Fair trade

1
Fair trade

• Leonardo Becchetti
• University of Rome Tor Vergata

2

• In recent years we saw many times government and
  corporations forced to reconsider and change
  their policies for the bottom up pressure from
  grassroot movements and civil societies This is
  the kind of pressure we need in order to achieve
  the Millennium Development Goals1
• Kofi Annan
• UN General Secretary
• Quote from La Repubblica 18 December 2002.

3
Structure of the presentation

• Facts
• Debate
• Competition effects
• The demand of consumers
• The impact on producers

4
A definition

• Fair trade schemes use consumption and trade in
  an aim to promote inclusion of poor farmers in
  global product markets through a package of
  benefits which include anti-cyclical mark-ups on
  prices, long-term relationships, credit
  facilities and business angel consultancy to
  build producers capacity
• NOT TO BE CONFUSED WITH fair trade generally
  referring to the absence of duties, controls and
  dumping practices in international trade (Mendoza
  - Bahadur, 2002 Bhagwati, 1996 Stiglitz, 2002
  Suranovic, 2002)

5
IFAT criteria

• Creating opportunities for economically
  disadvantaged producers.
• Transparency and accountability.
• Capacity building.
• Promoting Fair Trade.
• Payment of a fair price.
• Gender Equity.
• Working conditions.
• (healthy working environment for producers. The
  participation of children (if any) does not
  adversely affect their well-being, security,
  educational requirements and need for play and
  conforms to the UN Convention on the Rights of
  the Child as well as the law and norms in the
  local context.)
• The environment.
• Trade Relations.
• Fair Trade Organizations trade with concern for
  the social, economic and environmental well-being
  of marginalized small producers and do not
  maximise profit at their expense. They maintain
  long-term relationships based on solidarity,
  trust and mutual respect that contribute to the
  promotion and growth of Fair Trade. Whenever
  possible producers are assisted with access to
  pre-harvest or pre-production advance payment.

6
Cocoa world prices
7
Coffee world prices (Us cents for 100 coffee
pounds)
8
Price breakdown of a FT product
Euro
To the farmer 0.55 22.6
To UCIRI general expenses 0.16 6.4
A UCIRI social projects 0.13 5.5
A UCIRI biological component 0.08 3.4
Tranportation costs to the transformer 0.06 2.4
Tariff and custom expenses 0.04 1.7
Toasting and packaging 0.46 18.8
Distribution costs and financial expenses 0.13 5.2
Importer (CTM) margin 0.29 12
Retailers (World shops) margin 0.54 22
Sale price 2.45 100
VAT 0.49 20
Total 2.94
Price of 250 gr UCIRI - Union Comunidad Indigenas
de la Region de Istmo (Messico) - coffee
9
FT growth

• in 2005, sales of products certified as fair
  trade ones were estimated at 1.1 billion
  worldwide, a 37 year-to-year increase
• European FT net sales grew by 20 percent per year
  in the last five years and that in 2005,
• Significant market shares in specific sectors
  such as bananas in Switzerland (47) and the
  ground coffee (20), tea (5) and bananas (5.5)
  in the UK

10
Institutional support

• European Parliament resolution on Fair Trade and
  Development (July the 6th 2006) asking the
  European Commission a recommendation and steps up
  public support for Fair Trade
• Rapporteur, MEP Frithjof Schmidt, "This
  resolution responds to the impressive growth of
  Fair Trade, showing the increasing interest of
  European consumers in responsible purchasing.
• Peter Mandelson, EU Commissioner for External
  Trade, "Fair Trade makes the consumers think and
  therefore it is even more valuable. We need to
  develop a coherent policy framework and this
  resolution will help us."

