Fairly Good Success Story Hits a Snag

By Wayne Roberts

Citywatch: Whether it’s action or traction in the food world, cities are stepping up to the plate. The world is fast going urban, as are challenges of social, economic and environmental well-being. Citywatch is crucial to Worldwatch. Wayne Roberts, retired manager of the world-renowned Toronto Food Policy Council, has his eye out for the future of food in the city. Click here to read more from Wayne.

Fair Trade sales have skyrocketed to 70 times what they were a decade ago, but  – here comes the bad news – Fair Traders are now suffering from their first serious food fight.

Fair trade practices have been especially helpful for coffee farmers around the world. (Photo credit: Bernard Pollack)

Fair Trade is the best-known and most successful retail trend of the last decade—the rise of the ethical consumer. Less-known, Fair Trade has also inspired the rise of ethical students and ethical citizens who want their university campuses, towns and cities to show support for ethical products from afar. It’s important to get the background on this otherwise fairly encouraging story.

As of January 2012, Fair Trade USA will  withdraw from the international Fair Trade organization. Going it alone, they seek to double US sales within three years by broadening certification standards to  ease the way for larger and more corporate producers and retailers.

Many worry that this split within the international fair trade movement  is an omen of impending stresses akin to those that have plagued Big Organic over the last decade.

But from my city food policy perch on the world, there are still many ways to work together to bolster the $6 billion a year-and-fast-expanding Fair Trade cause.

Fair Trade became an issue in city food policy as a result of the campaign – very popular in Europe, but still emerging across North America – to sign up Fair Trade Cities.  When a city signs on, it boosts the democratic and citizen-based engagement with Fair Trade, protecting the movement from being swallowed up by  pressures from retailers.

But before I get too far ahead of myself, let’s put today’s fair trade squabble in perspective by reviewing three of the spookier rules of alternative business economics. They help explain the meteoric rise of Fair Trade sales over the past five years and provide the back story for today’s tensions.

No overnight successes

The first of the spooky rules is that overnight  commercial successes are almost always preceded by at least 20 years of working into the wee hours of the night.

It doesn’t feel that long ago to me, but it does date me to say that I used to hawk a dozen small bags of fair trade coffee a week back in the day of 1988. I’d pick them up at a church basement, then cart them over to alternative NOW Magazine, wending my way through a rabbit warren of desks to sell them.

At that very moment, unbeknownst to me, fair trade modernizers in the Netherlands were launching a program to actually market fair trade coffee—about the only food option in what was the fair trade category, mostly handmade crafts—through conventional food stores and coffee shops that people went to when they wanted to buy food and drinks—saving customers the hassle of making a special trip to a craft store or church basement that had a stash.

This sharp turn by fair traders who moved to up their retailing game was a response to the price collapse of food commodities from colonial export economies, a devastating collapse for smallholder food producers already living below the poverty line.

The price collapse resulted from International Monetary Fund (IMF) and World Bank insistence that loans to cover debts would only be granted to countries that abolished boards that gave scattered and diverse small farmers some ability to bargain collectively with food monopolies that dominated coffee, tea, sugar, spice and related sectors. The  newly disorganized situation was worst for coffee, where millions of isolated small producers bargained against four major multinationals.

The fair trade connection became a lifeline to coffee producers, offering a link to commercial outlets that supported  decent and stable prices.  The old grassroots fair trade networks that had developed since the 1950s helped the brand-new commercial effort come out of the gate running. To make matters worse, the World Bank encouraged more coffee and chocolate to be grown in more areas of the world, thereby adding the curse of oversupply to the imbalance of power between producers and wholesalers.

Enter the second spooky rule of business economics – the law of unintended consequences.

As it turned out, World Bank and IMF insistence on privatization during the late-1980s was just a premonition of what would happen during the early 1990s when the Soviet Union collapsed and the cold war between Capitalism and Communism ended. Phrases such as new world order and the end of history  became almost household phrases, and expressed the apocalyptic scale of coming changes. One by one, government-hosted institutions and regulations that upheld ethical behavior in public health, environmental and social equity realms were dismantled. These changes were demanded and enforced by the World Trade Organization, established in 1992, which for the first time in global trade history, exposed agricultural commodities to demands of free trade, privatization and deregulation – what came to be called the “American consensus.”

As a result of this rapid and monumental shift in the architecture of the mixed economy (part private, part government), North Americans shoppers just entering their teen years during the early 1990s have not experienced many food shopping expeditions in their lifetimes when a government agency took responsibility for making sure the corporation didn’t violate anti-trust laws, or made sure all inputs and possible toxins in a food product were labeled, or policed false advertising of food product claims, or ensured safe and equitable practices in the making of the food product. Such matters were not related to public policy, it was argued, but private choices and ethics.

What followed a short decade later is sometimes known as “blowback” or, in some quarters,  getting bit in the ass.

Once new consumers figured out that ethics were no longer regulated by public policy, they made it their own business to become tough customers in ethical areas. This led to the rediscovery of boycotts—the international one against Nestlé is one of the more famous—and the invention of “buycotts,” deliberate purchases of goods that were ethical. Especially in an Internet era when customer word of mouth was amplified many times, companies which didn’t have a brand that bespoke ethics were suddenly in hotter water than they’d ever been when plodding governments regulated such matters.

