How do you take your coffee? Black? Cream and sugar? Fair?
Over the past decade, “fair trade” labels have become ubiquitous. Not limited to coffee, the fair trade movement has taken root in many agricultural industries, including sugar, cotton, tea, and even wine.
Fairtrade International, a de facto governing body of the movement, states that its mission is “to connect disadvantaged producers and consumers, promote fairer trading conditions and empower producers to combat poverty, strengthen their position and take more control over their lives.”
Despite its meteoric rise in popularity, does fair trade translate its noble intentions into tangible results? Unfortunately, like a stale cup of coffee, fair trade can leave a bad taste in your mouth. Thankfully, there’s something else with the ability to address the problems that fair trade fails to solve: bitcoin.
To be a part of the fair trade program, producers must become “certified.” Certification is granted to producers who satisfy rigid requirements set by Fairtrade International and other similar organizations.
The certification process is flawed from the outset. Small, disadvantaged producers—those that fair trade seeks to help—are least likely to have access to certification. Many producers do not get certified simply because of the small size of their operations. As researchers Aurélie Carimentrand and Jérôme Ballet conclude, “[C]ertification does not necessarily assist the most marginalized producers, and can in fact actually exclude them due to the high costs associated with certification.”
While fair trade cannot empower the vast majority of farmers, bitcoin can. As a borderless digital currency, third-party organizations—financial or otherwise—are wholly unnecessary. Producers can communicate directly with consumers. Bitcoin can be sent directly from a coffee shop in Seattle to a farmer in Colombia with the click of a button. With bitcoin, restrictions imposed by political boundaries and geographic disparities vanish entirely.
Producers don’t even need to have access to a bank. All that’s necessary in order to send and receive bitcoin is a digital wallet. “Bitcoin can be an alternative for the unbanked community either domestic or abroad,” writes Roger Wu at Forbes.
Nor do producers need a conventional internet connection. Wireless connectivity, courtesy of a worldwide cellular network, is penetrating every corner of the globe at a blistering rate. The New York Times recently reported that Oman and Kazakhstan outranked wealthier nations like Switzerland and Germany in mobile broadband use. In the not-so-distant future, the Bitcoin protocol itself could provide a decentralized, distributed internet.
Bitcoin solves the access problem that fair trade exacerbates. While fair trade enhances the power of large farms at the expense of small farms, bitcoin creates a privilege-free playing field, allowing producers of all sizes unhampered entry into the international marketplace.
Price & Demand
Certified producers are guaranteed a minimum (above-market) price for their goods. The purpose of the minimum price is to “ensure that producers can cover their average costs of sustainable production,” and to act “as a safety net for farmers at times when world markets fall below a sustainable level.”
Unfortunately, whenever the price of a good is artificially raised above its market level, a binding price floor is created. The price floor reduces demand for the good, and consumers buy less of it. Marc Sidwell of the Adam Smith Institute writes, “Fair trade does not aid economic development. It operates to keep the poor in their place, sustaining uncompetitive farmers on their land and holding back diversification, mechanization, and moves up the value chain. This denies future generations the chance of a better life.”
Bitcoin reduces transaction costs. PayPal assesses a 2-4% fee per transaction, whereas bitcoin transactions can be executed for less than 1%. Without the need for third party intermediaries (banks, credit card companies, etc.), producers, transporters, and merchants can charge less for their goods. Increased sales will likely be the result of those lower prices, and the benefits will ripple throughout the economic ecosystem.
Fair trade artificially raises prices, making the world a slightly more dreadful place for producers and consumers alike. Bitcoin does away with superfluous expenses, lowers prices, and blesses everyone touched by its digital hand.
In addition, smart property, an imminent (and immanent) application of the Bitcoin protocol, will afford third-world agricultural operations the opportunity to grow and improve. Cathy Reisenwitz says it best: “Smart property obviates the need for trust, and its proxy, discrimination.” With risk (and international transaction costs) for lenders substantially reduced, capital can flow freely to anyone with a good idea, irrespective of credit or location.
Notwithstanding good intentions, the results of fair trade have been bitterly dismal. In contrast, bitcoin delivers immediate empowerment without political initiative. Third-world producers, first-world consumers, and everyone else in between reaps the benefits. It’s time for doubters of bitcoin to wake up and smell the coffee.