Is fair trade a scam?

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I came across this article in National Post written by the President of Green Beanery, a Canadian social enterprise in the coffee business. It was a real eye-opener, even to someone as sceptical of fair trade as I am:

That fair-trade cup of coffee we savour may not only fail to ease the lot of poor farmers, it may actually help to impoverish them, according to a study out recently from Germany's University of Hohenheim.

The study, which followed hundreds of Nicaraguan coffee farmers over a decade, concluded that farmers producing for the fair-trade market "are more often found below the absolute poverty line than conventional producers.

"Over a period of 10 years, our analysis shows that organic and organic-fair trade farmers have become poorer relative to conventional producers."

The author sets out why he thinks this is the case explaining that the poorest farmers simply can't afford the certification fees and how many see co-operatives (a requirement of fair trade) as taking away property from the farmer. However, it was the degree of corruption and the way in which the fair trade companies manage supply so as to keep fair trade margins higher that was most striking:

In fact, at Green Beanery we have received bags of coffee, some labelled fair trade, some not, grown on the very same farm and identical in every respect. The fair-trade certified farmer himself can't tell which beans will be sold as fair trade and which not -that decision is made by the higher-ups.

Because the fair-trade associations are intent on keeping the price of fair-trade coffee up, they limit the supply of coffee that can be labelled as certified. To the certified farmer's chagrin, most of his fair-trade certified crop could end up being sold as uncertified conventional coffee.

And in this well-intentioned pricefixing game, the fair-trade farmer is the pawn and the joke is on the customer.

It does seem that fair trade has some questions to answer.

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