James McWilliams, the world’s foremost pop economist, tackles the market foibles of Fair Trade coffee on his NYT Freakonomics Blog:
But the problem with Fair Trade coffee is that as the program scales up, the alternative market ethics it wants to sustain collapse.ย Inevitably, the Fair Trade market becomes subject to the same laws that drive the conventional commodities market.ย When the price of coffee drops, the appeal of Fair Tradeโs price support lures growers into the cooperatives that sell coffee under the Fair Trade label. As poor growers rush into Fair Trade agreements, the supply of Fair Trade coffee rises. Protected by the price floor, the Fair Trade coffee remains inflated despite flagging demand. What Fair Trade importers thus end up doing with the excess Fair Trade coffee is dumping itโupwards of 75 percent of it!โon the conventional market.