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Fair Trade Marketing and Its Impacts on Producers and Their Organizations
Master Thesis
Presented to
Prof. Dr. Gräbener
International Management, MBA
University of Business and Environment Nürtingen – Geislingen
By
Israel Bekele
from
Ethiopia (Wollega)
Nütingen, Summer Semester 2010
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Table of Contents Abbreviation ................................................................................................................ iii Preface ....................................................................................................................... iv 1 Introduction and Historical Development of Fair Trade ....................................... 1
1.1 Historical Background of Fair Trade .............................................................. 1 1.2 Definition and Delimitation of Fair and Free Trade ........................................ 3
1.2.1 Definition of Fair Trade ........................................................................... 3 1.2.2 Definition of Free Trade .......................................................................... 4
1.3 Fair Trade in Comparison with Other Ideologies ........................................... 5 1.3.1 Fair Trade and Anti-globalization ............................................................ 5 1.3.2 Fair Trade and Ethical Sourcing.............................................................. 6
1.4 Developmental Paths of Fair Trade Marketing .............................................. 7 1.5 Problems of Fair Trade Marketing ............................................................... 10
1.5.1 Organization-related Problems ............................................................. 10 1.5.2 Market-related Challenges (and Problems) .......................................... 12
2 Fair Trade Organizations and Corporate Strategy ............................................. 13 2.1 Fair Trade Organizations (FTOs)................................................................. 13
2.1.1 Fair Trade Labeling Organization (FLO) ............................................... 14 2.1.2 International Fair Trade Association (IFAT) .......................................... 16 2.1.3 European Fair Trade Association (EFTA) ............................................. 17 2.1.4 Network of European World Shops and Fair Trade Federation ............ 18
2.2 Fair Trade Standards ................................................................................... 18 2.2.1 Certification and Labeling in Fair Trade ................................................ 21 2.2.2 Fair Trade Monitoring System ............................................................... 22
2.3 Fair Trade and Corporate Social Responsibility (CSR) ............................... 23 3 Global Marketing Orientation of Fair Trade ....................................................... 25
3.1 Globalization and Imperfect Market ............................................................. 26 3.2 Fair Trade Marketing Orientation and Process ............................................ 27
3.2.1 Conventional (Traditional) Marketing .................................................... 28 3.2.2 Non-profit Organization Marketing ........................................................ 29 3.2.3 Fair Trade Marketing ............................................................................. 29
3.3 Global Supply Chain and Network of Fair trade .......................................... 30 3.3.1 Producers and Classical (Alternative) Traders ...................................... 31 3.3.2 Producers and Conventional Outlets .................................................... 33
4 Marketing of Fair Trade ..................................................................................... 35 4.1 Objective of Fair Trade Marketing Mix ......................................................... 35 4.2 Marketing Mix of Fair Trade ......................................................................... 36
4.2.1 Product Design ..................................................................................... 37 4.2.2 Pricing Strategy ..................................................................................... 39 4.2.3 Distribution Strategy .............................................................................. 40 4.2.4 Promotion Strategy ............................................................................... 41
4.3 Product Mix ................................................................................................. 43 4.4 Developing Brands ...................................................................................... 45
5 Impact of Fair Trade Marketing ......................................................................... 47 5.1 Introduction to Impact Evaluation ................................................................ 47 5.2 Overview of Selected Case Studies ............................................................ 49 5.3 Direct Impact of Fair Trade .......................................................................... 52
5.3.1 Direct Impact on Producers .................................................................. 53 5.3.1.1 Increment in Household Income ..................................................... 53 5.3.1.2 Female Empowerment ................................................................... 55
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5.3.1.3 Improved Education ....................................................................... 56 5.3.1.4 Preserving indigenous cultures ...................................................... 56 5.3.1.5 Financial and non-financial support for producer organization ....... 57 5.3.1.6 Financial and Non-financial support for co-operatives .................... 57
5.4 Indirect Impact of Fair Trade ....................................................................... 58 5.4.1 Indirect Impact on Producers ................................................................ 59 5.4.2 Indirect Impact on Producer Organizations ........................................... 60
5.5 Impacts of Fair Trade on Non-Participants .................................................. 61 5.6 Emerging Impact Analysis Methods ............................................................ 62
5.6.1 Qualitative Approaches ......................................................................... 63 5.6.1.1 Triple Bottom Line .......................................................................... 63 5.6.1.2 Social Accounting ........................................................................... 63 5.6.1.3 Balanced Scorecard ....................................................................... 64
5.6.2 Quantitative Method: Social Return on Investment ............................... 66 6 Conclusion ......................................................................................................... 69 7 References ........................................................................................................ 72 Appendix
Table of Figures
Figure 1.1: Influences on the development of the UK Fair Trade market ................... 9 Figure 2.1: FLO governance structure ...................................................................... 16 Figure 3.1: Market intermediary model ..................................................................... 26 Figure 3.2: The coffee commodity supply chain ....................................................... 31 Figure 3.3: Classical Fair Trade Supply chain .......................................................... 32 Figure 3.4: Fair Trade labelling systems ................................................................... 34 Figure 4.1: Conventional business price reduction ................................................... 40 Figure 4.2: Cafédirect advertisement ........................................................................ 42 Figure 4.3: World Fair Trade Day ............................................................................. 43 Figure 4.4: Fairtrade Tram in Melbourne, Australia .................................................. 43 Figure 4.5: Coffee branding process ........................................................................ 46 Figure 5.1: Classification of Fair Trade impacts ........................................................ 49 Figure 5.3: The Balanced scoredcard for not-for-profits ........................................... 65 Figure 5.4: The Balanced Scorecard for Fair Trade ................................................. 66 Figure 5.5: Impact Value Chain ................................................................................ 68
List of Tables
Table 2.1: Major Fair Trade organizations (associations) ............................................... 14
Table 3.1 Fair Trade marketing process ............................................................................ 27 Table 4.1: The Fair Trade marketing mix........................................................................... 37
Table 4.2:Length and Width of Fair Trade Product Mix .................................................. 44 Table 5.1 Overview of case studies .................................................................................... 50
Table 5.2: Case Study organizations in Mexico and Central America .......................... 51 Table 5.3: CooCafé and Co-operatives in Costa Rica..................................................... 52
Table 5.4:Fairtrade Premium spent SPO: total - data 99% complete .......................... 54
Table 5.5: Fairtrade Premium spent HLO: total - data 100% complete ........................ 54 Table 5.6:Number and percentage of male and female members and workers ......... 55
Table 5.7: Number and percentage of male and female members and workers ........ 55
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Abbreviation
ATO: Alternative Trade Organization
CAPM: Capital Asset Pricing Model
CIM: Chartered International Marketer
COFTA: Cooperation for Fair Trade in Africa
CSR: Corporate Social Responsibility
EFTA: European Fair Trade Association
FINE: FLO, IFAT, NEWS!, EFTA
FLO: Fairtrade Lebelling Organizations International
FTF: Fair Trade Federation
FTO: Fairtrade Organization
IFAT: International Fair Trade Association
ISEA: Institute for Social and Ethical Accounting
MCC: Mennonite Central Committee
NEF: New Economic Foundation
NEWS! Network of European Worldshops
NFP: Not-For-Profit
NGO: Non-Governmental Organization
NI: National Initiative
SIA: Social impact assessment
SROI: Social Return on Investment
UNCTAD: United Nations Conference on Trade and Development
WFTO: World Fair Trade Organization
WTO: World Trade Organization
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Preface
Fair Trade is a dynamic social enterprise that emerged over last four decades to
tackle the negative impact of globalization namely, market or trade inequality. The
introduction of the Fair Trade thus has implications on producers, various institutions,
consumers and many other interested groups. This thesis focuses mainly on
analyzing the marketing and impact of Fair Trade model on producers and their
organizations. The research also discusses some of the problems that Fair Trade is
confronting with in adapting to mainstream marketing.
The first chapter deals with the historical background of Fair Trade movement and
analysis the definitional spectrum to distinctively understand the subject matter. Then
continue to sketch the various developmental stages of Fair Trade and the problems
encountered in various stages. The second chapter, basically, introduces selected
Fair Trade organizations and their functions in Fair Trade system. Their commitment
and contribution to the development of Fair Trade marketing (in actively supporting
Southern producers and educating Northern consumers) will be outlined. The
relevance of FLO standards, certification and monitoring will be addressed. How
does Fair Trade model related to the corporate social responsibility?
The third chapter focuses on the explanation of Fair Trade marketing orientation
through its interrelation with social enterprise (social marketing). The orientation is
then described in terms of Fair Trade marketing approach and supply chain. Short
distinction between conventional, not-for-profit and Fair Trade marketing processes
will be presented. The fourth chapter committed the central theme of this thesis,
which is Fair Trade marketing mix. It explains the objectives of Fair Trade marketing
and emphasis particularly on the Fair Trade marketing mix contents. The marketing
mix emphasize on the producers, cooperatives organizations and Fair Trade
organizations. In addition, Fair Trade product mix and brand development will be
discussed.
The fifth chapter focuses on the Fair Trade marketing impacts on the producing
nations in global South and their organization. What is the direct and indirect impact
Fair Trade has on the producers of Southern nations? How did it affect the non-Fair
Trade producers of those nations compared to Fair Trade producers? How can we
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measure those impacts on the producers? Final section contains the summary for the
points addressed in this thesis and personal reflection on the Fair Trade marketing
development, the emerged problems and possible recommendation suggestions.
Therefore, this thesis is purely based on the theoretical analyses of the all
information available.
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1 Introduction and Historical Development of Fair Trade
Globally, more than 2 million people are living under the poverty (mostly of Asia,
Africa and Latin-American (Schößwender, 11)1. Despite their hard-work most of them
live on less than 2 dollar per day (Ibid.). One of the main problems is the exploitation
of small farmers, handicrafts or plantation workers by multinational business
companies along the supply chain and the imbalance market-power between the
trade partners in international market place. Fair Trade is a movement initiated by
Northern activists, philanthropic organizations that work with producers (farm
workers) and disadvantaged communities of developing nations. It is striving to
create awareness among Northern consumers about the inequality in international
trade and to combat this problem using market-based strategies and through
empowering the Southern producers and workers (Murray and Raynolds, 2007: 4).
Among the recently emerged ethical trading, Fair Trade is the fastest growing
initiatives. Notwithstanding, the financial crisis that struck the world economy, in 2008
Fair Trade sales were grown by 22% (FLO, 2009c: 2). This thesis focuses mainly on
analyzing the marketing and impacts of Fair Trade model on producers and their
organizations. Although Fair Trade accounts for about 0.01% of total trade (Becchetti
and Huybrechts, 2007: 1), it has benefited numerous smallholder farmers and
producers of developing countries. This chapter particularly focuses on the historical
aspect of the Fair Trade movement and the developmental phases. Based on this
development, a short description of the encountered problems will be presented.
1.1 Historical Background of Fair Trade
Fair Trade movement began in the 1940 in North America when the first Fair Trader,
Edna Ruth Byler, started selling handcrafts from Puerto Rican out of her
Pennsylvania home (Jaffee, 2007: 12; Redfern and Snedker, 2002: 5). In addition,
she had Palestinian and Haitian handcrafts in her inventory. In 1946 together with her
colleagues, she took some items to Mennonite world conference in Switzerland and
sold them there (FTH). In 1950‟s the movement has attracted Alternative Trade
Organizations (ATOs) such as Ten Thousand Villages and SERRV International
1 “Der Faire Handel in Deutschland”- Year of publication is not indicated and Birgit Schößwender is editor.
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were selling handicrafts in the U.S. and Oxfam UK in Europe (Nicholls and Opal,
2008: 20; c.f Jaffee, 2007). These organizations started trading these products to
ethically-conscious consumers and to secure fair prices to the producers.
In the 1960‟s and 1970‟s, additional ATOs, Non-Governmental Organizations
(NGOs), and individual groups got involved in this alternative trade concept,
recognizing the need to assist disadvantaged producers by cutting out the
middlemen in the marketplace. In the 1960‟s, United Nations Conference on Trade
and Development (UNCTAD) adapted the “Trade Not Aid” motto that was addressed
in the conference (Fridell, 2007, p.30 cited by Nicholls and Opal, 2008: 20). One of
the leading mottos associated with the Fair Trade movement and revealed the
essence of Fair Trade in pointing out the defects of international trade.
In 1988 the “Max Havelaar Foundation” created the Max Havelaar label to identify a
fairly traded coffee (Krier, 2007: 42). Soon the Max Havelaar initiative for Fair Trade
became prevalent in several European countries‟ and North American markets under
different name. For instance, similar logo was referred as “Max Havelaar” (in
Belgium, Switzerland, Denmark, Norway and France), Transfair (in Germany, Austria,
Luxemburg, Italy, the United States, Canada and Japan), “Fairtrade Mark” (in the UK
and Ireland), and different name in other countries (Nicholls and Opal, 2008: 11).
Following the development and acceptance the Fair Trade across many countries, in
1988 an independent organization by name Fairtrade Labelling Organization (FLO)
was established in Bonn, Germany. FLO serves as an umbrella organization to
create a common ground for various initiative schemes proposed by FLO
organizations in different countries. Besides, it coordinates and harmonizes Fair
Trade general standards for certification and facilitates methods of inspection after
certification. In 2004 FLO created an independent entity, FLO- Cert, to verify that
producer groups are in compliance with FLO‟s standards (Krier, 2007: 29). FLO-Cert
is responsible for the certification process and annual monitoring inspections of each
producer group. FLO members consist of four groups: traders, producers, experts
and National Initiatives (NIs), also referred to as Labeling Initiatives.
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1.2 Definition and Delimitation of Fair and Free Trade
1.2.1 Definition of Fair Trade
Fair Trade has been defined by different interest groups: political initiative groups,
philanthropic organization activists and various scholars differently. Nevertheless, in
order to capture the relevant notions that explain the concept of the Fair trade, it is
important to consider the various definitions of Fair Trade and contemplate on the
common facets prevalent in most of the explanations.
Wynne outlines Fair Trade as “an alternative trade model developed to help
disadvantaged producers in developing countries by improving their quality of life
through trading partnerships. These partnerships address trade inequities in the
global marketplace” (2008: 1). The trade inequities mentioned here does not only
indicate lack of access to markets and market information, but also to the technology,
knowledge of best business and environmental practices, and credit resources.
Ruben explains Fair Trade as “an organized social movement which promotes
standards for production practices and delivery procedures, working conditions and
labor remuneration, environmental care and social polices in supply chains of
certified goods” (2008: 19). In a closely related manner Hiscox describes Fair Trade
as a movement organized in “a form of social entrepreneurship aimed at creating
trade relationships that bring specific improvements in labor and environmental
standards, and health and education, to groups of citizens in developing nations”
(2007: 2). Here, market or trade is emphasized as a medium for social and
environmental improvement.
The Cooperation for Fair Trade in Africa (COFTA), a network of Fair Trade producer
organizations in Africa defines Fair Trade as “a sustainable system that endeavors to
empower disadvantaged producers through payment of a fair price, democratically
organized workplaces, technical assistance, social programming, equality for all,
transparency, trust and environmental protection” (COFTA). Center for Fair and
Alternative Trade (CFAT) is an internationally recognized research facility dedicated
to the rapidly growing field of market-based social change and environmental
protection. CFAT defines Fair Trade as “…market-based approaches to alleviating
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poverty and promoting environmental sustainability through innovative business
models spanning production, distribution, and consumption” (CFAT).
The internationally and widely recognized definition of Fair Trade, as agreed by
FINE2, defines Fair Trade as a “trading partnership, based on dialogue, transparency
and respect that seek 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 in the South” (Krier, 2007: 23; Redfern
and Snedker, 2002: 11). Regardless of the origins of definitions given, the central
(most relevant) notions outlined are avoiding trade inequality among trading partners,
improving working conditions, alleviating poverty and creating market-based socio-
economic improvement and environmental sustainability in developing nations.
