Friday, 04 October 2013 14:15

Not So Fair Trade

So Fair Trade is not aid in the strict sense that I have been considering in the last few posts but it is a major movement in the effort to improve the standard of living of producers in developing countries.

Fair Trade has been lauded as providing a decent price to farmers who would otherwise be at the mercy of huge corporate buyers able to exploit the smaller producer. The concept is simple - add a few pence to the price of chocolate bars and other goods in wealthy countries so that manufacturer can offer producers a few pence above market rates and help them make a decent living.

What could possibly be wrong with such a scheme? The benefits are evident and publicity for the work of the Fair Trade Organisation huge. In what comes next I make no attempt to give a balanced view. There are benefits to Fair Trade but so much has been written about the benefits and so much appears self evident it seemed time that the balance was redressed some what.

Fair Trade Costs Farmers

  1. In order to benefit from Fair Trade prices, farmers must join a cooperative. This can be hard in some areas, can cost money and may not be a viable option for some very small or less organised producers. Farmers not part of these cooperatives are unable to access the premium price and may even receive a lower price than before.
  2. Fair Trade encourages over supply but offering a price above the market price. This surplus depresses market prices meaning that even with the Fair Trade premium, individual farmers may be receiving less than they would have in the absence of the Fair Trade movement.
  3. Fair Trade certification also has other requirements such as no GM ingredients that would have reduced the need for costly fertilisers, and a ban on child labour. While this may seem desirable, few families send their children to work from choice, most only do so as without this income they cannot survive.

 

Fair Trade Costs Communities

If farms producing food for export earn a premium then many farmers will switch from producing staple food crops to (artificially) valuable export crops. This creates shortages, increases living costs and promotes reliance on food aid. Producers may find the higher wage they earn compensates for the increase in food prices but others in the community will simply find it harder buy what they need to survive.

 

Fair Trade is not Evidence Based

All sorts of claims are made about Fair Trade but an independent report for the Institute of Economic Affairs found that there are many case studies of the benefits but that there is no research to demonstrate that:

  • The benefits are as large as the premium paid by western consumers
  • The premium has lead to any increase in living standards
  • Non-Fair Trade producers are not harmed
  • The case studies put forward are representative of most producers.
  • There is not a better way to promote growth in living standards.

 

Fair Trade Benefits the Founder not the Producer.

Who gets what from your Fair Trade chocolate?A report by FAIR concluded that Fair Trade is enormously costly for communities and that most of the premium paid by western consumers actually went to the organisation who licences companies to use the Fair Trade logo.

They claim that of the roughly 7.5 cent premium on a $2.50 chocolate bar, 6 cents goes to the licencing company and only 2.5 cents go to the cooperative supplying the  cocoa beans. That 2.5 cents needs to cover the costs of any changes required and the membership and running of the cooperative before the farmer sees an increase in income.

Max Havelaar, the company who administers the Fair Trade logo made over $520,000 in 2009 from licencing fees alone, more than twice what was paid to the producing cooperatives.

 

These are just some of the objections to Fair Trade which might make you consider just who is benefiting from your 'ethical' cup of coffee and chocolate biscuit.

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Thursday, 03 October 2013 14:44

Aid - Where Does it Go?

Overseas Development Aid (ODA) is centered on Africa but, depending on what you consider to be aid, it is spent all over the world including some quite surprising places. If you include military assistance for example (most measured of aid do not, other than for peace keeping purposes) then Israel receives more aid from the US than the whole of Africa.

What about more traditional aid? UK aid spending is concentrated on Africa and countries in and around the Indian subcontinent, although parliament has recently signaled its intention to phase out aid to India over the coming years. The above image from the Guardian gives much more detail and is hard to beat. Click on the image above to enlarge it or go to their UK Aid Data Page to see the whole article and others.

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Thursday, 03 October 2013 09:26

Aid - How Much?

The UN target for overseas development aid (ODA) is for countries to give 0.7% of GNI so how well are we doing? 

ODA/GNI of selected countries 2011

Since these figures were released by the OECD last year the UK has increased aid spending to meet the target but still only 6 countries reach it and only 3 exceed it. The average spend on ODA is just 0.3%, less than half of what the UK wants. Click on the image to explore the OECD website.

Even this figure flatters, however. Much of this aid is 'tied aid'. It is only given on certain conditions, for example it may only be given if the money is used to buy the required goods and services from companies based in the donor country. The OECD estimate that tied aid reduces the benefits from the aid money spent by over 20% Many countries make use of tied aid. Again here the UK comes out well with no tied aid at all. The USA is at the other end of the scale. A huge 96% of US aid is tied aid. The UN estimates that 42% of aid in 2009 was tied aid.

Tied Aid by Country

The headline figure of about $2 trillion in ODA over the last 50 years sounds like a lot but with much of it tied aid and US GNI for 2012 standing at $15 trillion, that figure is sounding very small.

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Wednesday, 02 October 2013 18:25

Aid - What is Going Wrong?

Since about 1970, more than $2 trillion of aid have been given world wide, much of it from western countries to Africa and yet the proportion of African's living in poverty has risen six fold. Something isn't working. The question is what.

Aid is a complicated topic. Are we considering long term economic aid? Is this different to emergency, disaster relief aid? Who are we doing it for? Should we be doing it at all?

Some recent reading. news headlines and discussions on aid have set me off thinking about the various issues surrounding it and it occurred to be that a mini series on aid might be a good way to kick off this blog. The intention is not so much to give answers, although I hope there will be some, but more to provoke thought through a series of posts over the next few days or weeks. Do feel free to use the comments on at the bottom to add your thoughts (you will need to create a free account before you can post).

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Friday, 04 October 2013 00:00

Aid - Why do we Give Aid?

 It is an important question. Godfery Bloom, the former UKIP MEP tried to raise debate on this issue rather in-eloquently but sadly his use of the generic description of unworthy aid recipients as 'Bongo Bongo Land' rather distracted from discussion he was seeking to have (at least that is the charitable view of his media gaff).

 The usual answer most people give if they are asked why we should give aid is that we have a moral duty to help people less fortunate than ourselves, a colleague of mine described it as the international version of buying the Big Issue. An informal survey during a class discussion  showed all bar 2 of the 30 or so there agreed with that way of thinking.

Some take a more self interested approach. Some will argue that the reason to give aid is one of self-interest. This may happen directly through 'tied aid'. The provision of aid may be directly linked to favorable trade deals for firms from the donor nation but it need not be so blatant. Aid may be given purely to improve infrastructure in areas that companies from the donor country operate or to build a customer base for future exports.

There is an alternative, however. Africa has globally important stocks of raw materials - precious metals, oil and gems yet the countries that have grown rich from exploiting these tend to be western countries. Could it just be possible that the reason Africa is poor is because we are rich. Aid spending may be developed nations giving generously or it could be wealthy nations trying to assuage their guilt.

The history of European and North American involvement in Africa is one of interference, slavery, colonialism and exploitation. Could it be that guilt, or even worse, further self gain through tied aid is the reason for the current focus on aid flows?

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