Fair Trade labeling can work on a small scale, as a niche market. On the other hand, Fair Trade labels are not the right way to change the situation for the great majority of poor farmers. This is shown in the report What Does Fair Trade Labeling Achieve? from AgriFood Economics Centre, Lund University and the Swedish University of Agricultural Sciences (SLU).
Fair Trade labeling is based on farmers receiving a guaranteed minimum price for their production. The problem is that there are no resources to finance, on a large scale, a minimum price that is higher than the world market price -- the number of poor farmers is simply too great in relation to the number of well-heeled consumers who can and want to pay more for the food products.
There are 880 million poor farmers in the rural parts of developing countries, and 1.5 million of them are associated with Fair Trade. This means that this labeling has no chance of truly combating poverty and improving the living conditions of the great majority of farmers in developing countries.
" Instead, higher incomes in rural areas can be achieved by improving the productivity of farming. This requires domestic measures. Look at India and Chine, who have carried out reforms in agriculture. Both countries have increased their productivity, in China through greater market orientation and in India by using seeds that yield better harvests. This has helped reduce poverty in rural areas markedly."
This is not to say that Fair Trade labeling is useless, but rather that it must be kept in perspective, according to Helena Johansson.
"On a small scale, labeling can benefit the farmers involved. The advantages are that they are not as vulnerable to falling prices on the world market as others, that they receive a social premium that can be used for investments for the common good, and that the standards can lead to better working conditions. The transfer of money from consumer to producer is inefficient, however. The extra money we pay in the store for Fair Trade items goes partly to the grocery store, the purchaser, the wholesaler, and the coffee roasting company, for instance. The entire chain costs money, which means that only a small portion goes to the farmer."
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