Furthermore, the term Fair Trade and Fairtrade are sometimes used in different
contexts and demands short distinctive explanations. Fair Trade is a broader concept
that involves all kinds of activities which can be subsumed under Fair Trade
standards (principles) issued by all Fair Trade Organizations, especially FINE as
indicated in the above definition. This term is widely applied in a network
organization, for instance, EFTA. Fairtrade refers solely to activities such as
standards setting, certification systems and labeling scheme and products promoted
under such activities which are mainly developed by FLO, FLO-Cert and its labeling
initiatives (Krier, 2007: 26; FLO, 2007a: 35). In this paper the term Fair Trade is the
one mostly used and thus, Fairtrade is only used in connection with some FLO
activities and as a result of quotation from old literatures.
1.2.2 Definition of Free Trade
The term Fair Trade, as already mentioned, is sometimes used within different
context than it is usually intended to be. Neoliberal politicians use the concept of Fair
Trade as an alternative term for free trade in order to give more emphasis to their
argument for abolishing trade barriers, even though the latter gives less relevance to
the social justice and environmental sustainability (Murray and Raynolds, 2007: 4).
The classical free trade concept is based on Adam Smith‟s and David Ricardo‟s
2 FINE is formed through the informal co-operation between Fairtrade Labelling Organizations International (FLO), the
International Federation for Alternative Trade (IFAT), Network of European World Shops (NEWS), and the European Fair Trade Association (EFTA)]. Fair Trade definition can be found on their websites.
5
theories of comparative advantage, “countries export what they relatively good at
producing and they import what they cannot produce sufficiently” (Nicholls and Opal,
2008: 17) International economics). For instance, Germany manufactures machinery
products and Ethiopia grows high-quality coffee. Opening up countries to
international trade allows Germany machinery producers to import coffee from
Ethiopia and Ethiopian coffee producers to import machinery from Germany. Based
on the free trade approaches Germany and Ethiopia are better off and thus, one can
disclose that international trade creates a win-win situation for both parties (Ibid.).
However, free trade has been there for long time and the benefited nations are
handful and certainly failed to function for the majority.
Despite the fact that free trade does not benefit all the trading partners proportionally,
the advocators support the movement of goods, services and finance between
nations as effective business model (Ibid.). This free trade ideology is propagated by
the World Trade Organization (WTO) and has encountered opposition from
developing countries, different political movements or groups around the globe
including Fair Trade activist groups.
1.3 Fair Trade in Comparison with Other Ideologies
1.3.1 Fair Trade and Anti-globalization
Fair Trade and anti-globalization are both dynamic movement instigated by different
interest groups. While there are some common drives that unite both, there are also
ideologies that they do not share. According to Witkowski‟s (2005: 25) both
ideologies show great concern for the disadvantaged producers, gender equality and
environmental protection. They disregard the international trading regime and the
supporting organizations. For instance, WTO had encountered oppositions in
different cities led by both of these movements (Jaffee, 2007: 21; Witkowski, 2005:
25). Both fair traders and anti-globalists groups are characterized as idealist and
utopians.
Witkowski continued to differentiate the different approaches underlying both
movements. Fair Trade, from its side, attempts to achieve economic development
using North-South trade relationship than the classical development aid. Unlike anti-
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globalization approaches, Fair Trade uses various elements of marketing such as
branding and marketing mix (see chapter 4.2) and builds product value through
certification (see chapter 2.2.1) and consumer education programs. Furthermore,
Fair Trade partnering with large corporations to support the growth of Fair Trade
market beyond the alternative or ethical market niche and to use the profit accrues
from this operation for social and development purposes (Ibid.). In contrast, anti-
globalization criticizes Fair Trade for partnering with large corporations, on the
ground that large corporations‟ minimal commitments to Fair Trade might be used as
a cover to continue exploiting and marginalizing the poor producers in south
(Witkowski, 2005: 24; Hiscox, 2007: 10).
1.3.2 Fair Trade and Ethical Sourcing
Fair Trade and ethical sourcing are related ideologies that are focused on improving
the lives of the weaker partners (primary producers or workers) along the supply
chain in international market (Redfern and Snedker, 2002: 12). Both fields are
following implicit principles which are complementary and distinctive in their
application. Fair Trade creates a trading partnership between marginalized producers
in developing countries and consumers in developed nations which are based on
dialogue, transparency and mutual respect (according to the above definition). In
order to accomplish that Fair Trade groups support producers, create awareness and
campaign for changes in the rules of conventional market (Redfern and Snedker,
2002: 13). Similarly, ethical sourcing (or trading) shows the commitment of
transnational companies (from one end of supply chain) to take the responsibility for
the social and environmental performance at the side of primary producers
(Blowfield, 2004: 16; cf. Witkowski, 2005: 27). Most of these companies are brand
owner and concerned about their brand image. For that matter, they had developed
ethical codes of conduct which, for example, states against forced labor,
discrimination, unfair wages and working conditions, child labor, permanent
employment, workers abuse in any form and many more (Redfern and Snedker,
2002: 13). Fair Trade has developed similar principles and working to improve the
social and environmental settings of producers.
However, the dissimilarity of Fair Trade and ethical trading principles could be
explained by the business drives innate to both (Redfern and Snedker, 2002: 14).
7
Especially, both are working to improve income and livelihoods of the workers and
producers, but the strategies applied are different. While Fair Trade is charging
higher price which in turn accrued to producers‟ income, ethical sourcing charges low
prices and the return to the producers is not significant and therefore criticized as still
exploitive (Witkowski, 2005: 27).
1.4 Developmental Paths of Fair Trade Marketing
The growth of Fair trade marketing could be described in four different and
consecutive streams of business approaches. The essence of these distinctive
approaches is not to highlight the historical context of the movement, but to outline
the Fair Trade model growth to business. Moreover, it helps to track the business
implication and influence on the advancement of Fair Trade marketing and the
consequential impact on the producers and producer-owned organizations.
The first Fair Trade was developed by charitable Christian organizations which were
not based on some commercial principles. These organizations, particularly, Oxfam
in Western Europe and Mennonite Central Committee (MCC) in the USA imported
handicrafts made in Eastern Europe and Latin America respectively. They set up a
programme namely SelfHelp Crafts (Redfern and Snedker, 2002: 5; Nicholls and
Opal, 2008: 19-20) and created the so-called “goodwill trade” initiated by NGOs
(Tallontire, 2000: 167). Although, it was not commercialized at this level, yet it has
relevance in development of Fair Trade business model. The second approach was
based on the good-will trading relationships and developed to “solidarity trade” (Low
and Davenport, 2008: 5) which led to the creation of alternative trade model. At this
stage, the Alternative trading organizations (ATOs) such as Traidcraft in Britain and
Gepa in Germany were not only supplying products from developing countries to
Northern consumers, but also begun to search for new producers. ATOs preventing
the middlemen from supply chain started working as “social entrepreneurs” (Nicholls
and Opal, 2008: 20) using business concepts (for example, sells in catalogues and
world shops) to emphasizing on the social and environmental issues linked to
producing communities. During this time, product quality and consumer-centered
marketing approach were at a far distant.
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The third approach could aptly be characterized as a development of mutuality in
trading relationship, which means, higher prices in return for the quality products
(Tallontire, 2000: 167). Due to the quality problems and consumer ignorance, ATOs
struggled and some even went bankruptcy. Then developing “consumer marketing,
product development, and product quality all became important concerns of ATOs,
marking increased commercial awareness” (Ibid. 168). This new approach of ATOs
involved sympathetic retail businesses and promoted Fair Trade products to large
conventional supermarkets. This in turn, led ATOs to develop brands such as
Cafédirect and Divine Chocolate (Nicholls and Opal, 2008: 20). The fourth business
phase could be described as the development of Fair Trade certification process and
labeling of the products. This process led to the distinction of Fair Trade products
from conventional commodities. Soon after, ATOs moved from selling commodity
ingredients to composite products (Redfern and Snedker, 2002: 8) and solidified their
growth in the mainstream markets (Nicholls and Opal, 2008: 20). This success has
encouraged market entry of conventional outlets, such as Costa Coffee, Sainsbury‟s,
Starbucks, Sara Lee and many more (Ibid.). In line with, one could state that the
incidence of labeling mark of Fair Trade gave guarantee to the consumers about the
product quality.
Currently, Fair Trade products are traded everywhere on the globe and in recent
years the markets for Fair Trade products has been increasing and diversified
internationally. Nicholls and Opal describe some of the driving factors which
influenced the growth under four main headings: “political, academic, cultural and
informational” (2008: 20). None of these mentioned influences worked independently,
but rather were interdependent on one another toward creating an understanding of
the value of Fair Trade in the North. Perhaps the most significant influence has been
the emergence of ethical consumerism and the mass-market associated with it,
growing out of important cultural and informational changes in developed countries
(Ibid.).
9
Figure 1.1: Influences on the development of the UK Fair Trade market Source: Nicholls and Opal, (2008: 20)
Political impact
The political framework of the alternative trade has significantly changed in the
Northern nations in the last ten years. The concern of trade inequality between the
developed nations and developing nations has driven many political initiative groups,
philanthropic organizations and national and international campaigners to improve
the political context of international trade. The increasing cry for “trade not aid”
(Nicholls and Opal, 2008: 22) by development workers and the demand for “fair
trade, not free trade” (Jaffee, 2007: xii) by producers and consumers groups is
shifting the route to the alleviation of poverty in the developing countries. Some
countries are supporting Ethical Trading Initiative and creating public awareness of
ethical trading and initiating retailers to promote Fair Trade products. This indicates
the shift of values toward relevance of development issues (Nicholls and Opal 2008).
Academic influence
The academic context of the Fair Trade is intensively developing in recent years.
Many scholars are attracted toward the debate of the ethical trading, in general, and
the social and environmental issues connected to the movement, in particular. For
instance, in UK several academic institutions are developing business ethics courses
and modules that incorporate ethical consumerism and influence the corporate
behavior (Nicholls and Opal, 2008: 22).
Cultural and informational influence
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In different countries the numbers of consumers which identify themselves as ethical
consumers are increasing. Of course, there is a discrepancy between what most of
the consumers claim to be and their real behavior. The consumers‟ culture has
shifted from price and value-driven imperatives towards the values that communicate
the brands relevance in terms of moral or ethical consumerism (Ibid. 23).
The cultural shift has been considerably caused by the accessible information about
global social and environmental issues, coinciding with the increasing awareness of
consumerism. The media engagement with broad subjects and growth of internet in
publishing and dispersing information on, unethical corporate behavior has
encouraged ethically sensitive consumers to focus on the production and supply
chain and not only on the value the product and service package can generate (ibid.
24). Due to this consumers demand for the ethical products, such as Fair Trade or
organic products, the significance of niche market has increased and led to
diversified range of products to meet the consumers‟ demand. This is made possible
because of the improved information flow concerning the supply chain of Fair Trade
business model.
1.5 Problems of Fair Trade Marketing
The central problem related to fair trade is the growing marketing strategies, namely
mainstreaming of the Fair Trade products, building Fair Trade brands and the
prevalent problems connected to these marketing approaches. The strategic
development of Fair Trade marketing in the developed countries can be seen as
three distinctive stages: grassroots, new Institutions and mainstreaming (Nicholls and
Opal, 2008: 230-231). Thus, the problems and challenges intended to be addressed
in this paper is associated to each individual development stage of the market of Fair
trade. These problems could be further categorized as organizational and marketing
concept-oriented (or underpinning) problems and challenges.
1.5.1 Organization-related Problems
Driven the by the desire for market development, Fair Trade organizations are putting
pressure on the producer organizations by setting high-quality standards. The
majority of the farmers and producers organization can not comply with the standards
due to technical, financial and organizational problems.
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At a Grassroots level, Fair Trade products were sold by few alternative trade
organizations (ATOs) like Oxfam und world shops. These organizations could only
reach ethical consumers, a very small fraction of consumers, compared to that of
conventional marketing target groups. Nicholls and Opal (2008: 230) describe it as a
process-focused and supply-driven rather than consumer demand-driven marketing.
Many Fair Trade activists perceived the problem at this stage as information problem.
In fact, ATOs and NGOs played significant role in raising awareness toward trade
injustice and contributed to a lot in educating the ethical consumers.
The second stage, New Institution, can be described as the emergence of
international Fair Trade organizations, for instance, Fair Trade Labeling
Organizations International (FLO). The main driver for these organizations‟ arrival is
the range of national labeling and certification initiatives that begun to appear in
different countries, which confused ethical consumers and debilitated their reliance
on the Fair Trade marks and the message communicated with it. Consequently, all
the national labeling organizations and certification groups are consolidated into this
macro-level organization, FLO International, in order to avoid the inconsistence in the
application of Fair Trade mark and misunderstanding of the underlying concept (Ibid.
231). The macro-level organizations and other strategic groups (chapter 2.1.) have
launched Fair Trade involvement with more conventional marketing. The move to the
mainstream marketing brought polarized tension between the movement and market
actors. The movement actors are the so-called Grassroots activists as described
above. Whereas the market actors are the group of individuals recruited by FLO-I run
the increasingly complex and technical certification and monitoring schemes (Ibid.).
The market-driven actors, on the one hand, believe that the move to mainstream has
highly contributed to the growth of Fair Trade market beyond the core consumer
segment or so-called ethical consumers. The movement actors, on the other hand,
typically feel that the move to mainstream contains the risk of deviating from the
original values and purpose of fair trade (Ibid.). As a result, this FLO-I and others are
encountering various challenges from the Grassroots activists of Fair Trade. Contrary
to the previous stage, Nicholls and Opal (2008) describes as a demand-driven rather
12
than supply-driven approach. In other words, it is focusing on Northern consumers
demand rather than the Southern producer organizations offer.
1.5.2 Market-related Challenges (and Problems)
The third stage, which is mainstreaming, has its base on the previous stage. The
engagement of Fair Trade with the mainstream markets has grown in many Northern
markets. This is followed by Fair Trade cooperation with the large-scale business and
the development of a broad range supermarket own-level products and the idea of
co-branding products (for example, as in the case of Traidcraft and the Co-operative
Group) can lead to numerous problems (Nicholls and Opal, 2008: 231). The shift of
Fair Trade from supply-oriented to demand-oriented marketing is signaling that Fair
Trade is deviating from its original objectives. In addition to that, the collaboration of
Fair Trade with other transnational companies (with negative image) and co-branding
of product cause them to lose ethical consumers.
Nicholls and Opal criticize that the development of Fair Trade brands has largely
been decentralized and creating a problem for strategic marketing promotion. Initially,
Fair Trade was offered as a brand to the market, though it has later developed a
brand through certification mark. Currently, this brand is trying to develop another
brand within Fair Trade products.
13
2 Fair Trade Organizations and Corporate Strategy
The major contention underlying this chapter is the presentation of the organizations
and their operational position within the Fair Trade system. That means, the
relationship they have to producers and the strategies employed to expand the
market for Fair Trade products and to create awareness among consumers, in order
to realize the core objectives of this movements. More precisely, this section
demonstrates the influences that these organizations have toward achieving social
and marketing objectives of Fair Trade. Addressing the objectives, functions and
operational strategies of these organizations are, therefore, very relevant as they are
bridging the gap between the producers and the consumers and furthermore,
advocating for Fair Trade to the global community.
2.1 Fair Trade Organizations (FTOs)
The rapid growth of the Fair Trade movement contributed to the establishment of the
national and international, independent and non-profit organizations. Most of Fair
Trade product producers‟ and traders‟ organizations are members of one of these
national or international organizations. These organizations are involved in
certification process, monitoring and promoting the operation of Fair Trade producer
organizations, traders and other similar partners. Some of the major organizations
are namely Fair Trade Labeling Organization International (FLO), International Fair
Trade Association (IFTA), Network of European World Shops (NEWS), European
Fair Trade Association (EFTA) and Fair Trade Foundation (FTF). The first four are
used to be known as FINE collectively, until EFTA changed its name to World Fair
Trade Organization (WTO). In the following sections some of these organization
structures, functions and contributions are closely considered.
