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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 .................................................................. 53 188.8.131.52 Increment in Household Income ..................................................... 53 184.108.40.206 Female Empowerment ................................................................... 55 i
220.127.116.11 Improved Education ....................................................................... 56 18.104.22.168 Preserving indigenous cultures ...................................................... 56 22.214.171.124 Financial and non-financial support for producer organization ....... 57 126.96.36.199 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 ......................................................................... 63 188.8.131.52 Triple Bottom Line .......................................................................... 63 184.108.40.206 Social Accounting ........................................................................... 63 220.127.116.11 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
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
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). consumers and many other interested groups. The relevance of FLO standards. The orientation is then described in terms of Fair Trade marketing approach and supply chain.Preface Fair Trade is a dynamic social enterprise that emerged over last four decades to tackle the negative impact of globalization namely. Then continue to sketch the various developmental stages of Fair Trade and the problems encountered in various stages. certification and monitoring will be addressed. basically. The research also discusses some of the problems that Fair Trade is confronting with in adapting to mainstream marketing. In addition. Their commitment and contribution to the development of Fair Trade marketing (in actively supporting Southern producers and educating Northern consumers) will be outlined. The fifth chapter focuses on the Fair Trade marketing impacts on the producing nations in global South and their organization. The fourth chapter committed the central theme of this thesis. The marketing mix emphasize on the producers. The second chapter. It explains the objectives of Fair Trade marketing and emphasis particularly on the Fair Trade marketing mix contents. Fair Trade product mix and brand development will be discussed. not-for-profit and Fair Trade marketing processes will be presented. market or trade inequality. This thesis focuses mainly on analyzing the marketing and impact of Fair Trade model on producers and their organizations. 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 . introduces selected Fair Trade organizations and their functions in Fair Trade system. The first chapter deals with the historical background of Fair Trade movement and analysis the definitional spectrum to distinctively understand the subject matter. Short distinction between conventional. The introduction of the Fair Trade thus has implications on producers. cooperatives organizations and Fair Trade organizations. which is Fair Trade marketing mix. various institutions.
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. this thesis is purely based on the theoretical analyses of the all information available. v .
Fair Trade is a movement initiated by Northern activists. Based on this development. it has benefited numerous smallholder farmers and producers of developing countries. Fair Trade is the fastest growing initiatives. Despite their hard-work most of them live on less than 2 dollar per day (Ibid. she had Palestinian and Haitian handcrafts in her inventory. 2002: 5).1 Introduction and Historical Development of Fair Trade Globally. 11)1. 1. 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”. 2007: 1). more than 2 million people are living under the poverty (mostly of Asia.1 Historical Background of Fair Trade Fair Trade movement began in the 1940 in North America when the first Fair Trader. In 1946 together with her colleagues. 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. 1 . In addition. in 2008 Fair Trade sales were grown by 22% (FLO. One of the main problems is the exploitation of small farmers.Year of publication is not indicated and Birgit Schößwender is editor. philanthropic organizations that work with producers (farm workers) and disadvantaged communities of developing nations. Although Fair Trade accounts for about 0. Among the recently emerged ethical trading. she took some items to Mennonite world conference in Switzerland and sold them there (FTH). the financial crisis that struck the world economy. Africa and Latin-American (Schößwender. 2009c: 2). Edna Ruth Byler. 2007: 12. Redfern and Snedker.01% of total trade (Becchetti and Huybrechts. 2007: 4).). 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. a short description of the encountered problems will be presented. 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. Notwithstanding. started selling handcrafts from Puerto Rican out of her Pennsylvania home (Jaffee.
2008: 11).30 cited by Nicholls and Opal. For instance. similar logo was referred as “Max Havelaar” (in Belgium. 2 . In the 1960‟s. p. 2008: 20. 2007. In 1988 the “Max Havelaar Foundation” created the Max Havelaar label to identify a fairly traded coffee (Krier. FLO members consist of four groups: traders. Norway and France). Switzerland. Non-Governmental Organizations (NGOs). These organizations started trading these products to ethically-conscious consumers and to secure fair prices to the producers. Transfair (in Germany. and Oxfam UK in Europe (Nicholls and Opal. 2007: 29). FLO. Italy. In the 1960‟s and 1970‟s. Denmark. Besides. Luxemburg. Canada and Japan). 2008: 20).Cert. 2007: 42). Austria. the United States. c. to verify that producer groups are in compliance with FLO‟s standards (Krier. producers. FLO serves as an umbrella organization to create a common ground for various initiative schemes proposed by FLO organizations in different countries. “Fairtrade Mark” (in the UK and Ireland). FLO-Cert is responsible for the certification process and annual monitoring inspections of each producer group.f Jaffee. and individual groups got involved in this alternative trade concept. Soon the Max Havelaar initiative for Fair Trade became prevalent in several European countries‟ and North American markets under different name. Following the development and acceptance the Fair Trade across many countries. experts and National Initiatives (NIs). additional ATOs. recognizing the need to assist disadvantaged producers by cutting out the middlemen in the marketplace. In 2004 FLO created an independent entity. 2007).were selling handicrafts in the U.S. 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. and different name in other countries (Nicholls and Opal. Germany. it coordinates and harmonizes Fair Trade general standards for certification and facilitates methods of inspection after certification. United Nations Conference on Trade and Development (UNCTAD) adapted the “Trade Not Aid” motto that was addressed in the conference (Fridell. in 1988 an independent organization by name Fairtrade Labelling Organization (FLO) was established in Bonn. also referred to as Labeling Initiatives.
Nevertheless. democratically organized workplaces. technical assistance. The trade inequities mentioned here does not only indicate lack of access to markets and market information. 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. These partnerships address trade inequities in the global marketplace” (2008: 1). CFAT defines Fair Trade as “…market-based approaches to alleviating 3 . social programming. Here. and health and education. trust and environmental protection” (COFTA). market or trade is emphasized as a medium for social and environmental improvement. Ruben explains Fair Trade as “an organized social movement which promotes standards for production practices and delivery procedures. but also to the technology. equality for all.1 Definition of Fair Trade Fair Trade has been defined by different interest groups: political initiative groups.1. 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. in order to capture the relevant notions that explain the concept of the Fair trade. and credit resources. transparency. knowledge of best business and environmental practices.2 Definition and Delimitation of Fair and Free Trade 1. working conditions and labor remuneration. philanthropic organization activists and various scholars differently. 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. it is important to consider the various definitions of Fair Trade and contemplate on the common facets prevalent in most of the explanations. environmental care and social polices in supply chains of certified goods” (2008: 19). to groups of citizens in developing nations” (2007: 2).2. 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. The Cooperation for Fair Trade in Africa (COFTA).
defines Fair Trade as a “trading partnership. the International Federation for Alternative Trade (IFAT).2 Definition of Free Trade The term Fair Trade. Redfern and Snedker. Furthermore. The internationally and widely recognized definition of Fair Trade. for instance. Fairtrade is only used in connection with some FLO activities and as a result of quotation from old literatures. the central (most relevant) notions outlined are avoiding trade inequality among trading partners. alleviating poverty and creating market-based socioeconomic improvement and environmental sustainability in developing nations. EFTA. 2007a: 35). and the European Fair Trade Association (EFTA)]. Network of European World Shops (NEWS). It contributes to sustainable development by offering better trading conditions to. especially FINE as indicated in the above definition. FLO-Cert and its labeling initiatives (Krier. Fair Trade definition can be found on their websites. Fairtrade refers solely to activities such as standards setting. transparency and respect that seek greater equity in international trade. 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. and consumption” (CFAT). FLO. as already mentioned. based on dialogue.poverty and promoting environmental sustainability through innovative business models spanning production. marginalized producers and workers in the South” (Krier. 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. distribution. 1.2. 2007: 23. and securing the rights of. certification systems and labeling scheme and products promoted under such activities which are mainly developed by FLO. In this paper the term Fair Trade is the one mostly used and thus. as agreed by FINE2. 4 . 2007: 4). is sometimes used within different context than it is usually intended to be. 2007: 26. 2002: 11). Regardless of the origins of definitions given. 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). This term is widely applied in a network organization. even though the latter gives less relevance to the social justice and environmental sustainability (Murray and Raynolds. the term Fair Trade and Fairtrade are sometimes used in different contexts and demands short distinctive explanations. improving working conditions.
Witkowski. one can disclose that international trade creates a win-win situation for both parties (Ibid. 1.1 Fair Trade and Anti-globalization Fair Trade and anti-globalization are both dynamic movement instigated by different interest groups. 2008: 17) International economics). Based on the free trade approaches Germany and Ethiopia are better off and thus. For instance. Germany manufactures machinery products and Ethiopia grows high-quality coffee. the advocators support the movement of goods. This free trade ideology is propagated by the World Trade Organization (WTO) and has encountered opposition from developing countries.). attempts to achieve economic development using North-South trade relationship than the classical development aid. “countries export what they relatively good at producing and they import what they cannot produce sufficiently” (Nicholls and Opal. Both fair traders and anti-globalists groups are characterized as idealist and utopians. 2007: 21. there are also ideologies that they do not share. Unlike anti5 . However.). According to Witkowski‟s (2005: 25) both ideologies show great concern for the disadvantaged producers.theories of comparative advantage. 2005: 25). Witkowski continued to differentiate the different approaches underlying both movements. Despite the fact that free trade does not benefit all the trading partners proportionally. gender equality and environmental protection. free trade has been there for long time and the benefited nations are handful and certainly failed to function for the majority. from its side.3. Fair Trade. services and finance between nations as effective business model (Ibid. Opening up countries to international trade allows Germany machinery producers to import coffee from Ethiopia and Ethiopian coffee producers to import machinery from Germany. While there are some common drives that unite both. WTO had encountered oppositions in different cities led by both of these movements (Jaffee. For instance. They disregard the international trading regime and the supporting organizations.3 Fair Trade in Comparison with Other Ideologies 1. different political movements or groups around the globe including Fair Trade activist groups.
Fair Trade has developed similar principles and working to improve the social and environmental settings of producers. 2002: 14). For that matter. 2005: 27).1) and consumer education programs.2) and builds product value through certification (see chapter 2.3. Similarly. Both fields are following implicit principles which are complementary and distinctive in their application. 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. for example. Fair Trade uses various elements of marketing such as branding and marketing mix (see chapter 4. In order to accomplish that Fair Trade groups support producers. In contrast.2 Fair Trade and Ethical Sourcing Fair Trade and ethical sourcing are related ideologies that are focused on improving the lives of the weaker partners (primary producers or workers) along the supply chain in international market (Redfern and Snedker. 2002: 13).2. they had developed ethical codes of conduct which. the dissimilarity of Fair Trade and ethical trading principles could be explained by the business drives innate to both (Redfern and Snedker. unfair wages and working conditions. states against forced labor. workers abuse in any form and many more (Redfern and Snedker. transparency and mutual respect (according to the above definition). 2007: 10). discrimination. child labor.). 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. create awareness and campaign for changes in the rules of conventional market (Redfern and Snedker. cf. Most of these companies are brand owner and concerned about their brand image. antiglobalization criticizes Fair Trade for partnering with large corporations.globalization approaches. However. 2004: 16. Furthermore. 2002: 13). 6 . Hiscox. 1. Witkowski. 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. Fair Trade creates a trading partnership between marginalized producers in developing countries and consumers in developed nations which are based on dialogue. permanent employment.