11
Fair Trade and the solution to market failures (1)

• Theoretical and empirical research shows that
  Fair trade provides solutions to several types
  of market failures
• 1) Prefinancing small producers, contributing to
  the solution of their credit rationing problems
  and breaking the monopoly of local moneylenders
• 2) Investing surplus in local public goods which
  are fundamental prerequisites for
  self-development (education, health , etc)
• 3) Insuring producers from price fluctuations
• 4) Breaking monopoly rent of local intermediaries
  which brings prices to monopsonistic levels
  below the value of the marginal product

12
Fair Trade and the solution to market failures (2)

• For points 1 and 4 FT acts compensates the
  absence of a functioning antitrust in these
  markets and deserves the Adam Smith prize
•  
•  
• 5) Creating stable partnerships and providing
  services which ease access to our markets
• 6) Reducing child labour not through bans but
  through integration of household income
•  
• 7) Creating indirect effects and pushing profit
  corporations to be more socially responsible (see
  the three pillar story)

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Critique 1 the price distortion fallacy

• A main criticism to fair trade is that it would
  generate a price distortion on the market price
  of a given commodity, say coffee, providing a
  wrong incentive to producers to invest
  inefficiently resources for a product for which
  there is scarce demand.

14
Reply to the critique

• First, in many cases the exchange between
  producers and intermediaries does not occur in a
  competitive framework. In such case the market
  price is a distortion because it does not reflect
  the productivity of producers but their lower
  market power.
• Second, the food industry produces highly
  differentiated products with a continuous wave of
  innovations which create new variety. There is
  not one coffee but many different coffee products
  which differentiate each other in terms of
  quality, blends, packaging and now also social
  responsibility features. For any of these
  products exists a specific and different market
  prices which is determined by consumer tastes for
  that kind of products (and that for fair trade
  coffees does not seem to be weak or declining).
  In this sense fair trade is an innovation in the
  food industry which creates a new range of
  products.

15
Critique 2 difference between socially
responsible consumption of FT products and
charity

• LeClair (2002) argument
• A smaller donation creates
• the same welfare improvement
• of consumer than the price
• premium but does
• create distorted incentives

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Reply to critique (2) Difference between socially
responsible consumption of FT products and
charity

• STRONGER ARGUMENTS
• only the fair trade purchase generates the
  positive indirect effects on social
  responsibility of traditional producers
• fair trade, differently from charity, provides a
  minimum wage measure needed to solve market
  failures in case of monopsonistic labour markets
  (or may reduce intermediary rents in local
  transportation market) (donations have no
  antitrust effects)
• Fair trade create a new variety of product and
  satisfies tastes of fairness or inequity aversion
  of consumers

17
Difference between socially responsible
consumption of FT products and charity(3)

•                              
• WEAKER ARGUMENTS
• fair trade contributes with anticipated financing
  to reduce uncollateralised producers credit
  constraints together with their dependence from
  monopolistic local moneylenders
• fair trade channels provide learning through
  export, price stabilization services and promote
  inclusion of unskilled but potentially productive
  workers (producers) in international labour
  (product) markets
• Andreoni (1989) argument of warm glow
  preferences
• charity does not necessarily reward productive
  people
• the FT bottom-up mechanism may be more efficient
  than government subsidies in targeting the poor
  joining consumption and social transfer reduces
  transaction costs of aid to the poor with respect
  to the traditional tax financed government aid
  scheme.

18
FT, CSR and globalisation

• social responsibility emerged as an endogenous
  reaction of the socioeconomic environment to the
  fall of the old system of checks and balances
  through which corporations, domestic trade unions
  and domestic institutions ensured the joint
  pursuit of economic development and social
  cohesion.
• The ICT revolution and the ensuing global market
  integration was the leading force which caused
  the crisis of the old equilibrium.
• The positive consequence of the new equilibrium
  is that, while citizens action cannot be seen as
  a substitute but as a complement of new (global
  or globalization consistent) governance rules, it
  represents a step ahead in economic democracy.
• With socially responsible consumption citizens
  learned to vote everyday with their portfolio,
  thereby significantly increasing their degree of
  active participation to the political and
  economic life.
• Their bottom-up pressure stimulated socially
  responsible practices of corporations which aimed
  to conquer the emerging group of concerned
  consumers.