14
Table 2.1: Major Fair Trade organizations (associations)
Associations1 Established Types of
members
Number of
members
/member of
countries3
Major regions
of operations
Fairtrade Labelling
organizations
International (FLO)
1997 National
labeling
19 members
in
21 countries
Europe; North
America
International Fair
Trade Association
(IFAT)
1989 Alternative
trading
280 members
in
62 countries
Europe; North
America; Asia;
Africa; Latin A.
America
Network of
European World
Shops (NEWS!)
1994 National
world
shops
2,500
members in
13 countries
Europe
European Fair Trade
Association (EFTA)
1987 Alternative
trading
11 members
in
9 countries
Europe
Fair Trade
Federation (FTF)
1994 Alternative
trading
300 members
in
14
countries
North America;
Asia
Source: Adapted from Krier (2007: 24); Raynolds and Long, (2007: 16)
2.1.1 Fair Trade Labeling Organization (FLO)
After launching Max Havelaar coffee in 1988, many other National Initiatives (NIs)
were created in different countries across Europe. These NIs and other Fair Trade
actors agreed to create an umbrella organization called Fair Trade Organizations
International, FLO-I (Redfern and Snedker, 2002: 18). The primary objective of this
umbrella organization was to develop a widespread and consistent standards and the
certification process. The latter task was later delegated to FLO-Cert, an independent
company to provide support in certification and monitoring process of producers and
traders (for example, importers, exporters, manufacturers) (Hiscox, 2007: 2).
3 Please, note that the figures indicated on this table might show discrepancy if compared to other publications due to the gap in
time.
15
Establishing standards are fundamental to the Fair Trade certification system and
labeling process. These standards facilitate a set of criteria that was determined to
monitor the organizations‟ compliance with minimum standards of FLO and that
control their improvements perpetually. Besides, they permit the system to function
harmoniously and consistently in many different countries and markets. In short, the
FLO strategic objective was broadened and covers the following aspects (Nicholls
and Opal, 2008: 8; Cf. Setboonsarng, 2008: 10): (1) guaranteeing the integrity of the
Fair Trade mark and certification process; (2) facilitating the business of Fair Trade
by helping to match supply and demand; and (3) offering producer support and
consultancy to improve their business strategy.
According to Nicholls and Opal understanding “FLO inspects producer groups to
certify them for compliance with the Fair Trade standards, including democratic
organization, financial transparency, adequate working conditions and progress in
social and community development goals” (2008: 8). After proving the outlined
requirements, FLO issues license to individual Fair Trade companies and traditional
market players to use Fair Trade mark, which signifies that for a given product the
Fair Trade standards have been met and therefore could be marketed under the
system. It is the duty and responsibility of FLO to monitor compliance and issue audit
reports to the traders perpetually. This function of FLO is central in substantiating the
process of perpetual improvement. By doing this, the producer organization is
guaranteed the resulting benefit of Fair Trade market sales, that is, higher prices and
the Fair Trade investment premium. Meanwhile, FLO has also the right to de-certify
those individual producers or organizations that deviate from maintaining the defined
standards.
16
Figure 2.1: FLO governance structure Source: Nicholls and Opal, (2008: 130)
Finally, FLO having its origin as consumer organization seeking to affiliate the
producers and consumers, it has structured itself as shown on Figure 2.1. The Board
of Director is comprised of six National Initiatives (NIs) delegates, four regional
producer representatives, one ATO and one mainstream business representative
(Nicholls and opal, 2008: 130).
2.1.2 International Fair Trade Association (IFAT)
Initiated by several prominent European ATOs and NGOs, IFAT was established in
1989. IFAT brings together ATOs from North and producer organizations from the
South. It contains about 300 organizations in more than 70 countries and most of the
members are consisted of “…producer-cooperatives and associations, exporter
marketing companies, importers, retailers, national and regional Fair Trade networks
and Fair Trade Organizations” (Krier, 2007: 30).
The former International Federation of Alternative Trade (IFAT) has changed its
name to International Fair Trade Association (IFTA). Recently, it has once again
renamed itself as World Fair Trade Organization. IFAT is international trade
essentially a global trade association for Fair Trade producers and traders of both
FLO-certified products and non-certified goods. Membership is open to both trading
17
and non-trading organizations that satisfy the basic Fair Trade criteria, and current
members span all continents. Similar to FLO, IFAT members are required to pay
memberships fees and to be transparent. The organization structure consists of
Executive Committee, an appointed Secretariat and the membership. The central
major of IFAT is helping with the accomplishment of the Fair Trade objectives (Krier,
2007: 30-31; Nicholls and Opal, 2008: 8-9). The specific objectives are:
1) Developing the market for fair Trade. It provides information to members,
organize workshops and serve as information point.
2) Build trust in Fair Trade. IFAT runs a monitoring system consisting of self-
assessment against Fair Trade standards, mutual review between commercial
partners and external verification. The monitoring process increases the
members‟ credibility.
3) Advocating for Fair Trade. IFAT has organized the so-called Global journey in
2004 to communicate the message of Fair Trade and draw attention to unfair
international trade. Moreover, it organizes World Fair Trade Day annually.
4) Providing networking opportunities. IFAT linking and strengthening organizations
prefer alternative and fair global trade practices (Redfern and Snedker, 2002: 18).
5) Empowering the regions. The three IFAT‟s regional representative in South are
AFTF (Asia Fair Trade Forum), COFTA (Cooperation for Fair Trade in Africa) and
Asociacion Latinoamericana de Comercio Justo.
Finally, IFAT launched Fair Trade organization mark for its members in 2004, which
not supposed to compete with FLO certification mark (Nicholls and Opal, 2008: 9).
2.1.3 European Fair Trade Association (EFTA)
The European Fair Trade Association (EFTA) is one the advocacy groups closely
working with Fair Trade producers. This association makes researches on the Fair
Trade development being based in the Netherlands (Head Office) and Belgium
(Advocacy Office). As indicated in the above Table 2.1, EFTA was established in
1990 and is a network of eleven Fair Trade organizations in nine European countries:
Austria, Belgium, France, Germany, Italy, the Netherlands, Spain, Switzerland and
the United Kingdom. Members include Oxfam, Traidcraft, and Gepa (Nicholls and
Opal, 2008: 9; Raynolds and Long, 2007: 16).
18
EFTA has two main objectives (Nicholls and Opal, 2008: 9):
1) “To make Fair Trade importing more efficient and effective. EFTA builds
networks of producers and support groups to encourage and facilitate the
exchange of information and best practice” (Ibid).
2) “To promote Fair Trade to commercial and political decision-makers. EFTA co-
ordinates campaigns and lobbying activities and publishes data to support the
Fair Trade case. EFTA has been making enormous contribution by publishing
Fair Trade figures and analysis for Europe biannually” (Ibid).
3) Moreover, it also contributes significantly to research and advocacy document
once a year: the EFTA Yearbook and update members with important
information (Ibid. 9).
2.1.4 Network of European World Shops and Fair Trade Federation
The Network of European World Shops (NEWS) was established in 1994. The
Network is committed to “promote Fair Trade by stimulating, supporting and linking
world shops in Europe that retail Fair trade products” (Nicholls and Opal, 2008: 10). It
is facilitates cooperation and networking by providing information (NEWSletter,
website, workshops etc.) and organizing conferences (Krier, 2007: 32). It also
organizes campaigns to raise consumers‟ awareness. Generally, it has roofed 15
national World Shops in 13 different countries, all together representing about 2,500
World Shops in Europe (Nicholls and Opal, 2008:10).
Fair Trade Federation (FTF) is an international Fair Trade network of wholesalers,
retailers and producers. It was founded in 1994 and in 2008 it has already 300
members‟ organizations in 14 countries (Krier, 2007: 33; Nicholls and Opal, 2008:
10). This is the only Fair Trade organization outside Europe with the focus on USA
and Canada. Currently, FTF is also actively involved gathering data on the diverse
markets in North America and Pacific Rim, and publishes three times a year.
2.2 Fair Trade Standards
The rapid growth of market in several countries and the widespread of national Fair
Trade initiatives forced the establishment of common standards and principles
19
applicable throughout FLO and other supporting organizations. The standards are set
by FLO Standards Committee which includes producers‟ networks, labeling
initiatives, traders and experts (Setboonsarng, 2008: 10). According to FLO
explanations, “standard is a set of defined criteria giving the requirements which
must be attained. A standard provides, for common and repeated use, rules,
guidelines or characteristics for products or related processes and production
methods” (FLO, 2007a: 36). Hence, standard facilitates principal guidelines for
monitoring and governing producers, producer (cooperatives) and traders of Fair
Trade commodities.
There are several standards applicable in Fair Trade system. FLO has three
separate sets of Fairtrade standards known as generic standards, product-specific
standards (FLO, 2009: 3 – HLS) and trade standards (Nicholls and Opal, 2008). The
generic standards are comprehensive and apply to all product groups produced
within the FLO geographical scope. Moreover, the generic standards, also called
producer organizational requirements, are distinctively applicable to 1) small–scale
farmers cooperatives or organizations organized with democratic, participative
structure and transparent accounting for the distribution of income (Nicholls and
Opal, 2008; Setboonsarng, 2008; FLO, 2009 – SPO); and 2) hired labor on large
plantations or in factories organized into a democratically elected workers‟ union
responsible for the distribution of income (Nicholls and Opal, 2008; Setboonsarng,
2008; FLO, 2009 – HLS). Finally, generic standards specify two different
requirements for producer cooperatives or organizations, namely minimum and
progressive requirements. On the one hand, compliance with the minimum
requirements is expected at the moment the company join Fair Trade and facilitates
producers to be Fairtrade certified. On the other hand, the progress requirements
contain conditions that should be met gradually by producers after joining Fair Trade
system (Setboonsarng, 2008: 10; cf. FLO, 2009 – SPO; FLO, 2009 – HLS).
The product-specific standards or sustainable production requirements are targeting
at certain products that means the application of these standards varies from product
to product (Nicholls and Opal, 2008). Nicholls and Opal state that these standards
contain environmental standards which prohibit certain chemicals and land over-use
affecting sustainable production. For instance, certain pesticides classified as harmful
20
must not be allowed for the producers groups to use it. In general, the generic
standards supersede the product-specific standards.
Fair Trade standards were established to empower producers in the global south and
to promote the market for, and enhancing the reliance of ethical consumers on, Fair
Trade products. The trade standards, therefore, establish the regulations that govern
the relations amongst Fair Trade producer, exporters and importers (Nicholls and
Opal, 2008). The significance of the standards is contained within the following core
points.
1. Fair and stable prices: Producers must receive a minimum floor price for their
products that covers the average costs of sustainable production (Redfern and
Snedker, 2002: 45). This floor price varies from product to product and region to
region based on the classification. It is guaranteed regardless of the fluctuation of
world commodity prices.
2. Fair Trade Premium: The additional payment (also social premium) granted are
intended to be invested in social and environmental development projects and to
improve the well-being of farm workers, smallholder farmers and their community
(Nicholls and Opal, 2008: 53).
3. Pre-financing arrangement: The credit-provision for commodity producers
guarantees sustainable and quality production. The importers of Fair Trade
products are required to pre-finance up to 60 per cent of seasonal crops (ibid.).
4. Provision of market access: Small farmers‟ organized in democratic and
participative structure into co-operatives can access information and market and
learn about quality requirements.
5. Long-term trading relationships: Fair Trade product importers should enter into
direct long-term trade relationship with producers. The long-term trading
relationship enables producers to plan for the future production.
21
These are the summarized presentation of the Fair Trade standards and the
underlying concepts which was developed by FLO. This same body has the author to
introduce new, amend or void standards (FLO, 2007a: 36).
2.2.1 Certification and Labeling in Fair Trade
Fair Trade certification is developed by “Fair Trade Lebelling Organization (FLO)
International, a multi-stakeholder association including producer networks, labeling
initiatives, traders, and experts” (Setboonsarng, 2008: 10). The same organization
had developed Fair Trade standards which are fundamental for the certification and
labeling process. However, FLO has delegated the certification process to FLO-Cert
which is an independent company. According to FLO explanation, “certification is a
process carried out by a recognized body, independent from interested parties, which
demonstrates that a product or organization complies with the requirements defined
in the Standards or technical specifications” (FLO, 2009: 35). Thus, the role FLO-Cert
“[…] is to document the „chain of custody‟ followed by a product, and to ensure that at
each point where the commodity changes hands, the quantities are accurate and
there is no mixing of certified and uncertified products (Jaffee, 2007: 208). Moreover,
Jaffee adds that monitoring of the licensees, inspecting their facilities and punishing
incompliance to the standards are falling in the range of certifier‟s responsibilities.
This certification process is an important operational component, because it
guarantees Fair Trade consumers that the producers of the products are complying
with the standards set by FLO International. Low and Davenport state that “Fair trade
certification and labeling was essential for the commercialization of the movement‟s
food products because labels offer consumers a guarantee that the product conforms
to specific standards for production” (2008: 5). Prior to acquired certification, Fair
Trade commodities manufacturers and importers should go through the rule-based
certification system in order to market products with Fair Trade label on to retailers
and consumers (Redfern and Snedker, 2002: 7). Thus, retailers and consumers are
supposed to identify the various symbols associated with Fair Trade products. These
symbols could then be presented as logos, labels or marks which communicate
product attributes, benefits and values inherent with them. Jaffee (2007: 208), for
instance, emphasizes the Fair Trade seal (Transfair label) and the certification on
which it rests as being significant and the primary mechanism for consumers‟
22
recognition of Fair Trade products in the United States. So far, most of certified
products are carrying these symbols.
More importantly, the combined certification of producer and importer facilitates a
simplified mechanism to track back the origin of the product along the supply chain
and recognize the benefit margin accrue to the producers. Especially, in the face of
other growing social certification system and labels, the certification system
developed by Fair Trade organization is believed to benefit small producers,
plantation workers and their local communities. In fact, major mainstream outlets are
attracted to Fair Trade products because of the third party certification program and
the resulted improvement in the products quality.
Finally, since 2004 FLO-Cert is charging fees that should cover the costs of the
certification process (Nicholls and Opal, 2008: 133). The introduction of fee has
brought criticism against the certifying body. Especially, the Grassroots activist‟s are
blaming this process because of the high certification fee demanded and not simply
affordable by most disadvantaged famers. The fact that ATOs are facing high
competition from conventional retailers could also be negatively attributed to the
certification scheme introduced. One of the arguments is the skepticism that
traditional market outlets are only persuaded by corporate profit maximization than
the social and environmental values inherent within the Fair Trade objectives. The
influence that these multinational companies have may negatively affect the
fundamental principles of Fair Trade in the long-run. Despite their contribution to the
growth of Fair Trade market, some of these companies have bad reputation for their
social irresponsibility in the past and consequentially, their participation in marketing
Fair Trade products could adversely affect Fair Trade brands.
2.2.2 Fair Trade Monitoring System
Once the standards have been set, producers and traders have been inspected
based on these standards to prove their compliance and the certification Committee
issues certificate, the Fair Trade certified operators are automatically subjected to the
regular monitoring scheme. Monitoring of Fair Trade operators is a challenging
process carried on along the supply chain. Monitoring refers to “measuring a set of
indicators that are tracked over time to identify trends. The information is used to
23
assist timely decision making, ensure accountability and provide a basis for
evaluation and learnings” (FLO, 2007a: 36). Based on this definition, monitoring
serves different purposes than just a mere control mechanism employed to prove
producer and wholesaler consistent compliance to Fair Trade principles.
Fair Trade product has a characteristic of „trust good‟, even though it involves
tangible elements and because the producers in the South are located far from and
the consumers in North product-quality confirmation highly cost intensive (Bacchetti
and Huybrechts, 2007: 5). Thus in respect to that, monitoring is serving as important
tool to ensure the producers and retailers are keeping the quality of the products.
FLO-Cert (certifier) is, therefore, responsible to make sure that the product is
produced according to the set standards. Accordingly, if during monitoring a
producer organization and commercial agents deviate from keeping the standards,
then they will be decertified.
