"Fair trade" coffee seems like a great idea. From a lot of perspectives. In fact, it's the kind of thing that even some libertarians love, seeing that it provides a social good without any kind of government intervention. For the uninitiated, it involves customers paying more for coffee, provided that the extra cash goes directly to the farmers, most of whom are impoverished third-world types. For more details, check out this profile of Ugandan Gold coffee in the Pittsburgh City Paper.
It took about four years to turn the first crop; today there are 16,000 trees planted on the site. Ugandan Gold has also sought to rise above the corruption that dominates the area.
And it's not just Pittsburgh. Check out this recent article about fair-trade coffee in the New York Times.
But I wonder. The way I understand it, the major problem with world coffee prices is over-production. And a lot of that has to do with misguided government policies in these third-world nations. Bureaucrats wanted subsistence farmers to switch to a cash crop. Coffee was a good one. Until people kept growing more of it. And suddenly, despite booming demand, there was a glut. Prices? Toilet.
So how do you deal with a glut? The "natural" way is to let marginal producers fall out of the market. And as supply falls, prices rise. But doesn't fair trade coffee do the opposite? It provides a price floor. But only for a well-connected few. The farmers from Ugandan Gold get $5 per pound. But what's that do to the farmers working the next farm over?
From what I can tell from the City paper article, it seems like Ugandan Gold is actually a NEW FARM adding NEW PRODUCTION to the market. In essence, isn't that making the overall problem worse?
(Update: I am clearly not the first person to ask such questions.)
This doesn't make fair-trade a bad idea in general. I think it's definitely worth a look. Still, unintended consequences can be a bitch.
Update 2: Here's a general response to the overproduction question from some fair trade folks. It amounts to, "Well, it's better than your idea." Fair enough, I guess. But not necessarily convincing.
Update 3: Here's an even more interesting response from Ben & Jerry's:
Evidence shows that Fair Trade farmers use their additional income from Fair Trade to improve their homes, send their children to school, and improve the quality of their existing crop, rather than to increase production. Farmer co-ops also invest Fair Trade premiums in crop diversification in order to escape from their dependence on coffee as their primary source of income.
That sounds nice. But it also runs counter to a fundamental rule of economics: When prices rise, so does supply.
Either way, check it out. The people are trying to do something good. So maybe there is a way to work it out.