19
FT and CSR beyond reductionism

• Beyond the dichotomy of the self-worker and the
  self-consumer
• Positive market share and empirical findings of
  nonzero willingness to pay for the ST features of
  FT products reveals that consumers are not
  homines economicy or rational fools (Sen, 1976)
• Among alternative microfundation of economic
  agents our findings seem to support especially
  altruism, fairness and inequity aversion
  (Fehr-Schmidt, 1999 Fehr and Schmidt, 2002
  Sobel, 2002) or long-sighted self interst and
  less reciprocity

20
FT and the rise of social market entreprises

• Firm with a specific social goal (promoting
  inclusion) which compete in the market with
  profit maximisers and are contagious generating
  partial imitation
• SME overcome the traditional dichotomy between
  creation of economic value (with likely negative
  externalities) and redistributive or inclusive
  policies aimed to correct the distortions
  introduced in the moment in which economic value
  is created
• They increase work satisfaction of intrinsically
  motivated workers

21
Fair trade and the reputation of the market

• Does the market erodes social virtues ?
  commodification (Marx and Hirsh, 1976),
  depleting moral legacy and tyranny of small
  decisions (Hirsch, 1976) crowding our of
  intrinsic motivations (Frey)
• The market has not always negative moral
  consequences moral consequences of growth
  (Friedman, 2006), self generating flow of
  altruism (Arrow, 1972), countermovement
  (Polanyj, 1957)
• FAIR TRADE REVOLUTION creates value with values
  and uses commodification to generate social
  values

22
Pioneers and second movers contagion effects
of fair trade
23
BBC 7 October 2005 (1)

• Nestle has launched a fair trade instant coffee
  as it looks to tap into growing demand among
  consumers. The firm is the first of the four
  major global coffee firms - the others are Kraft,
  Sara Lee, and Procter Gamble - to put out such
  a product in the UK.
• Ethical shopping is an increasing trend in the
  UK, as consumers pay more to ensure poor farmers
  get a better deal.
• But the involvement of a leading multinational
  has proved controversial among the aid and
  development workers.
• 'Turning point'
• The decision represents a turn-around for the
  Fairtrade Foundation which has endorsed the move.
  
• This represents a fundamental, serious commitment
  to help some of the poorest farmers Nestle"This
  is a turning point for us and for the coffee
  growers," said Harriet Lamb, director of the
  Fairtrade Foundation, which helps regulate and
  mark fair trade products. "This just shows what
  we, the public, can achieve," she said. "Here is
  a major multinational listening to people and
  giving them what they want."
• Development charity Oxfam cautiously welcomed the
  move, but said that it was only a small step in
  the right direction.

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BBC 7 October 2005 (2)

• Fair Trade is quite clearly growing enormously in
  terms of its awareness," said Fiona Kendrick,
  Nestle's UK head of beverages.
• "Specifically in terms of coffee, fair trade is
  3 of the instant market and has been growing at
  good double-digit growth and continues to grow."
• Other companies have also recognised the
  importance of ethical brands.
• Proctor and Gamble launched a FairTrade coffee
  brand in the United States in 2004 under its
  Millstone label.

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The model

• Ethical distance is the distance in monetary
  terms between the transfer, which is considered
  fair by the consumer (indicated by his location
  on the segment) and the transfer provided by the
  producer (indicated by producers location on the
  segment).
• The coefficient t maps this objective measure
  into consumers preferences.

27
Why horizontal and not vertical differentiation

• heterogeneity violates a fundamental element of
  vertical product di.erentiation models in which
  more of a given product feature is better for
  everyone.
• Empirical support for our hypothesis on the
  heterogeneity of individual attitudes toward
  social responsibility is confirmed by descriptive
  evidence from the World Value Survey database -
  65,660 (15,443) individuals interviewed between
  1980 and 1990 (1990 and 2000) in representative
  samples of 30 (7) different countries.
• In both surveys around 45 (49) percent of sample
  respondents declare that they are not willing to
  pay in excess for environmentally responsible
  features of a product.
• The same survey documents that the share of those
  arguing that the poor are to be blamed is around
  29 percent in both surveys. This simple evidence
  confirms heterogeneity in the willingness to pay
  for social and environmental responsibility,
  rejecting the assumption that more of SR may be
  better for all individuals.

