Fair Trade and Textiles: A comparative analysis of marketing alternatives

The case of CoopNatural in Brazil

João Fontes Centre for International Cooperation

vrije Universiteit amsterdam August 2007

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Peace, development and environmental protection are interdependent and indivisible. Principle 25 of Rio Declaration, 1992

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Acknowledgements The author wishes to thank William Critchley, Nicolien van der Grijp, Marjan van Herwijnen

and Michiel van Drunen for their invaluable supervision and support.

Many thanks as well to those who have been fundamental during this research: Maysa Gadelha

(CoopNatural) and Luciana Rabay (Braziliant); Verónica Pérez and Alex Assanvo (FLO); Ada

Garcia, Antje Kachel and Rocio Sanz (FLO-Cert); Edwin Koster (Made-By); Piet den Toom

(Kuyichi); Katarina Kempe and Henrik Lampa (H&M); Nicole Bassett (Patagonia); João Rêgo,

Rita de Cássia, Adriana Santos, Michele, Mariana Manfredi, Rosalina Nunes, Massimo Marocco,

Renata Giles and William Lana (customers of CoopNatural). Last but not least, his gratitude to all

anonymous interviewees at Kalverstraat and to Corinne Cornelisse for standing there with him.

Finally, special thanks to his parents and to Marieke for her love and unconditional support.

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Table of Contents

List of tables 1

List of figures 2

Executive summary 3

1. Introduction 4

1.1 Context 4

1.2 Motivation 5

1.3 Goal 5

1.4 Research question 5

1.5 Scope of analysis 6

1.7 Outline of the report 8

2. Methodology 9

2.1 Research phases 9

2.2 Methods and considerations 11

2.2.1 Identification of marketing alternatives 11

2.2.2 Interviews 14

2.2.2.1 CoopNatural 14

2.2.2.2 Fair trade companies and organisations 14

2.2.2.3 Stores 14

2.2.2.4 Customers 15

2.2.3 Data processing and analysis 15

2.2.3.1 Processing data 16

2.2.3.2 Analysing data 17

3. Linkages between environment, poverty and trade 19

3.1 Poverty and Environment 19

3.2 Trade and Environment 22

3.3 Trade and Poverty 23

3.4 Impact of free trade on developing countries 24

3.5 Fair Trade and Organic: alternatives for developing countries? 26

3.5.1 Organic 27

3.5.1.1 Business as usual 27

3.5.1.2 What is Organic and how it addresses these issues 27

3.5.1.3 Market trends 28 3.5.2 Fair Trade

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3.5.2.1 Business as usual 28

3.5.2.2 What is Fair Trade and how it addresses these issues 29

3.5.2.3 Comparison with Organic Agriculture 31

3.5.2.4 Market trends 32

3.5.3 Cross-cutting issues 32

4. CoopNatural 35

4.1 Socio-economic regional data 35

4.2 The cooperative 36

4.2.1 Operations 36

4.2.2 Organisation 37

4.2.3 A history of challenges 38

4.2.4 The strategy of the cooperative 38

5. Stakeholders’ perceptions about fair trade 40

5.1 CoopNatural 40

5.2 Stores 41

5.3 Fair trade organisations and companies 42

5.4 Consumers 45

6. Requirements and costs imposed by marketing alternatives 51

6.1 Requirements 51

6.2 Remarks on critical requirements 54

6.3 CoopNatural's evaluation on requirements 57

6.4 Costs 59

6.5 Complementary criteria: Increase in Sales and Time 60

6.6 Facts Tables for Multi Criteria Analysis 61

7. Multi Criteria Analysis (MCA) 63

7.1 Weighting 63

7.2 Ranking 64

7.3 Sensitivity analysis 65

7.4 Summary of MCA and Interpretation 68

8. Conclusions 69

9. Recommendations 71

References 74

Abbreviations and acronyms 79

Glossary of terms 80

Annexes 82

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List of tables

Table 1: Efforts 16

Table 2: Benefits 16

Table 3: Structure 31

Table 4: Social and environmental requirements 31

Table 5: Comparison between Brazil and The Netherlands 35

Table 6: Social requirements 52

Table 7: Economical requirements 53

Table 8: Environmental requirements 53

Table 9: CoopNatural’s evaluation on Social requirements 57

Table 10: CoopNatural’s evaluation on Economic requirements 58

Table 11: CoopNatural’s evaluation on Environmental requirements 59

Table 12: Cost of certification and auditing 60

Table 13: Complementary criteria 61

Table 14: Impact of FLO requirements on CoopNatural 61

Table 15: Facts Table 62

Table 16: Weights 63

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List of figures

Figure 1: T-shirts to be produced by CoopNatural in each case 7

Figure 2: The vicious cycle between poverty and environmental degradation 21

Figure 3: Recent economic links driving deforestation in the Amazon 26

Figure 4: What do we really pay for when we buy one dollar’s worth of coffee 29

Figure 5: Map of Brazil 36

Figure 6: Production chain of CoopNatural 37

Figure 7: Question 1: Do you know what fair trade is? 46

Figure 8: Question 2: Who do you think benefits from fair trade? 46

Figure 9: Question 3: Do you know what organic is? 47

Figure 10: Question 4: Do you intentionally buy fair trade products? 47

Figure 11: Question 5: Do you intentionally buy organic products? 47

Figure 12: Question 6.a: Reasons to buy fair trade 48

Figure 13: Question 6.b: Reasons not to buy fair trade 48

Figure 14: Question 7: Willingness to pay extra for a fair trade t-shit 49

Figure 15: Question 8: Which of these brands are you familiar with? 49

Figure 16: Ranking of alternatives 64

Figure 17: Ranking of alternatives per group of criteria 65

Figure 18: Sensitivity analysis on Level 1 weights 65

Figure 19: Reversal point between Kuyichi and FLO 66

Figure 20: Reversal point between Made-By and FLO 67

Figure 21: Ranking of alternatives with reversal points 67

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Executive summary Fair trade emerged in response to the discrepancies in trade relations and the impact of free trade

on developing countries. In essence it states that working conditions in those countries should be

fair and trade should not compromise the environment. Fair trade can open new markets for

companies and organisations in southern countries, as in the case of the cooperative

CoopNatural, analysed in this research.

CoopNatural is based in Brazil and operates in the textile sector using naturally coloured organic

cotton. The cooperative covers the whole production chain of the textiles, from the production

of organic cotton to sewing and marketing. It intends to go fair as it believes that such

competitive advantage will help it withstand the pressure from global competitors, and allow

further investments in social and environmental aspects within its group. However, finding its

way in the fair trade market is by no means a simple task since each marketing alternative has

particular requirements, transaction costs and strategic implications. Therefore, the main

objective of this research is to find the best fair trade marketing alternative for CoopNatural,

taking into account economic, social and environmental impacts.

Four marketing alternatives were analysed: 1) obtaining the international fair trade label of FLO;

2) obtaining the Dutch fair textile label of Made-By; 3) becoming a supplier of Kuyichi, a well

established fair trade brand; and 4) becoming a supplier of H&M, a corporate social responsible

retailer. Economic, social and environmental impacts were considered, as well as costs and

potential increase in sales volume. Different stakeholders have also been consulted. Multi criteria

analysis (MCA) was performed to compare these alternatives. The results of MCA showed FLO

as the best alternative for the cooperative, followed close by Kuyichi. FLO was more

advantageous with regard to social and environmental aspects, while Kuyichi was more

economically beneficial. Made-By and H&M were less economically beneficial than the first two

alternatives due to geographical constraints that resulted in high logistics and adaptation costs.

The author advises CoopNatural to apply for the certificate of FLO, although Kuyichi has

proven to be more economically beneficial. By joining FLO CoopNatural will gain access to new

markets, and maximize social and environmental benefits. Nonetheless the cooperative might not

be able to afford it. Going fair will also demand considerable effort to adapt to environmental

requirements, especially regarding water use. Having these obstacles in mind, this case illustrates

how fair trade can either help or mobilise initiatives such as CoopNatural achieving their goals.

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1. Introduction

1.1 Context

This research took place at Centre for International Cooperation (CIS), in the Netherlands, under

supervision of William Critchley. Nicolien van der Grijp and Marjan van Herwijnen were 1st and

2nd IVM supervisors respectively.

The framework of this investigation is the relationship between environment, poverty and trade.

It analyses fair trade and how this market based mechanism can help a cooperative in a

developing country playing an active role in world trade and, at the same, reduce poverty and

avoid environmental degradation.

The concept of fair trade emerged in 1985 in reaction to the unfair conditions of international

trade faced by developing countries. Although fair trade is not a niche market by definition, it is

basically supported by ethical consumers aware of social and environmental issues resulting from

trade and production processes. Fair trade differs from free trade since it internalizes social and

environmental costs. The former is focused on social and environmental conditions under which

a product is produced and traded, while the primary objective of the latter is the maximization of

profit. Fair trade will be discussed in depth in Chapter 3.

The case analysed here is in respect to the cooperative CoopNatural, which is based in north-

eastern Brazil. It operates in the textile sector using naturally coloured organic cotton as raw

material, i.e. the cotton complies with organic standards and it is free of dyeing. The present

members of the cooperative are entrepreneurs, consultants and a farmer involved in the whole

production chain of the textiles, starting from the production of organic cotton to sewing and

marketing. It is currently trading end products (clothes, toys, decoration and accessories) in the

Brazilian market and in a few stores abroad.

CoopNatural was founded in 2000 with the mission "to strengthen the coloured cotton textile

sector, selling products that are socially and ecologically correct by encouraging family-based

agriculture and local artisans" (CoopNatural, 2007). One of its main priorities at the moment is to

start operating in the fair trade market. CoopNatural believes that such competitive advantage

will help it standing the pressure from global competitors and keep on continuously improving

social and environmental aspects within its production chain. CoopNatural will be presented in

details in Chapter 4.

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1.2 Motivation

Going fair, however, is a complex process. What makes it particularly difficult is the wide range

of marketing alternatives within the fair trade market. Since CoopNatural operates in the textile

sector, it can for instance apply for an international fair trade label, or a national one. It can also

become a supplier of an established fair trade brand, or it can supply a “fair trade–like” retailer.

Each marketing alternative has particular requirements, transaction costs and strategic

implications such as market share.

Besides this, since fair trade is not regulated by law, anyone can take the initiative to set up a new

fair trade scheme, create a new label or add something in the package of a product in a way that it

looks like fair trade. This also means a risk if looking from the perspective of the consumers who

may loose track of the concept, no longer knowing what to buy or whom to trust.

Therefore CoopNatural inevitably came up with the pertinent question: What is the best fair

trade marketing alternative for us? In view of the complexity level of this problem, the

cooperative has asked for advice.

1.3 Goal

The aim of this research is to look for the best alternative for CoopNatural, meaning which

marketing alternative better suits the cooperative and not the other way around. The importance

of this approach is that organisations in developing countries are usually confronted with rules

and schemes coming from developed countries which not always suit them or answer their needs.

The final goal of this investigation is to analyse a set of marketing alternatives and their respective

economic, social and environmental impacts, in order to provide CoopNatural with strategic

advice on fair trade. In addition, the methodology developed during this research can form a

model to be used as a basis for similar case studies.

1.4 Research question

The main question to be answered is “What is the best fair trade marketing alternative for the

cooperative CoopNatural, taking into account environmental, social and economic impacts?” In

order to do so, a few sub-questions will have to be answered regarding the requirements of

marketing alternatives, as well as their strategic, economic, environmental and social impacts.

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Requirements:

1. Which marketing alternatives exist and what are their requirements?

Strategic:

2. How can fair trade help CoopNatural achieving its goals?

3. What will have to be adjusted in the business processes of CoopNatural to comply with the

requirements of each marketing alternative?

4. Can CoopNatural adapt its business processes to the requirements of each alternative and, if

so, how much effort will it cost?

Economics:

5. What will be the financial cost for CoopNatural to comply with the requirements?

6. What will be the financial benefits after compliance in comparison to the current state of the

cooperative?

Environment:

7. What will be the environmental gains after compliance?

Social:

8. What will be the social gains after compliance?

The following supporting questions will also serve as guidelines in this research:

a. Explain the relationship between Environment and Poverty, Trade and Environment, Trade

and Poverty.

b. What is fair trade?

c. Why are there so many alternatives within fair trade?

d. How do consumers react to the vast and increasing number of fair trade labels?

1.5 Scope of analysis

In order to answer the main research question, four marketing alternatives have been selected: 1)

applying for international certification at FLO; 2) introducing own brand in the external market

with the certificate of Made-By; 3) becoming a supplier of a well established fair trade brand like

Kuyichi; and 4) why not also consider becoming a supplier of a corporate social responsible

retailer such as H&M. Their pluses and minuses will be compared with the current marketing

strategy currently in place at CoopNatural, i.e. trading its products indirectly via stores in Brazil

and abroad.

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Taking a t-shirt as an example, Figure 1 below illustrates how the labels of the products produced

by CoopNatural would look like in each case. More details on marketing alternatives and why

these four alternatives have been chosen follow in section 2.2.1

Figure 1: T-shirts to be produced by CoopNatural in each case

Made in Brazil

Alternative 1: FLO

Made in Brazil

Alternative 4: H&M

Made in Brazil

Alternative 3: Kuyichi

Made in Brazil

Alternative 2: Made-By

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1.7 Outline of the report

The structure of the report is as follows. Chapter 2 presents the methodology adopted in this

research. Chapter 3 explores the linkages between trade, poverty and environment, and the

impacts of liberalization on developing countries. Furthermore it introduces fair trade and

organic and the impacts of these movements on those countries. Chapter 4 is dedicated to

CoopNatural, providing detailed information about the cooperative and the region where it is

based. Chapter 5 consolidates the different views about fair trade of all actors included in this

process, including CoopNatural. Next, the requirements and costs of fair trade marketing are

discussed in detail in Chapter 6, forming the basis for the analysis of alternatives in Chapter 7.

Finally, conclusions are made in Chapter 8 and recommendations are given in Chapter 9.

