Fair trade?
Okay here goes. Let us sit down a dialogue on fair trade for a little while. In order to understand fair trade you must both understand what the fair trade means for the farmer and consumer but you must also understand the nature of commodities. So sit down Drew and let me outline a little something that you should have picked up in Steve Rundle’s class, if you went to it (despite the fact he is a Keynesian economist).
Let us talk about market price. Market price is reached when the consumer’s demand meets the producer’s supply of a specific item (i.e. widget). Let’s look at the supply and demand graph to understand this. Demand is a downward curve as quantity (x axis) increases because as the quantity of widgets increase in the market place the demand for them decreases. Supply is an upward curve as price increases (y axis) because, as the market price of widgets increase, producers have the incentive to produce more widgets and therefore the supply of widgets increase.
If price increases above the market price (the price in which the demand and supply meet) then you wind up with over supply which in turn lowers the market price of widgets. So if Pe (market price) increases to Ps then the supply will increase from Qe to Qs. As supply increases from Qe to Qs the demand is reduced and the Market price falls to Pd (new market price based upon lessened demand).
Commodities by their very nature are very efficient in reaching and accurate market price. On a daily basis commodity traders with a supply meet with commodity traders with a demand. When a market price is met – reflecting their mutual interest in the supplying trader’s need for money and the demanding trader’s need for the commodity – the commodity is sold. One thing that makes commodities so efficient is that the commodity lacks uniqueness producer to producer. That is to say that a particular orange is not worth more money because it is produced at farmer Elbrecht’s ranch instead of Farmer Martin’s ranch (lucky for farmer Martin). Oil is not worth more money because it comes from
With that said let’s understand what a commodity certified as fair trade is. Though the requirements differ depending upon which fair trade organization certifies the product the basic idea is the same. Basically fair trade means that the organization has ensured the individual who produced the commodity has been paid a specified amount deemed as a living wage (this amount depends upon the organization and the commodity in question). In addition to this many fair trade organizations require that the working conditions for the individual producing the commodity meet certain minimums. These requirements depend upon the fair trade organization and commodity in question.
Two things cause a big problem with fair trade. First, is the requirement that some fair trade organizations have make it to cost prohibitive for the individuals to meet (i.e. whatever is gained in the extra price paid for the commodity is lost in complying with the fair trade). But more troublesome than that is a higher market price will exacerbate the problem that already exists. If we say the problem is the individual producer is not being paid enough then the last thing – counterintuitive as it may be – is to simply pay more for the commodity. Paying more for the commodity gives the individual producer an incentive to produce more of that commodity. The increased supply of the commodity drives the demand down even further and in turn causes the market price to fall below it was prior to the price increase.
Coffee is a good example of what happens with an over supply. In the 80’s there was a coffee cartel which controlled coffee prices. In 1989 the coffee cartel came to an end and coffee prices were left to float in the open market and be determined by a meeting of the supply and demand of the coffee. At that time the price of coffee was near $2.40. For a while coffee prices stayed fairly stable. At that time
Now what do you think would happen if you were to go to a Vietnamese coffee grower and tell him simply complying with the fair trade practices will net him more per lb for coffee than he can get selling to the market. Do you think he will limit his coffee production? Do you think that will solve the real problem that is keeping the coffee prices low?
Fair trade does not add value into the final product to the consumer. Why should the consumer be expected to pay for a product that is fair trade? The value added to a fair trade product is simply a marketing value. You pay more because it makes you feel good about giving more money to the farmer. In your consumer decision you have decided consciously or unconsciously that to have a warm fuzzy feeling in your stomach is worth an extra $2 for coffee (the coffee that is not fair trade is the same quality bean but alas no warm fuzzy).
I would like to take a minute to respond to Andrew Martin’s post on fair trade.
There are people in this world who live in poverty, and attempt to make their living through farming, but find themselves at an extreme disadvantage in the conventional trading system.
The disadvantage farmers find themselves in is that they have to rely upon commodity farming which has never been a very reliable way of sustaining an economy.
To me Fair Trade is all about giving a hand to people. It is about giving people opportunities to better their situation. Fair Trade organizations work to help people get better lives through creating fair wages, gender equality, safe and healthy working conditions, and equal and affordable access to medicines.
I’m glad that is what fair trade is “for you” (if that even makes sense). What it is for me is a way for those who haven’t studied successful developing nations to feel good about them selves with a simple short term solution. I am all for a living wage, I’m all for gender equality, safe and healthy working conditions and equal and affordable access to medicines. Let us follow a path in which wealth can be created by the individual and sustained. Healthy working conditions, gender equality and equal access to medicines are rights that the government is responsible for protecting (usually a problem in these struggling countries). Affordable medicines are a function of the wealth an individual is able to create and retain. A living wage is a function of the value of what is produced. Despite all my good intentions I will never be able to create a living wage for myself off of whale oil seeing as how the demand for it is nil after the electric light bulb replaced the oil lamp.
Now, is this Marxist at it’s core? Basically.
Cute. Actually no it is not Marxist at its core. At it’s core this idea is at best a lazy idealism but is more likely just a lazy utopianism. Not that I’m opposed to Utopia I just think Dennis Prager said it best. “Although images of perfection in people's personal lives can cause unhappiness, images of perfect societies (utopian images) can cause monstrous evil. In fact, forcefully changing society to conform to societal images was the greatest cause of evil in the twentieth century.” Who died to prove Marxism wrong….. somewhere about 10 million Russians. Lucky for you free trade is just a bad Utopian idea.
Do people in the Congo and in Mozambique and in Honduras and in Haiti just trying to survive give a shit about this moral defense?
The real issue is not whether those in the
posted by Nate @ 1:02 PM
6 comments
6 Comments:
go ahead and clean yourself up and leave from under my desk and remove my red hands from your pants.
Nate,
why dont you want me to feed my family?
Oh nate...Believe what you will, my very favorite capitalist pig.
You will never change THIS mind... you may confuse the bishops/tylers of the world with your macro-econ graphs and Rundle/Keynsian lines (no pun intended, steve...), enough to think you are actually making an argument based on logical thought, but as for me, my heart will go on. VIVA LA REVOLUCCION!
PS- why do you hate utopia?
PPS- nate e does NOT throw his diamonds in the sky.
This blog sucks, I am switching to Myspace.
It would appear that once again, you are trying to use microeconomic equation to answer a macroeconomic question... ah screw it, cant we all just get high and get along?
watch your tone, opera boy. dont make me drop a REAL aria on your ass...
NEAR... FAR... WHEREEEEEEEEVVVVVERRR you are...
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