Recently fair trade has gained popularity as evident by the increase in “fair trade certified” labels that are popping up on many products at the grocery store. This label has sparked debate regarding the efficiencies of two different systems of trade—“free trade” and “fair trade.” Many people, myself included, can recite some talking points in support or against the two systems, but when it comes down to it we don’t have enough information about either system to really make an educated statement. It seems to have become an issue that is linked with partisanship. In other words, a precedent has been established that conservatives support free trade while liberals support fair trade; as a result, partisanship has taken the place of facts in determining whether or not someone prefers free or fair trade.
What is fair trade? Fairly traded products are attractive to consumers for a number of reasons. The system on which it is based is supposed to be more beneficial for farm workers and laborers in regards to safe working conditions and appropriate wages. In addition, certified fair trade products encourage environmental sustainability because the label indicates that producers are not using synthetic pesticides that could have deleterious effects on wildlife and soil health. Fair trade aims to alleviate poverty in developing countries because farmers would receive higher payment for their commodity.
All these reasons for buying fairly traded products are “feel good” reasons that are easy to market because they are based on emotion. But from an economic standpoint, is fair trade beneficial to the United States? Fair trade is designed to protect producers from production costs exceeding the price of their commodity by negotiating a price that takes into account the market as well as a minimum price to pay for production. The producers in underdeveloped countries are prioritized over buyers to ensure farmers receive a decent price for their commodity.
What is free trade? Free trade relies on the open and competitive market to set the price of a commodity. It discourages government intervention and instead relies on the market, meaning supply and demand, to appropriately determine a fair price for a commodity. Buyers and sellers should adequately respond to the actions of the consumer to determine an appropriate price.
Unlike fair trade, even if there is a downturn in the market for a particular product due to a lack in demand, buyers and sellers do not negotiate a price to compensate for the downturn so that the seller can receive a higher price. When free trade is truly free, it can be fair trade. Buyers and sellers are not at odds with each other as fair trade portrays them to be. With more sellers of a product and fewer buyers for that product, the price should decrease. On the other hand, with fewer sellers and more buyers, the price should increase. So it seems buyers are competing with other buyers and sellers are competing with other sellers.
The issues that fairly traded products aim to address such as the environment, poverty, and unsafe laborer conditions are all worthy causes. However, if buyers are going to have pay more for a product in order to abide by fair trade rules, is that decision going to trickle down to consumers and force them to pay more for a commodity simply because it has a label that says, “fair trade certified”? When it affects the consumer’s pocketbook, I don’t know how willing they will be to pay a higher price for something that has cheaper alternatives.