Does paying farmers a fair price encourage overproduction and create an oversupply problem?
While in theory, higher Fair Trade prices might incent farmers to increase production, in practice we have often seen the opposite. Fair Trade farmers invest Fair Trade revenues into improving their homes, sending their children to school, and on farming methods and equipment that improve crop quality — rather than on increasing production. In fact, many Fair Trade farmer groups have successfully implemented crop diversification and income generation projects in order to reduce their dependence on a single crop as their primary source of income. Fair Trade revenues provide a safety net that allows farmers to explore alternative income generation projects such as beekeeping, ecotourism, and handicraft production. Another reason Fair Trade does not lead to overproduction is that most Fair Trade farmer groups are currently only able to sell a fraction of their production on Fair Trade terms; they must sell the rest to conventional buyers and local traders at lower prices. In other words,
