Does the ‘fairness’ of Fairtrade coffee matter?

According to The Weekend Australian, regular commenter Sinclair Davidson and Tim Wilson of the Institute of Public Affairs are going to the Australian Competition and Consumer Commission, alleging that Oxfam has engaged in misleading or deceptive conduct over its Fairtrade coffee. According to Oxfam:

The term Fairtrade refers to an independently audited product certification and labelling system that ensures those who grow and produce coffee get a fair go. It does this by:

Paying farmers and workers a fair price for their work
Helping them gain skills and knowledge to develop their businesses in the global economy
Providing a certification and labelling system to ensure Fairtrade standards are met and that the benefits of Fairtrade get back to the farmer who produced the product

But according to Tim, drawing in part on this Cato article:

there was evidence that Fairtrade products could do more harm than good for coffee producers in undeveloped nations. He cited reports alleging producers had been charged thousands of dollars to become certified Fairtrade providers and some labourers received as little as $3 a day.

I know nothing about how much Fairtrade affects coffee producers, but if we were to be a little cynical about Fairtrade consumers it perhaps doesn’t matter much whether it is good for producers or not. As I have long argued (eg here and here) there is a market for political gestures, and how effective the gesture is likely to be doesn’t seem to be a huge part of the calculation.

Business has seen the opportunity. In Tim Harford’s The Undercover Economist, in an interesting chapter on the retail coffee market, he notes how a UK coffee chain was able to price discriminate by offering Fairtrade coffee – it was a useful way of identifying those customers prepared to pay more than the standard price because they could add altruistic feeling to the sugar and milk in their coffee. I’m not sure whether local cafes price discriminate or not with Fairtrade coffee, but even if not it is still for them presumably a useful branding exercise to attract customers who want to appear to have a ‘social conscience’.

If Fairtrade is really selling a benefit to the coffee drinker rather than the coffee producer, it is perhaps no more deceptive than the other branding exercises designed to create image associations with particular products that have little to do with their intrinsic qualities or characteristics.


In other coffee news, the best item in yesterday’s Age was a brief report saying that Brunetti’s, the best cafe in Carlton, the place that puts the latte into latte leftism, is to stay. The threat that it may be forced to move or close by a landlord massively increasing the rent even made it to the ABC TV evening news, such is Brunetti’s status in inner Melbourne. Clearly the landlord had been stung badly by the negative publicity, as notices have appeared in Brunetti’s windows trying to salvage her reputation, as part of the deal finally struck by which Brunetti’s would stay where it is. I wonder how many thousands she knocked off her rental ask to try to get her reputation back?

113 thoughts on “Does the ‘fairness’ of Fairtrade coffee matter?

  1. To add to Sacha’s question: given that everyone’s time is limited and presumably you want to have an influence in the most important areas, why did you pick this? What level of harm is the FairTrade marketing system doing? Aren’t there much bigger fish to fry?


  2. Sacha – we have actually lodged a formal complaint to the ACCC, and they have responded saying they are looking into our allegations. In our letter we specificed actions and the sections of the TPA that we believe those actions have been violated. In other words, this is a serious complaint. Russell, your point is similar to Rajat’s above. How valuable is my time? To whom? I chose to allocate some of my time to this (all up it took a couple of hours of my time).


  3. A couple of hours lost to the kind of good works which would have earned you the right kind of karma ……


  4. Making sure that large multinational corporations do the right thing by consumers is good work. But if you’re concerned about how I do spend most of my time (on “important” issues), then look at page 20 of the Fin Review today. You’ll see an article about the high corporate tax burden and a report into Australian corporate tax. I wrote that report and it’ll come out early next week. So keep an eye out. Or read some of the papers here.


  5. When I bought my coffee at university today I noticed a small sign I had not noticed before: Fairtrade coffee 30 cents extra, leaving a hefty profit for the retailer in a market perhaps unusually likely to go for this kind of thing.


  6. Russell – Yes, I used Tim Harford’s British observation in my original post. But I hadn’t noticed whether the same thing happened here or not; now I can point to at least one example.


  7. So you did – I came across it again researching the topic – I have all these accounts of the benefits to coffee growers, I’m just too lazy to type them up here. (Maybe Sinclair will be reincarnated as a Timorese coffee grower).

