Date of publication: July 22, 2006
Source: Financial Times
By Alan Beattie
It was when Peter Mandelson, Europe's trade commissioner, produced a bar of Fairtrade chocolate during his parliamentary confirmation hearing that it became clear how far the movement had come. Mandelson, a skilled practitioner of political image and branding, knows a bandwagon when he sees one.
The distinctive Fairtrade mark, a waving figure against a blue and green background, once appeared only on chocolate and coffee bought by earnest vegetarian liberals in charity shops. Now it sanctifies hundreds of products from dozens of producers and retailers. Socially conscious European consumers, especially from Switzerland and Britain, have led the way. But Fairtrade aspires to be more than charity. It wants to help the world's poor not through aid but by changing their relationship with the market to which they sell.
Fairtrade is not alone in using branding and the market to help the poor. "Product Red", a brand launched this year by rock star and aid activist Bono and former music producer Bobby Shriver, has signed up some huge companies - American Express, Giorgio Armani, Gap, Motorola - to launch Red versions of their products. Some of the profits will go to combat Aids in Africa. In May, Bono made a whistle-stop tour of Africa and told me along the way how the right marketing could rescue struggling farmers and sickly industries from failure.
As Fairtrade expands beyond its niche it attracts scrutiny and suspicion. The economist's automatic critique is that paying above the market price encourages farmers to stay in unprofitable sectors, inducing oversupply and pushing down prices for everyone else. Others think it well intentioned in theory but corrupt in practice, with European supermarket chains and international commodity brokers reaping more benefit than Guatemalan farmers.
The market share of Fairtrade-labelled products remains low even in its best markets - only 4 per cent of the UK's instant- coffee sales, though nearly a fifth of the roasted and ground market - but both profile and sales are rising rapidly. Global sales of Fairtrade-labelled goods have risen by between 40 and 60 per cent in the past three years. Last year it won a special recognition prize from Superbrands, an annual marketing publication. Tony Blair made sure that Fairtrade tea and coffee was served at the Group of Eight rich countries' summit in Gleneagles last year.
Fairtrade's move into the mainstream was confirmed when Marks and Spencer, the iconic retailer of middle England, led the charge into a new commodity. Having already decided to switch all its coffee and tea in its stores to Fairtrade, earlier this year M&S started stocking T-shirts made from Fairtrade cotton. Recently it announced a plan for Fairtrade denim jeans. Some of the cotton will come from the impoverished west African state of Mali where Fairtrade has already made farmers visibly, and gratefully, better off.
The principle of Fairtrade labelling, which started in the Netherlands in 1988, is quite simple. Farmers, generally small- scale co-operatives in developing countries, are guaranteed a price above the world market price, making them richer and insulating them from big swings in global commodity prices. In coffee, for example, the grower of any arabica (higher-quality) coffee bean is guaranteed whichever is the higher of $1.26 per pound or five cents above the world market price, which is currently around $1 per pound. Co-operatives are also paid a variable "social premium" to be spent collectively on projects of communal benefit.
Prices are set and permission to use the Fairtrade mark granted by the Fairtrade Labelling Organisation (FLO), a Berlin-based non- profit association, and its national chapters, of which the Fairtrade Foundation is the British one. To become "certified" as Fairtrade, which costs a small fee, a co-operative has to convince inspectors contracted to FLO that it meets basic environmental and labour standards and is able to decide collectively on what to spend the social premium. Later on in the production chain, the wholesaler pays Fairtrade an extra levy of 2 per cent of the product's value, which pays for FLO's 100 or so staff and running costs.
Coffee, Fairtrade's most high-profile product, is a relatively easy product to certify, with few links between grower and consumer, and a premium for beans from a single source. Cotton, by contrast, which achieved its first Fairtrade labelling just last year, has long, politically taut, economically entangled skeins of supply that wind intricately around the globe.
Success in cotton would be a big victory for Fairtrade, for historical symbolism as well as modern-day commerce. Cotton was once a blood-soaked crop of slavery, exploitation and empire. In America's southern states, enslaved west Africans were imported in their thousands to tear their fingers raw picking cotton in the searing heat. In British India, cotton grown by colonial subjects was imported cheaply to the imperial headquarters, turned into clothing and sold back to the captive markets for profit.
Eleven million growers raise cotton today in the west African states of Benin, Burkina Faso, Cote d'Ivoire, Mali and Senegal, where the crop connects them, however tenuously, to the global economy. In a vicious historical twist, those millions of black farmers are undercut by the 35,000-or-so mainly white farmers in the former slave states of Texas and the American south. Some $4bn dollars a year in federal government handouts encourages high-cost American farmers to dump subsidised cotton on the world market, depressing its price.
