Saturday, December 16, 2006

Hey Economist: get the facts right on Fair Trade

An article in the Economist (I found it in the New York Times) seeks to explain why buying organic and fair trade doesn't protect the environment in the long run.

Ah, but if it only had its facts straight.

For instance, the article talks about how Fair Trade coffee has forced the production of coffee to increase, thereby making the "real" price of coffee go down. But, it doesn't talk about why coffee production is so high in the first place: because of subsidies from the World Bank to places where coffee hadn't been produced before, such as Vietnam.

Learn more about the facts on this U.S. Food Policy blog.

2 comments:

Anonymous said...

I'm not sure that I buy the argument that the World Bank and Vietname are responsible for the coffee glut. See http://www.bos.frb.org/economic/nerr/rr2002/q2/coffee.htm

Many longer-established coffee producers blame the price plunge on Vietnam’s meteoric rise. Some have pointed accusing fingers at the World Bank, claiming that it encouraged the growth of the Vietnamese coffee industry. But the World Bank refutes those accusations. It says it resumed lending to Vietnam in 1994, after the country’s coffee expansion was already under way and that, though $16 million from a loan to the Agricultural Bank was used to finance coffee farm rehabilitation, it has not lent directly to the coffee sector. “While $16 million is a considerable sum of money in a poor rural economy, such an amount would finance very little, less than 5 percent of Vietnam’s coffee expansion,” note Daniele Giovannucci, Panos Varangis, and Bryan Lewin of the World Bank.

Moreover, the impressive growth of Vietnam’s coffee sector is not the only contributor to the coffee glut. According to the U.S. Department of Agriculture, Brazil has been producing above 30 million bags a year since 1998-1999—up from 28 and 23 million bags in 1996 and 1997, respectively—and the total number of coffee trees in Brazil has been growing steadily since 1998-1999.

Perhaps the clearest culprit in the oversupply of coffee is the coffee tree itself. It takes at least two years (more for some varieties) for new trees to produce sufficient yields to justify the costs of harvesting. This means that production is slow to react to price changes. “High prices encourage new planting, but the new trees do not have any immediate effect on prices, and there is a tendency towards overplanting,” points out Colby College sociologist John M. Talbot in an article in Studies in Comparative International Development.

Today’s bountiful coffee harvest is to a large extent due to a series of severe frosts that affected Brazil, the world’s largest coffee producer, in 1994 and led to rising prices that continued This encouraged new tree plantings whose harvests are in the market today.

Once coffee trees are in production, they continue to bear coffee “cherries” for over a decade. So, when prices fall, the areas of coffee cultivation don’t shrink accordingly. Coffee growers limit inputs like fertilizer and this can lower yields. But they are unlikely to uproot their trees in order to plant something else. Moreover, governments often pay out subsidies to coffee growers during periods of low prices to diminish the social and political consequences of the crisis. The Colombian government, for instance, is guaranteeing a $13 subsidy per bag through the end of September. While this helps tide over the coffee industry, it also helps prolong the low-price period by maintaining the coffee supply at unsustainably high levels.

Julian Warmington said...

Bla bla bla; ha haa.

Yeah, that's a very well written piece of spin. My favourite line is:

"[The World Bank] says it resumed lending to Vietnam in 1994, after the country’s coffee expansion was already under way and that, though $16 million from a loan to the Agricultural Bank was used to finance coffee farm rehabilitation, it has not lent directly to the coffee sector."

Translation:
We've been loaning truckloads of money to Vietnam to develop its cheap coffee industry ever since 1989, but always through third parties.