    I don’t suppose you bought the Fair Trade coffee? Pity you can’t avail yourself of the warm inner glow and higher status, for just 30 cents – pretty cheap at the price.


  8. If this were any other complaint against any other multinational like McDonalds, we wouldn’t be hearing all this querying of Sinclair’s priorities. Sinclair would be probably be getting a Man of the Year award from the usual luvvies if the complaint was against McDonalds. But because it’s against ‘Fair trade’ out come the knives. Well, sucked in. The silly law is there and righties have as much right to use it for their political objectives as lefties. If you don’t like it, abolish these consumer protection provisions and let it all be handled by contract.


  9. Jason, as far as we know FairTrade was set up to improve the lives of poor people. There are articles in The Economist, Financial Times etc that say it doesn’t do what it’s supporters do and there are articles in peer reviewed journals that say that it does. Let’s say that that point is in dispute. But to compare Fair Trade with McDonalds is silly – they aim to do different things, and indeed do different things. Given what came out of that whole McLibel episode I think McDonalds might have more to do to rehabilitate it’s reputation than the Fair Trade enterprise.
    (I’m deprived of any warm glow from boycotting McDonalds, unlike Nestle or Nike, since I never saw any attraction in their product – although that reminds me that a long, long time ago, when travelling in foreign parts I used the Golden Arches as a guide to where you would find both a) a place to cash American Express travellers cheques, and b) a shop that would sell Mars Bars)


  10. Jason, we don’t yet know whether or not the consumer protection and reseale price maintennance provisions of the TPA have been violated. All we know is that Sinclair and Tim think they have been violated. I suspect that the ACCC takes all complaints it recieves seriously, regardless of their initial view of the validity oif the complaint. they are, after all, a very professional organisation.

    My suspicion is that neither complaint has any merit. However, as I have not seen the details of the complaint and I am not an expert in trade practices law, it is quite possible that my suspicion is incorrect.


  11. Now Russell, you know that the road to hell was paved with good intention. The single wheat desk was set up to imprive the lot of Australian wheat farmers. Need I say more?


  12. You’d need to say a lot more: nobody is forced to buy Fair Trade coffee.
    As for ‘the road to hell was paved with good intention’ (from your beloved 18th c. ?) the highway to hell is paved with bad intentions. Keep us informed of the ACCC’s response.
    As for Gans and his road congestion charge, he should come to Perth where the government builds new bridges, tunnels and roads and we zip along them with no tolls or extra charges. They seem to have made some mistakes in Sydney and Melbourne.


  13. I’m not sure that Uncle Milton is right about this being a stunt to send the message “fair trade bad”. An alternative interpretation is that Sinclair and Tim are hoping that Oxfam will need to spend large amounts of money defending the case, providing evidence etc and that this money will then not be available to them to distribute drugs to people suffering from HIV, assist in educating girls, afforestation projects and all the other activities the iPA finds so offensive. In other words it is a SLAPP suit pure and simple. As an Oxfam donor it frustrates me some of my donations will have to be diverted to this, but presumably Sinclair and Tim hope I’ll get frustrated enough to stop donating entirely.


  14. From an unpublished letter (as best I can see) to the Australian

    In the particular case referred to thorough investigation evidenced that the farms in question were found to be paying workers around 25% more than they could get elsewhere, despite being able to sell only 10-15% of their crop under the Fairtrade system. Far from an indictment of fair trade, this provides a compelling rationale for the system.
    While breaches of the standards are minimal, it is more likely to occur where growers are able to sell only part of their coffee through the Fairtrade system, and so have to rely on the conventional system for the remainder, often forced to sell for below the cost of production. Clearly the more market demand for Fairtrade certified coffee grows, the more coffee will be sold through the Fairtrade system under Fairtrade
    conditions, benefiting the growers, hired labour, their families and communities.

    The bit in bold (added) is the argument that supports sweatshops everywhere. But the Fairtrade argument isn’t that they run sweatshops, but that farmers are paid fairly.

    Oxfam’s response is here.


  15. Sinclair, how does paying workers wages that are higher than they can get elsewhere support sweatshops? This does not appear to make any sense whatsoever.


