Does Fair Trade Reduce Wages?

I have viewed Fair Trade labeling as a benign if rather limited movement. On one side, the Fair Trade organization certifies that a product like coffee was produced in a way that lived up to a certain code of conduct for how workers were treated, environmentally friendly practices, and the like. On the other side,  consumers in high-income countries who are willing to pay higher prices for goods like coffee produced according to such standards could then identify this output. But how much does Fair Trade really help workers in low-income countries? The Fairtrade, Employment and Poverty Reduction in Ethiopia and Uganda (FTEPR) research team, based at SOAS at the University of London, set out to gather evidence on this question. The main authors are Christopher Cramer, Deborah Johnston, Carlos Oya and John Sender, but the process of data collection and processing was extensive and required a full-time research officer in the UK, as well as research supervisors in Ethiopia and Uganda, and many other contributors. The total cost of the study ran about 700,000 British pounds. The group has now published "Fairtrade, Employment and Poverty Reduction in Ethiopia and Uganda" (April 2014) and the results will be disheartening for supporters of fair trade.

The researchers chose about a dozen local areas by to collect detailed evidence in rural areas of Ethiopia and Uganda, focusing on coffee and flower producers in Ethiopia and coffee and tea producers in Uganda. They then sought to interview enough people in each of these local areas that they could have a locally representative sample of wages and earnings for that area, looking both at those who worked for a local certified Fair Trade producer and those who didn't. They tried to gather data on each member of entire households, including children, and they returned to these areas for either 2-3 years to do follow-up surveys.  Some people were surveyed more intensively or by different methods than others, but the overall result is that data was gathered from thousands of local farm workers. As the study authors wrote: "[T]he over-arching research question was whether a poor rural person dependent on access to wage employment for their (and their family’s) survival is better served by employment opportunities in areas where there is a Fairtrade certified producer organization or in areas where there is none."

And after several years of effort, what did the researchers find?

"This research was unable to find any evidence that Fairtrade has made a positive difference to the wages and working conditions of those employed in the production of the commodities produced for Fairtrade certified export in the areas where the research has been conducted. This is the case for ‘smallholder’ crops like coffee – where Fairtrade standards have been based on the erroneous assumption that the vast majority of production is based on family labour – and for ‘hired labour organization’ commodities like the cut flowers produced in factory-style greenhouse conditions in Ethiopia. In some cases, indeed, the data suggest that those employed in areas where there are Fairtrade producer organisations are significantly worse paid, and treated, than those employed for wages in the production of the same commodities in areas without any Fairtrade certified institutions (including in areas characterised by smallholder production). At the very least, this research suggests that Fairtrade organizations need to pay far more attention to the conditions of those extremely poor rural people – especially women and girls – employed in the production of commodities labelled and sold to ‘ethical consumers’ who expect their purchases to improve the lives of the poor. . . .

Another issue of importance both to the Fairtrade literature and more widely is the governance and structure of producer cooperatives. The research finds a high degree of inequality between members of these cooperatives, i.e. the area cultivated with the certified crop (tea and coffee) and the share of the cooperative’s output are very unevenly distributed among members: there are large numbers of members who have tiny plots of land and sell very little to the cooperative, and there is a small number of members who dominate sales to and through the cooperative. One clear implication of this is that the many benefits of being a member of a Fairtrade certified cooperative – tax breaks, direct marketing channels to high-value niche markets, international donor financed subsidies – accrue very unequally. Fairtrade may ‘work’ but it does not quite do what it says on most of the labels: it aggravates rural inequality and at best may do so by supporting the emergence of rural capitalist producers; and it fails to make a difference, on the data collected, to the welfare of the poorest people involved in the Fairtrade chain, i.e. manual agricultural wage workers. . . .

In conclusion, it may be argued, for the areas and producer organisations where this research was conducted, that Fairtrade certification has failed to benefit poor wage workers because it has overlooked their existence, because it has proven institutionally incapable of monitoring effectively the wages and conditions of those working in production conditions (e.g. flowers) where there is acknowledged hired labour, despite the existence of auditing procedures against the Hired Labour Standard, and because it is relatively ineffective compared to other factors that are more likely to influence both productive efficiency and working conditions. ... 

The reasons for Fairtrade’s failure to make a clear positive difference to wages and conditions, or to the amount of work offered, are fairly clear. They have to do – especially in the production of “smallholder” commodities – with what this research suggests has been in the past a wilful denial of the significance of wage labour and an obsessive concentration on producers/employers and their organisations. ... [T]his research suggests that a large number of obstacles remain in implementing improved standards in a way that will benefit rural workers. First and foremost is the need not just for more monitoring and evaluation, but also for better methods. And they have to do – again, especially where Fairtrade certification is awarded to cooperatives – with the espousal of a romantic ideology of how cooperatives operate in poor rural areas.

Of course, it would be unwise to condemn all of Fair Trade based on a single study of about a dozen local areas in two countries. Matt Collin and Theo Talbot at the Center for Global Development take on the task of putting the results in context in a blog post. They point out that although the study was focused on wage-earning farmworkers, not on the farm-owners. Although the study tried to compare farmworkers at Fair Trade operations to similar farmworkers at similar non-Fair Trade operations, such comparisons are always difficult. The results show that the Fair Trade workers were paid less, but they do not conclusively show that Fair Trade is what caused the workers to be paid less. Some other studies of Fair Trade have have found more positive results for how the pay of the small number of Fair Trade producers is increased.

But it won't do to dismiss this most recent study, which was done with considerable care and attention. After all, if this study had discovered a big wage boost for Fair Trade agricultural workers in these countries, you can be sure that advocates of Fair Trade would trumpet the results to the skies. Discouraging evidence can't just be tossed aside.