Fair Trade - Is It Really Fair?

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Fair Trade - Is It Really Fair?

Author Info

Tomas Konecny
Jan Myslivecek

Abstract

One 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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Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp367.

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Date of creation: Sep 2008
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Handle: RePEc:cer:papers:wp367

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Find related papers by JEL classification:
D18 - Microeconomics - - Household Behavior - - - Consumer Protection
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
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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 Accounting

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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