  16. Sinclair, according to the Oxfam letter for which you provided a link in comment 70 on this thread:

    “This latest attack on Oxfam by the IPA was timed to coincide with the start of Fair Trade Fortnight, which celebrates the success of Fairtrade around the world and how it helps lift people out of poverty. It is sad and disappointing that the IPA and Tim Wilson chose to try to ambush this important worldwide event.”

    Was this timing deliberate? If so, that would seem to confirm that this is nothing more than a cheap and sleazy publicity stunt on the part of the IPA and its supporters.


  17. Workers in sweatshops often earn more than they otherwise would, but not as much as they could if they were in the first world. I don’t disapprove of sweatshops, but I suspect Fairtrade coffee drinkers would. So this is the argument that supports sweatshops (not provides support which I think you’re wondering about).

    Damien, the rest is character assassination. Providing information to the authorities cannot be ‘cheap and sleazy’. Admit it, when you worked for the ACCC (have you worked for every commie-agency in Australia?) didn’t live in hope that the public would provide information that assisted your efforts? Now, all of a sudden, when the target has ‘good intentions’ this is sleazy?


  18. From the post: “I’m not sure whether local cafes price discriminate or not with Fairtrade coffee, but even if not it is still for them presumably a useful branding exercise to attract customers who want to appear to have a ’social conscience’.”

    In Toby’s Estate cafes (well, at least the one in Potts Pt), one can buy coffee beans, and at least one of the varieties of beans is branded “fairtrade” (I forget which variety – perhaps Timor Leste?). We bought some beans from it a few weeks ago but I’ve forgotten whether the fairtrade beans charged a premium on the non-fairtrade beans.


  19. Just an extra comment about that quote – I agree that the branding of “fairtrade” has an element of attracting customers who want to either do something positive or show that they’re doing something positive, or buy into a “doing something positive system”.

    It’s easy for Sinclair’s complaint to be seen as a political gesture – which it may or may not be – and I’m interested in seeing whether it has merit. I dislike ideological warfare instead of (attempting) to understand the actual situation.


  20. About the thwarted increase in Brunetti’s rent – I would have thought that if Brunetti’s customers liked the cafe it so much, they could pay sufficient premiums for the “Brunetti’s experience”. Maybe they don’t like the cafe that much.

    I certainly pay premiums for the right ambiance.


  21. Sinclair, I don’t get the bit about sweatshops – the reason I object to sweatshops is the huge difference in the cost of producing the product (especially the wages component), and the cost to the consumer is pocketed as profit which is distributed to already wealthy people. It’s the obscene size of the profit being taken by the rich that is wrong. There’s no comparison with the Fair Trade enterprise. Fair Trade isn’t a tool for funnelling profit to rich people – the money is going the other way.


  22. Sorry, I’m not being clear. The argument that workers are earning more than they otherwise would have is the argument used to justify sweatshops.


  23. It’s clear – it’s just not a good argument even when deployed in that different context; and there’s no comparison with Fair Trade because the exploitation thing doesn’t apply. This is charity – it operates precisely to give some people a bit more money. Can you not see the difference between charity and business?


  24. I’m not the person to ask. Ask the workers if they care whether the organisation paying them below minimum wage, but 25% more than elsewhere, is a for-profit or a charity.


  25. Boycott the products with campaigns that point out exactly why they are immoral – it works.

    I’m asking myself why Andrew/Sinclair and I think so differently about this – and one aspect goes right back to Andrew’s remark that people buy Fair Trade to show off their superior principles. Plus it gives them a warm inner glow of self-approval. Leopold amplified this into status seeking and a desire to feel noble and compassionate. Sinclair thinks the road to hell is paved with good intentions.

    So, we have a lot of criticism of good intentions. (BTW Sinclair I’ve always taken that to mean just having good intentions isn’t enough, you have to actually do good things – just what the Fair Trade people are doing!). Apparently people only say they are concerned with justice, equality etc – really that’s just a front for nasty self-aggrandising actions.

    Why would people say that? Because they never want a discussion of what’s going on to be in moral terms – we must never use words like greed, duty, charity, justice or equality. There is nothing but market forces – everything else is a sham designed to fleece the bleeding hearts.

