So what's wrong with fair trade? Aside from all the middlemen, monopsony and hostility to innovation and expansion, that is.

I've been seeing "Fair Trade" and "Ethical" coffee, chocolate and so on popping up in my Mom's church and on the web at other Christian organizations.  And being a real rat bastard contrarian it rubbed me the wrong way.  Particularly the words 'fair' and 'ethical'.  I've always held that anytime someone comes to you talking fair you know you're getting the snow job and if they add in ethical you'd better get the snow blower out before you get buried. But not wanting to prejudge I decided to
go to the (very trendy, very left wing) Guardian of London and see what the case for Fair Trade was.  Only to find that the Kumbaya left isn't particularly fond of this particular scam.

But first of all a definition:  at its simplest Fair Trade is defined as trade in which fair prices are paid to producers in developing countries. Which in practice means a price above market clearing price.  Fair trade also refers to a whole combine of certifications, organizations and farming practices that are enforced on those developing country farmers who receive the 'fair' price. So what could be wrong with paying poor farmers a higher price for their products if they sign up with Fair Trade?

Well it turns out a lot, including:

1. By guaranteeing a minimum price above market clearing, Fairtrade encourages market oversupply, which depresses global commodity prices. This locks Fairtrade farmers into greater Fairtrade dependency and further impoverishes farmers outside the Fairtrade umbrella. Economist Tyler Cowen describes this as the "parallel exploitation coffee sector".

2. Fairtrade Coffee farms are limited to twelve acres and are not allowed to employ any full-time workers. This means that during harvest season migrant workers must be employed on short-term contracts. These rural poor are therefore expressly excluded from the stability of long-term employment by Fairtrade rules. And the size limit means farms never get to scale so the farmers remain poor and subsistence. Imagine how poor American farmers would be if they were limited to twelve acres vs. the 400 plus they average now.

Economist Paul Collier argues that Fairtrade effectively ensures that people "get charity as long as they stay producing the crops that have locked them into poverty". Fairtrade reduces the incentive to diversify crop production and encourages the utilisation of resources on marginal land that could be better employed for other produce. The organisation also appears wedded to an image of a notional anti-modernist rural idyll. Farm units must remain small and family run, while modern farming techniques (mechanisation, economies of scale, pesticides, genetic modification etc) are sidelined or even actively discouraged

3. Fairtrade commodities are middle income country products. Mexico is the biggest producer of Fairtrade coffee with about 23% market share. Indeed, as of 2002, 181 of the 300 Fairtrade coffee producers were located in South America and the Caribbean. As Marc Sidwell points out, while Mexico has 51 Fairtrade producers, Burundi has none, Ethiopia four and Rwanda just 10 – meaning that "Fairtrade pays to support relatively wealthy Mexican coffee farmers at the expense of poorer nations".

4. Almost all the incremental money goes to rich middlemen (Surprise, surprise!). The vast majority of the money from Fairtrade sales remains in the west – with only about 5% of the Fairtrade sale price actually making it back to the farmers. As Philip Oppenheim says, "any intelligent person will ask why I should pay 80p more for my bananas when only 5p will end up with the producer". Fundamental to the failure of wealth transfer are issues such as the fact that while 90% of the world's cocoa is produced in the developing world, only 4% of the chocolate is produced there. Developing countries remain locked in the primary sector commodities market, while the west cashes in on their value-added conversion.

5. Fairtrade is run by political organizations for political reasons.  Their incentives are not to minimize the cost of distribution but maximize the political effects.  The result is a high cost distribution model. Which of course hurt the farmers and consumers who use it. Colleen Berndt of George Mason University details how Fairtrade membership can also be high. The costs take in not just certification and annual inspections, but also the wider compliance with Fairtrade organisational structures. In Guatemala, an executive at Fedecocagua, the country's biggest Fairtrade co-operative, admitted that "after paying for the co-operative's employees and programmes, nothing remained of the Fairtrade premiums to be passed on to the individual farmers".

You see this expensive politicization when you examine the accounts of the independent charity Fairtrade Foundation, which licenses the use of the Fairtrade mark in the UK. In 2008, of a total income of £7.2m, the largest expenditure was on "public education and awareness" at more than £2.1m. Fairtrade is an expensive brand to maintain because it relies solely on consumer awareness campaigns, and these costs eat into the Fairtrade premiums that farmers can receive.

6. Fairtrade doesn't raise farmers out of poverty, it locks them into a genteel poverty preferred by the NGO-chiks that run the operation. Rich western liberals in essence say: "you stay poor and cute and photogenic and all and we'll throw you a few nickles here and there so we get to be 'charitable' and 'authentic'. Ultimately, Daniel Jaffee concludes [see footnote – Ed] that "Fairtrade ... does not bring the majority of participants out of poverty". He suggests the small increase in farmers' wages is at the expense of further entrenching the agrarian status quo, disadvantaging migrant workers and those outside the Fairtrade organisation. Steve Daily, of WorldWrite charity, condemns the movement for having horizons that are far too low, and for not focusing enough on actual agricultural reform. Berndt concludes that Fairtrade coffee can provide a useful short-term hedge against commodity volatility, but that in the long run it "represents at best a Band-Aid to the problems that coffee producing nations face".

After reading just how much informed lefty economists hated Fairtrade I concluded that it must be a GOOD THING or these mango chewing kumbaya yadda yadda-ers wouldn't hate it.  So I went over to my favorite thoughtful libertarian economics blog - Marginal Revolution and damned if they didn't say the same things.  They summed it all up by describing Fairtrade (and all the 'ethical' blather around it) as:  "A Marketing Gimmick"

Anyway, it's probably something that people who say they care about the poor should stay away from.  Although I would have to say that about many NGO's and most lefty proposals to 'save' this or 'rescue' that.  As I said before:  Fair and Ethical are in practice two of the most unfair and unethical concepts in the world today.  Consider.  Beware.  Try not to look stupid.