Reference no: EM132860071

Fair enough? Big business embraces fair trade

This case examines the rise of fair trade, and in particular the challenges associated with its uptake by big business. The case provides an opportunity to address issues relating to ethical sourcing and buyer-seller relationships, as well as considerations raised in the previous chapter about ethical consumption and fair pricing.

Not so long ago, fair trade was seen by many as a minority concern, of interest only to the 'alternative trade' of charities, co-operatives, wholefood shops, and the ethical consumer fringe. Now, it appears, fair trade is seen as having major mass-market appeal. In recent years, leading supermarket brands, such as Sainsbury and Marks and Spencer, have made high profile commitments to selling fair trade products in their stores, whilst the world's largest coffee roaster, Nestlé, launched its first fair trade coffee brand in 2005-after years of denying that fair trade actually helped suppliers. When the UK's best-selling chocolate bar Cadbury's Dairy Milk went fair trade in 2009, it appeared incontrovertible that fair trade had indeed become big business. Although on the face of it, this is a great achievement for the fair trade movement, this move into the mainstream also brings with it a number of critical challenges.

Fair trade is a form of ethical sourcing that delivers a guaranteed price to growers in developing countries. With many at risk from the fluctuating prices of international commodity markets, growers in the fair trade system are offered income stability at a liveable wage, and benefit from a 'social premium' to fund development projects. Fair trade also emphasizes direct purchasing from producers (rather than using agents and brokers), co-operative trade relations, long-term relationships, and sustainable production, amongst other things. An international fair trade labelling system provides product accreditation to participating firms that enables them to use the 'Fairtrade' mark on packaging and promotional material.

The growth in fair trade has been spectacular in recent years, most notably in Europe, but also to a lesser extent in North America, Australasia, and Japan. The first fair trade-labelled product was launched by the Max Havelaar Foundation in the Netherlands in 1988 on coffee sourced from Mexico. Since then, the range of products has expanded considerably to now include fruit, tea, wine, sugar, flowers, clothes, footballs, and a whole host of other products. In the UK, which has the largest fair trade market, there were over 3,000 certified products in 2009-a 100% rise since 2006. Worldwide, there were some 6,000 certified products on the market altogether. Similarly, figures from the Fairtrade Foundation suggest that retail sales have also rocketed in recent years. In the UK, for instance, sales of many products have recorded exponential growth.

Fair trade figures also show that sales across the globe have been growing at a remarkable rate, with an annual growth rate for 2008 in excess of 70% in Australia, Sweden, and Norway. Perhaps most significantly in terms of the movement of fair trade out of the fringe and into the mainstream, products can now be found in thousands of supermarkets all over Europe, including 23,000 stores in Germany, 10,000 in France, and about 3,000 in the UK, Finland, and the Netherlands. This has led to some significant overall market shares for fair trade products. For instance, in 2008, 52% of all bananas, and 17% of the sugar sold in Switzerland were fair trade labelled. Even high street clothing retailers such as Top Shop, and the global coffee chain Starbucks, now sell fair trade alternatives.

Such a success story has undoubtedly provided significant benefits for the suppliers of these products. The social premium has helped thousands of farmers fund education, healthcare and training projects, among other things, that simply would not have been possible under the old exploitative trading relations. However, critics have raised question marks over the uptake of fair trade by large global businesses. For example, when Nestlé launched its fair trade coffee, 'Partners Blend', some campaigners boycotted the product out of concerns that the company's conversion to fair trade was a cynical attempt to cash in on the growing market, rather than a genuine commitment to the fair trade ideals-even though the product had complied with the rigorous international fair trade certification scheme. As the director of one of the UK's 'alternative trading' pioneers, Twin Trading, put it 'the real worry is that these guys are coming in just to grab the current growth. When that's done and chewed up, they'll walk away from it and we'll be in a worse position to continue the momentum.' Some small producers have expressed fears that the power of multinationals will marginalize those who the system was originally set up to protect.

