Protectionists Should Wake Up and Smell the Coffee
COFFEE has emerged as the latest battleground between proponents of free trade and anti-globalisation activists, who are successfully exploiting the fact that prices for the commodity are at 30-year lows to promote their protectionist agenda. While it is always easier to call for more restrictions to be imposed on multinational companies when poor farmers in developing countries are suffering, the case for restricting free trade in coffee is as weak as that for any other good or service.
World poverty has many causes but too much free trade is not one of them: new regulations would make life even worse for struggling coffee farmers in developing countries, while endangering the world's trading system and dealing a further blow to the global economy. Unfortunately, the anti-free trade cause is fast gaining ground and is even supported by such glamorous celebrities as British actress Joanna Lumley and TV presenter Fern Britton, who recently encouraged UK consumers to take part in a "24-hour Coffee Break".
ActionAid, the development charity, decreed the past two weeks a "fairtrade fortnight"; Oxfam recently published a report claiming that new roasting technologies used by multinational companies are driving down coffee prices and impoverishing farmers. Typically, the insights of Chris Martin, frontman for rock band Coldplay and someone not previously known for his expertise in international economics, have also been offered in support of Oxfam's "fair trade" campaign. "Trade is ridiculously unfair - all it would take is awareness", he says. "If a few companies were less greedy the people at the bottom would have a lot more."
Protectionist sentiment is also growing in the rest of Europe and in the US. Letters from "fair trade" coffee businesses in Europe have appeared in the Financial Times to support Oxfam's report and its recommendations. In the US, several Democratic representatives recently signed a letter to the Wall Street Journal claiming that the practices of multinational companies "are fuelling a global coffee crisis with serious and lasting effects on much of the developing world".
It is unclear what "fair trade", the proposed alternative to free trade, really means. To some, fair trade means open trade with the same rules applying to everybody; for many anti-globalisers, fair trade is synonymous with no trade. In the case of Oxfam and ActionAid, "fair trade" means rigging the rules to ensure that multinationals are forced to buy coffee produced according to certain criteria.
By that definition, "fair trade" coffee is grown on small, family-run farms, without the use of pesticides, to be contrasted with coffee produced by multinational companies with the use of new technologies, which allow them to use lower quality, cheaper beans, and pesticides, to boost productivity.
Crucially, while forcing companies to buy "fairtrade" coffee would drive up the price of production and reduce corporate profits, it would not help poor farmers. Much higher prices and lower profits would encourage multinationals to buy less coffee and to invest even less in production capacity, choosing instead to grow their own beans on their own plantations. …