• Sushil Mohan, Fair Trade Without the Froth: A Dispassionate Economic Analysis of Fair Trade, London: Institute of Economic Affairs, 2010, 135 pages, 2010, $18.

Go into an upscale grocery store and you will find a variety of goods offered with the assurance that they have been produced and marketed in accordance with “fair trade” principles. Such products (especially coffee, but also bananas and other crops grown in “third world” countries) cost more than non-fair trade goods. The higher price is supposed to help ensure a better life for poor farmers and their families.

The fair trade movement is more than 50 years old, but has become prominent only in the last 15 years or so. Now there is a vigorous campaign in the U.S., Britain, and other affluent nations to encourage individuals and governments to convert to fair trade for the benefit of poor people who produce goods they consume. But does fair trade actually help struggling farmers — or is it just another marketing gimmick to manipulate wealthy consumers into parting with more of their money?

In Fair Trade Without the Froth, economist Sushil Mohan has written exactly what his subtitle promises, a dispassionate examination of the fair trade movement. After analyzing the arguments and evidence, Mohan concludes that while fair trade has some beneficial effects for farmers, they are rather small and are accompanied by some offsetting costs.

The keys to receiving fair trade certification include the following:

• Traders must pay farmers a minimum price that covers their living costs and permits “sustainable” production. But if the free market price for the crop rises above that floor, then it prevails.

• Traders also must pay a “social premium” of between 5 and 10 percent to the growers for technical assistance and development.

• Traders must buy from grower cooperatives, using long-term contracts to promote income stability.

• Producers must abide by stated social and environmental criteria, such as refraining from the use of child labor, not growing genetically modified crops, and employing only “organic” methods.

To ensure compliance, fair trade organizations (there are several) have established monitoring systems. The cost of those systems and of pro-fair trade advocacy consumes much of the higher prices paid by consumers.

Indeed, Mohan contends that the producers of fair trade goods receive just a small cut of the premium, citing research by Tim Harford of The Financial Times showing that at the large British coffee seller Costa, only 10 percent of the premium went to the growers. The rest fattened Costa’s bottom line.

Mohan is also skeptical about the claim that fair trade protects impoverished growers against market price fluctuations. He explains, “The guaranteed price can guarantee income only if there is also a guarantee of quantities that that traders will buy from them. It is not possible for fair trade to guarantee the quantities that will be bought at the guaranteed price.”

Mohan makes a persuasive case that fair trade’s benefits to the poor have been overstated. Still, why be concerned about it? Fair trade is voluntary. Growers don’t have to participate and consumers are free to buy non-fair trade goods. Fair trade may be little more than a marketing gimmick, but the commercial world is full of those.

What worries Mohan, and ought to worry the rest of us, is the possibility that fair trade zealots will turn to coercion. He points to efforts by fair trade proponents in the U.K. to exclude non-fair trade products from schools and churches. And dozens of major cities — including Chicago — have become “fair trade cities,” encouraging the use of fair trade products by municipal contractors.

Mohan concludes by making the case that free trade is a far better development policy for the world’s poor. By extending the market and bringing capital investment to third world nations, free trade increases production, leading to higher living standards. Fair trade does little or nothing to speed up economic development; by interfering with the decisions of farmers, it might impede it.

Fair Trade Without the Froth will make consumers think twice before they plunk down extra money for fair trade goods.