2.3 Fair Trade and Corporate Social Responsibility (CSR)
Long before corporate social responsibility (CSR) was introduced, business
companies had been promoting community development through philanthropic
donations. However, “the funding provided by the company is bound by conditionality
and brings with it the coercive powers of patronage. The company demands, in
return, the implementation of projects that accord with its particular vision of
development” (Rajak, 2008: 208). Consequently, the company-funded ventures lost
their relevance in accomplishing the communal development objectives. This created
asymmetrical relationship between companies and the beneficiary communities,
which in turn, negatively affected the development project. With the advent of CSR,
business companies have replaced traditional donations and were engaged in
communal partnership and empowerment, and social investment and environmental
protection (Ibid. 297). In another words, this concept can be described as corporate
integration of the social and environmental accounting into their business operations
and demonstrating their responsibility to the stakeholders. The intersection of the
CSR and Fair Trade is due to the interrelation of ethical and commercial elements
underpinning both concepts.
24
Despite their effort to improve the economic, social and environmental impacts of
their business operations, both have different approaches toward their objectives.
CSR is basically conceptualized by profit-driven entities and highly dependent on the
profitability of the company, whereas Fair Trade model is targeting to benefit
marginalized producers by using commercial approach. Gooch and Chrobok (n.a.)4
differentiate both approaches following ways: 1) CSR is engaged in voluntary
development activities and hard to challenge this corporate objectives, whereas Fair
Trade is basically addressing the international trade inequality. 2) CSR is the
dominant party along the supply chain actors and can easily enforce the compliance
to standards. Fair Trade standard-setting involves all the partners along the supply
chain. 3) CSR strives to keep its compliance toward the international convention and
government-established regulatory frameworks for business practices (Redfern and
Snedker, 2002: 35). Fair Trade concerns transcend the mere legal compliance and
criticize the weak regulatory system that does not favor the all parties in international
business practices. 4) The practices CSR can lead to further marginalization of small
businesses that are considered threat to the businesses, whereas Fair Trade is
working to improve the participation and the livelihoods of small producers and
farmers. In line with the summarized points, Fair Trade can provides a better model
for dealing with economic, social and environmental impacts of businesses.
4 Fiona Gooch of Traidcraft and Stefan Chrobok of EFTA had written under the title of “Fair Trade provides models for Corporate
Social Responsibility”. The year of this publication is not indicated. Compare with “Corporate Social Responsibility (CSR): Does it make any difference? (2004) and no Contributor indicated.
25
3 Global Marketing Orientation of Fair Trade
Fair Trade organizations are designed as a mixed-form of market which is similar to
social enterprise model. Most of the social enterprises have combined-objectives
focusing on the social and economical value creation (Alter, 2006: 216). The mixed-
form organizations have not only multiple dimensions but also involves different types
of actors (Becchetti and Huybrechts, 2007: 2). Jaffee (2007) describes the different
views participants have about the Fair Trade movement based on its ideology. Some
consider Fair Trade as a “market-breaking” force, a “market-reform” device or a
“market-access” instrument (2007: 26). But other participants believe that the central
value of Fair Trade is not to change the logic of markets rather addressing and
correcting the market failures and international trade inequality. Hence, identifying
the orientation of the Fair Trade marketing is significant to understand the concept
behind it.
Alter (2006: 216) introduces various forms of social enterprise models; one of the
models that fit to the Fair Trade concept is the “market intermediary model”.
According to Altar‟s description,
“the market intermediary model of social enterprise provides product
development, market access, and credit services to its target population: small
producers (individuals, firms, or cooperatives). The market intermediary model
is an embedded model: the social programme is the business. Its mission
focuses on facilitating clients‟ financial security by helping them develop and
sell their products in high-value markets. The social enterprise purchases the
client-made products in high-value markets.” (2006: 216-217).
This kind of social enterprise model, similar to Fair Trade organizations, purchases
the producers products at fair prices, and then sells the products at a margin (Ibid.).
However, commissions or mark-up added to the products improve the income to the
enterprise which in turn used to cover production and program costs.
“The advantages of the market intermediary model are its potential for
scalability, social impact, mission strengthening, and self-financing. Its
26
application is limited to producers, and difficulties can arise in finding markets
for client-made products due to market saturation, poor or inconsistent quality,
and commodity products. Frequently, quality requirements for marketable
products cannot be supported through the market intermediary‟s decentralized
production; thus, the social enterprise may sacrifice scale to clients, converting
it into an employment model” (Ibid: 216).
Figure 3.1: Market intermediary model
Source: Adapted from Alter, (2006: 216)
Figure 3.1 presents the marketing supply cooperatives (Fair Trade organizations,
agriculture, and handcraft groups) using the described market intermediary model of
social enterprise (Ibid. 217).
3.1 Globalization and Imperfect Market
Several dynamic movements, campaigns, and initiatives with the wide ranges of
objectives have emerged addressing the negative impacts of globalization. For
instance, Anti-sweatshop movement in garments, eco-labeling in timber, Fair Trade
in agricultural food and other commodities were among the many that seek to create
sustainable and social justice in the globe (Murray and Raynolds, 2007: 4).
Especially, Fair Trade focused on reshaping the practices of international trade and
targeting at failure around corporate expansion in a global economy. Fair Trade
movement has of course limited power to make significant changes at once.
However, it has never ceased to criticize the regulatory instances like World Trade
Organization (WTO). WTO policies were established to benefit all the trade partners
and not to favor only few of trade partners. But even though multiple campaigns have
27
tried to communicate the message of trade inequality between the international trade
players, it has never been successful so far.
Unlike other social enterprises (like NGOs), Fair Trade is using the market itself to
combat the international trade injustice at the marketplace. Fair Trade is seeking to
provide an equitable and sustainable market opportunity for marginalized producers
(Redfern and Snedker, 2002: vii). Fair Trade has therefore high possibility of
alleviating poverty in the global South through a market-based strategy (enabling
direct sales, granting better price, and maintaining stable market) to improve
smallholder farmers and workers livelihoods and support for their producer
organizations and communities are central to the objectives (Murray and Raynolds,
2007: 4).The alleviation of poverty had been tried by non-trade strategy,
predominantly through Northern aid. This unique objective of Fair Trade should be
specified in order to understand the organizational structure and market dynamics of
the Fair Trade.
3.2 Fair Trade Marketing Orientation and Process
Based on its objective, the Fair Trade marketing approach is complex and mixed with
other sectors‟ marketing trends. Fair Trade marketing has similarities and differences
with the other sectors‟ marketing orientation. The following points on Table 3.1, for
instance, illustrates the distinction between conventional, Fair Trade and not-for-profit
marketing (Nicholls and Opal, 2008: 157).
Table 3.1 Fair Trade marketing process
Conventional marketing Non-For-Profit marketing Fair Trade marketing
1. Analyze market
opportunities
Analyze potential behavior
to promote
Analyze market failures
2. Select target markets and
positioning strategy
Select target audience Select suppliers/producers
most affected by market
failures
3. Develop marketing mix Develop NFP marketing
mix
Develop Fair Trade
marketing mix
4. Manage marketing effort Managing marketing effort Manage marketing effort
5. Seek competitive
advantage
Adopting competition Encourage competition
28
Source: Adapted from Nicholls and Opal (2008: 157); Kotler et al. (2002: 6)
For the sake of better understanding of Fair Trade marketing, considering these
marketing approaches are also relevant. This comparison intends to provide a brief
explanation of and interrelationship between the three different selected sectors‟
marketing approaches.
3.2.1 Conventional (Traditional) Marketing
The conventional business marketing process begins with the analysis of “market
opportunities centered on consumer demand and competitor activity” (Kotler et al.,
1999 cited in Nicholls and Opal, 2008: 156). This marketing believes in consumer
sovereignty and strives for consumer‟s satisfaction (Witkowiski, 2005: 26). The
analysis is preliminary to any kind of business activities. Based on the identified
market opportunity, “…marketers then selects the most appropriate and profitable
target markets and develops a positioning strategy for business communication that
maximizes competitive advantage” (Nicholls and Opal, 2008: 156). With their focal
point on strong customer relationship and continuous innovations, traditional
marketing develops a strategic marketing mix as a tool. The marketing mix is
conceptualized to address the four P-elements, product, price, place and promotion
(Ibid. 157). Additionally, the extended marketing mix such as people, process and
physical evidence is applicable to service rendering business, similar to social
enterprise or Fair Trade.
Moreover, the marketing theory assumes individualism, promotes private ownership,
and seeks competitive advantage. Where as, for example, Fair Trade system
focuses on a communal development that demands networks and cooperation of the
stakeholders (Witkowski, 2005: 26). The traditional marketing involves the managing
of marketing effort. Andreasen and Kotler state the marketing management “as he
process of planning and executing programs designed to influence the behavior of
target audiences by creating and maintaining beneficial exchanges for the purpose of
satisfying individual and organizational objectives” (2008: 36) .
29
3.2.2 Non-profit Organization Marketing
Non-For-Profit (NFP) marketing is also one of the social enterprise marketing
branches just like Fair Trade marketing. Although, the marketing orientation of both
sectors has some common elements, there are still distinctive differences between
them. Social marketing, in general, is targeting the social issues and other matters
within the society. Kotler, Roberto and Lee define social marketing as “the use of
marketing principles to influence a target audience to voluntarily accept, reject,
modify, or abandon a behavior for the benefit of individuals, groups, or society as a
whole” (2002: 5). This is also called Social Marketing.
This is the linking concept to outline the approaches of the not-for-profit marketing.
This marketing concept first of all analyzes the potential behavior that is needs to
changed or removed. Affecting behavioral change of a selected target groups or
society can, for instance, help to the improve health, prevent social injustice,
protecting the environment, or contributing to the community (Ibid.). Contrary to the
conventional marketing, in which primary beneficiaries are shareholders, not-for-profit
marketing primary beneficiaries can be an individual, a group or society as a whole
(Kotler et al. 2002: 5). Moreover, what make NFP marketing different form
conventional and Fair Trade marketing is that it deals more with services and ideas
than tangible products. Despite the features of the products offered, NFP marketing
uses traditional marketing concepts, tools and techniques. Marketing mix instrument
developed similar to conventional business but with extended marketing mix such as
people, process and physical evidence (CIM, 2007: 12). This marketing model also
requires the marketing management effort and adoption of concepts used in
competition.
3.2.3 Fair Trade Marketing
Fair Trade marketing can be seen through the lens of ethical and social marketing as
well as conventional marketing. Originating from social marketing, Fair Trade
marketing has developed into mixed-form of marketing which employs social and
conventional marketing tools. Similar to other sector marketing, Fair Trade follows
specific process. In fact, contrary to conventional marketing, Fair Trade organizations
are focusing on the market failures. Especially, Fair Trade criticizes corporate
30
businesses‟ exploitive position in global supply chain and abusive international
trading policies in the marketplace. Thus, Fair Trade is targeting to empower the
producers of the South by connecting them to the consumers of the North.
Fair Trade has its own marketing mix, similar to the conventional marketing mix
instrument. The marketing focal points are Fair Trade products producers. Further
discussion on marketing mix is given in chapter 4.2 of this paper. In line with that Fair
Trade organizations are strongly devoted to manage the marketing processes.
Moreover, due to mainstream outlets interest in Fair Trade products competition
becoming indispensible. Nicholls & Opal state that “despite the fact that Fair Trade
marketing centres on explicitly ethical issues, it needs to be seen as quite distinct
from either cause-related marketing or what is broadly known as socially responsible
marketing” (2005: 153).
3.3 Global Supply Chain and Network of Fair trade
The global supply chain scandals by multinational companies have led to the
emergence of the new ethical trading concept. This concept is mainly backed by
long-established NGOs in the South and concerned consumers of the North and
devoted to address the problematic issues along the supply chain. According to
Nicholls and Opal, “the main ethical objections to global trade between North and
South centre on the drive towards maximizing end margins via a leveraging of
enormous power and information asymmetries between developed world corporate
buyers and developing world producers/manufacturers” (2005: 55).
The main concerns about the grassroots and consumer activists are directed towards
the farmers, workers and producers of the South at the outset of supply chain. Large
business companies driven by their cost reduction objective and supported by their
easy access to information have been maximizing the portion of their profit at the
expense of the poor producers under the poor working terms and conditions. Fair
Trade is a movement that addresses this problem. On the one hand, initiated by the
traditional activists such as NGOs and ATOs, Fair Trade has long been addressing
this inequality in international trade system. On the other hand, it created a platform
for the ethical consumers to use their purchasing power to react against the
31
irresponsibility of the businesses companies. Thus, forming a sound supply chain
that benefits all the stakeholders is significant international trade.
Most of the commodities have long and complex supply chain. For instance, coffee
bean as the most marketable commodity can change hands more than 150 times
from producer to consumer (Milford, 2004: 5). Figure 3.2 shows the simplified form of
coffee supply chain. The primary producers sell to private intermediaries, who
transport the unprocessed coffee to processing plant. The processed coffee is sold
by local exporter to international trader.
Figure 3.2: The coffee commodity supply chain
Source: Adapted from Milford, (2004: 6)
In line with this process, this paper note the significance of the Fair Trade and Fair
Trade organizations whose effort is to cut the long supply chain. The involvement of
Fair Trade in the supply chain can be described as depicted on Figure 3.2.
3.3.1 Producers and Classical (Alternative) Traders
The historical background confirms that Fair Trade supply chain and networks have
been dominated by Alternative Trade Organizations (ATOs) that were engaged in
32
direct and fair trading relationship with producers. By then, the concern of ATOs was
to protect the weakest supply chain actors (producers) from the exploitation of greedy
middlemen and large companies in international trade. The flow of classical Fair
Trade supply chain can be described as shown on Figure 3.2. ATOs and their local
agents gathered the commodities directly from southern producers and sell them in
their outlets, namely world shops, equal exchange, Traidcraf (is this the real name or
typing mistake) and NGOs like Oxfam. These organizations had not only
merchandised the products, but also organized campaigns to create awareness and
win more ethical consumers. Milford (2004: 8) claims ATOs had created a niche
market known as alternative markets in which the rules of conventional markets were
not applied. That means, in alternative markets producers were paid a higher and
unique price which is above the conventional market price.
Figure 3.3: Classical Fair Trade Supply chain Source: Own construction based on Milford, (2004: 8)
In contrast to the coffee commodity supply chain presented above on Figure 3.3, the
classical supply chain was wholly operated and controlled by these organizations.
They were responsible for the importing, distribution and sale of the products.
However, ATOs strategy was mainly focused on the producer supply rather than on
consumer demand. Because of that supply-driven traders could not survive in the
market for long period. That is main reason why some ATOs with not-for-profit
structures adapted for-profit organizations structures. Alternative trading
organizations (ATOs) like Traidcraft in Britain and Gepa in Germany emerged with
the aim of offering producers the opportunity to trade with the developed world for the
first time, without the control of middlemen who would inevitably squeeze prices at
the beginning of the supply chain.
33
3.3.2 Producers and Conventional Outlets
For several years, ATOs have operated under the third sector status as nonprofit
organization and co-operatives (Becchetti and Huybrechts, 2007: 6) with less focus
on the product quality. However, the supply-driven approach has not attracted the
consumer-oriented supermarkets. Thus, Fair Trade sales could not grow faster with
the only effort of these classic supply chain actors, ATOS. Nevertheless, with the
introduction of FLO certification mark the focus on the product quality changed and
consequently attracted the conventional outlets. Today, unlike the most conventional
supermarkets suppliers, Fair Trade product suppliers enjoy a direct trading
relationship with some of the mainstreams outlets. This direct trade relationship is
initiated and controlled by FLO and national initiatives. Figure 3.4 presents the
autonomous controlling mechanism of both the NIs and FLO-I.
Thus far, Fair Trade labeling system has proven the benefits to marginalized
producers and workers of global South by eliminating price-squeezers from the
supply chain. And yet this success is not without disadvantages. The supermarket
involvement in Fairtrade is, on the one hand, commercial-driven in perceiving a
chance to attract ethical consumers and, on the other hand, it is used to regain their
distorted image in the face of consumer, investor and campaigning communities that
they are taking their corporate responsibilities seriously. Bowes and Croft (2007: 271)
states that the mainstream outlets participation in Fair Trade system is driven by their
anticipation of future growth than the ethical message it holds. Thus, their
commitment sustains not longer enough to benefit the producers. Nicholls and Opal
(2005 cited in Bowes and Croft, 2007: 271) express their concerns by saying that
“Tesco clearly views the expansion its Fair trade range as a success.
