Transcript Elliott

FAIR TRADE MARKETS:
WHAT ARE CONSUMERS
AND PRODUCERS BUYING?
K I M B E R LY
ELLIOTT
CENTER FOR GLOBAL
DEVELOPMENT
N OV E M B E R 3 , 2 01 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
WHAT CAN BE CERTIFIED?
By volume
By value
WHO IS BUYING?
USA
21%
2011 global sales =
$7 billion
Switzerland
8%
2004 global sales =
$1 billion
ROW
8%
UK
43%
Other Europe
20%
2011 global sales of
coffee, cocoa,
bananas, sugar =
$85 billion
MARKETS SMALL BUT GROWING RAPIDLY
GROWTH BY PRODUCT, 2002-2011 (MT)
6-fold growth
10-fold growth
WHERE ARE CONSUMERS BUYING?
84%
flowers &
plants,
tea,
cocoa,
coffee
64% tea,
coffee
80%
coffee,
bananas
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
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?
Conventional
Markets
Fair Trade
Markets
Producers
Producer cooperative
Intermediary
Processor
Exporter
Exporter
Must
be
certif
ied
by
FLOCert
Importer*
Roaster*
Retailer*
Whoever applies
label must be
licensed by
national initiative
Credible certification easier
with compressed supply chains
* May be the same.
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?
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*
WHAT ABOUT SCALING UP?
How many more consumers?
How much more will they buy?
Mainstream retailers
provide access to
markets, but will they
promote?
Most of what they sell
is unfair?
WHAT ABOUT SCOPE?
Grow, pick, ship
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?
WHAT ABOUT SPREADING THE BENEFITS?
vs.
Fair Trade USA question: what
about unorganized producers,
coffee, other plantation workers?
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