
reduced poverty.
