Consumers are keen to buy fairly traded goods and the higher prices we are prepared to pay can be a force in reducing poverty. But Fairtrade's success may put farmers at risk

Like most projects in international development - aid, debt relief, microfinance - fair trade can help reduce poverty. What it cannot do is effect fundamental change in the world trading system. I tend to be suspicious of attempts to change market outcomes by fixing prices, which is what fair trade boils down to. But, in practice, the armchair economists' objections that high fixed prices lock farmers into overproducing (rather than abandoning crops with little future) seem a bit overdone.

Farmers selling goods certified under the Fairtrade label can only sell as much at the Fairtrade price as they have contracts for. I have visited cotton farmers in Mali who were fully aware of the dangers of relying too much on one crop, even with a higher price, and continued to rotate cotton with peanuts, maize, sesame seeds and so on.

But, now that Fairtrade is gaining a larger share of the total market, the threat could become more serious. Unless every single coffee buyer in the world, for example, buys the same amount of coffee as before at a higher price, Fairtrade may well be in the uncomfortable position of closing its books to new applicants or certifying farmers who cannot get any contracts at a Fairtrade price.

The risk of overproduction through price- fixing is not theoretical. Governments in Bangla desh and elsewhere guaranteed absurdly high prices for jute farmers, with the result that more and more jute was produced and shovelled on to the world market and prices collapsed. What farmers need to do - and Fairtrade could be a bit more explicit in encouraging them - is to use Fairtrade income to improve the quality of existing crops, diversify into others or move out of farming altogether. I was heartened to be told of Ecuadorean coffee farmers who felt that Fairtrade would give their children a choice not to grow coffee.

On this subject, a useful if little-known aspect of Fairtrade is the "social premium", a payment the co-operatives receive to be spent collectively. There are well-documented problems with Fairtrade's predilection for dealing only with co- operatives (farmers have usually been organised otherwise). But where it works, it can work. One Malian village I visited used its premium to build a crop store that enabled it to distribute supplies of grain evenly over the year.

Fairtrade has no way to make sure that farmers diversify or improve quality, and I have some sympathy with companies such as Green & Black's, which say they aid farmers more by helping them to improve quality and go organic rather than just guaranteeing a price.

Fairtrade is fine as far as it goes. I part company where a moderately sensible market intervention is dressed up as part of a mission for global "trade justice". Itself a creation of NGOs, the UK Fairtrade Foundation sits on the board of the Trade Justice Movement, a coalition of dozens of NGOs. The movement's analysis of trade - that poor countries are prevented from trading by unfair rules, tariffs and subsidies - is wrong and its suggested solutions are routinely misguided.

With a few exceptions (cotton in particular), rich nations' trade tariffs and subsidies do not significantly hurt developing-world farmers, and certainly not those in Africa. The products most African farmers grow are not subsidised heavily by Europe and the US, which concentrate their support on temperate crops such as beet and wheat.

Even in crops where rich and poor compete head-on, pursuing trade justice often means not backing poor against rich but weighing in on the side of one set of developing countries against another. Take the NGO cause céèbre of rice, of which there are now Fairtrade versions. Famously, the markets in Accra, Ghana are piled ceiling high with subsidised American rice that undercuts domestic produce. (Printing the Stars and Stripes on the sacks, as American rice exporters often do, is a particularly nice touch.) NGOs lead a steady stream of pliable celebrities and journalists round by the nose and invite them to be outraged.

But if they look carefully in the markets, they will also see rice from Vietnam and Thailand that is competitive without subsidy. If the US never exported another grain of rice, Ghanaian farmers still could not compete with Vietnamese and Thai imports. Protecting them with tariffs merely means transferring money to the rice farmers from everyone else in Ghana, by making them pay more for a staple food.

Prices in one of Fairtrade's biggest markets, coffee, were driven down a few years ago by huge expansion of cheap production in Vietnam and Brazil, the former helped by its government. One solution proposed by NGOs in the trade justice coalition, including Oxfam, is to hold up prices by "managing supply" - in other words, to form a global coffee cartel.

It is hard enough holding together a cartel like Opec, where countries either have the commodity or they don't. Trying to support a global price in a commodity where production can be expanded rapidly almost always fails. The previous coffee cartel, along with a whole bunch of similar commodity arrangements in decades gone past, collapsed precisely for that reason.

And can we seriously envisage going to Vietnam, a country poorer than Mexico, Ecuador and Peru, whose farm exports have helped it reduce poverty at a spectacular rate, to tell it to cut production? How is this trade justice? Why do Vietnam's coffee farmers matter less than Mexico's?

Fairtrade can be a useful support to farmers if it pulls them into the existing world trading system and helps producers diversify and go up the value chain. But it cannot function as a club whose members take on the hopelessly unrealistic and misguided quest of slaying the chimerical beast of trade injustice.

Alan Beattie is world trade editor of the FT

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