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

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 i

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. introduces selected Fair Trade organizations and their functions in Fair Trade system. 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. 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 fourth chapter committed the central theme of this thesis. The relevance of FLO standards. not-for-profit and Fair Trade marketing processes will be presented. basically. Then continue to sketch the various developmental stages of Fair Trade and the problems encountered in various stages. 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. various institutions. certification and monitoring will be addressed. The introduction of the Fair Trade thus has implications on producers. The fifth chapter focuses on the Fair Trade marketing impacts on the producing nations in global South and their organization. cooperatives organizations and Fair Trade organizations. The orientation is then described in terms of Fair Trade marketing approach and supply chain. The first chapter deals with the historical background of Fair Trade movement and analysis the definitional spectrum to distinctively understand the subject matter. In addition. consumers and many other interested groups. which is Fair Trade marketing mix. market or trade inequality. Their commitment and contribution to the development of Fair Trade marketing (in actively supporting Southern producers and educating Northern consumers) will be outlined. The second chapter. Short distinction between conventional. 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 iv . Fair Trade product mix and brand development will be discussed.

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. Therefore. the emerged problems and possible recommendation suggestions. v . this thesis is purely based on the theoretical analyses of the all information available.

One of the main problems is the exploitation of small farmers.1 Introduction and Historical Development of Fair Trade Globally. 2009c: 2). 2007: 12. 11)1. 2007: 4). it has benefited numerous smallholder farmers and producers of developing countries. a short description of the encountered problems will be presented.01% of total trade (Becchetti and Huybrechts. Fair Trade is the fastest growing initiatives. This chapter particularly focuses on the historical aspect of the Fair Trade movement and the developmental phases. This thesis focuses mainly on analyzing the marketing and impacts of Fair Trade model on producers and their organizations. Africa and Latin-American (Schößwender. the financial crisis that struck the world economy.). 1 . 1. more than 2 million people are living under the poverty (mostly of Asia. Notwithstanding. Based on this development.Year of publication is not indicated and Birgit Schößwender is editor. Among the recently emerged ethical trading. Fair Trade is a movement initiated by Northern activists. Although Fair Trade accounts for about 0. started selling handcrafts from Puerto Rican out of her Pennsylvania home (Jaffee. 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: 1). she took some items to Mennonite world conference in Switzerland and sold them there (FTH). in 2008 Fair Trade sales were grown by 22% (FLO.1 Historical Background of Fair Trade Fair Trade movement began in the 1940 in North America when the first Fair Trader. Redfern and Snedker. 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”. In 1946 together with her colleagues. philanthropic organizations that work with producers (farm workers) and disadvantaged communities of developing nations. Despite their hard-work most of them live on less than 2 dollar per day (Ibid. 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. In addition. 2002: 5). Edna Ruth Byler. she had Palestinian and Haitian handcrafts in her inventory.

FLO. Switzerland. FLO serves as an umbrella organization to create a common ground for various initiative schemes proposed by FLO organizations in different countries. Denmark. it coordinates and harmonizes Fair Trade general standards for certification and facilitates methods of inspection after certification. In 2004 FLO created an independent entity. Soon the Max Havelaar initiative for Fair Trade became prevalent in several European countries‟ and North American markets under different name. In 1988 the “Max Havelaar Foundation” created the Max Havelaar label to identify a fairly traded coffee (Krier. and Oxfam UK in Europe (Nicholls and Opal. 2007: 29). 2007: 42). also referred to as Labeling Initiatives. For instance. and individual groups got involved in this alternative trade concept. Transfair (in Germany. producers.Cert. in 1988 an independent organization by name Fairtrade Labelling Organization (FLO) was established in Bonn.30 cited by Nicholls and Opal. Germany. the United States. similar logo was referred as “Max Havelaar” (in Belgium. additional ATOs. recognizing the need to assist disadvantaged producers by cutting out the middlemen in the marketplace. These organizations started trading these products to ethically-conscious consumers and to secure fair prices to the producers. Non-Governmental Organizations (NGOs). Italy. 2008: 11). United Nations Conference on Trade and Development (UNCTAD) adapted the “Trade Not Aid” motto that was addressed in the conference (Fridell. and different name in other countries (Nicholls and Opal. experts and National Initiatives (NIs). Austria. 2008: 20. FLO-Cert is responsible for the certification process and annual monitoring inspections of each producer group. 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.were selling handicrafts in the U.S. Following the development and acceptance the Fair Trade across many countries. Canada and Japan). 2007. to verify that producer groups are in compliance with FLO‟s standards (Krier. 2008: 20). FLO members consist of four groups: traders. In the 1960‟s. 2 . Norway and France). “Fairtrade Mark” (in the UK and Ireland). Luxemburg.f Jaffee. 2007). In the 1960‟s and 1970‟s. Besides. p. c.

CFAT defines Fair Trade as “…market-based approaches to alleviating 3 .1. knowledge of best business and environmental practices. The trade inequities mentioned here does not only indicate lack of access to markets and market information. These partnerships address trade inequities in the global marketplace” (2008: 1). technical assistance.1 Definition of Fair Trade Fair Trade has been defined by different interest groups: political initiative groups. philanthropic organization activists and various scholars differently. and health and education. to groups of citizens in developing nations” (2007: 2). environmental care and social polices in supply chains of certified goods” (2008: 19). Ruben explains Fair Trade as “an organized social movement which promotes standards for production practices and delivery procedures. equality for all. but also to the technology. transparency. 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. trust and environmental protection” (COFTA). social programming. working conditions and labor remuneration. 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. 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. 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. democratically organized workplaces. 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.2 Definition and Delimitation of Fair and Free Trade 1. Nevertheless. The Cooperation for Fair Trade in Africa (COFTA). and credit resources. market or trade is emphasized as a medium for social and environmental improvement.2. Here.

is sometimes used within different context than it is usually intended to be. FLO. improving working conditions. as already mentioned. 2007: 4). certification systems and labeling scheme and products promoted under such activities which are mainly developed by FLO. and consumption” (CFAT).2 Definition of Free Trade The term Fair Trade. Fairtrade is only used in connection with some FLO activities and as a result of quotation from old literatures. 2007a: 35). 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. It contributes to sustainable development by offering better trading conditions to. 2007: 26. In this paper the term Fair Trade is the one mostly used and thus. distribution. 4 . based on dialogue. 2007: 23. 2002: 11). Network of European World Shops (NEWS).2. even though the latter gives less relevance to the social justice and environmental sustainability (Murray and Raynolds. This term is widely applied in a network organization. The internationally and widely recognized definition of Fair Trade. the International Federation for Alternative Trade (IFAT). FLO-Cert and its labeling initiatives (Krier. transparency and respect that seek greater equity in international trade. Regardless of the origins of definitions given. for instance. Redfern and Snedker. defines Fair Trade as a “trading partnership. 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). Fair Trade definition can be found on their websites. as agreed by FINE2. Furthermore. 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. and securing the rights of.poverty and promoting environmental sustainability through innovative business models spanning production. alleviating poverty and creating market-based socioeconomic improvement and environmental sustainability in developing nations. especially FINE as indicated in the above definition. marginalized producers and workers in the South” (Krier. the term Fair Trade and Fairtrade are sometimes used in different contexts and demands short distinctive explanations. and the European Fair Trade Association (EFTA)]. Fairtrade refers solely to activities such as standards setting. 1. the central (most relevant) notions outlined are avoiding trade inequality among trading partners. EFTA.

one can disclose that international trade creates a win-win situation for both parties (Ibid. 1.3 Fair Trade in Comparison with Other Ideologies 1. 2007: 21. 2008: 17) International economics). different political movements or groups around the globe including Fair Trade activist groups. Fair Trade.1 Fair Trade and Anti-globalization Fair Trade and anti-globalization are both dynamic movement instigated by different interest groups.theories of comparative advantage. services and finance between nations as effective business model (Ibid. Unlike anti5 . WTO had encountered oppositions in different cities led by both of these movements (Jaffee.3. gender equality and environmental protection. Opening up countries to international trade allows Germany machinery producers to import coffee from Ethiopia and Ethiopian coffee producers to import machinery from Germany. This free trade ideology is propagated by the World Trade Organization (WTO) and has encountered opposition from developing countries. Witkowski continued to differentiate the different approaches underlying both movements. Germany manufactures machinery products and Ethiopia grows high-quality coffee. attempts to achieve economic development using North-South trade relationship than the classical development aid. They disregard the international trading regime and the supporting organizations. the advocators support the movement of goods. from its side.). While there are some common drives that unite both.). there are also ideologies that they do not share. For instance. According to Witkowski‟s (2005: 25) both ideologies show great concern for the disadvantaged producers. Based on the free trade approaches Germany and Ethiopia are better off and thus. 2005: 25). Witkowski. “countries export what they relatively good at producing and they import what they cannot produce sufficiently” (Nicholls and Opal. For instance. Both fair traders and anti-globalists groups are characterized as idealist and utopians. 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.

unfair wages and working conditions.3.). they had developed ethical codes of conduct which. For that matter. discrimination.2) and builds product value through certification (see chapter 2. workers abuse in any form and many more (Redfern and Snedker. In order to accomplish that Fair Trade groups support producers.2. states against forced labor. Fair Trade uses various elements of marketing such as branding and marketing mix (see chapter 4. transparency and mutual respect (according to the above definition). antiglobalization criticizes Fair Trade for partnering with large corporations. 2002: 13). 2004: 16. Similarly. 2002: 12). 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. In contrast. child labor. Witkowski. 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. 2005: 27). create awareness and campaign for changes in the rules of conventional market (Redfern and Snedker. Furthermore. 6 .globalization approaches. Most of these companies are brand owner and concerned about their brand image. cf. 2007: 10). for example. Both fields are following implicit principles which are complementary and distinctive in their application. the dissimilarity of Fair Trade and ethical trading principles could be explained by the business drives innate to both (Redfern and Snedker. 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. 2002: 14). However. Hiscox.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. permanent employment.1) and consumer education programs. Fair Trade has developed similar principles and working to improve the social and environmental settings of producers. Fair Trade creates a trading partnership between marginalized producers in developing countries and consumers in developed nations which are based on dialogue. 2002: 13). 1.

The second approach was based on the good-will trading relationships and developed to “solidarity trade” (Low and Davenport. Although. 2008: 5) which led to the creation of alternative trade model. 2008: 20) using business concepts (for example.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. At this stage. During this time. 7 .Especially. 1. it was not commercialized at this level. The essence of these distinctive approaches is not to highlight the historical context of the movement. 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. Nicholls and Opal. These organizations. Oxfam in Western Europe and Mennonite Central Committee (MCC) in the USA imported handicrafts made in Eastern Europe and Latin America respectively. but also begun to search for new producers. product quality and consumer-centered marketing approach were at a far distant. yet it has relevance in development of Fair Trade business model. 2002: 5. 2008: 19-20) and created the so-called “goodwill trade” initiated by NGOs (Tallontire. 2000: 167). ethical sourcing charges low prices and the return to the producers is not significant and therefore criticized as still exploitive (Witkowski. Moreover. both are working to improve income and livelihoods of the workers and producers. sells in catalogues and world shops) to emphasizing on the social and environmental issues linked to producing communities. 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. particularly. but the strategies applied are different. While Fair Trade is charging higher price which in turn accrued to producers‟ income. but to outline the Fair Trade model growth to business. They set up a programme namely SelfHelp Crafts (Redfern and Snedker. 2005: 27). ATOs preventing the middlemen from supply chain started working as “social entrepreneurs” (Nicholls and Opal.

product development. which means. Due to the quality problems and consumer ignorance. This in turn. growing out of important cultural and informational changes in developed countries (Ibid. Starbucks. Sainsbury‟s. 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. 2008: 20). academic. 2008: 20).The third approach could aptly be characterized as a development of mutuality in trading relationship. None of these mentioned influences worked independently. cultural and informational” (2008: 20). This new approach of ATOs involved sympathetic retail businesses and promoted Fair Trade products to large conventional supermarkets. such as Costa Coffee. 8 . marking increased commercial awareness” (Ibid. In line with. led ATOs to develop brands such as Cafédirect and Divine Chocolate (Nicholls and Opal. This success has encouraged market entry of conventional outlets. one could state that the incidence of labeling mark of Fair Trade gave guarantee to the consumers about the product quality.). Perhaps the most significant influence has been the emergence of ethical consumerism and the mass-market associated with it. 2000: 167). Then developing “consumer marketing. ATOs struggled and some even went bankruptcy. The fourth business phase could be described as the development of Fair Trade certification process and labeling of the products. higher prices in return for the quality products (Tallontire. and product quality all became important concerns of ATOs. Currently. but rather were interdependent on one another toward creating an understanding of the value of Fair Trade in the North. Nicholls and Opal describe some of the driving factors which influenced the growth under four main headings: “political.). Sara Lee and many more (Ibid. This process led to the distinction of Fair Trade products from conventional commodities. Soon after. 168). 2002: 8) and solidified their growth in the mainstream markets (Nicholls and Opal. ATOs moved from selling commodity ingredients to composite products (Redfern and Snedker.