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2. Methodology

This Chapter explains what has been done in this research and how it was approached. Section

2.1 gives a macro overview of the research phases and section 2.2 provides detailed information

on methods used and considerations made during the whole research.

It is important to emphasize that the focus of this research has been put on CoopNatural and the

stakeholders concerned. The need for this emphasis has been identified in the beginning of this

project since fair trade is as much a new as a wide subject. Its requirements vary per product, and

per trader or certifier, so each case within fair trade has its own peculiarities. For these reasons it

would not make sense to put the cooperative in a passive position, nor to look at one single

marketing alternative even if one is more renowned than another. Therefore this research has

been developed from “core to surroundings”, starting from the needs of the CoopNatural, and

then observing other stakeholders and conceptual linkages.

2.1 Research phases

The following phases have been accomplished: literature review, interviews, review of data,

processing and analysis of data, writing report and preparation of presentation. The research was

done in three months, according to the planning provided in Annex I.

a) Review of literature

Why? To form the conceptual basis of the report

When? Preferably before writing the interim report

How? By collecting references related to the research question

Tools: Literature, internet

b) Identification of marketing alternatives

Why? To find out who is fair trading the product in question and what their requirements are

When? Preferably during preparation prior to the start of the research

How? Visiting specialized shops, looking for traders and certification schemes in the internet

(see section 2.2.1)

Tools: Internet, telephone

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c) Interviews

Why? To collect and/or clarify the needs of CoopNatural, the inputs from traders and

consumers, as well as the requirements of the marketing alternatives

When? (Preferably) until writing the draft interim report

How? By interviewing all stakeholders: CoopNatural, consumers, stores currently selling

products of CoopNatural, and organisations and traders in charge of each marketing alternative;

then double check information with them and/or ask complementary questions (see section

2.2.2)

Tools: Interviews in person, by telephone, Skype and email. Internet has also been used to

collect the requirements of the alternatives

Questionnaires: The interviews followed predefined open-ended and multiple choice questions.

The questionnaires for consumers and stores were first approved by CoopNatural

d) Data processing and analysis

Why? To consolidate the data and come up with the recommendations

When? Before writing the draft interim report

How? Performing multi-criteria analysis (see section 2.2.3)

Tools: Definite

Multi-criteria analysis and Definite are introduced in section 2.2.3.

e) Editing of report

Why? To provide CoopNatural with underpinned advice

How? Writing two versions (interim report and draft final report) before the final one;

improving it based on supervisors’ feedback

Tools: Microsoft Word and Excel, Adobe Acrobat

f) Presentation

Why? To present the results at CIS and Vrije Universiteit

Tools: Microsoft PowerPoint

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2.2 Methods and considerations

2.2.1 Identification of marketing alternatives

The objective of this phase was to identify the fair trade marketing alternatives for CoopNatural

to be analysed in this research. As this research has taken place in The Netherlands, alternatives

were looked for within the Dutch market.

Fair trade “as everybody is doing it” means applying for a certificate, something that will be

added in the label or package of the product to show that it is produced under fair trade

conditions. But why is it so? Are there maybe other ways to operate as a fair trader, whether

based on certification or not?

Having these questions at the starting point of the research, it was decided to also consider as

possible alternatives the market for organic and companies with strong Corporate Social

Responsibility (CSR) policies. The reason for this is CoopNatural is already producing organic

and the standards for organic products are progressively including social requirements (details in

section 4.2). Besides this, CSR-companies are imposing strong social and environmental

requirements and they represent an opportunity in the market than could not be ignored. As a

matter of fact Hema, one of the biggest retailers in The Netherlands, is on the top of Dutch

consumers’ minds (see Figure 15).

Pre-selection

Having this in mind, a quick scan on the market was done to find out who was trading the

product in question, looking at retailers, fair trade organisations (using top-down approach, from

FINE to national organisations), fair trade shops, organic organisations and ethical traders.

Four alternatives were chosen at first: applying for the certification of FLO; or for the certificate

of Made-By; becoming a supplier of Kuyichi; or a supplier of Hema. More information

regarding the first three will follow in section 5.3. Hema, one of the biggest retailers in The

Netherlands, has been a particular case. There was unofficial information that it was about to

start a campaign introducing organic and fair textile in its collections. However, neither has it

given a clear position if it would cooperate in this research, nor was it possible to find enough

information regarding its fair trade-like policies in the internet. Therefore other alternatives were

examined to eventually replace Hema. It should be noticed that the minimum number of

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alternatives to be selected has not been discussed in advance. The aim of the researcher was to

have at least four marketing alternatives for CoopNatural. It should be noticed that this was a

random number not based in any empiric argument. By the end of the day, looking for the fourth

alternative was almost a never ending process running in parallel with the interviews and

consuming a lot of the time.

Other alternatives

The following alternatives were examined to eventually replace Hema, as explained above.

� Fair Trade Original

The products sold by this Dutch company are not necessarily certified. It was not included in this

research because it is not trading clothes yet (Fair Trade Original, 2007).

� Patagonia

Based in the US, it defines itself as an environmental activist. Its mission statement is: “Build the

best product, do no unnecessary harm, use business to inspire and implement solutions to the

environmental crisis” (Patagonia, 2007). When approached they have been very receptive and

effectively responding all queries. However, its Code of Conduct (see in Annex IX) does not

include any environmental requirement. Therefore it was not selected as a marketing alternative

for this research.

� IBD EcoSocial

IBD is a certification body in Brazil accredited by IFOAM. It is in charge of granting the

certification of organic to CoopNatural. During the interviews some stores in Brazil told that

they knew the certificate IBD EcoSocial (IBD, 2007). Hence applying for this certification which

was recognized by some Brazilian stores during the interviews, could have become an option.

However CoopNatural preferred not to include it as an alternative in this research for internal

reasons.

� EPOPA

Swedish agency, it works to promote “development through organic trade” (EPOPA, 2007). It is

however restricted to African products.

� V&D

This retailer in The Netherlands claims to be doing CSR and it is apparently selling organic

textiles. However, it has not responded to further queries, so it could no be taken as an

alternative.

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� M-Braze

M-Braze follows the same standards as Kuyichi does. It was not included in this research as to

avoid having two similar alternatives (M-Braze, 2007).

� H&M

This Swedish retailer has CSR implemented, it sells organic clothes and it has provided enough

information so that it was included as a marketing alternative for CoopNatural, replacing Hema.

Final selection:

FLO, Made-By, Kuyichi and H&M

Who they are and what they can mean for CoopNatural

� FLO:

Fairtrade Labelling Organisation (FLO) was founded in 1997. It is based in Bonn, Germany, and

it operates as the international umbrella for 20 national initiatives, such as Max Havelaar in The

Netherlands. It certifies producers and traders worldwide that comply with its list of

environmental, economic and social requirements (FLO, 2007). If CoopNatural gets its

certification, it will be allowed to sell its products with the logo of FLO.

� Made-By

It was founded in 2004 by Solidaridad, a Dutch developing organisation, with the goal to help

suppliers cleaning up their production processes. It works as a connection between these

suppliers and affiliated brands. So on the one hand Made-By has a portfolio of suppliers that

comply with requirements established by Made-By and on the other hand certified brands,

referred to as affiliates, which only purchase from these suppliers. Made-By is also focus on

traceability. It has implemented a system that allows consumers to check who has made a

product. Design is an important criterion for Made-By as they position themselves in the

mainstream market. People buying its products look for something that looks good and, as an

added value, is social responsible as well. The most successful Made-By affiliate is Kuyichi

(Made-By, 2007). If CoopNatural becomes a Made-By affiliate, it will be allowed to sell its

products with the button of Made-By (its symbol of certification) attached.

� Kuyichi

It is a Dutch brand founded in 2000 at the initiative of Solidaridad. 16% of the shares belong to

producers of the textiles, including farmers. It is one of Made-By affiliates. That means its

products are made by suppliers that have complied or are in the process of complying with the

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requirements established by Made-By (Kuyichi, 2007). If CoopNatural becomes a supplier of

Kuyichi, it will manufacture Kuyichi-branded products.

� H&M

This Swedish retailer with head office in Stockholm has 1400 stores worldwide. It has a clear

code of conduct, linked to its CSR policies, that includes social and environmental requirements.

It introduced organic clothes in its collection in March 2007 (H&M, 2007). If CoopNatural

becomes a supplier of H&M, it will produce H&M-branded products.

Figure 1 showed what would be the final commercial implication of these four alternatives, i.e.

how the label of a t-shirt would look like in each case. More details on environmental, social and

economic requirements of these marketing alternatives, and implications will follow in Chapter 6.

2.2.2 Interviews

This section forms the basis for Chapter 5. A list with all interviewees and questionnaires can be

found in Annexes II and III.

2.2.2.1 CoopNatural

The cooperative has been contacted numerous times throughout the research, which has been

essential to understand, among other things, their reality, needs, views and expectations on fair

trade, as well as their level of understanding about sustainable development. Questions were

asked regarding their history, organisation, business processes, production chain, sales channels,

marketing, organic certification and sustainability.

2.2.2.2 Fair trade companies and organisations

The goal of these interviews was to double check assumptions that were made during the

preparation phase when marketing alternatives were pre-identified, to collect requirements of the

marketing alternatives, and look for other alternatives if needed. The interviews with FLO, Made-

By, Kuyichi and H&M included conceptual questions, as well as queries related to their

requirements, logistics and marketing.

2.2.2.3 Stores

As CoopNatural does not commercialise directly, it was decided to consult a sample of their

current clients to find out what they understand about fair trade, how they see the market and

whether they are willing to follow the cooperative in this transition.

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Who was included in the sample?

Two groups of stores were chosen from the list of clients of CoopNatural: 5 in Brazil and 4

abroad. The following criteria were used to choose them:

- The client was a private company;

- It was an active client, i.e. it must have ordered in 2006 and 2007.

Besides these, two complementary criteria were applied on the Brazilian group:

- The clients were divided in five groups based on purchase volume. Subsequently from each

group one client was chosen. This was in order to include small and big clients in the sample;

- All Brazilian geographic regions were included. So the sample included two clients that are

based in northeast, one in mid-west, one in southeast and one in south.

2.2.2.4 Customers

End consumers have been interviewed with the purpose of identifying their level of awareness or

confusion regarding fair trade, how far they are involved with it, and whether they are willingness

to pay more for a fair trade product.

Who was included in the sample?

Dutch and non-Dutch consumers have been interviewed at Kalverstraat in Amsterdam. The

same questionnaire has been sent via e-mail to people in Brazil and in the rest of the world.

Why at Kalverstraat?

This research has taken place in The Netherlands. Kalverstraat is the most popular and busy

shopping centre of downtown Amsterdam.

2.2.3 Data processing and analysis

Multi-criteria analysis and Definite will be method and tool applied in this research to analyse

data. Multi-Criteria Analysis (MCA) is an evaluation method developed to support decision

problems like the main question of this research: “What is the best fair trade marketing

alternative for CoopNatural, taking into account environmental, social and economic impacts”. It

will be applied here to compare fair trade marketing alternatives. It analyses how each option

performs against environmental, social and economic criteria initially defined to cover the goal of

the problem. The analysis itself is performed by using Definite, a computer program. “Definite is

a decision support software package that can weigh up the alternatives and assess the most

reasonable alternative” (van Herwijnen et al, 2000).

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2.2.3.1 Processing data

This section forms the basis for Chapter 6. The set of criteria for analysis is first consolidated in a

“Facts Table”, which is the input for MCA. The Facts Table of CoopNatural will be based on

three components:

a) The evaluation of CoopNatural on the requirements of each alternative. The cooperative will

attribute a level of Effort demanded in order to comply with each requirement, the Cost to adapt

to them, and the added value to the cooperative (Benefit) of each requirement once it is met.

This is in line with the objective of this research: which alternatives suits CoopNatural better, and

not the other way around. Levels of Effort and Benefits are indicated in Tables 1 and 2.

Table 1: Efforts to comply with requirements

Effort Meaning

0 No effort. CoopNatural already complies with the requirement

1 Low effort

2 Medium effort

3 High effort

4 Very high effort, nearly impossible to comply

Table 2: Benefits from complying with requirements

Benefit Meaning

0 Irrelevant for the cooperative

1 Good

2 Very good

3 Excellent

b) Costs with certification and auditing fees;

c) Two complementary criteria:

- Potential increase in sales with certification or partnership and

- Duration of transition process (in months), i.e. time spent with getting the certification (in case of

FLO or Made-By) or to sign the partnership (in case of Kuyichi and Made-By).

Sales volume of t-shirts was chosen to establish a common parameter in the calculation of

increase in sales. T-shirts represented about 57% of the total volume traded by CoopNatural in

2006.

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One might be tempted to multiply expected sales volume by the price of t-shirt indicated during

interviews to speculate about annual revenue. Yet this has not been done in this research to avoid

an unfounded bias.

� Generating Facts Table:

Tables 6-8 were crossed with Tables 9-11, and then added with Tables 12 and 13. The result of

these operations was the Facts Table, which is available in Annex XIX. Finally it was compacted

as shown in Table 15.

2.2.3.2 Analysing data

This section forms the basis for Chapter 7. MCA has been performed in Definite in five phases:

problem definition, standardising, weighting, ranking and sensitivity analysis.

� Problem definition

First alternatives, criteria and scores of the Facts Table were uploaded in Definite. Criteria were

classified as costs and benefits.

� Standardising

As scores have different units (monetary, time, %, ranges), they must be standardized to a

common dimension unit before the criteria can be combined. (van Herwijnen, 2005). The

method chosen is called Maximum, which scales each score between zero and the maximum

score. The method chosen for the Facts Table of CoopNatural is called Maximum, which scales

each score between zero and the maximum score.

� Weighting

It is very important to determine the level of relevance among groups of criteria, and between

criteria within each group. By doing so one tells the software that economic aspects must be

taken as more important than environmental ones, for instance.

� Ranking

Based on the weights and standardisation previously specified, it provides the ranking of

alternatives. The one with the highest score is the most suitable for the case.

