Why Fair Trade?
Trade can exacerbate poverty, undermine sustainable development and
food security, and negatively impact local cultures and vital natural
resources if it is seen merely under the objective of profit maximization
at any cost.
Fair Trade is necessary as a response to inequities and imperfections
in the international market, foremost in the international agricultural
market. Farmers often get paid even less than it costs them to produce,
which forces them to neglect their land and move to the over-crowded
cities in search for work.
Agricultural prices fluctuate due to changing
weather conditions. Unlike most U.S. and European farmers, the majority
of farmers in the developing world lacks the capital as well as the
resources to borrow capital from banks at a fair interest rate to
purchase instruments for communication and risk management.
lacks market information in general (asymmetric information) which
makes them dependent on middlemen, and the trader still has the power
to set the price (monopoly power). These are two market failures
that Fair Trade corrects.
Moreover, international agricultural markets,
as the market for coffee, have been damaged in the past by coordination
failure and miscommunication among producers and policymakers. Just
like the stock market, international agricultural markets are also
subject to speculation. Thus, rumor and hearsay influences price
For these problems, the stabile Fair Trade price
offers an economically
viable alternative and addresses economic and social market failures.
Moreover, Fair Trade provides assistance to be directed towards
those marginalized so that they can establish a basis that will enable
them to participate in the process of globalization to their
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