Research has shown that fair-trade transactions — in which relatively wealthy global consumers purchase goods produced by less affluent producers — appeal to consumers’ ethical and altruistic impulses and can provide much-needed resources to producers. Inquiry has been limited, though, on the extent to which overall living standards among producers are truly improved. Marketing claims about the purported benefits of fair trade and its contribution to “ethical globalization” rest on related premises.

A 2009 study by researchers at the University of Wyoming, the University of Nebraska and the International Cotton Advisory Committee published in the Journal of Public Policy and Marketing, “Does Fair Trade Deliver on Its Core Value Proposition? Effects on Income, Educational Attainment and Health in Three Countries,” examined how participation in an alternative trade organization (ATO) focused on fair trade affected the family income, education and health of producers. The researchers administered questionnaires to 1,269 coffee farmers and their families in Peru, Nicaragua, and Guatemala between 2004 and 2005. Approximately 70% (881) of the study households were members of the ATO TransFair USA (TF) and 30% (388) were not affiliated with an ATO.

Key study findings include:

• Controlling for a producer’s age, plot size, household size and number of household members involved in production, TF farmers produced higher yields and were able to command higher crop prices than non-TF farmers.
• Researchers found no correlation between TF membership and educational attainment but a direct correlation between household income and educational attainment.
• On average, long-term TF participants (those who had been involved in fair trade enterprises for more than six years) had better overall health than both short-term and non-participants and had “better access to medical attention” than short-term participants. The authors conclude that this outcome is “indicative of cooperative investments in health care education or facilities.”
• The incomes of TF farmers in Nicaragua were appreciably higher than the incomes for similar TF farmers in Peru and Guatemala. One possible explanation for the disparity is that the cooperatives in Nicaragua may share a higher percentage of their profits with producers, the researchers hypothesize.

The authors note that they were unable to control for factors such as agricultural innovations, which might affect standard of living outcomes and might be more characteristic of farmers who choose to join fair-trade organizations. “This study shows that, overall,” the authors write, “participants derive benefits in terms of standard social indicators, even if these results are mixed.” However, “our study suggests that fair trade is not a panacea for third-world poverty.”

Tags: poverty, South America, entrepreneurship, small business