A Real Fair Trade Solution: Kill the Big Ag Behemoth

I have routinely criticized “fair trade” schemes as ineffective, inefficient and counterproductive — a convoluted form of temporary charity that would be better if treated as temporary charity.

The real problems that cause poverty are deep and complicated, and they cannot be fixed by magical price inflation by Westerners (particularly when our own view of value is as distorted as it is).

As I pointed out in my review of Victor Claar’s book on the subject, one of these problems is often the nature of the given market. When it comes to coffee, for example, Claar explains that “coffee growers are poor because there is too much coffee.” The solution is hardly, “more coffee!”

Many of these realities are difficult to change for good reason: accurate, voluntarily determined prices reflect the real preferences of real people who are just trying to create real value. This includes both the consumer and the creator (the coffee grower). Yet other realities are stubborn because they are involuntarily determined.

This is where we should be setting our sights, and this week at AEI’s newly rebranded project, Values and Capitalism (formerly Common Sense Concept), I focus on one of the biggies: agricultural subsidies.

Here’s a taste:

Although the aims of “fair traders” are often noble (e.g. when “equality of outcome” doesn’t masquerade as “fairness”), their efforts would be much better spent tackling the real problems that impact economic development in the long term. If we’re looking for a game of Demolish the Western Privilege Machine, agricultural subsidies are a marvelous piñata.

The price distortion caused by such subsidies is summed up nicely by Daniel Sumner in an AEI paper on the subject:

Farm commodity subsidies—including price and income supports—crop insurance subsidies, and disaster aid encourage US production and disadvantage farmers who attempt to compete with subsidized production from the United States. These programs stimulate more production when market signals indicate otherwise, which pushes prices lower when they are already low. The programs withdraw subsidies when prices are high, which allows prices to rise even more. Thus, US policies contribute to more variable prices in world commodity markets. Import protection and export subsidies, including export credit programs, have similar impacts. Demand-side subsidies and mandates, especially for bioenergy, also contribute to price spikes that severely affect poor consumers.

The short version? (from my post):

Agricultural subsidies artificially choose winners over losers, similar to the way fair trade promises artificial prosperity (along with plenty of the former). The sooner we truly level the playing field, the sooner the poor in the developing world can follow (semi-) accurate price signals like the rest of us.

Read the rest of it here.

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  • http://twitter.com/remnantculture/status/119440536204611584 Remnant Culture

    If we’re looking for a game of Demolish the Western Privilege Machine, I've got a great piñata: http://t.co/1tpXp5zL

  • http://twitter.com/actoninstitute/status/119441189765251072 Acton Institute

    If we’re looking for a game of Demolish the Western Privilege Machine, I've got a great piñata: http://t.co/1tpXp5zL

  • http://twitter.com/remnantculture/status/119489268338012160 Remnant Culture

    If we’re looking for a game of Demolish the Western Privilege Machine, agricultural subsidies are a marvelous piñata. http://t.co/1tpXp5zL

  • http://twitter.com/josephsunde/status/119777439009349633 Joseph Sunde

    Anyone want a real "fair trade" solution? Here ya go: http://t.co/TiHemmqI

  • http://twitter.com/valuesandcap/status/119858681956405249 Values & Capitalism

    RT @RemnantCulture: A Real Fair Trade Solution: Kill the Big Ag Behemoth http://t.co/hJauF2zx

  • http://www.facebook.com/people/Theo-Gagner/74600918 Theo Gagner

    Holy smokes Batman.  This is an about-face from earlier posts on the subject of fair trade and its alternatives.  I completely agree with the removal of all Agg subsidies – they are a massive incorrect signaler that has impacted everything from our skyrocketing healthcare to foreign policy.  Nice to see avocation of fixing our most egregious errant price signalers rather than promotion of policies to share these under free trade.

  • http://www.remnantculture.com/ Remnant Culture

    An about-face? I have consistently lambasted agricultural subsidies and have never promoted policies “to share these under free trade.” Fair trade follows the same logic of ag subsidies: that a “fair price” can be snapped into existence by a central authority.

