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Professor explores effectiveness of fair trade

| Wednesday, October 29, 2014

As part of the Kellogg Institute’s lecture series, professor of economics and international studies Bruce Wydick from the University of San Francisco gave a talk titled “Does Fair Trade Coffee Work? The Taste of Many Mountains, a Novel about Fair Trade Coffee, Globalization and the Poor” on Tuesday afternoon at the Hesburgh Center for International Studies.

The lecture addressed the theme of globalization and poverty in developing nations with particular emphasis on the fair trade coffee movement and Wydick’s novel on the topic.

Noting the contrast between the efforts of wealthy countries and the results of poverty alleviation efforts, Wydick said “what makes us feel good may not be what they need at all” and posed the question “Do we want to help the poor or just feel better in the belief that we have helped the poor?” To illustrate this point, Wydick asked the audience to think of three consumer products they bought for themselves and three donations or consumer choices they made to help the poor and to what extent they had thought about their effectiveness.

“We often do not make the same effort to investigate if things like Tom’s shoes or fair trade coffee worked well as we do with our own personal products,” he said.

Wydick spoke about aid programs that seem to have no beneficial effect and those that do. He said, “programs like one laptop for every child, free shoes and micro finance have been shown by randomized control trials to have no effect.” In contrast, “mosquito bed nets, unconditional cash grants and de-worming programs are the most effective.”

Wydick addressed the paradox between the failure of microfinance and the success of unconditional cash grants.

“Ten years ago, everyone thought microfinance was a silver bullet,” he said.

However, Wydick said cash grants succeed because they increase the purchasing power of poor families.

Turning to the issue of fair trade coffee, a system intended to help poor farmers by selling coffee at a guaranteed price, Wydick listed 10 reasons why the well-intentioned program does not work.

“It encourages people to grow more coffee, lowering prices and farmers’ profits. The flawed design of the system undermines its own benefits; the cost of certification for fair trade standards alone can eliminate the price advantage,” he said.

Wydick also cited a study that found the net income of fair trade farmers did not change over 14 years. He said fair trade incentivizes the use of poor-quality beans and “the cost of environmental sustainability maintained by the system is imposed on the poor.”

“It does not help the poorest growers” Wydick said, pointing to how fair trade focuses on Latin America but largely ignores destitute areas of Africa.

He said fair trade lacks transparency and funding often goes to administrative costs and dubious projects.

“It is inefficient at transferring consumer goodwill to coffee growers, and it addresses superficial poverty issues instead of root causes,” he said.

He said there is a stark contrast between the marketing, on which fair trade spends millions, and its measured impact, and said “direct trade is arguable better for the poor than fair trade.”

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