Swedish Report criticizes Fairtrade
Helena Johansson Vad uppnas med rattvisemarkning [Executive Summary and Conclusions in English]
This hard hitting report reaches similar conclusions to other analyses by economists.
It will never have a big effect
“There are several weaknesses though. Above all the Fairtrade minimum price can never be extended to a larger number of poor farmers. It is, and will remain, a niche market for relatively few producers. Hence, the labelling initiative will never have a significant role in combating world poverty . . . the concept cannot be scaled up to large volumes. . .”
It harms other farmers
“Poor farmers who are outside the Fairtrade system may be negatively affected by reduced demand for conventional alternatives, and the pressure brought to bear on the prices of conventional alternatives as a result of a production-stimulating effect of the minimum price.”
Farmers get a lot less than the headline price
“producers rarely sell their whole production as Fairtrade, which means that the average price then becomes lower than the minimum price/ Only 30 percent of the total production [of Fairtrade cooperatives (ed.)] qualifies for the minimum price and social premium.”
Even Fairtrade farmers are disadvantaged
“Income support in the form of a minimum price has its disadvantages. It is production-linked, i.e., the farmers must grow specific crops to be eligible for the Fairtrade certification. It may create lock-in effects since the farmers cannot change crops.”
Wrongly attacking conventional international trade
“It is important that the labelling initiative does not mislead people into thinking that conventional international trade is exploitative and unfair in its nature. Instead conventional trade has a large potential to promote prosperity among poor people. If consumers cut down their purchases of labour intensive goods from developing countries it will have a negative impact on income levels of farmers and employees living in these countries.”
“How large a share of the higher price paid by a consumer does a producer get?”
It’s good for businesses, but what about the farmer?
“When a sum of money is to be transferred from a consumer via a shop, wholesaler, buyer, roastery, and cooperative to finally reach, e.g. a coffee bean grower, there is a risk that others along the way are enriched at the same time as costs are incurred for maintaining the system.”
It’s good for shopkeepers
“There is also a risk that the shopkeeper charges consumers a higher price than justified to cover the costs for the labelling system.”
It encourages corruption
“Finally there is a risk of corruption since the minimum price is paid to the producer organisation, which then distributes the money among the farmers.
Fairtrade increases production cost
“Small volumes mean that the production cost per unit may be higher than conventional production. The combination of costs of certification and control generally raises the production costs of Fairtrade products: costs that burden the farmers and reduce the income effect of the minimum price.”
An inefficent way of helping farmers
“In sum, transfer efficiency is generally low meaning that minimum prices are generally inefficient in supporting incomes.”
A very inefficient way of helping farmers
“The social premium may be used for building schools etc., but it is an inefficient way of transferring money to this type of project. A direct financial contribution or aid would be more efficient, because of the link to production and its negative effects, not to mention the higher cost of Fairtrade labelling itself, would then be avoided. Also, a larger part of the consumers’ donation may reach the recipient since it does not go via a trade link and thus steers clear of the risk of leakage associated with such a link.”
AgriFood Economics Centre, Lund
Helena Johansson 046 222 07 96
Helena.johansson at agrifood.ul.se
