FAIR TRADE MARKETS:WHAT ARE CONSUMERSAND PRODUCERS BUYING?

KIMBERLY ELLIOTT

CENTER FOR GLOBAL DEVELOPMENT

NOVEMBER 3, 2012

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?

WHAT CAN BE CERTIFIED?

WHAT

ARE C

ONSUMERS

BUYING?

By volume By value

WHO IS BUYING? 2011 global sales =

$7 billion

2004 global sales =

$1 billion

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?

80% coffee, bananas

84% flowers &

plants, tea,

cocoa, coffee

64% tea, coffee

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

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?

WHAT

ARE P

RODUCERS

BUYING?

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

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?

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*

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?

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?

WHAT ABOUT SPREADING THE BENEFITS?

Fair Trade USA question: what about unorganized producers, coffee, other plantation workers?

vs.

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