� Sensitivity analysis

Results were checked considering any level of uncertainty concerning weights and scores that

have been attributed in the Facts Table. This is done in order to validate the robustness of

results. At this stage it also checks possible reversal points. Reversal points indicate how weights

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would have to change in order to have alternatives switching positions in the ranking. It is useful

to quickly evaluate under which conditions an alternative would rank first.

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3. Linkages between environment, poverty and trade

The aim of the chapter is to explore the linkages between environmental degradation, poverty

and trade. It looks at how these elements are connected and the impacts of globalisation on

developing countries. Finally, it evaluates fair trade and organic as alternative markets for

developing countries and the role they can play within this triangle.

3.1 Poverty and Environment

Environmental quality used to be seen as a luxury that could only be afforded by rich countries.

However, since the 80s a lot has changed in this perception. It became clear that environmental

degradation affects the development of poor countries. Nowadays some even believe that the

main focus of environmental policies should be the environmental degradation in developing

countries (Kahn, 2005).

This change can be attributed to the failure of earlier development projects. The focus of these

programs in the 60s and 70s was on formation of capital. This was in line with the traditional

view of the cycle of poverty. According to this view, developing countries tended to have low

productivity of labour, which implied in low income per capita. As income was low, nearly all

income was needed to cover basic consumption needs, leaving little for saving and, therefore,

little for investments. Then lack of investment implied little capital accumulation, and since

increasing capital is one way to increase the marginal product of labour, the lack of investment

implied continued low productivity of labour, going back to the start point of the cycle. Thus

investing in the formation of capital was apparently the way to break the cycle of poverty.

Nevertheless, this approach was not successful in improving productivity and expanding the

economy in developing countries. Poverty has increased in several areas of the world. In fact, the

standard of living is even lower nowadays than in 1980 in many sub-Saharan states. Only later it

was realized that the continuing degradation of the environment is one of the main causes of

worsening in living standards.

Natural resources are the basic capital in the economy of most developing countries, as they are

basically dependent on primary activities, such as fisheries, forestry and agriculture. Not only they

rely on natural resources, but also over 50% or more of their exports are primary commodities.

Therefore, environmental quality is a fundamental input in their economies.

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Since natural resources are correlated, the impact of environmental degradation goes beyond the

current generation. For instance, exploiting forests impacts the hydrology of the region and

causes soil erosion. Intensive agriculture also compromises the soil. Therefore, the net benefit

will continuously decrease and economic activities in the future will be very limited.

A simple cause-effect relationship between poverty and environmental degradation can not be

drawn. However, there is enough evidence that they are intrinsically correlated.

The effect of environmental degradation on poverty can be observed in the form of diseases or

capital stock. Malaria and intestinal disorders are example of environment related diseases. The

first is caused by a mosquito that proliferates as a result of deforestation. Contaminated water

causes intestinal problems. Both types of diseases are relevant causes of missing working days,

which will directly impact productivity and, consequently, income and poverty. Looking at

natural sources as the main input into production processes, losses in the environment will also

jeopardize productivity, income and poverty directly.

On the other hand, poverty also causes environmental degradation. As the poor are not able to

provide themselves with their basic consumption needs and their financial standard of living is

very low, overexploitation of natural resources is inevitable, which will increase the pressure on

the environment even more.

As seen in both cases, one extreme leads to another. Environmental degradation results in

poverty that leads once again to the starting point. Hence, the cycle between poverty and

environmental degradation can be drawn by adding the component ‘environmental degradation’

in the traditional cycle of poverty described first. As shown in Figure 2 (Kahn, 2005),

environmental degradation is caused by low income together with current consumption needs,

and it represents a limiting factor for productivity of labour.

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Figure 2: The vicious cycle between poverty and environmental degradation (Kahn, 2005)

Demographic patterns and the behaviour of people are important side elements to be included in

this analysis. It has been noticed that the poorest concentrate in areas called ecologically fragile

zones, increasing the stress on the environment. This also confirms the relationship between

poverty and environmental degradation in poor countries that was discussed above. The numbers

also indicate that increasing national income and economic growth are not sufficient to solve the

problem, as this concentration pattern is even stronger in Asia and Latina America than in Africa,

the least developed of the three. Finally, regarding local awareness, “many studies have revealed

that poor people communities are often acutely aware of the essential role of natural resources in

sustaining their livelihoods, and equally, of the costs and impacts of environmental degradation”

(Barbier, 1999). Unwise exploitation of natural resources is more a result of loosing control over

their economic situation, or loosing access to natural resources, indicating that property rights

may also be defined improperly.

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3.2 Trade and Environment

These two elements co-relate and the interaction between them is complex. Trade can impact the

environment in many ways. “The basic idea is that more international trade increases production

and hence leads to more environmental pollution” (Beers, 2006). On the other hand

environmental restrictions, in form of environmental law or lack of natural resources, can be a

limiting factor for trade. Impacts of trade liberalization and trade flows on environment can be

divided in four groups: direct, product, scale and structural effects (IISD, 2005).

Direct effects are caused by trade itself. For example trading goods inevitably increases transport

pollution. Another example of a direct effect is the migration of invasive alien species that are

unintended transported together with the goods, like the case of the Asian long-horned beetle has

poised and devastated forests in North America (IISD, 2005).

Product effects are those when traded goods or technology impact the environment. It can be

either positive or negative. On the positive side, diffusion of solar power technology is a good

thing as it contributes to the replacement of fossil fuels. Organic cotton is another positive

example. According to an article in New Scientist, a reduction of 92% in use of toxic chemicals

by the textile industry could be achieved if it moved to organic cotton (New Scientist, 2006). In

contrast, trade can facilitate the flow of goods like toxics and hazardous waste that threats the

environment, since they can always spill over in the ocean or end up being dumped in developing

countries.

Scale effects are linked with the expansion of economic activities. A sector can expand by

increasing efficiency. Such improvement can be positive since companies will demand fewer

natural resources, and possibly pollute less. It can also increase wealth which will then allow

people to demand green products, which can not be the case when living close to poverty as

explained in the previous section. However, most economic activities harm the environment

anyhow. Therefore unless policies are in place to ensure that such expansion will not cause harm

to the environment, negative scale effects can be identified. Also because increasing wealth may

result in depletion since levels of consumption tend to increase proportionally, as in the case of

the richer countries nowadays.

Finally, structural effects derive from changing the composition of national economies. With

trade liberalisation a country will likely start exporting what originally was only produced for

internal consumption. On the positive side, this may cause less polluting sectors becoming more

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representative in the composition of the economy in the country. Trade liberalisation may also

remove subsidies and, consequently, an internal move towards more environment friendly sectors

which have been suppressed by subsidies for other activities. On the negative side, we can take

for example the case of a heavily forested country which has been producing timber for internal

consumption only. With trade liberalisation it will likely start exporting forests products. With no

appropriate policies in place, this move will cause overexploitation and depletion of forests.

Trade and trade liberalisation is not necessarily bad or good for the environment. It depends on

“the extent to which environment and trade goals can be made complementary and mutual

supportive”. The main challenge here is “for all stakeholders to exploit the opportunities and

reduce the threats, and in so doing to maximize the net positive contribution that trade can cause

to sustainable development” (IISD, 2005).

3.3 Trade and Poverty

There is no doubt about the fact that trade can work as a powerful tool to alleviate poverty.

However, depending on how it is organised and regulated it can turn out to be an extra barrier,

accentuating poverty and inequity instead. On the other hand, poverty in terms of low human

capacity can also prevent a country to benefit from trade opportunities. It is nearly impossible to

talk about trade nowadays without including liberalization and its effects on less developed

countries in the discussion. Therefore this section focuses on the effects of trade liberalisation on

developing countries.

Regarding the negative effects of trade liberalisation on poverty, there are doubts on “any

presumption that greater openness to external trade is the key to rapid poverty reduction, as well

as on any presumption that trade openness hurts more poor people than it helps” (Ravallion,

2007). However, Ravallion also acknowledges an indication of “considerable heterogeneity in

welfare with both gainers and losers among the poor, where the most vulnerable households tend

to be rural, dependent on agriculture, with relatively few workers and weak economic links to the

outside economy”. Winters et al go one step further in their analysis stating that “there is evidence

that the poor may be less well placed in the short run to protect themselves against adverse

effects and take advantage of favourable opportunities” (Winters et al, 2002). Developing

organisations seem to be more pragmatic. According to Oxfam “world trade has the potential to

act as a powerful motor of the reduction of poverty, but that potential is being lost. The problem

is not that the rules that govern it are rigged in favour of the rich” (Oxfam, 2002). It also claims

that “If Africa, East Asia, South Asia and Latin America were each to increase their share of

24

world exports by one per cent, the resulting gains in income could lift 128 million people out of

poverty”.

Brazil has implemented an ambitious program of trade liberalisation in the 90s, which has not

resulted in substantial economic growth, despite an effective increase in productivity. Therefore,

at least in the case of Brazil, “liberalization alone may not be sufficient to significantly reduce

poverty and inequity” (Carneiro et al, 2003). This indicates a need for establishing policies to

support vulnerable groups and increase the ability of the poorer to benefit from liberalization.

Next section looks in detail at the effects of liberalization in the South.

3.4 Impact of free trade on developing countries

“States should promote an open international economic system that would lead to economic growth and

sustainable development in all countries. Trade policies for environmental purposes should not constitute a

means of arbitrary or unjustifiable discrimination or restriction on international trade.”

Principle 12 of Rio Declaration (UNEP, 1992)

Whether this Principle refers to free trade or an alternative for it, liberalization connects regions

and diffuses innovation indeed. Nonetheless developing countries are left in this context with the

role of suppliers of commodities, which is done in most cases in the expense of local welfare and

the environment. Organizations and micro enterprises in the South are apparently incapable of

implementing good practices to improve livelihoods and manage the environment efficiently.

These failures, however, do not necessarily result from low quality products or lack of

knowledge. Strict and non-effective policies, restrictive market base mechanisms and insufficient

financial resources are usually in the heart of the problem.

In essence, the process of globalisation is “the systematic reduction of protective barriers to the

flow of goods and money by international trade rules shaped by and for big business” (Hines,

2003). Since the start of liberalization policies in the 80s, the wealthiest countries continue to

grow while most of the poorest nations are worse off. Hence the achievements of liberalization

are not coherent with objectives of effectively minimizing poverty and inequity (Rodriguez,

2006). Although one may argue that global poverty has reduced after trade liberalisation, it has

only been due to China and India, the two most populated countries, exactly the countries that

“have developed their own version of the rulebook while taking advantage of the world market”

(Rodrik, 2002). China did not open its trade to a considerable extent. Its economy is still one of

25

the most protected, its financial market was closed to external investors until recently, and it has

not implemented private-property rights, nor has it privatized its enterprises. India has also been

cautious when it came to import liberalisation. In the other extreme are the Latin American

countries, which enthusiastically followed the guidelines for liberalization were rewarded with

either a financial collapse (Argentina), or a mediocre performance (Brazil) (Rodrik, 2002).

Developing countries are squeezed between subsidies and tariffs that protect rich countries. They

are forced under loan conditions of IMF and World Bank to open up their national markets, but

they can not compete against subsided products of developed countries, like cotton, neither can

they export to developed countries due to tariffs that defend domestic industries, as in the case of

sugar. US cotton subsidies depress the world price, suppressing the capability of developing

countries to export. “In 2002 the US government provided $3.4 billion in total subsidies, which is

more than the GDP of Benin, Burkina Faso, or Chad, the main cotton producers in sub-Saharan

Africa” (Oxfam, 2004). There has been a WTO dispute in 2004, started by Brazil, when US

cotton subsidies were declared illegal. However WTO rules can not prevent the US government

providing them. Meanwhile small cotton farmers in West Africa may not survive another

decrease in prices.

Application of non-tariff measures adds to the list of obstacles. Recent environmental and health

requirements designed to satisfy sustainable trends of consumption and production can impact

key exporting activities in developing countries as well. They may also impose serious constraints

at the level of micro enterprises, such as CoopNatural. Meeting these requirements may also lead

to competition for scarce natural resources. Requirements can also pass along whole supply

chains, “imposing requirements that were created with little or no regard to developing

countries”, as in the case of electronic and electrical equipment (UNCTAD, 2006). This also

means extra pressure for such companies to be able to quickly adapt, otherwise they may be

phased-out as providers.

The following two cases illustrate social and environmental impacts recent cases of globalisation

in Brazil: soy and beef, and ethanol in Brazil. First, the demand for beef and soy together is

stressing the devastation of the Amazon, as shown in Figure 3 (Nepstad et al, 2005). The dashed

arrow represents the only contra factor in the trend. This shows how free and deliberate trade

can impact the environment. Finally, Brazil has in recent times signed a treaty with the United

States to promote the use of ethanol (BBC, 2007). No doubt this can represent a gain towards

replacement of fossil fuels. But is it going to alleviate poverty in rural areas in Brazil or is it just

going to amplify inequity? Is this deal going to improve the working conditions of the canavieiros

26

(labour force in Brazilian sugarcane fields) or is Brazil going to become a continental sugarcane

plantation just to fuel the big cars in U.S.?

Figure 3: Recent economic links driving deforestation in the Amazon (FMD: foot-and-mouth disease; BSE: bovine spongiform encephalopathy; R$: Brazilian Real)

So as to say, a global market can be good for poor nations, but the rules of the game are certainly

not. Developing countries often lack resources or adequate institutions to play an active role in

this game. Hence they need to look for new opportunities, such as fair trade and organic that will

be discussed in the next section. The whole “cotton story” and other cases in the context of

globalisation and free trade are included in Annex VI.

3.5 Fair Trade and Organic: alternatives for developing countries?

Fair Trade and Organic labelling appeared in the international context to provide consumers with

information about environmental and social conditions under which a good is produced and

traded. Economic activities operating under fair trade and organic schemes must comply with

environmental and social requirements. The basic difference between these movements and free

trade is that they are not based on the maximization of profit as free trade is.

