What is Unfair Trade?

What exactly constitutes ‘unfair’ trade?

The answer may (or may not) surprise you. One of the most frequent violators of ‘fair trade’ practices are usually governments. But not just developing or ‘3rd world’ countries governments exploiting an underpaid workforce, but frequently it is large developed countries, charitable organizations, and NGO’s who actually mean to be doing good.

The Scenario:US farmers can produce far more food (in some categories like grain) than the US can consume. If there is not enough demand to meet their over-supply, basic economics dictate their crop can’t sell for enough and they can’t make a living. Meanwhile, elsewhere in the world there are countries suffering through hunger and famine.

An obvious solution presents itself. Rather than the US government making a simple cash donation to help deal with hunger in a given nation, the US government buys up the surplus supply of food crops from US farmers (propping up US prices and keeping more farmers in business) and gives those crops to charities and NGO’s to sell cheaply to the developing world. The NGO’s get to keep the income and reinvest that money. Sounds like a utopian solution. Everyone gets what they need. World hunger: solved.

The problem: That famine stricken nation operates under the same laws of supply and demand everyone else does. So farmers in those countries now have crops that are worth far less. Income goes down. Prices are depressed. There is food enough to feed the starving masses, but those same starving masses can’t afford to buy the crops because their economy is so depressed.

The Solution: Last week, CARE, the largest participant in this particular program pulled out. They receive approx $45 million a year from the US government, much of it through this program. But they realized they were doing as much harm as good.

If economics are allowed to play out as they should, then economies are allowed to develop. But when there is too much charity handed out in the wrong way, things can go wrong and actually make situations worse.

Fair Trade is far more complicated than simply not using child labor and paying a fair wage.