They set up a programme namely SelfHelp Crafts (Redfern and Snedker. yet it has relevance in development of Fair Trade business model. but also begun to search for new producers. Oxfam in Western Europe and Mennonite Central Committee (MCC) in the USA imported handicrafts made in Eastern Europe and Latin America respectively. 2002: 5. 2005: 27). The first Fair Trade was developed by charitable Christian organizations which were not based on some commercial principles. These organizations. 2000: 167). ATOs preventing the middlemen from supply chain started working as “social entrepreneurs” (Nicholls and Opal. During this time. 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. At this stage.Especially. but to outline the Fair Trade model growth to business. The second approach was based on the good-will trading relationships and developed to “solidarity trade” (Low and Davenport. 2008: 5) which led to the creation of alternative trade model. 2008: 19-20) and created the so-called “goodwill trade” initiated by NGOs (Tallontire. it was not commercialized at this level. While Fair Trade is charging higher price which in turn accrued to producers‟ income. 7 . 1. both are working to improve income and livelihoods of the workers and producers. Moreover. ethical sourcing charges low prices and the return to the producers is not significant and therefore criticized as still exploitive (Witkowski. but the strategies applied are different. Nicholls and Opal. The essence of these distinctive approaches is not to highlight the historical context of the movement. particularly. product quality and consumer-centered marketing approach were at a far distant. 2008: 20) using business concepts (for example. sells in catalogues and world shops) to emphasizing on the social and environmental issues linked to producing communities. Although. 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.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.
Soon after. Starbucks.). marking increased commercial awareness” (Ibid. The fourth business phase could be described as the development of Fair Trade certification process and labeling of the products. Due to the quality problems and consumer ignorance. 2000: 167). cultural and informational” (2008: 20). Sainsbury‟s. ATOs struggled and some even went bankruptcy. 168). led ATOs to develop brands such as Cafédirect and Divine Chocolate (Nicholls and Opal. higher prices in return for the quality products (Tallontire. 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. 2008: 20). 2008: 20).The third approach could aptly be characterized as a development of mutuality in trading relationship. This in turn. 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. growing out of important cultural and informational changes in developed countries (Ibid. Sara Lee and many more (Ibid. This success has encouraged market entry of conventional outlets. 2002: 8) and solidified their growth in the mainstream markets (Nicholls and Opal. Then developing “consumer marketing. such as Costa Coffee. which means. ATOs moved from selling commodity ingredients to composite products (Redfern and Snedker. This process led to the distinction of Fair Trade products from conventional commodities. None of these mentioned influences worked independently. 8 . In line with. but rather were interdependent on one another toward creating an understanding of the value of Fair Trade in the North. academic. and product quality all became important concerns of ATOs. product development. Nicholls and Opal describe some of the driving factors which influenced the growth under four main headings: “political. Currently.). This new approach of ATOs involved sympathetic retail businesses and promoted Fair Trade products to large conventional supermarkets.
2008: 22) by development workers and the demand for “fair trade.Figure 1. The concern of trade inequality between the developed nations and developing nations has driven many political initiative groups. Some countries are supporting Ethical Trading Initiative and creating public awareness of ethical trading and initiating retailers to promote Fair Trade products. philanthropic organizations and national and international campaigners to improve the political context of international trade. This indicates the shift of values toward relevance of development issues (Nicholls and Opal 2008). not free trade” (Jaffee. Many scholars are attracted toward the debate of the ethical trading.1: Influences on the development of the UK Fair Trade market Source: Nicholls and Opal. Cultural and informational influence 9 . in general. The increasing cry for “trade not aid” (Nicholls and Opal. in UK several academic institutions are developing business ethics courses and modules that incorporate ethical consumerism and influence the corporate behavior (Nicholls and Opal. in particular. For instance. 2007: xii) by producers and consumers groups is shifting the route to the alleviation of poverty in the developing countries. 2008: 22). Academic influence The academic context of the Fair Trade is intensively developing in recent years. (2008: 20) Political impact The political framework of the alternative trade has significantly changed in the Northern nations in the last ten years. and the social and environmental issues connected to the movement.
Thus. financial and organizational problems.In different countries the numbers of consumers which identify themselves as ethical consumers are increasing. The strategic development of Fair Trade marketing in the developed countries can be seen as three distinctive stages: grassroots. Of course. 24).5.1 Organization-related Problems Driven the by the desire for market development. namely mainstreaming of the Fair Trade products. The majority of the farmers and producers organization can not comply with the standards due to technical. The cultural shift has been considerably caused by the accessible information about global social and environmental issues. the problems and challenges intended to be addressed in this paper is associated to each individual development stage of the market of Fair trade. These problems could be further categorized as organizational and marketing concept-oriented (or underpinning) problems and challenges. 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.5 Problems of Fair Trade Marketing The central problem related to fair trade is the growing marketing strategies. Due to this consumers demand for the ethical products. Fair Trade organizations are putting pressure on the producer organizations by setting high-quality standards. 1. there is a discrepancy between what most of the consumers claim to be and their real behavior. coinciding with the increasing awareness of consumerism. new Institutions and mainstreaming (Nicholls and Opal. the significance of niche market has increased and led to diversified range of products to meet the consumers‟ demand. 2008: 230-231). 1. 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. 23). This is made possible because of the improved information flow concerning the supply chain of Fair Trade business model. The media engagement with broad subjects and growth of internet in publishing and dispersing information on. such as Fair Trade or organic products. building Fair Trade brands and the prevalent problems connected to these marketing approaches.
Fair Trade products were sold by few alternative trade organizations (ATOs) like Oxfam und world shops. The movement actors are the so-called Grassroots activists as described above. Nicholls and Opal (2008: 230) describe it as a process-focused and supply-driven rather than consumer demand-driven marketing. which confused ethical consumers and debilitated their reliance on the Fair Trade marks and the message communicated with it. The second stage. 231). The macro-level organizations and other strategic groups (chapter 2. 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. Fair Trade Labeling Organizations International (FLO). on the other hand. New Institution.). for instance. Contrary to the previous stage.) have launched Fair Trade involvement with more conventional marketing. In fact. FLO International. The market-driven actors. Whereas the market actors are the group of individuals recruited by FLO-I run the increasingly complex and technical certification and monitoring schemes (Ibid.1. compared to that of conventional marketing target groups. all the national labeling organizations and certification groups are consolidated into this macro-level organization. The move to the mainstream marketing brought polarized tension between the movement and market actors. a very small fraction of consumers.). As a result. The main driver for these organizations‟ arrival is the range of national labeling and certification initiatives that begun to appear in different countries. this FLO-I and others are encountering various challenges from the Grassroots activists of Fair Trade. Nicholls and Opal (2008) describes as a demand-driven rather 11 . Many Fair Trade activists perceived the problem at this stage as information problem. can be described as the emergence of international Fair Trade organizations. ATOs and NGOs played significant role in raising awareness toward trade injustice and contributed to a lot in educating the ethical consumers. on the one hand. These organizations could only reach ethical consumers. Consequently.At a Grassroots level. in order to avoid the inconsistence in the application of Fair Trade mark and misunderstanding of the underlying concept (Ibid. typically feel that the move to mainstream contains the risk of deviating from the original values and purpose of fair trade (Ibid. The movement actors.
has its base on the previous stage. this brand is trying to develop another brand within Fair Trade products. The engagement of Fair Trade with the mainstream markets has grown in many Northern markets. as in the case of Traidcraft and the Co-operative Group) can lead to numerous problems (Nicholls and Opal. Fair Trade was offered as a brand to the market.than supply-driven approach. 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 addition to that. though it has later developed a brand through certification mark. it is focusing on Northern consumers demand rather than the Southern producer organizations offer. which is mainstreaming.2 Market-related Challenges (and Problems) The third stage. 2008: 231). The shift of Fair Trade from supply-oriented to demand-oriented marketing is signaling that Fair Trade is deviating from its original objectives. In other words. 1. the collaboration of Fair Trade with other transnational companies (with negative image) and co-branding of product cause them to lose ethical consumers. Initially. Currently. 12 .5. Nicholls and Opal criticize that the development of Fair Trade brands has largely been decentralized and creating a problem for strategic marketing promotion.
These organizations are involved in certification process. this section demonstrates the influences that these organizations have toward achieving social and marketing objectives of Fair Trade. 2. advocating for Fair Trade to the global community. International Fair Trade Association (IFTA). the relationship they have to producers and the strategies employed to expand the market for Fair Trade products and to create awareness among consumers. That means. In the following sections some of these organization structures. European Fair Trade Association (EFTA) and Fair Trade Foundation (FTF). Most of Fair Trade product producers‟ and traders‟ organizations are members of one of these national or international organizations. functions and operational strategies of these organizations are. therefore.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.1 Fair Trade Organizations (FTOs) The rapid growth of the Fair Trade movement contributed to the establishment of the national and international. Network of European World Shops (NEWS). 13 . traders and other similar partners. Addressing the objectives. very relevant as they are bridging the gap between the producers and the consumers and furthermore. in order to realize the core objectives of this movements. More precisely. Some of the major organizations are namely Fair Trade Labeling Organization International (FLO). monitoring and promoting the operation of Fair Trade producer organizations. until EFTA changed its name to World Fair Trade Organization (WTO). independent and non-profit organizations. functions and contributions are closely considered. The first four are used to be known as FINE collectively.
3 of Major regions of operations members of members Europe. 14 . FLO-I (Redfern and Snedker. many other National Initiatives (NIs) were created in different countries across Europe. 2007: 2). America North organizations International (FLO) International Trade (IFAT) Fair Association Africa. importers. The primary objective of this umbrella organization was to develop a widespread and consistent standards and the certification process. 3 Please. an independent company to provide support in certification and monitoring process of producers and traders (for example. The latter task was later delegated to FLO-Cert.1 Fair Trade Labeling Organization (FLO) After launching Max Havelaar coffee in 1988. manufacturers) (Hiscox. Federation (FTF) Source: Adapted from Krier (2007: 24).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. Raynolds and Long. (2007: 16) 2. note that the figures indicated on this table might show discrepancy if compared to other publications due to the gap in time.1. exporters. 2002: 18).Table 2. America Network European of World 1994 National world shops 2.1: 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. These NIs and other Fair Trade actors agreed to create an umbrella organization called Fair Trade Organizations International. Latin A. North Asia. America.
(2) facilitating the business of Fair Trade by helping to match supply and demand. that is. After proving the outlined requirements. In short. This function of FLO is central in substantiating the process of perpetual improvement. the FLO strategic objective was broadened and covers the following aspects (Nicholls and Opal.Establishing standards are fundamental to the Fair Trade certification system and labeling process. Cf. Setboonsarng. It is the duty and responsibility of FLO to monitor compliance and issue audit reports to the traders perpetually. According to Nicholls and Opal understanding “FLO inspects producer groups to certify them for compliance with the Fair Trade standards. adequate working conditions and progress in social and community development goals” (2008: 8). and (3) offering producer support and consultancy to improve their business strategy. Meanwhile. 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. financial transparency. Besides. including democratic organization. By doing this. 2008: 10): (1) guaranteeing the integrity of the Fair Trade mark and certification process. the producer organization is guaranteed the resulting benefit of Fair Trade market sales. 15 . 2008: 8. higher prices and the Fair Trade investment premium. FLO issues license to individual Fair Trade companies and traditional market players to use Fair Trade mark. FLO has also the right to de-certify those individual producers or organizations that deviate from maintaining the defined standards. they permit the system to function harmoniously and consistently in many different countries and markets. which signifies that for a given product the Fair Trade standards have been met and therefore could be marketed under the system.
