Saturday, February 19, 2011

"Fair" For Some

Just before Christmas St. Jude's Mission, along with other Anglican Mission churches, was asked to contribute to a "miracle" that would save a "fair trade" coffee operation in a certain East African country. I think the total amount this enterprise was seeking to raise was around $100,000. Apparently, if the business didn't raise this money it was going to default on a loan for a wash facility. So I asked myself, what kind of operation has to beg churches for a hundred grand in order to remain viable?

"Fair trade" coffee is an emotional subject because the people that support it do so passionately. And I am quite fine with that -- as long as it is clearly understood that "fair trade" amounts to a subsidy of a business based on supra-market prices. Furthermore, fair trade patrons ought to acknowledge the unintended consequences that attend this cause.

The term "fair trade" insinuates that there exists "unfair trade," i.e. free-market failure. Actually, we must understand that free markets are really few and far between. Yard sales (without a permit), flea markets and the like qualify as truly free markets. Coffee, like real estate and most other products, involves a regulated market. And no doubt certain Third World producers are jilted thanks to government regulation, corruption and patronage at some level.

But a price floor of $1.26/lb as stipulated under the provisions of fair trade licensure is its own kind of market distortion. A price floor, like a minimum wage or an agricultural subsidy, creates excess supply of the good in question. And excess supply means that marginal producers, e.g. some Third World farmers, are excluded from the coffee market. Therefore, this "good cause" is actually unfair to those farmers not a party to contracts held by the plantations. Just as a minimum wage creates the unintended consequence of higher unemployment among youth and lower-skilled workers, so the fair trade price floor results in the unemployment of some Third World farmers.

To point this out to some fair trade coffee drinkers is akin to insulting their mothers or questioning their religious convictions. So it goes on most economic questions. That people voluntarily choose to pay a higher price in support of their favorite Third World coffee plantation is perfectly their prerogative.

But it rubs me wrong when a church -- especially one as small and vulnerable as SJM -- is asked to shell out a goodly sum to bail out an enterprise that obviously isn't holding its own. There is nothing particularly "fair" or just about that in my reckoning.

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