When good deeds pay dividends

One day in 2007, companies all over the world were suddenly on the phone to Harriet Lamb. “They had heard a rumour,” remembers the Fairtrade Foundation’s executive director. “But they didn’t believe it could be true.”

It was. One of Britain’s largest supermarkets, Sainsbury, had made a huge decision: to sell bananas only if they carried the Fairtrade label. “It was a huge financial commitment,” says Lamb.

Moving exclusively to Fairtrade bananas would cost Sainsbury as much as £4m a year – and its chief executive, Justin King, knew that it couldn’t pass on the cost to consumers, because British supermarkets compete furiously on price.

“But Justin made a very bold decision,” says Lamb. “He felt he could really strike out with a leadership position and lay down a challenge to other retailers.” Which he did – helping to nudge Fairtrade from the margins into the mainstream.

For 20 years, well-meaning consumers in prosperous countries have sought out Fairtrade-certified products, not necessarily on grounds of taste or enjoyment but to do something virtuous – because a Fairtrade logo certifies that major global companies have paid a fair price to the world’s most marginalised farmers. And this helps to pay for sanitation, and schools, and generally better conditions for the farmers’ communities.

But in the past few years Fairtrade has outgrown its activist origins. Since Lamb took over at the UK non-profit organisation (a member of Fairtrade International) in 2001, the movement has seen staggering growth, with sales of certified products growing from £30m to £1.2bn (€1.4bn) in the UK alone. In the same period, the number of products carrying the logo has grown from 80 to 4,500 – including many market-leading names in coffee, tea, cocoa, fresh fruit, juice, honey, wine, dried fruit, nuts and sugar, and non-food products such as flowers, sports balls and cotton goods including fashion items and schoolwear. In 2010, sales in 24 markets worldwide were up 28% on the previous year, at nearly €4.5bn.

At the same time, Fairtrade’s effect on developing countries has increased massively, even affecting farmers and workers not personally involved. In Mexico, the competition it induced has forced middlemen to increase their prices to the benefit of all producers, and similar effects have been noted in Tanzania, Peru, Ghana, Bolivia and Nicaragua. In Ghana, improvements in labour conditions have spread beyond the Fairtrade-certified plantations.

But what tends not to get so much attention is the business case for fair trade. That’s surprising, because its rapid growth recently could not have happened if it were not a sound proposition for the businesses involved.

“The people we deal with,” says Lamb, referring to managers from multinational companies, “are hard-nosed and successful business people. If Fairtrade didn’t deliver commercially, it wouldn’t survive. We’re not interested in a bit of charity. This is about transformative business models.”

The Fairtrade movement consists overwhelmingly of smallholder organisations, and their view has shot up the agenda. Figures as diverse as Kofi Annan and Bill Gates have said that if businesses don’t invest in smallholders, they won’t solve the food crisis. “If we want to be sure we have a sustainable supply,” says Lamb, “businesses need long-term relationships with producers, and help them to tackle all kinds of issues relating to land use, water supply, chemicals and much more.”

To demonstrate this, she frequently travels to meet suppliers with the executives who buy their products. One such trip was to the Windward Islands with King. “He met the banana farmers,” she says. “And he was blown away. They’re very well organised and innovative. They were asking, ‘What can we do? How can we improve?’” When executives have met farmers like this, she says, it’s very hard for them not to become committed. “You can’t go back to business as usual.”

But they’re not doing it just for the sake of the producers. More than anything else, Fairtrade’s growth has been driven by demand. “Customers want this,” says Lamb, flourishing a bundle of research. It also helps with staff recruitment and retention. Not long ago, Sainsbury ran a scheme for ‘Fairtrade ambassadors’ in which staff vied for a chance to visit Africa and see Fairtrade in action. Lamb recently met one of the winners. “She had a photo album in her bag, and showed me. She said she was so proud to work at Sainsbury, and she has become a tremendous advocate for what Sainsbury is doing with Fairtrade.”

Having seen the effect of switching to Fairtrade bananas, King did the same for Sainsbury’s own-label tea. Now the retailer intends to sell Fairtrade products worth £1bn a year by 2020. (In 2010 the figure was £280m).

