The aim of this paper is to analyze the relevance of fair trade to the world today and whether it practices meets the ethical issue. The study will analyze its impacts both negative and positive to the developing countries and whether it has been a success for the developed economies. I wish to state that my discussion in this study considers fair trade as unethical even though it is a strong vehicle that has grown in the recent years with the main aim of minimizing global inequalities and intent in promoting globalization grounded in social justice and ecological sustainability. However despite the well meant intentions, it stands on unethical grounds.
Fair trade is one of the most debated topics in the economies since 19th century up to the 21st century and the arguments are along the lines of economic, moral, and socio-political arguments. Its popularity has increased and so is its criticism. But what exactly do we mean by fair trade? 'Fair trade in simple terms simply refers to the business relationship between developing markets and markets in developed countries.' (Joseph, 2007)
There are unique products that are offered in the fair trade markets meant for the world consumer. Some of these are; coffee, tea, chocolate, clothing, bags, etc. The links between the manufacturers and the stores is mainly through such bodies like Fair Trade Federation and the World Fair Trade Organization.
Chrissy, (2007), states that 'Fair trade is an important ethical consumerism movement with an interesting and inspiring history. The challenges and future of fair trade also pose interesting questions about the viability of consumer- based movements, as well as the issue of the developing world.'
Fair trade is unethical mainly because it does not promote the success of the producer in developing countries as it does to the developed markets. Even though it is an organized social movement and market based approach that aims at helping producers especially in developing countries make better trading conditions and promote sustainability, this benefits only run for a short-term and in the long-term, the benefits are washed away with adverse effects.
Fair trade advocates for the producer to receive higher payments besides receiving higher social and environmental standards. To many critics, this is seen as a form of subsidy or marketing ploy that hampers growth. Instead producers should receive normal payments according to their transactions. Because of this hence, fair trade does not adequately challenge the current trading system, which is an impediment to trade growth in the global markets.
The intention of fair trade is to raise as well as stabilize the incomes of small scale farmers, farm workers, and artisans. It also aims at enhancing a more equitable distribution of economic gains, besides increasing the commercial capacities of producer groups while creating opportunities and eliminating risks associated with the production and sale of these goods. The fair trade as well intends to support democratically owned and controlled producer organizations. It is also aimed at promoting labor rights and the rights of workers to organize, while promoting safe and sustainable farming methods and working conditions, and connecting consumers and producers, as well as increasing consumer awareness, and engagement with issues affecting producers.
However, even with all the above objectives of fair trade we can say that it has failed to address the issue of small scale farmers and the objectives are only on paper but are not enjoyed by small scale farmers. In today's world, profit is the vehicle that drives people to engage in economic activities, profits rule. However for the case of fair trade, small scale farmers are left out of the equation and out of the bargaining power and yet they are the people who do the most work. There are indeed too many processes and middle men in between the small scale farmers and their sale of commodities to fair trade organization, and the effect of this is that the huge costs means they get little profits/revenue in return.
'While it maybe profitable for retailers, there is a reason to doubt that that much of the extra that of the consumer reaches the Third World Countries, and there is doubt that farmers get much if any of what reach Third World exporters. There is no evidence that fair trade farmers generally get higher prices.'(Harriet, 2008)
Indeed there is no evidence showing that fair trade benefits or has a positive economic impact on Fair trade farmers. The process is long with too many middle men and by the time the fair trade farmers receive their payments the costs are immense and thus the profits are low. However there are almost no formal impact studies attempting to measure the impact on farmers covering the period before the fair trade practice and after the introduction of Fair trade.
Still debating on the unethical issue of fair trade we look at one of the opponent of Fair trade; Adam Smith Institute who claims that similar to other farm subsidies, fair trade attempts to set a price floor, for a good that is in many cases above the market price. By doing this it encourages existing producers to produce more and new producers to enter the market leading to excess supply. When this happen and if we apply the laws of supply and demand, excess supply can lead to lower prices in the non-Fair Trade market.
'Fair trade is a well intentioned scheme but which does not result to success but failure. Fair trade is a misguided attempt to make up for market failures in which one flawed pricing structure is replaced with another.' (Kimberly & Lynne 2000) It benefits are in the short run because it encourages fair trade producers to increase production due to the high returns and there after they produce more to take advantage of the high returns and the results in an over surplus of production which affects them in the process because the prices goes down.
'While benefiting a number of fair trade producers over the short run, fair trade critics worry about the impact on long run development and economic growth. Economic theory suggests that when prices are low due to surplus production, adding a subsidy or otherwise artificially raising prices will only exacerbate the problem by encouraging more supply and also encouraging workers into unproductive activities. (Mary, 1999)
Despite its conceptualization as a move toward helping developing countries improve, the impact of fair trade on poor countries does not seem to coincide with this assumption and are not felt by developing countries which are the main exporters. 'Fair trade primarily focuses on developing countries exporting products such as cocoa, tea, cotton, wine, gold, handicraft, etc. To developed countries.' (Joseph, 2007)
However fair trade is just but another form of subsidization which in the process impedes growth and it is a flawed as a marketing strategy which does not adequately challenge the current system of trading and thus it is viewed as unfair. To understand the impact of fair trade on the developing countries, let's see what a subsidy does to the developing countries. A farmer in a third world country is given a subsidy because he is deemed to be poor. As a result the farmer is paid or they are paid more than they would have received in a traditional market. Because of the so-called or seen as privileges from subsidies, the farmers seem to misinterpret price signal in the market. This distortion eventually leads to over production and wasteful allocation of resources, among others.
What we mean is that these farmers in the third world countries will persevere in an efficient system of production and without any inclination towards long-term viability. In addition to the above the farmers in developing are faced with the impact of additional costs that include monitoring costs and regulatory costs which create more costs for farmers and further distort their incentives for producing export quality goods, so at the end of the day the producer does benefit much.
There are those proponents of the fair trade with the belief that these third world farmers can benefit in the short-term, earning extra money, during the limited period. However, opponents of the same system argue otherwise on the fairness of this positive short-term benefits when they pale in contrast to the negative long-term effects. "However it is sad to note that in an Ethical Consumerism report, from 2000 it was argued that consumers simply didn't care about ethics.' (Joseph, 2007)
Fair trade market has lot of impact for developing countries both positive and negative impacts. As we set to analyze the impact of fair trade on the local markets, we see an interesting insight produced by developing countries. The implementation of this market-based strategy is expected to improve the price of local goods because subsidized products will take priority over other goods and more production resources will be allocated to the products that will be sold to developed countries.…