An Unfair Deal

If paying an extra buck or two for the "fair-trade" option at your local coffee shop makes you feel more virtuous about your place in the global economy, you’re not alone. Ethical beans are big business: In 2010, the United States imported 108 million pounds of fair-trade-certified coffee — purchased directly from small producers, who have to abide by agreed-upon standards including shorter hours and no child labor. That total represents 1,385 times more of the stuff than came into the U.S. in 1998. But does fair trade actually do anything to help the people who grow coffee escape poverty?

In Nicaragua — a country that earns nearly a quarter of its export income from coffee — many family farms participate in "organic" and "fair-trade" certification systems, under which they submit to inspections of their labor standards and environmental practices in exchange for higher prices for their beans. Unfortunately, according to results recently published by economists Tina Beuchelt and Manfred Zeller in Ecological Economics, higher prices only go so far. The certified beans bring in more money, but once you take into account increased production costs, such as bringing the maintenance of farms up to code and shorter labor hours, the final profit is no higher, and in many cases is actually lower: Some Nicaraguan fair-trade farmers were taking home as much as $55 less per harvest than their noncertified competitors. Worse, while 60.9 percent of the "unfair" coffee-producing households observed were below Nicaragua’s official poverty line, 68.6 percent of the fair-trade farmers were. The results were even starker for organic farmers, with 71.3 percent below the poverty line.

So is fair trade a myth? Not necessarily, says Beuchelt, who has found much more promising results in Colombia, another top coffee producer. The difference between the two countries is that the Colombian farmers have much better access to roads, technology, and other infrastructure than their Nicaraguan counterparts, making it much easier and cheaper to comply with fair-trade rules. "There’s still a need for government intervention," Beuchelt says. "Certification can’t solve the basic development problems these countries have."

And nor, it seems, can paying for the more expensive latte at Starbucks.