Just think about . . .
Continued from page 9
A fair price for chocolate
What is a fair price for chocolate? Is there any such thing, in fact?
And how could that fair price be decided?
Thomas Aquinas and the Just Price
The 13th-century theologian Thomas Aquinas
regarded the price of goods as a thoroughly moral
issue – a matter of right and wrong. Greed, he
argued, is a deadly sin. So it is quite wrong for
traders to make too much profit (to ‘rip people off’
as we would say today). On the other hand, if
traders make no profit at all, they go out of
business, and in that case the consumer doesn’t get
the goods they supply. The solution is for
merchants to charge a just price, which includes a
decent profit, but excludes excessive profiteering.
This is a price the buyer will freely agree to pay if
given all of the relevant information.
Today’s fair trade movement accepts this view. All
of the people involved, between the cocoa-grower
and the shop owner, should make a decent profit,
so they too can make a living. But most of the time
it is the people in the middle of the chain i.e. the
cocoa buyers, chocolate manufacturers and
packagers that make the profit, and the growers
end up without enough income to live. Fair trade
tries to readdress the balance, but it is a complex
business. It does not always work as well as we
would like.
Supply and Demand
Modern economics does not see the price of goods
as a moral issue at all. Price is just the market price
– the price that people are prepared to pay. And
this price is determined by the interaction of
supply and demand.
Fairtrade (one word) is a registered certification
for goods that have been fairly traded. Fair trade
(two words) is the general term that includes
both labelled and unlabelled goods, the
certification and the movement for justice (e.g.
ending poverty and unfair trade relations) example: economic empowerment of women and
climate change projects. The farmers in the
cooperatives also receive a ‘Fairtrade Premium’ – an
extra payment to spend on community development
such as health and educational services, not only for
their members but for the wider community too. This
doesn’t happen in conventional markets.
people stop eating it (the demand goes down) so
the price falls again. And so on. However, some studies of fair trade systems
suggest the following problems:
The whole thing is a supposed to be a self-
regulating system. The price is automatically set by
buying and selling in the market. Right and wrong
does not come into it: there is no such thing as a
separate ‘fair price’. ● Not much of the extra money paid by the person
buying the chocolate bar gets to the growers. Say the
buyer pays an extra 20p for the bar. They might think
this is giving 20p to the person who grew the cocoa.
But calculations suggest that only about 1-18 per cent
(0.2-3.6p of the 20p) gets there. The rest goes to the
shop selling the product, the costs of running the fair
trade scheme itself, and several other places. But the
main benefit to farmers is the price they get for the
raw product is higher than the market price and, most
importantly, consistent throughout the season.
Complications
The two systems above are very different, and they
are also both over-simplifications.
The Market Economics model (supply and demand)
assumes that all the people involved are equally
powerful and flexible, but this is rarely true. For
example, in the cocoa case:
Cocoa will ‘go off’ if stored for too long. So if cocoa
farmers get together and reduce the supply to
force up the price of cocoa, they may lose some of
their crop completely before they are able to sell it.
In the case of cocoa and chocolate: It takes several years – and so a big investment of
money – before a cocoa farmer’s tree produces a
crop. So farmers cannot just switch to another crop
if the price falls: they are stuck with trying to sell
what they produce at a lower price.
If more cocoa is produced (the supply increases),
then chocolate manufacturers can shop around for
the cheapest deal and the price of cocoa and
chocolate falls. This means that the cocoa farmers are less flexible
– and have less power – than the other people in
the system. It might look like a fair system at first
sight but, in practice, farmers often get a raw deal.
This fall in the price of cocoa means that less will be
produced (the supply decreases), so chocolate
manufacturers must compete to get it, and the
price of cocoa and chocolate goes back up.
If people eat more chocolate (the demand goes up)
this again means that demand outstrips supply, and
the price goes up.
But if the cost of chocolate becomes too high,
Fairtrade
In the fair trade approach that Phoebe
recommends, organisations like Fairtrade buy from
groups of farmers who work in cooperatives.
Collectively these cooperatives have better access
to international markets, higher prices, support
from buyers and other international organisations
who want to support them in different ways, for
● Fair trade certification can be costly to set up. Any
certification requires money, time and effort to meet
the certification requirements and quality standards.
● Women are often excluded from fair trade. Their
work tends to be invisible. To become a member of a
cooperative (and to sell to fair trade markets) you
need to own land. Often it is the men that own the
land rights. Women, however, do a lot of work
harvesting the cocoa and caring for the farm and
family, and this is often overlooked. Some fair trade
cooperatives are starting to support women by
encouraging husbands to share their land with their
partners, and providing women with access to loans
for buying land of their own.
So the idea of fair trade is very good, but some people
question whether it achieves what it was set up to do.
However, on the flip side, the conventional market has
all the same complications but with the added
problem that an unfair price is paid to the farmers.
So what is a fair price for chocolate? The answer –
if there is one – is a lot more difficult to find than
you might think! Fair trade may not be the whole
answer, but it’s a good place to start.
H H H
EXTRA TRICKY QUESTIONS FOR BUDDING PHILOSOPHERS
1. What is a fair standard of living for
a cocoa-growing farmer? Is it the
same as your own standard of living?
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2. Is there anything wrong
with making as much profit
as you possibly can?
3. Do we have a duty to pay
growers for their cocoa, even if
that cocoa is not needed?
The Economics Book (Dorling Kindersley, 2012) explores a wide range of puzzles about economics, including this one.
You can read about the Fairtrade movement at www.fairtrade.org.uk and about
problems with it at https://en.wikipedia.org/wiki/Fair_trade_debate