If only every one were so rational

A quick and dirty exposition of why trade, sweatshops and what can be done about it is much more complicated than most people think.

One topic I have found lacking in the literature is a serious discussion of the implications of Fair Trade. Well-intentioned, of course. But beneficial...probably not. Again, I haven't found any sort of significant analysis, but the reasoning goes like this:

Fair trade sells an almost identical product for a higher price, the higher profits going to the farmers. The idea (again, as I understand it) is that this model will eventually overtake free trade coffee (for example) and so better the lot of all third world coffee farmers. This is all well and good except for two points

1. The demand for more expensive coffee must constantly increase, otherwise producers would find themselves providing too much supply and so be forced to either not sell their product or sell it at a lower price anyway.
2. So far as consumers are purchasing Fair Trade coffee, they are not purchasing free trade coffee, which, necessarily (since they aren't producing Fair Trade coffee), is produced by the poorest farmers. So, in order to help the poor, one must not purcahse their goods...?

The really big question in the above is whether or not the market demand can be altered so as to absorb the same amount of coffee at a higher price. So the real question is, "Do/can people care enough so that they will support an artificially high price?" Even if this can be answered in the positive, there remains another critical issue:

3. Say that the ideal coffee price is achieved and all of the coffee producers are receiving their "fair wage" (whatever that may mean). What's to stop a producer from lowering his price just a little bit so as to capture more of the market? And so on and so on until the producers are making the minimum at which they are willing to produce coffee. It's a simplistic argument, but the response to it would require some sort of global coffee cartel. Not impossible, but very unlikely.

Ultimately, I'm inclined to believe that labor-driven agriculture (as opposed to capital-driven) is probably not the best way to expect a nation to develop itself and that attempts to distort the market to this effect will be largely ineffective.

But, to be honest, I would like to be wrong.