Mali, formerly French Sudan, is a landlocked country whose outer extremities, beyond the mystical city of Timbuktu, stretch north and east into the Sahara. The cotton-growing areas are in the west, closer to Bamako, the capital. Terry Townsend, executive director of the International Cotton Advisory Council, a grouping of cotton- growing nations, says Mali has "near-perfect agronomic conditions". Heavy rainfall in early summer helps establish the cotton plants and the soil and grilling sun do the rest.
Malian cotton is high quality, the climate and soil producing long fibres (or "staple") that make finer cloth. The cotton is picked by hand rather than machine, so each individual cotton "boll" or seed pod can be harvested at the optimal time as pickers make successive passes over the field.
It is hard to walk through a village in a Fairtrade co-operative without seeing tangible signs of unaccustomed income. Batimakana is a village of a few hundred families in the traditional farming area of Kita - a region that will supply cotton for M&S jeans. The houses are mainly typical Malian huts of mud, thatch and straw, but when I visit in early June every third or fourth dwelling has a motorbike outside - a lifeline more than a luxury, given that the nearest medical clinic is 10 kilometres away.
The price differential between Fairtrade and conventional cotton is significant. For a kilo of raw cotton, the Fairtrade minimum price is 36 eurocents (or 238 west African francs, the old French imperial currency known as FCFA, now pegged to the euro); this year conventional cotton will fetch 24 eurocents.
The village feels remote but is not isolated. My conversations with the residents are interrupted not just by a bleating goat that, with superb comic timing, bursts loudly into the circle of villagers to join a discussion on crop diversification, but also by the arrival of a giant orange truck towering over the village, delivering cotton seed and fertiliser for the planting season.
The male elders of the village are swathed in robes and turbans and dignified with venerable age, several with eyes rheumy or sightless from river blindness disease. Though both sexes claim that Fairtrade has helped to promote equality by involving everyone in the decision about spending the social premium, the women sit separately and speak up less.
They are, predictably, deeply grateful for the Fairtrade price they are paid. Mamadou Keita, the head of the farm co-operative, says: "We get a double benefit from Fairtrade - a higher price for families, and the premium for the village." It lets families send children to school. It means they can buy seeds for vegetables and ox-drawn ploughs for their fields. It also, he points out, bought the plastic chairs that the translators and I are sitting on.
In Batimakana, two years' worth of social premium has built a concrete grain store. Dozens of bags of maize and other staple foods are stacked high in the cool, dark interior. The village uses the store to prevent big swings in food prices, buying grain cheaply after harvest and releasing it gradually through the year.
In Dougourakoroni, another Fairtrade certified community in the region, the premium has built a brick school in the village. Previously, children had to walk 7km to school, and fewer attended. In newly built classrooms on the edge of the cotton fields, a class of 11-year-olds has been set an intriguing essay subject: chalked on the blackboard is the forbidding injunction: "Definis la liberte" (Define liberty).
In these villages at least, concerns about reliance on a single crop seem overdone. Since cotton is a greedy plant that strips the soil of nutrients, it has traditionally been rotated with other crops, and that has not changed. Malian farmers can choose from a range of options: maize, cashew nuts, groundnuts (peanuts), sesame seeds and a plant called poughere, whose oil is made into soap and is being tested as a biofuel.
Soloba Mady Keita is head of Kita's association of growers. Wearing long traditional African dress, quick to smile and exuding serenity and self-possession, he has a vaguely priestly air. "For now, cotton is the main crop in the country and the only one that brings high prices," he says. "Until another comes along, we will fight to protect this one."
Worries about inducing oversupply also look somewhat over the top, given that any co-operative growing any product anywhere in the world can sell only as much at Fairtrade prices as has been ordered from that co-operative by buyers. Cotton is an annual crop, so farmers know their demand before planting. All of Mali's cotton is bought by the state marketing board, which sells it on to the big cotton brokers of Europe and America. If farmers produce more than contracted under a Fairtrade agreement, they can sell the rest at conventional prices, but are not guaranteed to make money from it.
In theory, Fairtrade prices could encourage non-cotton-growing villages to enter the market, but as yet there is little evidence. In Batimakana, just as before, only 20 per cent of the land is used for cotton, though farmers say quality has improved. Mamadou Toungara, head of Batimakana village, says: "We will keep growing cotton as long as people keep buying it. We will change if the next cash crop is more profitable. But we haven't found it yet."