2007: 30). national and regional Fair Trade networks and Fair Trade Organizations” (Krier. Membership is open to both trading 16 . retailers. 2008: 130). The Board of Director is comprised of six National Initiatives (NIs) delegates.1: FLO governance structure Source: Nicholls and Opal. 2. IFAT brings together ATOs from North and producer organizations from the South.2 International Fair Trade Association (IFAT) Initiated by several prominent European ATOs and NGOs. it has structured itself as shown on Figure 2.Figure 2. it has once again renamed itself as World Fair Trade Organization. exporter marketing companies. IFAT was established in 1989. IFAT is international trade essentially a global trade association for Fair Trade producers and traders of both FLO-certified products and non-certified goods.1. importers. (2008: 130) Finally.1. It contains about 300 organizations in more than 70 countries and most of the members are consisted of “…producer-cooperatives and associations. four regional producer representatives. one ATO and one mainstream business representative (Nicholls and opal. FLO having its origin as consumer organization seeking to affiliate the producers and consumers. Recently. The former International Federation of Alternative Trade (IFAT) has changed its name to International Fair Trade Association (IFTA).
and non-trading organizations that satisfy the basic Fair Trade criteria. 4) Providing networking opportunities. IFAT has organized the so-called Global journey in 2004 to communicate the message of Fair Trade and draw attention to unfair international trade. and Gepa (Nicholls and Opal. IFAT linking and strengthening organizations prefer alternative and fair global trade practices (Redfern and Snedker. It provides information to members. 3) Advocating for Fair Trade. Switzerland and the United Kingdom. Members include Oxfam. IFAT runs a monitoring system consisting of selfassessment against Fair Trade standards. Italy. 17 . Traidcraft. an appointed Secretariat and the membership. COFTA (Cooperation for Fair Trade in Africa) and Asociacion Latinoamericana de Comercio Justo. which not supposed to compete with FLO certification mark (Nicholls and Opal. 2008: 8-9). the Netherlands. The organization structure consists of Executive Committee. Spain. IFAT members are required to pay memberships fees and to be transparent. 2) Build trust in Fair Trade. 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.1. Belgium. 2008: 9. 2007: 16). The monitoring process increases the members‟ credibility. France. As indicated in the above Table 2. 2007: 30-31. This association makes researches on the Fair Trade development being based in the Netherlands (Head Office) and Belgium (Advocacy Office). 2002: 18). Germany. 5) Empowering the regions. mutual review between commercial partners and external verification. EFTA was established in 1990 and is a network of eleven Fair Trade organizations in nine European countries: Austria. Finally.1. and current members span all continents. Raynolds and Long. The specific objectives are: 1) Developing the market for fair Trade. Moreover. organize workshops and serve as information point. The central major of IFAT is helping with the accomplishment of the Fair Trade objectives (Krier. Nicholls and Opal. Similar to FLO. it organizes World Fair Trade Day annually. IFAT launched Fair Trade organization mark for its members in 2004. The three IFAT‟s regional representative in South are AFTF (Asia Fair Trade Forum). 2.
2007: 33. This is the only Fair Trade organization outside Europe with the focus on USA and Canada.4 Network of European World Shops and Fair Trade Federation The Network of European World Shops (NEWS) was established in 1994. It also organizes campaigns to raise consumers‟ awareness. Nicholls and Opal. 2) “To promote Fair Trade to commercial and political decision-makers. 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 . Fair Trade Federation (FTF) is an international Fair Trade network of wholesalers. it has roofed 15 national World Shops in 13 different countries. Currently. 2007: 32). 2008: 10). website. EFTA has been making enormous contribution by publishing Fair Trade figures and analysis for Europe biannually” (Ibid). 2. 3) Moreover. supporting and linking world shops in Europe that retail Fair trade products” (Nicholls and Opal. EFTA coordinates campaigns and lobbying activities and publishes data to support the Fair Trade case. 2008:10). FTF is also actively involved gathering data on the diverse markets in North America and Pacific Rim. 2008: 10). all together representing about 2.500 World Shops in Europe (Nicholls and Opal. and publishes three times a year. 2. Generally. it also contributes significantly to research and advocacy document once a year: the EFTA Yearbook and update members with important information (Ibid.1. It was founded in 1994 and in 2008 it has already 300 members‟ organizations in 14 countries (Krier.) and organizing conferences (Krier. workshops etc. The Network is committed to “promote Fair Trade by stimulating.EFTA has two main objectives (Nicholls and Opal. EFTA builds networks of producers and support groups to encourage and facilitate the exchange of information and best practice” (Ibid). 9). retailers and producers. 2008: 9): 1) “To make Fair Trade importing more efficient and effective.
2008: 10). 2008. There are several standards applicable in Fair Trade system. FLO. “standard is a set of defined criteria giving the requirements which must be attained. Moreover. labeling initiatives. FLO has three separate sets of Fairtrade standards known as generic standards. traders and experts (Setboonsarng. The generic standards are comprehensive and apply to all product groups produced within the FLO geographical scope. for common and repeated use. generic standards specify two different requirements for producer cooperatives or organizations. 2009 – SPO). the generic standards. Nicholls and Opal state that these standards contain environmental standards which prohibit certain chemicals and land over-use affecting sustainable production. 2009 – SPO. certain pesticides classified as harmful 19 . For instance. 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. A standard provides. are distinctively applicable to 1) small–scale farmers cooperatives or organizations organized with democratic. 2008). Setboonsarng. producer (cooperatives) and traders of Fair Trade commodities. cf. 2007a: 36). 2009 – HLS).applicable throughout FLO and other supporting organizations. 2008. FLO. compliance with the minimum requirements is expected at the moment the company join Fair Trade and facilitates producers to be Fairtrade certified. namely minimum and progressive requirements. 2008). also called producer organizational requirements. The standards are set by FLO Standards Committee which includes producers‟ networks. According to FLO explanations. 2009: 3 – HLS) and trade standards (Nicholls and Opal. Finally. rules. guidelines or characteristics for products or related processes and production methods” (FLO. 2008. FLO. product-specific standards (FLO. On the one hand. participative structure and transparent accounting for the distribution of income (Nicholls and Opal. On the other hand. Hence. 2009 – HLS). FLO. 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. standard facilitates principal guidelines for monitoring and governing producers. 2008. 2008: 10. Setboonsarng. the progress requirements contain conditions that should be met gradually by producers after joining Fair Trade system (Setboonsarng.
the generic standards supersede the product-specific standards. therefore. establish the regulations that govern the relations amongst Fair Trade producer. 2008: 53). The long-term trading relationship enables producers to plan for the future production. 2002: 45). The trade standards.must not be allowed for the producers groups to use it. 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. Fair Trade standards were established to empower producers in the global south and to promote the market for. Pre-financing arrangement: The credit-provision for commodity producers guarantees sustainable and quality production. 1. 2. 3. exporters and importers (Nicholls and Opal. It is guaranteed regardless of the fluctuation of world commodity prices. The significance of the standards is contained within the following core points. Long-term trading relationships: Fair Trade product importers should enter into direct long-term trade relationship with producers. and enhancing the reliance of ethical consumers on. In general. 2008). The importers of Fair Trade products are required to pre-finance up to 60 per cent of seasonal crops (ibid. smallholder farmers and their community (Nicholls and Opal. This floor price varies from product to product and region to region based on the classification. 5. 20 . Fair Trade products.). 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. 4. 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.
Thus. amend or void standards (FLO. independent from interested parties. 2009: 35). Thus. benefits and values inherent with them. “certification is a process carried out by a recognized body. Moreover. inspecting their facilities and punishing incompliance to the standards are falling in the range of certifier‟s responsibilities. a multi-stakeholder association including producer networks.1 Certification and Labeling in Fair Trade Fair Trade certification is developed by “Fair Trade Lebelling Organization (FLO) International. traders.These are the summarized presentation of the Fair Trade standards and the underlying concepts which was developed by FLO. for instance. labels or marks which communicate product attributes. retailers and consumers are supposed to identify the various symbols associated with Fair Trade products. 2002: 7). the role FLO-Cert “[…] is to document the „chain of custody‟ followed by a product.2. emphasizes the Fair Trade seal (Transfair label) and the certification on which it rests as being significant and the primary mechanism for consumers‟ 21 . which demonstrates that a product or organization complies with the requirements defined in the Standards or technical specifications” (FLO. These symbols could then be presented as logos. This certification process is an important operational component. 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). 2007a: 36). According to FLO explanation. 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. and experts” (Setboonsarng. Jaffee adds that monitoring of the licensees. 2. However. This same body has the author to introduce new. labeling initiatives. because it guarantees Fair Trade consumers that the producers of the products are complying with the standards set by FLO International. Jaffee (2007: 208). and to ensure that at each point where the commodity changes hands. Prior to acquired certification. 2007: 208). the quantities are accurate and there is no mixing of certified and uncertified products (Jaffee. FLO has delegated the certification process to FLO-Cert which is an independent company. 2008: 10). The same organization had developed Fair Trade standards which are fundamental for the certification and labeling process.
Despite their contribution to the growth of Fair Trade market. 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. their participation in marketing Fair Trade products could adversely affect Fair Trade brands. Monitoring of Fair Trade operators is a challenging process carried on along the supply chain. some of these companies have bad reputation for their social irresponsibility in the past and consequentially. In fact. producers and traders have been inspected based on these standards to prove their compliance and the certification Committee issues certificate. So far. in the face of other growing social certification system and labels. plantation workers and their local communities. since 2004 FLO-Cert is charging fees that should cover the costs of the certification process (Nicholls and Opal. The influence that these multinational companies have may negatively affect the fundamental principles of Fair Trade in the long-run.2. most of certified products are carrying these symbols. the certification system developed by Fair Trade organization is believed to benefit small producers. the Grassroots activist‟s are blaming this process because of the high certification fee demanded and not simply affordable by most disadvantaged famers. the Fair Trade certified operators are automatically subjected to the regular monitoring scheme. The fact that ATOs are facing high competition from conventional retailers could also be negatively attributed to the certification scheme introduced.2 Fair Trade Monitoring System Once the standards have been set. The introduction of fee has brought criticism against the certifying body. 2008: 133). Especially. 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. 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. Finally.recognition of Fair Trade products in the United States. 2. More importantly. The information is used to 22 . Monitoring refers to “measuring a set of indicators that are tracked over time to identify trends.
the company-funded ventures lost their relevance in accomplishing the communal development objectives. The company demands. Consequently. With the advent of CSR. Accordingly. 2007: 5). which in turn. The intersection of the CSR and Fair Trade is due to the interrelation of ethical and commercial elements underpinning both concepts.assist timely decision making. business companies had been promoting community development through philanthropic donations. if during monitoring a producer organization and commercial agents deviate from keeping the standards.3 Fair Trade and Corporate Social Responsibility (CSR) Long before corporate social responsibility (CSR) was introduced. In another words. Fair Trade product has a characteristic of „trust good‟. 23 . However. 2008: 208). ensure accountability and provide a basis for evaluation and learnings” (FLO. 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. 2007a: 36). Based on this definition. and social investment and environmental protection (Ibid. negatively affected the development project. then they will be decertified. 297). “the funding provided by the company is bound by conditionality and brings with it the coercive powers of patronage. 2. This created asymmetrical relationship between companies and the beneficiary communities. in return. monitoring serves different purposes than just a mere control mechanism employed to prove producer and wholesaler consistent compliance to Fair Trade principles. the implementation of projects that accord with its particular vision of development” (Rajak. 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. business companies have replaced traditional donations and were engaged in communal partnership and empowerment. responsible to make sure that the product is produced according to the set standards. monitoring is serving as important tool to ensure the producers and retailers are keeping the quality of the products. Thus in respect to that. FLO-Cert (certifier) is. therefore.
whereas Fair Trade model is targeting to benefit marginalized producers by using commercial approach. Gooch and Chrobok (n. 24 . 2002: 35). Fair Trade standard-setting involves all the partners along the supply chain. 4) The practices CSR can lead to further marginalization of small businesses that are considered threat to the businesses. Fair Trade can provides a better model for dealing with economic. 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. whereas Fair Trade is working to improve the participation and the livelihoods of small producers and farmers. 2) CSR is the dominant party along the supply chain actors and can easily enforce the compliance to standards. social and environmental impacts of businesses. In line with the summarized points. CSR is basically conceptualized by profit-driven entities and highly dependent on the profitability of the company.a.Despite their effort to improve the economic. both have different approaches toward their objectives. Compare with “Corporate Social Responsibility (CSR): Does it make any difference? (2004) and no Contributor indicated. 4 Fiona Gooch of Traidcraft and Stefan Chrobok of EFTA had written under the title of “Fair Trade provides models for Corporate Social Responsibility”. 3) CSR strives to keep its compliance toward the international convention and government-established regulatory frameworks for business practices (Redfern and Snedker. The year of this publication is not indicated.)4 differentiate both approaches following ways: 1) CSR is engaged in voluntary development activities and hard to challenge this corporate objectives. social and environmental impacts of their business operations. whereas Fair Trade is basically addressing the international trade inequality.
