In case you missed the post from a few days ago on Cafe Hayek, I want to point out a few things.
The post, which focuses on an unlinked to NYT article, is interesting. But the first comment by Slocum was the best part. Pulling some quotes from an article on ReasonOnline:
The FLO defines a fair farm as a family farm that is a part of a large democratic cooperative. Farms cannot be “structurally dependent on hired labor,” which means that hiring even one laborer year-round makes a farm ineligible for certification. Even more controversial is the cooperative requirement. Rather than deal with individual farms, the FLO exclusively certifies large cooperatives composed of hundreds of small land-owning farmers, each with a single vote on how to best spend the Fair Trade profits.
Sayeth Slocum:
In other words, only coffee farmed according to collectivist ‘Dennis the Peasant’ rules of production are eligible.
The interesting thing here, is that Fair Trade was initially set up to eliminate the middle men who were shortchanging small farmers and to produce a transparent conduit for getting coffee from the farmer to retailers. Technically they are successful. Small growers who adhere to the strict rules and join the collective do get a better price for their beans — $1.26/pound. So by displacing up to 5 middlemen, the net cost of coffee goes… up? Yup, by perhaps 66%. The Fair Trade administrators are sucking up a huge amount of the revenue stream here.
And it appears from the articles that Fair Trade coffee isn’t known for even being particularly good. There’s not even any incentive for any farmer to improve quality, as he is only paid based on quantity. In this regard, the system is very much like the UAW pushing a “Buy American” campaign. Workers are being overpaid for an inferior product, which we should buy to feel better about ourselves.
This can — and I suspect will — be successful as long as good marketing strategy can maintain the information asymmetry among the American coffee consumer.