    I don’t believe it. I think some people are obsessed with money and obsessed with counting. Given a very simple choice, rather than just act according to what seems just or generous without even thinking about it (because it really doesn’t affect you), these people devote their intellectual gifts to trying to find some obscure way to attack the organisation that offers them that choice. It just seems mean.


  26. Have you asked the people who have the jobs what they want? Perhaps you need to spend some more time in Cambodia and Bangladesh and Tanzania.

    Just because a person has a low paid job, doesn’t mean you should take their job away from them, declare youself a moral crusader and lecture poor rural peasants about how happy they are now that they aren’t being “exploited” (read: employed).

    If you could find a place of employment in Cambodia that pays U$50 a month I know of plenty of people (friends and friends of friends) who would be more than happy to take that job and would consider you their life long friend because of the help you’ve given them.

    Do you want to help them?


  27. Sinclair I’ve always taken that to mean just having good intentions isn’t enough, you have to actually do good things

    I actually agree with that. What concerns me is the counter-argument to any criticism that says, “But we intend to help the poor. We have good intentions and anyone who criticises us is ‘sleazy'”. I don’t think we’re criticising ‘good intentions’ per se, we’re criticising people who use their ‘good intentions’ as a justification for any and all of their actions.

    – just what the Fair Trade people are doing!).

    We have to disagree on that. I don’t think that price floors in agricultural markets help the poor at all – not in the long run.


  28. “Boycott the products with campaigns that point out exactly why they are immoral – it works.”

    Does boycotting these products lead to the workers producing them getting higher wages?


  29. Sinclair,

    Thanks for the clarification on sweatshops. It had occurred to me this evening that that might be want you meant, but clearly this was after I had posted the comment. Like you, I don’t necessarily have a problem with sweatshops if they improve the welfare of the workers. However, I don’t think that fairtrade coffee farming qualifies as a sweatshop. It already existed prior to fairtrade coffee and it still exists alongside fairtrade coffee. The only difference is the price paid to the workers.

    How is fairtrade coffee equivalent to a price floor? Fairtrade coffee does not prevent the sale of non-fairtrade coffee at lower prices.

    You didn’t answer my question about the timing of the complaint!!!

    The reason I label it as chrap and sleazy is because I am not convinced that it is a genuine complaint. I wonder whether the complaint was simply aimed at gaining publicity for the IPA? I suspec t that this is the case. This is a separate issue from the question of whether or not the complaints might be valid. As I have indicated previously, I do not think the complaints are likely to be valid. However, I have not seen the letter outlining the complaints and I am not an expert in trade practices law. Indeede, I am not a lawyer. As such, I may be wrong about the likely validity of the complaints.


  30. As a clarification, when I was thinking about it earlier tis evening, it occured to me that you probably meant that sweatshops are often defended on the grounds that they offer jobs with higher wages to locals than they could previously get. Since the locals choose these jobs, they clearly prefer them. I agree with this line of reasoning. I just don’t think that the term sweatshop applies to fairtrade coffee because the jobs are not new or different. The only thing that has changed is the wage paid to workers.


  31. Of course, thinking about it further, if the fairtrade coffee allows for price discrimination in developing countries and that increases the profits of cafes and coffee companies, then for people who associate sweatshops with comnpanies pocketing huge profits while paying low wages, perhaps fiartrade coffee farming does qualify asd a sweatshop. Nonethelkess, this does not mean that fairtrade coffee is not doing what it claims. Workers on fairtrade coffee farms get paid more than they would on non-fairtrade coffee farms. As such they are better off. Whether or not workers on non-fairtrade coffee farms are worse off will depend on the impact of fairtrade coffee on the overall demand for coffee and the conditions in the labour markets in coffee producing countries. As a clarification on one of my earlier comments (number 87 in this thread), only the first sentence relates to my thoughts from earlier this evening. The part from “Since the locals —” onwards are subsequent thoughts.


  32. “I don’t think we’re criticising ‘good intentions’ per se, we’re criticising people who use their ‘good intentions’ as a justification for any and all of their actions.”

    No, there was no allowance that people chose FairTrade just because they thought “Oh, I’ll buy this one because the grower will get more money”, and that’s all. It was all about the buyer benefitting themselves, psychologically, by buying it.

