Fair Trade and Free Trade

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Recommended: Free trade advantages and disadvantages

Introduction

The idea of fair trade was founded in the 1950s, and it has become more prevalent in the 1980s. (Mohan, 2010) Fair trade is trade between developed and developing countries where suppliers in the developing countries are protected to ensure a fair trade. (Hayes and Moore, 2005) Suppliers usually benefit from guaranteed minimum price and the social premium. On the other hand, free trade does not have a fixed price, and it has low government intervention such as tariffs on imported goods. On free trade, the prices fluctuate depending on the demand and supply of the goods. Fair trade has its advantages, however there are drawbacks that must not be overlooked. Some critics argue that fair trade has little, if any, benefits to the producers, and it only affects a small number of suppliers. Fair trade only concentrates on a few individuals whereas free trade will have a positive impact in the whole economy. There are flaws in the fair trade system and unlike free trade, it does not encourage efficiency and competitiveness to sustain the suppliers. This essay aims to discuss the benefits and the flaws in the fair trade system and how free trade can be more beneficial to suppliers than fair trade.

Advantages of fair trade

Fair trade offers fixed price that can protect suppliers from fluctuations in prices. (Mohan, 2010) Most of the products traded under fair trade are agricultural. The prices of agricultural products are very volatile under the free market. This is because usually agricultural goods such as coffee and banana are necessities and their supplies are subject to random shocks such as natural disasters. Due to its volatile nature, any small changes in demand or supply will dramatically affect the price. For ex...

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...orks Cited

Booth, P. & Whetstone, L., 2007. Half a Cheer for Fair Trade [online]. London: Institute of Economic Affairs. Available at: [Accessed 11th December 2013].

Griffiths, P., 2010. Lack of rigour in defending Fairtrade: a reply to Alastair Smith. Economic Affairs , 45-49

Hayes, M. & Moore, G., 2005. The Economics of Fair Trade: a guide in plain English [online]. Newcastle Fairtrade Partnership. Available at: [Accessed 11th December 2013]

Mohan, S., 2010. Fair Trade Without the Froth: A Dispassionate Economic Analysis of ‘Fair Trade’ [online]. London: Institute of Economic Affairs.

Ronchi. L., 2002. The Impact of Fair Trade on Producers and Their Organisations: A Case Study with Coocafé in Costa Rica. University of Sussex.

Sidwell, M., 2008. Unfair Trade. London: Adam Smith Institute.

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