The objective of this section is to analyse to which extent these two schemes are in favour of

developing countries and whether they effectively open alternative markets for these countries. It

focuses on cotton farming and the textile sector, and what these movements can represent for

them. It starts by introducing organic. Next it elaborates on fair trade, presenting its history,

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concept, structure, a comparison with organic, and the trend in the fair trade market. Finally,

cross-cutting issues are discussed.

3.5.1 Organic

3.5.1.1 Business as usual

20% of all chemical pesticides and insecticides are used in cotton plantations, although only 3%

of all cultivated land in the world grows cotton. Such practices are not only bad for the

environment, as it can contaminate soil and poison food and water supplies, but also for people

who work in the farms. At least three chemicals applied in cotton farming are so hazardous that

120 countries have agreed on prohibiting them, although this ban has not been implemented yet.

Besides this, a lot of chemicals are also used in textile processing such as bleaching and dyeing. At

the end of the production chain, “as many as 8000 chemicals can be used in the process of

turning cotton into a t-shirt” (The Guardian, 2007).

3.5.1.2 What is Organic and how it addresses these issues

Organic addresses this kind of issues by stipulating norms which producers must comply with in

order to get their products certified as organic. The international umbrella for organic is the

International Federation of Organic Agriculture Movements (IFOAM).

IFOAM defines organic agriculture as “a holistic production management system which

promotes and enhances agro-ecosystem health, including biodiversity, biological cycles, and soil

biological activity” (IFOAM, 2007). It highlights the importance of management practices taking

regional differences into account. It discourages application of chemical inputs (e.g. pesticides

and fertilisers) and prohibits use of genetic modified organisms (GMO). IFOAM standards are

basically environment-oriented, but ‘fairness and care’ are included in its principles.

“The current international framework for organic labelling and certification schemes consists of

the IFOAM standards and the Codex Alimentarius Commission (CODEX) guidelines for

production, processing, labelling and marketing of organically produced food” (van der Grijp et

al, 2004). Together they form the basis for national and local initiatives, such as IBD in Brazil and

Skal in The Netherlands, to develop their own certification standards. Therefore standards may

differ between countries and regions. Some of these schemes also cover processing of textiles.

The International Task Force on Harmonization and Equivalence in Organic Agriculture (ITF)

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has been created by UNCTAD, FAO and IFOAM with the aim to “explore opportunities arising

from emerging markets” (UNCTAD, 2006).

Organic schemes represent a potential for small scale producers in developing countries working

with no or low chemical inputs. In addition to the fact that organic products have a higher

market value, resulting in higher income at producer’s side, it is less harmful for the environment

and for the farm workers’ health.

3.5.1.3 Market trends

Eco-friendly companies like Patagonia have been selling organic clothes for years; big retailers

appeared later in the market. Organic Exchange estimated a sales volume of U$ 1.1 billion in

organic cotton products in 2006 (The Economist, 2006).

The ratio demand-supply can prevent organic becoming mainstream. Cost of conversion and

lower crops at least in the first years are limiting factors for producers. They also fear uncertain

demand. On the other, organic cotton is more expensive than normal cotton, which puts a stop

on the buyers’ side (The Economist, 2006).

3.5.2 Fair Trade

3.5.2.1 Business as usual

As discussed in section 3.4, international trade conditions use to be unfair for and in developing

countries. Producers of raw material are often unfairly paid, resulting in poverty and inequity. As

shown in Figure 4, for each one dollar worth of coffee, eight cents are paid to growers. Besides

this, producers in the south are vulnerable to constant change in prices, determined by markets in

the North. Working conditions in the South are far from equivalent to the reality in developed

countries as well. The previous section referred to agricultural workers being exposed to

chemicals. The textile sector is also critical in this regard. The documentary “China Blue” (Teddy

Bear Films, 2006) for example registered the reality of teenage girls working at sewing industries

in China under unconceivable conditions, seven day a week, even sometimes 20 hours a day.

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Figure 4: What we really pay for when we buy one dollar’s worth of coffee (Cunningham, 2006)

3.5.2.2 What is Fair Trade and how it addresses these issues

� History

The recent stage of Fair trade came forward from two Dutch men’s concerns about poverty and

the discrepancies in trade relations, back in the 80s. The priest Frans van der Hoff was living and

working in an Indian community of small coffee farmers in Mexico; and Nico Roozen at

Solidaridad, a Dutch development organisation. The case of Isaías Martínez, one of the Indian

coffee farmers in Mexico, was the starting point when they first met in 1985 to discuss how to

fight poverty. Isaías as his Zapotecas ancestors lived from coffee. Despite all hard work, he used

to earn less than 200 US dollars per year. That means a daily income of sixty cents per day for his

family. He had said ‘We do not need help. We are not begging for anything. If you pay a fair price

for our coffee, we can go on without further help’. That means economic justice. Roozen and

van der Hoff were convinced that a new model for development had to be drawn up, no longer

based on help but on fair trade. Isaías had already indicated the basis of the new model. The

economic aspect of trade had to be reorganized in a way that producers can earn liveable wages

and the environment is not compromised. This could result in an increase in the price of end

products and consumers would have to be prepared to pay for it. Next they thought of a

marketing model based on a ‘label’ that would indicate the origin of the coffee to the consumers.

Within this model coffee companies buying fair coffee beans would get such label on their

packages. This resulted in the foundation of Max Havelaar in 1989, the first fair trade labelling

and certifying scheme (Roozen and van der Hoff, 2002).

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� Concept

According to Roozen and van der Hoff, fair trade means:

1) Economic efficient production and marketing: first of all, efficient commercial production of a

high quality product where the ratio price-quality conforms to the market;

2) Social sustainable production: social costs are included in the price of the product;

3) Environmental sustainable production: environmental costs of production are included in the

price of the product as well.

Roozen and van der Hoff see fair trade as an advanced stage of a sustainable economy where

social and environmental costs are internalized in the product. By doing so, it allows consumers

to choose for a product which has a price that corresponds to the true production costs. In the

end fair trade creates a submarket as a model for how the whole market should be re-organised.

� Current structure

After the foundation of Max Havelaar in The Netherlands, other national schemes such as

Transfair in Germany were established. Fairtrade Labelling Organisations International (FLO)

was founded in 1997 to serve as central umbrella for all fair trade initiatives. “Since 2002 all

national organisations operate under the banner of FLO, using common standards and logo.

FLO develops standards on a crop-by-crop basis, distinguishing between small farmers and

workers at factories and plantations” (van der Grijp et al, 2004).

FLO is divided in two organisations: FLO International and FLO-Cert. FLO International

develops standards and connects producers with potential buyers. FLO-CERT is in charge of

certification and inspection At the moment FLO has standards for producers (farmers or

growers) and traders (sellers, buyers, transformers or manufacturers) of: bananas, cocoa, coffee,

dried fruit, fresh fruit, fresh vegetables, fruit juices, herbs and spices, honey, nuts and oil seeds,

quinoa, rice, cane sugar, tea, wine grapes, flowers and plants, seed cotton and sport balls. These

standards were originally focused on social conditions and trade relations. In the meantime FLO

has included several environmental requirements. The current standard for seed cotton addresses

the use of chemicals, waste, soil and water pollution, fire and use of GMO (FLO, 2007). The

current network of operators (i.e. producers and traders) of FLO includes 675 producers and 815

traders in 82 countries (FLO-Cert, 2007). Specific details on cotton operators and Brazil are

available in Annex VIII.

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3.5.2.3 Comparison with Organic

Despite some overlap, fair trade and organic have not become redundant. Development in the

last years indicates that these two schemes are converging towards each other. A good example is

the Oké banana of Agro Fair which is being traded with both labels of organic and fair trade,

Eko and Max Havelaar respectively (Agro Fair, 2007).

Tables 3 and 4 summarize the essential differences between fair trade and organic schemes (van

der Grijp et al, 2004). Fair trade schemes are up to now a fully private affair, while organic also

has public schemes (50 public out of 170). Social aspects are less covered by organic, while fair

trade is focused on trade relations and labour conditions. Environmental impacts are covered by

both, although to less extent by fair trade. FLO environmental standards do not require organic

production.

Table 3: Structure of schemes

Standards Initiatives Coverage

Fair trade Centralized (FLO) Fully private Only apply to specific tropical regions

Organic Central reference (IFOAM + Codex) with local adaptation

Mainly private, but also public

No geographical restrictions

Table 4: Social and environmental requirements

Environment Biodiversity Animal welfare

Human rights

Labour conditions

Trade relations

Fair trade ++ ++ NR ++ +++ +++

Organic +++ +++ +++ ++ ++ -

+++ Included to a high extent ++ Included to a moderate extent + Included to a limited extent - Not included NR Not relevant In early 2007 FLO has shifted many of its minimum (i.e. compulsory for certification)

environmental requirements to progress (i.e. compulsory in the first years after certification),

returning its focus to a more developmental approach. This measure was taken in order to

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address the concern of many producers in developed countries regarding the level of difficulty to

comply with these standards (FLO, 2007).

Another important particularity of fair trade is the fair trade premium, which is paid on top of the

fair trade price. The latter covers production costs, including social and environmental costs, as

explained earlier in this section. The former is a form of bonus that must be applied for projects

aiming at collective social benefits, such as education and health systems (Haynes, 2005).

3.5.2.4 Market trends

The market for fair trade products in the UK is doubling every year. At the end of 2006 UK

consumers spent more than £ 5 million (five million British pounds) on fair trade cotton goods,

drawn from 160 different Fairtrade certified cotton products” (The Guardian, 2007). Marks &

Spencer is the major retailer of Fairtrade cotton products. It is estimated that it accounts for one

third of FLO certified cotton products in the world.

The fair trade market as a whole basically connects producers in the South and traders in the

North. In practice, marketing fair trade is something for either small farmers or big retailers.

Taking the textile sector as example, the first reaction of fair trade organisations is to ask if

CoopNatural also sells raw material (seed cotton) or fabric. Current schemes were not made for

cooperatives like CoopNatural or equivalent small enterprises in the South that cover the whole

production chain. FLO has always been focused on the poorest of the poor. It has diligently

created a scheme for small farmers of cotton, which certainly provides them with a new

perspective of life. But looking at the fair trade market of textile as a whole, in fact the retailers

are the ones taking the most benefit out of it. They buy certified seed cotton and build up their

profits on end products. In the best case for producers, they sell fabrics or -unlabelled- end

products made with certified seed cotton to retailers or other traders. In such a bipolarized

scheme, there is not enough room for small companies that are fighting to survive in the global

market and employing many people living close to poverty line.

3.5.3 Cross-cutting issues

Several issues can be identified in both organic and fair trade markets. First, organic and fair trade

attract investments from retailers interested in improving their image and as a result it causes an

increase in income in developing countries up to a certain level. However, as in the case of

Primark, retailers are “failing to show sufficient commitment to sourcing ethically and paying

33

producers and garment workers fairly” or “are falling short of acceptable ethical standards too,

and consumers are starting to take notice” (Observer, 2007).

Cotton farming drains water supplies. Actually cotton is one of the crops that demand most

water in mid phase. The demand of water per crop is available in Annex VII. Neither conversion

to organic, nor to fair practices solves this problem, since organic cotton demands as much water

as conventional cotton. So sustainability remains questionable.

With regard to North-South relations, despite positive changes in trade relations that are being

achieved, many new issues can be identified in these schemes. Starting with the multitude and

difficulty to comply with standards that may be partly unsuitable lo local reality (UNCTAD,

2006). Next, the complexity to access market information, identify new markets and gain

familiarity with standards (UNCTAD, 2006; Page et al, 2003). The financial aspect is also

complex. Not only the costs of adaptation, certification and inspections are high for producers in

developing country, but they may also have to face double certification costs for organic and fair

trade. At a macro level, the level of complexity and cost to access these markets can contribute to

form a new barrier to trade for developing countries (Haynes, 2005).

Page et al also clarifies that choosing for alternative strategies such as “relying on own reputation

as guarantee” may be less expensive, but it also limits producer’s market power since the

producer will remain restricted to local and small markets.

A new limiting argument against fair trade products is the concept of product miles, i.e. the idea

of “limiting miles between producer and consumer in order to minimize fossil fuel contribution

to climate change” (Hines, 2003). Therefore some supermarkets and consumers prefer locally

grown products (UNCTAD, 2006).

Another main concern is regarding reliability. Although organic and fair trade are by nature more

trustworthy than free trade, it is virtually impossible to guarantee that every producer and every

trader are following the norms as they are supposed to. Hence these schemes are vulnerable of

fraud (The Economist, 2006).

There are also signs that key sectors within fair trade network may be close to their market limit,

as suggested by a decline in fair trade coffee market. This was due to the fact that imports “did

not grow fast enough to match the growth of new fair trade coffee cooperative” (Fridell, 2003).

As earlier perceived by Roozen and van der Hoof, producers in the South have been more

efficient than traders in the rest of the world (Roozen and van der Hoof, 2002). These would lead

34

to competition among poor developing countries, going against the intrinsic principles of fair

trade.

These issues lead to the question “can these movements go beyond their sub-markets for ethical

consumers to evolve into a broader level? (Raynolds, 2000) New Scientist claims that this will

require top-down policies as “consumer campaigns do not produce any long-term change in

behaviour” (New Scientist, 2006).

Having considered both the benefits of fair trade and these issues, fair trade has shown to be a

market based mechanism that can either help or mobilize a cooperative like CoopNatural

achieving its goals. Therefore the importance of doing detailed analysis of possible alternatives

for the cooperative within fair trade in a broader sense.

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4. CoopNatural

This chapter is dedicated to CoopNatural. It starts with a brief introduction to the socio-

economic context of Brazil and region where CoopNatural is based. Then it provides detailed

information about the cooperative itself.

4.1 Socio-economic regional data

Brazil is a country with big differences between the poor and the rich, north and south. One

might get confused when looking at numbers of the Brazilian economy and its social indicators.

It is indeed a country characterized by inequality. Table 5 provides a short comparison between

Brazil and The Netherlands in terms of the indicators Human Development Indicator (HDI),

Gini and Gross Domestic Product (GDP).