    I think what you can’t stand is that Fair Trade introduces morality into the economic equation; and I’m starting to wonder if it isn’t because of some sort of refusal to feel guilty when you know you should – for being so mean. I thnk you need to read Dickens’ A Christmas Carol – and then reread it once every year!

    Ditto about sweatshops – you need to expand your view to see that the immorality lies with the wealthy owners of capital who exploit workers in poor countries – when I lived in Indonesia you couldn’t belong to a union if you worked in one of those foreign owned sweatshops, and if you tried to form one you were ‘disappeared’ (tortured and then murdered). The fact that really poor people apply to work in sweatshops doesn’t make it right. They do it to eat.

    I’ve looked at the literature on Fair Trade and it would be hard to say that it has done much harm – there are accounts of the good that it has done (children going to school whereas they hadn’t previously etc), whereas most of the opponents are claiming, as you are, some possible harm in the future. But in the grand scheme of things, an insignificant part of modern economic life that nobody would bother to waste their time writing to the ACCC about unless they had a very strong ideological prejudice against Fair Trade. And I suspect the prejudice is based on meanness, and a fear that you can’t, morally, justify your views.

    Damien: “sweatshops are often defended on the grounds that they offer jobs with higher wages to locals than they could previously get. Since the locals choose these jobs, they clearly prefer them. I agree with this line of reasoning” and miss the moral point. It is not immoral for a local entrepreneur to employ people in a low wage sweatshop if the entrepreneur’s wealth is 5 or 10 times the workers’. It is immoral when the owner’s wealth is 100,000 times the workers’.

    I’m blaming the Christian Brothers: you can go to a Catholic school, and maybe get better marks, but the Catholic schools never did have much truck with the Bible, so Sinclair probably never read “And now abideth faith, hope, charity, these three; but the greatest of these is charity.”


  33. No. I have not been drinking. Have you?

    Would you prefer to have these opportunities removed from from the locals? You need to specify the counterfactual and then determine how feasible it is. I have no problem with people boycotting products that are produced in so called sweatshops in an attempt to get the company to poay more money to thewir employees. But to ban these so called sweatshops might well harm the developing country. The transaction is a Pareto improvement. The workers are better off, The companies shareholders are better off. The consumers are better off. I think you are too quick to condemn something as immoral. What share of revenue should go to workers? What should go to capital? Define fair. Put a number on it.

    Your comment in 89 makes you sound like a Marxist. Evil capitalists exploiting noble labour. It is possible that these so called sweatshops do more to improve the welfare of local agencies than many charities. So what if they do it to make a profit in the process? Presumably this provides an incentive for other firms to follow suit. This in turn would allow the wages to bid up over time. Things like trade barriers that restrict the ability of this process to work are potentially very damaging to underdeveloped countries. Unless there is a very good reason for trade barriers, such as concern over health effects with things like BSE, then developed countries would enhance their foreign aid by lowering protection.

    It should be clear from my earlier comments that I do not have a problem with things like fair trade coffee. Just like I don’t have any problem with Dolphin safe tuna and other attempts by manufacturers to produce a product that might be desirable to people and achieve other goals. It is called the operatioon of the free market. In the absence of market failures, it improves social welfare.

    By the way, you might as well add the Marist Brothers to your list. I went to a Marist Brothers school for much of my school education.


  34. Maybe I am using a different definition of sweatshops, but I am used to the term where the place in question is driving down wages, rather than up. This is clear in the developed world. Companies shift from employing people on the minimum wage (or higher) to employing a different group in sweatshops. The individuals taking the job gain a small benefit, but the people who lose their jobs in the legal factories suffer a major loss.

    The situation is more complex in the developing world where the factories the sweatshops are replacing are usually those in a different country with different economic conditions.

    Consequently I am completely opposed to sweatshops in the developed world, but think a more nuanced response is required in the developing world depending on circumstances. However, fairtrade raises overall wages for workers in the industry, rather than reducing them. It’s the exact opposite.

    BTW, when did the IPA become opposed to deforestation. I thought they had never met a clearfelling operation they didn’t like.


