“Fair Trade” may make us feel better about our wealth; by spending a few cents more on some chocolate or a cup of coffee, we are doing something for small producers in developing countries. But it does nothing for those countries or producers.

If anything, it makes their situation worse. Producers are obliged to pay registration fees of between $2,000 and $4,000, plus additional annual fees. This is necessary to sustain the bureaucracy which oversees what is essentially a price fixing organisation. That cost shuts out many of the smaller and poorer growers.

Nonetheless, those who do fit into the system will make an extra 18c per day by being part of Fair Trade. Maybe they could save that to buy a new tractor. But …

Farmers are discouraged from using fertilisers or pesticides. They cannot own more twelve acres of land. This means that they will never reach the levels of efficient production that would enable them to compete with more developed nations. Larger producers who already use such methods, and are consequently more efficient, are excluded. In other words, the Fair Trade system is structured so as to keep the poor locked into small scale farming and out-dated methods of production which ensure they stay poor.

This is confirmed by studies which show no long term benefit or reduction in poverty for producers who sign on with Fair Trade. Fair Trade is a comforting mirage for chocolate and coffee loving Westerners. It does nothing for growers.

Nor is Fair Trade coffee or chocolate better than coffee or chocolate sourced through normal methods. Growers who are able do so sensibly sell their better grade coffee and cocoa on the open market where it commands a higher price, and sell the inferior product through Fair Trade channels, where the price is guaranteed.

Real fairness, in the form of development and increased prosperity, is a by-product of free trade, not Fair Trade.

More here from Tim Wilson at the IPA.