Some countries are supporting Ethical Trading Initiative and creating public awareness of ethical trading and initiating retailers to promote Fair Trade products. 2007: xii) by producers and consumers groups is shifting the route to the alleviation of poverty in the developing countries. The concern of trade inequality between the developed nations and developing nations has driven many political initiative groups.1: Influences on the development of the UK Fair Trade market Source: Nicholls and Opal. Academic influence The academic context of the Fair Trade is intensively developing in recent years. Cultural and informational influence 9 . philanthropic organizations and national and international campaigners to improve the political context of international trade. in particular. in UK several academic institutions are developing business ethics courses and modules that incorporate ethical consumerism and influence the corporate behavior (Nicholls and Opal. For instance. (2008: 20) Political impact The political framework of the alternative trade has significantly changed in the Northern nations in the last ten years. Many scholars are attracted toward the debate of the ethical trading. 2008: 22). in general. This indicates the shift of values toward relevance of development issues (Nicholls and Opal 2008). not free trade” (Jaffee. 2008: 22) by development workers and the demand for “fair trade. The increasing cry for “trade not aid” (Nicholls and Opal. and the social and environmental issues connected to the movement.Figure 1.

2008: 230-231).5 Problems of Fair Trade Marketing The central problem related to fair trade is the growing marketing strategies. building Fair Trade brands and the prevalent problems connected to these marketing approaches. 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. The strategic development of Fair Trade marketing in the developed countries can be seen as three distinctive stages: grassroots. The majority of the farmers and producers organization can not comply with the standards due to technical.1 Organization-related Problems Driven the by the desire for market development. 1. the significance of niche market has increased and led to diversified range of products to meet the consumers‟ demand. coinciding with the increasing awareness of consumerism. the problems and challenges intended to be addressed in this paper is associated to each individual development stage of the market of Fair trade. 23). Fair Trade organizations are putting pressure on the producer organizations by setting high-quality standards. new Institutions and mainstreaming (Nicholls and Opal.5. 24). The cultural shift has been considerably caused by the accessible information about global social and environmental issues. This is made possible because of the improved information flow concerning the supply chain of Fair Trade business model. namely mainstreaming of the Fair Trade products. These problems could be further categorized as organizational and marketing concept-oriented (or underpinning) problems and challenges. such as Fair Trade or organic products. The media engagement with broad subjects and growth of internet in publishing and dispersing information on. there is a discrepancy between what most of the consumers claim to be and their real behavior. 1. Thus. Due to this consumers demand for the ethical products. Of course. 10 . 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. financial and organizational problems.In different countries the numbers of consumers which identify themselves as ethical consumers are increasing.

Fair Trade products were sold by few alternative trade organizations (ATOs) like Oxfam und world shops.). FLO International. typically feel that the move to mainstream contains the risk of deviating from the original values and purpose of fair trade (Ibid. These organizations could only reach ethical consumers. Whereas the market actors are the group of individuals recruited by FLO-I run the increasingly complex and technical certification and monitoring schemes (Ibid. 231). The main driver for these organizations‟ arrival is the range of national labeling and certification initiatives that begun to appear in different countries. Many Fair Trade activists perceived the problem at this stage as information problem. in order to avoid the inconsistence in the application of Fair Trade mark and misunderstanding of the underlying concept (Ibid. Consequently. ATOs and NGOs played significant role in raising awareness toward trade injustice and contributed to a lot in educating the ethical consumers. Nicholls and Opal (2008: 230) describe it as a process-focused and supply-driven rather than consumer demand-driven marketing. The move to the mainstream marketing brought polarized tension between the movement and market actors.At a Grassroots level. Contrary to the previous stage.). The movement actors. which confused ethical consumers and debilitated their reliance on the Fair Trade marks and the message communicated with it. on the other hand. As a result. Fair Trade Labeling Organizations International (FLO). 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. a very small fraction of consumers. for instance. compared to that of conventional marketing target groups. The macro-level organizations and other strategic groups (chapter 2. Nicholls and Opal (2008) describes as a demand-driven rather 11 .1.) have launched Fair Trade involvement with more conventional marketing. In fact. this FLO-I and others are encountering various challenges from the Grassroots activists of Fair Trade. can be described as the emergence of international Fair Trade organizations. all the national labeling organizations and certification groups are consolidated into this macro-level organization. on the one hand. The market-driven actors. New Institution. The second stage. The movement actors are the so-called Grassroots activists as described above.

than supply-driven approach. has its base on the previous stage. 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. In other words. The engagement of Fair Trade with the mainstream markets has grown in many Northern markets. which is mainstreaming. 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.5. 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. this brand is trying to develop another brand within Fair Trade products. 2008: 231). it is focusing on Northern consumers demand rather than the Southern producer organizations offer. though it has later developed a brand through certification mark. 1. Fair Trade was offered as a brand to the market. as in the case of Traidcraft and the Co-operative Group) can lead to numerous problems (Nicholls and Opal.2 Market-related Challenges (and Problems) The third stage. Initially. 12 . Currently.

International Fair Trade Association (IFTA). More precisely. advocating for Fair Trade to the global community. These organizations are involved in certification process. therefore. European Fair Trade Association (EFTA) and Fair Trade Foundation (FTF). Some of the major organizations are namely Fair Trade Labeling Organization International (FLO). Network of European World Shops (NEWS). functions and operational strategies of these organizations are. 2. monitoring and promoting the operation of Fair Trade producer organizations. functions and contributions are closely considered. In the following sections some of these organization structures. 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. Most of Fair Trade product producers‟ and traders‟ organizations are members of one of these national or international organizations. the relationship they have to producers and the strategies employed to expand the market for Fair Trade products and to create awareness among consumers. very relevant as they are bridging the gap between the producers and the consumers and furthermore. until EFTA changed its name to World Fair Trade Organization (WTO). independent and non-profit organizations. That means.1 Fair Trade Organizations (FTOs) The rapid growth of the Fair Trade movement contributed to the establishment of the national and international. traders and other similar partners. The first four are used to be known as FINE collectively. in order to realize the core objectives of this movements. Addressing the objectives. this section demonstrates the influences that these organizations have toward achieving social and marketing objectives of Fair Trade.

Federation (FTF) Source: Adapted from Krier (2007: 24).1: Major Fair Trade organizations (associations) Associations1 Established Types of Number members /member countries Fairtrade Labelling 1997 National labeling 19 in 21 countries 1989 Alternative trading 280 members in 62 countries Europe. America.1 Fair Trade Labeling Organization (FLO) After launching Max Havelaar coffee in 1988.1. 14 . These NIs and other Fair Trade actors agreed to create an umbrella organization called Fair Trade Organizations International. The primary objective of this umbrella organization was to develop a widespread and consistent standards and the certification process. manufacturers) (Hiscox. an independent company to provide support in certification and monitoring process of producers and traders (for example. many other National Initiatives (NIs) were created in different countries across Europe. importers.Table 2. (2007: 16) 2. 3 Please. exporters. North Asia. 2007: 2). 2002: 18). Raynolds and Long. The latter task was later delegated to FLO-Cert. America North organizations International (FLO) International Trade (IFAT) Fair Association Africa.500 members in 13 countries 11 in 9 countries members Europe Shops (NEWS!) European Fair Trade Association (EFTA) 1987 Alternative trading Europe Fair Trade 1994 Alternative trading 300 members in 14 countries North Asia America. FLO-I (Redfern and Snedker. Latin A. note that the figures indicated on this table might show discrepancy if compared to other publications due to the gap in time. America Network European of World 1994 National world shops 2. 3 of Major regions of operations members of members Europe.

It is the duty and responsibility of FLO to monitor compliance and issue audit reports to the traders perpetually. which signifies that for a given product the Fair Trade standards have been met and therefore could be marketed under the system. Cf. Setboonsarng. 2008: 10): (1) guaranteeing the integrity of the Fair Trade mark and certification 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. FLO has also the right to de-certify those individual producers or organizations that deviate from maintaining the defined standards. By doing this. the producer organization is guaranteed the resulting benefit of Fair Trade market sales. they permit the system to function harmoniously and consistently in many different countries and markets. adequate working conditions and progress in social and community development goals” (2008: 8). FLO issues license to individual Fair Trade companies and traditional market players to use Fair Trade mark. 15 . According to Nicholls and Opal understanding “FLO inspects producer groups to certify them for compliance with the Fair Trade standards. Meanwhile. In short. After proving the outlined requirements. Besides. the FLO strategic objective was broadened and covers the following aspects (Nicholls and Opal. higher prices and the Fair Trade investment premium. that is. financial transparency. 2008: 8. (2) facilitating the business of Fair Trade by helping to match supply and demand. This function of FLO is central in substantiating the process of perpetual improvement. and (3) offering producer support and consultancy to improve their business strategy. including democratic organization.Establishing standards are fundamental to the Fair Trade certification system and labeling process.

