What about Fairtrade? Its aim is to address "the injustice of low prices" by guaranteeing that producers receive a fair price... In essence, it means paying producers an above-market "Fairtrade" price for their produce, provided they meet particular labour and production standards. ...Okay, I'm willing to believe that too much coffee is being produced in the world, and that's why prices are so low. But that was a problem long before the fair-trade movement showed up, clearly. Something in the "free" market was already preventing producers from switching to other crops. Maybe farmers were too poor to diversify. Who knows? At any rate, fair-trade coffee only comprised 1.8 percent of the U.S. market in 2004—a tiny fraction—so it's hard to imagine that this is the chief thing stimulating overproduction. I agree that it's only a partial solution to rural poverty (and it does seem true that most of the markup on fair-trade coffee goes to supermarkets rather than farmers). But making things worse? Really?
The standard economic argument against Fairtrade goes like this: the low price of commodities such as coffee is due to overproduction, and ought to be a signal to producers to switch to growing other crops. Paying a guaranteed Fairtrade premium--in effect, a subsidy--both prevents this signal from getting through and, by raising the average price paid for coffee, encourages more producers to enter the market.
This then drives down the price of non-Fairtrade coffee even further, making non-Fairtrade farmers poorer. Fairtrade does not address the basic problem, argues Tim Harford, author of "The Undercover Economist" (2005), which is that too much coffee is being produced in the first place. Instead, it could even encourage more production.