In fact, if anything, it is the supply infrastructure for cotton that enables farmers to diversify, there being no other practical ways of delivering fertiliser and trucking out produce. Like many African state marketing boards, Mali's has been criticised for passing less than half the export earnings on to the farmers, raising complaints about inefficiency and possible corruption. But it does deliver seeds, pesticide and fertiliser to farmers on credit - the orange truck in Batimakana - and collects the cotton after harvest. Malian farmers growing other crops will often also contract to grow cotton because it is their only source of fertiliser. Opening up this market by privatising marketing boards, as was tried in Burkina Faso and proposed in Mali, has made no apparent change to efficiency.
As villagers point out, a Fairtrade contract often encourages farmers to increase the quality of the crop to get repeat orders. Since there is already an established international market for organic cotton, some co-operatives choose to produce organic Fairtrade, requiring two separate inspections but receiving a double premium.
The long-term future for Malian cotton is uncertain. Even with a Fairtrade-guaranteed price, growing commodities is not a road to riches, and Mali is struggling to rebuild the fully integrated cotton-to-clothing industry it once had before it was blown away by Bangladesh and China. Mali already has "ginning" factories that separate bolls into cotton lint and seeds. But a pilot project to move to spinning, one step further, is underperforming, and spinning Fairtrade cotton poses particular difficulties.
Fitina is a spinning factory built four years ago just outside Bamako. Government-backed, and initially attracting investment from Brazil and Malaysia, it is supposed to be spinning 5 per cent of Mali's cotton but probably processes less than 2 per cent. An unremarkable metal hangar from outside, the mill's warm, humidified interior clatters with serried rows of machines performing the seven or eight stages of turning raw cotton lint into thread. Workers standing waist-deep in lint laboriously pull apart and mix together fibres from different batches - a task usually mechanised in modern factories.
Patrick Mathieu, the plant's production director, is a spare, taut Frenchman of 56 who spent 12 years running textile factories in Cote d'Ivoire. He came to Fitina three years ago and is blunt about the factory's problems. "We have not even managed to start using all the machines yet," he told me. "There have been technical problems and great difficulty finding electricians and people with experience in industry." Coups and unrest in Cote d'Ivoire, Mali's historical route to the sea, have not helped. Cotton exports can be routed through Senegal, but Mathieu says its port is slow and overloaded.
In theory, spinning Fairtrade cotton has the advantage of less competition. Although Fairtrade certifies only growers, it requires all producers in the supply chain to adhere to basic labour standards, including the right to join an independent trade union, which essentially rules China out. But because the batch needs to be kept separate, spinning Fairtrade lint requires a faintly bizarre and time-consuming ritual. Every machine has first to be shut down and cleared of conventional cotton from the previous run before the Fairtrade bundles are fed in. It can take several days to do the switchover, and Mathieu says some Fairtrade batches are too small to make it worthwhile.
A more all-encompassing approach to supply chains is being tested within the Product Red family. Most Red products are unrelated to Africa, but a notable exception is Gap's Red T-shirt, made entirely in Africa from African cotton. The cutting and sewing is done in Lesotho, a nation surrounded by South Africa and, in a continent of republics, inevitably referred to as the "mountain kingdom". Its garment exports were boosted in the late 1990s by US trade privileges for some African countries. But it suffered badly when a global system of textile quotas expired at the start of 2005, and low-cost Chinese manufacturers were given a free run at the world market.
Gap, Bono says, was about to leave Africa altogether. He and Bobby Shriver persuaded them to stay. I timed my run to Mali to coincide with Bono's 24 hours in the country during his tour of the continent. Over bottles of Castle beer in the hotel bar in Bamako, Bono rejects my suggestion that he is merely delaying the inevitable extinction of African garment makers. "I think there is a failure in the market that Red intends to address," he says. "We all know the story about teaching a man to fish rather than giving him a fish, but this is about getting the fish to market."
Africa can't beat China on price without improbable leaps in productivity. But with the right promotion Bono believes it could regain a market foothold among consumers who will pay more to guarantee minimum benefits and working conditions for producers. He and his wife Alison last year launched a high-end clothing line called Edun ("nude" backwards), which uses organic cotton and sources from Africa where possible. Watching a fashion show in which the Lesotho textile workers model their own merchandise, Bono says, he had an epiphany: "I saw these beautiful golden royal Africans and I thought: God, this is just such a sexy place. And it can be sexier than the competition."
He and Bobby Shriver are quite clear that Red needs to be a commercial proposition from which companies make profits. Shriver says that, to his surprise, it took a long time to get the initial handful of companies on board. Consumer labels take risks when they sign up to a cross-company label they do not control, and need to show profits. "We don't want this to be altruistic," Shriver said during his attendance at the global economic gabfest at Davos in January. "Red will fail if it is weighed down by worthiness."