Hence. Its 25 .3 Global Marketing Orientation of Fair Trade Fair Trade organizations are designed as a mixed-form of market which is similar to social enterprise model. Most of the social enterprises have combined-objectives focusing on the social and economical value creation (Alter. social impact. commissions or mark-up added to the products improve the income to the enterprise which in turn used to cover production and program costs. 2006: 216). identifying the orientation of the Fair Trade marketing is significant to understand the concept behind it. This kind of social enterprise model. a “market-reform” device or a “market-access” instrument (2007: 26). Jaffee (2007) describes the different views participants have about the Fair Trade movement based on its ideology. Alter (2006: 216) introduces various forms of social enterprise models. and then sells the products at a margin (Ibid. similar to Fair Trade organizations. 2007: 2). one of the models that fit to the Fair Trade concept is the “market intermediary model”. Some consider Fair Trade as a “market-breaking” force. and self-financing. The mixedform organizations have not only multiple dimensions but also involves different types of actors (Becchetti and Huybrechts. Its mission focuses on facilitating clients‟ financial security by helping them develop and sell their products in high-value markets. purchases the producers products at fair prices. mission strengthening. firms. However. “the market intermediary model of social enterprise provides product development.” (2006: 216-217). The social enterprise purchases the client-made products in high-value markets. and credit services to its target population: small producers (individuals. The market intermediary model is an embedded model: the social programme is the business. 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. market access. or cooperatives). According to Altar‟s description.). “The advantages of the market intermediary model are its potential for scalability.
poor or inconsistent quality. 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.1 Globalization and Imperfect Market Several dynamic movements. WTO policies were established to benefit all the trade partners and not to favor only few of trade partners. thus. quality requirements for marketable products cannot be supported through the market intermediary‟s decentralized production. But even though multiple campaigns have 26 . Figure 3. 217). the social enterprise may sacrifice scale to clients. For instance. campaigns. Frequently. 2007: 4). However. agriculture.1: Market intermediary model Source: Adapted from Alter. converting it into an employment model” (Ibid: 216). it has never ceased to criticize the regulatory instances like World Trade Organization (WTO).1 presents the marketing supply cooperatives (Fair Trade organizations. Fair Trade movement has of course limited power to make significant changes at once. Anti-sweatshop movement in garments. and commodity products. 3. 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. Especially.application is limited to producers. (2006: 216) Figure 3. Fair Trade focused on reshaping the practices of international trade and targeting at failure around corporate expansion in a global economy. and initiatives with the wide ranges of objectives have emerged addressing the negative impacts of globalization. eco-labeling in timber.
1 Fair Trade marketing process Conventional marketing Non-For-Profit marketing Fair Trade marketing 1. Fair Trade has therefore high possibility of alleviating poverty in the global South through a market-based strategy (enabling direct sales. 3. 2007: 4). Select target markets and Select target audience positioning strategy 3.2 Fair Trade Marketing Orientation and Process Based on its objective. Fair Trade is seeking to provide an equitable and sustainable market opportunity for marginalized producers (Redfern and Snedker. The following points on Table 3. for instance. Unlike other social enterprises (like NGOs). granting better price. 2008: 157). Seek advantage Develop NFP marketing Develop mix Managing marketing effort Fair Trade marketing mix Manage marketing effort Encourage competition competitive Adopting competition 27 . 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. Develop marketing mix 4. 2002: vii).tried to communicate the message of trade inequality between the international trade players. Fair Trade and not-for-profit marketing (Nicholls and Opal. Table 3. it has never been successful so far. Manage marketing effort 5. Analyze opportunities market Analyze potential behavior Analyze market failures to promote Select suppliers/producers most affected by market failures 2. Fair Trade marketing has similarities and differences with the other sectors‟ marketing orientation.The alleviation of poverty had been tried by non-trade strategy. Fair Trade is using the market itself to combat the international trade injustice at the marketplace. This unique objective of Fair Trade should be specified in order to understand the organizational structure and market dynamics of the Fair Trade. predominantly through Northern aid.1. the Fair Trade marketing approach is complex and mixed with other sectors‟ marketing trends. illustrates the distinction between conventional.
2005: 26). Where as. and seeks competitive advantage. place and promotion (Ibid. the extended marketing mix such as people.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. traditional marketing develops a strategic marketing mix as a tool. process and physical evidence is applicable to service rendering business. Moreover. The traditional marketing involves the managing of marketing effort. Kotler et al. promotes private ownership. 1999 cited in Nicholls and Opal. This marketing believes in consumer sovereignty and strives for consumer‟s satisfaction (Witkowiski. 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) . 2008: 156). The marketing mix is conceptualized to address the four P-elements. (2002: 6) For the sake of better understanding of Fair Trade marketing. Additionally. Based on the identified market opportunity.. This comparison intends to provide a brief explanation of and interrelationship between the three different selected sectors‟ marketing approaches. “…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.Source: Adapted from Nicholls and Opal (2008: 157). The analysis is preliminary to any kind of business activities. 3. 2005: 26). 28 . 2008: 156). 157). considering these marketing approaches are also relevant. product. Fair Trade system focuses on a communal development that demands networks and cooperation of the stakeholders (Witkowski. price.2. for example. similar to social enterprise or Fair Trade. the marketing theory assumes individualism. With their focal point on strong customer relationship and continuous innovations.
2. or society as a whole” (2002: 5). This is also called Social Marketing. Moreover. a group or society as a whole (Kotler et al. Affecting behavioral change of a selected target groups or society can. or contributing to the community (Ibid. Similar to other sector marketing.3. protecting the environment. is targeting the social issues and other matters within the society. Contrary to the conventional marketing. This marketing concept first of all analyzes the potential behavior that is needs to changed or removed. contrary to conventional marketing.2 Non-profit Organization Marketing Non-For-Profit (NFP) marketing is also one of the social enterprise marketing branches just like Fair Trade marketing. in general. 3. NFP marketing uses traditional marketing concepts. there are still distinctive differences between them. Roberto and Lee define social marketing as “the use of marketing principles to influence a target audience to voluntarily accept. for instance. This is the linking concept to outline the approaches of the not-for-profit marketing. the marketing orientation of both sectors has some common elements. help to the improve health. Originating from social marketing. tools and techniques. 2007: 12). or abandon a behavior for the benefit of individuals. process and physical evidence (CIM. Fair Trade criticizes corporate 29 . Fair Trade marketing has developed into mixed-form of marketing which employs social and conventional marketing tools. in which primary beneficiaries are shareholders. Fair Trade organizations are focusing on the market failures. Kotler. In fact. Marketing mix instrument developed similar to conventional business but with extended marketing mix such as people.).3 Fair Trade Marketing Fair Trade marketing can be seen through the lens of ethical and social marketing as well as conventional marketing. Especially.2. reject. Social marketing. groups. This marketing model also requires the marketing management effort and adoption of concepts used in competition. not-for-profit marketing primary beneficiaries can be an individual. prevent social injustice. Fair Trade follows specific process. modify. Although. 2002: 5). what make NFP marketing different form conventional and Fair Trade marketing is that it deals more with services and ideas than tangible products. Despite the features of the products offered.
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. initiated by the traditional activists such as NGOs and ATOs. Thus. On the other hand.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. Nicholls & Opal state that “despite the fact that Fair Trade marketing centres on explicitly ethical issues. workers and producers of the South at the outset of supply chain. On the one hand. Further discussion on marketing mix is given in chapter 4. 3. “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). 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 has its own marketing mix. In line with that Fair Trade organizations are strongly devoted to manage the marketing processes. it created a platform for the ethical consumers to use their purchasing power to react against the 30 . According to Nicholls and Opal.businesses‟ exploitive position in global supply chain and abusive international trading policies in the marketplace. Fair Trade is targeting to empower the producers of the South by connecting them to the consumers of the North. The marketing focal points are Fair Trade products producers. Fair Trade has long been addressing this inequality in international trade system. similar to the conventional marketing mix instrument. The main concerns about the grassroots and consumer activists are directed towards the farmers. Moreover.2 of this paper. it needs to be seen as quite distinct from either cause-related marketing or what is broadly known as socially responsible marketing” (2005: 153). Fair Trade is a movement that addresses this problem. due to mainstream outlets interest in Fair Trade products competition becoming indispensible.
this paper note the significance of the Fair Trade and Fair Trade organizations whose effort is to cut the long supply chain.3. The processed coffee is sold by local exporter to international trader. The involvement of Fair Trade in the supply chain can be described as depicted on Figure 3. 2004: 5).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 .irresponsibility of the businesses companies. Figure 3. Thus. Figure 3. (2004: 6) In line with this process.2 shows the simplified form of coffee supply chain.2: The coffee commodity supply chain Source: Adapted from Milford. Most of the commodities have long and complex supply chain. forming a sound supply chain that benefits all the stakeholders is significant international trade. For instance. coffee bean as the most marketable commodity can change hands more than 150 times from producer to consumer (Milford. who transport the unprocessed coffee to processing plant. 3. The primary producers sell to private intermediaries.2.
That means. These organizations had not only merchandised the products. 32 . 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.2.direct and fair trading relationship with producers. distribution and sale of the products. ATOs strategy was mainly focused on the producer supply rather than on consumer demand. Traidcraf (is this the real name or typing mistake) and NGOs like Oxfam. ATOs and their local agents gathered the commodities directly from southern producers and sell them in their outlets. without the control of middlemen who would inevitably squeeze prices at the beginning of the supply chain. However.3: Classical Fair Trade Supply chain Source: Own construction based on Milford. Figure 3. By then. Because of that supply-driven traders could not survive in the market for long period. The flow of classical Fair Trade supply chain can be described as shown on Figure 3. in alternative markets producers were paid a higher and unique price which is above the conventional market price. 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. They were responsible for the importing. (2004: 8) In contrast to the coffee commodity supply chain presented above on Figure 3. namely world shops. but also organized campaigns to create awareness and win more ethical consumers.3. That is main reason why some ATOs with not-for-profit structures adapted for-profit organizations structures. Milford (2004: 8) claims ATOs had created a niche market known as alternative markets in which the rules of conventional markets were not applied. the classical supply chain was wholly operated and controlled by these organizations. equal exchange.
This direct trade relationship is initiated and controlled by FLO and national initiatives. it is used to regain their distorted image in the face of consumer. their commitment sustains not longer enough to benefit the producers. Thus far. ATOS. they will start to use their unchallengeable market powers to influence changes in the 33 . Bowes and Croft (2007: 271) states that the mainstream outlets participation in Fair Trade system is driven by their anticipation of future growth than the ethical message it holds. Thus. Nevertheless. 2007: 271) express their concerns by saying that “Tesco clearly views the expansion its Fair trade range as a success. Figure 3. However. ATOs have operated under the third sector status as nonprofit organization and co-operatives (Becchetti and Huybrechts. with the introduction of FLO certification mark the focus on the product quality changed and consequently attracted the conventional outlets. current market opportunities in other categories such as fish. on the one hand.3. on the other hand. unlike the most conventional supermarkets suppliers. 2007: 6) with less focus on the product quality. commercial-driven in perceiving a chance to attract ethical consumers and. investor and campaigning communities that they are taking their corporate responsibilities seriously. Today. a number of issues have arisen for the future. The supermarket involvement in Fairtrade is. Tesco plans to expand its own label offer…but is constrained by the relative slowness of Fairtrade Labeling Organizations‟ international certification process. As soon so supermarkets are deep-rooted themselves in the Fair Trade business.2 Producers and Conventional Outlets For several years. Thus. Thus. Fair Trade labeling system has proven the benefits to marginalized producers and workers of global South by eliminating price-squeezers from the supply chain.4 presents the autonomous controlling mechanism of both the NIs and FLO-I. Fair Trade sales could not grow faster with the only effort of these classic supply chain actors. Fair Trade product suppliers enjoy a direct trading relationship with some of the mainstreams outlets. spirits and rice may well be missed (2007: 271).3. the supply-driven approach has not attracted the consumer-oriented supermarkets. Nicholls and Opal (2005 cited in Bowes and Croft. And yet this success is not without disadvantages. However.