Membership is open to both trading 16 . it has structured itself as shown on Figure 2. IFAT is international trade essentially a global trade association for Fair Trade producers and traders of both FLO-certified products and non-certified goods. importers. national and regional Fair Trade networks and Fair Trade Organizations” (Krier. Recently.1. (2008: 130) Finally.1: FLO governance structure Source: Nicholls and Opal. one ATO and one mainstream business representative (Nicholls and opal.1. It contains about 300 organizations in more than 70 countries and most of the members are consisted of “…producer-cooperatives and associations. FLO having its origin as consumer organization seeking to affiliate the producers and consumers. 2008: 130). IFAT brings together ATOs from North and producer organizations from the South. 2. retailers. IFAT was established in 1989. The former International Federation of Alternative Trade (IFAT) has changed its name to International Fair Trade Association (IFTA). The Board of Director is comprised of six National Initiatives (NIs) delegates.2 International Fair Trade Association (IFAT) Initiated by several prominent European ATOs and NGOs. exporter marketing companies. it has once again renamed itself as World Fair Trade Organization. 2007: 30).Figure 2. four regional producer representatives.

and current members span all continents. which not supposed to compete with FLO certification mark (Nicholls and Opal. an appointed Secretariat and the membership. Germany. mutual review between commercial partners and external verification. Moreover. and Gepa (Nicholls and Opal. Nicholls and Opal. Similar to FLO. The specific objectives are: 1) Developing the market for fair Trade. Switzerland and the United Kingdom. As indicated in the above Table 2. Belgium. the Netherlands. 4) Providing networking opportunities. IFAT members are required to pay memberships fees and to be transparent. Traidcraft. The central major of IFAT is helping with the accomplishment of the Fair Trade objectives (Krier. Members include Oxfam. 5) Empowering the regions. 2007: 16).1. 2. Spain. The three IFAT‟s regional representative in South are AFTF (Asia Fair Trade Forum). IFAT linking and strengthening organizations prefer alternative and fair global trade practices (Redfern and Snedker. 3) Advocating for Fair Trade. EFTA was established in 1990 and is a network of eleven Fair Trade organizations in nine European countries: Austria. This association makes researches on the Fair Trade development being based in the Netherlands (Head Office) and Belgium (Advocacy Office). COFTA (Cooperation for Fair Trade in Africa) and Asociacion Latinoamericana de Comercio Justo. Raynolds and Long. 17 . it organizes World Fair Trade Day annually.1. It provides information to members. 2) Build trust in Fair Trade. IFAT runs a monitoring system consisting of selfassessment against Fair Trade standards. 2007: 30-31. 2008: 8-9). IFAT has organized the so-called Global journey in 2004 to communicate the message of Fair Trade and draw attention to unfair international trade. Italy. organize workshops and serve as information point. France. IFAT launched Fair Trade organization mark for its members in 2004. 2002: 18). The monitoring process increases the members‟ credibility. 2008: 9).3 European Fair Trade Association (EFTA) The European Fair Trade Association (EFTA) is one the advocacy groups closely working with Fair Trade producers. 2008: 9. Finally.and non-trading organizations that satisfy the basic Fair Trade criteria. The organization structure consists of Executive Committee.

) and organizing conferences (Krier. Nicholls and Opal. 2) “To promote Fair Trade to commercial and political decision-makers. 2008: 10). 3) Moreover. It is facilitates cooperation and networking by providing information (NEWSletter.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 18 . This is the only Fair Trade organization outside Europe with the focus on USA and Canada.1. 2008: 10). it also contributes significantly to research and advocacy document once a year: the EFTA Yearbook and update members with important information (Ibid. all together representing about 2. Generally. It was founded in 1994 and in 2008 it has already 300 members‟ organizations in 14 countries (Krier. The Network is committed to “promote Fair Trade by stimulating. EFTA has been making enormous contribution by publishing Fair Trade figures and analysis for Europe biannually” (Ibid). workshops etc. It also organizes campaigns to raise consumers‟ awareness. supporting and linking world shops in Europe that retail Fair trade products” (Nicholls and Opal. 2007: 32). it has roofed 15 national World Shops in 13 different countries. 9). EFTA builds networks of producers and support groups to encourage and facilitate the exchange of information and best practice” (Ibid).EFTA has two main objectives (Nicholls and Opal. 2008:10). 2.4 Network of European World Shops and Fair Trade Federation The Network of European World Shops (NEWS) was established in 1994. and publishes three times a year.500 World Shops in Europe (Nicholls and Opal. 2. 2008: 9): 1) “To make Fair Trade importing more efficient and effective. FTF is also actively involved gathering data on the diverse markets in North America and Pacific Rim. website. Currently. 2007: 33. retailers and producers. EFTA coordinates campaigns and lobbying activities and publishes data to support the Fair Trade case. Fair Trade Federation (FTF) is an international Fair Trade network of wholesalers.

FLO. 2009 – HLS). compliance with the minimum requirements is expected at the moment the company join Fair Trade and facilitates producers to be Fairtrade certified. For instance. labeling initiatives. certain pesticides classified as harmful 19 . standard facilitates principal guidelines for monitoring and governing producers. are distinctively applicable to 1) small–scale farmers cooperatives or organizations organized with democratic. Hence. Moreover. Setboonsarng. 2009 – HLS). 2007a: 36). participative structure and transparent accounting for the distribution of income (Nicholls and Opal. 2008). product-specific standards (FLO.applicable throughout FLO and other supporting organizations. 2009 – SPO). On the one hand. “standard is a set of defined criteria giving the requirements which must be attained. 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. rules. the progress requirements contain conditions that should be met gradually by producers after joining Fair Trade system (Setboonsarng. There are several standards applicable in Fair Trade system. 2008. The generic standards are comprehensive and apply to all product groups produced within the FLO geographical scope. also called producer organizational requirements. The standards are set by FLO Standards Committee which includes producers‟ networks. FLO has three separate sets of Fairtrade standards known as generic standards. 2008: 10. for common and repeated use. 2009 – SPO. According to FLO explanations. FLO. A standard provides. namely minimum and progressive requirements. cf. 2008. 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. On the other hand. 2008. traders and experts (Setboonsarng. guidelines or characteristics for products or related processes and production methods” (FLO. FLO. Nicholls and Opal state that these standards contain environmental standards which prohibit certain chemicals and land over-use affecting sustainable production. Setboonsarng. 2008. the generic standards. producer (cooperatives) and traders of Fair Trade commodities. 2009: 3 – HLS) and trade standards (Nicholls and Opal. Finally. 2008: 10). generic standards specify two different requirements for producer cooperatives or organizations. FLO. 2008).

The long-term trading relationship enables producers to plan for the future production. 2008: 53). It is guaranteed regardless of the fluctuation of world commodity prices. 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. 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. 1. establish the regulations that govern the relations amongst Fair Trade producer. therefore. The trade standards. 2002: 45). 2008). Fair Trade products. In general. Fair Trade standards were established to empower producers in the global south and to promote the market for. 4. The importers of Fair Trade products are required to pre-finance up to 60 per cent of seasonal crops (ibid. The significance of the standards is contained within the following core points. exporters and importers (Nicholls and Opal. 20 .).must not be allowed for the producers groups to use it. and enhancing the reliance of ethical consumers on. 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. This floor price varies from product to product and region to region based on the classification. Long-term trading relationships: Fair Trade product importers should enter into direct long-term trade relationship with producers. 5. the generic standards supersede the product-specific standards. 2. Pre-financing arrangement: The credit-provision for commodity producers guarantees sustainable and quality production. smallholder farmers and their community (Nicholls and Opal. 3.

a multi-stakeholder association including producer networks. These symbols could then be presented as logos. independent from interested parties. “certification is a process carried out by a recognized body. emphasizes the Fair Trade seal (Transfair label) and the certification on which it rests as being significant and the primary mechanism for consumers‟ 21 . amend or void standards (FLO. 2007: 208). and experts” (Setboonsarng. the role FLO-Cert “[…] is to document the „chain of custody‟ followed by a product. The same organization had developed Fair Trade standards which are fundamental for the certification and labeling process. labels or marks which communicate product attributes. traders. 2009: 35). Jaffee (2007: 208). benefits and values inherent with them. 2008: 10). 2.2. because it guarantees Fair Trade consumers that the producers of the products are complying with the standards set by FLO International. and to ensure that at each point where the commodity changes hands. which demonstrates that a product or organization complies with the requirements defined in the Standards or technical specifications” (FLO. 2007a: 36). Thus. the quantities are accurate and there is no mixing of certified and uncertified products (Jaffee. inspecting their facilities and punishing incompliance to the standards are falling in the range of certifier‟s responsibilities.1 Certification and Labeling in Fair Trade Fair Trade certification is developed by “Fair Trade Lebelling Organization (FLO) International. labeling initiatives. for instance. retailers and consumers are supposed to identify the various symbols associated with Fair Trade products. 2002: 7). This same body has the author to introduce new. This certification process is an important operational component. According to FLO explanation. Moreover.These are the summarized presentation of the Fair Trade standards and the underlying concepts which was developed by FLO. Jaffee adds that monitoring of the licensees. Prior to acquired certification. 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). 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. However. FLO has delegated the certification process to FLO-Cert which is an independent company. Thus.

The information is used to 22 . The introduction of fee has brought criticism against the certifying body. since 2004 FLO-Cert is charging fees that should cover the costs of the certification process (Nicholls and Opal. 2008: 133). 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. Finally. More importantly.2. most of certified products are carrying these symbols. Monitoring of Fair Trade operators is a challenging process carried on along the supply chain. 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. major mainstream outlets are attracted to Fair Trade products because of the third party certification program and the resulted improvement in the products quality. Especially. the Fair Trade certified operators are automatically subjected to the regular monitoring scheme. some of these companies have bad reputation for their social irresponsibility in the past and consequentially.2 Fair Trade Monitoring System Once the standards have been set. Monitoring refers to “measuring a set of indicators that are tracked over time to identify trends. the certification system developed by Fair Trade organization is believed to benefit small producers.recognition of Fair Trade products in the United States. in the face of other growing social certification system and labels. producers and traders have been inspected based on these standards to prove their compliance and the certification Committee issues certificate. 2. So far. plantation workers and their local communities. Despite their contribution to the growth of Fair Trade market. In fact. their participation in marketing Fair Trade products could adversely affect Fair Trade brands.

In another words. monitoring serves different purposes than just a mere control mechanism employed to prove producer and wholesaler consistent compliance to Fair Trade principles. Thus in respect to that. negatively affected the development project. 2007: 5). which in turn. then they will be decertified. 297). and social investment and environmental protection (Ibid. ensure accountability and provide a basis for evaluation and learnings” (FLO. With the advent of CSR. 23 . the implementation of projects that accord with its particular vision of development” (Rajak. if during monitoring a producer organization and commercial agents deviate from keeping the standards. However. “the funding provided by the company is bound by conditionality and brings with it the coercive powers of patronage. 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. Fair Trade product has a characteristic of „trust good‟. monitoring is serving as important tool to ensure the producers and retailers are keeping the quality of the products. 2. in return. The intersection of the CSR and Fair Trade is due to the interrelation of ethical and commercial elements underpinning both concepts. responsible to make sure that the product is produced according to the set standards. Based on this definition.assist timely decision making. The company demands. 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. 2008: 208). Accordingly. Consequently. business companies have replaced traditional donations and were engaged in communal partnership and empowerment.3 Fair Trade and Corporate Social Responsibility (CSR) Long before corporate social responsibility (CSR) was introduced. This created asymmetrical relationship between companies and the beneficiary communities. therefore. business companies had been promoting community development through philanthropic donations. 2007a: 36). FLO-Cert (certifier) is. the company-funded ventures lost their relevance in accomplishing the communal development objectives.

Fair Trade standard-setting involves all the partners along the supply chain. both have different approaches toward their objectives.a. 2) CSR is the dominant party along the supply chain actors and can easily enforce the compliance to standards. 3) CSR strives to keep its compliance toward the international convention and government-established regulatory frameworks for business practices (Redfern and Snedker. whereas Fair Trade is basically addressing the international trade inequality. In line with the summarized points. 4) The practices CSR can lead to further marginalization of small businesses that are considered threat to the businesses. Gooch and Chrobok (n. social and environmental impacts of businesses. Fair Trade can provides a better model for dealing with economic. social and environmental impacts of their business operations. 24 . whereas Fair Trade is working to improve the participation and the livelihoods of small producers and farmers.)4 differentiate both approaches following ways: 1) CSR is engaged in voluntary development activities and hard to challenge this corporate objectives. The year of this publication is not indicated. whereas Fair Trade model is targeting to benefit marginalized producers by using commercial approach. Compare with “Corporate Social Responsibility (CSR): Does it make any difference? (2004) and no Contributor indicated. 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 Fiona Gooch of Traidcraft and Stefan Chrobok of EFTA had written under the title of “Fair Trade provides models for Corporate Social Responsibility”. CSR is basically conceptualized by profit-driven entities and highly dependent on the profitability of the company.Despite their effort to improve the economic. 2002: 35).

