Fair Trade - Is it Really Fair?

CERGE-EI Working Paper Series No. 367

58 Pages Posted: 11 Oct 2009

See all articles by Tomas Konecny

Tomas Konecny

Czech National Bank (CNB); CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Jan Mysliveček

affiliation not provided to SSRN

Date Written: September 1, 2008

Abstract

One of the arguments against the Fair Trade scheme is that the guaranteed minimum price tends to depress world prices and thus the incomes of non-participating farmers (e.g. The Economist, 2006). We develop a model that distinguishes between the impact of the introduction of a Fair Trade market per se and the effect of minimum price policies given that a Fair Trade market actually exists. The model suggests that the claims against Fair Trade might not be correct. The introduction of a Fair Trade market may increase the incomes of both participating and non-participating farmers. The minimum contracting price as part of Fair Trade standards, however, precludes the full realization of the program’s potential benefits. The minimum price also paradoxically increases the profits of the middlemen whose local monopsony power the Fair Trade scheme originally aimed to retrench. Furthermore, the total surplus generated by Fair Trade cooperatives declines as the guaranteed price increases.

Keywords: certification, regulation, price setting, coffee, Fair Trade, monopsony

JEL Classification: D18, D21, D43, D45, D71, J51, Q17, Q56

Suggested Citation

Konecny, Tomas and Mysliveček, Jan, Fair Trade - Is it Really Fair? (September 1, 2008). CERGE-EI Working Paper Series No. 367. Available at SSRN: https://ssrn.com/abstract=1484762 or http://dx.doi.org/10.2139/ssrn.1484762

Tomas Konecny (Contact Author)

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

Jan Mysliveček

affiliation not provided to SSRN

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