The fair trade debate concerns the ethics and economic implications of fair trade, a term for an arrangement designed to help producers in developing countries achieve sustainable and equitable trade relationships. The benefits of fair trade for farmers and workers can vary considerably and the social transformation impacts also vary around the world. However the main concerns from critics is that fair trade may give an unfair advantage to some producers over others.
Fairtrade researcher Alastair Smith argues that while some criticisms are grounded in acceptable standards of evidence (and deserve serious attention), others are less well elaborated, and that in a few cases the criticisms presented are assertions with little or no credible evidence to support them. These claims have themselves been criticized on matters of fact, theory, methodology, use of evidence and incorrect citations.
Fair trade income
One study concluded that benefits of fair trade to producers were close to zero because there was an oversupply of certification, and only a fraction of produce classified as Fair Trade was actually sold on Fair Trade markets, just enough to recoup the costs of certification. A study published by the Journal of Economic Perspectives however suggests that Fair Trade does achieve many of its intended goals, although on a comparatively modest scale relative to the size of national economies.
Consumers buy fair trade goods for a variety of reasons; some are willing to pay more for Fairtrade certified products in the belief that this helps the very poor. Critics of the Fairtrade brand have argued that the system diverts profits from the poorest farmers, that the profit is received by corporate firms, and that this causes "death and destitution".
Evidence suggests that little of the extra money paid by consumers actually reaches the farmers. The Fairtrade Foundation does not monitor how much extra retailers charge for Fairtrade goods. Furthermore, retailers almost never sell identical Fairtrade and non-Fairtrade lines side by side, so it is rarely possible to determine how much extra is charged and so how much of that premium reaches the producers. In a very few cases, it has been possible to find out. One British café chain was passing less than one percent of the extra charged to the exporting cooperative; in Finland, Valkila, Haaparanta, and Niemi found that consumers paid much more for Fairtrade, but that only 11.5% of that reached the exporter. Kilian, Jones, Pratt, and Villalobos say U.S. Fairtrade coffee gets per pound extra at retail, of which the exporter receives only 2%. Mendoza and Bastiaensen calculated that in the UK only 1.6% to 18% of the extra charged for one product line reached the farmer. Critics claim that many counter-examples would be needed to show that these are not typical. Since Fairtrade charges a 1.9% licensing fee at wholesale, the maximum that reaches the developing world, even if traders charge unrealistically low margins, is 50%, and a much smaller amount would reach the target farmers.
The Fairtrade Foundation does not monitor how much of the premium paid to the exporting cooperatives reaches the farmer. Cooperatives incur certification and inspection fees, additional marketing costs, costs in meeting the Fairtrade political standards, and possibly costs arising from the monopoly power of the cooperative. Farmers also incur additional production costs on their production, even if only a small amount is sold at Fairtrade prices. Over the years, Fairtrade producers have been able to sell only 18% to 37% of their output as Fairtrade certified, selling the rest without certification at market prices. While both proponents and opponents of Fairtrade acknowledge this problem, there are scarce economic studies presenting the actual revenues of Fairtrade cooperatives and how they spend their money. Weber (2006) examined the additional marketing costs of some cooperatives and found, for example, that "after six years Oro Verde can cover only 70 percent of its [additional marketing] costs with its current income stream" and that the cooperative needs to double its current annual export volume in order to sustain its management team. At the time they were losing money on their Fairtrade membership. FLO figures show that 40% of the money reaching the developing world is spent on "business and production," which includes the costs mentioned above as well as costs incurred by inefficiency and corruption in the cooperative or the marketing system. The rest is spent on social projects, rather than being passed on to farmers.