4: Fair Trade labelling systems Source: Adapted from Milford. Figure 3. Similarly. setting higher product quality standards and so on affects the producers directly. The impact of these changes directly affects the weakest supply chain partners (producers and workers). (2004: 9) 34 .heart of Fair Trade principles. Flexibility in pricing strategy. For instance. 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.
).4 Marketing of Fair Trade The marketing approach of Fair Trade is quite different than the cause-related marketing or socially responsible marketing. that is. Social Marketing. Finally. In the conventional business arena developing the Marketing Mix is vital to the implementation of the competitive 35 . Weinreich. it is devoted to empower the social and economic interrelation between the producers and consumers. 2008: 80). from conventional marketing practices. In addition. 2005: 175.5.1 Objective of Fair Trade Marketing Mix Social marketing has borrowed. the relationship should be based on partnership exchange that lasts for long term and create connectivity between producers and consumers. Although. This should be grounded on the concept of fairness which encompasses both producers and consumers. marketing mix. 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. 2005: 153). Moreover. 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. Nicholls and Opal (2005: 153) confirm that building a value based and profitable supplier-consumer relationship is central to Fair Trade marketing. 4. 2005: 153. This way the supply chain can be shortened and the benefit proposed to generate be enlarged. 1999). Klebe. Fair Trade marketing is positively contributing to the social and environmental issues. Fair Trade marketing is not conceptualized to improve or present a new model of corporate social responsibility (for distinction see chapter 2. cf. Fair Trade system which is also categorized under social marketing use the same techniques marketing mix to address the ethical consumerism (Nicholls and Opal. Therefore. increasing consumer education and innovative marketing that builds Fair Trade brands and creating “a set of values around the Fair Trade mark that are both ethical and quality-based are very significant for development of Fair Trade” (Nicholls and Opal.
the development of Fair Trade marketing mix plays an important role for fast growing fair Trade market. Hence. Fair Trade marketing mix. The focal point of Fair Trade marketing mix is laying on the ethical and economic value of the products. This marketing instrument is targeting at convincing ethical consumers in particular and mass consumers in general. is an instrument that can produce a desired reaction through a combination of behavior and mental effects (Ibid. 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. similar to the conventional marketing. unlike the traditional marketing approach. the development of Fair Trade marketing mix is an important instrument that is used to communicate the value of Fair Trade products to these ethical consumers and conventional consumers. The reaction triggered by the marketing mix is direct or indirect and it can immediately or later and positive or negative influence.1 presents the distinction between conventional and Fair Trade marketing mixes. 4. In order to motivate consumers to participate in Fair Trade model. However. the content of Fair Trade marketing mix focuses on the producers‟ organizations rather than the consumers (Nicholls and Opal. The following Table 4. 36 . Klebe. to use their purchasing power to bring changes in the social life and environment of producers and workers in developing countries. 2008: 80). these core issues must be communicated effectively.marketing strategy. Similarly.2 Marketing Mix of Fair Trade Fair Trade marketing centers distinctively on ethical issues. 158). 2005: 175). 2008: 157.
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. Accordingly. packaging and brand name (Andreasen and Kotler. For instance. in Kaufland (German supermarket) the following description is written at the back of the product. ATOs were less concerned about Fair Trade product design but today due to the increasing demand for quality product by mainstream supermarkets. ethical consumers desire to acquire product that corresponding value to the price they paid.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. In fact.2. Fair Trade products featured with producers‟ details. supporting elements such as features. this strategy is taking an important position in Fair Trade marketing approach. For example. Features could be added or subtracted without changing the other elements of core product. A thorough consideration should be given to these elements of marketing mix when developing Fair Trade marketing. The difference between both sectors will be addressed in the following sections. styling. (2008: 157). 2008: 195) are becoming prevalent in Fair Trade core product design. 4.Table 4.1 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. quality Social premium „Fair‟ supply chain Ethical issues/education Identifiable producers Developmental focus Fair Trade mark Source: Adapted from Nicholls and Opal. At a Grassroots level. quality. 37 .
dass dieses Produkt die internationalen Standards für Fairen Handel erfüllt.„Das unabhängige FAIRTRADE-Siegel gibt Ihnen die Sicherheit. Especially. Once the product is labeled with the Fairtra de mark it takes a special position in views of consumers as well as producers (Klebbe. Another important aspect of Fair Trade product is implicated by the Fairtrade mark (in UK) and Transfair seal (in German and USA). the importance of product quality is increasing in Fair Trade model. Fairtrade mark has significant value in the market. Nicholls and Opal.“ In short. a continuous improvement of product quality is demanded from producers (Setboonsarng. cf. Similar information could be taken from www. most of handcrafts and clothes have distinctive look because of their designs and embroideries which in turn point to their origin. 5 This information was taken from the back of product‟s (sugar) cover in Kaufland supermarket. 2005). 38 . in the “progress requirements” specified in generic standards by the organization.org as indicated on the cover.transfair. with the involvement of conventional traders the issue of quality has increased. it states that “the independent Fairtrade Seal guarantees that this product is produced according to the international standards of Fair Trade. It is an assurance that the product is complying with the Fair Trade standards. Mit dem Kauf dieses Produktes leisten Sie einen Beitrag zur Verbesserung der Lebensund Arbeitsbedingungen der Kleinbauern aus Malawi und zur Förderung des Umweltschutzes. to this aspect less consideration had been given by ATOs. however with the introduction of certification process by FLO more and more emphasis was given to product quality. Styling of Fair Trade products is similarly important as in that of conventional product. 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. In like manner. In spite of the long process and time needed to acquire it. Due consideration should be given to the uniqueness of the design and quality of Fair Trade products. 2008: 81. Therefore. 2008: 10). In fact. In addition.”5 This is intended to assure ethical consumers of the origin of the product. These goods carry distinctive cultural elements with them and consequently can impart certain feelings to consumers. More specifically. Previously.
In the case of Fair Trade. Moreover. communicating the intrinsic ethical value of Fair Trade product is significant to influence the target audiences. The other pricing objectives that are not frequently practiced in Fair Trade are intentionally ignored to limit the scope of this paper.2 Pricing Strategy The determinant element of marketing mix in the Fair Trade model is pricing. first of all in developing a price the organization should set clear objective of what it wants to achieve. Therefore. Fair Trade model is not driven by profit maximization per se. Admittedly.” (Nicholls and Opal. “With the price element of the marketing mix. The second determinant element is the pricing strategy which is based on cost. the ethical value or message incorporated into the physical product is used to determine the pricing strategy. Andreasen and Kotler distinguish between the following pricing objectives: “surplus maximization. 4. In handling pricing issues the two determining factors are. 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.the eco-friendly product packaging style of Fair Trade also adds psychological value and affects important behavioral change (Andreasen and Kotler. Hence. cost recovery. market size maximization.. cost-based pricing also refers to the cost of production in a more detailed manner. More importantly. In contrary. 2008: 195).2. Nicholls and Opal. a combined cost and value based strategies should be applied to determine the price. non-ethical consumer can see the premium price as disincentivization and get discouraged to buy the product (Andreasen and Kotler 2008: 238). It is probably the most difficult element that needs a thorough consideration. 39 . 2008: 238). 2008: 158). 2005: 158). more than anything else. Fair Trade again stresses the producer by highlighting both the fair original commodity price and the social premium. pricing objective and pricing strategy (Andreasen and Kotler.. As already mentioned in the determination of pricing objective. That message can convince the ethical consumers and influence them to affect changes in small producers‟ livelihoods using their purchasing power. However. social equity and market disincentivization” (2008: 238). value and competition.
4. Such a problem might greatly affect Fair Trade market as the classical Fair Trade activists suspected and hence. Roberto and Lee emphasize on 40 . Access to the products should be made convenient in the longrun. Although. The distribution of the Fair Trade products was started by a single person and recently extended to conventional market outlets in several countries. 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. supermarkets are developing their own Fair Trade labels which challenge the original Fair Trade products. 2008: 82). This insert can be removed as it is not adding much value to the academic paper Figure 4. Kotler.2.3 Distribution Strategy The most important aspect in Fair Trade marketing is the arrangement of the product distribution channel.5) of this paper. Besides the problem of sinking price. its survival with the higher price compared to the ever reducing conventional product price is questionable. It is the problem that can be considered in combination to the one addressed in chapter one (section 1. other Fair Trade actors support the move to conventional outlets grounded on the strategic advantage it entailed. the combination of price and product leadership (Klebbe. Conversely. That is. These conventional business outlets want to reduce the price as much as possible to attract the consumers. opposed the involvement of mainstream players.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. Fair Trade product is labeled in many of these conventional outlets.Traditional supermarkets will soon start to reduce Fair Trade products’ price to attract customers.
“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.
On May 8, Fair Trade supporters around the globe will be celebrating World Fair Trade Day.
Figure 4.3: World Fair Trade Day
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.
Fairtrade Labeling Organization International (FLO-I): http://www.fairtrade.net/events.html#c5806
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
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
2007: 270) and feared to lack integrity with FLO‟s set of standards. These brands contain Fairtrade mark but do not reflect the message behind in its entirety (Nicholls and Opal.4 Developing Brands Branding. Cafédirect. In this sense. Starbucks and Nestlé and others (Hutchens. is becoming an important marketing instrument and gain more relevance in the Fair Trade market as it has been in conventional businesses. These problems are caused by a number of reasons. Divine Chocolate or Agrofair have introduced their own brand values which compete in mainstream markets (Hutchens. as addressing 45 . on the one hand. Secondly. Nicholls and Opal (2005: 158) criticized Fair Trade brand for being decentralized and not having strategic process. proving a guarantee to targeted consumers and stakeholders. the conventional outlets are also creating their own-label products. The national labeling initiatives (Fairtrade foundations. 2005: 158). However. among the extended marketing mix. 4. Similarly. Mihaljevich (2008: 174) stresses that brand demonstrates the advantages of „value added‟ marketing and once established supports profits generation. the launching of own brands by Fair Trade companies and conventional outlets could be seen. Firstly. individual Fair Trade operators such as Equal Exchange. 2007: 5). 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.composite products. Murray. Transfair) awarded the certification mark to fairly position their products in the market. and reflecting organizational mission and values. In the views of Andreasen and Kotler (2008: 171). label and certification process. However. for examples. Tesco. Fair Trade product has been offered to market as a brand based on the certification mark which has series of complex process. an organization‟s branded product could be perceived as a product making unique social contribution. The development of Fair Trade brand can help to operate competitively within commercial enterprise. 2007: 4. Thirdly. Bowes and Croft. 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). the more new partners and corporate agents are joining Fair Trade system the more they influence the standards of the Fair Trade.