Another challenge raised by the move into the mainstream is simply the sheer quantity of product needed to supply major brands and supermarkets. Whilst fair trade has its roots in small-scale co-operative farms, market growth has necessitated the certification of huge privately held plantations as well. For example, in the US, 98% of Fairtrade tea comes from plantations. Critics argue that this threatens the fair trade goals of producer power and waters down the founding principles of the movement. The president of one fair trade company, Equal Exchange, put it simply: 'plantations do not belong in the Fair Trade system in the first place'. Others suggest that rapid growth has contributed to a compromise in monitoring and enforcement of standards-a claim that fair trade organizations vehemently refute. Nonetheless, increased scrutiny of working conditions at fair trade-certified producers seems certain given the greater public profile of the movement as it goes mainstream.

A further criticism faced by the movement is that the inclusion of big brands does little to change large corporations' core business. For example, for many supermarkets, fair trade makes up only a small proportion of their sales, whilst 'unfair trade' prevails in their main product lines. As Friends of the Earth said of the UK supermarket, Tesco, whilst fair trade banana producers are guaranteed a fair wage, other 'banana plantation workers are paid just a penny for every pound's worth of bananas sold in Tesco, not enough to feed their families. Tesco takes 40p. The UK importer/ripener is barely breaking even just to stay as a Tesco supplier.'

It is not only campaigning groups and fair trade diehards that have criticized the entry of big business into the fair trade movement, though. A 2006 BBC programme suggested that much of the higher prices paid by consumers for fair trade products was going into the hands of supermarkets, while a 2009 article in The Times suggested that workers on fair trade-certified tea plantations had yet to benefit from the premium. Even the Wall Street Journal ran a story arguing that 'Europe's experience shows that the biggest winners aren't always the farmers-but can be retailers that sometimes charge huge mark-ups on fair trade goods while promoting themselves as good corporate citizens'. Citing evidence that the British supermarket chains Sainsbury's and Tesco sold fair trade products at big ticket prices that gave the companies sizeable margins that were not passed on to growers, the newspaper claimed that the supermarkets were mainly exploiting fair trade products for their own advantage-and that growers and consumers alike were losing out.

Naturally, the big players entering the fair trade market have refuted the criticisms, arguing for the positive social benefits they have delivered to their suppliers, and pointing to the growing numbers of satisfied consumers who were swelling the market-which in turn would help to bring prices down. However, whether the criticisms are justified or not, it seems likely that the fair trade industry is reaching a critical point in its development. On one level it points to a potentially progressive model of firm-supplier relationships that seems to emphasize more equitable relationships, but it also requires firms to embrace a set of values that might be counter to those engrained in its typical supply-chain management model. Some critics are doubtful that big business can genuinely embrace the transformation necessary to make fair trade more than a tokenistic exercise, yet many in the fair trade movement are keenly aware that without the global players, the incredible momentum of the movement over the past decade may be lost, leaving fair trade products back on the margins of the market again. Ultimately, the rise of fair trade provides a powerful success story that could act as a catalyst for broader change, or could simply be a sideshow in the relentless drive towards cost minimization through global supply chains. As the executive director of the Fairtrade Foundation put it: 'the public are leading the way at the moment, and they want companies and governments to follow. We need all world trade to be made fair, but in the meantime we can get on and show how it might be done.'

Questions

1. Set out the main arguments for and against the involvement of big business in fair trade. Consider the arguments from the point of view of customers, supermarkets, and suppliers.

As a whole, do you think fair trade protect or harm the interests of grower.

2. Are the critics justified in condemning the involvement of major brands in the fair trade movement? On what ethical basis have you made this decision?

To what extent is the price paid by consumers relevant for determining whether growers are being treated fairly?

3. Ultimately, whose responsibility is it to ensure that growers' interests are protected - the growers themselves, product manufacturers, retailers, or consumers? As a whole, who do you think has the highest responsibility to protect growers' interest?