  35. Well, Russell, three things.

    1) I imagine most people who buy fair trade coffee do think ‘“Oh, I’ll buy this one because the grower will get more money”. Practically no-one would consciously say to themselves ‘I do this thing so as to feel that I’m a good person/show others I am a good person’ – they do it (in their heartfelt view) because they ARE good people and it’s a good thing to do. No-one is suggesting other wise. After all, if you knew you were just doing it to feel good about yourself, you wouldn’t be able to feel good about yourself. 😉

    2) I dislike ‘fair trade’ as a term, because it is associated with policies advocated by organised labour that are not fair at all, but rather deeply unfair. They are designed not to ‘help the poor’ but to transfer jobs and incomes from poor countries like Mexico and Indonesia to rich countries like Australia and the US. ‘Fair trade’ (as advocated by Dougie Cameron et al) is one of the most inegalitarian policy propositions ever put forwards, and as such I’m inclined to dislike the use of the term on principle. Given the frequent protestations about ‘social justice’ from those advocating these offensive proposals, I’m also inclined to take with a large grain of salt similar assertions from coffee buyers.

    In relation to coffee, I haven’t seen the numbers run, but my initial thought is that the most likely effect of ‘fairtrade coffee’ is just a redistribution of income between coffee growers, with some worse off and some better off, rather than any net improvement for coffee growers or for overall poverty. Any benefits would be very, very marginal.

    3) And just to clarify – I have doubts as to whether I understood you rightly: a worker being paid sweatshop wages by Nike is evil; the same worker being paid sweatshop wages by Oxfam is fine?


  36. Marist Brothers! every reason to take to the bottle then …..

    Sorry, it must be the party next door that made me think those typos were alcohol induced – otherwise I would have just assumed you were typing in dim light.

    Who said I wanted to ban sweatshops? I am saying it is immoral for wealthy companies to pay workers a pittance – and I mean a pittance in the local context – when they are making huge profits out of those workers. They could pay the workers a bit more, they could provide health care, they could build and run a school for the local children, they could pay some attention to OH&S standards in their premises etc etc. Nothing to with with Marxism – it’s morality. Greed is not good.


  37. nearly there … 100 comments, (not that I’m counting)

    Leopold, Nike’s sweatshops were very well documented and the campaigns against Nike had a salutary effect on others. If you find Oxfam is running sweatshops please let me know. I’ve only heard of the good they’ve done running programs that train women to produce craft goods, or get children out of factories and into schools etc.

    The wages and coffee thing is obviously a furphy – it’s a subsistence situation: anything the growers / workers get from Fair Trade is a bonus. The anti-Fair Trade fanatics make it sound like the Fair Trade organisations goes in with the aim of under-cutting awards or something. It’s ridiculous.

    I’m not sure what the fair trade argument is from Doug Cameron – something about a level playing field in wages and conditions? Anyway I’d be very surprised if organised labour in Australia has any objection to Oxfam’s Fair Trade project.


  38. I’ll get to 100 by myself

    Leopold, upon reading you again I see:
    “they do it (in their heartfelt view) because they ARE good people and it’s a good thing to do”

    No, we do not have the heartfelt view that we ARE good people. If you’re given a choice and do the right thing it doesn’t necessarily make you a good person.


  39. Russell, Sorry for the “Marxist” jibe. I agree with much of what you say. However, even if the companies don’t provide these things, the workers are still better off than if they weren’t there. Furthermore, I don’t really think that workets in developed countries lose out in the long run. There might be some short term loss, but ultimately, they find different types of jobs. Both developed and developing countries might potentially gain from such a redistribution of jobs.


  40. ‘the workers are still better off than if they weren’t there”

    Not always – things didn’t work out too well in Bhopal.


  41. I must admit that I do not think that a persons decision to consume either fairtrade or non-feaitrade coffee tells you much about whether or not a person is a good person. I’m not even sure that it is relevant. As a general rule, I work on the premise that most people are good people. As such, most peoplw who consume fairtrade coffee are good people and most people who do not consumer faitrade coffee are also good people.


  42. They didn’t work out too well in sites of industrial accidents in developed countries either. For example, Harrisbug, Chernobyl, and others. there is also the people who used to work in asbestos mines. Industrial accidents happen. They should be avoided wherever possible reegardless of the location. What has this got to do with development?


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