Jaffee (2007) describes the different views participants have about the Fair Trade movement based on its ideology. commissions or mark-up added to the products improve the income to the enterprise which in turn used to cover production and program costs. Hence. Most of the social enterprises have combined-objectives focusing on the social and economical value creation (Alter. social impact.). Alter (2006: 216) introduces various forms of social enterprise models. This kind of social enterprise model. purchases the producers products at fair prices. and self-financing. similar to Fair Trade organizations. “The advantages of the market intermediary model are its potential for scalability. Its mission focuses on facilitating clients‟ financial security by helping them develop and sell their products in high-value markets. 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. and credit services to its target population: small producers (individuals. market access. a “market-reform” device or a “market-access” instrument (2007: 26). According to Altar‟s description. The market intermediary model is an embedded model: the social programme is the business. mission strengthening. 2007: 2). one of the models that fit to the Fair Trade concept is the “market intermediary model”. or cooperatives). 2006: 216). The social enterprise purchases the client-made products in high-value markets. and then sells the products at a margin (Ibid. Some consider Fair Trade as a “market-breaking” force. However. Its 25 . The mixedform organizations have not only multiple dimensions but also involves different types of actors (Becchetti and Huybrechts.” (2006: 216-217). firms. “the market intermediary model of social enterprise provides product development. identifying the orientation of the Fair Trade marketing is significant to understand the concept behind it.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.

Fair Trade movement has of course limited power to make significant changes at once. 2007: 4). and initiatives with the wide ranges of objectives have emerged addressing the negative impacts of globalization.application is limited to producers.1 Globalization and Imperfect Market Several dynamic movements. thus. and commodity products. Figure 3. Fair Trade focused on reshaping the practices of international trade and targeting at failure around corporate expansion in a global economy. 217). (2006: 216) Figure 3. 3. quality requirements for marketable products cannot be supported through the market intermediary‟s decentralized production.1 presents the marketing supply cooperatives (Fair Trade organizations. it has never ceased to criticize the regulatory instances like World Trade Organization (WTO). agriculture. and difficulties can arise in finding markets for client-made products due to market saturation. and handcraft groups) using the described market intermediary model of social enterprise (Ibid. Anti-sweatshop movement in garments. But even though multiple campaigns have 26 . Frequently. eco-labeling in timber. Especially. For instance. converting it into an employment model” (Ibid: 216).1: Market intermediary model Source: Adapted from Alter. the social enterprise may sacrifice scale to clients. WTO policies were established to benefit all the trade partners and not to favor only few of trade partners. However. campaigns. poor or inconsistent quality. 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.

Fair Trade is using the market itself to combat the international trade injustice at the marketplace. illustrates the distinction between conventional. Fair Trade is seeking to provide an equitable and sustainable market opportunity for marginalized producers (Redfern and Snedker. 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.The alleviation of poverty had been tried by non-trade strategy.2 Fair Trade Marketing Orientation and Process Based on its objective. 2007: 4). Fair Trade has therefore high possibility of alleviating poverty in the global South through a market-based strategy (enabling direct sales. 2002: vii). Develop marketing mix 4. Seek advantage Develop NFP marketing Develop mix Managing marketing effort Fair Trade marketing mix Manage marketing effort Encourage competition competitive Adopting competition 27 .1 Fair Trade marketing process Conventional marketing Non-For-Profit marketing Fair Trade marketing 1.tried to communicate the message of trade inequality between the international trade players. Manage marketing effort 5.1. The following points on Table 3. Fair Trade and not-for-profit marketing (Nicholls and Opal. granting better price. the Fair Trade marketing approach is complex and mixed with other sectors‟ marketing trends. Unlike other social enterprises (like NGOs). Table 3. 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. Fair Trade marketing has similarities and differences with the other sectors‟ marketing orientation. Select target markets and Select target audience positioning strategy 3. 3. 2008: 157). for instance. Analyze opportunities market Analyze potential behavior Analyze market failures to promote Select suppliers/producers most affected by market failures 2. it has never been successful so far.

2005: 26).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. 2005: 26). Kotler et al. This comparison intends to provide a brief explanation of and interrelationship between the three different selected sectors‟ marketing approaches. 2008: 156).Source: Adapted from Nicholls and Opal (2008: 157). 28 . similar to social enterprise or Fair Trade. considering these marketing approaches are also relevant. traditional marketing develops a strategic marketing mix as a tool.2. Where as. 2008: 156). The traditional marketing involves the managing of marketing effort. product. With their focal point on strong customer relationship and continuous innovations. 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) . Based on the identified market opportunity. Moreover. Additionally. the extended marketing mix such as people. Fair Trade system focuses on a communal development that demands networks and cooperation of the stakeholders (Witkowski. and seeks competitive advantage. the marketing theory assumes individualism. process and physical evidence is applicable to service rendering business. promotes private ownership. The marketing mix is conceptualized to address the four P-elements. 3. place and promotion (Ibid. (2002: 6) For the sake of better understanding of Fair Trade marketing. The analysis is preliminary to any kind of business activities.. for example. 157). price. 1999 cited in Nicholls and Opal. “…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. This marketing believes in consumer sovereignty and strives for consumer‟s satisfaction (Witkowiski.

in general.3. is targeting the social issues and other matters within the society.2 Non-profit Organization Marketing Non-For-Profit (NFP) marketing is also one of the social enterprise marketing branches just like Fair Trade marketing. Contrary to the conventional marketing. This marketing concept first of all analyzes the potential behavior that is needs to changed or removed. Fair Trade follows specific process. Despite the features of the products offered. for instance. there are still distinctive differences between them. tools and techniques. Roberto and Lee define social marketing as “the use of marketing principles to influence a target audience to voluntarily accept.2. or contributing to the community (Ibid. Although. Kotler. 2007: 12). contrary to conventional marketing. 3. Similar to other sector marketing. modify. process and physical evidence (CIM. Fair Trade marketing has developed into mixed-form of marketing which employs social and conventional marketing tools. in which primary beneficiaries are shareholders.2. Affecting behavioral change of a selected target groups or society can. Fair Trade organizations are focusing on the market failures. Fair Trade criticizes corporate 29 . what make NFP marketing different form conventional and Fair Trade marketing is that it deals more with services and ideas than tangible products. prevent social injustice. not-for-profit marketing primary beneficiaries can be an individual. or abandon a behavior for the benefit of individuals. In fact. This marketing model also requires the marketing management effort and adoption of concepts used in competition.). or society as a whole” (2002: 5). help to the improve health. reject. protecting the environment. 2002: 5). the marketing orientation of both sectors has some common elements. Social marketing.3 Fair Trade Marketing Fair Trade marketing can be seen through the lens of ethical and social marketing as well as conventional marketing. a group or society as a whole (Kotler et al. This is also called Social Marketing. Especially. Moreover. Originating from social marketing. This is the linking concept to outline the approaches of the not-for-profit marketing. NFP marketing uses traditional marketing concepts. Marketing mix instrument developed similar to conventional business but with extended marketing mix such as people. groups.

Fair Trade has long been addressing this inequality in international trade system. similar to the conventional marketing mix instrument.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. Moreover. On the other hand. Fair Trade has its own marketing mix. On the one hand. 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. The marketing focal points are Fair Trade products producers. 3. 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 targeting to empower the producers of the South by connecting them to the consumers of the North. it created a platform for the ethical consumers to use their purchasing power to react against the 30 . initiated by the traditional activists such as NGOs and ATOs. workers and producers of the South at the outset of supply chain. In line with that Fair Trade organizations are strongly devoted to manage the marketing processes. it needs to be seen as quite distinct from either cause-related marketing or what is broadly known as socially responsible marketing” (2005: 153). Further discussion on marketing mix is given in chapter 4. “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).businesses‟ exploitive position in global supply chain and abusive international trading policies in the marketplace. The main concerns about the grassroots and consumer activists are directed towards the farmers.2 of this paper. Fair Trade is a movement that addresses this problem. Nicholls & Opal state that “despite the fact that Fair Trade marketing centres on explicitly ethical issues. due to mainstream outlets interest in Fair Trade products competition becoming indispensible. According to Nicholls and Opal. Thus.

2.3. Figure 3. For instance. 2004: 5). The processed coffee is sold by local exporter to international trader. forming a sound supply chain that benefits all the stakeholders is significant international trade. (2004: 6) In line with this process. Figure 3. coffee bean as the most marketable commodity can change hands more than 150 times from producer to consumer (Milford.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 31 . this paper note the significance of the Fair Trade and Fair Trade organizations whose effort is to cut the long supply chain. Most of the commodities have long and complex supply chain.2 shows the simplified form of coffee supply chain. The primary producers sell to private intermediaries. who transport the unprocessed coffee to processing plant.2: The coffee commodity supply chain Source: Adapted from Milford.irresponsibility of the businesses companies. 3. Thus. The involvement of Fair Trade in the supply chain can be described as depicted on Figure 3.

That means. the classical supply chain was wholly operated and controlled by these organizations. 32 . Because of that supply-driven traders could not survive in the market for long period.3: Classical Fair Trade Supply chain Source: Own construction based on Milford. ATOs strategy was mainly focused on the producer supply rather than on consumer demand. ATOs and their local agents gathered the commodities directly from southern producers and sell them in their outlets. (2004: 8) In contrast to the coffee commodity supply chain presented above on Figure 3. Traidcraf (is this the real name or typing mistake) and NGOs like Oxfam. without the control of middlemen who would inevitably squeeze prices at the beginning of the supply chain. However.3. They were responsible for the importing.direct and fair trading relationship with producers. equal exchange. Figure 3. distribution and sale of the products. That is main reason why some ATOs with not-for-profit structures adapted for-profit organizations structures. but also organized campaigns to create awareness and win more ethical consumers. These organizations had not only merchandised the products. namely world shops. in alternative markets producers were paid a higher and unique price which is above the conventional market price. 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. Milford (2004: 8) claims ATOs had created a niche market known as alternative markets in which the rules of conventional markets were not applied.2. By then. 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. The flow of classical Fair Trade supply chain can be described as shown on Figure 3.

unlike the most conventional supermarkets suppliers. on the one hand. As soon so supermarkets are deep-rooted themselves in the Fair Trade business. Thus far. they will start to use their unchallengeable market powers to influence changes in the 33 . Fair Trade product suppliers enjoy a direct trading relationship with some of the mainstreams outlets. a number of issues have arisen for the future. Nicholls and Opal (2005 cited in Bowes and Croft.3. Fair Trade labeling system has proven the benefits to marginalized producers and workers of global South by eliminating price-squeezers from the supply chain.2 Producers and Conventional Outlets For several years. This direct trade relationship is initiated and controlled by FLO and national initiatives. And yet this success is not without disadvantages. on the other hand. commercial-driven in perceiving a chance to attract ethical consumers and. The supermarket involvement in Fairtrade is. Thus. Thus. current market opportunities in other categories such as fish. ATOS. Figure 3. However.4 presents the autonomous controlling mechanism of both the NIs and FLO-I. Thus. 2007: 6) with less focus on the product quality. it is used to regain their distorted image in the face of consumer. spirits and rice may well be missed (2007: 271). Today. 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. the supply-driven approach has not attracted the consumer-oriented supermarkets. their commitment sustains not longer enough to benefit the producers. with the introduction of FLO certification mark the focus on the product quality changed and consequently attracted the conventional outlets. 2007: 271) express their concerns by saying that “Tesco clearly views the expansion its Fair trade range as a success. Nevertheless. investor and campaigning communities that they are taking their corporate responsibilities seriously. ATOs have operated under the third sector status as nonprofit organization and co-operatives (Becchetti and Huybrechts.3. Tesco plans to expand its own label offer…but is constrained by the relative slowness of Fairtrade Labeling Organizations‟ international certification process. Fair Trade sales could not grow faster with the only effort of these classic supply chain actors. However.