Before the year 2000, few major or minor companies made a point of being known for their ethical claims. Business ethics was considered a laughable contradiction of terms just behind military intelligence, but no-one much cared, since ethical behavior was the business of governments, not corporations.

Since the year 2000, ethics is almost a core necessity of corporate branding, even from stores pitching the deepest discounts.  Complain as we will about green-washing, this revolution of rising expectations around business ethics has been a game-changer, especially for fair trade products. The product range has expanded far beyond coffee (now including tea, spices, cacao and chocolate, bananas and more), and yearly sales have grown at double digit rates, about double the rate of products making no ethical claims.

Then came a third change.

Starting around 2005, the law of intended consequences hooked up with another spooky rule of alternative business—change happens at the margins—to bring fair trade goods right up to the entrance of the most mainstream shops.

It seems illogical—big changes in one area are supposed to come from big changes in another into—but changes at the margin catapulted Fair Trade into the Big Leagues.

Fair trade goods are mostly treats—habit-forming and slightly addictive, but not anything close to daily  necessities. That very marginality puts treats in a special category where choice and pleasure are played up, and consequently where responsibility and guilt come along for the ride.

Bitter chocolate is an acquired and elite taste, but few acquire a taste preference for dark chocolate that comes courtesy of child labor and even slavery. Scandal is never further than a decent journalist away in such luxury trade sectors of the food economy.

Although less than ten companies—the likes of Kraft (which recently chowed down on Cadbury), Nestle, and Mars—control the chocolate, tea and coffee market, the sheer weight of their monopoly power and volume purchases exposes them  to disturbances that  smaller companies might avoid.  Their environment is highly volatile to minor changes of weather or labor unrest, such that sustainability might even beckon like a safe harbor.

That’s what happened in 2008. A combination of harsh Sahara winds and militant labor protests disrupted chocolate production and deliveries in Ghana and the Ivory Coast, source for the bulk of high-quality chocolate. In short order, according to detailed reports in Confectionary News and Food Navigator, two excellent trade e-newsletters, a virtual rogues’ gallery of heavy hitter corporations lined up to sign on for the stability of long-term relationships with competent and knowledgeable producers. Spot markets where gluts of chocolate could be bought at the cheapest price were no longer reliable.

In 2008, Fair Trade sales shot up 75 per cent in Sweden, 43 per cent in the UK, 22 per cent in France and ten per cent in the US. They have never looked back since, despite the severe global economic recession. By 2010, European sales were at 70 times their 1999 levels—a success story of corporate and consumer change few government regs could match.

Over a million producers and some five million people benefit from Fair Trade sales. Fair trade guarantees a base minimum price to producers that cushions them when market gluts cause prices to fall. Fair Trade also sets aside a premium (in the range of  30-cents-a-tonne for cacao) that goes directly to community improvements such as schools and health clinics.

Security of markets, in turn, allowed producers to increase investments in their own technology and  skills training, which has increased quality and yields. The common linking of organic and fair trade labels testifies to achievements in this area.

The Fair Trade relationship with producer co-ops has also been transformative, allowing once-powerless peasants to control some of their fate and food sovereignty through co-ops that now control half the voting power in international Fair Trade organizations—a relationship that would be unprecedented in dealings with conventional multinational corporations.

Once big-name processors signed on to Fair Trade, they quickly gained access to high volume retailers. By 2010, major retailers and chains accounted for most fair trade sales, overshadowing sales through alternative outlets.

Such successes can come with their own laws of unintended consequences.  A major cost advantage of huge retailers derives from their ability to drive down producer prices in return for high-volume purchases. Aggregation is the power position, the very name of the game, in Big Retail.

Aggregation is not what co-ops of small producers—the very people Fair Trade was designed to serve, some 85 per cent of the world’s farmers and peasants, and a third of the world’s population—are in a position to offer.

With expectations of doubling sales to $2.6 billion by 2015, thereby hoping to double the amount of land and number of producers benefitting from fair trade prices, Fair Trade USA is leaving the international Fairtrade Labelling Organization, and will set up its own certification system. It’s anticipated that new certification standards will open the doors to larger producers, many of whom hire laborers to grow coffee in plantations.  Critics of the Fair Trade USA decision claim this move will weaken producer co-ops and compromise the smallholder traditions of harvesting coffee and cacao in diverse forests.

Canadian fair traders are staying with the international movement. Small farmer co-ops can meet volumes demanded by retailers,  Mike Zelmer of Fair Trade Canada told me.

Zelmer looks forward to expanding Fair Trade sales in Canada, now at about $330 million (not bad for having a tenth of the US population) through bulk sales to supermarkets and Starbucks. But Zelmer  also looks to collective sales through such places as the City of Vancouver  and University of British Columbia, which have recently joined the ranks of Fair Trade Cities and Universities.

Though lagging far behind Europe, Canadian fair traders have signed up more than 11 towns and cities, including Vancouver, while Americans have signed up about 40, including San Francisco and Chicago. Though the demands on a Fair Trade City are quite modest—a base percentage of stores must offer Fair Trade offerings, and City Hall premises must feature Fair Trade options – a new equation is created that balances individual and corporate with citizen and public presence.

Occupy fair trade, some might say.

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