Is Fair Trade a Fair Trade-off?

Fair trade enables me to liberate people from poverty, but is it worth the cost? A quick search on Amazon gave me a hint. As an experiment, I compared the prices of three different versions of vanilla extract. One was the plain package, one was the organic variant, and the last was Certified-Fair Trade. The regular edition was the most affordable, the organic product was a few dollars more, and not to my surprise, the fair trade version was the most expensive. It was about five dollars more than the organic type. Add to that, it wasn't actually vanilla extract. It was vanilla mixed with glycerin, a liquid derived from sugar.

Why did this retailer charge more for it? The answer isn't that simple. Fair trade is a trading mechanism that aims to compensate producers in a way that is considered more "fair" when compared to other methods. The Fairtrade Labeling Organizations International (or the FLO for those without carbon dioxide to spare) is the largest fair trade certifier. The FLO grants two different prices for fair trade producers: a minimum and a premium. The minimum is for those farmers/producers/manufacturers that want more money than the World Trade Organization is willing to offer, but don't want to invest in life-enhancing development projects locally, while the premium pay is a little more compensation for those manufacturers that are willing to invest in social infrastructure like schools and health care.

Regardless of which method is chosen, the FLO and others promise to do many things for their producers. They say they believe in creating opportunities for financially disadvantaged producers, safe working conditions, environmental protection, gender equality, and as much process transparency as possible. Supposedly, will all their doing, they've seen a windfall. On May 24, 2007, the FLO boasted of having €1.6 billion sales worldwide, an increase of 41% every year. By October 2006, it was believed that more than 1.5 million people had directly benefited from fair trade, and another five million had done so indirectly, profiting from the infrastructure that was put in place by the fairtraders.

The most amazing thing is, though, many fair trade products can still be marketed at the same price as their average counterparts, and still cause good. Coffee beans, the most common, are one of these. According to Tim Harford, The Undercover Economist, "wholesalers could pay two, three or sometimes four times the market price for coffee in the developing world without adding anything noticeable to the production cost of a cappuccino... Because coffee beans make up such a small proportion of that cost." If the wholesalers and retailers invested just a few measly cents we could all reap the benefits of fair trade coffee, and possibly without any extra costs to the consumers. I think it's time I gave them a piece of my mind.

Sources:

Answers.com entry on Fair Trade: http://www.answers.com/%22fair+trade%22?cat=biz-fin&gwp=13
The Undercover Economist of Fair Trade: http://www.timharford.com/favourites/gofigure.htm
The FLO prices: http://www.worldcentric.org/store/pricing.htm