Figure 3.heart of Fair Trade principles. The impact of these changes directly affects the weakest supply chain partners (producers and workers).4: Fair Trade labelling systems Source: Adapted from Milford. For instance. Flexibility in pricing strategy. setting higher product quality standards and so on affects the producers directly. 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. Similarly. (2004: 9) 34 .

). marketing mix. In addition. Fair Trade marketing is not conceptualized to improve or present a new model of corporate social responsibility (for distinction see chapter 2.1 Objective of Fair Trade Marketing Mix Social marketing has borrowed. Weinreich. that is. This way the supply chain can be shortened and the benefit proposed to generate be enlarged. 2005: 153). Fair Trade marketing is positively contributing to the social and environmental issues. 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. Therefore. Fair Trade system which is also categorized under social marketing use the same techniques marketing mix to address the ethical consumerism (Nicholls and Opal. cf. This should be grounded on the concept of fairness which encompasses both producers and consumers. Although. 4. 1999). 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. 2005: 153.4 Marketing of Fair Trade The marketing approach of Fair Trade is quite different than the cause-related marketing or socially responsible marketing. Finally. Social Marketing.5. Klebe. 2008: 80). the relationship should be based on partnership exchange that lasts for long term and create connectivity between producers and consumers. from conventional marketing practices. 2005: 175. Moreover. 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. 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. In the conventional business arena developing the Marketing Mix is vital to the implementation of the competitive 35 .

unlike the traditional marketing approach. 158). is an instrument that can produce a desired reaction through a combination of behavior and mental effects (Ibid. Similarly. The following Table 4. the content of Fair Trade marketing mix focuses on the producers‟ organizations rather than the consumers (Nicholls and Opal. the development of Fair Trade marketing mix plays an important role for fast growing fair Trade market. The focal point of Fair Trade marketing mix is laying on the ethical and economic value of the products. 2008: 157. In order to motivate consumers to participate in Fair Trade model. 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. to use their purchasing power to bring changes in the social life and environment of producers and workers in developing countries.1 presents the distinction between conventional and Fair Trade marketing mixes. This marketing instrument is targeting at convincing ethical consumers in particular and mass consumers in general. 36 .marketing strategy.2 Marketing Mix of Fair Trade Fair Trade marketing centers distinctively on ethical issues. 2008: 80). 2005: 175). these core issues must be communicated effectively. Fair Trade marketing mix. However. Klebe. The reaction triggered by the marketing mix is direct or indirect and it can immediately or later and positive or negative influence. similar to the conventional marketing. Hence. 4. 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.

37 . 2008: 195) are becoming prevalent in Fair Trade core product design. this strategy is taking an important position in Fair Trade marketing approach.2. 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. ATOs were less concerned about Fair Trade product design but today due to the increasing demand for quality product by mainstream supermarkets. Accordingly. quality Social premium „Fair‟ supply chain Ethical issues/education Identifiable producers Developmental focus Fair Trade mark Source: Adapted from Nicholls and Opal.Table 4. The difference between both sectors will be addressed in the following sections. In fact. Fair Trade products featured with producers‟ details. For example. in Kaufland (German supermarket) the following description is written at the back of the product. packaging and brand name (Andreasen and Kotler. At a Grassroots level.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. (2008: 157). Features could be added or subtracted without changing the other elements of core product. For instance. ethical consumers desire to acquire product that corresponding value to the price they paid. 4. A thorough consideration should be given to these elements of marketing mix when developing Fair Trade marketing. quality. supporting elements such as features.1: The Fair Trade marketing mix Conventional marketing Product Price Place Promotion People Process Physical evidence Fit with target segment Minimize cost price Efficient logistics Competitive positioning Customer interface Customer service Branding Fair Trade marketing Uniqueness. Fair Trade product designing has already started to consider these perspectives. styling.

5 This information was taken from the back of product‟s (sugar) cover in Kaufland supermarket. 2005). Mit dem Kauf dieses Produktes leisten Sie einen Beitrag zur Verbesserung der Lebensund Arbeitsbedingungen der Kleinbauern aus Malawi und zur Förderung des Umweltschutzes.“ In short. Similar information could be taken from www. 38 .transfair.„Das unabhängige FAIRTRADE-Siegel gibt Ihnen die Sicherheit. In spite of the long process and time needed to acquire it. to this aspect less consideration had been given by ATOs. Therefore. More specifically.”5 This is intended to assure ethical consumers of the origin of the product. with the involvement of conventional traders the issue of quality has increased. In like manner. In addition. a continuous improvement of product quality is demanded from producers (Setboonsarng. the importance of product quality is increasing in Fair Trade model. Styling of Fair Trade products is similarly important as in that of conventional product. Especially. Fairtrade mark has significant value in the market. however with the introduction of certification process by FLO more and more emphasis was given to product quality. it states that “the independent Fairtrade Seal guarantees that this product is produced according to the international standards of Fair Trade. in the “progress requirements” specified in generic standards by the organization. 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. Previously. Once the product is labeled with the Fairtra de mark it takes a special position in views of consumers as well as producers (Klebbe. dass dieses Produkt die internationalen Standards für Fairen Handel erfüllt. most of handcrafts and clothes have distinctive look because of their designs and embroideries which in turn point to their origin. Nicholls and Opal. It is an assurance that the product is complying with the Fair Trade standards. cf. In fact.org as indicated on the cover. 2008: 81. These goods carry distinctive cultural elements with them and consequently can impart certain feelings to consumers. 2008: 10). Another important aspect of Fair Trade product is implicated by the Fairtrade mark (in UK) and Transfair seal (in German and USA). Due consideration should be given to the uniqueness of the design and quality of Fair Trade products.

non-ethical consumer can see the premium price as disincentivization and get discouraged to buy the product (Andreasen and Kotler 2008: 238).. Hence. 2005: 158). Admittedly. The second determinant element is the pricing strategy which is based on cost. Nicholls and Opal. social equity and market disincentivization” (2008: 238). value and competition. cost recovery. More importantly. 39 . That message can convince the ethical consumers and influence them to affect changes in small producers‟ livelihoods using their purchasing power. communicating the intrinsic ethical value of Fair Trade product is significant to influence the target audiences. 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. pricing objective and pricing strategy (Andreasen and Kotler.” (Nicholls and Opal.2 Pricing Strategy The determinant element of marketing mix in the Fair Trade model is pricing. Fair Trade again stresses the producer by highlighting both the fair original commodity price and the social premium. Andreasen and Kotler distinguish between the following pricing objectives: “surplus maximization. 2008: 158). Therefore. “With the price element of the marketing mix. a combined cost and value based strategies should be applied to determine the price. first of all in developing a price the organization should set clear objective of what it wants to achieve. more than anything else. The other pricing objectives that are not frequently practiced in Fair Trade are intentionally ignored to limit the scope of this paper. In contrary. However. Moreover. It is probably the most difficult element that needs a thorough consideration.2. the ethical value or message incorporated into the physical product is used to determine the pricing strategy. In handling pricing issues the two determining factors are. 2008: 195). As already mentioned in the determination of pricing objective.. cost-based pricing also refers to the cost of production in a more detailed manner. 4. In the case of Fair Trade. Fair Trade model is not driven by profit maximization per se. 2008: 238).the eco-friendly product packaging style of Fair Trade also adds psychological value and affects important behavioral change (Andreasen and Kotler. market size maximization.

opposed the involvement of mainstream players. supermarkets are developing their own Fair Trade labels which challenge the original Fair Trade products.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. 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.2. Conversely. Although.3 Distribution Strategy The most important aspect in Fair Trade marketing is the arrangement of the product distribution channel. its survival with the higher price compared to the ever reducing conventional product price is questionable. These conventional business outlets want to reduce the price as much as possible to attract the consumers. Fair Trade product is labeled in many of these conventional outlets. Such a problem might greatly affect Fair Trade market as the classical Fair Trade activists suspected and hence. the combination of price and product leadership (Klebbe.5) of this paper. Access to the products should be made convenient in the longrun. Besides the problem of sinking price. The distribution of the Fair Trade products was started by a single person and recently extended to conventional market outlets in several countries. 2008: 82). 4. other Fair Trade actors support the move to conventional outlets grounded on the strategic advantage it entailed. That is.Traditional supermarkets will soon start to reduce Fair Trade products’ price to attract customers. Roberto and Lee emphasize on 40 . Kotler. It is the problem that can be considered in combination to the one addressed in chapter one (section 1. This insert can be removed as it is not adding much value to the academic paper Figure 4.

“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 41

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/

42

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

43

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
Product Line length

Food products/ commodities Coffee Tea
Product Line width

Non-food goods

Beverages

Sport-balls Jewelries Cotton products/clothing Home wares Cloth toys Flower s …

Wine Bear Juices Ice Coffee Ice tea

Bananas Cocoa/Chocolate Sugar Rice 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 44

and reflecting organizational mission and values.composite products. Cafédirect. 2007: 270) and feared to lack integrity with FLO‟s set of standards. Firstly. is becoming an important marketing instrument and gain more relevance in the Fair Trade market as it has been in conventional businesses. individual Fair Trade operators such as Equal Exchange. In the views of Andreasen and Kotler (2008: 171). the conventional outlets are also creating their own-label products. Secondly.4 Developing Brands Branding. These brands contain Fairtrade mark but do not reflect the message behind in its entirety (Nicholls and Opal. In this sense. the launching of own brands by Fair Trade companies and conventional outlets could be seen. Divine Chocolate or Agrofair have introduced their own brand values which compete in mainstream markets (Hutchens. Starbucks and Nestlé and others (Hutchens. among the extended marketing mix. These problems are caused by a number of reasons. 2007: 5). label and certification process. the more new partners and corporate agents are joining Fair Trade system the more they influence the standards of the Fair Trade. Similarly. Thirdly. Fair Trade product has been offered to market as a brand based on the certification mark which has series of complex process. Murray. However. However. proving a guarantee to targeted consumers and stakeholders. for examples. Transfair) awarded the certification mark to fairly position their products in the market. The national labeling initiatives (Fairtrade foundations. Tesco. Bowes and Croft suggest that “…their [profitoriented 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). 2007: 4. Mihaljevich (2008: 174) stresses that brand demonstrates the advantages of „value added‟ marketing and once established supports profits generation. as addressing 45 . 2005: 158). Bowes and Croft. 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. on the one hand. Nicholls and Opal (2005: 158) criticized Fair Trade brand for being decentralized and not having strategic process. The development of Fair Trade brand can help to operate competitively within commercial enterprise. 4. an organization‟s branded product could be perceived as a product making unique social contribution.

most of the branding businesses are co-owned with producers which give them higher sense of ownership. 2007: 11). Figure 4. it can widely contribute to ineffective marketing communication under Fair Trade model. Therefore. (2007: 11). 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. Fair Trade brands have more advantages than product certification marks in conventional markets (Hutchens. 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. In reality. This poses a potential risks for FLO. because brand owners might deviate from the requirements as they gain control over Fair Trade markets.5: Coffee branding process Source: Adapted from Hutchens. The flow of coffee brand is indicated on Figure 4. 46 . On the other hand.5.the limitations of FLO‟s certification system.

