Does Fairtrade work? And is it worth it? Brand new research.

The evidence is in a new paper from the National Bureau of Economic Research: Fairtrade producers get paid more per kilogram of coffee, have higher incomes, use fewer pesticides and avoid child labour.  The minimum price and the rules the organisation sets actually work.

But there is an interesting question. Does Fairtrade just select for the marketing savvy farmers who would have been smart enough to get those benefits or other ones anyway? Complying with all those rules suggests nous.But Fairtrade seeks out small producers, who you would expect to be less savvy.

The evidence supports the idea that Fairtrade certifies farmers who’d be ill-placed without it.

“Saenz-Segura and Zuniga-Arias (2009) estimate a very strong negative relationship between Fair Trade certification and experience, education, and income within a sample of 103 Costa Rican coffee producers. This finding is echoed in Ruben and Fort’s (2012) study of 360 Peruvian coffee farmers (also see Fort and Ruben (2009)). In their sample, farmers that are less educated and own smaller farms are more likely to become certified.”

Another way to test this is to examine a panel of producers over time.

“In this way, one can examine whether a producer begins to obtain higher prices (for example) just after they become Fair Trade certified

Using such a strategy, Dragusanu and Nunn (2013) examine an annual panel of 262 coffee mills from Costa Rica between 1999 and 2010. They find that Fair Trade certified mills receive 5 cents more per pound for exports than conventional mills. “

A side effect of the selection of less-educated and less-skilled farmers into these schemes, is they may have no idea what is going on.

“Valkila and Nygren (2009) found that Nicaraguan farmers belonging to Fair Trade certified cooperatives had a poor understanding of Fair Trade, including its requirements, and potential benefits. According to the authors, one reason was the multiplicity of certification schemes, quality standards, and rural development projects faced by farmers. They simply were not able to keep track of them all and to distinguish one program from another. Mendez et al. (2010) also found that farmers were often unclear or confused about certifications, particularly about Fair Trade, although farmers did have a better understanding of Organic certification.”

But it turns out the customers may not be that insightful either. The fairtrade label helps us feel better. And the amazing thing? It works even better if it costs more.

“Examining fair labor standards for candles and towels sold in a large retail store in New York City, Hiscox and Smyth (2011) find that the label increased sales by 10 percent, and when combined by a price markup of 10-20 percent, sales rose even more, in the range of 16-33 percent.”

That suggests that really, humans are quite kind-hearted. But such an attribute won’t exist for long before someone takes advantage of it. And so lots of “I can’t believe it’s not Fairtrade” schemes are on the shelves.

The one I can find on lots of Aldi and Nestle products in my house is called UTZ.

utz

 

I’m not saying UTZ is bad. Just that companies will likely choose certifiers with the lowest cost to consumer impact ratio. When one proliferates, it’s worth asking the question of whether it is the real deal.

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

One thought on “Does Fairtrade work? And is it worth it? Brand new research.”

  1. Higher price tag translating to better sales shows that Fair Trade is similar to luxury goods. The more expensive it is the more attractive it becomes.

    Like

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