Table 5: Comparison between Brazil and the Netherlands

HDI in 2006

(source: UNDP,2007)

Gini in 2006

(source: UNDP, 2007)

Total GDP in 2005

in millions of US dollars

(source: World Bank, 2007)

The Netherlands 10 30,9 624

Brazil 69 58,0 796

Brazil is divided in five regions: Northeast, northwest, mid-west, southeast and south. The

cooperative is located in the north-eastern state of Paraíba (see in Figure 5). Although both mid-

west and northwest regions have a lower share in terms of national GDP than northeast (13.8%),

poverty is at most concentrated in northeast. It is also in the northeast where the Brazilian semi-

arid is situated, a region characterized by scarcity of water. The biggest and richest cities in the

country are located in the south and southeast.

The state of Paraíba is divided itself in sub-regions that basically vary regarding economic activity,

land use and water availability. Campina Grande has an area of 620 km², 368 thousand

inhabitants and it is situated in the semi-arid (Almeida, 2005).

The levels of poverty, unemployment and illiteracy in Paraíba are high. 52% of the population

earns under half of the minimum wage and 71% of the rural population is under the poverty line.

10% of the population is unemployed and 20% is illiterate. Industry has a share of 46% of the

36

GDP in Campina Grande and cotton is the second export product (IPEA, 2007; IBGE, 2007;

Desenvolvimento, 2007). Other socio-economic indicators of the region are available in

AnnexV.

Figure 5: Map of Brazil

4.2 The cooperative

This section explains how CoopNatural is operating and how it is organised. Furthermore it

provides a summary of the history of the cooperative, as well as the strategy of development and

market positioning that has been adopted, and the challenges it faces.

4.2.1 Operations

CoopNatural produces clothes, toys, decoration and accessories made with organic cotton grown

in the region (CoopNatural, 2007). It sells its products indirectly and most of its clients are stores

in Brazil. However as the quality of its products is high enough to satisfy international standards,

CoopNatural is exporting since its foundation. At the moment the products are being sold via

direct and indirect channels abroad, mainly in Australia, England, Italy, Portugal and the USA.

Paraíba

37

4.2.2 Organisation

At the moment CoopNatural consists of 31 members: 22 entrepreneurs, 8 consultants and 1

farmer. All together are responsible for about 1300 direct and indirect jobs. The organisation of

CoopNatural is shown in Figure 6. The basis of the production chain consists of one private

farmer (40 hectares) and one group of small farmers that together supply the cotton (20 hectares

in total). As illustrated, the production chain goes beyond the boundaries of the cooperative

itself, including non-members third parties such as groups of artisans.

1 - Production of cotton

1 - Production of cotton Fazenda Santo Antonio Arribaçã (NGO)

1 member, 35 jobs non-member, 20 families

2 – Processing of cotton Campal non-member, 40 jobs

3 - Threading Textil Ervest 1 member, 60 jobs

“MALHARIA”

4 – Flat weaving 5 – Hosiery mesh Pirapama Unitextil

non-member, # jobs non-member, 38 jobs

6 – Design, modelling cut,

7 - Other manufacturers sales, marketing and administration 8 - Sewing

Entre Fios (decoration) Facção Ramyl 1 member, 40 jobs 2 members, 10 jobs

Eva Calçados (shoes and bags) Facção Edwirgens 2 members, 35 jobs 1 member, 15 jobs

Mix (kids fashion) Facção Terral 1 member, 10 jobs 1 member, 20 jobs

Facção Sempre Viva 1 member, 10 jobs

CoopNatural Facção Leidjane

9 - Others central office 1 member, 5 jobs

Groups of Artisans Facção Mano a Mano non-members, 281 jobs 1 member, 15 jobs

Ki Bordados (embroidery) Facção Formato X 1 member, 5 jobs 1 member, 5 jobs

Seicom Serigrafia (silk screen) Cosmos Jeans 1 member, 3 jobs 2 members, 10 jobs

2 members, 11 jobs

10 - Stores

Dona Terra 2 members, 5 jobs

others non-member, # jobs

Figure 6: Production chain of CoopNatural

38

A special point to be emphasised is the inclusion of NGO Arribaçã in the production chain.

Brazil is a country where small farmers often have to fight for land, usually owned by just a few

people. In short, the government has been working on granting pieces of private unproductive

areas to groups of small farmers who do not own anything else. However, after the definition of

property rights these groups struggle to find the means to produce and to become active in the

economy. NGO Arribaçã works on creating new economic opportunities for this group in the

region of Campina Grande, where CoopNatural is based. The cooperative has recently made an

agreement with Arribaçã to include a group of 20 families that have got 20 hectares all together

to supply the cooperative with organic cotton. The families are now following what Arribaçã calls

“eco-agriculture”, where they grow organic cotton together with maize and beans for own

subsistence.

4.2.3 A history of challenges

CoopNatural was founded in 2000 with the mission "to strengthen the coloured cotton textile

sector, selling products that are socially and ecologically correct by encouraging family-based

agriculture and local artisans" (CoopNatural, 2007). Despite its persistent growing business, the

challenges CoopNatural faces have always been and remain big. In fact it was founded as a local

initiative to respond to the pressure of global competitors. The textile sector in Brazil is

dominated by well established national brands. Besides that, the share of global competitors in

the local market is growing every year.

4.2.4 The strategy of the cooperative

Positioning its end products in the external market is the alternative found by CoopNatural to

ensure the revenue needed to keep the cooperative running and to promote sustainable

development. Therefore, CoopNatural identified the need to add value to its products to form

the basis for a competitive advantage.

� Phase 1: Organic naturally coloured cotton

From the very beginning the cooperative got involved in the development of organic naturally

coloured cotton, which was an innovative initiative of EMBRAPA (Brazilian Agricultural

Research Corporation). EMBRAPA started growing the first variation BR 200 Brown in 2000.

BRS Green was introduced in 2003, and both BRS Ruby and BRS Sapphire in 2005. These

39

varieties are based on crossing and do not come down to any genetic modification. This kind of

cotton not only reduces production costs, but also the emission of chemicals since it does not

require any use of dying (EMBRAPA, 2007). There are just a few producers in the world

growing naturally coloured cotton at the moment, but the cotton grown by the supplier-member

of CoopNatural is ahead with complying with the international standards for quality. More

information about Naturally Coloured Cotton can be found in Annex IV.

� Phase 2: Organic certification and fair trade

Keeping in mind the need to add more value to the end product, the cooperative decided after

the development of organic naturally coloured cotton to apply for the organic certification and

then to carry out fair trade. In the last two years CoopNatural has worked to comply with the

requirements of IBD, which is the certificating body for organic producers in Brazil, recognized

by IFOAM. The expectation is that this process is going to be concluded by mid 2007, when

CoopNatural will be producing its garments with a minimum of 80% of organic naturally

coloured cotton.

40

5. Stakeholders’ perceptions of fair trade

This chapter joins all actors involved in the scope of this research: CoopNatural, stores currently

buying CoopNatural products, fair trade organisations and companies, and consumers. It

presents the outcome of interviews that have been done in order to collect their perceptions of

fair trade. This input helped understanding: 1) if CoopNatural is prepared to go fair; 2) what

CoopNatural expects from fair trade; 3) what fair trade organisations and companies can mean

for CoopNatural achieving its goals; 4) what will be the impact of CoopNatural going fair on

stores; and 5) if going fair will be an added value considering consumers’ level of awareness about

fair trade.

5.1 CoopNatural

Sustainability

The cooperative does not have formal policies in place. However it does take action to address

social and environmental issues. For instance, it has implemented water quality control and

recycling of solids, and it pays employees and suppliers above local wages. It recognises the co-

relation between social, environmental and economic aspects of its business. A detailed study on

the sustainability of the business on the middle and long term has not been done yet. When asked

this question the answer was “Aqui a gente mata o leão do dia!” which if literally translated

means “here we kill the lion of the day!”. The message was that it is nearly impossible to think in

the long run when the daily challenges are already bigger than the actual capacity of the

cooperative to address them all.

Production

The main constraints faced by the cooperative are the cultivation of organic cotton and the

threading process. Regarding cultivation, the private supplier-member of CoopNatural is a

pioneer in the field of organic cotton cultivation. The expectation is that he will be able to supply

the cooperative with the amount of cotton to conclude the organic certification by mid 2007.

CoopNatural has recently set up a partnership with Arribaçã, an NGO that is supporting twenty

small cotton farmers in the region, to diminish its current dependency on their only cotton

supplier at the moment. However it remains a challenge full of risks since this partnership is very

young and the Arribaçã farmers still have to go along the learning curve.

Concerning threading, CoopNatural depends on obsolete machines of a third-party company and

the cooperative can not afford purchasing new machines for its own to become independent.

41

Marketing

Increasing the demand for CoopNatural products is also a challenge. The cooperative can

currently produce 50 thousand items per month, which is much more than the current demand.

According to their list of clients and respective sales volume, the cooperative counts on 330

clients from which the biggest one is responsible for 7.3% of the total sales volume, which

indicates an enormous effort to manage all these small sales channels. The good thing is that it

does not rely on a main big client.

Regarding geographic distribution, most of their clients are stores in Brazil. The ones abroad

represent only 7% of their total sales, but they are indicating a potential demand for fair trade

products in the external market.

Why fair trade

CoopNatural perceives this market opportunity as a way to increase the demand for its products,

which will then allow further investments on the cooperative itself, on the people that is engaged

to it and the environment.

What CoopNatural needs

It needs to find the best way to show that their products are made under fair conditions and

introduce itself in the fair trade market. Therefore it wants to evaluate marketing opportunities

based on economic, social and environmental impacts, in this order of priority.

The goals of CoopNatural regarding fair trade are:

- To focus on the external market, where the demand for fair trade products comes from;

- To find the most appropriate marketing alternative for the cooperative, with a primary focus on

economic growth, as they believe they will not be able to further address social and

environmental issues otherwise;

- To continuously improve working conditions and implement environment friendly practices.

5.2 Stores

The stores abroad know what fair trade is and they see the market going in this direction.

According to Natural Fashion (Australia) fair trade is focused on social aspects, decent wages

paid to the producers and profits shared among everyone within the production chain. In

contrast, except Mare Chiare (based in Paraná), the Brazilians stores do not know what this

42

concept means, or just used synonyms to explain it. It was interesting, though, to perceive their

willingness to learn about it, as clearly expressed by Ouro de Cor and R.E.A. Artesanato.

The foreigners see a trend in the market in the direction of fair trade, or are even pioneers as

Greenfibres (UK) which is operating since 11 years ago. Biotece (Portugal) says that “fair trade is

not a case of a new fashion, but a profound change that is taking place”. The Brazilians do not

perceive any trend for fair trade in their market, but some of them have referred to a growing

awareness and demand for organic and eco-friendly products (Mare Chiare, Armazém da Moda e

Via Terra). In both cases, they all said that their clients are interested in buying fair trade, either

because they know what it means, or because the concept adds value to the product anyway.

Hence they are all willing to keep on buying from CoopNatural after its transition to fair trade.

Regarding this point, Greenfibres has pointed out its concern to justify the textile miles, i.e.

emission of CO2 resulting from fossil fuels-based transportation of goods, so importing products

all the way from Brazil to the UK will also depend on whether there is someone producing

equivalent products closer to them.

When asked about the potential increase in sales volume with fair trade, among the foreigners

Biotece could not predict it and the others indicated the range between 1% and 30%. This was

also the indication of Via Terra (5%-10% in the short term). The other Brazilians either could not

predict it or thought of 80% growth (Ouro de Cor).

Massimo Marocco (Italy) and Biotece mentioned credibility as an extra benefit of fair trade

besides potential increase in sales volume and added value to the product.

5.3 Fair trade organisations and companies

Only Made-By and FLO made themselves available for a proper interview. Information regarding

Kuyichi was provided by Made-By. The data from H&M have been partially provided in person,

or collected from the internet. This section summarizes all data collected during this phase. The

outcome of these interviews and contacts is registered in Annex XV.

When asked about the definition of fair trade according to their organisations, FLO

referred to the definition formulated by FINE, an informal Association of the four main Fair

Trade networks (Fairtrade Labelling Organizations International, International Fair Trade

Association, Network of European World shops and European Fair Trade Association). It

defines it as follows: “Fair Trade is a trading partnership, based on dialogue, transparency and

43

respect, seeking greater equity in international trade. It contributes to sustainable development by

offering better trading conditions to, and securing the rights of, marginalized producers and

workers - especially in the South.” According to FLO, Fair Trade networks (supported by

consumers) are actively engaged in “supporting producers, awareness raising and in campaigning

for changes in the rules and practice of conventional international trade. Fair Trade's strategic

goal is 1) to work with marginalised producers and workers in order to help them move from a

position of vulnerability to security and economic self-sufficiency; 2) to empower producers and

workers as stakeholders in their own organisations; and 3) to actively play a wider role in the

global arena to achieve greater equity in international trade." For Made-By fair trade means

sustainable trade with social and environmental concern. It is not simple to implement it in the

textile sector as it is a long process involving many stages, up to transportation and sales. The

focus of Made-By lays on the sewing stage, since it usually takes place in countries where the

working conditions are bad, and the rights of the employees are not defined or protected.