Nicholls and Opal summarize the concept behind Fair Trade as the need to secure sustainable economy. to confirm this claim made by the Fair Trade actors. Most of the case studies focus on the impact (outcomes or effects) on the producers and producer co-operatives and organizations. several studies have been conducted in different settings. Generally. Fair Trade consumers (the socalled 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. Or else the studies have not incorporated the non-financial and immaterial benefits accrued to Fair Trade producers. But in order to measure the impact. 5. and the need to have developmental (especially social and environmental) impact on the producers (Nicholls and Opal. it is relevant to know the guiding principles or the drivers behind the Fair Trade model. (5) improving working and living conditions and (6) enhancing environmental protection” (2008: 21). secures the consumer brand loyalty in the Fair Trade market. (2) strengthening farmers‟ organization and capacities.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. on the one 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.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. case studies are showing the focus on both financial and non-financial benefits generated from Fair Trade model (Nicholls 47 . The developmental impact on the producers should be demonstrated otherwise Fair Trade movement will lose credibility from the side of supporters and consumers. Recently. Thus demonstrating the developmental impact of Fair Trade. (4) promoting gender equity. Ruben outlines the following underlying principles: “(1) creating better income opportunities for economically disadvantaged producers. 2005: 201). (3) payment of a fair price. On the other hand. which can be realized by working with profit-driven businesses.

These results can be seen to be part of a chain: output leads to outcome and outcome leads to impact. The main reason for this preference lies on the wide range of possible impact assessment factors covered within this. before discussing in detail the impact analysis.). Ronchi (2002) and Ruben (2008) explanations contain most the relevant components of impact analysis: positive and negative effects. Similarly. Basically. including both primary and long-term implications. financial and non-financial. Nevertheless. Output results are defined as increased capacities of partner organizations to deliver outcomes at the level of target group. 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. Ruben explains the impact assessment approach to several case studies as follows: “Program evaluations commonly distinguish between results on output. Ronchi explains that impact “…includes the effect of Fair Trade relations on their financial. the impact assessments are based on the documentation and survey data collected during the fieldwork. 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. 1999 cited in FLO. direct and indirect effects as well as intended and unintended outcomes” (2008: 23). However. The data includes primary documents and interviews with General Manager and members of staff (Ronchi. 2007a: 35). FLO defined impact “as a new situation created by a set of results and effects that induce significant. a due consideration should be given to the term impact and its wider usage in this study. outcome and impact level. 2005: 204). although. and 2) case study approach for assessing the long-term impact of Fair Trade (Ibid. 2002: 6).and Opal. Ruben‟s chain of output-outcome-impact analysis is more appealing. the other approaches to impact studies are also valuable and equally considered in the scope of this paper. Outcome results are defined as increased capacities of the target group to improve their living conditions. organizational and institutional development” (2002: 7). short-term 48 . These methods are 1) monitoring and evaluation system. Impact is defined as the (positive or negative) changes in living conditions of the target group. In his case. Furthermore. FLO.

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.1 were compiled by Ruben (2008) and other authors and contains the wide range of examples on fair trade and their methodologies. and intended and unintended consequences. summarize the impact as direct and indirect impacts of Fair Trade on the producers and their cooperatives or organizations as shown on Figure 5. the behavioral parameters associated to their involvement in Fair Trade system. More importantly. it is very consequential. 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. This case study-collection not only embraces more than one 49 . Figure 5.1. The case studies were conducted in different continents and different countries and on few products that passed through Fair Trade market. individual and communal benefits. for instance.and log-term implications. Ronchi (2002). producers (cooperatives) organizations and producers. 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. direct and indirect effects. The first case studies presented in Table 5.

d = no data available 50 .d 430 N.d 30+30 30+30 El Guabo Independent farmers 1998 n. CAC Sangareni and Ass.d 80 80 80 Fruit (outgrower) 1991 n. 241 13 >500 50 110 40 CAC Ubiriki CAC Tahuan. Productores Pichanaki.1 Overview of case studies Country Organizations (Product) Peru (bananas) FT Non-FT -(organic) Non-FT (conv.L Café de Altura S.A 1984 2004 286 600 50 50 Volta River Estates Golden Exotics 1988 2003 560 800 240(50) 50 400 >500 57 63 8 In Peru.) Peru (coffee) FT Non-FT Costa (bananas) FT Non-FT Costa Rica (coffee) FT Non-FT Ghana (bananas) FT Non-FT Ecuador (bananas) FT Non-FT Kenya (herbs) FT Non-FT Meru herbs Only &… Peru (artisanal) FT FT Minka (Juliaca) Allpa (Chulucanas) 1979 1981 60 groups 100 groups Non-FT Mexico (coffee) Juliaca & Chulucanas n.d. Table 5. Rica 1977 1975 274 233 60 60 Coopetrabasur Finca San Pablo 1980 1968 70+100 200 50 50 Coopemontes de Oro R. the case studies are not only limited to CAC Ubiriki and CAC Tahuantinsuyo but also enterprises like CAC La Florida. Moreover. CAC Pangoa. it had been conducted on both Fair Trade and nonFair Trade co-operative organizations to make a clear distinction.continent but also conducted on the varieties of products traded based on Fair Trade market requirements. 9 Note that n.d 9 8 Establishment date Families Sample Sizes APVC APBOS Individual Producers 2002 2003 n.d N.

The number of members included in the study ranges from 28 to 16. (2008: 29) The second case studies shown in Table 5. Table 5.Country (Product) FT Non-FT Organizations Establishment date Families Sample Sizes Michiza Cooperative Unorganized Fraternal & CNC 1986 n. 51 . Raynolds and Taylor.d 1. the findings on the impacts are solely associated to coffee producers. and thus can not ideally attributable to other products of Fair Trade. Mexico Guatemala 1981 1983 1976 1992 Late 70s 1997 1980 2. the central issue is to summarize the impact of Fair Trade system. farmer‟s households and community and producer organization.500 943 840 116 11 cooperatives 99 28 El Salvador 2000 Source: Murray.000 26 25 Source: Adapted from Ruben. Here. the observation has relevant implications with regard to the involvement in Fair Trade. Mexico Chiapas. Co-operative is formed by two or more members (primary level) and numbers of co-operatives form a producer organization (secondary level. co-operatives and cooperatives consortium. (2003: 4) The third case study category present on Table 5. Mexico Chiapas. It shows the different levels of organizations involved in Fair Trade market. These case studies focused on the impact of coffee on its individual producers.100 >5.3 was conducted only in Costa Rica and on coffee producers.000.2 below were conducted in Mexico and Central America. Mexico Year Founded 1989 Number of members 41 organizations 16. Mexico Chiapas.000 UCIRI Majomut La Selva Tzotzilotic La Voz APECAFE Las Colinas El Sincuyo Oaxaca. Coocafé). Despite the fact that.076 1. cooperatives and organizations.2: Case Study organizations in Mexico and Central America Name CEPCO Location Oaxaca.

However. then continue to outline organizational benefits in terms capacity building. 52 . 2002: 3). 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. the analyses begins with the obvious benefits of the higher price captured by Fair Trade producers. products like banana. Because coffee is the most wanted and marketed products many case studies are focused on coffee producers. For the sake of convenience. In line with the mentioned beneficial impacts. These two categories should make the direct impacts demonstrable benefits of involvement in Fair Trade.3 Direct Impact of Fair Trade Fair Trade has made significant contributions to livelihoods of small farmer workers of the southern nations. 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. The impact analyses for many other Fair Trade products are still underway.Table 5. and 2) the financial and non-financial benefits captured through Fair Trade system by producer organizations (Ronchi. Costa Rica 1988 1989 some months Source: Based on Ronchi. the focus is also to find the contributions that this model has made to the existence of these social systems.3: CooCafé and Co-operatives in Costa Rica Name cooperative of Organization (consortium) Year joined Fair Trade10 1988 Number members 138 529 400 509 of Coope Cerro Azul Coopeldos Coope Sarapiqui Coope Bonito Llano Coocafé. 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. 5. (2002: 5-6). CooCafe. beverages and others that have gained a well established Fair Trade markets are also delivering similar positive results from the impact analysis conducted. tea.

5.3. communal. so-called floor price. The two distinctive prices need to be considered are the floor price and premium price that the producers receive for their products. and organizational levels (Murray. and 5) psychological effects such as producer empowerment and its effects on civic participation (Nicholls and Opal. 2005: 204). Fair Trade organizations set a stable price. Producers receive a minimum of US $1.1 Direct Impact on Producers The most well-known direct impact of Fair Trade on producers can be explained in terms of 1) increased income. 3) female empowerment. 4) preserving indigenous cultures.other significant benefits that accrue at the individual producer households.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. 5. coffee crisis in 1989) and as a result guarantees producer a stable income to cover the cost of production. sense of ownership. 2003: 6). 2) improved education. Some of these impacts on the producers will be closely elucidated in the following section. 2003: 6). The minimum (floor) price is paid by the consumers even when the market price is less. corporate identification and others in addition to income. Fair Trade coffee is the most marketed commodity compared to any other commodities. Ruben (2008) outlined direct impacts such as job security and satisfaction.05 per pound and an additional US $0. Similarly. Raynolds and Taylor.15 for certified organic coffee (Murray. With respect to that guaranteeing floor price is extremely valuable for smaller producers. This unique Fair Trade price reduces the effects of the volatility and fluctuations in commodity prices (for example. The social premium is paid 53 .1.21 plus social premium US $0. for each product based on the average costs of production. Thus. Raynolds and Taylor.3. I prefer summarizing all listed impacts under Ronchi‟s (2002) financial and nonfinancial categories. 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. The second significant benefit comes from Fair Trade premium price (also known as social premium) as mentioned in Fair Trade standards. For instance.

which in turn.574 1.342.508 11.844.).data 99% complete and Business production 5 premium project Not specific 8 Women‟s programmes 6 Environment 3 Community 1 premium 13.635 112.608 42% 20% 2% 7% 24% <1% 4% <1% 100% Source: FLO. For example.002.5: Fairtrade Premium spent HLO: total .925 24% 872. etc. some case studies indicated that there is significant improvement to the overall income of the household. the premium is a substantial supplement to producer‟s income. Table 5.268.004 50% 81.012 12.832 351.961 7% 294. on the one hand. used in acquiring environment-friendly processing plant.4:Fairtrade Premium spent SPO: total .944. (2007a: 34) Table 5. benefits the producers in the log run.750 5.181 198. Or at times this premium serves as a social capital fund for co-operative. invest in facilities for production of organic fertilizer. Thus.205.263 100% Education 2 Health 4 Other use 7 Grand Total EUR Percent -tage 3.723 6% 420. 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).010 6% 6. it is allocated to Social Capital Fund of the co-operative which is used to run the projects (for instance.extra above the Fair Trade product‟s value and is mainly used to invest in social and environmental projects. On the other hand.117 1.105 2% Source: FLO. cooperative like spent Clear Total 7 Not 3 5 54 .522 3% 886.222.data 100% complete premium use Community 1 Development Environment programmes Education 2 project Women‟s specific 8 Total spent premium Health 4 6 Other Grand Total EUR Percent -tages 2.014 1% 1. (2007a: 34) Despite of the unattainable systematic economic data on accumulated household income for most case studies.062.

3. 5. several Fair Trade handcraft projects focus on female producers and they are also a direct income beneficiaries. (2007a: 20) Table 5. in both organizations women participation is limited to certain types of products (Ibid.000 692. Only 61% of the data was acquired to assess the gender issues in Small Producer Organization (FLO. female those who earn enough income could send their children to school. reduces children‟s 55 .6 and 5.). 2007a: 20).065 Percenta ge of workers 24% 76% 100% population Source: FLO. According to FLO findings indicated in Tables 5. Table 5.000 525.1.6:Number and percentage of male and female members and workers Number of workers Female Male Total 83370 260030 343400 Data completion Extrapolated to 100% 61% of the 166. In Hired Labour Organizations. women are accounted for 41% of the work force.2 Female Empowerment Involvement in Fair Trade is frequently advocated because of its expected implications for greater gender empowerment and improved environmental care. in Small Producer Organizations women represented less than 25% of all members. 2003: 9). (2007a: 20) Although the percentage of female involved in Fair Trade activities are relatively less than that of male. Generally. Raynolds and Taylor. As result.7: Number and percentage of male and female members and workers Number workers Female: Male: Total: 39395 56599 95994 of Data completion 99% of Percentage workers the 41% 59% 100% of population Source: FLO. One remarkable achievements of Fair Trade in the social environment is the engagement and empowerment of the women. 2002 cited in Murray.Majomut reported a 100-200 percent increase in income (Perezgrovas and Cervantes.7 (in the period between 2007 and early 2009). which in turn.