However, a number of issues have arisen for the future. Tesco plans to
expand its own label offer…but is constrained by the relative slowness of
Fairtrade Labeling Organizations‟ international certification process. Thus,
current market opportunities in other categories such as fish, spirits and rice
may well be missed (2007: 271).
As soon so supermarkets are deep-rooted themselves in the Fair Trade business,
they will start to use their unchallengeable market powers to influence changes in the
34
heart of Fair Trade principles. The impact of these changes directly affects the
weakest supply chain partners (producers and workers). For instance, Flexibility in
pricing strategy, setting higher product quality standards and so on affects the
producers directly. Similarly, Sally (2008: 4-5) states that various literatures in UK are
pointing to the increasing tension between the values of Fair Trade and the
commercial principles and practices in supermarkets‟ global value chains.
Figure 3.4: Fair Trade labelling systems Source: Adapted from Milford, (2004: 9)
35
4 Marketing of Fair Trade
The marketing approach of Fair Trade is quite different than the cause-related
marketing or socially responsible marketing, that is, Social Marketing. In addition,
Fair Trade marketing is not conceptualized to improve or present a new model of
corporate social responsibility (for distinction see chapter 2.5.). Although, Fair Trade
marketing is positively contributing to the social and environmental issues, it is
devoted to empower the social and economic interrelation between the producers
and consumers.
Nicholls and Opal (2005: 153) confirm that building a value based and profitable
supplier-consumer relationship is central to Fair Trade marketing. This should be
grounded on the concept of fairness which encompasses both producers and
consumers. Moreover, the relationship should be based on partnership exchange
that lasts for long term and create connectivity between producers and consumers.
This way the supply chain can be shortened and the benefit proposed to generate be
enlarged.
The most challenge in Fair Trade marketing is reaching the mass consumers beyond
the ethical consumers and gain mainstream acceptance for their products (see
Nicholls and Opal, 2005: 153; Klebe, 2008: 80). Therefore, increasing consumer
education and innovative marketing that builds Fair Trade brands and creating “a set
of values around the Fair Trade mark that are both ethical and quality-based are very
significant for development of Fair Trade” (Nicholls and Opal, 2005: 153). Finally, Fair
Trade marketing can help to meet the immediate demand of consumers and attain a
market growth in the log-run through education and campaigning.
4.1 Objective of Fair Trade Marketing Mix
Social marketing has borrowed, marketing mix, from conventional marketing
practices. Fair Trade system which is also categorized under social marketing use
the same techniques marketing mix to address the ethical consumerism (Nicholls
and Opal, 2005: 175; cf. Weinreich, 1999). In the conventional business arena
developing the Marketing Mix is vital to the implementation of the competitive
36
marketing strategy. Similarly, the development of Fair Trade marketing mix plays an
important role for fast growing fair Trade market.
The marketing mix refers to the combination of instruments a producers
organizations (with the support of FTOs) may blend together to address the ethical
and economical value of Fair Trade product (Nicholls and Opal, 2005: 175). This
marketing instrument is targeting at convincing ethical consumers in particular and
mass consumers in general, to use their purchasing power to bring changes in the
social life and environment of producers and workers in developing countries. Fair
Trade marketing mix, similar to the conventional marketing, is an instrument that can
produce a desired reaction through a combination of behavior and mental effects
(Ibid. 158). The reaction triggered by the marketing mix is direct or indirect and it can
immediately or later and positive or negative influence.
4.2 Marketing Mix of Fair Trade
Fair Trade marketing centers distinctively on ethical issues. In order to motivate
consumers to participate in Fair Trade model, these core issues must be
communicated effectively. Hence, the development of Fair Trade marketing mix is an
important instrument that is used to communicate the value of Fair Trade products to
these ethical consumers and conventional consumers. The focal point of Fair Trade
marketing mix is laying on the ethical and economic value of the products. However,
unlike the traditional marketing approach, the content of Fair Trade marketing mix
focuses on the producers‟ organizations rather than the consumers (Nicholls and
Opal, 2008: 157; Klebe, 2008: 80). The following Table 4.1 presents the distinction
between conventional and Fair Trade marketing mixes.
37
Table 4.1: The Fair Trade marketing mix
Conventional marketing Fair Trade marketing
Product Fit with target segment Uniqueness, quality
Price Minimize cost price Social premium
Place Efficient logistics „Fair‟ supply chain
Promotion Competitive positioning Ethical issues/education
People Customer interface Identifiable producers
Process Customer service Developmental focus
Physical evidence Branding Fair Trade mark
Source: Adapted from Nicholls and Opal, (2008: 157).
A thorough consideration should be given to these elements of marketing mix when
developing Fair Trade marketing. The difference between both sectors will be
addressed in the following sections.
4.2.1 Product Design
The product design aspect of Fair Trade marketing mix plays a significant role in
communicating the objective of Fair Trade to the consumers. A non-ethical consumer
who does not know what Fair Trade stands for can only notice a Fair Trade labeled
product in mainstream supermarkets if the design of the product is appealing to her
or him. At a Grassroots level, ATOs were less concerned about Fair Trade product
design but today due to the increasing demand for quality product by mainstream
supermarkets, this strategy is taking an important position in Fair Trade marketing
approach. In fact, ethical consumers desire to acquire product that corresponding
value to the price they paid. Accordingly, Fair Trade product designing has already
started to consider these perspectives. For instance, supporting elements such as
features, styling, quality, packaging and brand name (Andreasen and Kotler, 2008:
195) are becoming prevalent in Fair Trade core product design.
Features could be added or subtracted without changing the other elements of core
product. Fair Trade products featured with producers‟ details. For example, in
Kaufland (German supermarket) the following description is written at the back of the
product.
38
In short, it states that “the independent Fairtrade Seal guarantees that this product is
produced according to the international standards of Fair Trade. Therefore, by
purchasing this product consumers are contributing to betterment of livelihoods and
working conditions of the small farm holders of Malawi and to the support of
environmental protection.”5
This is intended to assure ethical consumers of the origin of the product. Due
consideration should be given to the uniqueness of the design and quality of Fair
Trade products. Styling of Fair Trade products is similarly important as in that of
conventional product. In fact, most of handcrafts and clothes have distinctive look
because of their designs and embroideries which in turn point to their origin. These
goods carry distinctive cultural elements with them and consequently can impart
certain feelings to consumers. In like manner, the importance of product quality is
increasing in Fair Trade model. Previously, to this aspect less consideration had
been given by ATOs, however with the introduction of certification process by FLO
more and more emphasis was given to product quality. More specifically, in the
“progress requirements” specified in generic standards by the organization, a
continuous improvement of product quality is demanded from producers
(Setboonsarng, 2008: 10). Especially, with the involvement of conventional traders
the issue of quality has increased.
Another important aspect of Fair Trade product is implicated by the Fairtrade mark (in
UK) and Transfair seal (in German and USA). Once the product is labeled with the
Fairtra de mark it takes a special position in views of consumers as well as producers
(Klebbe, 2008: 81; cf. Nicholls and Opal, 2005). It is an assurance that the product is
complying with the Fair Trade standards. In spite of the long process and time
needed to acquire it, Fairtrade mark has significant value in the market. In addition,
5 This information was taken from the back of product‟s (sugar) cover in Kaufland supermarket. Similar information could be
taken from www.transfair.org as indicated on the cover.
„Das unabhängige FAIRTRADE-Siegel gibt Ihnen die Sicherheit, dass dieses Produkt die internationalen Standards für Fairen Handel erfüllt. Mit dem Kauf
dieses Produktes leisten Sie einen Beitrag zur Verbesserung der Lebens- und Arbeitsbedingungen der Kleinbauern aus Malawi und zur Förderung des
Umweltschutzes.“
39
the eco-friendly product packaging style of Fair Trade also adds psychological value
and affects important behavioral change (Andreasen and Kotler, 2008: 195).
4.2.2 Pricing Strategy
The determinant element of marketing mix in the Fair Trade model is pricing. It is
probably the most difficult element that needs a thorough consideration. In handling
pricing issues the two determining factors are; pricing objective and pricing strategy
(Andreasen and Kotler, 2008: 238). Hence, first of all in developing a price the
organization should set clear objective of what it wants to achieve. Andreasen and
Kotler distinguish between the following pricing objectives: “surplus maximization,
cost recovery, market size maximization, social equity and market disincentivization”
(2008: 238). Admittedly, Fair Trade model is not driven by profit maximization per se.
However, the objective is to recover the cost of production (cost recovery) through
the floor price paid to the product and to charge for social premium (surplus
maximization and social equity) that goes to the social and environmental projects
(cf. Nicholls and Opal, 2008: 158). The other pricing objectives that are not frequently
practiced in Fair Trade are intentionally ignored to limit the scope of this paper.
The second determinant element is the pricing strategy which is based on cost, value
and competition. In the case of Fair Trade, a combined cost and value based
strategies should be applied to determine the price. As already mentioned in the
determination of pricing objective, cost-based pricing also refers to the cost of
production in a more detailed manner. Moreover, the ethical value or message
incorporated into the physical product is used to determine the pricing strategy. That
message can convince the ethical consumers and influence them to affect changes
in small producers‟ livelihoods using their purchasing power. In contrary, non-ethical
consumer can see the premium price as disincentivization and get discouraged to
buy the product (Andreasen and Kotler 2008: 238). Therefore, more than anything
else, communicating the intrinsic ethical value of Fair Trade product is significant to
influence the target audiences. More importantly, “With the price element of the
marketing mix, Fair Trade again stresses the producer by highlighting both the fair
original commodity price and the social premium...” (Nicholls and Opal, 2005: 158).
40
Traditional supermarkets will soon start to reduce Fair Trade products’ price to attract customers. This insert can be removed as it is not adding much value to the academic paper
Figure 4.1: Conventional business price reduction
Source: New Internationalist (2005)
The pricing strategy of Fair Trade is facing a challenge in connection to the move to
mainstream supermarkets. These conventional business outlets want to reduce the
price as much as possible to attract the consumers. Although, Fair Trade product is
labeled in many of these conventional outlets, its survival with the higher price
compared to the ever reducing conventional product price is questionable. Besides
the problem of sinking price, supermarkets are developing their own Fair Trade
labels which challenge the original Fair Trade products. It is the problem that can be
considered in combination to the one addressed in chapter one (section 1.5) of this
paper. Such a problem might greatly affect Fair Trade market as the classical Fair
Trade activists suspected and hence, opposed the involvement of mainstream
players. Conversely, other Fair Trade actors support the move to conventional outlets
grounded on the strategic advantage it entailed. That is, the combination of price and
product leadership (Klebbe, 2008: 82).
4.2.3 Distribution Strategy
The most important aspect in Fair Trade marketing is the arrangement of the product
distribution channel. Access to the products should be made convenient in the long-
run. This section addresses the numerous access strategies that has been used and
should be introduced and developed to reach the mass consumers beyond the
ethical ones. The distribution of the Fair Trade products was started by a single
person and recently extended to conventional market outlets in several countries.
Kotler, Roberto and Lee emphasize on
41
“increasing the number and location of outlets; moving the world shops closer
to target audiences; providing mobile units that come to neighborhoods or
worksites; offering the option of purchasing on-line, over the phone, or through
mail; providing pickup and delivery services to homes or offices; extending
hours and days of the week; improving ambiance of a location; reducing wait
time; improving parking; and increasing prominence of products displayed on
aisles and shelves” (2002: 244).
Fair Trade classic outlets (such as world shops, Gepa) just like most of the social
enterprises (NGOs) are inconveniently situated and dispersed in many cities.
According to Kotler et al. some of the major problems that raised criticism against
social marketing (enterprises) are “high costs of distribution, high advertising and
promotion costs and excessive mark-ups” involved in their marketing practices (2008:
67). The high distribution costs that they referred to is that the “greedy intermediaries‟
mark-up prices beyond the value of their products or services” (Ibid.). For instance,
consumers and their advocates blame that too many intermediaries or that
intermediaries are inefficient or that they provide duplicated services or products
(Ibid.). Consequently, the price charged for the products or services is excessive than
its value. Fair Trade marketing has developed a strategy that tackles this problem by
eliminating the unnecessary long supply chain. Of course, the distribution of the
products follows through different trade channels, especially, since Fair trade has
moved out of niche markets to mainstream distribution channels. This is only the
case for some of Fair Trade products, for instance, banana, coffee, tea and the like
(Farnworth and Goodman, 2008: 6).
4.2.4 Promotion Strategy
There are different ways of communicating the target groups, most importantly, the
ethical consumers. Developing persuasive communication strategies, incorporating
meaningful messages, involving key actors and choosing the proper communication
channels are extremely significant for the growth of Fair Trade market (Kotler,
Roberto and Lee, 2002: 268). Due to the growing ethical consumerism and related
public campaigns, educational activities and awareness-creating actions, Fair Trade
has been using this distinctive message that is attributable to its objectives. In
practice, the message has been presenting the marginalized producers, social and
42
environmental issues which are relevant to the target audience, ethical consumers. In
all the promotion activities the emphasis should incorporate individual stories about
producers (farmers and workers). For instance, photos, stories and facts about
individual producers can motivate the public to react positively toward these items
(Lamb, 2007: 79). So far, these strategies have been widely used by Fair Trade.
The message has been carried by classical actors and advocacy groups such as
ATOs, NGOs, FLO, and WFTO and recently by conventional retailers. Especially,
ATOs and NGOs have contributed a lot by disseminating information and motivating
the ethically-conscious consumers. Promotional material used included internets,
brochures, annual reports, magazines and newspaper from the national Fair Trade
organizations (Transfair in Germany and the Fair Trade Foundation FTF in the UK)
and alternative trading organizations (Divine, Traidcraft, and Cafédirect in the UK,
Gepa and the Weltladendachverband in Germany). For example, picture 4.2 shows
how Cafédirect discloses the individual producer stories connected to the products.
Figure 4.2: Cafédirect advertisement
Source: Cafédirect6
Currently, Fair Trade town‟s movements have already widespread in many countries
through the efforts of local networks, development organizations, world shops,
churches, schools and other sectors. Fair Trade towns (picture 4.4), Fair Trade
Fortnight, World Fair Trade Day (picture 4.3), etc. are playing significant role in
promoting Fair Trade products and moreover educating consumers the importance of
using their purchasing power.
6 http://brewing.cafedirect.co.uk/
43
On May 8, Fair Trade supporters around the globe will be celebrating World Fair Trade Day.
Figure 4.3: World Fair Trade Day
Source: FLO-I7
In Australia, Melbourne Fair Trade Tram is already actively advertising. This can stay coz its in line with the photo
Figure 4.4: Fairtrade Tram in Melbourne, Australia
Source: FLO, (2009c: 14)
4.3 Product Mix
Four decades ago Fair Trade commodity was consisting out of only handicrafts
produced in different countries of South (when started by Edna Ruth Byler). Several
years later, Coffee was launched by Max Havelaar in 1988. The agricultural food
commodity which started with coffee expanded to tropical fruits and several new
products have been included (i.e. cocoa, textiles, tea, quinoa, nuts, wine, etc) (Krier,
2007: 27). The introduction of new product into Fair Trade system has continued as
means of including marginalized producers and diversifying products offering.
Currently, different assortments of goods are passing through Fair Trade network
channels and markets. Based on the Fair Trade standards and certification process,
there are certified and non-certified products. Moreover, Fair Trade products could
further be distinguished as organic and conventional certified Fair Trade products.
7 Fairtrade Labeling Organization International (FLO-I): http://www.fairtrade.net/events.html#c5806
44
However, the main product mix could be presented, as shown on the table 4.2., food,
non-food and beverages (Farnworth and Goodman, 2008: 4).