It is the fast growing brand and boosting the income of producers. Fair Trade brands have more advantages than product certification marks in conventional markets (Hutchens. Figure 4. it can widely contribute to ineffective marketing communication under Fair Trade model. 46 . Therefore.5: Coffee branding process Source: Adapted from Hutchens. The flow of coffee brand is indicated on Figure 4. Beyond the increased income returns to the producers. In reality. Fair Trade coffee is the widely developed brand than any other product. 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. because brand owners might deviate from the requirements as they gain control over Fair Trade markets. 2007: 11). For instance. most of the branding businesses are co-owned with producers which give them higher sense of ownership.5. (2007: 11).the limitations of FLO‟s certification system. This poses a potential risks for FLO. On the other hand.
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. The developmental impact on the producers should be demonstrated otherwise Fair Trade movement will lose credibility from the side of supporters and consumers. and the need to have developmental (especially social and environmental) impact on the producers (Nicholls and Opal. 2005: 201). Nicholls and Opal summarize the concept behind Fair Trade as the need to secure sustainable economy. (5) improving working and living conditions and (6) enhancing environmental protection” (2008: 21). On the other hand. Thus demonstrating the developmental impact of Fair Trade. 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. 5.5 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.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. to confirm this claim made by the Fair Trade actors. (3) payment of a fair price. 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. on the one hand. which can be realized by working with profit-driven businesses. (4) promoting gender equity. case studies are showing the focus on both financial and non-financial benefits generated from Fair Trade model (Nicholls 47 . it is relevant to know the guiding principles or the drivers behind the Fair Trade model. Generally. (2) strengthening farmers‟ organization and capacities. secures the consumer brand loyalty in the Fair Trade market. several studies have been conducted in different settings. Most of the case studies focus on the impact (outcomes or effects) on the producers and producer co-operatives and organizations. Ruben outlines the following underlying principles: “(1) creating better income opportunities for economically disadvantaged producers. Recently.
1999 cited in FLO. although. In his case. Furthermore. Ruben explains the impact assessment approach to several case studies as follows: “Program evaluations commonly distinguish between results on output. the other approaches to impact studies are also valuable and equally considered in the scope of this paper.). However. The data includes primary documents and interviews with General Manager and members of staff (Ronchi. 2007a: 35). organizational and institutional development” (2002: 7). financial and non-financial. the impact assessments are based on the documentation and survey data collected during the fieldwork. including both primary and long-term implications. These results can be seen to be part of a chain: output leads to outcome and outcome leads to impact. a due consideration should be given to the term impact and its wider usage in this study. Similarly. direct and indirect effects as well as intended and unintended outcomes” (2008: 23). short-term 48 . 2005: 204). outcome and impact level. 2002: 6). Ronchi explains that impact “…includes the effect of Fair Trade relations on their financial. 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. and 2) case study approach for assessing the long-term impact of Fair Trade (Ibid. before discussing in detail the impact analysis. Impact is defined as the (positive or negative) changes in living conditions of the target group. Ronchi (2002) and Ruben (2008) explanations contain most the relevant components of impact analysis: positive and negative effects. FLO defined impact “as a new situation created by a set of results and effects that induce significant. Basically. 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. These methods are 1) monitoring and evaluation system.and Opal. Outcome results are defined as increased capacities of the target group to improve their living conditions. The main reason for this preference lies on the wide range of possible impact assessment factors covered within this. Output results are defined as increased capacities of partner organizations to deliver outcomes at the level of target group. Ruben‟s chain of output-outcome-impact analysis is more appealing. FLO. Nevertheless.
The first case studies presented in Table 5.and log-term implications. Figure 5. it is very consequential.1.1 were compiled by Ruben (2008) and other authors and contains the wide range of examples on fair trade and their methodologies. summarize the impact as direct and indirect impacts of Fair Trade on the producers and their cooperatives or organizations as shown on Figure 5. for instance. The case studies were conducted in different continents and different countries and on few products that passed through Fair Trade market. Ronchi (2002). individual and communal benefits. direct and indirect effects. More importantly. and intended and unintended consequences. 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. This classification helps to track the different stakeholders involved in and influenced by Fair Trade system. This case study-collection not only embraces more than one 49 .2 Overview of Selected Case Studies In this section some of the selected case studies on beneficial impacts and its limitations are presented.1: Classification of Fair Trade impacts Source: Ronchi (2002: 3) 5. producers (cooperatives) organizations and producers. the behavioral parameters associated to their involvement in Fair Trade system. Especially to explain intra-relational impact between Fair Trade Organization.
d 9 8 Establishment date Families Sample Sizes APVC APBOS Individual Producers 2002 2003 n.d = no data available 50 .d 80 80 80 Fruit (outgrower) 1991 n. 241 13 >500 50 110 40 CAC Ubiriki CAC Tahuan.continent but also conducted on the varieties of products traded based on Fair Trade market requirements.d 30+30 30+30 El Guabo Independent farmers 1998 n.1 Overview of case studies Country Organizations (Product) Peru (bananas) FT Non-FT -(organic) Non-FT (conv.) 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.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.d. Table 5.d N. the case studies are not only limited to CAC Ubiriki and CAC Tahuantinsuyo but also enterprises like CAC La Florida.d 430 N. CAC Sangareni and Ass. it had been conducted on both Fair Trade and nonFair Trade co-operative organizations to make a clear distinction. 9 Note that n. Rica 1977 1975 274 233 60 60 Coopetrabasur Finca San Pablo 1980 1968 70+100 200 50 50 Coopemontes de Oro R. Productores Pichanaki. CAC Pangoa. Moreover.L Café de Altura S.
farmer‟s households and community and producer organization. Mexico Year Founded 1989 Number of members 41 organizations 16. the findings on the impacts are solely associated to coffee producers. Mexico Guatemala 1981 1983 1976 1992 Late 70s 1997 1980 2.d 1.Country (Product) FT Non-FT Organizations Establishment date Families Sample Sizes Michiza Cooperative Unorganized Fraternal & CNC 1986 n.2 below were conducted in Mexico and Central America. Here. Raynolds and Taylor. Mexico Chiapas. These case studies focused on the impact of coffee on its individual producers. Co-operative is formed by two or more members (primary level) and numbers of co-operatives form a producer organization (secondary level.500 943 840 116 11 cooperatives 99 28 El Salvador 2000 Source: Murray. co-operatives and cooperatives consortium.3 was conducted only in Costa Rica and on coffee producers.000.100 >5. and thus can not ideally attributable to other products of Fair Trade. (2008: 29) The second case studies shown in Table 5. the central issue is to summarize the impact of Fair Trade system. (2003: 4) The third case study category present on Table 5. The number of members included in the study ranges from 28 to 16. the observation has relevant implications with regard to the involvement in Fair Trade. cooperatives and organizations.2: Case Study organizations in Mexico and Central America Name CEPCO Location Oaxaca.000 UCIRI Majomut La Selva Tzotzilotic La Voz APECAFE Las Colinas El Sincuyo Oaxaca. It shows the different levels of organizations involved in Fair Trade market. Despite the fact that. Mexico Chiapas. Mexico Chiapas. Coocafé).000 26 25 Source: Adapted from Ruben.076 1. 51 . Table 5.
For the sake of convenience. products like banana. then continue to outline organizational benefits in terms capacity building. 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. and 2) the financial and non-financial benefits captured through Fair Trade system by producer organizations (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 most significant contribution of fair trade is the increased prices where the producers are paid higher than the conventional market price for their coffee. However. tea. In line with the mentioned beneficial impacts. 52 . The impact analyses for many other Fair Trade products are still underway.Table 5. Because coffee is the most wanted and marketed products many case studies are focused on coffee producers. 2002: 3). (2002: 5-6). Costa Rica 1988 1989 some months Source: Based on Ronchi. beverages and others that have gained a well established Fair Trade markets are also delivering similar positive results from the impact analysis conducted. the analyses begins with the obvious benefits of the higher price captured by Fair Trade producers. 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.3 Direct Impact of Fair Trade Fair Trade has made significant contributions to livelihoods of small farmer workers of the southern nations. These two categories should make the direct impacts demonstrable benefits of involvement in Fair Trade. CooCafe.
21 plus social premium US $0. The second significant benefit comes from Fair Trade premium price (also known as social premium) as mentioned in Fair Trade standards. The two distinctive prices need to be considered are the floor price and premium price that the producers receive for their products. 2) improved education. 2003: 6). The social premium is paid 53 . and 5) psychological effects such as producer empowerment and its effects on civic participation (Nicholls and Opal. The minimum (floor) price is paid by the consumers even when the market price is less.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.05 per pound and an additional US $0. sense of ownership. Some of these impacts on the producers will be closely elucidated in the following section.15 for certified organic coffee (Murray. With respect to that guaranteeing floor price is extremely valuable for smaller producers. 3) female empowerment. communal. I prefer summarizing all listed impacts under Ronchi‟s (2002) financial and nonfinancial categories. Thus. corporate identification and others in addition to income. Fair Trade coffee is the most marketed commodity compared to any other commodities. For instance.other significant benefits that accrue at the individual producer households. 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.3. Producers receive a minimum of US $1. 5. Ruben (2008) outlined direct impacts such as job security and satisfaction.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. coffee crisis in 1989) and as a result guarantees producer a stable income to cover the cost of production. for each product based on the average costs of production. so-called floor price. 4) preserving indigenous cultures. Raynolds and Taylor. and organizational levels (Murray.3. 2005: 204). 5. This unique Fair Trade price reduces the effects of the volatility and fluctuations in commodity prices (for example. Raynolds and Taylor.1. Fair Trade organizations set a stable price. Similarly. 2003: 6).
508 11.062.5: Fairtrade Premium spent HLO: total .010 6% 6.105 2% Source: FLO. Table 5. etc. cooperative like spent Clear Total 7 Not 3 5 54 . the premium is a substantial supplement to producer‟s income.4:Fairtrade Premium spent SPO: total . some case studies indicated that there is significant improvement to the overall income of the household.014 1% 1.522 3% 886.635 112. Or at times this premium serves as a social capital fund for co-operative. benefits the producers in the log run. on the one hand.961 7% 294.608 42% 20% 2% 7% 24% <1% 4% <1% 100% Source: FLO. which in turn.004 50% 81.012 12.263 100% Education 2 Health 4 Other use 7 Grand Total EUR Percent -tage 3. used in acquiring environment-friendly processing plant. invest in facilities for production of organic fertilizer.).925 24% 872.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.data 99% complete and Business production 5 premium project Not specific 8 Women‟s programmes 6 Environment 3 Community 1 premium 13. (2007a: 34) Despite of the unattainable systematic economic data on accumulated household income for most case studies.723 6% 420.205.181 198. 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.222. For example. (2007a: 34) Table 5.944.117 1.574 1.750 5. Thus.832 351.342. On the other hand. 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).844.268.002.
(2007a: 20) Although the percentage of female involved in Fair Trade activities are relatively less than that of male. which in turn. (2007a: 20) Table 5. in Small Producer Organizations women represented less than 25% of all members. 2007a: 20).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 166.000 692. several Fair Trade handcraft projects focus on female producers and they are also a direct income beneficiaries. women are accounted for 41% of the work force. In Hired Labour Organizations.3.2 Female Empowerment Involvement in Fair Trade is frequently advocated because of its expected implications for greater gender empowerment and improved environmental care.000 525.065 Percenta ge of workers 24% 76% 100% population Source: FLO.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. in both organizations women participation is limited to certain types of products (Ibid. Generally. Only 61% of the data was acquired to assess the gender issues in Small Producer Organization (FLO. Table 5.Majomut reported a 100-200 percent increase in income (Perezgrovas and Cervantes.). Raynolds and Taylor. According to FLO findings indicated in Tables 5. As result. One remarkable achievements of Fair Trade in the social environment is the engagement and empowerment of the women. 2003: 9).6 and 5.1. 5. female those who earn enough income could send their children to school. 2002 cited in Murray. reduces children‟s 55 .7 (in the period between 2007 and early 2009).
