I spent a week at Princeton Theological Seminary for a summer seminar on the role of Christian thinking on the American Revolution. It was an enriching experience in many ways, not the least of which was the coffee. Because PTS is an institution of the Presbyterian Church (USA), a politically progressive and in some ways trendy denomination, all the coffee was guaranteed righteous. There was social justice in every cup. You see, Presbyterian coffee, of the mainline variety, is fair trade coffee, and so it feels especially good going down.
But feelings aren't everything. Victor Claar has written a helpful little book for the Acton Institute, Fair Trade? Its Prospects as a Poverty Solution, that cuts through the self-congratulatory emotions concerning coffee-growing peasant poverty and lays out the economic sources and constraints of their situation.
The idea behind fair trade, as applied to the coffee industry, is that the market exploits peasants who supply us with our five-dollar coffee fix but who themselves don't make enough money to live beyond a subsistence level. But caring consumers can raise the incomes of these small coffee growers by choosing to pay higher prices for their coffee through a network of private organizations and initiatives, including cooperatives at the producer level and an international fair trade labeling system.
"Fair Trade coffee growers of arabica coffee are currently guaranteed $1.25 per pound, plus an additional ten cents per pound paid as a social premium intended for local community and business development projects such as schools, sanitation, and health care. Should the world price rise above $1.25, the growers receive the world price plus the social premium."
What morally decent and reflective person hasn't thought of paying an extra penny or two on a cup to boost the living standards of those hillside people living in grass huts? One wonders why the world economy as a whole couldn't work that way. Why can't everything be "fair?" Then I start suspecting that it can't be that simple. But others fly with it. Claar cites an article in The Presbyterian Record whose argument is in the title: "Christians Must Fight for Fair Trade: Loving Jesus Demands a Struggle for a Fair World Economy."
Indeed, it is not that simple. Claar points out the supply and demand problem: "The growers of coffee receive little because, while the job requires hard work, coffee can be grown in many places by desperately poor people with few skills and even fewer options." Exerting downward pressure on prices, global coffee demand has dropped from 3.1 cups a day per person in America in 1962 to 1.6-1.9 a day 35 years later. In the meantime, supply has exploded. In Vietnam, where labor is cheap, coffee production increased 1,400 percent in the 1990s, moving that country from nowhere in the coffee world to second place behind Brazil. In short, Claar writes, "Coffee prices are low because coffee growers have no power through scarcity."
Fair trade coffee sales, according to Claar, on average make up just 1 percent of the American and European coffee market. Within that 1 percent, there is much abuse by retailers. Some exploit the fact that conscientious consumers are willing to pay significantly more to have justice in their cups, and so they increase their profit margin far beyond the premium that goes to coffee growers. Tim Harford, in his book The Undercover Economist, reports a business in England adding 18 cents to the price of a fair trade cappuccino even though the generous extra sum they gave the local growers added less than a penny to the cost of the final product. But there are people who gladly pay whatever is asked for the assurance that they are helping people on the bottom.
At the other end, fair trade cooperatives are only able to sell less than half of their coffee on the fair trade market, sometimes much less. The rest fetches the prevailing rate in the general market. Obviously, the market for fair trade coffee---people willing to pay a premium---is limited, and so most coffee growers are excluded from the pricing system. Lastly, because higher profits of the sort that the fair trade premium offers would encourage higher production in pursuit of those profits, ever more widespread fair trade arrangements would actually lower the world price of coffee for coffee growers who are outside the fair trade cooperatives, i.e., for most of them. So while helping the few, it can actually increase the hardship of most.
It's admirable that people wish to better the lives of coffee growing peasants. I also applaud their use of private initiatives and organizations. But before scorning their neighbors for not sharing their means, and before trying to turn the world inside out and upside down on the basis of an adolescent "why not?" they should make sure that the vehicle they have chosen for their dreams actually does what it's supposed to do, and doesn't do more harm than good.