Lamb is delighted, but warns that this won’t be easy. It can take a long time to launch a new Fairtrade line because the whole supply chain, from producer organisations to the companies licensed for the consumer-ready product, must be certified. Fairtrade can work with firms to source commodities and ingredients through an existing supply chain (it already works with more than 900 producer associations worldwide). Alternatively, it can help manufacturers to set up certified supply chains using their existing suppliers.

Another executive who visited suppliers with Lamb was Todd Stitzer, CEO of confectionary manufacturer Cadbury, a year before the company’s takever by Kraft in 2010. At the time, Cadbury was worried about the future of cocoa supplies after discovering that the average age of Ghana’s cocoa farmers was 54. “We went out there,” Lamb recalls, “and in a village we met a farmer, drying beans. He looked down all the time. He said he was very worried because his sons were not interested in cocoa farming and had gone to work in the capital. They saw cocoa as drudgery.”

Stitzer recognised this as a hugely important issue and was determined to explain this to his shareholders.

Kraft has since indicated that it remains committed to Fairtrade. “We need to invest in the suppliers to make the crop sustainable in the long term,” says spokesman Tony Bilsborough, “for the next decade and the one after that.”

Cadbury went public about its plans early in 2009, a short time after Stitzer’s visit. Rather than stick the Fairtrade label on a minor product, it announced boldly that all Dairy Milk sold in the UK would be Fairtrade. “And that is by a long way our biggest brand. It’s the biggest of its kind in the UK,” says Bilsborough.

The growth of Fairtrade sales has been led by a grassroots movement in universities, churches, mosques and schools. And that constituency of activist consumers still scours aisles for products that tick the right box. “But more recently Fairtrade has gone mainstream, reaching out to the average shopper who buys on considerations such as taste and enjoyment. Those ordinary consumers are important to us,” says Bilsborough. “Ours may not be the brand that activists would have chosen, but Fairtrade wanted to extend beyond its niche.”

Getting its chocolates certified took Cadbury a few years, as its entire supply chain was examined by Fairtrade. For a composite product to be certified, it must use fair trade ingredients wherever possible. There is no way to buy fair trade milk, but to source sugar, Cadbury switched to a supplier in Belize.

To meet its current Fairtrade needs, Kraft buys 20,000 tonnes of cocoa from Ghana. (To put that into perspective, around 3.5 million tonnes of cocoa is produced annually.) Rather than having a trading relationship with every smallholder individually, Cadbury buys from Kuapa Kokoo, a farmers’ cooperative established in 1993 by 200 small-scale growers, certified as Fairtrade in 1995, and now boasting a membership of 63,000.

As with most commodities, the price of cocoa is subject to considerable ups and downs. The Fairtrade minimum price for it is currently $2,000 a tonne, plus a premium of $200 for investment in business, social or environmental projects. If the market price is above that, then buyers such as Cadbury must still add the Fairtrade premium. And with that income, farmers in Kuapa Kokoo have been able to improve access to drinking water, build public toilets and provide mobile health services, classrooms and a mobile cinema. They have also initiated alternative revenue streams in textiles, soap-making and snail-farming.

Bilsborough is reluctant to make too much of this. “We are not trying to maintain that we have solved the world’s problems, and say, ‘Aren’t we great?’ – but we are trying to expand gradually.” The Fairtrade Dairy Milk has become available in other markets, and other products are gradually being certified too.

Many firms approach the Fairtrade Foundation on their own initiative, but Lamb also makes approaches herself. “The brightest business leaders are pushing this, but others are dragging their feet.” Their principal misgiving is cost. “But there are many things businesses do that are a cost, including marketing. This is an investment,” she says.

Another factor seems to be generalised resistance to change. “As a charity, we tend to think of businesses as entrepreneurial, but many businesses are very conservative. They have done something for many years and to change that is a big ask. Also, when you have a certifying body involved, you are ceding a bit of control.”