Weltladen) contain diversified cultural products imported from different countries. in terms of projects implemented and services rendered to the co-operatives and producers‟ organization. it is contributing to cultural revival of some indigenous communities. as described by Murray. On the other hand. Especially. 2002: 8). on the one hand.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. For example. Further educational benefits were also perceived in other case studies. 2003: 9). 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. 5. 5. FLO confirms that significant amount of premium money is invested for educational purposes.participation hired labor to contribute to the household income at the expense of going to school.3.1. For instance. Lyon (2002 cited in Murray et al.3. Raynolds and Taylor (2003: 11). which led to a 56 . clothing and accessories were portrayed with the unique designs and embroideries of different cultures. helping consumers to broaden their horizon concerning foreign artifacts. Similarly..4 Preserving indigenous cultures Most of world shops (German alternative. UCIRI. Raynolds and Taylor. reported the contribution of Fair Trade Direct Impact on Producers‟ (Co-operative) Organizations.1. Oaxaca. the handcrafts. For Fair Trade marketing those articles means. 2007a: 33). 2003: 9). Most of the co-operatives are organized together and formed a foundation that support or even run schools in their communities. 2003: 11) noted that La Voz members in Guatemala are recuperating the ancestral farming practices. Finally. University Scholarships and an Educational Extension Fund aimed at bridging the enormous gap between the quality and accessibility of urban versus rural education” (Ronchi. Raynolds and Taylor. enabling the children of producers or farm workers and of the local community to gain access to primary or secondary school (FLO. 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. The most far-reaching impacts of Fair Trade.
6 Financial and Non-financial support for co-operatives In a similar way. Ronchi (2002: 13-14) explains the direct financial impact of Fair Trade on producer organization (for example. Raynolds and Taylor (2003) wrote that the “…participation in Fair Trade has strengthened the overall ability of the organizations to serve their members. 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. the financial and non-financial impact of Fair Trade on producers‟ co-operative is significant.3.5 Financial and non-financial support for producer organization Most of the producers‟ organizations export their products to Fair Trade markets. The product that is sold through Fair Trade market networks. 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. Murray. 5. The process of applying for certification and undergoing periodic compliance audits push organizations to improve their administrative capacity” (2007: 12). According to Milford description. For instance.). CooCafé) as being channeled by 1) generating large sum of revenue through delivering its products to Fair Trade markets from its inception. A well established producer organization can partially or fully trade their products through Fair Trade markets. 2) the exportation of diversified products such as roasted and green coffee to Fair Trade markets. 5. the support given to producer cooperatives and organizations can be grouped as financial and non-financial and further elaborated in the following section.tremendous organizational capacity building and empowerment.3. as mentioned above. “agricultural co-operatives (also 57 . Based on that.1. and 3) the financial intermediation and interest revenue through the investment of social premium into available capital funds. But before mentioning about the direct impact of Fair Trade on co-operatives organization characterizing of co-operative is worthwhile to understand. have provided most of producer organizations a capacity-building assistance with quality control processes and information about the market. receives minimum price and social premium set by FLO.1. especially ATOs.
Nicholls and Opal explain that “Fair Trade producers gain value from long-term relationships.). These are the types of co-operatives that operate in Fair Trade system. 5. Fair Trade played an important role in overcoming the capital constraints for most co-operatives compared to non-Fair Trade co-operatives. coffee producing co-operatives in many countries are democratically organized. Fair Trade is providing co-operatives with services and educational programs directly or indirectly (producer organization).$70. owned and run by members. Most of the member co-operatives conduct educational programs on the benefits of being organized into co-operative. the ultimate benefit of supporting the organizations accrues to the producers. For example. Several co-operatives used Fair Trade premium-funded Social Capital fund to meet their financial needs and comply with the new legislation (Ibid. The non-financial impact of Fair Trade can be expressed in terms of support to cooperatives. 2002: 17). in 1995 the Costa Rican government passed legislation that demanded the use of „Clean Technology‟ to protect the environment. Many coffee producing cooperatives (of non-Fair Trade) were closed due to the capital constraints. In reality. 000 . the continuous survival of co-operatives is an indicator of the positive financial impact of being in Fair Trade system taking into consideration the possible market inefficiency and harsh government regulations. The costs of conversion to the Clean Technology were between US$38. all of which help them in their non-Fair Trade sales 58 . usually after processing the product” (2004: 11).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. direct trade and credit provision. In contrary. These benefits are even more valuable the than the mere income stated above. 2002: 2). Members in such a co-operative organization have shared-voting right and uniform membership contribution fee. For example. The support of producer organizations will ultimately benefit the producers which belong to the organization itself. lack of market information and various other reasons.000 (Ronchi. 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.4 Indirect Impact of Fair Trade Unlike the direct impact study. This program is financed directly by producer organization (Coocafé) or indirectly through Coocafé by Fair Trade. In short.
and 2) benefits accrued to Fair Trade groups through direct trade relationships” (2005: 204). the remaining two avenues are analyzing the impact of those producer organizations. they are observable in the livelihoods of producers. The communities in which Fair Trade producers operate benefit from development projects funded by Fair Trade cooperatives and farm workers organizations. Thus. 2003: 7). Thus. 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.negotiations. also extends to the support of co-operatives and. benefits individual producers. Raynolds and Taylor. this is due to the increased organization‟s credibility which resulted from their participation in Fair Trade market system. 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. Even self-esteem and self-confidence are improved as Fair Trade farmers identify with an international alternative trading movement” (2005: 202). however. on producers and on their organizations. 5. access to different credit sources enable the members to invest in small 59 . These could further be elaborated by the following points. Consequently. Nicholls and Opal mention the “1) positive externalities which drives from support for co-operatives and progressive plantations. Most of these benefits can not directly be quantified or monetized.1 Indirect Impact on Producers Having discussed the direct impact of Fair Trade on both producers and their (cooperative) organizations. one could call it organizational impacts on producers or farm workers. That means the support of Fair Trade to producer organization non-financially. in the long run. especially within Fair Trade. Among the perceived indirect impacts on the producers. it is important to take the indirect impact of Fair Trade into account. Remarkably.4. 1) The financing conditions arranged by the cooperatives and producer organizations charges lower interest rates for credit facilities over the last ten years. Based on the field studies conducted on producers.
directly and indirectly. On the other hand. Although. These. 2002). some of the Fair Trade organizations are committed in networking Fair Trade producer and their organization. pest management. these organizations have contributed to the development of networks s among the participants. has strong influences on the income of producers in the long run. Similarly. In line with this effort. the participation in Fair Trade could be seen as an apprenticeship for quality-related techniques and enhancing production and commercialization. 2002: 17 cited in Murray. 2) Members‟ participation in environment educational activities helps to reduce the usage of herbicides and pesticides. Raynolds and Taylor.2 Indirect Impact on Producer Organizations The intention underlying in this section is to detect the impact of producers‟ organization or consortium (for example. in turn. social network is considered as indirect impact of participation in Fair Trade. 5.4. 2003: 8). and educational session on organic production enabled to enhance the portfolio of their products (Ronchi. provide members with a minimum of six training courses yearly in coffee tree management. According to Mendez (2002: 22 cited in Murray et al. the existence of the producer organizations in one community has an impact on the community beyond the immediate impact cooperatives. the financing of developmental activities heavily dependent on Fair Trade social premium. for example. soil fertility and conservation. 3) As noted earlier in chapter two. “Majomut‟s technical advisors. in Costa Rica) on the cooperatives (Coope Cerro Azul or others). Coocafé. Fair Trade producer organizations are 60 . Thus. benefits the nonmembers those who can not establish such small businesses because of the financial constraints they have.businesses on their own land and homes. the interaction of different Fair Trade participants facilitated the building of social networks which led to collective action toward developmental activities in the community. This kind of assistance from Fair Trade organization. harvesting techniques and other quality-related procedures” (Perezgrovas and Cervantes. 2008: 8). the indirect beneficial impact is the union of different members of cooperatives under the umbrella of Fair Trade for the purpose of communal development.
2) Ronchi emphasize “the impact of consortium via its wider co-operative actions. its representative role on a national level and the opportunities it facilitates for its members provide important indirect impacts of Fair Trade” (2002: 23). in some cases. 5. due to growth in Fair Trade markets and demand from consumers. For example. 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. Some of the significant impacts can be described in the followings. and it also facilitated support in consultation and technical assistance from external agency such as NGOs and ATOs. For example. in the process of certification and decertification. These specific characteristics capacitate them to occupy higher position and play key roles in the Fair Trade business. Firstly. 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. receive assistance from these other groups. The collaboration of Fair Trade producer with non-Fair Trade helps “many groups learn about Fair Trade from other producer organizations and. Their functions can further be understood under the listed points below. economically stronger.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. Fair Trade registered cooperatives have facilitated the entry of other non-Fair Trade groups into the Fair Trade networks and markets.structurally higher. “…the information-sharing processes have benefited the co-operatives in terms of administrative efficacy and human resource training” (Ibid: 24). social-politically representative and commercially competitive. That means. 1) Producer organization or consortium takes advocating position within the Fair Trade system. 3) Based on the consortium initiative program for interaction and information interchange among the different co-operatives. Fair 61 .
Secondly. Majomut then assisted Tzotzilotic in selling Fair Trade coffee for the fi rst time in 2001” (Murray. 19). La Selva and Tzotzilotic of Chiapas. 5. 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. La Selva in turn facilitated Majomut‟s entry into Fair Trade in 1993-1994. 62 . Finally. Similarly. previous Fair Trade co-operative organizations (for example. a short-term credit services available to non-members for their basic needs become relevant in improving the image of Fair Trade (Ibid. Alarmed from the decertification of other 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. 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. Ronchi claims that this model has a ratcheting effect. 2003: 13). Raynolds and Taylor. the following impact analyses were given a short consideration by Nicholls and Opal (2008: 216-225). the existing co-operatives are also forced to improve their compliance with the set of standards. Moreover. Raynolds and Taylor. Fair Trade system has impacted non-Fair Trade producers through the strength and activity of primary level co-operatives. Furthermore.6 Emerging Impact Analysis Methods Different metrical methods of social impacts have been introduced to describe the social impacts of Fair Trade. Especially. 2008: 214). the wage and price standards of Fair Trade cooperatives forced other non-Fair Trade cooperatives to improve for all producers (2002: 20). 2003: 20).Trade pioneer UCIRI helped draw La Selva into the Fair Trade coffee market in 1990. 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). that is.
controversy still rages over the financial valuation of social and environmental impacts (Nicholls and Opal. descriptive outcomes of strategic action” (Nicholls and Opal. Thus.1. 3) completeness. 2008: 217) outlined eight guiding principles. However. Fair Trade system is also seeking commercial returns. 2004: 34). social and environmental audits are partial. These are 1) inclusivity. however. 2008: 216). 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. Therefore. applying TBL model to assess the full impact of Fair Trade system on producers and their organization is not the best possible option. 2008: 217). social and environmental capitals. are the vital in dealing with this method (Richardson.6. 2008: 217. and often partial.6. 2) comparability. 2004: 34).6. 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). 5.2 Social Accounting The second qualitative method is social accounting approach. intrinsically it is concerned with generating social and environmental outcomes (Nicholls and Opal. 5.1. subjective and not quantifiable and consequently. 2004: 34). 4) 63 . Zadek (1998: 1436-8 cited in Nicholls and Opal. The social impact measurement is targeting at “…capturing specific. Unlike for the profit-driven commercial organizations.5. contrary to the financial performance. Richardson. capturing the three pillars of sustainable development. This approach is more detailed and systematic means of social impact measurement than the TBL approach. The following four approaches are specifically related to them. Of course.1 Qualitative Approaches There are several metrical models employed to measure the social impacts of businesses.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.