Concerning the ever increasing number of fair trade initiatives, FLO perceives a difference

between ethical trading and fair-trade. Ethical trading means companies are involved in a process

of trying to ensure that the basic labour rights of the employees of their third world suppliers are

respected. The Fairtrade mark, which applies to products rather than companies, aims to give

disadvantaged small producers more control over their own lives. It addresses the injustice of low

prices by guaranteeing that producers receive fair terms of trade and fair prices – however unfair

the conventional market is. On top of the fair trade minimum price, the Fairtrade labelling

system guarantees a Premium for producer organizations or workers bodies to enable them to

invest in social, economic or environmental improvements. According to FLO, fair trade must

follow norms. Made-By argues that it is nearly impossible to have one single standard because

the business areas are very different from each other. Raw material, target group and geographic

differs among business areas. The interviewee did not see it as a disadvantage, but a reality. Yet

he finds it important that each company communicates its objectives properly to the public in a

way that people know what the message is. He agrees that the high number of fair trade labels

and initiatives in the market is indeed very confusing for the public. One of the objectives of

Made-By is to group all affiliates with its “button”. This way it aims to help the public identifying

the concept of the product. Lack of communication and publicity is one of the reasons for

having isolated initiatives. FLO does not see the proliferation of fair trade labels as a problem. It

has done a comparison and established that: Organic, Shade Grown, and Bird-Friendly

certification labels are important and valuable efforts to promoting sustainable agriculture

techniques that benefit farmers and the environment. However, as said by FLO they do not carry

44

the encompassing attributes of the Fairtrade Certification process. Organic coffee is certified

according to strict legal criteria. There are a number of different certifying agencies (QAI, OCIA)

that all certify in accordance with the standards of the International Federation of Organic

Agricultural Movements (IFOAM). Shade Grown production (bird-friendly) is currently certified

by several groups (Rainforest Alliance, Seattle Audubon Society, Smithsonian Institute) but they

work with slightly different criteria and do not have comprehensive monitoring procedures.

Regarding their sets of requirements, Made-By is based on a social indicator (SA8000) plus

basic environmental considerations. For CoopNatural as a trader it would mean that the sewing

stage would have to comply with the requirements. Their requirements are minimum, but

depending on the capacity of the supplier to implement them all per day one they might be taken

as progress requirements, i.e. the supplier will have to comply with them as soon as possible. For

Kuyichi as for any other Made-By affiliate, the only requirement other than the ones established

and controlled by Made-By is regarding quality. The supplier has to be able to produce

mainstream products and according to the style defined by Kuyichi. FLO has established a

thorough list of minimum and progress environmental, social and economic requirements. For

cotton, FLO makes a distinction between small farmers’ organisations and traders. As

CoopNatural involves the whole production chain, it would have to comply with both sets of

requirements. H&M has a code of conduct applied to all suppliers. It includes environmental

and social norms. Quality is also important. Chapter 6 presents these requirements in detail.

FLO and Made-By impose certification and auditing costs, while H&M has no certification

fee and it is in charge of auditing costs itself. With respect to funds and subsidies, in case of

Made-By the trader may count on eventual funds from Solidaridad and Dutch ministries. FLO

has a so called Producer Certification Fund applicable only for small farmers’ organisations,

covering up to 75% of the fee in the case of CoopNatural (FLO, 2007). These costs will be

presented in detail in Chapter 6.

The expected amount of time spent in processes of certification (FLO and Made-By) and

making deals (Kuyichi and H&M) vary between two weeks and six months. FLO estimates four

to five months for Small Farmers, and one to two weeks for Trader, excluding the time obtaining

the social indicator. In case of Kuyichi, matching the product made by the supplier with their

needs can be immediate or never happen. In case there is match between Kuyichi and the

supplier, the rest of the process should not take more than two weeks. Regarding the social

indicator for Made-By, as it is not mandatory as of day one, it does not add up to the time

45

needed to make the deal. According to information given by H&M, it may take up to six months

making a deal.

FLO operates in at least 23 countries: Austria, Belgium, Canada, Denmark, Finland, France,

Germany, Ireland, Italy, Japan, Luxembourg, The Netherlands, Norway, Spain, Sweden,

Switzerland, UK, USA, Australia, New Zealand, Mexico, Estonia and Brazil. However, trading

cotton depends on complementary agreements. For instance, at the moment the USA does not

allow selling textile with the logo of FLO within its borders yet. Made-By is currently operating

only in The Netherlands. That means the affiliate company must have at least a shop or

distributor in this country. Made-By is expanding its geographic area. It is going to operate in

Germany in 2008 and in the UK, Belgium and Scandinavia in 2009. Kuyichi is selling in 11

countries: The Netherlands, USA, Spain, Italy, UK, Greece, Ireland, Sweden, Belgium, Germany

and Chile. H&M is present in 26 countries. Nevertheless, H&M does not want to have garments

and cotton travelling much. Therefore ideally speaking cotton and end products imported by

H&M should be produced close to target markets.

Made-By and Kuyichi’s suppliers are in The Netherlands, China, India, Turkey, Peru and

Africa. H&M is purchasing from many countries, including Brazil. FLO’s certified producers of

seed cotton are in India, Africa and Peru, while its certified traders are basically in UK (80% of

world market share), France and Switzerland. The Swiss market has special demand for organic

textile.

Estimations on potential increase in sales and prices of t-shirts in the market were given based on

unofficial data and they are available in Annex XV.

5.4 Consumers

36 people, Dutch and non-Dutch, were interviewed at Kalverstraat in Amsterdam. Tips and

Tricks resulting from this experience are enclosed in Annex XVI. They can be helpful when

doing interviews like these. The same questionnaire was sent via e-mail to 36 people in Brazil and

16 in the rest of the world.

Feedback: Kalverstraat

The following graphs are intended to help the reader understand what has been told during the

interviews at Kalverstraat, since “an image -certainly- says more than a thousand words”.

Question 1 - Do you know what fair trade is?

46

The idea of fair trade was born in The Netherlands, as explained in section 3.5.2.2. Nonetheless,

36% answered “not at all”.

36%

17%

44%

3%

not at all

to some extent

yes

invalid

Figure 7: Question 1: Do you know what fair trade is?

Question 2 - Who do you think benefits from fair trade?

The interviewees could choose more than one answer to this question. Most of the people

answered “producers” and “environment” respectively, which are consistent with the concept.

0

2

4

6

8

10

12

14

16

18

shops

consumers

producers

environment

invalid

Figure 8: Question 2: Who do you think benefits from fair trade? (n=36)

Question 3 - Do you know what organic is?

The purpose of this question was to compare the level of awareness about fair trade and organic.

As clearly shown 94% of the people have some level of knowledge about organic, while 36% said

not to know anything about fair trade in the first question.

do not know

47

3%11%

83%

3%

not at all

to some extent

yes

invalid

Figure 9: Question 3: Do you know what organic is?

Question 4 - Do you intentionally buy fair trade products?

50% answered “sometimes”…

never

47%sometimes

50%

always

0%

invalid

3%

never

sometimes

always

invalid

Figure 10: Question 4: Do you intentionally buy fair trade products?

Question 5 - Do you intentionally buy organic products?

…while 63% answered sometimes or always. It indicates a clear difference in the level of

consumption of fair trade and organic products.

31%

60%

3%6%

never

sometimes

always

invalid

Figure 11: Question 5: Do you intentionally buy organic products?

48

Question 6 - Why do you buy fair trade (or why not)?

The question was ‘why do you buy’ if their answer on question 4 was positive, otherwise ‘why

not’. At this stage a level of confusion can be identified. Maria 1 said the she buys it “because she

is vegetarian”. Peter first said he did not know anything about fair trade, but he buys it “because

they are fair”. Ana also first said she did not know what it was, but she does not buy “because it

is expensive and not beautiful”. This indicates the concept of fair trade might not be totally clear

for consumers.

Figure 12 shows the answer for ‘why buying it’ and Figure 13 for ‘why not’. The first graph

shows that “environment” was mentioned three times and “people” twice, which somehow also

differs from the results of question “Who do you think benefits from fair trade?” when

“producers” was mentioned more than “environment”.

0

1

2

3

4

5

6

7

good for the environment

good for people

support idea

quality

logistics

media

invalid

Figure 12: Question 6.a: Reasons to buy fair trade (n=20)

0

2

4

6

8

10

12

lack information

lack engagement

quality

price

logistics

invalid

Figure 13: Question 6.b: Reasons not to buy fair trade (n=21)

1 Names used here are fictitious.

no answer

no answer

49

Question 7 - If a normal t-shirt costs 5 Euros, how much more would you be willing to pay for a

fair trade t-shirt?

This question was meant to identify consumers’ willingness to pay. The amount of five Euros

was the current price of a simple white t-shirt at V&D, a big Dutch retailer, at that time.

Surprise: 61% indicated to be willing to pay more for an equivalent fair trade t-shirt.

8%

6%

22%

19%

14%

31% nothing

1 Euro

2 Euros

5 Euros

> 5 Euros

invalid

Figure 14: Question 7: Willingness to pay extra for a fair trade t-shit

Question 8 - Which brands below are you familiar with?

The interviewees could choose more than one answer to this question. The logos of the

companies were shown to the interviewees so they could point the ones they knew. The retailer

Hema appears in this list because it was pre-selected is a marketing alternative for CoopNatural,

as explained in section 2.2.1, at the time when the interviews took place. Nine people recognised

the logo of FLO, while 27 pointed to Hema. This may indicate the power of such retailers in the

market. One does not know anything about fair trade, but does know Hema. 85% of the people

who did not know anything about fair trade recognised Hema.

0

5

10

15

20

25

30

Fairtrade

Kuyichi

Made-By

Hema

none of above

invalid

Figure 15: Question 8: Which of these brands are you familiar with? (n=36)

50

Feedback: via email

Out of a total of 52 people, 7 Brazilians and 13 non-Brazilian answered the questionnaire sent via

e-mail. Except for one Brazilian, all the others had never heard of “comércio justo” (fair trade),

although 86% claimed to know what organic is and 57% to buy it sometimes. The hero who

knows what fair trade is even said that he is willing to pay more for a fair trade t-shirt. The non-

Brazilians interviewees showed to be a very conscious group who knew what fair trade is and

supported the idea, also in terms of consumption.

A relation between lack of knowledge about fair trade and a lack of engagement and low

consumption has been identified in both samples (i.e. interviews done at Kalverstraat and via

email). A certain level of confusion also adds up to the problem.

51

6. Requirements and costs imposed by marketing alternatives

This chapter focuses on the requirements and costs imposed by each marketing alternative. In

addition it estimates potential increase in sales and how long time the transition process would

take in each case. These factors formed the basis for the multi criteria analysis in next chapter. It

starts by presenting the requirements and commenting the critical ones. Next it shows

CoopNatural’s evaluation on these requirements in terms of effort to comply with each

requirement, benefit from complying and cost to adapt. The following section summarizes the

costs with fees and auditing. Subsequently, it provides estimations made for increase in sales and

duration of processes. Finally, it presents the Fact Table to be used in the multi criteria analysis.

6.1 Requirements

Each alternative has its own set of requirements to address three groups of issues: Social,

Economic and Environmental. Tables 6-8 compile these requirements and show by which

alternatives they are required. The complete sets of requirements can be found in Annexes X, XI

and XII, stating what CoopNatural will have to do or have in place.

FLO has minimum and progress requirements. At the moment they are elaborating a deadline

catalogue that will specify when progress requirements are supposed to be in place. Since it is not

available yet, only minimum requirements were considered in this research, plus one specific

progress requirement that has to be in place one year after certification. It should be noticed that

FLO has different sets of requirements for small farmers’ organisations (i.e. producers of cotton)

and traders (i.e. sellers, buyers, transformers or manufacturers of cotton within the production

chain).

52

Table 6: Social requirements

FLO FLO Made-By Kuyichi H&M

1. SOCIAL Small Farmers Trader Trader Supplier Supplier

General 1.1 Fairtrade adds Development Potential X 1.2 Members are Small Producers X 1.3 Democracy, Participation and Transparency X 1.4 Non-Discrimination X X X X X

Standards on Labour Conditions 1.5 Forced Labour and Child Labour X X X X X

1.6 No disciplinary practices X X X X 1.7 Freedom of Association & Collective Bargaining X X X X X

1.8 Conditions of Employment X X X

1.9 Remuneration X X X X

1.10 Working hours X X X X 1.11 Occupational Health and Safety X X X X X 1.12 Factory and housing conditions X X

1.13 Management systems X X

53

Table 7: Economic requirements

FLO FLO Made-By Kuyichi H&M

2. ECONOMIC Small Farmers Trader Trader Supplier Supplier

General 2.1 Fairtrade Premium X 2.2 Export Ability X

Trade

2.3.Establish business in The Netherlands X

2.4.Establish factory in (Eastern) Europe X

Trade Standards 2.5 Product Sourcing X 2.6 Procure a Long Term and Stable Relationship X 2.7 Pricing and Premium X 2.8 Pre-financing X 2.9 Information rights and obligations X

2.10 Quality X X

2.11 Certification and auditing fees

X X X X

Table 8: Environmental requirements

FLO FLO Made-By Kuyichi H&M

3. ENVIRONMENTAL Small Farmers Trader Trader Supplier Supplier

3.1 Impact Assessment, Planning and Monitoring X 3.2 Control of chemicals X X 3.3 Waste X X 3.4 Fire X 3.5 Genetically Modified Organisms (GMO) X

3.6 Organic cotton X X

54

6.2 Remarks on critical requirements

This section comments those requirements from Tables 6-8 that are critical for CoopNatural

based on its evaluation to be presented in next section. In brief, FLO covers environmental,

social and economic issues. Regarding H&M and Made-By, the latter is more complex in the

social group due to the managements systems that it requires. They are equivalent in economic

requirements, but H&M has no costs of certification. H&M demands more environment friendly

practices, although Made-By is ahead with organic cotton.

Social requirements

� Members are Small Producers (requirement 1.2 in Table 6): At least 50% of the cotton must

be produced by small farmers. The definition of small farmers is based on indicators like total

cultivated area, cotton area, no contracting of permanent workers, number and tasks of

temporal workers, main income from coming from agricultural activity, producer’s

involvement in the farm work, living on or nearby the farm. Since most of the cotton of

CoopNatural nowadays is produced be a non-small farmer, i.e. a farmer with hired labour.

This emphasizes the importance of the new partnership with the group of small farmers

“Arribaçã” (see Organisation in section 4.2.2).

� Democracy, Participation and Transparency (requirement 1.3 in Table 6): After one year of

certification: the participation of small farmers within the organisation of producers is

supposed to increase gradually. As most small farmers are either illiterate or low educated, this

will require some effort.

� No disciplinary practices (requirement 1.6 in Table 6): No kind of disciplinary practice is

allowed. Surprisingly enough, the requirements of FLO for small farmers does not refer to it.