Table 4.2: Length and Width of Fair Trade Product Mix
Food products/
commodities
Non-food goods Beverages
Coffee Sport-balls Wine
Tea Jewelries Bear
Bananas Cotton products/clothing Juices
Cocoa/Chocolate Home wares Ice Coffee
Sugar Cloth toys Ice tea
Rice Flower s
Fresh/Dried fruits …
Cakes & Snacks
Muesli
…
Source: Adapted from Andreasen and Kotler, (2008: 196); Sahota, (2007: 26)
As market grow and conventional traders are involved in distributing Fair Trade
commodities, FLO broad varieties of products were developed and mixed based on
the demand of consumers. FLO has developed some guidelines for composite
products. For instance, liquid composite products will carry a Fairtrade Certification
Mark or label “…if more than 50% of its volume is sourced from Fairtrade-certified
producer organizations” (FLO, 2007b: 2). Earlier Fair Trade has never developed
Pro
duct Lin
e w
idth
Product Line length
45
composite products. However, the more new partners and corporate agents are
joining Fair Trade system the more they influence the standards of the Fair Trade.
4.4 Developing Brands
Branding, among the extended marketing mix, is becoming an important marketing
instrument and gain more relevance in the Fair Trade market as it has been in
conventional businesses. In the views of Andreasen and Kotler (2008: 171), an
organization‟s branded product could be perceived as a product making unique
social contribution, proving a guarantee to targeted consumers and stakeholders,
and reflecting organizational mission and values. Mihaljevich (2008: 174) stresses
that brand demonstrates the advantages of „value added‟ marketing and once
established supports profits generation.
The development of Fair Trade brand can help to operate competitively within
commercial enterprise. However, Nicholls and Opal (2005: 158) criticized Fair Trade
brand for being decentralized and not having strategic process. These problems are
caused by a number of reasons. Firstly, Fair Trade product has been offered to
market as a brand based on the certification mark which has series of complex
process. The national labeling initiatives (Fairtrade foundations, Transfair) awarded
the certification mark to fairly position their products in the market. Secondly,
individual Fair Trade operators such as Equal Exchange, Cafédirect, Divine
Chocolate or Agrofair have introduced their own brand values which compete in
mainstream markets (Hutchens, 2007: 5). These brands contain Fairtrade mark but
do not reflect the message behind in its entirety (Nicholls and Opal, 2005: 158).
Thirdly, the conventional outlets are also creating their own-label products, for
examples, Tesco, Starbucks and Nestlé and others (Hutchens, 2007: 4; Bowes and
Croft, 2007: 270) and feared to lack integrity with FLO‟s set of standards. Murray,
Raynolds and Taylor (2003: 24) believe that corporate commitment to Fair Trade
might be a temporary strategy and lasts until they develop their own criteria, label
and certification process. Similarly, Bowes and Croft suggest that “…their [profit-
oriented businesses added] commitment to these sectors [organic and Fair Trade
added] is likely to be sustained for as long as they are in vogue and for not minute
longer” (2007: 271). In this sense, the launching of own brands by Fair Trade
companies and conventional outlets could be seen, on the one hand, as addressing
46
the limitations of FLO‟s certification system. On the other hand, it can widely
contribute to ineffective marketing communication under Fair Trade model.
Therefore, the development of standardized brand is relevant to solidify the
empowerment of producers in developing countries and to control the quality of the
product that influences the purchasing behavior of consumers. For instance, Fair
Trade coffee is the widely developed brand than any other product. It is the fast
growing brand and boosting the income of producers. Beyond the increased income
returns to the producers, most of the branding businesses are co-owned with
producers which give them higher sense of ownership. The flow of coffee brand is
indicated on Figure 4.5.
Figure 4.5: Coffee branding process
Source: Adapted from Hutchens, (2007: 11).
In reality, Fair Trade brands have more advantages than product certification marks
in conventional markets (Hutchens, 2007: 11). This poses a potential risks for FLO,
because brand owners might deviate from the requirements as they gain control over
Fair Trade markets.
47
5 Impact of Fair Trade Marketing
The analysis of Fair Trade movement (marketing) impact on the disadvantaged
producers and their cooperative organizations has significant implication on the future
growth of Fair Trade market. But in order to measure the impact, it is relevant to
know the guiding principles or the drivers behind the Fair Trade model. Ruben
outlines the following underlying principles: “(1) creating better income opportunities
for economically disadvantaged producers, (2) strengthening farmers‟ organization
and capacities, (3) payment of a fair price, (4) promoting gender equity, (5) improving
working and living conditions and (6) enhancing environmental protection” (2008: 21).
Nicholls and Opal summarize the concept behind Fair Trade as the need to secure
sustainable economy, which can be realized by working with profit-driven businesses,
and the need to have developmental (especially social and environmental) impact on
the producers (Nicholls and Opal, 2005: 201). The developmental impact on the
producers should be demonstrated otherwise Fair Trade movement will lose
credibility from the side of supporters and consumers. Fair Trade consumers (the so-
called ethical consumers) want to see the improvement that their purchasing power
can make in the socio-economic environment of the poor producers in the developing
countries. Thus demonstrating the developmental impact of Fair Trade, on the one
hand, secures the consumer brand loyalty in the Fair Trade market. On the other
hand, it proves that Fair Trade model is a better approach to address the global
market failure and consequently offers an alternative trading solution to the producers
and farm workers of southern nations. Generally, to confirm this claim made by the
Fair Trade actors, several studies have been conducted in different settings. Most of
the case studies focus on the impact (outcomes or effects) on the producers and
producer co-operatives and organizations.
5.1 Introduction to Impact Evaluation
The studies conducted on Fair Trade impacts earlier did not compare the change in
the livelihoods of Fair Trade producers to other similar non-Fair Trade producers. Or
else the studies have not incorporated the non-financial and immaterial benefits
accrued to Fair Trade producers. Recently, case studies are showing the focus on
both financial and non-financial benefits generated from Fair Trade model (Nicholls
48
and Opal, 2005: 204). However, before discussing in detail the impact analysis, a due
consideration should be given to the term impact and its wider usage in this study.
FLO defined impact “as a new situation created by a set of results and effects that
induce significant, sustainable change in the lives and environment of people and
groups for which a direct or indirect chain of causality can be established with the
development initiative (CIEDEL, 1999 cited in FLO, 2007a: 35). Basically, FLO has
employed two different methodologies for the assessment of results and effects that
lead to changes in producer‟s life and community at large. These methods are 1)
monitoring and evaluation system, and 2) case study approach for assessing the
long-term impact of Fair Trade (Ibid.). Similarly, Ronchi explains that impact
“…includes the effect of Fair Trade relations on their financial, organizational and
institutional development” (2002: 7). In his case, the impact assessments are based
on the documentation and survey data collected during the fieldwork. The data
includes primary documents and interviews with General Manager and members of
staff (Ronchi, 2002: 6). Furthermore, Ruben explains the impact assessment
approach to several case studies as follows:
“Program evaluations commonly distinguish between results on output,
outcome and impact level. These results can be seen to be part of a chain:
output leads to outcome and outcome leads to impact. Output results are
defined as increased capacities of partner organizations to deliver outcomes at
the level of target group. Outcome results are defined as increased capacities
of the target group to improve their living conditions. Impact is defined as the
(positive or negative) changes in living conditions of the target group, including
both primary and long-term implications, direct and indirect effects as well as
intended and unintended outcomes” (2008: 23).
Ruben‟s chain of output-outcome-impact analysis is more appealing, although, the
other approaches to impact studies are also valuable and equally considered in the
scope of this paper. The main reason for this preference lies on the wide range of
possible impact assessment factors covered within this. Nevertheless, FLO, Ronchi
(2002) and Ruben (2008) explanations contain most the relevant components of
impact analysis: positive and negative effects; financial and non-financial; short-term
49
and log-term implications; direct and indirect effects; individual and communal
benefits; and intended and unintended consequences. More importantly, the impact
indicates the differences in the major socio-economic changes observed on Fair
Trade producer and their organizations as compared to the non-Fair Trade ones and
moreover, the behavioral parameters associated to their involvement in Fair Trade
system.
Ronchi (2002), for instance, summarize the impact as direct and indirect impacts of
Fair Trade on the producers and their cooperatives or organizations as shown on
Figure 5.1. This classification helps to track the different stakeholders involved in and
influenced by Fair Trade system. Especially to explain intra-relational impact between
Fair Trade Organization, producers (cooperatives) organizations and producers, it is
very consequential.
Figure 5.1: Classification of Fair Trade impacts
Source: Ronchi (2002: 3)
5.2 Overview of Selected Case Studies
In this section some of the selected case studies on beneficial impacts and its
limitations are presented. The case studies were conducted in different continents
and different countries and on few products that passed through Fair Trade market.
The first case studies presented in Table 5.1 were compiled by Ruben (2008) and
other authors and contains the wide range of examples on fair trade and their
methodologies. This case study-collection not only embraces more than one
50
continent but also conducted on the varieties of products traded based on Fair Trade
market requirements. Moreover, it had been conducted on both Fair Trade and non-
Fair Trade co-operative organizations to make a clear distinction.
Table 5.1 Overview of case studies
Country
(Product)
Organizations Establishment
date
Families Sample
Sizes
Peru (bananas)
FT APVC 2002 241 50
Non-FT -(organic) APBOS 2003 13 110
Non-FT (conv.) Individual Producers n.d. >500 40
Peru (coffee)8
FT CAC Ubiriki 1977 274 60
Non-FT CAC Tahuan. 1975 233 60
Costa Rica
(bananas)
FT Coopetrabasur 1980 70+100 50
Non-FT Finca San Pablo 1968 200 50
Costa Rica (coffee)
FT Coopemontes de Oro R.L 1984 286 50
Non-FT Café de Altura S.A 2004 600 50
Ghana (bananas)
FT Volta River Estates 1988 560 240(50)
Non-FT Golden Exotics 2003 800 50
Ecuador (bananas)
FT El Guabo 1998 400 57
Non-FT Independent farmers n.d9 >500 63
Kenya (herbs)
FT Meru herbs 1991 430 30+30
Non-FT Only Fruit (outgrower)
&…
n.d N.d 30+30
Peru (artisanal)
FT Minka (Juliaca) 1979 60 groups 80
FT Allpa (Chulucanas) 1981 100
groups
80
Non-FT Juliaca & Chulucanas n.d N.d 80
Mexico (coffee)
8 In Peru, the case studies are not only limited to CAC Ubiriki and CAC Tahuantinsuyo but also enterprises like CAC La Florida,
CAC Pangoa, CAC Sangareni and Ass. Productores Pichanaki. 9Note that n.d = no data available
51
Country
(Product)
Organizations Establishment
date
Families Sample
Sizes
FT Michiza Cooperative 1986 1,100 26
Non-FT Unorganized & CNC
Fraternal
n.d >5,000 25
Source: Adapted from Ruben, (2008: 29)
The second case studies shown in Table 5.2 below were conducted in Mexico and
Central America. These case studies focused on the impact of coffee on its individual
producers, farmer‟s households and community and producer organization. The
number of members included in the study ranges from 28 to 16,000. Despite the fact
that, the findings on the impacts are solely associated to coffee producers,
cooperatives and organizations, and thus can not ideally attributable to other
products of Fair Trade, the observation has relevant implications with regard to the
involvement in Fair Trade. Here, the central issue is to summarize the impact of Fair
Trade system.
Table 5.2: Case Study organizations in Mexico and Central America
Name Location Year Founded Number of members
CEPCO Oaxaca, Mexico 1989 41 organizations
16,000
UCIRI Oaxaca, Mexico 1981 2,076
Majomut Chiapas, Mexico 1983 1,500
La Selva Chiapas, Mexico 1976 943
Tzotzilotic Chiapas, Mexico 1992 840
La Voz Guatemala Late 70s 116
APECAFE
Las Colinas
El Sincuyo
El Salvador
1997
1980
2000
11 cooperatives
99
28
Source: Murray, Raynolds and Taylor, (2003: 4)
The third case study category present on Table 5.3 was conducted only in Costa
Rica and on coffee producers, co-operatives and cooperatives consortium. It shows
the different levels of organizations involved in Fair Trade market. Co-operative is
formed by two or more members (primary level) and numbers of co-operatives form a
producer organization (secondary level, Coocafé).
52
Table 5.3: CooCafé and Co-operatives in Costa Rica
Name of
cooperative
Organization
(consortium)
Year joined
Fair Trade10
Number of
members
Coope Cerro Azul
Coocafé, Costa Rica
1988 138
Coopeldos 1988 529
Coope Sarapiqui 1989 400
Coope Llano
Bonito
some months 509
Source: Based on Ronchi, (2002: 5-6).
5.3 Direct Impact of Fair Trade
Fair Trade has made significant contributions to livelihoods of small farmer workers of
the southern nations. The most significant contribution of fair trade is the increased
prices where the producers are paid higher than the conventional market price for
their coffee. Because coffee is the most wanted and marketed products many case
studies are focused on coffee producers. However, products like banana, tea,
beverages and others that have gained a well established Fair Trade markets are
also delivering similar positive results from the impact analysis conducted. The
impact analyses for many other Fair Trade products are still underway.
The focus here is predominantly on the direct impact which can be further
distinguished as 1) the financial impact measured in terms of the minimum fair price
and social premium payment to producers, and 2) the financial and non-financial
benefits captured through Fair Trade system by producer organizations (Ronchi,
2002: 3). These two categories should make the direct impacts demonstrable
benefits of involvement in Fair Trade. In line with the mentioned beneficial impacts,
the focus is also to find the contributions that this model has made to the existence of
these social systems. For the sake of convenience, the analyses begins with the
obvious benefits of the higher price captured by Fair Trade producers, then continue
to outline organizational benefits in terms capacity building, technical assistance and
consultation from FLO or NGOs and finally moves on to explore the direct effects or
10
The year indicated here refers to the time when co-operatives joined Fair Trade consortium, CooCafe.
53
other significant benefits that accrue at the individual producer households,
communal, and organizational levels (Murray, Raynolds and Taylor, 2003: 6).
5.3.1 Direct Impact on Producers
The most well-known direct impact of Fair Trade on producers can be explained in
terms of 1) increased income; 2) improved education; 3) female empowerment; 4)
preserving indigenous cultures; and 5) psychological effects such as producer
empowerment and its effects on civic participation (Nicholls and Opal, 2005: 204).
Similarly, Ruben (2008) outlined direct impacts such as job security and satisfaction,
sense of ownership, corporate identification and others in addition to income. Thus, I
prefer summarizing all listed impacts under Ronchi‟s (2002) financial and non-
financial categories. Some of these impacts on the producers will be closely
elucidated in the following section.
5.3.1.1 Increment in Household Income
Producer members of the co-operatives selling to the Fair Trade market through
producer organizations receive a higher and stable price than any conventional
market price. The two distinctive prices need to be considered are the floor price and
premium price that the producers receive for their products. Fair Trade organizations
set a stable price, so-called floor price, for each product based on the average costs
of production. For instance, Fair Trade coffee is the most marketed commodity
compared to any other commodities. Producers receive a minimum of US $1.21 plus
social premium US $0.05 per pound and an additional US $0.15 for certified organic
coffee (Murray, Raynolds and Taylor, 2003: 6). The minimum (floor) price is paid by
the consumers even when the market price is less. This unique Fair Trade price
reduces the effects of the volatility and fluctuations in commodity prices (for example,
coffee crisis in 1989) and as a result guarantees producer a stable income to cover
the cost of production. One of the negative impacts that moving to the mainstream
marketing impose on Fair Trade system is the perceived mainstream negotiating
power to manipulate the unique pricing strategy of Fair Trade. With respect to that
guaranteeing floor price is extremely valuable for smaller producers.
