Thursday, 24 October 2013

Again, Canterbury beats Otago

The University of Otago this week burdened itself with Fair Trade recognition.
The accreditation granted by the Fair Trade Association of Australia and New Zealand means Otago University has signed up to offer Fair Trade designated products alongside other products throughout its campuses.
The university will also serve Fair Trade tea and coffee products as standard, and run a steering committee to encourage their take up by staff and students.
Otago University's Vice-Chancellor Harlene Hayne says the accreditation is proof the university acts in an ethically, socially and environmentally responsible manner.
The University of Canterbury, very wisely, has not done so. My colleague Stephen Hickson pointed out the reasons against pursuing Fair Trade certification a while back.
The problem with Fair Trade is that most of the money you pay for a Fair Trade product does not get to those that we really want to help. When the world coffee price is above the Fair Trade minimum, then about $0.05 of your purchase of a bag of coffee gets to the farmer. For bananas it is about $0.07 per kg. Considering that Fair Trade bananas sell for about $5.00 a kg that's not especially impressive. For chocolate, the Fair Trade premium above the world price adds somewhere around $0.01 per 250g block.
What that means is that if you pay any extra money at all for a fair trade branded product compared to any other then pretty much all of the money you pay isn't going anywhere near the person you think you are helping. If you find someone who is happy with that then that tells you that the most important thing for that person is the good feeling they get by buying fair trade products. I would certainly not be happy that almost all of the money I think I'm giving to a good cause is going nowhere near those I want to help.
If the university seeks fair trade certification then there will be costs. Most obviously will be the costs of more expensive products but that may well be least of it. There will be compliance costs as UC seeks to obtain and maintain certification including most likely a "Fair Trade Compliance Officer" of some sort. There will be awareness campaigns to ensure staff and others comply and time in extra meetings (I'd be willing to bet there would be some sort of committee). All of this is simply money wasted. Hardly any of any extra money paid for Fair Trade products is going to poor farmers and absolutely none of the money paid for internal costs is.
Doing some good and producing a poster showcasing a smiling farmer is just not good enough. Would you be happy donating money to a charity where only $1 out of every $100 made it to the intended recipients? I doubt you would and nor would I. And it would not cut the mustard to try and argue "well at least that $1 is doing some good". We should look for a better, more effective alternative pretty quickly. If the university wants to make a difference by committing resources to a philanthropic cause then it should find one that is effective. I am willing to suggest several should they care to ask. Perhaps instead of paying more for products and employing someone to manage Fair Trade certification, we may well be better to offer scholarships for students from developing countries (for example).
If the university decides to pursue fair trade certification then it seems to me that the largest benefit is to the university itself as they get to acquire a "badge of honour" for the website. But good intentions and looking good are not the same as actually doing some effective good.
Here are Sinclair Davidson and Tim Wilson on problems with Fair Trade certification.

Here is Colleen Berndt's study of the workings of fair trade coffee in Costa Rica and Guatemala.

I am very very happy that the University of Canterbury has not pursued costly feel-good policies like this that do far more to produce clouds of smug than they do to help developing countries. Indeed, I am proud.

Any University that is serious about helping people in poor countries instead of just mouthing off about it would increase the number of targeted scholarships for students from developing countries. For the cost of one $80k bureaucrat dedicated to a dumb campus fair trade initiative, you cover the living expenses of four international students from developing countries, or maybe three if you want to cover airfares too. Want to increase costs on domestic students at the on-campus shoppes to help developing countries? Put a 5% levy on everything and put the money into a fund to bring more smart, poor students here from developing countries. It's cheaper than a fair trade mandate and does more good.


  1. While I applaud your recommendations, Eric, I wonder if you know of any more recent assessments of Fair Trade? The Berndt paper is from 2007 and Davidson & Wilson is dated 2008. Have things improved for Fair Trade growers in the 5 years since then?

  2. Check Cowen's module here for the basic econ: