Wednesday, 4 April 2007

Capitalist rip-off

The first of an occasional series.

Fair trade coffee. Not what you'd expect to see so described. But it is when sold in a cup by Starbucks or any other major chain.
So you choose to pay (say) 10 cents extra in order to help the poor people of the world.
But the poor farmer only gets 2 cents of that. The other 8 cents go to the retailer. All other costs are identical.
Of course he does this knowingly. His aim is to split his customers into those who are price-driven, and pay the basic, and those for whom a different choice will be attractive - a flavour, or an ethical choice.
There's also a paradox. If the retailer realised this and chose not to mark-up the fair trade coffee, there would only be a 2 cents differential. Customers would sniff - not very generous, is it? The difference has to be enough for the customer to think he's helping. So the profit soars. The retailer increases both sales and his profit margin by increasing the price.
Of course it does help the poor farmer in Africa. But not by as much as it helps the coffee shop

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