Compare the cost of fair trade and non fair trade items?

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Etienne de Quercy, terrien extra

Fair trade opponents such as the Adam Smith Institute claim that similar to other farm subsidies, fair trade attempts to set a price floor for a good that is in many cases above the market price and therefore encourages, as fair trade opponents claim, existing producers to produce more and new producers to enter the market, leading to excess supply. Through the laws of supply and demand, excess supply can lead to lower prices in the non-Fair Trade market.

In 2003, Cato Institute’s vice president for research Brink Lindsey referred to fair trade as a “well intentioned, interventionist scheme…doomed to end in failure.” Fair trade, according to Lindsey, is a misguided attempt to make up for market failures in which one flawed pricing structure is replaced with another. Lindsey’s comments echo the main criticisms of Fair Trade, claiming that it “leads fair trade producers to increase production.” While benefiting a number of Fair Trade producers over the short run, fair trade critics worry about the impact on long run development and economic growth. Economic theory suggests that when prices are low due to surplus production, adding a subsidy or otherwise artificially raising prices will only exacerbate the problem by encouraging more supply and also encouraging workers into unproductive activities.

Several academics, including Hayes, Becchetti, and Rosati identify two counterarguments to this criticism.

First, in many cases the exchange between producers and intermediaries does not occur in a competitive framework. In such case the market price is a distortion because it does not reflect the productivity of producers but their lower market power.
Second, the price distortion argument does not take into account the principles of product differentiation. Coffee, for example, cannot be compared to other commodities such as oil: there is not one single type of coffee but instead many different coffees that are differentiated from one another in terms of production techniques, seasonal or regional differences in quality, blending, packaging, handling, and now also “social responsibility” accounting. Consumer demand and taste define what different market prices are acceptable for each of these products. In this sense, fair trade can be considered as a market-driven innovation in the food industry that creates a new range of products for which a growing segment of consumers are willing to pay more based on environmental and social responsibility claims.

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