As with any other brand, consumers of Red are buying an identity, in this case compassionate, engaged, globally aware and, Bono hopes, "that this is a sexy and smart club to be part of. That it is sexy to change the world, to buy antiretroviral drugs for [HIV- positive] people who will die without them."
The drive to find the right marketing pitch, though, may not always respect liberal niceties. "There's this guy Russell Simmons," Bono says. "Hip-hop impresario, created Phat Farm [a clothing line that infuses mainstream fashion with urban cool], friend of Bobby's. He was saying: 'This Made in Africa thing sounds kinda cheap.' I said: But Lesotho's this incredible mountain kingdom. He said: 'Made in the Mountain Kingdom? Now that sounds great. That sounds expensive.'"
In the search for authenticity, interest is spreading even among less wealthy European and American consumers about the provenance of their food and clothing. A standard bag of English-grown Cox's apples from Sainsbury's, the mid-level supermarket chain, now comes stamped with the name of the orchard's owner.
A cheese stall in London's hip Borough food market displays snapshots narrating the proprietors' buying expeditions in France: arriving at Geneva airport, driving to the cheese farm, tasting cheese in the cellars, signing the order form.
Fairtrade can widen this by adding social justice to the combination of quality of product and clarity of production. And few such consumer trends escape the attention of Marks and Spencer, whose business relies on guaranteeing standards and reliability. M&S's head of corporate social responsibility is Mike Barry, an animated and loquacious former envir- onmental engineer in his late 30s.
Over lunch in a Mayfair restaurant, Barry narrates M&S's embrace of Fairtrade with an enthusiasm that borders on the messianic. The company convenes annual panels of 500 consumers to listen to their concerns, and follows up specific issues, such as Fairtrade products, in smaller focus groups. "We have seen Fairtrade come from nowhere to among the top three or four issues in the past five years," Barry says. It was knowing its customer, not a fit of corporate altruism, that brought M&S to Fairtrade.
Barry describes the evolution of consumers' desire to look behind the label. Starting with uninterest, he says, consumers moved to self-interest about health issues such as genetically modified organisms and organic food. In the third stage arose wider concerns about environmental and social sustainability, though in general they were happy to let M&S assess the issues and sign up where necessary to agreements protecting, say, marine fishing stocks and hardwood forests.
Fairtrade has taken it further. "The fourth stage, which is where we are now, is that they still want us to be doing the work but they want to know far more about what we are doing," Barry says. "We expect at the next stage they will want to be empowered to get involved and feel they are making a real difference themselves."
Presently 5 per cent of M&S's customers always seek out Fairtrade or organic. "Another 15 per cent will buy it if it is put in front of them. Fifty per cent say they are interested but wouldn't necessarily buy it as an alternative to an existing product... Those 50 per cent are the real prize for us, and there are twice as many as there were three to four years ago."
Consumers willing to pay more to help poor farmers may also help companies fatten their margins. The potential to cream off higher profits starts early in the supply chain. The Malian cotton board made a slight loss last year buying and selling conventional cotton. But it sold Fairtrade cotton for about €1.43 per kilo, over 10 per cent more than it cost to buy and gin it. Even allowing for extra administration costs and the higher quality of Fairtrade, this looks like quite a mark-up.
Suspicions abound that retailers are also cashing in. Last November, in the conservative Spectator magazine, former Treasury minister Philip Oppenheim launched a spirited broadside against "Fairtrade fat-cats" - supermarkets and wholesalers who, he said, were unfairly jacking up the price of Fairtrade-labelled products, particularly Caribbean bananas. If consumers realised that growers got so little a share of the Fairtrade price premium, Oppenheim said, there could be a backlash.
The Fairtrade Foundation refuses to bash the retailers, adroitly appealing instead to the power of markets. Sitting in the foundation's modest offices in Holborn, Ian Bretman, its deputy director, tells me that fierce competition between supermarkets is already reducing prices of Fairtrade-labelled products. "We can't control retail prices because it would be illegal," Bretman says. "[But] we make sure the products are as widely available as possible."
Some companies realise the danger to their brand of being perceived as Fairtrade profiteers. Stuart Rose, M&S's CEO, has categorically promised he would not increase margins on Fairtrade produce. Companies (and the Fairtrade Foundation) also point out that what might look like wider margins may simply be unseen higher costs - not so much the higher price paid to farmers as the extra effort of buying small lots from co-operatives, particularly in new products where the supply system is still bedding down. The M&S Fairtrade cotton T-shirt, for example, retails at £8, a pound more than a conventional equivalent. But a lot of the difference reflects limited availability of Fairtrade cotton and the cost of running small batches of cotton through the supply chain - problems that M&S expect to shrink as the volume of Fairtrade cotton buying increases.
