fair trade markets: what are consumers and producers buying? kimberly elliott center for global...
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FAIR TRADE MARKETS:WHAT ARE CONSUMERSAND PRODUCERS BUYING?
KIMBERLY ELLIOTT
CENTER FOR GLOBAL DEVELOPMENT
NOVEMBER 3, 2012
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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 premiumEncourage long-term contracts, with option for pre-payment
WHAT IS FAIR TRADE?
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WHAT CAN BE CERTIFIED?
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WHAT
ARE C
ONSUMERS
BUYING?
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By volume By value
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WHO IS BUYING? 2011 global sales =
$7 billion
2004 global sales =
$1 billion
2011 global sales of coffee, cocoa, bananas, sugar =
$85 billion
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MARKETS SMALL BUT GROWING RAPIDLY
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GROWTH BY PRODUCT, 2002-2011 (MT)
6-fold growth
10-fold growth
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WHERE ARE CONSUMERS BUYING?
80% coffee, bananas
84% flowers &
plants, tea,
cocoa, coffee
64% tea, coffee
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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,
gourmetchocolate—probably yes.But hard to say how much
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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?
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WHAT
ARE P
RODUCERS
BUYING?
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Conventional Markets Fair Trade Markets
Producers
Intermediary Producer cooperative
Processor
Exporter
Importer*
Roaster*
Retailer*
* May be the same.
Must be
certified by FLO-Cert
Whoever applies label must be
licensed by national initiative
Exporter
Credible certification easier with compressed supply chains
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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?
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Connecting producers to buyers, market infoCapacity-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
WHERE ARE THE PRODUCER BENEFITS?
*Continued demand for certification suggests producers see benefits*
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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 SCALING UP?
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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 SCOPE?
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WHAT ABOUT SPREADING THE BENEFITS?
Fair Trade USA question: what about unorganized producers, coffee, other plantation workers?
vs.
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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