An economic enquiry into the welfare effects of fair-trade

Abstract

Fair-trade is investigated at three levels. Each level relates to a specific group of actors. The first group are the consumers of fair-trade. In this respect fair-trade overlaps with altruism. A model is developed which seeks out parameters by which to judge whether or not a person will engage into this gesture of altruism, and accordingly measures the fair-trade utility of the consumer. On the basis that it is voluntary, fair-trade is deemed to be virtuous in that it either uplifts consumer utility, or else the consumer withdraws their patronage. Information is hypothesised to play a key role in determining the depth of this relationship. The second group are neighbouring producers, that is the non fair-trade producers who compete in the same market. A situation is modelled in which fair-trade is viewed as a switch in demand preference rather than new demand. The model allows an evaluation based on the standard tenets of welfare economics: to inform upon which movements are value-creating, which are merely transfers, the symmetry of those transfers and where Pareto improvements can and cannot be realised. The policymaker is afforded a logical overview, but with the implication that many of the relevant variables may be lie beyond their direct influence. The third group are landless vineyard labours in South Africa who are empirically analysised. We observed the strongest performance of fair-trade with respect to subjective improvement in wellbeing and the sort of participation that could be categorised as empowerment.