Why Fair Trade?


About Fair Trade

Fair Trade in context



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.
The farmer 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, such 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 fluctuations.
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 own benefit.

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