Critics are acutely aware of the halo that a Fairtrade mark bestows on the seller. Last year Nestle, the Swiss-headquartered food giant, did an about-turn on Fairtrade, which it had previously criticised, and launched a "Partners Blend" instant coffee made with beans from Ethiopia and El Salvador. Nestle is a hate object for many European activists, who have not forgiven widely criticised promotion campaigns for infant formula in poor countries some years ago. Since the Fairtrade product was a tiny part of its overall coffee sales, and Nestle said it was impossible to compare relative costs and profit margins, the Fairtrade Foundation was accused by activists in non-governmental organisations of helping Nestle burnish its tarnished image while turning a profit.
These tensions will grow with Fairtrade. It was started by European NGOs as an adjunct to their ideological campaigns about free and fair trade but is increasingly becoming a commercial operation that works through the market.
The Fairtrade Foundation has other concerns. One is competition for its dominant position in the ethical labelling market. Kraft Foods, the giant food company that owns the Kenco coffee brand, chose instead a certification mark from the Rainforest Alliance, a New York-based NGO, which applies wider tests of environmental, social and economic sustainability, but does not guarantee farmers a price.
Green & Black's, the high-end chocolate manufacturer now owned by Cadbury Schweppes, launched (and still sells) the world's first Fairtrade product, Maya Gold. But it now says it helps producers best by paying a high price for good-quality organic cocoa beans rather than what it calls a "charity premium". Starbucks takes a similar view of its coffee sourcing. The upmarket supermarket chain Waitrose does not certify any product as Fairtrade but uses some of its profits from importing fruit to fund education and health projects in South Africa.
Ian Bretman says there is a risk of confusion. "We don't mind companies jumping on the Fairtrade bandwagon; after all it's a bandwagon that we've created," he says. "But it's a bit frustrating when they clearly target consumers who are asking for Fairtrade, but actually offer something that's not."
Then again, it is not clear that all ethically minded consumers do want Fairtrade. One kind of conscience consumption often contradicts another. Buying Fairtrade fruit from Africa helps the farmers there, but flying it to London racks up thousands of carbon-emitting "food-miles" - the distance from field to plate loathed by climate- change worriers. Buying organic produce from local farmers' markets helps the local small-scale cultivation beloved of romantic ruralist urbanites, but doesn't do much for the world's poorest.
More challenges lie down the road. The obvious one is that the Fairtrade model may break down as it grows. If the stock of consumers willing to pay more for a product runs out, it will be in the awkward position of having to turn away growers that want to be certified, realising critics' arguments that Fairtrade merely creates a privileged class of farmers who do well at the expense of others. For the moment this argument is hypothetical, and Bretman says Fairtrade will take a pragmatic decision and change its model if necessary. "It is not about saying to farmers: you have the right to continue selling as much coffee as you can produce at this price forever," he says. "We can't permanently guarantee a market for them. No one can."
Another difficulty may be the wide adoption of genetically modified organisms (GMOs) in world farming. Forty per cent of the world's cotton is now GMO, but at present Fairtrade has a blanket ban on certifying GMO products. It says it will review this if both consumers and its farmers demand it. By the time they do, Fairtrade farmers might struggle to catch up with the early adopters.
Some of the traditional fears about Fairtrade appear unfounded. A big oversupply problem seems unlikely. Fairtrade works mainly with small co-operatives who restrict their supply year by year to meet demand. The higher income can also help farmers increase quality or diversify. One co-operative of Ecuadorean coffee growers signed up to Fairtrade because, they said, they wanted to give their children the choice not to farm coffee.
But if fears are exaggerated, so are expectations that it will revolutionise world trade. Adjusting a price for a particular type of producer at the far end of the supply chain from the consumer is not going to change the world. Brands can add a lot of value, but part of their appeal is their exclusivity, and the higher price that enables a less efficient supply chain to exist will also limit demand for its output.
At the very least, it should help connect those producers with consumers who want to know exactly what they are wearing or eating, and to whom the benefits will go. Perhaps Fairtrade and Product Red ought to be judged not on whether they fundamentally change the world trading system, which they won't, but whether they can pull some marginalised producers into the one we have. With a smile Ian Bretman recounts a recent incident: "I was at a meeting in Tanzania last week," he says. "The grower from Ethiopia I was supposed to meet said: 'Sorry, can't make it; I have to go to the States to see a customer.' I thought: now that's what I like to hear."