Imagine you are a farmer in Vietnam or Kenya deciding what market to get into. There is a vast excess of coffee suppliers so the price of coffee should be low and discouraging further entrants into the market. However, “fair trade” coffee is subsidized, and is sold at an artificially high price, and this entices more farmers to get into coffee production. This further feeds the already injurious surfeit of providers.
We’ve seen what happens when markets get distorted like this. The Coffee Crisis of the 1990s was characterized by plummeting and unstable prices. Coffee-producing nations rigged prices and subsidized local industry until the bubble eventually burst to the detriment of farmers worldwide.
Pretty apt.
However, the one thing that this analysis doesn't take into consideration is the irrationality of the first world consumer. Yes, people in the first world pay a premium for "fair trade" goods. Were we logical, we'd go and buy the same thing that was supposedly unfairly traded, for substantially less. However...not all that long ago, quite a few of us invested in Pet Rocks. That said, I don't expect the market to dry up anytime soon.
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