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Fair-trade coffee: not worth a hill of beans

It's a noble cause, but it's a bad deal for coffee growers.

By Gene Callahan / August 8, 2008

Fair-trade coffee is everywhere. Starbucks and Dunkin' Donuts – even Wal-Mart – proudly feature beans they bought at a higher, "fair" price that pays growers a living wage. You get good coffee. Farmers get out of poverty. Corporations get goodwill. Everyone wins, right?

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Actually, fair trade is a bad deal. The intention is noble enough, but the impact on human lives is tragic. Instead of lifting exploited farmers out of debt and poverty, fair trade tends to diminish their prospects and hurt overall economic development.

The problem with fair trade is the problem with just about every so-called progressive economic policy: it ignores the laws of supply and demand.

Say you live in Colombia. You know demand for Colombian coffee is high. Should you become a coffee farmer? You might, if other coffee farmers were making a profit. If they weren't, you'd conclude there are too many farmers already and pursue a more promising line of work.

That's one critical function of prices and profits: They steer all of us – from the poorest farmer to the richest CEO – to pursue the most productive use of our energy. And that's what makes fair-trade coffee so misguided.

If there were just 10 small coffee growers worldwide, the price per pound of beans would be astronomical, and many people would rush to become coffee farmers. The current market price is "low" by comparison because there are already so many growers competing. By paying more than the market price for coffee – the authentically fair price – fair traders send a signal to people in developing countries to join an already overcrowded field.

In doing so, they artificially lure them away from perusing better-paying jobs that would enrich the diversity of a developing country's economy. A caffeinated price means more growers, more land destruction, more dependency on a single cash crop. It's a subsidy that undercuts the very sustainability fair traders want to promote.

Yet fair traders evidently believe that growers who cannot make a profit at the market price ought to be helped to stay in business anyway.

Advising struggling coffee farmers simply to abandon their trade and find another way to make a living may seem flippant and heartless. Yet continuing to operate a money-losing business in the absence of a scheme that could reverse its fortunes merely makes one's financial predicament worse. People who persist in a money-losing occupation are free to do so – but they're not entitled to be supported in that obstinacy by the rest of society.

In a free society and a free market, all capable adults must pull their own weight. Why should coffee growers be exempt?