Raynolds and Taylor. Further educational benefits were also perceived in other case studies.participation hired labor to contribute to the household income at the expense of going to school. enabling the children of producers or farm workers and of the local community to gain access to primary or secondary school (FLO. as described by Murray. On the other hand. 2003: 9). Finally. For Fair Trade marketing those articles means. clothing and accessories were portrayed with the unique designs and embroideries of different cultures.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. 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. it is contributing to cultural revival of some indigenous communities.3.1. For example. 2003: 11) noted that La Voz members in Guatemala are recuperating the ancestral farming practices. Raynolds and Taylor. For instance. UCIRI. Similarly.4 Preserving indigenous cultures Most of world shops (German alternative. 5. Oaxaca. 2003: 9). 2002: 8). Raynolds and Taylor (2003: 11). Especially. The most far-reaching impacts of Fair Trade. which led to a 56 . on the one hand. Lyon (2002 cited in Murray et al.1. University Scholarships and an Educational Extension Fund aimed at bridging the enormous gap between the quality and accessibility of urban versus rural education” (Ronchi. helping consumers to broaden their horizon concerning foreign artifacts. 2007a: 33). 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.3. Weltladen) contain diversified cultural products imported from different countries. reported the contribution of Fair Trade Direct Impact on Producers‟ (Co-operative) Organizations. the handcrafts.. in terms of projects implemented and services rendered to the co-operatives and producers‟ organization. Most of the co-operatives are organized together and formed a foundation that support or even run schools in their communities. 5. FLO confirms that significant amount of premium money is invested for educational purposes.

“agricultural co-operatives (also 57 . 5.). 2) the exportation of diversified products such as roasted and green coffee to Fair Trade markets. For instance. Based on that. But before mentioning about the direct impact of Fair Trade on co-operatives organization characterizing of co-operative is worthwhile to understand. CooCafé) as being channeled by 1) generating large sum of revenue through delivering its products to Fair Trade markets from its inception.1.tremendous organizational capacity building and empowerment. and 3) the financial intermediation and interest revenue through the investment of social premium into available capital funds.3. The product that is sold through Fair Trade market networks. 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. have provided most of producer organizations a capacity-building assistance with quality control processes and information about the market. the financial and non-financial impact of Fair Trade on producers‟ co-operative is significant.3. Murray. Ronchi (2002: 13-14) explains the direct financial impact of Fair Trade on producer organization (for example. A well established producer organization can partially or fully trade their products through Fair Trade markets. 5. Raynolds and Taylor (2003) wrote that the “…participation in Fair Trade has strengthened the overall ability of the organizations to serve their members.5 Financial and non-financial support for producer organization Most of the producers‟ organizations export their products to Fair Trade markets. The process of applying for certification and undergoing periodic compliance audits push organizations to improve their administrative capacity” (2007: 12). According to Milford description. receives minimum price and social premium set by FLO. as mentioned above. the support given to producer cooperatives and organizations can be grouped as financial and non-financial and further elaborated in the following section. This is fundamental to sketch the degrees to which Fair Trade has supported the survival and the growth of these producer organizations. Fair Trade supporters.1.6 Financial and Non-financial support for co-operatives In a similar way. especially ATOs.

$70. For example.4 Indirect Impact of Fair Trade Unlike the direct impact study. direct trade and credit provision. in 1995 the Costa Rican government passed legislation that demanded the use of „Clean Technology‟ to protect the environment. In contrary. 2002: 2). In short. all of which help them in their non-Fair Trade sales 58 . owned and run by members. Nicholls and Opal explain that “Fair Trade producers gain value from long-term relationships. This program is financed directly by producer organization (Coocafé) or indirectly through Coocafé by Fair Trade. For example. 2002: 17). The support of producer organizations will ultimately benefit the producers which belong to the organization itself. 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.000 (Ronchi. Most of the member co-operatives conduct educational programs on the benefits of being organized into co-operative. lack of market information and various other reasons. coffee producing co-operatives in many countries are democratically organized.). 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. Many coffee producing cooperatives (of non-Fair Trade) were closed due to the capital constraints. Fair Trade is providing co-operatives with services and educational programs directly or indirectly (producer organization). These are the types of co-operatives that operate in Fair Trade system. Several co-operatives used Fair Trade premium-funded Social Capital fund to meet their financial needs and comply with the new legislation (Ibid. Fair Trade played an important role in overcoming the capital constraints for most co-operatives compared to non-Fair Trade co-operatives. Members in such a co-operative organization have shared-voting right and uniform membership contribution fee. These benefits are even more valuable the than the mere income stated above. In reality. The non-financial impact of Fair Trade can be expressed in terms of support to cooperatives. 5. 000 .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. The costs of conversion to the Clean Technology were between US$38. the ultimate benefit of supporting the organizations accrues to the producers. usually after processing the product” (2004: 11).

5.4. Thus.negotiations. in the long run. it is important to take the indirect impact of Fair Trade into account. 2003: 7). Most of these benefits can not directly be quantified or monetized. These could further be elaborated by the following points. Nicholls and Opal mention the “1) positive externalities which drives from support for co-operatives and progressive plantations. As some co-operatives reported. 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.1 Indirect Impact on Producers Having discussed the direct impact of Fair Trade on both producers and their (cooperative) organizations. That means the support of Fair Trade to producer organization non-financially. Raynolds and Taylor. one could call it organizational impacts on producers or farm workers. 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. The communities in which Fair Trade producers operate benefit from development projects funded by Fair Trade cooperatives and farm workers organizations. Thus. Remarkably. the remaining two avenues are analyzing the impact of those producer organizations. Consequently. on producers and on their organizations. also extends to the support of co-operatives and. especially within Fair Trade. 1) The financing conditions arranged by the cooperatives and producer organizations charges lower interest rates for credit facilities over the last ten years. they are observable in the livelihoods of producers. however. benefits individual producers. Based on the field studies conducted on producers. Even self-esteem and self-confidence are improved as Fair Trade farmers identify with an international alternative trading movement” (2005: 202). and 2) benefits accrued to Fair Trade groups through direct trade relationships” (2005: 204). Among the perceived indirect impacts on the producers. access to different credit sources enable the members to invest in small 59 . this is due to the increased organization‟s credibility which resulted from their participation in Fair Trade market system.

harvesting techniques and other quality-related procedures” (Perezgrovas and Cervantes. Although.4. “Majomut‟s technical advisors. provide members with a minimum of six training courses yearly in coffee tree management. in turn. and educational session on organic production enabled to enhance the portfolio of their products (Ronchi. This kind of assistance from Fair Trade organization. some of the Fair Trade organizations are committed in networking Fair Trade producer and their organization. the interaction of different Fair Trade participants facilitated the building of social networks which led to collective action toward developmental activities in the community. Raynolds and Taylor. the existence of the producer organizations in one community has an impact on the community beyond the immediate impact cooperatives. pest management. soil fertility and conservation. According to Mendez (2002: 22 cited in Murray et al.2 Indirect Impact on Producer Organizations The intention underlying in this section is to detect the impact of producers‟ organization or consortium (for example. 2002). 2002: 17 cited in Murray. in Costa Rica) on the cooperatives (Coope Cerro Azul or others). 2003: 8). Similarly.businesses on their own land and homes. On the other hand. these organizations have contributed to the development of networks s among the participants. Fair Trade producer organizations are 60 . Coocafé. social network is considered as indirect impact of participation in Fair Trade. benefits the nonmembers those who can not establish such small businesses because of the financial constraints they have. Thus. 2008: 8). the financing of developmental activities heavily dependent on Fair Trade social premium. directly and indirectly. the indirect beneficial impact is the union of different members of cooperatives under the umbrella of Fair Trade for the purpose of communal development. for example. 2) Members‟ participation in environment educational activities helps to reduce the usage of herbicides and pesticides. has strong influences on the income of producers in the long run. 5. In line with this effort. 3) As noted earlier in chapter two. the participation in Fair Trade could be seen as an apprenticeship for quality-related techniques and enhancing production and commercialization. These.

receive assistance from these other groups. Fair 61 . economically stronger. “…the information-sharing processes have benefited the co-operatives in terms of administrative efficacy and human resource training” (Ibid: 24). 1) Producer organization or consortium takes advocating position within the Fair Trade system. 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. due to growth in Fair Trade markets and demand from consumers. For example. and it also facilitated support in consultation and technical assistance from external agency such as NGOs and ATOs.structurally higher. Some of the significant impacts can be described in the followings. social-politically representative and commercially competitive. in the process of certification and decertification. in some cases. These specific characteristics capacitate them to occupy higher position and play key roles in the Fair Trade business. 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. 2) Ronchi emphasize “the impact of consortium via its wider co-operative actions. 3) Based on the consortium initiative program for interaction and information interchange among the different co-operatives. Their functions can further be understood under the listed points below. Firstly. For example. The collaboration of Fair Trade producer with non-Fair Trade helps “many groups learn about Fair Trade from other producer organizations and. 5. Fair Trade registered cooperatives have facilitated the entry of other non-Fair Trade groups into the Fair Trade networks and markets. That means. its representative role on a national level and the opportunities it facilitates for its members provide important indirect impacts of Fair Trade” (2002: 23).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.

Finally. La Selva and Tzotzilotic of Chiapas. Especially. La Selva in turn facilitated Majomut‟s entry into Fair Trade in 1993-1994. Raynolds and Taylor. the wage and price standards of Fair Trade cooperatives forced other non-Fair Trade cooperatives to improve for all producers (2002: 20). previous Fair Trade co-operative organizations (for example. 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. Similarly. a short-term credit services available to non-members for their basic needs become relevant in improving the image of Fair Trade (Ibid. Fair Trade system has impacted non-Fair Trade producers through the strength and activity of primary level co-operatives. 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. Raynolds and Taylor. 2003: 20). 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. 2003: 13). that is. 62 .6 Emerging Impact Analysis Methods Different metrical methods of social impacts have been introduced to describe the social impacts of Fair Trade. the existing co-operatives are also forced to improve their compliance with the set of standards. 2008: 214).Trade pioneer UCIRI helped draw La Selva into the Fair Trade coffee market in 1990. Furthermore. 5. 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). Ronchi claims that this model has a ratcheting effect. Alarmed from the decertification of other co-operatives. Majomut then assisted Tzotzilotic in selling Fair Trade coffee for the fi rst time in 2001” (Murray. 19). Secondly. the following impact analyses were given a short consideration by Nicholls and Opal (2008: 216-225). Moreover.

Thus. which are economic. 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). 2008: 216).6. controversy still rages over the financial valuation of social and environmental impacts (Nicholls and Opal. 4) 63 . subjective and not quantifiable and consequently.1. applying TBL model to assess the full impact of Fair Trade system on producers and their organization is not the best possible option. The social impact measurement is targeting at “…capturing specific. descriptive outcomes of strategic action” (Nicholls and Opal. 2004: 34).5.1 Qualitative Approaches There are several metrical models employed to measure the social impacts of businesses. Fair Trade system is also seeking commercial returns. social and environmental audits are partial. intrinsically it is concerned with generating social and environmental outcomes (Nicholls and Opal. 5.2 Social Accounting The second qualitative method is social accounting approach. These are 1) inclusivity.6. 2008: 217.1 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. the TBL is less valuable for Fair Trade model. Nicholls and Opal stipulates that such metrical approach based human observation of individual or communal level changes or developments and therefore mostly incomparable. Zadek (1998: 1436-8 cited in Nicholls and Opal. are the vital in dealing with this method (Richardson. 2004: 34).6. However. 2) comparability. however. Unlike for the profit-driven commercial organizations.1. 2004: 34). and often partial. social and environmental capitals. Of course. 2008: 217). capturing the three pillars of sustainable development. 5. 3) completeness. The following four approaches are specifically related to them. Richardson. 2008: 217) outlined eight guiding principles. Therefore. contrary to the financial performance. This approach is more detailed and systematic means of social impact measurement than the TBL approach.