The second significant benefit comes from Fair Trade premium price (also known as
social premium) as mentioned in Fair Trade standards. The social premium is paid
54
extra above the Fair Trade product‟s value and is mainly used to invest in social and
environmental projects. Ronchi states that from Fair trade premiums earned 30% are
invested in capitalization funds and 70% are allocated to producers‟ fund for
distribution by the co-operatives (2002: 7). Or at times this premium serves as a
social capital fund for co-operative. Thus, on the one hand, the premium is a
substantial supplement to producer‟s income. On the other hand, it is allocated to
Social Capital Fund of the co-operative which is used to run the projects (for
instance, invest in facilities for production of organic fertilizer, used in acquiring
environment-friendly processing plant, etc.), which in turn, benefits the producers in
the log run.
Table 5.4:Fairtrade Premium spent SPO: total - data 99% complete
Com
munity 1
Educatio
n 2
Environm
ent
3
Health 4
Busin
ess
and
pro
ductio
n 5
Wom
en‟s
pro
gra
mm
es 6
Oth
er
pre
miu
m
use 7
Not
pro
ject
specific
8
To
tal
pre
miu
m
spent
Grand Total EUR
3,342,925 872,723 420,522 886,010 6,944,004 81,014 1,002,961 294,105 13,844,263
Percent -tage
24% 6% 3% 6% 50% 1% 7% 2% 100%
Source: FLO, (2007a: 34)
Table 5.5: Fairtrade Premium spent HLO: total - data 100% complete
Com
mun
ity 1
Educatio
n 2
Enviro
nm
ent
3
Health 4
Cle
ar
Develo
pm
ent
5
Wom
en
‟s
pro
gra
mm
es
6
Oth
er
pre
miu
m
use
7
Not
pro
ject
specific
8
Tota
l
pre
miu
m
spent
Grand
Total
EUR
2,205,117 1,062,635 112,832 351,574 1,268,508 11,181 198,012 12,750 5,222,608
Percent
-tages
42% 20% 2% 7% 24% <1% 4% <1% 100%
Source: FLO, (2007a: 34)
Despite of the unattainable systematic economic data on accumulated household
income for most case studies, some case studies indicated that there is significant
improvement to the overall income of the household. For example, cooperative like
55
Majomut reported a 100-200 percent increase in income (Perezgrovas and
Cervantes, 2002 cited in Murray, Raynolds and Taylor, 2003: 9).
5.3.1.2 Female Empowerment
Involvement in Fair Trade is frequently advocated because of its expected
implications for greater gender empowerment and improved environmental care. One
remarkable achievements of Fair Trade in the social environment is the engagement
and empowerment of the women. According to FLO findings indicated in Tables 5.6
and 5.7 (in the period between 2007 and early 2009), in Small Producer
Organizations women represented less than 25% of all members. Only 61% of the
data was acquired to assess the gender issues in Small Producer Organization (FLO,
2007a: 20). In Hired Labour Organizations, women are accounted for 41% of the
work force. Generally, in both organizations women participation is limited to certain
types of products (Ibid.).
Table 5.6:Number and percentage of male and female members and workers
Number of workers
Data completion Extrapolated to 100%
Percentage of workers
Female 83370 61% of the
population
166,000 24%
Male 260030 525,000 76%
Total 343400 692,065 100%
Source: FLO, (2007a: 20)
Table 5.7: Number and percentage of male and female members and workers
Number of
workers
Data
completion
Percentage of
workers
Female: 39395 99% of the
population
41%
Male: 56599 59%
Total: 95994 100%
Source: FLO, (2007a: 20)
Although the percentage of female involved in Fair Trade activities are relatively less
than that of male, several Fair Trade handcraft projects focus on female producers
and they are also a direct income beneficiaries. As result, female those who earn
enough income could send their children to school, which in turn, reduces children‟s
56
participation hired labor to contribute to the household income at the expense of
going to school.
5.3.1.3 Improved Education
Producers from many co-operatives reported about their access to training and
enhanced ability to improve the quality of the production in different case studies
(Murray, Raynolds and Taylor, 2003: 9). Most of the co-operatives are organized
together and formed a foundation that support or even run schools in their
communities. For instance, the nine co-operatives (organized under producer
organization – Coocafé) in Costa Rica had established a foundation and run three
student-support programs: “Secondary School Scholarships, University Scholarships
and an Educational Extension Fund aimed at bridging the enormous gap between
the quality and accessibility of urban versus rural education” (Ronchi, 2002: 8).
Similar claim is made by members of La Voz in Guatemala that the improving
children‟s education has been impacted by the involvement in Fair Trade (Murray,
Raynolds and Taylor, 2003: 9). Finally, FLO confirms that significant amount of
premium money is invested for educational purposes, enabling the children of
producers or farm workers and of the local community to gain access to primary or
secondary school (FLO, 2007a: 33). Further educational benefits were also perceived
in other case studies.
5.3.1.4 Preserving indigenous cultures
Most of world shops (German alternative, Weltladen) contain diversified cultural
products imported from different countries. Especially, the handcrafts, clothing and
accessories were portrayed with the unique designs and embroideries of different
cultures. For Fair Trade marketing those articles means, on the one hand, helping
consumers to broaden their horizon concerning foreign artifacts. On the other hand, it
is contributing to cultural revival of some indigenous communities, as described by
Murray, Raynolds and Taylor (2003: 11). For example, Lyon (2002 cited in Murray et
al., 2003: 11) noted that La Voz members in Guatemala are recuperating the
ancestral farming practices. Similarly, UCIRI, Oaxaca, reported the contribution of
Fair Trade Direct Impact on Producers‟ (Co-operative) Organizations.
The most far-reaching impacts of Fair Trade, in terms of projects implemented and
services rendered to the co-operatives and producers‟ organization, which led to a
57
tremendous organizational capacity building and empowerment. This is fundamental
to sketch the degrees to which Fair Trade has supported the survival and the growth
of these producer organizations. Based on that, the support given to producer co-
operatives and organizations can be grouped as financial and non-financial and
further elaborated in the following section.
5.3.1.5 Financial and non-financial support for producer organization
Most of the producers‟ organizations export their products to Fair Trade markets. The
product that is sold through Fair Trade market networks, as mentioned above,
receives minimum price and social premium set by FLO. A well established producer
organization can partially or fully trade their products through Fair Trade markets.
Ronchi (2002: 13-14) explains the direct financial impact of Fair Trade on producer
organization (for example, CooCafé) as being channeled by 1) generating large sum
of revenue through delivering its products to Fair Trade markets from its inception; 2)
the exportation of diversified products such as roasted and green coffee to Fair Trade
markets; and 3) the financial intermediation and interest revenue through the
investment of social premium into available capital funds.
Fair Trade supporters, especially ATOs, have provided most of producer
organizations a capacity-building assistance with quality control processes and
information about the market. For instance, CooCafé of Costa Rica export
department reported the positive impact that the assistance of ATOs had in
successful production and access to full coffee marketing chain and in product
diversification scheme (Ibid.). Murray, Raynolds and Taylor (2003) wrote that the
“…participation in Fair Trade has strengthened the overall ability of the organizations
to serve their members. The process of applying for certification and undergoing
periodic compliance audits push organizations to improve their administrative
capacity” (2007: 12).
5.3.1.6 Financial and Non-financial support for co-operatives
In a similar way, the financial and non-financial impact of Fair Trade on producers‟
co-operative is significant. But before mentioning about the direct impact of Fair
Trade on co-operatives organization characterizing of co-operative is worthwhile to
understand. According to Milford description, “agricultural co-operatives (also
58
sometimes referred to as marketing co-operatives or service co-operatives) buy the
agricultural produce of their members and distribute it to the final market, usually after
processing the product” (2004: 11). For example, coffee producing co-operatives in
many countries are democratically organized, owned and run by members. These
are the types of co-operatives that operate in Fair Trade system. Members in such a
co-operative organization have shared-voting right and uniform membership
contribution fee. Fair Trade is providing co-operatives with services and educational
programs directly or indirectly (producer organization). Many coffee producing co-
operatives (of non-Fair Trade) were closed due to the capital constraints, lack of
market information and various other reasons. In contrary, Fair Trade played an
important role in overcoming the capital constraints for most co-operatives compared
to non-Fair Trade co-operatives. For example, in 1995 the Costa Rican government
passed legislation that demanded the use of „Clean Technology‟ to protect the
environment. The costs of conversion to the Clean Technology were between
US$38, 000 - $70,000 (Ronchi, 2002: 17). Several co-operatives used Fair Trade
premium-funded Social Capital fund to meet their financial needs and comply with the
new legislation (Ibid.). In reality, the continuous survival of co-operatives is an
indicator of the positive financial impact of being in Fair Trade system taking into
consideration the possible market inefficiency and harsh government regulations.
The non-financial impact of Fair Trade can be expressed in terms of support to co-
operatives. Most of the member co-operatives conduct educational programs on the
benefits of being organized into co-operative. This program is financed directly by
producer organization (Coocafé) or indirectly through Coocafé by Fair Trade.
5.4 Indirect Impact of Fair Trade
Unlike the direct impact study, indirect impact deals with the various services and
programs offered by the Fair Trade producer organizations and other member
organizations and the consequent impacts of these services (Ronchi, 2002: 2). The
support of producer organizations will ultimately benefit the producers which belong
to the organization itself. In short, the ultimate benefit of supporting the organizations
accrues to the producers. These benefits are even more valuable the than the mere
income stated above. Nicholls and Opal explain that
“Fair Trade producers gain value from long-term relationships, direct trade and
credit provision, all of which help them in their non-Fair Trade sales
59
negotiations. The communities in which Fair Trade producers operate benefit
from development projects funded by Fair Trade cooperatives and farm
workers organizations. Even self-esteem and self-confidence are improved as
Fair Trade farmers identify with an international alternative trading movement”
(2005: 202).
Most of these benefits can not directly be quantified or monetized; however, they are
observable in the livelihoods of producers. Thus, the remaining two avenues are
analyzing the impact of those producer organizations, especially within Fair Trade, on
producers and on their organizations.
5.4.1 Indirect Impact on Producers
Having discussed the direct impact of Fair Trade on both producers and their
(cooperative) organizations, it is important to take the indirect impact of Fair Trade
into account. Among the perceived indirect impacts on the producers, Nicholls and
Opal mention the “1) positive externalities which drives from support for co-operatives
and progressive plantations; and 2) benefits accrued to Fair Trade groups through
direct trade relationships” (2005: 204). That means the support of Fair Trade to
producer organization non-financially, also extends to the support of co-operatives
and, in the long run, benefits individual producers. Based on the field studies
conducted on producers, Ronchi (2002: 19-23) found that the non-financial impacts
of Fair Trade on producers could be recognized by the services rendered to them by
their cooperatives and/or organizations. Thus, one could call it organizational impacts
on producers or farm workers. These could further be elaborated by the following
points.
1) The financing conditions arranged by the cooperatives and producer
organizations charges lower interest rates for credit facilities over the last ten
years. Remarkably, other traditional credit institutions (such as banks and
development agencies) have opened their doors to Fair Trade certified famers
because of their improved image (Murray, Raynolds and Taylor, 2003: 7). As
some co-operatives reported, this is due to the increased organization‟s credibility
which resulted from their participation in Fair Trade market system. Consequently,
access to different credit sources enable the members to invest in small
60
businesses on their own land and homes. These, in turn, benefits the non-
members those who can not establish such small businesses because of the
financial constraints they have.
2) Members‟ participation in environment educational activities helps to reduce the
usage of herbicides and pesticides, and educational session on organic
production enabled to enhance the portfolio of their products (Ronchi, 2002).
Similarly, the participation in Fair Trade could be seen as an apprenticeship for
quality-related techniques and enhancing production and commercialization.
“Majomut‟s technical advisors, for example, provide members with a minimum of
six training courses yearly in coffee tree management, soil fertility and
conservation, pest management, harvesting techniques and other quality-related
procedures” (Perezgrovas and Cervantes, 2002: 17 cited in Murray, Raynolds and
Taylor, 2003: 8). This kind of assistance from Fair Trade organization, directly and
indirectly, has strong influences on the income of producers in the long run.
3) As noted earlier in chapter two, some of the Fair Trade organizations are
committed in networking Fair Trade producer and their organization. In line with
this effort, these organizations have contributed to the development of networks s
among the participants. According to Mendez (2002: 22 cited in Murray et al.
2008: 8), the interaction of different Fair Trade participants facilitated the building
of social networks which led to collective action toward developmental activities in
the community. Although, social network is considered as indirect impact of
participation in Fair Trade, the financing of developmental activities heavily
dependent on Fair Trade social premium. Thus, the indirect beneficial impact is
the union of different members of cooperatives under the umbrella of Fair Trade
for the purpose of communal development.
5.4.2 Indirect Impact on Producer Organizations
The intention underlying in this section is to detect the impact of producers‟
organization or consortium (for example, Coocafé, in Costa Rica) on the co-
operatives (Coope Cerro Azul or others). On the other hand, the existence of the
producer organizations in one community has an impact on the community beyond
the immediate impact cooperatives. Fair Trade producer organizations are
61
structurally higher, economically stronger, social-politically representative and
commercially competitive. These specific characteristics capacitate them to occupy
higher position and play key roles in the Fair Trade business. Their functions can
further be understood under the listed points below.
1) Producer organization or consortium takes advocating position within the Fair
Trade system, in the process of certification and decertification, and it also
facilitated support in consultation and technical assistance from external agency
such as NGOs and ATOs.
2) Ronchi emphasize “the impact of consortium via its wider co-operative actions, its
representative role on a national level and the opportunities it facilitates for its
members provide important indirect impacts of Fair Trade” (2002: 23). That
means, policies and regulations enacted by local authorities could not threaten
the existence of co-operatives because of the representative position and
participative action of consortium.
3) Based on the consortium initiative program for interaction and information
interchange among the different co-operatives, “…the information-sharing
processes have benefited the co-operatives in terms of administrative efficacy
and human resource training” (Ibid: 24). For example, the meeting of technical
advisors or human resource personals of different co-operatives supported by
consortium has a significant impact on education and implementation of
diversified projects benefiting various target groups.
5.5 Impacts of Fair Trade on Non-Participants
The impacts of Fair Trade extended beyond the Fair Trade producer and their
organizations and affected non-Fair Trade producers and organizations positively.
Some of the significant impacts can be described in the followings. Firstly, due to
growth in Fair Trade markets and demand from consumers, Fair Trade registered co-
operatives have facilitated the entry of other non-Fair Trade groups into the Fair
Trade networks and markets. The collaboration of Fair Trade producer with non-Fair
Trade helps “many groups learn about Fair Trade from other producer organizations
and, in some cases, receive assistance from these other groups. For example, Fair
62
Trade pioneer UCIRI helped draw La Selva into the Fair Trade coffee market in 1990.
La Selva in turn facilitated Majomut‟s entry into Fair Trade in 1993-1994. Majomut
then assisted Tzotzilotic in selling Fair Trade coffee for the fi rst time in 2001”
(Murray, Raynolds and Taylor, 2003: 13).
Secondly, previous Fair Trade co-operative organizations (for example, La Selva and
Tzotzilotic of Chiapas, Mexico) that FLO decertified because of their incompliance
with the Fair Trade standards are now working hard to avoid administrative
weaknesses and other failures to regain their status as Fair Trade co-operatives
(Murray, Raynolds and Taylor, 2003: 20). Alarmed from the decertification of other
co-operatives, the existing co-operatives are also forced to improve their compliance
with the set of standards. Similarly, they noted that this process has contributed to
the improvement of the cooperative participation and reinforced the transparency of
cooperative management and decision-making (Ibid). Furthermore, it is observable
how the standards and the related certification process may affect the cooperatives
negatively and limit the benefits that Fair Trade has on the poorest producers
(Nicholls and Opal, 2008: 214). The implication is that the most marginalized
population has no chance at all to participate and enjoy the benefit of Fair Trade due
to the noted problem.
Finally, Fair Trade system has impacted non-Fair Trade producers through the
strength and activity of primary level co-operatives. Ronchi claims that this model has
a ratcheting effect, that is, the wage and price standards of Fair Trade cooperatives
forced other non-Fair Trade cooperatives to improve for all producers (2002: 20).
Moreover, a short-term credit services available to non-members for their basic
needs become relevant in improving the image of Fair Trade (Ibid. 19).
