Development Economics - Does FairTrade help reduce poverty?

In 2020, FairTrade sales reached €19.2 billion. This was a 15% increase from 2019. FairTrade supports over 1.8 million producers and workers in over 70 developing countries. How effective is FairTrade in reducing absolute poverty in low-income countries?

Fair trade is a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers—especially in the South. Fairtrade organizations have a clear commitment to social, economic and environmental justice.

There are many potential benefits of fair trade for reducing absolute poverty in low-income countries. For example, fair trade can:

• Increase incomes for farmers and workers. Fair trade sets minimum prices and/or a guaranteed minimum income for farmers and workers. This means that they can earn a decent living, even if market prices fall.
• Improve working conditions. Fair trade requires businesses to meet certain social standards, such as freedom of association and the right to collective bargaining. This can help to improve the working conditions for farmers and workers, and can also help to reduce child labor and forced labor.
• Support sustainable development. Fair trade requires businesses to meet certain environmental standards, such as sustainable farming practices. This can help to protect the environment and ensure that future generations have access to natural resources.

However, there are also some potential drawbacks of fair trade. For example, fair trade can:

• Increase prices for consumers. Fair trade products often cost more than non-fair trade products. This can make it difficult for low-income consumers to afford fair trade products.
• Lead to increased dependence on farming. Fair trade can make it difficult for farmers to diversify their incomes, as they are reliant on fair trade premiums to make a living. This can lead to increased inequality within farming communities.
• Not be effective in all cases. Fair trade may not be effective in all cases. For example, fair trade may not be effective in countries where there is a lot of corruption or where there is a lot of political instability.

Overall, the evidence on the impact of fair trade on reducing absolute poverty is mixed. Some studies have found that fair trade can be an effective way to reduce poverty, while other studies have found that fair trade has little or no impact on poverty. More research is needed to determine the long-term impact of fair trade on poverty reduction.