Fair Trade Markets: What are consumers and producers buying?

1. Fair Trade Markets:What are consumersand producers buying? Kimberly Elliott Center for Global Development November 3, 2012

2. What is Fair Trade? • Goods certified as meeting standards and carrying a label: • Focus on smallholders in democratic coops • But also standards for hired labor on plantations • Traders, producers must both be certified • Minimum price + social premium • Encourage long-term contracts, with option for pre-payment

3. What can be certified?

4. What are consumers buying?

5. By volume • By value

6. Who is buying? • 2011 global sales = • $7 billion • 2004 global sales = • $1 billion • 2011 global sales of coffee, cocoa, bananas, sugar = • $85 billion

7. Markets small but growing rapidly

8. Growth by product, 2002-2011 (MT) • 6-fold growth • 10-fold growth

9. where are Consumers buying? 84% flowers & plants, tea, cocoa, coffee 80% coffee, bananas 64% tea, coffee

10. Do consumers Pay More? They should, given extra costs for: minimum price above market price, social premium, certification costs With homogenous products: yes. Quality-differentiated items— specialty coffee, gourmet chocolate—probably yes. But hard to say how much

11. Quality or price discrimination? • Starbucks Italian Roast for $11.95/lb; same as non-FT French Roast, but same quality? • FT-certified Café Estima blend for $13.95/lb vs. • Starbucks House blend, $11.95—cost recovery, quality, or price discrimination? • Or, • Ruta Maya, $8.95--certified organic, also shade-grown in Chiapas, but not FT certified >> lower quality, cost, or profit? • Quality + Trust = Willingness to pay?

12. What are producers buying?

13. Conventional Markets Fair Trade Markets Producers Producer cooperative Intermediary Must be certified by FLO-Cert Processor Exporter Exporter Importer* Whoever applies label must be licensed by national initiative Roaster* Retailer* Credible certification easier with compressed supply chains * May be the same.

15. Direct income effects unclear • Price floor = insurance, • But not necessarily higher profits: • Higher costs to cover product collection, transportation, processing • Higher costs related to meeting, certifying compliance with standards • Higher costs to improve quality • Income effects depend on share sold on FT terms, often less than 100% (Coffee avg. ~ 50%) And with prices well above the floor?

16. Where are the producer benefits? • Connecting producers to buyers, market info • Capacity-building for improved production methods, product quality • Encouragement of long-term contracts, access to finance • Social premium often plowed back into PO to improve productivity, competitiveness • But also sometimes used for community projects • *Continued demand for certification suggests producers see benefits*

17. What about scaling up? • Mainstream retailers provide access to markets, but will they promote? • Most of what they sell is unfair? • How many more consumers? • How much more will they buy?

18. What about scope? • Produce, process rubber, leather, fabric (for laces, insole) • >>> each in a different place? • Cut, shape, dye, etc. each intermediate input >>> each in a different place? • Assemble and ship >>> in another place? • Grow, pick, ship

19. What about spreading the benefits? vs. Fair Trade USA question: what about unorganized producers, coffee, other plantation workers?

20. Summary • Consumer demand continues to grow, but still a niche market and market potential unclear • Producer demand for certification also continues, indicating benefits in market access, relationships • Expansion limited by retailer ambivalence, demands of credible certification