28
Why asymmetric costs of ethical distance

• Empirical findings discussed in the previous
  slide clearly evidence that a nonzero share of
  consumers which are not willing to pay extra
  money for the social or environmental features of
  the product exists.
• These consumers are either indifferent
  (asymmetric distance) or even find a disutility
  in buying a product above their ethical standards
  (i.e., they may believe that this money is
  waisted) (symmetric distance).
• Even though we believe that the asymmetric
  distance hypothesis is the most faithful
  representation of consumers preferences on SR,
  the simmetry/asymmetry of distance costs may be
  open to debate.

29
The model

• Three differences with respect to the traditional
  vintage of Hotelling (1929), Economides (1986),
  Daspremont et al. (1976) models of horizontal
  product differentiation
• i.      the different goals of the two
• PMP is a profit (?) maximising
•  and
• FT is a zero profit he fixes a price Pbw(1s)
  and chooses his ethical location s that
  maximises transfers to the South.
•  
•   ii.      the asymmetric costs of "ethical"
  distance
• only consumers buying from PMP have costs, so the
  consumers indifference condition is
•  -PA-t(x-a)2-PB           
•  iii.      the lack of independence between
  ethical location and prices.

30

• The specific nature of the two players in our
  game, the relationship between the (ethical)
  space and price variables and the asymmetry and
  linearity in the costs of ethical distance are
  all features which differentiate our game from
  the traditional horizontal differentiation game
  in which equilibria may be found only when price
  and location are chosen sequentially and not
  simultaneously (Anderson, 1987 Lambertini,
  1997).

31
The switch from maximum ethical differentiation
to partial ethical imitation

• Proposition 1. If the PMP jointly chooses price
  and ethical location after the socially
  responsible entry, the model switches from an
  equilibrium with maximum ethical differentiation
  with no imitation to an equilibrium with partial
  ethical imitation when consumers marginal costs
  of ethical distance are higher enough than
  producer costs of ethical imitation t3ws/4 is
  the threshold of consumers costs of ethical
  distance which triggers PMP imitation

32
The dogmatism paradox

• Proposition 3. The fair trader optimal position
  on the SR segment in the simultaneous game with
  the PMP is more socially responsible when he
  maximizes his own and not total market transfers
  to the South. In this case, and under given
  parametric conditions, such position may reduce
  the likelihood of PMP imitation and total SR
  transfers to the South.
• Rationale If the FT goal is to maximise his own
  transfers he will be more radical in social
  responsibility, while, if the goal is to maximise
  total transfers to the South, he will be more
  pragmatic and reduce his own activity in order to
  elicit more imitation from the PMP.

33
Does the PMP adopt the same level of imitation
without the presence of the FT ?

• The PMP alone, if free to choose both prices and
  ethical location, behaves exactly as when the FT
  is on the market under the assumption that the FT
  exogenously set PB Rp.
• Shall we conclude that the FT is not at the root
  of the partial SR choice of the PMP? We say no
  for two reasons.
• First, it may be assumed, as it is likely to have
  happened in the reality, that information on
  consumers tastes is ex ante incomplete, that the
  existence of consumers preferences in favour of
  specific products such as FT products is revealed
  only once these products have been present in the
  market.
• Second, but this goes behind this specific model,
  it may be reasonably assumed that consumers
  sensitivity to the SR issues grows in SR
  consumption habits. Becchetti, Solferino and
  Tessitore (2005) find that, under reasonable
  parametric conditions, the PMP alone chooses a
  significantly lower level of SR with respect to
  the case in which he reacts to FTs entry.
• Recent evidence of it in the empirical analysis
  of the determinants of FT expenditure may be
  found in Becchetti and Rosati (2007). In a
  related paper which incorporates the law of
  motion of consumer tastes for SR

34
The welfare paradox a (duopolistic) market which
creates more social value than the benevolent
planner !!
35
The welfare paradox (2)

• all equilibria in the game exhibit too much
  social responsibility from a domestic welfare
  perspective. Such result is crucially affected by
  our assumption of a duopolistic market and by the
  complementarity between prices and ethical
  location.
• the result of excess social responsibility might
  be reversed if we incorporate preferences of
  South producers to the social planner problem. In
  that case we might obtain an interesting result
  of an oligopolistic market equilibrium which
  attains the international socially optimal level
  of social responsibility. We would have therefore
  an (oligopolistic) market mechanism based on the
  strategic complementarity between prices and
  social responsibility which compensates with
  entirely private and voluntary mechanisms the
  absence of an international social planner