5.6 Emerging Impact Analysis Methods
Different metrical methods of social impacts have been introduced to describe the
social impacts of Fair Trade. Especially, the following impact analyses were given a
short consideration by Nicholls and Opal (2008: 216-225).
63
5.6.1 Qualitative Approaches
There are several metrical models employed to measure the social impacts of
businesses. The social impact measurement is targeting at “…capturing specific, and
often partial, descriptive outcomes of strategic action” (Nicholls and Opal, 2008: 216).
Nicholls and Opal stipulates that such metrical approach based human observation of
individual or communal level changes or developments and therefore mostly
incomparable. The following four approaches are specifically related to them.
5.6.1.1 Triple Bottom Line
The triple bottom line (TBL) concept was introduced by John Elkington and
developed to measure business companies economic value added and the impact on
social and environmental value added (Richardson, 2004: 34). This qualitative model
attempts to measure these values by combining the financial performance from
company‟s accounting system with the social and environmental audits (Nicholls and
Opal 2008). Thus, capturing the three pillars of sustainable development, which are
economic, social and environmental capitals, are the vital in dealing with this method
(Richardson, 2004: 34). However, contrary to the financial performance, social and
environmental audits are partial, subjective and not quantifiable and consequently,
controversy still rages over the financial valuation of social and environmental
impacts (Nicholls and Opal, 2008: 217; Richardson, 2004: 34).
Unlike for the profit-driven commercial organizations, the TBL is less valuable for Fair
Trade model. Of course, Fair Trade system is also seeking commercial returns;
however, intrinsically it is concerned with generating social and environmental
outcomes (Nicholls and Opal, 2008: 217). Therefore, applying TBL model to assess
the full impact of Fair Trade system on producers and their organization is not the
best possible option.
5.6.1.2 Social Accounting
The second qualitative method is social accounting approach. This approach is more
detailed and systematic means of social impact measurement than the TBL
approach. Zadek (1998: 1436-8 cited in Nicholls and Opal, 2008: 217) outlined eight
guiding principles. These are 1) inclusivity, 2) comparability, 3) completeness, 4)
64
regularity and evolution, 5) embeddedness, 6) communication, 7) externally verified
and 8) continuous improvement. These principles provide valuable information about
individual actions and objectives and can be used to indicate the development in the
long-run (Ibid.).
Some Fair Trade organizations have adapted this approach. For instance, Traidcraft
PLC in collaboration with New Economic Foundation (NEF) conducted social
accounting and published the audit report in 1993 (Nicholls and Opal, 2008: 217;
Redfer and Snedker, 2002: 9). Currently, using the conventional businesses audit
practices, Traidcraft, NEF and others established Institute for Social and Ethical
Accounting (ISEA). The “ISEA‟s goal is to promote best practice in social and ethical
accounting, auditing and reporting and to develop standards and accreditation
procedures for professionals in the field” (Redfern and Snedker, 2002: 9). Though
social accounting is more appropriate indicator of social impacts than the former TBL,
Nicholls and Opal argue that it is largely an internally driven marketing strategy for
stakeholders lacking comparative value and as a result declines to present the full
impacts measurement.
5.6.1.3 Balanced Scorecard
Nicholls and Opal continued to consider further qualitative approach known as
Balanced Scorecard. This method was first developed for profit-driven business
organization and then adapted for public and nonprofit organizations. Contrary to the
former organization, where the customers both pays for the services and receives the
services, in a nonprofit organizations financial providers (donors) pay for the services
and the target group or customers receive the services (Kaplan and Norton, 2001:
134-5). Because of the two different parties involved the organizations should
consider the donor and receiver perspectives in the arrangement of their balanced
Scorecard. The nonprofit organization mission should be featured and measured by
setting organizational objectives based on various stakeholders involved in the
business analysis which encompasses internal business processes and
organizational learning (Kaplan and Norton, 2001: 134-5; Nicholls and Opal, 2008:
219). Thus the Balanced Scorecard for nonprofit is organized according to the one
indicated on Figure 5.6.
65
Figure 5.2: The Balanced scoredcard for not-for-profits Source: adapted from Kaplan, 2002 cited in Nicholls and Opal (2008: 220)
The application of Balanced Scorecard into the Fair Trade presupposes the
understanding of multiple missions that is involved in fair Trade model. These are
maximization of commercial returns to producers and denouncing the international
trade inequality (Nicholls and Opal, 2008: 220). As it is shown on Figure 5.3, Nicholls
and Opal have further modified nonprofit organization Balanced Scorecard to fit it into
Fair Trade system. They replaced customers by producers with the developmental
objectives and investors by consumers with sales and awareness raising objectives.
Thus, internal business processes stipulate FTO to jointly devise commercial
capacity as well as developing strategies for campaigning and raising awareness. In
practice, the advocacy groups such as FLO members, IFAT and EFTA are
supporting the advocating objectives and the commercial operators like Traidcraft,
Cafédirect, and People Tree are focused on the commercial growth. The
organizational learning aspect focuses on the various networks within Fair Trade
which provide information flows and motivate innovations (ibid. 220).
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Figure 5.3: The Balanced Scorecard for Fair Trade
Source: adapted from Kaplan, 2002 cited in Nicholls and Opal (2008: 221
5.6.2 Quantitative Method: Social Return on Investment
The most complex and advanced quantitative approach to social impact
measurement is called Social Return on Investment (SROI) (Nicholls and Opal, 2008:
221-227). SROI methodology works across different sectors (for instance, private
business, nonprofit organizations, government agencies and other social enterprises)
and designed to measure the impacts of social projects. The term social impact
stands for social, environmental and economic impacts in this section. Thus, SROI is
favorable to demonstrate the combined impacts of all the three objectives. According
to NEF comment:
“Social Return on Investment (SORI) mirrors the standard financial measure
of economic return but shows how organizations of all kinds create value
beyond the economic. This is particularly true for those organizations in the
social economy that may search for either economic or just social value. When
compared to mainstream businesses, they may or may not achieve similar
levels of financial return, but even if they do not, the value to society of the
social or environmental returns that they create may well be equal or higher.
(2004b: 3 cited in Nicholls and Opal, 2008: 222).
67
Nicholls et al. (n. a.)11 claim that SROI was developed from social accounting and
cost-benefit analysis and supported by seven principles for its application. These
principles can be explained as 1) Involving stakeholders, 2) understanding the
changes taken place, 3) valuing the things that matter, 4) including what is material,
5) avoiding over-claim, 6) demonstrating transparency and 7) validating the results.
Based on these principles, judgment plays a significant role in SROI analysis. For
instance, a careful judgment is required about the materiality of information to avoid
the misrepresentation of the organization‟s activities. The analysis of SROI involves
various other issues that should be taken into consideration. Firstly, establishing the
organizational boundaries of the social projects, identifying the main stakeholders
and specifying key social objectives are relevant (Nicholls and Opal, 2008: 223;
Nicholls et al. 9). Secondly, establishing impact map gives guidance to how social
impact is intended to be achieved. The impact value chain indicated on Figure 5.5
presents the linkage of inputs, outputs, outcomes and impacts. Inputs are resources
invested in the social projects. Outputs are the direct and tangible products from the
activity, for instance, Fair Trade products sales. Outcomes are changes to target
group (Fair Trade producers and communities) resulting from the activity, for
example, increased household income. Impacts are outcomes less an estimate what
would have happened without the social projects activities (Nicholls and Opal, 2008:
223; SIA, (2003: 18).
11
n. a.(Not available) - The year of edition for “A guide to social return on investment” is not available,
but it has been written by Jeremy Nicholls, Eilis Lawlor, Eva Neitzert and Tim Goodspeed, and edited by Sally Cupitt.
68
Figure 5.4: Impact Value Chain
Source: SIA, (2003: 18)
Finally, the calculation of SROI demands Cost Benefit Analysis tools. According to
Nicholls and Opal (2008), it can be divided into three steps (detailed elaboration of
the steps on Appendix 1). The first step calculates the blended value (enterprise and
social purpose value) of social project. The enterprise value can be acquired using
the conventional business project valuation approach. That is, present value of the
total future cash flows will be discounted by a risk premium (Nicholls and Opal, 2008:
223). The discount rate is calculated using the financial model known as Capital
Asset Pricing Model (CAPM) which calculates risk project. Since Fair Trade business
is retail in nature and small in size, the CAPM should also reflect these factors. The
second step the social purpose value of the given project should then incorporate
various factors and be calculated for all factors. For Fair Trade business, different
developmental impacts are required to be valued. For example, the impact of
technical assistance, pre-financing and education programs should be carefully
monetized. Similar to that of enterprise value, the quantified social purpose value will
be discounted to a present value and represents the project outcome (Ibid.). The last
step is calculating a blended value of enterprise and social purpose values. The
SROI is calculated based on the total investment in a project and also discounted by
the weighted average discount rate of the enterprise and social purpose values (Ibid.
225).
69
6 Conclusion
The international trade liberalization, fast market expansion, movement of capital,
migration of labor, power of Transnational Corporation and many other phenomena
triggered the formation of many political movements in this era of globalization.
Although Fair Trade has both political and economical motives, the primary goal of
Fair Trade is to integrate the marginalized producers in global South into international
trade. Originating from the criticism of prevalent failures in international trade
liberalization to benefit disadvantaged trade partners, Fair Trade became the
consumers-backed support for ethically sourcing of agricultural commodity and
various other products. Fair Trade being an alternative market within the free market
system has attracted and served the ethical consumers only and consequently
lingered to reach the mass of consumers for several years.
The slowed down growth of Fair Trade system was primarily due to the grassroots
traders (ATOs) focus on supply-sided approaches to the market and thus neglect of
the consumers demand. The ATOs having the legal status of nonprofit organization
were not based on commercial principles rather on the solidarity trade principles. The
absence of commercial orientation delayed the fast transformation of this social
enterprise to a competitive business model. Consequently, the once ethical
consumers became commercial operators and focused on the consideration of both
supply- and demand-driven marketing approaches. Several commercialized ATOs
started to join the Fair Trade system in different countries. This phenomenon led to
the formation of National Initiatives as controlling bodies. The diversified application
of Fair Trade standards and principles across different countries, and the introduction
country-based Fair Trade seals (marks) created among the ethical consumers. For
that matter, an independent umbrella organization, FLO, came to existence. This
international organization roofed several NIs, producers and commercial operators. It
also works in harmony with other Fair Trade organizations such as IFAT, WFTO,
NEWS and FTF. Some of these organizations are advocator and campaigners,
commercial operator, networking and market facilitators.
FLO has developed general standards under which Fair Trade producer-suppliers
and commercial agents should operate in the Fair Trade market. Moreover, it
70
conceived a certification process to make sure the compliance to established
standards. The FLO-Cert (certifier) proves product and producer organization and
issues certification mark for the compliance. Due to the growing demand for quality in
return to the higher price paid for Fair Trade commodities, FLO brought a random
monitoring system to sustain the perpetuity of the compliance. All together, the
application of standards, certification process and monitoring system has given a
guarantee for consumers to use their purchasing power to improve the livelihoods of
small farmers and workers of global south. Especially, it has moved the Fair Trade
commodities out of a niche market to mainstream outlets. The mainstream
supermarkets interest in Fair Trade commodities has increased over last ten years
and boosted the Fair Trade sales turnover. In line with this growth, several producers
have started supply their products directly to conventional or traditional outlets. The
dominance of traditional supermarkets along the Fair Trade supply chain has
improved the fast distribution of Fair Trade products beyond the niche markets.
However, despite the celebrated success of the move to mainstream markets,
principle-driven Fair Trade activists are skeptic about the commitment of these new
Fair Trade partners.
Central to the growth of Fair Trade market can special be perceived as the marketing
effort of the international Fair Trade organizations. Although Fair Trade marketing
process shares some similar qualities with the social and conventional marketing
approaches, it is unique and contains special value for the customers. Especially, the
combined economic, social and environmental values attached to the product has
been a unique vehicle in communicating the ethical consumers in the face of growing
concern for social problems triggered by trade inequality. As a focal point of the
marketing instrument, Fair Trade marketing mix has focused on the producers
(producer co-operatives or organization). Fair Trade commercial operators (as
producers‟ partners) have also emphasized their marketing concept on producers.
The marketing mix elements: product, price, place and promotion have been
designed to communicate this specific message to the target audience. Fair Trade
products‟ design has incorporated the ethical message and economic value inherent
to it. The pricing scheme has been addressing to the uniqueness of the product. The
distribution of Fair Trade products has not been successful due to the incontinently
located World shops and other Fair Trade outlets. Promotion of the Fair Trade
71
products has been made possible through increased campaigning strategies of Fair
Trade organizations. Finally, Fair Trade products neglected the product innovation
and brand development, however, because of the mainstream business involvement
in the Fair Trade product outlets, Fair Trade commercial operators (Cafédirect,
Traidcraft, etc.) has started to develop their own brands that is co-owned with the
producer organizations.
The development of Fair Trade marketing and the participation of the conventional
outlets increased the demand for diversified Fair Trade products. Due to this
phenomenon several small producers and plantations have been impacted. The
impact of Fair Trade has been demonstrated by various case studies conducted in
different regions. The beneficiaries are ranging from individual producers and their
families, producers‟ organizations and the immediate communities. The researches
conducted also outlined the direct and indirect impacts on producers, financial and
non-financial benefits. However, the impact analyses reported have some problems.
Some were only focused on specified products which can not be representative for
many other Fair Trade products. For example, most of the case studies conducted
were on fair Trade coffee producers. Others did not capture and present the full Fair
Trade impact on the producers. Until recently, the non-financial impacts of Fair Trade
have been presented wholly and lacked the fair presentation of Fair Trade potential.
Especially, the impacts Fair Trade on the livelihoods of producers and the large
community have not been monitored and evaluated metrically. Consequently, there
have been growing tendencies to develop convincing and accurate assessment
methodologies that can capture the social and economical impacts. It will take a while
to disclose the full impact of Fair Trade.
Finally, Fair Trade market has grown and benefited several producers, farm workers
and their immediate communities in global south. However, compared to the global
population of marginalized communities, Fair Trade has just started the road to
poverty reduction through a market-based strategy. The beneficiaries of Fair Trade
represent very small percentage of large disadvantaged communities from
inequalities of international trade. Nevertheless, the accomplishment of Fair Trade
can not be underestimated.
72
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Appendix
1. Appendix: The steps of SROI calculation
For a given project SROI will be calculated as follows:
To measure value:
o Calculate the enterprise value Discount this figure by an appropriate rate, taking into account the WACC, where relevant
o Calculate the monetized social purpose value, taking into account the direct social costs of the project Discount this figure by an appropriate rate, taking into account
the WACC, where relevant o Calculate and blended value
Add enterprise and social venture values together
To measure investment:
o Calculate the total cost of supporting the social venture (in many, but not all, cases this is a philantropic grant or donation) Discount this figure by the weighted average of the discount
rates for the enterprise and social venture values already worked out
To measure return:
o Calculate the enterprise index of return Divide the enterprise value by the total investment
o Calculate the social purpose index of return Divide the social purpose value by the total investment
o Calculate the blended index of return Divide the blended value by the total investment
78
EHRENWÖRTLICHE ERKLÄRUNG Ich erkläre hiermit ehrenwörtlich:
1. Dass ich meine Masterarbeit selbständig und ohne fremde Hilfe angefertigt
habe,
2. Dass ich die Übernahme wörtlicher Zitate aus der Literatur (auch aus dem
Internet) sowie die Verwendung der Gedanken anderer Autoren an den
entsprechenden Stellen innerhalb der Arbeit gekennzeichnet habe.
Ich bin mir im Weiteren darüber im Klaren, dass die Unrichtigkeit dieser Erklärung zur
Folge haben kann, dass ich der Ableistung weiterer Prüfungsleistungen nach § 15
Abs. 4 SPO (§ 13 Abs. 4 SPO) ausgeschlossen werden und dadurch die Zulassung
zum Studiengang verlieren kann.
______________________
Nürtingen, 23.04.2010 Unterschrift
