The Economics of Fair Trade: A Study in the Impacts of Certifications

Nechad Abdelhamid, Essakhi Adam

(National School of Management, University of Abdelmalek Essaadi, Tangier, Morocco)

Abstract: The Fair Trade label displayed on certified products is a signal to consumers that the product is produced and traded in accordance with these requirements, the aim of this article is to provide a critical overview of the economic theory behind Fair Trade, describing the potential benefits and potential pitfalls for this certification. This article will look into the very basis behind FAIR TRADE, such as the environmental sustainability or its standards. While FAIR TRADE seeks to increase financial stability for certified farmers through a number of mechanisms, including a price floor, financing from purchasers and co-ops, and longer-term ties between producers and buyers, we find that the impacts of certifications are not always as simple as they are advertised by FAIR TRADE organizations. An example of such is, that within a sample of 177 Nicaraguan coffee farmers, 77 percent of Fair Trade-certified farmers reported that their cooperative provided pre-harvest credit, while this figure was only 33 percent for farmers belonging to conventional cooperatives, examining data from 469 households from Latin American countries, we find that Fair Trade-certified farmers are more likely to report having access to credit than conventional farmers.

Key words: fair trade; fair trade certified; certified farmers; trade certification; coffee farmer

JEL codes: H