Singleton on fair trade coffee, again

As per my August post, I am confused by Alex Singleton’s take on fair trade:

Such policies, whether government enforced or done through consumer schemes, encourage more affluent producers to stay in the market. This kicks away the ladder from the poorest producers who have no choice but to stay in the market. A quarter of “fair trade” coffee comes from Mexico, a relatively affluent developing country, where only 18% of the workforce is employed in agriculture. Mexico is a country which, if it so chose, could easily exit the coffee market. Because of the incentive of “fair trade”, many producers have decided to stay producing coffee, even expanding production. This is a disaster for the poorest coffee producers, such as in Ethiopia, where drinking coffee was invented. [The Business]

How can a rightward shift in demand hurt suppliers? If we’re in econ 101 land, the demand shift raises the equilibrium price, inducing marginal suppliers to enter the market and also increasing the size of the producer surplus enjoyed by suppliers already present. What assumptions about market structure must we make to obtain Singleton’s result?

3 thoughts on “Singleton on fair trade coffee, again

  1. Jim

    Maybe he’s assuming that there are two seperate markets – the market for Fairtrade coffee and that for generic coffee. And maybe he further assumes that they are subsitutes with a fixed total demand so that a rise in demand for FT coffee means a fall in demand for generic coffee, which would hurt suppliers of generic coffee.

    Which is all possible, I suppose, though I haven’t seen any evidence for it. I’m more concerned about the assumption that coffee farmers in Mexico are ‘affluent’ – a recent source I saw claimed the average income of a smallholding Mexican coffee farmer was around $650.

  2. Jonathan Dingel

    In at least some cases, it’s true that Fairtrade and generic coffe are substitutes: people stop using generic because they perceive it as unfair. I don’t know if the total demand is fixed, but that strikes me as a reasonable assumption. Jim and I agreed back in August that such an interpretation is closer to reality than a single market model.

    However, that does not produce the conclusions that Fairtrade benefits Mexican farmers at the expense of Ethiopians. I am not aware of evidence showing that more “affluent” coffe farmers are more likely or more able to become Fairtrade certified than less affluent producers. Does anyone know more?

  3. Nicolas Della Penna

    Rewarding becoming fair trade coffee being easier for richer farmers, i have heard the following arguments;

    – There is a lag between starting organic produiction and certification; this lag is a capital cost since a producer has to bear the costs fo fiar trade farming but gets none of the benefits until he is certified (that is has to keep selling the coffee as generic in the meantime) the lag between the two events is costly so more capital-rich proudcers (or producers in countries with better banking systems) are btter able to afford it.

    – iirc to be a “fair trade” producer one must be a memeber of a co-op of farmers all of whom must own their own land and not hire more than a certain share of tohers labour (basically small famr owners) to the extent that those who own land are richer than those who do not (and thus cannot be fair trade farmers no matter how much they want to or how much someone would be willing to pay them) and in so far as the poorer landless farmers cannot have access to a loan (which seems reasonable) then they cannot go into fiar trade production and the substition mentioned in Jims comment takes place.

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