5) embeddedness.1.3 Balanced Scorecard Nicholls and Opal continued to consider further qualitative approach known as Balanced Scorecard. 2001: 134-5). Nicholls and Opal. The “ISEA‟s goal is to promote best practice in social and ethical accounting. auditing and reporting and to develop standards and accreditation procedures for professionals in the field” (Redfern and Snedker. NEF and others established Institute for Social and Ethical Accounting (ISEA). Though social accounting is more appropriate indicator of social impacts than the former TBL. 2002: 9). 2008: 219). using the conventional businesses audit practices. 2008: 217. 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. Redfer and Snedker. Thus the Balanced Scorecard for nonprofit is organized according to the one indicated on Figure 5. 64 .regularity and evolution. where the customers both pays for the services and receives the services.6. 2001: 134-5. Traidcraft. 6) communication. 5. These principles provide valuable information about individual actions and objectives and can be used to indicate the development in the long-run (Ibid. in a nonprofit organizations financial providers (donors) pay for the services and the target group or customers receive the services (Kaplan and Norton. 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. For instance. This method was first developed for profit-driven business organization and then adapted for public and nonprofit organizations. Currently. 7) externally verified and 8) continuous improvement. Because of the two different parties involved the organizations should consider the donor and receiver perspectives in the arrangement of their balanced Scorecard. 2002: 9). Some Fair Trade organizations have adapted this approach. Contrary to the former organization. Traidcraft PLC in collaboration with New Economic Foundation (NEF) conducted social accounting and published the audit report in 1993 (Nicholls and Opal.6.).
As it is shown on Figure 5. They replaced customers by producers with the developmental objectives and investors by consumers with sales and awareness raising objectives. 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. internal business processes stipulate FTO to jointly devise commercial capacity as well as developing strategies for campaigning and raising awareness.3.2: The Balanced scoredcard for not-for-profits Source: adapted from Kaplan. 2008: 220). Thus. The organizational learning aspect focuses on the various networks within Fair Trade which provide information flows and motivate innovations (ibid. These are maximization of commercial returns to producers and denouncing the international trade inequality (Nicholls and Opal. the advocacy groups such as FLO members. Nicholls and Opal have further modified nonprofit organization Balanced Scorecard to fit it into Fair Trade system. Cafédirect. 220).Figure 5. In practice. 65 . IFAT and EFTA are supporting the advocating objectives and the commercial operators like Traidcraft. and People Tree are focused on the commercial growth.
government agencies and other social enterprises) and designed to measure the impacts of social projects. nonprofit organizations. The term social impact stands for social.Figure 5. but even if they do not. SROI is favorable to demonstrate the combined impacts of all the three objectives. 2008: 222). SROI methodology works across different sectors (for instance. Thus.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. (2004b: 3 cited in Nicholls and Opal. 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.3: The Balanced Scorecard for Fair Trade Source: adapted from Kaplan. the value to society of the social or environmental returns that they create may well be equal or higher. private business. 66 . This is particularly true for those organizations in the social economy that may search for either economic or just social value. environmental and economic impacts in this section. 2008: 221-227).6. 2002 cited in Nicholls and Opal (2008: 221 5. they may or may not achieve similar levels of financial return. When compared to mainstream businesses.
outputs. 3) valuing the things that matter. Secondly. Eilis Lawlor. Nicholls et al. SIA. identifying the main stakeholders and specifying key social objectives are relevant (Nicholls and Opal. a careful judgment is required about the materiality of information to avoid the misrepresentation of the organization‟s activities. Firstly.Nicholls et al.(Not available) . a. a.)11 claim that SROI was developed from social accounting and cost-benefit analysis and supported by seven principles for its application. Eva Neitzert and Tim Goodspeed. For instance. Outputs are the direct and tangible products from the activity. 4) including what is material. Impacts are outcomes less an estimate what would have happened without the social projects activities (Nicholls and Opal. for example. Outcomes are changes to target group (Fair Trade producers and communities) resulting from the activity. establishing impact map gives guidance to how social impact is intended to be achieved. Based on these principles. The analysis of SROI involves various other issues that should be taken into consideration. Inputs are resources invested in the social projects. and edited by Sally Cupitt. outcomes and impacts. but it has been written by Jeremy Nicholls. The impact value chain indicated on Figure 5. 6) demonstrating transparency and 7) validating the results. (2003: 18). establishing the organizational boundaries of the social projects.The year of edition for “A guide to social return on investment” is not available. increased household income. 9). 2) understanding the changes taken place. 67 . 5) avoiding over-claim. for instance. These principles can be explained as 1) Involving stakeholders. 2008: 223. 11 n. (n. Fair Trade products sales.5 presents the linkage of inputs. 2008: 223. judgment plays a significant role in SROI analysis.
That is. pre-financing and education programs should be carefully monetized. For example.4: Impact Value Chain Source: SIA. The last step is calculating a blended value of enterprise and social purpose values. (2003: 18) Finally. different developmental impacts are required to be valued. the calculation of SROI demands Cost Benefit Analysis tools. present value of the total future cash flows will be discounted by a risk premium (Nicholls and Opal. Similar to that of enterprise value. 68 . The discount rate is calculated using the financial model known as Capital Asset Pricing Model (CAPM) which calculates risk project. The first step calculates the blended value (enterprise and social purpose value) of social project.Figure 5. The enterprise value can be acquired using the conventional business project valuation approach.). Since Fair Trade business is retail in nature and small in size. The second step the social purpose value of the given project should then incorporate various factors and be calculated for all factors. it can be divided into three steps (detailed elaboration of the steps on Appendix 1). According to Nicholls and Opal (2008). 2008: 223). the quantified social purpose value will be discounted to a present value and represents the project outcome (Ibid. the impact of technical assistance. The SROI is calculated based on the total investment in a project and also discounted by the weighted average discount rate of the enterprise and social purpose values (Ibid. 225). For Fair Trade business. the CAPM should also reflect these factors.
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. FLO. Consequently. the once ethical consumers became commercial operators and focused on the consideration of both supply.and demand-driven marketing approaches. This international organization roofed several NIs. FLO has developed general standards under which Fair Trade producer-suppliers and commercial agents should operate in the Fair Trade market. Several commercialized ATOs started to join the Fair Trade system in different countries. NEWS and FTF. power of Transnational Corporation and many other phenomena triggered the formation of many political movements in this era of globalization. Fair Trade became the consumers-backed support for ethically sourcing of agricultural commodity and various other products. movement of capital. The absence of commercial orientation delayed the fast transformation of this social enterprise to a competitive business model. The diversified application of Fair Trade standards and principles across different countries. This phenomenon led to the formation of National Initiatives as controlling bodies. The ATOs having the legal status of nonprofit organization were not based on commercial principles rather on the solidarity trade principles. came to existence. producers and commercial operators. For that matter. the primary goal of Fair Trade is to integrate the marginalized producers in global South into international trade. and the introduction country-based Fair Trade seals (marks) created among the ethical consumers. 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. Moreover. networking and market facilitators. Originating from the criticism of prevalent failures in international trade liberalization to benefit disadvantaged trade partners. It also works in harmony with other Fair Trade organizations such as IFAT. migration of labor.6 Conclusion The international trade liberalization. Some of these organizations are advocator and campaigners. WFTO. fast market expansion. an independent umbrella organization. it 69 . commercial operator. Although Fair Trade has both political and economical motives.
the combined economic. the application of standards. Due to the growing demand for quality in return to the higher price paid for Fair Trade commodities. As a focal point of the marketing instrument. it has moved the Fair Trade commodities out of a niche market to mainstream outlets. The mainstream supermarkets interest in Fair Trade commodities has increased over last ten years and boosted the Fair Trade sales turnover. despite the celebrated success of the move to mainstream markets. price. 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. Central to the growth of Fair Trade market can special be perceived as the marketing effort of the international Fair Trade organizations. However. In line with this growth. The marketing mix elements: product. The distribution of Fair Trade products has not been successful due to the incontinently located World shops and other Fair Trade outlets. Fair Trade products‟ design has incorporated the ethical message and economic value inherent to it. FLO brought a random monitoring system to sustain the perpetuity of the compliance. Especially. The pricing scheme has been addressing to the uniqueness of the product. it is unique and contains special value for the customers. 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. Promotion of the Fair Trade 70 . several producers have started supply their products directly to conventional or traditional outlets. Fair Trade commercial operators (as producers‟ partners) have also emphasized their marketing concept on producers. principle-driven Fair Trade activists are skeptic about the commitment of these new Fair Trade partners. place and promotion have been designed to communicate this specific message to the target audience. The dominance of traditional supermarkets along the Fair Trade supply chain has improved the fast distribution of Fair Trade products beyond the niche markets. All together. Especially. Fair Trade marketing mix has focused on the producers (producer co-operatives or organization). 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. Although Fair Trade marketing process shares some similar qualities with the social and conventional marketing approaches.
Consequently. However. Some were only focused on specified products which can not be representative for many other Fair Trade products. Others did not capture and present the full Fair Trade impact on the producers. compared to the global population of marginalized communities. Until recently. Traidcraft. farm workers and their immediate communities in global south. Especially. Due to this phenomenon several small producers and plantations have been impacted. It will take a while to disclose the full impact of Fair Trade. the impact analyses reported have some problems. Fair Trade market has grown and benefited several producers. Fair Trade products neglected the product innovation and brand development.products has been made possible through increased campaigning strategies of Fair Trade organizations. etc.) has started to develop their own brands that is co-owned with the producer organizations. the accomplishment of Fair Trade can not be underestimated. 71 . because of the mainstream business involvement in the Fair Trade product outlets. financial and non-financial benefits. however. The beneficiaries of Fair Trade represent very small percentage of large disadvantaged communities from inequalities of international trade. there have been growing tendencies to develop convincing and accurate assessment methodologies that can capture the social and economical impacts. However. Finally. the impacts Fair Trade on the livelihoods of producers and the large community have not been monitored and evaluated metrically. producers‟ organizations and the immediate communities. most of the case studies conducted were on fair Trade coffee producers. The beneficiaries are ranging from individual producers and their families. Nevertheless. the non-financial impacts of Fair Trade have been presented wholly and lacked the fair presentation of Fair Trade potential. The researches conducted also outlined the direct and indirect impacts on producers. The development of Fair Trade marketing and the participation of the conventional outlets increased the demand for diversified Fair Trade products. For example. Fair Trade has just started the road to poverty reduction through a market-based strategy. Fair Trade commercial operators (Cafédirect. Finally. The impact of Fair Trade has been demonstrated by various case studies conducted in different regions.
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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 direct social costs of the project Discount this figure by an appropriate rate. where relevant o Calculate the monetized social purpose value. taking into account the WACC. but not all. cases this is a philantropic grant or donation) Discount this figure by the weighted average of the discount rates for the enterprise and social venture values already worked out To measure return: o Calculate the enterprise index of return Divide the enterprise value by the total investment o Calculate the social purpose index of return Divide the social purpose value by the total investment o Calculate the blended index of return Divide the blended value by the total investment 77 .Appendix 1. Appendix: The steps of SROI calculation For a given project SROI will be calculated as follows: To measure value: o Calculate the enterprise value Discount this figure by an appropriate rate. taking into account the WACC.
2010 Unterschrift 78 . 23.04.EHRENWÖRTLICHE ERKLÄRUNG Ich erkläre hiermit ehrenwörtlich: 1. 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. 4 SPO) ausgeschlossen werden und dadurch die Zulassung zum Studiengang verlieren kann. Dass ich meine Masterarbeit selbständig und ohne fremde Hilfe angefertigt habe. 4 SPO (§ 13 Abs. dass die Unrichtigkeit dieser Erklärung zur Folge haben kann. 2. dass ich der Ableistung weiterer Prüfungsleistungen nach § 15 Abs. ______________________ Nürtingen. Ich bin mir im Weiteren darüber im Klaren.