36
In the dynamic model the incumbent is more
aggressive

• If consumers tastes for social responsibility
  vary according to a law of motion in which
  ethical concern is positively affected by
  consumption habits (and more if the product is
  bought in the world shops) the incumbent will try
  to conquer a higher share of the market in order
  to reduce the process of increased sensitiveness
  to the issue

37
Problems in future expansion

• Informational asymmetries and conflicts of
  interest are a serious problem
• The CSR element of the product is not and
  experience good. Labels are essentials

38
Conflicts of interest in the fair tradevalue chain
Imitators
ATOs
3
Ifat label
5
2
4
1
3
Flo label
World shop (exclusive retailers)
Supermarkets
39
Does fair trade maintain its promises an impact
analysis on Kenyan farmers
40
The four groups (1)

• BIO organic farmers with long term relationship
  with Meru Herbs
• CONVERSION farmers with long term relationship
  with Meru Herbs under conversion to organic
  production
• ONLY FRUIT fruit farmers who have a commercial
  relationship with Meru Herbs that is not fully a
  Fair Trade relationship
• CONTROL no relationship with Meru Herbs but
  benefits from the irrigation project

41
Methodological issues (1)

• Composition effects and heterogeneous
  characteristics of the four groups may influence
  some of our findings.
• I.e. Control group farmers may have lower
  household consumption expenditure because they
  have on average a lower number of children, a
  slightly lower surface of cultivated land and are
  relatively younger (if age and, presumably
  correlated, working experience have some effects
  on performance and standard of living).
• Endogeneity and a selection bias in the
  affiliation to Meru Herbs seem difficult, in
  principle, to disentangle from the concurring
  interpretation of the positive impact of FT.
• Even though Meru does not create access
  restrictions for membership, a process of self
  selection may equally arise if the opportunity of
  affiliation is taken by farmers with more
  entrepreneurial spirit (mandalai in Swahili) and
  if such variable is related with socioeconomic
  indicators.

42
Methodological issues (2)

• If the Meru Herbs project generates positive
  spillovers in the area, differences between the
  three project groups and the control group may
  result flattened, thereby leading to an
  underestimation of the FT contribution.
• A project survivorship bias may also arise since
  the most successful farmers may be likely to get
  out of the project.

43
Results on the Price premium (1)

• i) FT, in cooperation with Meru, introduces four
  new products (mango, karkade, guava and lemon)
  which are cultivated only by affiliated farmers.
• It is therefore impossible to make a price
  comparison with the control group on these
  products
• i) Sorghum, maize, millet and okra are produced
  by all of the four groups and sold only on the
  local market, not to FT. For these products there
  is no evidence of better price conditions for
  affiliated farmers
• ii) pilipili (red pepper in Swahili) is the only
  product which is both sold to FT by affiliated
  farmers and produced (and sold through
  traditional trade channels) by control group
  farmers. For this product the price premium is
  strong and significant (see also confidence
  intervals in Table II).

44
On Price premium (2)

• Three main findings may be drawn from price
  comparisons
• i) the price premium seems to exist when we
  compare products cultivated by all farmers and
  for which affiliated farmers have the additional
  FT trading channel (though our observation is
  based on only one product)
• ii) a more generalised effect of FT in the area
  seems to be product diversification rather than
  price premium
• iii) FT and Meru affiliation does not help to
  reinforce (as it often happens when producers
  organisations are formed) bargaining power when
  selling products on local markets (affiliated
  farmers do not have significantly better price
  conditions on the four products sold on the local
  market).

45

• To control for Meru Herbs selection biases, we
  specify a treatment regression model in which the
  previously estimated model equation is
  re-estimated together with a selection equation
  in which affiliation/no affiliation to FT is
  regressed on a set of individual characteristics.