Some companies start out determined to be certified, then pull out. Or they may scale down their ambitions and certify just one, relatively simple, product line. Others are so convinced by the Fairtrade model they persist, despite almost overwhelming difficulties. “Ben & Jerry’s decided to switch all ice cream, all around the world, to Fairtrade,” says Lamb. “They have been very committed. They haven’t gone for the quick and easy solution.”

British agribusiness Tate & Lyle committed to switching all its retail sugar to Fairtrade in the UK – a process that is still not quite complete after two years, because it takes time to find all the producers it needs.

Tate & Lyle initially saw Fairtrade as a marketing tool. “We started thinking about it in 2005,” says the company’s Fairtrade relationship manager, Julia Clark. “We were looking for a way to differentiate what is essentially a commodity product, by talking about provenance.”

As a marketing strategy, switching to Fairtrade would have been prohibitively expensive. But the company’s CEO, Ian Bacon, became aware of other benefits. European regulations were changing at that time in a way that was likely to reduce the cost of sugar sharply, posing a grave threat to suppliers. Bacon recognised that paying a premium of $60 per tonne would help suppliers to stay afloat. It would not be possible to pass on the extra cost to consumers, but he believed that the move to Fairtrade (sourcing sugar from Belize, like Cadbury) would increase Tate & Lyle’s market share. “And it did,” says Clark.

Interestingly, the enthusiasm demonstrated by consumers has been more than matched by retailers and the industrial market – because, as has already been noted, major supermarkets and confectionery manufacturers are increasingly interested in Fairtrade themselves.

It’s worth pointing out that Fairtrade does not only impose conditions on buyers, but on suppliers too. Producers must ensure good working conditions, and set up nondiscriminatory, democratic and transparent structures in their representative bodies. Tate & Lyle is not responsible for monitoring this, but has found it helpful to work with suppliers to ensure the money is well spent.

Every three months, Tate & Lyle meets farmers on a committee that also includes representatives of the Fairtrade Foundation, the local mill, the government, agronomists and the WWF. “We look at the projects they’re working on and give advice,” says Clark. The farmers are under no obligation to take that advice, but having done so they have transformed the efficacy of their projects and seen an incredible turnaround in productivity.

“After the first year in Belize,” she adds, “there were rumblings from the local community that the money was not being spent very sensibly. It wasn’t being thrown around frivolously, but they were spending it on fertilisers and many thought they could have done better.

“There used to be a problem with the time between cutting the cane and getting it milled. The longer the delay, the less sugar is left in the cane, and the less money the crop makes. So last year the Belize Sugar Cane Farmers’ Association invested in an improved delivery system, with better communication between producers and the mill. As a result, the waiting time was reduced from four days to four hours. Previously, it had taken 14 tonnes of cane to produce a tonne of sugar, but with the reduced delay, the mill is getting a tonne of sugar from just 8.5 tonnes. That’s a much greater benefit than they would have got from buying more fertiliser, and it comes about through the advice and mentoring.”

As a means to improve the lives of impoverished farmers, and secure supplies, Fairtrade is a proven success. But it’s not a model that appears to work equally well in every market. Most of Europe’s consumers have accepted Fairtrade to varying degrees, but it has made little impact in the US.

“The US is always more difficult,” says Lamb. “If a company commits to 100% Fairtrade in the UK, that’s going to be much easier than for Walmart to do the same in the US. We would like to work at that level, but I don’t think consumer demand has become strong enough yet.”

Looking ahead, she suggests the Fairtrade Foundation is not overwhelmingly bothered about developing its model in yet more rich countries. Instead, it hopes to create markets for Fairtrade products in developing countries. “We are taking the market to the south – to the areas that are generally deemed to be beneficiaries,” she says.

Recently, shoppers in Kenya have been able to buy Fairtrade Kenyan coffee for the first time. South Africans can buy Fairtrade products too. “We have started in those countries already. But I hope in five years the biggest Fairtrade market in the world will be India,” says Lamb.

“The middle class in India is as big as the whole population in Europe. The opportunity is there, and consumer interest, and there are many businesses in India, and internationally, for whom it would make complete sense. Can you imagine how exciting it would be for Indian cotton farmers to walk into shops and buy their own products?”