Friday, November 10, 2006

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The trouble with fair trade, continued

Two months ago I blogged about the serious pitfalls of implementing fair trade certifications in the coffee trade.

Now I see that the Economist's business.viewhas an interesting story about the brewing battle between Starbucks and Oxfam:

Coffee has become a big testing ground for what it means to be an ethical consumer. The hugely successful Fair Trade brand allows many coffee addicts to get their fix with a clearer conscience, safe in the belief that no farmers have been exploited in the growing of it.

So no wonder that Starbucks, an up-market global coffee chain, has reacted like a scalded barista to criticism from Oxfam, a development charity. Oxfam says that Starbucks is depriving farmers in Ethiopia of $88m a year, by opposing the Ethiopian government's efforts to trademark three popular varieties of local coffee bean. At least 60,000 customers worldwide have contacted Starbucks with expressions of concern, prompting the company to post leaflets in its stores defending its behaviour. It accuses Oxfam of “misleading the public”, and insists that the “campaign needs to stop”....

Starbucks also has questions about the different standards of fairness applied by the Fair Trade brand custodians in different parts of the world. It doubts even that the strategy of the Fair Trade movement, to secure farmers a premium over the market price for their beans, is the best basic approach. Starbucks prefers a code known as the CAFE practices (Coffee and Farmer Equity), which aims to help coffee farmers develop sustainable businesses through a mixture of technical support, microfinance loans, and investment in infrastructure and community development where the farmers live.

So far from being a bloodthirsty exploiter happy to keep farmers in poverty, Starbucks emerges as a responsible firm approaching difficult questions in a thoughtful way. It wants to help its suppliers improve their lot. It is certainly no cheapskate. Starbucks says that last year it paid an average price of $1.28 per pound, 23% above the New York Board of Trade's benchmark “C” price, for all its coffees.

Starbucks's enlightened behaviour makes good business sense. The firm has positioned itself at the quality end of the market, where ethically-minded consumers are concentrated. It has absolutely no incentive to behave badly. Strikingly, another quality coffee producer, Illy Café, has similar issues with the Fair Trade movement, and also prefers to build sustainable coffee farming rather than indulge in simplistic Fair Trade posturing.

Who's right? Decide for yourselves! Here's a link to the Oxfam campagn, and here's a link to Starbucks web page on sustaining coffee-producing communities.

UPDATE: Joshua Gans has some thoughts on the matter that are worth checking out.

posted by Dan on 11.10.06 at 07:14 AM


The two links go to the same place.

posted by: derek on 11.10.06 at 07:14 AM [permalink]

I'm getting Starbucks on both links.

posted by: Judith on 11.10.06 at 07:14 AM [permalink]

Comment directed to Mr. Drezner, if he's got time...

Atrios has a post up that points to an argument by Ezra Klein (who in turn builds off something by Chris Hayes...), the upshot being that unnuanced intro-level econ courses hook students into a kind of free-market fundamentalism.

Core soc. at Chicago was *not* introductory economics but I remember that my instructor was very careful in teaching both Smith and Marx, urging us to consider them as social scientists rather than prophets.

What is your take, as someone interested in both economics and undergraduate teaching.

posted by: TheQuietAmerican on 11.10.06 at 07:14 AM [permalink]

Sounds like Starbucks is acting better than 99% of the companies in America.

posted by: PoliticalCritic on 11.10.06 at 07:14 AM [permalink]

Fair Trade coffee is a nice palative to make western consumers feel better when the buy a $5 latte, but it is no more sustainable than public sector ag subsidies. Did anyone ever bother to think what happens if the coffee buyers decide Fair Trade is no longer the flavor du jour? The farmers will be screwed because their cost structure will have accomodated the higher fair trade price, but they will have to sell at whatever price the market will bear.

The CAFE approach makes a lot more sense from a development perspective. Improve the financing, access to markets and QC and you will improve incomes on a sustainable basis. It avoids wedding the farmer to a particular buyer, thus giving the farmer more control.

posted by: SteveinVT on 11.10.06 at 07:14 AM [permalink]

Shoot! Forgot to provide the link.

posted by: TheQuietAmerican on 11.10.06 at 07:14 AM [permalink]

Thanks again Dr. D for focusing on this issue. I think it is great that Starbucks is focusing on this area, even if in a slightly different way than other fair trade groups. Fair trade should never be reduced to one exclusive "trademark" concept. I see a real risk that the branded Fair Trade groups might fall into supporting a stale variation of communal socialism that has already failed to produce wealth.

The charm of fair trade is that it seeks to have a major impact while only tweaking the market system (i.e. it embraces the fundamental validity of the market) while at the same time avoiding charity handouts. There is no reason that support provided by middle men, wholesalers, and retailers needs to be purely in the form of paying above market prices. Microfinance, direct infrastructure project support, etc., might even be more efficient in the long run.

posted by: Karl B. on 11.10.06 at 07:14 AM [permalink]

Oh yeah, an afterthought: the goal of the fair trade groups (as opposed to retailers like Starbucks) ought to be to put themselves out of business. The concept that a country like Ethiopia might want to brand its coffees and thereby command a higher market price is not reprehensible. If it is OK for Champagne and Napa (ha ha, I can buy wine in my grocery store) it certainly ought to be OK for Africa. Advertizing with "100% Columbian arabica beans" certainly has some clout. Of course locking up varietal names is tough. Chardonnay anyone? Gotta read that Oxfam site.

By the way, one of the most expensive coffees I ever bought at the local roaster was from Ethiopia. That was the first time I ever got a real buzz from a cup of coffee. I was shaking. I can understand why the drink was treated like a trendy drug when it first hit Europe way back when if they were serving it that strong, and I bet they were.

posted by: Karl B. on 11.10.06 at 07:14 AM [permalink]

Is Jesse Jackson on the steering committee at Oxfam? It sounds like one of his shakedowns.

posted by: Mike H. on 11.10.06 at 07:14 AM [permalink]

Now if we could only get Starbucks to not ROAST their beans into oblivion....

Branding--why not? Don't we already have that with Blue Mountain coffee, supposedly the best in the world?

posted by: grumpy realist on 11.10.06 at 07:14 AM [permalink]

Interesting thing about (un)Fair Trade coffee. The price to the farmer has been fixed for about ten years. Many market forces have changed in the world coffee market in ten years. All Fair Trade coffee is fair, only it is more fair to some than to others (all apologies to George Orwell).

posted by: Tim on 11.10.06 at 07:14 AM [permalink]

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