fairtrade

[Guest guest]

Poor farmers taste success

 

Fairtrade is making headway but is still a tiny part of

global trade, says Roger Cowe

 

Financial Times [http://www.ft.com ]

March 4, 2002

By Roger Cowe

 

Kwabena Ohemeng wants a higher price for his product. There

is nothing unusual in that - every company director would

like customers to pay more. What is unusual is that Mr

Ohemeng is succeeding.

 

He is managing director of Kuapa Kokoo, a Ghanaian cocoa

co-operative. And his secret is that the customers are

buying according to the principles of " fair trade " . They pay

not only a guaranteed minimum that is well above the

current, depressed, market price but also a special premium

for social development. And they offer a long-term, direct

relationship rather than the haphazard sales through a

middleman that are typical of commodity trading.

 

The Fairtrade movement has grown steadily since the early

1990s, mainly in Europe but also in Japan and North America.

While economists and trade and development experts debate

the rules of international trade and agonise over how to

combine open markets with a fair deal for poor farmers, a

band of specialist organisations has built a niche commodity

market. A promotional Fairtrade Fortnight began yesterday in

the UK and Ireland.

 

The Max Havelaar Foundation blazed the trail in the

Netherlands. It was set up in 1986 after coffee farmers in

Mexico told development workers that they would prefer trade

to aid.

 

The Max Havelaar coffee brand was introduced in 1993,

followed by honey two years later and bananas, tea and

orange juice by 2000. The brand is also sold in 14 other

European countries and three outside Europe.

 

During the past decade, 16 other Fairtrade organisations

have been set up. Worldwide sales now amount to about E250m

($218m), the vast majority of which is in Europe.

 

Cafedirect was launched in 1991. It has captured nearly 6

per cent of the UK ground coffee market and has extended the

brand into tea and instant coffee. Unlike many European

Fairtrade groups, which sell mainly through channels such as

charities, UK organisations have penetrated the conventional

retail market.

 

Half a dozen brands are routinely available on supermarket

shelves, while J. Sainsbury and the Co-op have own-label

Fairtrade ranges. Annual Fairtrade sales in the UK are about

£45m ($64m), having grown by 50 per cent last year.

 

The Day Chocolate Company, which markets Divine and Dubble

bars, takes the concept of fair trading a step further. Mr

Ohemeng and one of his colleagues are directors and their

co-operative owns a third of the company, providing an

insight into northern consumer markets and some control over

the products.

 

Mr Ohemeng says Fairtrade helps 40,000 farmers in almost

1,000 villages in his co-operative. The premium, currently

$150 a tonne, is divided three ways. The farmers get a

bonus, which can double their income; a slightly larger

tranche is used for training, to improve the crops; and

about half the total goes on community projects such as

education, health and clean water.

 

" The farmers live in very poor conditions. They don't have

good roads, clean water, access to medical help and

sanitation - the things you expect in the UK, " Mr Ohemeng

says.

 

Fairtrade clearly makes a big difference for these small

farmers but it is a tiny part of the global trading system.

Kuapa Kokoo claims to be the largest Fairtrade organisation

in the world. The co-operative accounts for 10 per cent of

Ghana's cocoa sales, which works out at about 1 per cent of

world output. But only 2 per cent of its sales are under

Fairtrade terms. The rest is sold through the markets in the

normal way.

 

To make a real difference throughout the developing world,

Fairtrade needs to spread beyond niche products such as

Cafedirect and Divine and be adopted by mass market

manufacturers such as Nestle and Cadbury.

 

Of course, the big companies insist that they operate

ethically and offer fair terms for their purchases.

Starbucks, the much-criticised US chain, announced last year

it would start buying Fairtrade coffee for the US and

followed last week with a similar deal in the UK.

 

Starbucks buys 1 per cent of the global coffee crop, more

than half of which is purchased direct from growers. But the

company is quick to damp hopes that Fairtrade terms apply to

all these purchases. While insisting that the UK deal was

more than public relations spin, it says: " The volume is not

likely to be too significant. "

 

Still, it is a start. And it is more than the

chocolate-makers are doing. A spokesman for the Biscuit,

Cake, Chocolate and Confectionery Alliance, an industry

group, says Fairtrade is not possible in the mass market.

 

" We are all in favour of the farmers getting a decent price.

But the problem is that all attempts to intervene through

international agreements to shore up the price have failed.

We put an awful lot in to the cocoa economy through research

and help to deal with pests and disease. But working on a

cost-plus basis like the Fairtrade people is just not

suitable for the mass market. "

 

But how can Fairtrade products continue to compete and grow

when they pay well over the market rate for raw material but

have to sell in a competitive market?

 

For example, Cafedirect pays 126 cents a pound for arabica

beans, the minimum internationally agreed Fairtrade price.

That is almost three times the market price. It sells at a

slight premium to mainstream brands - but not enough to

compensate for that extra cost.

 

Cafedirect is protected by the fact that the mass market

brands tend to take extra profits and invest in marketing

rather than drop prices but Penny Newman, the Fairtrade

company's managing director, acknowledges that the business

model is stretched when market prices are as low as they are

now. She says it probably could not work for the most

price-sensitive products at the lower end of the price

scale. But her company makes a profit (about 2 per cent on

sales) and pays a small dividend to shareholders. The secret

is in positioning its coffee as a premium product.

 

" This is a limited company. First and foremost we are a

business, " she says. " After all, how can Fairtrade work if

we don't make a profit? We do it by demonstrating added

value. In part that is Fairtrade - but we also make sure

that all the product benefits are equal to or better than

the competition. We have really fought to get over the

perception that Fairtrade equals poor quality. "

 

Mr Ohemeng says consumers hold the key: " A bite of Fairtrade

chocolate means a lot to peasant farmers in the south. It

opens the doors to development and gives children access to

[healthcare], education and a decent standard of living. "