In any case, punishment or any kind of harassment is absolutely not practiced within

CoopNatural.

� Remuneration (requirement 1.9 in Table 6): FLO and Made-By require that liveable wages are

paid. Local independent institutions check whether the local minimum salary defined law is

really enough to cover the basic needs of the employee (=food+school+health+10%). If that

is the case, the salary should be increased to the minimum level indicated by the institution.

H&M talks about minimum wages but does not go beyond the minimum wages by law as the

others do. This requirement will not impact on CoopNatural. All employees are earning at

least minimum wages defined by law which is also above liveable level.

55

� Management systems (requirement 1.13 in Table 6): Policies and systems must be in place to

ensure that the cooperative operates according to the norms (and eventually its suppliers as

well). This requirement will demand much effort from CoopNatural to have these systems in

place. It will need one extra dedicated personnel to be in charge of this.

Social Indicators: the first social impact

Social Indicator in this context is a certificate granted by a third-party auditing company proving

that the certified company complies with a set of social norms. Both FLO and Made-By require

trade companies in the production chain to present a social indicator. So in fact, except for FLO

Small Farmers and H&M, the social requirements in Table 6 are the requirements by a Social

Indicator. Made-By accepts either SA8000 or Fair Wear as social indicator. Among the social

indicators accepted by FLO, SA8000 or Model Code are applicable in the case of CoopNatural.

A copy of SA8000 and Fair Wear are available in Annex XIII. Model Code is included in FLO

requirements in Annex XII.

-Made-By requests a social indicator only to the sewing companies in the production chain.

SA8000 was considered in the calculations because Fair Wear does not operate in Brazil. FLO

requests it to each trading company in the production chain. Model Code was chosen since it is

less expensive than SA8000. Besides this, complying with the social requirements of Model Code

will be nearly as much beneficial for CoopNatural as SA8000 would be. This comparison

between Model Code and SA8000 is explained in Annex XIV.

Complying with this requirement implies in high costs for the cooperative. Although

CoopNatural would not have major difficulties to comply with the requirements, it can not

afford acquiring this certificate for each trade company within its production chain (see Figure 6).

In order to reduce most of these costs, CoopNatural will have to exclude some of its members

and third-parties from this process. This means a major social impact that will have to be

considered. According to the cooperative, operationally speaking it could operate with only 4 out

of 8 sewing companies, and without the Groups of Artisans and Other Manufacturers. This

would lead to a minimum scenario of 11 trade companies, which has been considered for the

calculation of Table 12 (section 6.4).

Economic requirements

� Establish business in The Netherlands (requirement 2.3 in Table 7): As Made-By operates only

in The Netherlands (and in some northern European countries in the near future)

56

CoopNatural would have to set up either a distributor or a shop in one of these European

countries. It would demand the maximum level of effort from CoopNatural to implement it.

� Establish factory in (Eastern) Europe (requirement 2.4 in Table 7): Brazil is not any of the

markets that H&M is working with. CoopNatural would have to become a European supplier

of textile. So it would have to set up a sewing factory in Europe (probably in Eastern Europe

to reduce costs). It would also demand maximum effort, and costs would be even higher than

in case of establishing business in The Netherlands required by Made-By.

� Pricing and Premium (requirement 2.7 in Table 7): FLO establishes minimum price and

premium paid to seed cotton producers. The current numbers for organic cotton in Brazil are:

price (per kg) = US$ 0.58; premium (per kg) = US$ 0.06. This would not have any negative

impact on CoopNatural as it is currently paying more than minimum values defined by FLO.

Environmental requirements

� Control of chemicals (requirement 3.2 in Table 8): FLO specifies norms to control the use of

agrochemicals. H&M refers to control in the rest of the production chain. FLO requirements

are not applicable to CoopNatural because they are already doing organic. H&M’s

requirements for the rest of the production chain will demand some effort from the

cooperative.

� Waste (requirement 3.3 in Table 8): H&M goes beyond simple control regarding hazardous

waste. FLO is focused on organic waste. Both are not applicable for CoopNatural as it does

not produce hazardous or organic waste.

� Fire (3.4): FLO allows use of fire only in case it is the best option from the ecological point of

view and in case it is not dangerous for people. It is not applicable for CoopNatural.

� Genetically Modified Organisms (GMO) (requirement 3.5 in Table 8): FLO does not allow

any use of GMO. It is not applicable for CoopNatural either.

� Organic cotton (requirement 3.6 in Table 8): Made-By is the only one that has organic cotton

as requirement, although not as a minimum requirement. It is not compulsory at start point,

but the company would have to show the intention to convert to organic gradually.

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6.3 CoopNatural's evaluation on requirements

The evaluation of CoopNatural on requirements follows in Tables 10-12. Notice that yet in case

of Effort=0 the benefit was considered, as to reward previous investments of CoopNatural.

Table 9: CoopNatural’s evaluation on Social requirements

EVALUATION

SOCIAL CRITERIA Effort Cost Benefit

0 - 4 € 0 - ... 0 - 3

General 1.1 Fairtrade adds Development Potential 2 € 190 3 1.2 Members are Small Producers 1 0 1.3 Democracy, Participation and Transparency 2 € 1.900 2 1.4 Non-Discrimination 0 3 Standards on Labour Conditions 1.5 Forced Labour and Child Labour 0 2

1.6 No disciplinary practices 0 2 1.7 Freedom of Association & Collective Bargaining 0 1

1.8 Conditions of Employment 0 1

1.9 Remuneration 0 2

1.10 Working hours 0 2 1.11 Occupational Health and Safety 0 2 1.12 Factory and housing conditions 0 1

1.13 Management systems 3 € 4.560 2

Table 10: CoopNatural’s evaluation on Economic requirements

58

EVALUATION

ECONOMIC CRITERIA Effort Cost Benefit

General 2.1 Fairtrade Premium 0 3 2.2 Export Ability 0 1 Trade

2.3.Stablish business in The Netherlands 4 € 100.000 1

2.4.Stablish factory in (Eastern) Europe 4 € 115.000 1

Trade Standards 2.5 Product Sourcing 1 € 380 1 2.6 Procure a Long Term and Stable Relationship 1 € 380 1 2.7 Pricing and Premium 0 2 2.8 Pre-financing 0 1 2.9 Information rights and obligations 0 1

2.10 Quality 1 € 3.800 3

59

Table 11: CoopNatural’s evaluation on Environmental requirements

EVALUATION

ENVIRONMENTAL CRITERIA Effort Cost Benefit

3.1 Impact Assessment, Planning and Monitoring 3 € 7.600 2 3.2 Control of chemicals

-Farms 0 2 -Rest of production chain 1 € 3.800 2

3.3 Waste 0 2 3.4 Fire 0 1 3.5 Genetically Modified Organisms (GMO) 0 1

3.6 Organic cotton 0 3

6.4 Costs

Table 12 summarizes the total costs of fees. FLO is first divided in two columns to make a clear

distinction between the fees for Farmers and Traders. The figures are based on current fees

charged by fair trade organisations and auditing company.

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Table 12: Cost of certification and auditing

Annex XVII explains how these figures were calculated.

6.5 Complementary criteria: Increase in Sales and Time

Table 13 presents the estimations for increase in sales volume and how long the transition

process would take in each alternative. Annex XVIII explains how these figures were calculated.

The increase in sales referred here are regarding sales of end products. Certifying the farmers

would not increase their revenues since the minimum amount to be paid per ton of cotton plus

the premium, both stipulated by FLO, are below what is currently being paid at CoopNatural.

FLO Farmers

FLO Traders

Made-By Kuyichi H&M

Certification and auditing (2.11) -First application fee € 250 -Initial fee 1st grade € 1.400 -Additional costs € 825 -Extra travel and accommodation costs

€ 0 -First application fee € 800 -Annual trade certification fee € 2.600 € 2.500 -Social indicator: Model Code € 8.800 -Social indicator: SA8000 € 16.720 € 16.720 -Present social indicator € 2.200 -Additional costs € 0 -Travel and accommodation costs € 2.050 € 2.475 € 16.450 € 19.220 € 16.720 € 0

TOTAL: € 18.925 € 19.220 € 16.720 € 0 FLO Made-By Kuyichi H&M

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Table 13: Complementary criteria

FLO Farmers

FLO Traders

Made-By

Kuyichi

H&M

Increase in sales -Expected sales volume (t-shirts per year) 24.700 500000 50.000 300.000

-Expected increase in sales volume 30% 2632% 263% 1579%

Time invested (in months)

4,0 0,5 0,5 0,5 9,0

These data were consolidated to form the Facts Table as explained in Methodology (section

2.2.3.1). The main macro conclusion than can be extracted at this stage is that the set of

requirements for Small Farmers will have a higher impact on CoopNatural than the one for

Traders, both in terms of Benefit as in Cost and Effort, as clearly illustrated in Table 14.

Table 14: Impact of FLO requirements on CoopNatural

FLO Small Farmers FLO Traders

Total Effort 15 0

Total Benefit 34 15

Total Cost

(fees + other investments)

€ 31.925 € 16.450

6.6 Facts Tables for Multi Criteria Analysis

Table 15 is the Facts Tables, the basis of the Multi Criteria Analysis in next chapter. It should be

noticed that data regarding FLO Small Farmers and FLO Traders are now consolidated as FLO.

It summarizes total effort to comply and total benefits from complying with each group of

criteria (i.e. Economic, Social and Environmental). It also totalises costs with fees and auditing,

and other adaptation costs. Finally it includes the estimations made for increase in sales and time.

62

Table 15: Facts Table

CRITERIA FLO Made-By Kuyichi H&M

1 Economic 1.1 Effort to comply 2 4 1 4 1.2 Benefits from complying - Increase in sales (%) 30% 2632% 263% 1579% - Other economic benefits 10 1 3 3 1.3 Costs - Fees and auditing (€) 18.925 19.220 16.720 0 - Other investments (€) 10.450 104.560 8.360 118.800 2 Social 2.1 Effort to comply 5 3 3 0 2.2 Benefits from complying 29 16 16 15 3 Environmental 3.1 Effort to comply 5 0 0 1 3.2 Benefits from complying 10 3 3 4 4 Time duration of transition process (in months) 4,5 0,5 0,5 9,0

63

7. Multi Criteria Analysis (MCA)

In order to answer the question “What is the best marketing alternative for CoopNatural”, Multi Criteria

Analysis (MCA) was performed with the support of Definite (see section 2.2.3.2) to compare

marketing alternatives. The basis of MCA was the Facts Tables presented in previous section.

This chapter presents the results extracted from Definite and analyses them.

7.1 Weighting

CoopNatural has attributed the following weights to the criteria in the Facts Table:

Table 16: Weights Level 1: Level 2: Level 3:

Economic = 35%

Social = 35%

Environmental = 20%

Time = 10%

within Economic:

Effort = 30%

Benefits = 20%

Costs = 50%

within Benefits:

Increase in sales = 80%

Other economic benefits = 20%

within Costs:

Fees and auditing = 50%

Other investments = 50%

within Social:

Effort = 30%

Benefits = 70%

within Environmental:

Effort = 30%

Benefits = 70%

CoopNatural considered Economic and Social impacts as the most important ones. This level of

importance was translated in terms of weights in the decision making process. Hence Economic

and Social impacts were attributed with a weight of 35% each, while Environmental impacts and

the Time factor (i.e. how long the processed will take) weighted 20% and 10% respectively.

Within the group of Economic impacts, the most important point for the cooperative was to

avoid costs. Economic Costs have been attributed with weight of 50%, while Economic Benefits

(i.e. the added value to the cooperative) weighted only 20%. Within Economic Benefits, increase

64

in sales was the most relevant aspect (weight = 80%). Within Social and Environmental impacts,

CoopNatural was more focused on Benefits from complying with requirements (i.e. the added

value to the cooperative by complying with requirements) than on Effort demanded to comply

with them.

7.2 Ranking

The ranking of alternatives provided by Definite was shown in Figure 16:

Figure 16: Ranking of alternatives

FLO scored slightly above Kuyichi, followed by H&M and Made-By. As illustrated in Figure 17,

Kuyichi scored higher in Economic and Time, while FLO lead in Social and Environmental.

0,58

65

Figure 17: Ranking of alternatives per group of criteria

7.3 Sensitivity analysis

� Weight uncertainty

- Check #1: What if weights attributed to Economic Effort and Benefits (see Table 16) switched,

having Benefits higher than Effort, in line with weights attributed to Social and Environmental

criteria?

Answer: The rank would not change as illustrated in Figure 18.

Figure 18: Sensitivity analysis on Level 2 weights

66

� Score uncertainty

- Check #2: What if scores attributed to ‘increase in sales’, ‘fees and auditing’ and ‘other

investments’ are wrong?

Answer: Considering possible variation in 30% for ‘increase in sales’ and ‘other investments’, and

10% for ‘fees and auditing’, the rank would not change either.

� Reversal points

- Check #3: Under which condition would Kuyichi rank first?

Answer: The weighs would have to change at least to the levels pointed in Figure 19. Basically

Time would have be slightly more important, and the other criteria a little less relevant.

Figure 19: Reversal point between Kuyichi and FLO

- Check #4: Under which condition would ‘Made-By rank first?

Answer: It is not possible. Even with considerable changes, Made-By would rank as high as FLO,

but at that level Kuyichi would rank first, as in Figure 20.

67

Figure 20: Reversal point between Made-By and FLO

- Check #5: Under which condition would H&M rank first?

Answer: There is no possible reversal point for H&M and FLO. This is because H&M scores

lower than FLO in all aspects.

Figure 21 presents the ranking once again, now considering reversal points as well. FLO ranks

first and this position could be taken by Kuyichi if weights were changed at least to level

indicated in Figure 19.

Figure 21: Ranking of alternatives with reversal points

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7.4 Summary of MCA and Interpretation

Multi criteria analysis (MCA) has been carried out to compare fair trade marketing alternatives

that have been pre-selected for the case of CoopNatural: FLO, Kuyichi, Made-By and H&M.

