Fair trade, diversification and structural change: towards a broader theoretical framework of analysis

This paper responds to the argument that while Fair Trade governance might increase short-term welfare, it reduces long-term development prospects by discouraging diversification and structural change. Even though it is agreed that lower value sectors, such as commodity agriculture, are unlikely to offer a long-term solution to global income inequalities, the importance of their short- and medium-term contributions cannot be ignored by analysis. Furthermore, critics have evaluated Fair Trade governance against the benchmark of perfect market organisation. However, given the realities of the developing world, dismantling Fair Trade abandons poor producers not to theoretical free markets and successful diversification, but to market failures, capability constraints, and risk management issues - all of which present serious obstacles to beneficial change. In this light, analysis of FLO Fairtrade is used to argue that far from being detrimental, Fair Trade might actively contribute to diversification by alleviating some of the real world obstacles that otherwise retard development.