Fair Trade Markets: What are consumers and producers buying?
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Transcript of Fair Trade Markets: What are consumers and producers buying?
FAIR TRADE MARKETS:WHAT ARE CONSUMERSAND PRODUCERS BUYING?
KIMBERLY ELLIOTTCENTER FOR GLOBAL DEVELOPMENTNOVEMBER 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 CONSUMERS
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, 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?
WHAT ARE PR
ODUCERS
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 UNCLEARPrice 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 qualityIncome 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.
SUMMARYConsumer 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