Cocoa or Cocaine: How Fair Prices Make the World Safer
For the past ten months, a battle has raged. No, not in Syria, or Yemen, or Afghanistan. I’m speaking, of course, of the split between Fairtrade International (FLO) and Fair Trade USA (FTUSA), the two main Fair Trade certification bodies responsible for inspecting and verifying that food marketed as Fair Trade is really purchased from producers at a fair price.
The schism is over a controversial plan called Fair Trade for All (FT4All) that will allow companies to be certified as Fair Trade even if some of their products come from large plantations that rely on wage labor. Originally, the Fair Trade movement addressed the economic exploitation of coffee plantation workers, and only worker-owned co-ops could earn the certification. Many advocates for small farmers fear that if these plantations are allowed to market themselves as Fair Trade, it will price small farmers out of the market that was created specifically for them. Equal Exchange’s president Rink Dickinson has denounced FTUSA’s move “a betrayal,” while FTUSA’s CEO Paul Rice warned that the Fair Trade movement can either be “small and pure” or inclusive of larger market players.
The premise of Fair Trade is that producers are paid more because they produce a higher quality product, but are unable to benefit from the economics of scale afforded to large, often exploitative plantations. They then reinvest these premiums to better the lives of the workers by building schools, paying for medical care, etc. Under the new FT4All rules, large companies like Walmart, Green Mountain Coffee, and Starbucks will be able to buy a minority of their coffee from Fair Trade producers (and therefore only pay the premium to a small minority of producers) while still labeling the final, mixed product as Fair Trade certified.
Many in the Fair Trade world see this as shameless corporate “green washing,” through which companies can present an image of social responsibility, when in fact they are merely paying kickbacks to a small number of farmers so that they can increase their profit margins on the products bought from the rest of the farmers.
What does any of this have to do with national security? Well, consider this: Peru, already one of the most unequal countries in the world in terms of wealth distribution is also one of the only countries in South America that is becoming more unequal. This can in part be attributed to Peru’s increased levels of trade, which affect different segments of society differently. Those with greater institutional (and geographic) access to global markets have benefitted more from globalization than those with less. So while trade is a tide that lifts all boats, it does not lift them all equally.
Now consider that Peru is poised to overtake Columbia as the biggest exporter of cocaine in the world. We spend roughly $15 billion per year fighting the War on Drugs, and it still kills thousands every year along our southern border. Cocaine funds this violence, and in many cases, Peruvian farmers have turned to growing coca after being unable to support themselves selling legal crops at the market price. This should provide some insight into why the 2011 World Economic Forum in Davos called income inequality one of the two greatest threats to global stability (along with corruption).
Employing more than a third of the world’s population, the troubled agricultural sector is no small part of the problem. The increasingly globalized markets for food are so flooded with subsidized American and European wheat and corn that few small farmers can sell their products for a living wage. This downward pressure on prices has helped keep the world fed for decades now, but at a terrible cost to the world’s food producers, and to the taxpayers of the developed world.
Will Fair Trade certifications save the day? Not any time soon. Their market share is much too small to have a significant impact on the global market. A better hope is that this period of increasing austerity will force the hand of members of Congress who have previously been loath to put farm subsidies on the chopping block. Still, it is disheartening to see an organization that once championed fair prices for poor farmers retreat from an already modest position.
The best hope for third world farmers, ironically, is the drought that is currently ravaging the fields of North America, Europe, and Central Asia. Predicted to devastate the 2012 crop of grains and cereals from Kansas to Kazakhstan, the world is bracing for rising food prices over the next few months.
While this will erode the real wages of many of the world’s poorest, for whom food is the primary daily expense, it will be a welcome boon to farmers in South America, Africa, and South and East Asia, who will, for a season at least, be spared the price suppressing effects of subsidized grains from the world’s richest countries. In the meantime, we need a real solution that doesn’t force the world’s farmers to pray for droughts.
Nathan is Truman’s Policy Fellow.