The analysis was based on environmental, social and economic impacts that would result from

logistic and financial requirements imposed by each alternative, as well as a potential increase in

sales and the time it would take in the transition process. Impacts were represented in terms of

costs to comply with requirements (i.e. fees plus adaptation costs), effort to comply and benefit

from complying. Hence the most appropriate alternative would be the one that, at the same time,

is more beneficial, less expensive and demands less effort than the other ones.

The start point was the list of requirements and fees imposed by each alternative. Costs to adapt,

effort to comply and benefits from complying with requirements have been estimated by

CoopNatural itself. Afterwards total costs, total benefits and total effort have been for each

group of criteria (i.e. economic, social and environmental) of each alternative. CoopNatural has

also defined priorities in terms of weights to be considered in the decision making process.

Economic and Social impacts were considered as the most important aspects, followed by

Environmental impacts and Time of process.

Data was uploaded in Definite to perform the MCA, taking into account all these considerations.

The result provided by Definite (Figure 16) showed that FLO had the highest overall score

(0.58), followed very close by Kuyichi (0.55). Overall scores of H&M and Made-BY were 0.46

and 0.44 respectively. It also showed that Kuyichi will lead this ranking in case the time factor

becomes a bit more important to CoopNatural while and the others become slightly less relevant

(Figure 21).

Looking at each component of the overall score (Figure 17), Definite showed that FLO was

more advantageous with regard to social and environmental aspects, while Kuyichi was more

economically beneficial and the transition process of Kuyichi takes less time than FLO’s. Made-

By and H&M were not economically beneficial in comparison to the first two alternatives due to

geographical constraints that resulted in high logistics costs. H&M scored nearly as much as FLO

in the social aspect, and virtually the same as Kuyichi and Made-By in the environmental criteria.

69

8. Conclusions

In response to the research question “What is the best fair trade marketing alternative for CoopNatural”,

considering environmental, social and economic impacts, as well as effort to comply with

requirements, benefits from complying and time spent in transition process, the author’s

conclusion is that FLO is the most advantageous option for the cooperative, although Kuyichi is

the most economic beneficial alternative. The Fairtrade certificate of FLO will open new markets

for the cooperative. Besides this, the conditions of FLO are the most social and environmental

beneficial. Yet the order of the financial investment to obtain the certificate of FLO is higher

than the investment needed to become a supplier of Kuyichi: € 30 thousand and € 26 thousand

respectively. Hence going for FLO or Kuyichi will basically depend on whether the cooperative

can afford one or the other. This criterion was not included in the formal analysis.

Made-By and H&M were not economically beneficial in comparison to the first two alternatives

due to geographical constraints that resulted in high logistics costs. Nonetheless, H&M scored

nearly as much as FLO in the social aspect, and virtually the same as Kuyichi and Made-By in the

environmental criteria. Finally, becoming a Made-By affiliate would require an extra effort for

CoopNatural to expand the current sales channels due to the geographic scope of Made-By.

Fair trade can help CoopNatural by opening up submarkets where the cooperative is not trading

yet. The actual demand from end consumers in the external market for FLO certified textiles, or

the demand from Made-By affiliates like Kuyichi for social responsible garments indicate a

market potential that justifies the interest of CoopNatural in becoming recognized as a fair trader.

Although the cooperative has already got good practices in place, they are not visible for the fair

trade market. Hence the need for such fair trade certificate granting credibility to the products of

the cooperative. In the case of CoopNatural, fair trade can not only mean gaining a competitive

advantage, but it can also add social and environmental value. By going fair the cooperative will

have a better control of environmental issues, especially usage of water, and it will focus even

more on small farmers, who will become a fundamental element in the production chain.

Obtaining the certificate of FLO will have a higher impact on the group of farmers supplying

CoopNatural than on the trade companies within its production chain, in terms of benefits from

complying with requirements as well as effort to comply and costs.

Nonetheless, there are several tariff and non-tariff obstacles in fair trade that may form a barrier

for CoopNatural entering in these markets. Trade, environment and poverty are intrinsic

70

connected and fair trade can play a positive role breaking negative linkages among these

elements. However, in reality it is not clear whether the cooperative can afford the initial

investments with fees and adaptation. The estimation made in this research was based on the

exclusion of some components within the current production chain. This results in a main social

impact, especially to the group of artisans, and it also requires adjustments in business processes,

since the fair trade-certified products of CoopNatural will involve less people.

Regarding social and environmental adjustments, the main challenges are concerning the group

of small farmers and water management. FLO requires that at least 50% of the cotton must be

produced by small farmers, but most of the cotton used by CoopNatural nowadays is produced

be a non-small farmer, i.e. a farmer with hired labour. It also requires increasing participation of

small farmers in the administration and internal control of their association. The difficulty here is

the fact the most of them are illiterate. FLO also calls for efficient irrigation systems and care

with ground water, although not as a minimum requirement for certification. It will demand

much effort from the cooperative to implement these measures. Still concerning FLO, its

requirements for small farmers will have a higher impact on CoopNatural than those for traders,

both in terms of costs, benefit and effort to comply. About organic cotton, Made-By is the only

scheme where it means a competitive advantage. However, in practice its affiliates are purchasing

white organic cotton to dye it afterwards, which to a certain extent withdraws the environmental

benefits of the naturally coloured organic cotton grown by CoopNatural.

Having said this, the current trend of fair trade textile is bipolar and it is only appropriate for

farmers of seed cotton and retailers. Current schemes and marketing alternatives were not

designed for cooperatives like CoopNatural or equivalent small enterprises in the South covering

the whole production chain. Retailers are taking the most benefit out of the fair trade market,

which somehow contradicts the original concept of fair trade.

Finally, concerning the state of art of fair trade, lack of knowledge and a certain level of

confusion were identified at consumer’s side. The ever increasing isolated initiatives on fair trade

adding up to other concepts of sustainable trade, such as organic, ethical trade and corporate

social responsibility may be confusing for consumers. However, even more critical than a

possible misunderstanding, lack of information about fair trade was found among consumers in

The Netherlands, the country where the concept of fair trade emerged. It was also identified that

lack of knowledge about fair trade results in lack of involvement and low consumption.

71

9. Recommendations

I. Regarding the main research question:

a) To CoopNatural:

� Apply for the certificate of FLO in case budget is available and a project manager is in

place;

� Evaluate the possibility of certifying the whole production chain with special concern to

the groups of artisans due to their high economic vulnerability;

� Search funds to finance the transition to fair trade, i.e. to cover fees and adaptation costs;

� Carry out study on sustainability of the business on middle and long terms. Special

attention to availability of water and the impacts on community and ecosystems resulting

from water being used with irrigation;

� Promote the concept of comércio justo (fair trade) together with FLO Brazil and stores in

order to build consumers’ awareness in Brazil and benefit from the potential of national

market;

� Consider combining FLO and Kuyichi at a later stage in order to diversify the portfolio

of the cooperative as much as possible. Spilling eventual exceeding white organic cotton

over to Kuyichi should be taken as an option.

b) To fair trade organisations and ethical companies:

� Adapt current schemes according to the profile of initiatives in the South like

CoopNatural in order to:

- Invert current market shares of retailers and Southern traders;

- Facilitate their access to fair trade markets. Special points of attention:

o The multitude of standards and the difficulty to understand them;

o High costs of adaptation, certification and inspections;

o Possible inadequacy with local reality.

� Improve communication with consumers

- Organise public campaigns to increase level of awareness;

- Effectively communicate in cases of non-compliance with rules to avoid consumers

loosing credibility on fair trade.

72

� Cooperate as to:

- Avoid double certification costs for organic and fair trade;

- Lobby for top-down governmental policies in favour of fair trade;

- Set up shared funds for Southern producers and traders willing to enter in fair trade

markets;

- Communicate with consumers efficiently. The ever increasing number of isolated

initiatives may cause more confusion than elucidation.

� Develop and strengthen local partnerships that can help:

- Reducing risk of fraud. Yet special care is needed to avoid having this partners adding to

the problem instead;

- Reducing inspection costs;

- Communicating with local governments, entrepreneurs and consumers.

� Develop South-South trade relations to:

- Create new fair trade markets;

- Minimize CO2 emissions.

� Care for the environment

- Address environmental issues to ensure sustainability in mid and long terms, like FLO is

doing. Nonetheless this concern should not be translated in barriers for developing

countries at first stage. Requiring traders in the North to compensate CO2 emissions, for

instance, can be a fair option.

� Specific recommendations:

- To FLO: Require farmers with hired labour to hire all employees and make explicit in

the list of requirements that no kind of disciplinary practice is allowed.

- To Made-By: Consider setting up offices in developing countries.

- To Kuyichi: Consider stopping dyeing organic cotton. Use naturally coloured organic

cotton instead. As last alternative, use eco-friendly dyeing.

- To H&M: If not purchasing organic textile from Brazil due to concern with textile miles,

consider compensating emissions of importing textile from other countries.

73

II. Regarding the methodology developed in this research:

� Self-image of company in MCA

It is recommended to include factor “self-image of the company” as criterion in the Multi

Criteria Analysis, which has been overlooked during the development of this research. As

shown in Figure 1, trading own brand and producing for another company are two different

contexts for CoopNatural with regards to how the rest of world would see it. In the cases of

Kuyichi and H&M, the cooperative is literally “out of the picture”.

� Bottle necks identified in this research

Time management is a critical factor. Since this research involves many stakeholders with

different agenda, the researcher can loose control of the flow, facing time constraints later on.

It is difficult to estimate how long time will take for obtaining data, or even to talk to the

right person in each organisation, let alone scheduling interviews with them. Therefore it is

strongly advised to take the following measures in advance, preferably during preparation

phase before the research starts:

- Define the minimum number of alternatives to be investigated;

- Contact companies and organisation related to these alternatives that have been pre-

selected to: 1) confirm assumptions made; 2) get an impression of whether they are

willing to collaborate with the research; 3) find out who are the contact people within

these organisations to be interviewed and in case of questions;

- Make appointments for interviews with all stakeholders.

74

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Winters, L.A., McCulloch, N. & McKay, A., 2002, “Trade liberalisation and poverty: The

empirical evidence”, University of Nottingham, Nottingham

World Bank, http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf ,

June 25th 2007

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Abbreviation and acronyms

CIS: Centrum voor Internationale Samenwerking (Centre for International Cooperation), at Vrije

Universiteit, in Amsterdam, The Netherlands

CODEX: Codex Alimentarius Commission

CSR: Corporate social responsibility

FLO: Fairtrade Labelling Organisations International

EMBRAPA: Empresa Brasileira de Pesquisa Agrária (Brazilian Agricultural Research Corporation)

GDP: Gross Domestic Product

GMO: Genetic modified organisms

HDI: Human Development Indicator

IBD: Instituto Biodinâmico (Biodynamic Institute)

IFOAM: International Federation of Organic Agriculture Movements

IVM: Instituut voor Milieuvraagstukken (Institute for Environmental Studies) at Vrije Universiteit, in

Amsterdam

SA8000: Social Accountability Standard SA 8000

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Glossary of terms

CODEX: Codex Alimentarius Commission, established by Food and Agricultural Organisation

and World Health Organisation of United Nations.

Eko: Organic label granted by of Skal.

Fair Trade: Trade model that internalizes social and environmental costs. It differs from free

trade since the primary objective of the latter is the maximization of profit, while the former

focuses on social and environmental conditions under which a product is produced and traded.

FINE: Informal association of the four main Fair Trade networks (Fairtrade Labelling

Organizations International, International Fair Trade Association, Network of European World

shops and European Fair Trade Association).

Organic agriculture: “Organic agriculture is an ecological production management system that

promotes and enhances biodiversity, biological cycles and soil biological activity. It is based on

minimal use of off-farm inputs and on management practices that restore, maintain and enhance

ecological harmony”. (Organic Trade Association, 2007)

HDI: Human Development Indicator. It measures the average achievements in a country in

three basic dimensions of human development: long and healthy life, as measured by life

expectancy at birth; knowledge, as measured by the adult literacy rate; and the combined primary,

secondary and tertiary gross enrolment ratio.

Gini: “Measures the extent to which the distribution of income (or consumption) among

individuals or households within a country deviates from a perfectly equal distribution. A value of

0 represents perfect equality and a value of 100, perfect inequity” (UNDP, 2007). It was

developed by Corrado Gini.

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GDP: Gross Domestic Product. It corresponds to the total value of services and goods produced

by a nation.

IBD: Brazilian certification body accredited by IFOAM.

Liberalization: Process enabling financial and investment markets to freely operate worldwide.

Max Havelaar: Dutch fair trade labelling and certifying scheme, operating under FLO.

Producers: Farmers or growers.

Rio Declaration: outcome of United Nations Conference on Environment and Development,

held in Rio de Janeiro in 1992.

SA8000: Social Accountability Standard SA 8000, developed by SAI (Social Accountability

International), based on ILO conventions. It was developed originally manufacturing industry,

but also applied in agriculture since 2000.

Skal: Dutch certification body accredited by IFOAM.

Solidaridad: Dutch developing organisation.

Sustainable development: “A real increase in well-being and standard of life for the average

person than can be maintained over the long-term without degrading the environment or

compromising the ability of future generations to meet their own needs” (Cunningham et al,

2006).

Textile miles: Emissions of Carbon Dioxide (CO2) resulting from fossil fuels based

transportation of textiles, adding up greenhouse gases that cause global warming.

Traders: Sellers, buyers, transformers or manufacturers.

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Annexes 1. Planning

2. Interviewees

3. Questionnaires

4. Naturally coloured cotton

5. Regional socio-economic indicators

6. Impacts of globalisation

7. Crops versus Water

8. FLO network: Cotton and Brazil

9. Patagonia: code of conduct

10. H&M: code of conduct

11. Made-By: requirements

12. FLO: requirements

13. Social Indicators: SA8000 and Fair Wear

14. SA8000 versus Model Code

15. Interviews with fair trade organisations and companies

16. Interviews with consumers: Tips and Tricks

17. Costs with fees and auditing

18. Increase in Sales and Time

19. Detailed Facts Table

20. The Emperor’s new clothes