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General interpretation of results on higher price
and income satisfaction

• Higher price and income satisfaction
• i) combination of in-kind benefits which are now
  described in detail in the paper
• ii) the reduction of risk that affiliated
  farmers have for the more diversified product
  portfolio, the stability of prices and purchases
  from Meru Herbs and from Fair Trade in the export
  channel (a lower risk premium may be asked by
  farmers for their activity which implies
  relatively higher price and income satisfaction
  for a given level of price and income)
• Higher weekly food consumption expenditure
• i) in kind services of FT reduce investment
  costs of farmers and
• ii) the reduction of risk generated by product
  diversification and price stabilisation raises
  permanent income (i.e. reducing current or
  expected precautionary savings in monetary or
  nonmonetary forms), thereby increasing the level
  of consumption for a given monthly wage
• IN KIND BENEFITS
• Meru Herbs i) provides complimentary seeds and
  organic fertilisers to farmers ii) sells them
  fruit trees for production at subsidised prices
  iii) organises complimentary training courses in
  the implementation of organic farming techniques
  and iv) offers the services of two of its
  employees (the Farmer manager and vice-manager)
  with the specific task of supervising and
  providing technical assistance to the affiliated
  farmers.

48
Conclusions (1)

• Over 4,000 small-scale and marginalised producer
  groups in more than 50 developing countries
  participate to Fair Trade supply chains. More
  than five million people in Africa, Latin America
  and Asia benefit from Fair Trade terms (Fair
  Trade Advocacy Office, 2005).
• It is therefore not cautious to draw general
  conclusions about the FT impact from an analysis
  developed on just one of these projects.
• Findings from this paper may at the most give an
  indication on whether the partnership with Meru
  Herbs was a good choice for FT and whether the
  joint impact of FT criteria and Meru Herbs
  activity had a positive influence on affiliated
  farmers.
• We believe, however, that our results, even
  though project specific, provide interesting
  evidence to the Fair Trade debate.

49
Conclusions (2)

• Fair trade affiliation seems to be associated
  with superior capabilities, economic and social
  wellbeing in the case of the observed Kenyan
  farmers, but also that more can be done on the
  human capital side.
• In the project that was investigated, fair trade
  is definitely responsible for crop
  diversification, creation of an additional trade
  channel and higher price satisfaction of
  marginalised producers.
• Fair trade and Meru Herbs affiliated have also
  been shown to have relatively higher food
  consumption expenditure and dietary quality, with
  the latter being seemingly related to the
  previously mentioned FT direct effects on price
  satisfaction.
• Another interesting result is the marked
  difference between fair trade affiliated and
  control farmers in terms of income satisfaction.
  Such difference is not only due to the higher
  perceived income, but also to a relatively lower
  desired income which is likely to be determined
  by a higher supply of complimentary (or cheaper)
  goods, services and technical assistance.
• Among these findings, those of higher living
  satisfaction and superior nutritional quality
  seem to be the most robust since the two
  variables are positively related to the seniority
  of FT affiliation and are robust to controls for
  the FT selection bias in a two equation treatment
  regression model.

50
Conclusions (3)

• A less clear cut result is the one related to the
  impact of fair trade on human capital investment.
  We may note in this case the positive (negative)
  association between affiliation to the younger
  Conversion project and human capital investment
  (child labour), but there is no significant
  association of the same variables to affiliation
  to the other projects.
• Overall, our findings seem to indicate that FT
  works quite well in the static perspective and
  that its specific features directly contribute to
  the improvement of farmers wellbeing, but also
  that the dynamic aspect (support for human
  capital investment) may be further improved.
• In addition to these specific results, we believe
  that a fundamental contribution of this paper
  consists in the development of a full blown
  methodology for impact analysis which can be
  usefully applied to similar projects. Such
  methodology tackles all phases of the impact
  study providing guidance for the survey design,
  the construction of the control sample and the
  descriptive and econometric analysis which can be
  developed from survey answers.
• Further work in this direction may be needed to
  enrich the dataset and allow the researcher to
  disentangle the pure impact of FT affiliation
  effect from the local producer and control sample
  selection bias effects.