5. Because of the two different parties involved the organizations should consider the donor and receiver perspectives in the arrangement of their balanced Scorecard. 2001: 134-5).). Though social accounting is more appropriate indicator of social impacts than the former TBL. Redfer and Snedker. 2008: 217. in a nonprofit organizations financial providers (donors) pay for the services and the target group or customers receive the services (Kaplan and Norton. This method was first developed for profit-driven business organization and then adapted for public and nonprofit organizations. 2008: 219). 2002: 9). where the customers both pays for the services and receives the services. Traidcraft PLC in collaboration with New Economic Foundation (NEF) conducted social accounting and published the audit report in 1993 (Nicholls and Opal. 5) embeddedness. 7) externally verified and 8) continuous improvement. Currently. For instance. using the conventional businesses audit practices. Traidcraft. 6) communication.1. auditing and reporting and to develop standards and accreditation procedures for professionals in the field” (Redfern and Snedker. 64 . Some Fair Trade organizations have adapted this approach.3 Balanced Scorecard Nicholls and Opal continued to consider further qualitative approach known as Balanced Scorecard. Thus the Balanced Scorecard for nonprofit is organized according to the one indicated on Figure 5. Contrary to the former organization. Nicholls and Opal. 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. 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. These principles provide valuable information about individual actions and objectives and can be used to indicate the development in the long-run (Ibid. 2002: 9).regularity and evolution. 2001: 134-5. 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.6.6.

65 .Figure 5. 2008: 220). They replaced customers by producers with the developmental objectives and investors by consumers with sales and awareness raising objectives. These are maximization of commercial returns to producers and denouncing the international trade inequality (Nicholls and Opal. In practice. the advocacy groups such as FLO members.3. internal business processes stipulate FTO to jointly devise commercial capacity as well as developing strategies for campaigning and raising awareness. The organizational learning aspect focuses on the various networks within Fair Trade which provide information flows and motivate innovations (ibid. Cafédirect. and People Tree are focused on the commercial growth. Nicholls and Opal have further modified nonprofit organization Balanced Scorecard to fit it into Fair Trade system. 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. IFAT and EFTA are supporting the advocating objectives and the commercial operators like Traidcraft. 220). Thus. As it is shown on Figure 5.2: The Balanced scoredcard for not-for-profits Source: adapted from Kaplan.

SROI is favorable to demonstrate the combined impacts of all the three objectives. they may or may not achieve similar levels of financial return. but even if they do not. (2004b: 3 cited in Nicholls and Opal. government agencies and other social enterprises) and designed to measure the impacts of social projects.3: The Balanced Scorecard for Fair Trade Source: adapted from Kaplan. 2008: 221-227).6. This is particularly true for those organizations in the social economy that may search for either economic or just social value. the value to society of the social or environmental returns that they create may well be equal or higher. When compared to mainstream businesses. 2002 cited in Nicholls and Opal (2008: 221 5. private business.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. The term social impact stands for social. 66 . Thus. SROI methodology works across different sectors (for instance. environmental and economic impacts in this section. 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. nonprofit organizations.Figure 5. 2008: 222).

outputs. 6) demonstrating transparency and 7) validating the results.5 presents the linkage of inputs. The analysis of SROI involves various other issues that should be taken into consideration. Impacts are outcomes less an estimate what would have happened without the social projects activities (Nicholls and Opal. Fair Trade products sales. (n. The impact value chain indicated on Figure 5. Outcomes are changes to target group (Fair Trade producers and communities) resulting from the activity. Outputs are the direct and tangible products from the activity. Firstly. 5) avoiding over-claim. SIA. 11 n. outcomes and impacts.(Not available) . for instance. and edited by Sally Cupitt. (2003: 18). but it has been written by Jeremy Nicholls. 9). Inputs are resources invested in the social projects. 2) understanding the changes taken place. judgment plays a significant role in SROI analysis. establishing the organizational boundaries of the social projects. for example. a. 3) valuing the things that matter.The year of edition for “A guide to social return on investment” is not available.Nicholls et al. 67 . Eilis Lawlor. establishing impact map gives guidance to how social impact is intended to be achieved. Nicholls et al. 4) including what is material. a. 2008: 223. identifying the main stakeholders and specifying key social objectives are relevant (Nicholls and Opal.)11 claim that SROI was developed from social accounting and cost-benefit analysis and supported by seven principles for its application. Based on these principles. Secondly. a careful judgment is required about the materiality of information to avoid the misrepresentation of the organization‟s activities. 2008: 223. These principles can be explained as 1) Involving stakeholders. increased household income. For instance. Eva Neitzert and Tim Goodspeed.

The second step the social purpose value of the given project should then incorporate various factors and be calculated for all factors. Since Fair Trade business is retail in nature and small in size.Figure 5. the impact of technical assistance. The last step is calculating a blended value of enterprise and social purpose values. The discount rate is calculated using the financial model known as Capital Asset Pricing Model (CAPM) which calculates risk project. 225). (2003: 18) Finally. 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. The enterprise value can be acquired using the conventional business project valuation approach. Similar to that of enterprise value. present value of the total future cash flows will be discounted by a risk premium (Nicholls and Opal.). different developmental impacts are required to be valued. According to Nicholls and Opal (2008). the quantified social purpose value will be discounted to a present value and represents the project outcome (Ibid.4: Impact Value Chain Source: SIA. the calculation of SROI demands Cost Benefit Analysis tools. 68 . 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. 2008: 223). the CAPM should also reflect these factors. For example. pre-financing and education programs should be carefully monetized. That is. For Fair Trade business.

This international organization roofed several NIs. the once ethical consumers became commercial operators and focused on the consideration of both supply. Originating from the criticism of prevalent failures in international trade liberalization to benefit disadvantaged trade partners. The diversified application of Fair Trade standards and principles across different countries. 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. and the introduction country-based Fair Trade seals (marks) created among the ethical consumers. WFTO. Fair Trade became the consumers-backed support for ethically sourcing of agricultural commodity and various other products.and demand-driven marketing approaches. Although Fair Trade has both political and economical motives.6 Conclusion The international trade liberalization. it 69 . FLO has developed general standards under which Fair Trade producer-suppliers and commercial agents should operate in the Fair Trade market. came to existence. fast market expansion. NEWS and FTF. Consequently. The ATOs having the legal status of nonprofit organization were not based on commercial principles rather on the solidarity trade principles. It also works in harmony with other Fair Trade organizations such as IFAT. This phenomenon led to the formation of National Initiatives as controlling bodies. migration of labor. For that matter. producers and commercial operators. Some of these organizations are advocator and campaigners. The absence of commercial orientation delayed the fast transformation of this social enterprise to a competitive business model. 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. commercial operator. FLO. movement of capital. Moreover. an independent umbrella organization. Several commercialized ATOs started to join the Fair Trade system in different countries. networking and market facilitators. the primary goal of Fair Trade is to integrate the marginalized producers in global South into international trade. power of Transnational Corporation and many other phenomena triggered the formation of many political movements in this era of globalization.

Central to the growth of Fair Trade market can special be perceived as the marketing effort of the international Fair Trade organizations. several producers have started supply their products directly to conventional or traditional outlets. the application of standards. place and promotion have been designed to communicate this specific message to the target audience. The pricing scheme has been addressing to the uniqueness of the product. Fair Trade marketing mix has focused on the producers (producer co-operatives or organization). Fair Trade products‟ design has incorporated the ethical message and economic value inherent to it. All together. However. The distribution of Fair Trade products has not been successful due to the incontinently located World shops and other Fair Trade outlets. 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 marketing mix elements: product. The FLO-Cert (certifier) proves product and producer organization and issues certification mark for the compliance.conceived a certification process to make sure the compliance to established standards. Especially. Promotion of the Fair Trade 70 . The mainstream supermarkets interest in Fair Trade commodities has increased over last ten years and boosted the Fair Trade sales turnover. Fair Trade commercial operators (as producers‟ partners) have also emphasized their marketing concept on producers. In line with this growth. Due to the growing demand for quality in return to the higher price paid for Fair Trade commodities. principle-driven Fair Trade activists are skeptic about the commitment of these new Fair Trade partners. The dominance of traditional supermarkets along the Fair Trade supply chain has improved the fast distribution of Fair Trade products beyond the niche markets. price. FLO brought a random monitoring system to sustain the perpetuity of the compliance. it has moved the Fair Trade commodities out of a niche market to mainstream outlets. 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. despite the celebrated success of the move to mainstream markets. 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. As a focal point of the marketing instrument.

Fair Trade has just started the road to poverty reduction through a market-based strategy. Fair Trade market has grown and benefited several producers. The development of Fair Trade marketing and the participation of the conventional outlets increased the demand for diversified Fair Trade products. Finally. Until recently.) has started to develop their own brands that is co-owned with the producer organizations. Consequently. However. the impacts Fair Trade on the livelihoods of producers and the large community have not been monitored and evaluated metrically. farm workers and their immediate communities in global south. The beneficiaries are ranging from individual producers and their families. However. Traidcraft. Due to this phenomenon several small producers and plantations have been impacted. Fair Trade commercial operators (Cafédirect. the non-financial impacts of Fair Trade have been presented wholly and lacked the fair presentation of Fair Trade potential. Nevertheless. It will take a while to disclose the full impact of Fair Trade. most of the case studies conducted were on fair Trade coffee producers. producers‟ organizations and the immediate communities. compared to the global population of marginalized communities. the impact analyses reported have some problems. The impact of Fair Trade has been demonstrated by various case studies conducted in different regions.products has been made possible through increased campaigning strategies of Fair Trade organizations. Especially. Some were only focused on specified products which can not be representative for many other Fair Trade products. the accomplishment of Fair Trade can not be underestimated. For example. etc. there have been growing tendencies to develop convincing and accurate assessment methodologies that can capture the social and economical impacts. because of the mainstream business involvement in the Fair Trade product outlets. The researches conducted also outlined the direct and indirect impacts on producers. however. financial and non-financial benefits. The beneficiaries of Fair Trade represent very small percentage of large disadvantaged communities from inequalities of international trade. Finally. 71 . Fair Trade products neglected the product innovation and brand development. Others did not capture and present the full Fair Trade impact on the producers.

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but not all. taking into account the direct social costs of the project  Discount this figure by an appropriate rate. taking into account the WACC. 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. where relevant o Calculate the monetized social purpose value.Appendix 1. 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. taking into account the WACC. 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 77 .

______________________ Nürtingen. 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. Dass ich meine Masterarbeit selbständig und ohne fremde Hilfe angefertigt habe. dass ich der Ableistung weiterer Prüfungsleistungen nach § 15 Abs.EHRENWÖRTLICHE ERKLÄRUNG Ich erkläre hiermit ehrenwörtlich: 1. 4 SPO (§ 13 Abs. 4 SPO) ausgeschlossen werden und dadurch die Zulassung zum Studiengang verlieren kann.2010 Unterschrift 78 .04. Ich bin mir im Weiteren darüber im Klaren. dass die Unrichtigkeit dieser Erklärung zur Folge haben kann. 23.

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