  • http://twitter.com/remnantculture/status/121228504279957506 Remnant Culture

    RE: An about-face? I have consistently lambasted agricultural subsidies and have never promoted policies "to share th… http://t.co/Z30Zrqgw

  • http://www.facebook.com/people/Theo-Gagner/74600918 Theo Gagner

    The thing we trade most with poor countries is food.  The most incorrectly priced commodity is food.  The occupation of the poorest people in poor countries is as farmers.  Free trade would increase trading of the falsely priced commodity that most affects the most poor people.  Free trade needs to only be brought into the conversation when these countries are elevated to the point to where fewer people work in subsistence farming.  Free trading with the poorest countries would be a disastrous policy for the rational listed above.

    Fair trade is not a subsidy program.  Be careful that we are not using political language (where you might argue that it is a subsidy) – that we are use economic language.  If we call things subsidies that we feel are subsidies, then the term loses all meaning.  Profitable items are subsidies for shareholders, diamonds are subsidies for Jewish people, etc… ridiculousness.  A subsidy is financial assistance outside of the direct customer.  That is agg subsidies.  That is not fair trade foods.  Fair trade foods impose a price premium on the food for the unique attribute of the product.  No outside monies create the fair trade distinction.

    Whether or not you think fair trade is a rational consumer choice does not change the economic  classification of that title. There are infinite consumer products that have unique features of no true rational value iPODs, diamonds, large tvs, etc….. to infinity.  The only thing rational to a consumer is how the product makes them feel.  

    The about-face was to refocus away from an ineffective policy that is a pet policy and to refocus on something that makes economic sense.  When concrete arguments can be made for ways to promote growth in poor countries you don’t go making tenuous arguments on debatable subjects.

    “Snapped into place by a central authority”. Really? Regardless if the demand-side created the program or it was a supply-side innovation – it is not subsidized. It is a customer-driven program. People have a choice. If they did not choose to buy the coffee then the program would have collapsed years ago. If you get ambiguous about your “central authority” then we can redefine it any way we want. Again, the term becomes meaningless.

  • http://www.remnantculture.com/ Remnant Culture

    I’m not calling fair trade a subsidy. I’m saying that arbitrary price inflation is arbitrary price inflation, whether voluntary or coerced (we’ve been down this road before). And “central authority” does not necessarily mean government institution (again, you’re conflating things, not me). Fair trade is only “customer-driven” in the sense that customers are paying the price that Equal Exchange (central authority) tells them is “fair.”

    It is subjective value, with the value being based only on emotional “fair price” impulses. Subjective (subjective, subjective…) value is fine is in a free market, but I don’t see any productive or lasting impact on alleviating third-world poverty in the long term.

    Again: My suggestion for people who want to give temporary charity to farmers is to give them temporary charity — DIRECT.

    It’s not an about-face. It’s a consistent continuation of my critique against fair trade, as I make clear in this post and others. And I wish fair trade were a mere pet policy. Unfortunately the logic bleeds everywhere (including HERE). I see it as all the same argument, and I see it all as far from “tenuous.”

  • http://twitter.com/remnantculture/status/121432874158264320 Remnant Culture

    RE: I'm not calling fair trade a subsidy. I'm saying that arbitrary price inflation is arbitrary price inflation, whe… http://t.co/Y3TMAZKm

  • Michael Z

    Equal Exchange is a business. It’s no more a “central authority” than any other company selling its products (and the sale price of its products isn’t regulated by anyone either).

    Even if you took the most cynical view of fair trade, at worst it’s an exercise in brand-value creation (the norm anywhere else). Of course, that view would presuppose it doesn’t make good on at least some of its claims and, if that were the case, one would have to wonder why the farmers take part at all.

    Ironically, charity can and often does play out as a de facto charity with little regulation through market forces. Not to bad mouth charity, but your suggestion seems counter to the logic you apply elsewhere.

    Anyway, many fair trade supporters would agree with the premise of your argument here, so clearly there’s some common ground. Oxfam’s “Make Trade Fair” campaign from a few years back and the Fairtrade Foundation’s policy briefs (like the recent one on cotton) being examples.

  • Michael Z

    Whoops… meant to say, “…play out as a de facto subsidy…”

  • http://twitter.com/gqman439/status/144809077183229952 Gregory Quella

    RT @RemnantCulture: A Real Fair Trade Solution: Kill the Big Ag Behemoth http://t.co/1g1hC6wS