51
Global social preferences and the demand for
socially responsible products empirical evidence
from a pilot study on fair trade consumers
52
The treatment regression model

• Demand for FT products depends from a series of
  factors including as crucial one the awareness of
  FT criteria
• Awareness of FT criteria is in turn conditioned
  by a series of additional factors

53
The treatment regression model of demand for FT
products
where
Where v and e are bivariate normal with mean zero
and covariance matrix
54
Additional insights from the treatment regression
model

• By estimating a demand function without the
  treatment regression model
• The (positive) direct income effect on
  expenditure is underestimated (as it incorporates
  the negative impact via lower awareness of FT
  criteria)
• The (positive) direct age effect on expenditure
  is underestimated (as it incorporates the
  negative impact via lower awareness of FT
  criteria)

55
Conclusions from these insights

• High potential for expansion if awareness of FT
  criteria grows among adults and wealthier
• Cohort effect potential for expansion related to
  the aging of the current and relatively more
  aware young generation

56
GENERAL CONCLUSIONS (1)

• Future development of FT crucially depends on
  two issues
• i) the capacity of investing in education and
  promoting awareness of FT criteria
• ii) the solution to the problem of geographical
  distance and distributional bottlenecks.

57
Fair trade and Keynes prophecy

• "For at least another hundred years we must
  pretend to ourselves and to everyone that fair is
  foul and foul is fair for foul is useful and
  fair is not. Avarice and usury and precaution
  must be our gods for a little longer still. For
  only they can lead us out of the tunnel of
  economic necessity into daylight.
• John Maynard Keynes
• "The Future", Essays in Persuasion (1931) Ch. 5
• With FT and SMEs which create economic value in
  SR way fair is also useful and we can see the
  light beyond the tunnel

58
Authors references (1)
Leonardo BECCHETTI La felicità
sostenibile Economia della responsabilità
sociale Donzelli editore In uscita a Settembre
2005
59
Authors references (2)

• L.Becchetti F.C. Rosati, 2006, Globalisation and
  the death of distance in social preferences ad
  inequity aversion empirical evidence from a
  pilot study on fair trade consumers, CEIS Working
  Paper, n.216 and World Economy (forth.)
• L. Becchetti, S. Di Giacomo, D. Pinnacchio, 2006,
  The impact of Social Responsibility on
  productivity and efficiency of US listed
  companies, CEIS Working Paper n.210 and Applied
  Financial Economics (forth.)
• Becchetti L., Trovato, G., 2005, The
  determinants of child labour the role of primary
  product specialization,CEIS Working Paper, n. 170
  Labour 
• Becchetti L., Giallonardo L., Tessitore E.,
  Corporate Social Responsibility and Profit
  Maximizing Behaviour, CEIS Working Paper (forth.)
• Becchetti, L., Costantino M., The effects of Fair
  Trade on marginalised producers an impact
  analysis on Kenyan farmers, CEIS Working Paper
  (forth.)
• Becchetti, L. Solferino, N., 2003, On ethical
  product differentiation, CEIS Working Paper
  n.188
• Becchetti, L. Solferino, N., 2003, A virtuous
  interaction between pressure groups, firms and
  institutions a subsidiarity principle in a
  horizontal differentiation model CEIS Working
  Paper n. 194.
• Adriani F. Becchetti L., 2005, Fair trade a
  third generation welfare mechanism to make
  globalisation sustainable.
• Becchetti L., Giallonardo L., and Tessitore M.E.,
  2006, Consumer driven market mechanisms to fight
  inequality the case of CSR/product
  differentiation models with asymmetric
  information, ECINEQ working paper forth.
• Leonardo Becchetti, Luisa Giallonardo, and
  Elisabetta Tessitore, 2006, "Consumer driven
  market mechanisms to fight inequality the case
  of CSR/product differentiation models with
  asymmetric information" ECINEQ working paper n.
  50
• Becchetti L. Gianfreda G., 2007, Consumer driven
  market mechanisms to promote equity and
  inclusion, CEIS working paper forth.

60
Policy suggestions

• Social advertising on CSR
• CSR oriented procurement rules
• From discriminatory to preferntial VAT
• Social track of the value chain