Fair Trade - Is It Really Fair?
AbstractOne of the arguments against the Fair Trade scheme is that the guaranteed minimum price tends to depress world prices and thus the incomes of non-participating farmers (e.g. The Economist, 2006). We develop a model that distinguishes between the impact of the introduction of a Fair Trade market per se and the effect of minimum price policies given that a Fair Trade market actually exists. The model suggests that the claims against Fair Trade might not be correct. The introduction of a Fair Trade market may increase the incomes of both participating and non-participating farmers. The minimum contracting price as part of Fair Trade standards, however, precludes the full realization of the program’s potential benefits. The minimum price also paradoxically increases the profits of the middlemen whose local monopsony power the Fair Trade scheme originally aimed to retrench. Furthermore, the total surplus generated by Fair Trade cooperatives declines as the guaranteed price increases.
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Bibliographic InfoPaper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp367.
Date of creation: Sep 2008
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Certification; regulation; price setting; coffee; Fair Trade; monopsony;
Find related papers by JEL classification:
- D18 - Microeconomics - - Household Behavior - - - Consumer Protection
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D45 - Microeconomics - - Market Structure and Pricing - - - Rationing; Licensing
- D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
- Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
This paper has been announced in the following NEP Reports:
- NEP-AGR-2008-12-21 (Agricultural Economics)
- NEP-ALL-2008-12-21 (All new papers)
- NEP-INT-2008-12-21 (International Trade)
- NEP-REG-2008-12-21 (Regulation)
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- AfDB AfDB, . "African Development Report 2004," African Development Report, African Development Bank, number 21 edited by Adeleke Oluwole Salami, 6.
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