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Ethics, Economics and Fair Trade© 2006 Stuart Daw An interesting piece from Reuters on February 9, 2006 titled “Ethical Brands Confuse Coffee Drinkers” illustrates some of the difficulties in the marketing of "Fair Trade" coffees. It is amusing to see the use of certain words and phrases that may or may not accurately convey their actual meaning. One example is in mentioning "ethical labels," inferring that selling coffee that is not part of the Fair Trade scheme is unethical. Another is in the careless use of the word “demand,” a technical term in economics that hardly seems appropriate when referring to public response to a campaign appealing to our sense of altruism. Donating to a charitable cause is noble, but hardly "demanding." It is especially annoying when the organizers of the program are less motivated by charity than they are profits for themselves, or of genuinely helping farmers of the Third World. Profits are a good thing, so why be hypocritical about them? Advertising, in a certain sense, can elevate a good or service well above its true value. People are persuaded to buy an item having been motivated by local or national promotion. The same product with the same value and same marginal satisfaction to the buyer, but selling at a lower price, might be ignored in favour of the higher priced, branded item. I don’t wish to sound like Karl Marx, but what a waste of money, money being the value equivalent of one’s labour. Thus in this business we see coffee service operators obtaining a better or equivalent product as a private label which costs less money, but who insist on selling that label, their own, for less money than a national brand which has cost them considerably more. Why? Did the national brand have to charge more, as the modern liberal claims, because of the money spent on advertising and promotion? Probably not, for that expense enabled them to sell more and lower their costs of production. Their higher price was merely a demonstration of the public having been drawn into perceiving a value that does not exist. Such is the reason a successfully branded item greatly enhances the value of the business producing it, for the advertised product, even an inferior one at a higher price, persuades people to buy. Fair Trade and other such schemes enable those promoting them to sell more products at higher prices, seeming to contradict the laws of supply and demand. For there is of course a general principle involved in any scheme to rig prices apart from normal market forces. The unfortunate result is most often to the detriment of the very people who are the intended beneficiaries. A price above market value invariably does two things: creates an incentive to produce more for the producers, and causes the consumer to buy less. The consequence? Overproduction, along with lowering of demand causes a glut of a commodity, and an often drastic falling of prices. Such has been the result of the ICO attempting to fix prices in the past, and it will be the result of Fair Trade and other "sustainable" capers in the future. The “International Institute for Environment and Development” quoted below sounds like a group of “crazy, mixed up kids,” a segment of what one might call an “economically illiterate electorate.” Here are excerpts from that report: LONDON - Coffee consumers need to be told more about
industry efforts to help the environment and farmers in poor countries if
so-called fair trade products are to break out of their niche markets, an
independent report said.
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