Economics of Fair Trade

Fair trade initiatives protect agricultural producers by providing a guaranteed 1 to cover production costs during market downturns. In addition, an extra amount called the social premium is placed into a 2 to support community infrastructure projects. For individual cooperatives, these stable incomes enable farmers to construct 3 that protect crops against damage.

However, researchers note several economic drawbacks. Smallholders are often deterred by high annual 4, which restrict poorer farmers from joining. On the consumer side, purchases fall dramatically if the price difference is greater than 5. Furthermore, higher production can create a 6, forcing cooperatives to sell most produce at regular prices. Lastly, fair trade may discourage 7 by motivating farmers to focus exclusively on traditional cash crops.