Free marketeers attack Fairtrade principle

James Melik
BBC World Service business reporter in Stroud

Certain criteria had to be met to qualify for Fairtrade status

As the Fairtrade Foundation celebrates its brand being found on goods worth £100m ($183m) a year, the BBC visits a Fairtrade town in the UK to ask who benefits from the scheme.

Stroud is one of 40 towns in the UK which promotes itself as a Fairtrade town.

The town had to comply with certain criteria to start using the label three years ago.

"A certain number of shops, three or four, had to sell fair trade produce," says Carol Kambites, a councillor who helped Stroud become a fair trade town.

She was manning a stall inside a supermarket to promote fair trade produce.

"But to maintain our status we have to increase the number of establishments each year."

Guilty conscience

This is how it works: The Fairtrade Foundation guarantees a price for raw materials, say coffee beans, in the belief that this will improve the lives of the growers.

Paul Ettinger: Market dynamics operate efficiently

They then use this as a marketing tool when they sell these products to caring shoppers.

Hence, a small logo on a jar of coffee means politically-minded consumers get to pay more for their daily cup, comfortable in the knowledge that the farmers who grew those coffee beans receive a decent price for their crop.

But critics feel that there is a danger that by setting up a stall in the local Waitrose, Fairtrade is simply preaching to the converted who assuages their collective middle class conscience by paying slightly more for a product in the belief that they are helping people in the developing world.

Ms Kambites accepts that some of that is true, and explains how a budget supermarket once refused to allow a Fairtrade stall because its customers might be concerned about paying over the odds for inferior coffee.

"The prices that producers get don't depend on quality, it depends on whatever can be screwed out of them by the multinational companies," she says.

"The problem lies not in how we organise Fairtrade.

"It lies in organisations like the World Trade Organisation, and the rules are stacked in favour of rich countries against poor ones."

Unrealistic

Free marketeers agree to some extent, but criticise Fairtrade for not taking market forces seriously.

The best way to help people in coffee-producing countries is to open up our markets to them

Alex Singleton, Adam Smith Institute

After all, even Oxfam acknowledges that in Brazil you can have five people and a machine doing the work of 500 people in Guatemala.

"There is no long-term future for the Guatemala model, it's just not economically efficient," says Alex Singleton, a fellow at the free trade think tank, the Adam Smith Institute.

"The problem that Fairtrade faces is that it just doesn't address market realities, that coffee is going to get a lot cheaper."

"We need to work out ways to help [the poor], ways that actually help them rather than to simply make us feel better.

And the best way to do this, he feels, would be to "open up our markets to them".

Tariffs

Mr Singleton believes the way forward is to remove tariffs, stop trying to rig the market, and remove bureaucracy.

"One of the reasons that coffee farmers are in so much trouble is because governments have tried to control markets by subsidising them," says Mr Singleton.

His view is echoed by Caffe Nero commercial director Paul Ettinger.

"If they stopped subsidies, the market would set the price, and organisation such as Fairtrade would cease to exist because the prices would increase overnight," he adds, insisting that guaranteeing a price to the farmer is simply putting extra costs into the whole process and sends the wrong signal to farmers.

"A lot of the coffee which comes out of Africa, India and Vietnam is low-grade Robusta, the sort used in instant coffee and the large conglomerates which purchase that coffee are responsible for the drop in world prices," he says.

He believes the markets should regulate themselves without interference.

"Market dynamics of supply and demand operate efficiently," he insists.