Free trade is only real fair trade


Fair Trade – that’s got to be good, hasn’t it?


Over at Anti Dismal, Paul Walker discusses an article in The Economist by Amrita Narlikar and Dan Kim which argues that like a lot of other ideas that sound good in theory,  it does more harm than good in practice:

Despite the claims of its champions, the fair-trade movement doesn’t help alleviate poverty in developing countries. Even worse, it is just another direct farm subsidy of the kind most conscientious consumers despise. In the long term, the world needs free trade, not fair trade. . .

The stated purpose of the fair-trade movement is to give economic security to producers in developing countries — often of unprocessed commodities such as fruits, live animals, and minerals — by requiring companies and consumers to pay a premium on the market price.

Until now, any questioning of the fair-trade movement has been limited to the micro level. The movement has faced repeated criticisms, for example, for the relatively expensive fees that producers must pay to get a fair-trade label, which make it ineffective for many poor farmers. Another area of concern is just how lucrative the process is for middlemen and retailers. Finally, several studies show that very little of the premium that consumers pay actually reaches needy producers. Consumers might be surprised to learn that only one or two percent of the retail price of an expensive cup of “ethical” coffee goes directly to poor farmers.

The adverse effects of fair trade are even more worrying at the macro level. First, fair trade deflects attention from real, long-term solutions to rural poverty in developing countries; and second, it has the potential to fragment the world agricultural market and depress wages for non-fair-trade farm workers. . .

Walker points out in spite of the marketing which tries to convince consumers that Fair Trade is good for producers, they get only a tiny percentage of the money made:

An interesting statistic is that in 2010, retail sales of fair-trade-labelled products totalled about $5.5 billion, with about $66 million premium — or about 1.2 percent of total retail sales — reaching the participating producers. There has to be a better way of helping poor farmers. Having only 1.2 cents out of every dollar spent on fair-trade products reach the target farmers is a hugely inefficient way of helping these people. If people wish to help these farmers there has to be charities out there that can transfer more than 1.2 cents per dollar to them.

Also a more efficient and straightforward way to help poor farmers is to remove the massive OECD subsidies and tariffs we see on agricultural products. In other words, a move towards free trade is needed.

Fair Trade has a powerful brand but it’s not one which really helps producers.

They, and consumers, would have much more to gain from free trade, which is the only real fair trade.

Who Benefits from Subsidies? – corrected


A post on Anti-Dismal about who gets what from agricultural subsidies concludes the biggest gains go to the landowner. * corrected below

That is backed up by this paper by Chris Nixon from NZIER which says that product prices are capitalised into land prices.

The findings Anti-Dismal points to, indicate it doesn’t matter if they are real market prices or ones artificially inflated by subsidies.

However, if the impact of the removal of subsidies and the ag-sag which followed that is any indication,  subsidies benefit those who depend on farmers too.

When subsidies were removed after the 1984 election, farmers were brought kicking and screaming into the real world and many feared there would be a mass exodus from farms. Farm values fell – adding credence to the view that product prices are reflected in land values – and some people were forced to sell, but most hunkered down and learned to stand on their own feet.

However, when the subsidies went, farmers’ incomes fell,  they stopped spending and jobs were lost downstream. The worst effects weren’t felt by farmers but by the people who processed what they grew, worked for, contracted to, supplied and serviced them.

If the removal of subsidies hurt those downstream more than farmers, they must have benefitted from subsidies too.

Correction: * Paul Walker points out in a comment below that it was the farmer not the landowner who benefits most.

Since it’s now two days after I made the original post, I’ll address that in a new post.

Selling the good earth


Paul Walker from Anti-Dismal left a comment on my post about foreign ownership saying:

I do wonder what people think overseas owners are going to do with the land, dig it up and take it back overseas???

He’s right in context of the debate about foreign ownership but it reminded me that some enterprising Irishmen are not only digging up their earth and sending it overseas, they’re making money from it.

The Auld Sod Export Company sells Irish dirt to ex-pats and their descendents so they can have a little piece of Ireland wherever they are in the world.

Uses for the dirt are many and varied:

Official Irish dirt products serve a wide array of purposes. Everything from growing your own shamrocks, to wedding gifts, to paying respect at a loved one’s funeral. Irish Dirt aims to bring a piece of the old country straight to you, directly from the Emerald Isle.

Like all good entrepreneurs the company likes to add value so once you’ve got the real Irish dirt, the they’ll sell you shamrock seeds to plant in it.

The International Herald Tribune  reports:

An 87-year-old lawyer in Manhattan originally from Galway recently bought $100,000 worth of the dirt to fill in his yet-undug American grave. A native of County Cork spent $148,000 on seven tons to spread under the house he was having built. “He said he wanted a house built on Irish soil so he can feel like he is home in old Ireland when he walked around his house in Massachusetts,” Burke said. Neither man wanted his name mentioned for fear of seeming eccentric or foolish.

Since Auld Sod’s Web site,, went online in November, Burke said, he has shipped roughly $2 million worth to the United States, where about 40 million people claim Irish ancestry and Enterprise Ireland estimates annual sales of Irish gifts at more than $200 million.

I don’t think it was an Irishman who said, “Where there’s muck there’s money,” but this company is showing where there’s dirt there’s dollars. 

So much easier with other people’s money


Why is it so much easier to spend other people’s moeny?

I asked if there was an economic explanation for this in response to a post at Anti-Dismal and got these answers:

From Mark Hubbard:

. . . because ‘you’ don’t work for other people’s money, thus, it has no real value according to ‘your’ own terms of reference 🙂

On the political level, because they’re so used to this big pot of money they can use for their own whim, and State theft is simply taken for granted by them as of right. If this recession/depression has one good result, it will be to utterly starve the bureaucracies of my money.

Unfortunately, what will actually come to pass is Hayek’s Serfdom principle, and ironically out of all this State caused chaos, the State will get even more control over my life and wallet.

But I’m not an economist.

And from Paul Walker:

I think the simple answer is when spending other peoples money you get the upside, ie the things you buy, without the downside of having to actually pay for them. Its a win-win for you, just not so good for those who have to pay for what you buy. Mark is right in that when its other peoples money you don’t value it the same way as you value your own, its just there, to be spent and at no cost to you.

That explains why Labour spent so freely in the last nine years – they weren’t spending their own money, they were spending ours and didn’t value it.

Don’t go!


Economist Paul Walker has typed a last post at Anti-Dismal  because he reckons low visitor numbers mean it’s not worth doing.

If his aim was to generate lots of visitors that might be so but quality ought to be valued more than quantity.

If we all judged our success on numbers Kiwiblog would be a lone player in the New Zealand blogosphere because it probably gets more visitors in a day than most of the rest of us do in a week or month.

It does so because David Farrar manages to maintain both a large quantity and high quality of posts which attract large numbers of visitors and comments which in turn generate more visitors and comments.

Some other blogs are more like warehouses which might approach Kiwiblog for quantity but lack the quality.

Then there are boutique blogs, among which I’d put Anti-Dismal. They have well researched and written posts but attract far fewer visitors.

That doesn’t mean it’s not valued as the comments on the last post show.

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