Fair Trade : the new financing for multinationals and retail players?

After my previous blog on fair trade I have kept reflecting on the main pitfalls and advantages of fair trade. Nevertheless, I do continue to think that clearly the pitfalls and main impact of fair trade are undoubtedly not sufficient to justify the “investment” in it. When evaluating the cost of fair trade there are many factors that should bee considered:

A) One has to think on the premium consumers are paying for fair trade products being both (1) what they pay above a price of a normal product with the same quality level or (2) the difference in quality when compared with a product in the same price range.
B) Cost and opportunity cost of time spent by non-profit organizations on the fair trade business

Given this investment in fair trade one has now to evaluate the positive impact it has on society as a whole. In here is where a supply chain analysis might enter into play. Let’s assume for a moment that cooperatives do work, that the system works perfectly and that basically we are getting 3rd world producers to reach self-sufficiency and market their products in the open international market.

Basically consumers are paying a premium for a product that goes all the way through the value chain, hopefully, into the hands of under developed farmers and cooperatives. With this money they are supposed to develop their agricultural techniques and infrastructure in order to increase productivity and quality in order to in the medium term being able to access on their own the world market. What happens when they do are able to access the world market?

Basically what happens is that excessive supply on international markets of crop x is aggravated even more creating even more pressure on prices. Even if excessive supply is not created (due to small impact of fair trade in creation of more supply) farmers will still be making small margins per kg/ton/square km of production. So where did all the money that was pumped in the system in the meantime was transferred into? Basically it was pumped into production factors that are now producing value that is being captured by retailers of for profit brands in developed countries or by big distribution multinationals. Does it make sense to create an entire scheme of wealth transfer that basically bounces back even creating in the meantime more disparities due to local disruption of current production structure?

In my opinion fair trade in its pure sense is sincerely a non-effective and efficient way of investing into developing countries. One may consider more structural projects that basically aid developing the productive capacity in a customized way according to the local requirements of a determined region that will enable self sufficiency in the long-term.