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Reflections In A Cup: Ethics, Economics And Fair Trade

Ethics, Economics And Fair Trade


April 29, 2008
By Stuart Daw

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An interesting piece from Reuters on February 9 titled “Ethical Brands Confuse Coffee Drinkers” illustrated some of the difficulties in the marketing of “Fair Trade” coffees.

An interesting piece from Reuters on February 9 titled “Ethical Brands Confuse Coffee Drinkers” illustrated some of the difficulties in the marketing of “Fair Trade” coffees.

It is amusing to see the use of certain words and phrases that may or may not accurately convey their actual meaning. One example is “ethical labels,” inferring that selling coffee that is not part of the Fair Trade system is unethical.

Another is in the careless use of the word “demand,” a technical term in economics that hardly seems appropriate when referring to public response to a campaign appealing to our sense of altruism. Donating to a charitable cause is noble, but hardly “demanding.” I find it especially annoying when the organizers of the program are less motivated by charity than they are profits for themselves, or of genuinely helping farmers of the Third World.

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Profits are a good thing, so why be hypocritical about them? Advertising, in a certain sense, can elevate a good or service well above its true value. People are persuaded to buy an item having been motivated by local or national promotion. The same product with the same value and same marginal satisfaction to the buyer, but selling at a lower price, might be ignored in favour of the higher priced, branded item.
I don’t wish to sound like Karl Marx, but what a waste of money; money being the value equivalent of one’s labour. Thus, in this business we see coffee service operators obtaining a better or equivalent product as a private label, which costs less money, but who insist on selling that label, their own, for less money than a national brand which has cost them considerably more. Why? Did the national brand have to charge more, as the modern liberal claims, because of the money spent on advertising and promotion? Probably not, for that expense enabled them to sell more and lower their costs of production.
Their higher price was merely a demonstration of the public having been drawn into perceiving a value that does not exist. Such is the reason a successfully branded item greatly enhances the value of the business producing it, for the advertised product, even an inferior one at a higher price, persuades people to buy.

Some Fair Trade schemes enable those promoting them to sell more products at higher prices, which seems to contradict the laws of supply and demand. For there is of course a general principle involved in any scheme to rig prices apart from normal market forces. The unfortunate result is most often to the detriment of the very people who are the intended beneficiaries.

A price above market value invariably does two things: creates an incentive to produce more for the producers, and causes the consumer to buy less. The consequence? Overproduction, along with lowering of demand, causes a glut of a commodity and an often drastic falling of prices. Such has been the result of the ICO attempting to fix prices in the past, and it will be the result of Fair Trade and other “sustainable” capers in the future.

The “International Institute for Environment and Development” quoted below sounds like a group of “crazy, mixed up kids,” a segment of what one might call an “economically illiterate electorate.”

Here are excerpts from that report:
LONDON – Coffee consumers need to be told more about industry efforts to help the environment and farmers in poor countries if so-called fair trade products are to break out of their niche markets, an independent report said.

The study, by Consumers International and the International Institute for Environment and Development, said a widening range of schemes guaranteeing social and environmental production standards and the recent entry of large roasters like Nestle into the area risked confusing consumers and increasing costs for farmers.

“Consumers are now facing a growing complexity of ethical and environment claims in coffee and there is concern about confusion and declining standards,” the report said. “It is also possible that certification may be another requirement for market access and a barrier for small producers.”

The report looked at the Fair Trade, Rainforest Alliance, Organic, Utz Kapeh and Bird Friendly certification programs. On the demand side, it looked at markets in the United States, Denmark, Finland and Portugal.  Fair Trade focuses on giving farmers a premium to help protect them from the fluctuations of world prices. Utz Kapeh, a Netherlands-based scheme, covers good agricultural practices and worker welfare. The Rainforest Alliance, Organic and Bird Friendly certifications address environmental concerns.

The survey found that producers working with the Fair Trade organization benefited, but that the impact of the other schemes was more mixed and depended on location and farmers’ practices before certification. Camilla Toulmin, director of the IIED, a London-based research institute, said it was hard for smallholders to finance the extra costs involved in meeting certification requirements. More than 70 per cent of global coffee production is on farms of less than 10 hectares.

Ethical labels account for less than three per cent of the world coffee market but the launch of certified coffees by some of the world’s largest roasters reflects rising consumer demand. However, the companies have tended to add a new certified brand to their portfolio and the report found little indication they planned to use certified coffee on any major scale in their established brands.

“We welcome the growing range of certified coffees offered by the big roasters but we want to see a general contribution to long-term sustainability, not a token nod,” said Richard Lloyd, director-general of Consumers International. He also called on supermarkets to improve the visibility and availability of certified coffees on their shelves.

If all of this were a guarantee of coffee quality for the consumer, it might be applauded. But it is not, and the large companies that join in the effort are succumbing to the political correctness of the times. o