2008 Woodie Awards
Putting price on Fair Trade
T.J. Rakitan
Issue date: 3/2/07 Section: Opinion
Is it just me, or does it seem that we make a big deal of the social acceptability of what we buy on this campus? You social activists out there know what I mean: take the case of Fair Trade Certified ("fair trade") coffee. For the fair price of $1.26 per pound, we can assuage our collective undergrad conscience by resting safely in the knowledge that we have just done our part to contribute toward social equity and sustainability in the coffee market. In taking a closer look at the workings of Fair Trade, however, I notice a few caveats that have caused my own conscience to do a few calisthenics. For example, what if I told you that the $1.26 per pound price was set years ago and hasn't been adjusted for inflation since then? Or what if I told you that the growers themselves do not receive the full benefits of that "fair" price anyway? Suddenly, fair trade doesn't seem quite as equitable as it first appeared.
In trying to get a handle on the mechanics of fair trade, I spoke with our very own Professor Matt Warning of the Economics Department, who was kind enough to inform me about the microeconomics of the process. On the one hand, the fair trade certification is first and foremost a way to distribute information about the production of certified coffees: the certification denotes that the coffee was produced to quality and humanitarian standards and that the growers who produced it have ostensibly received some equitable (or, higher-than-market) price for it. From an economist's point of view, this looks suspiciously like a "price floor," which is a way to keep prices artificially high and usually ends up causing an inefficient use of resources in the market. However, the certification means not only that its certified coffees meet its quality standards, but by extension it means that its certified coffees are being sold to a different market altogether: because social attributes are what distinguish fair trade coffees from non-fair trade coffees, fair trade coffees must necessarily participate in the market for socially equitable goods. This distinction is the reason why production of fair trade coffees is not considered inefficient.
In trying to get a handle on the mechanics of fair trade, I spoke with our very own Professor Matt Warning of the Economics Department, who was kind enough to inform me about the microeconomics of the process. On the one hand, the fair trade certification is first and foremost a way to distribute information about the production of certified coffees: the certification denotes that the coffee was produced to quality and humanitarian standards and that the growers who produced it have ostensibly received some equitable (or, higher-than-market) price for it. From an economist's point of view, this looks suspiciously like a "price floor," which is a way to keep prices artificially high and usually ends up causing an inefficient use of resources in the market. However, the certification means not only that its certified coffees meet its quality standards, but by extension it means that its certified coffees are being sold to a different market altogether: because social attributes are what distinguish fair trade coffees from non-fair trade coffees, fair trade coffees must necessarily participate in the market for socially equitable goods. This distinction is the reason why production of fair trade coffees is not considered inefficient.
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Dan Boxman
posted 3/04/07 @ 10:56 AM EST
All I wanted was a lousy cup of coffee with some milk and hot chocolate powder in it. Who really cares where it came from as long as there is no lead or DDT in it. (Continued…)
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