The Economics of Fair Trade

Raluca Dragusanu, Daniele Giovannucci, and Nathan Nunn
Publication Date: 
Fair Trade is a labeling initiative aimed at improving the lives of the poor in developing countries by offering better terms to producers and helping them to organize. Although Fair Trade–certified products still comprise a small share of the market—for example, Fair Trade–certified coffee exports were 1.8  percent of global coffee exports in 2009—growth has been very rapid over the past decade. Fair Trade coffee sales have increased from 12,000  tonnes in 2000 (Fairtrade International, 2012b, p. 24) to 123,200 tonnes in 2011 (Fairtrade International, 2012a, p. 41).
Whether Fair Trade can achieve its intended goals has been hotly debated in academic and policy circles. In particular, debates have been waged about whether Fair Trade makes “economic sense” and is sustainable in the long run. Development economist Paul Collier (2007, p. 163), in his book The Bottom Billion, writes: “They [Fair Trade–certified farmers] get charity as long as they stay producing the crops that have locked them into poverty.” The Economist (2006) writes: “perhaps the most cogent objection to Fairtrade is that it is an inefficient way to get money to poor producers.” Those on the other side of the debate argue that Fair Trade benefits farmers by providing higher incomes and greater economic stability.