The boom in fair trade worldwide MANAGEMENT by Antonio Barbangelo Sales of fair trade products amount to about 100 million in Italy and 660 million in Europe. Originally introduced in Northern and Central Europe, the concept is catching on in all the Western countries and entails a different retail strategy. As multinationals express growing interest in the concept, Italy is preparing to pass a new law. A s of September, chocolate, sugar, snacks and fruit juices from distant lands are on sale alongside other products at the Bouvette snack counter of the Lower House of the Italian Parliament in Montecitorio as well as in the various inhouse vending machines thanks to majority party and opposition MPs who are members of AIES, the Inter-Parliamentary Association for Fair Trade and Solidarity, promoted by Olive Tree party MP Ermete Relacci and Olive Tree senator Nuccio Iovene and set up during the last legislature. The sale of these products in the seat of Parliament s Lower House is another (symbolic) small step for fair trade, a market with eminently respectable figures. Sales of fair trade products in Italy amount to about 100 million. There are nearly 500 World Shops countrywide, 350 of which are part of the CTM Altromercato network. Fair trade products are additionally sold through 5,100 large-scale retail channels and 1,500 small shops, as well as clubs and school canteens in about a hundred municipalities (including Rome, Turin and Genoa). Italy has for the last several years had a certifying authority for food products (TransFair Italia), two fair 154
MANAGEMENT trade organisations (the World Shop association, called Botteghe del Mondo in Italy, and AGICES, the general assembly of fair trade and solidarity organisations), about 10 import organisations and several non-profit organisations. In all, about 20,000 volunteer workers are estimated to be involved in Italy s fair trade sector. This is hence a vibrant and multi-layered world in which knotty issues and stickiness however abound. The concept of what fair trade is, or should be, is not always clear to everyone. Fair trade is a trade partnership based on respect and transparency, explain fair trade operators, which attempts to make international trade _Fair trade products are sold through nearly 500 World Shops, over 5,100 large-scale retail channels, 1,500 small shops, as well as school canteens in about a hundred municipalities Contrasto more equitable. It offers improved trading conditions and safeguards the rights of disadvantaged producers and workers in Southern countries. While many fair trade organisations are involved in supporting producers and creating awareness-raising campaigns to change the rules of conventional trade, the number of fair trade players on the planet is multiplying. 2005 sales of fair trade products were estimated at 660 million in Europe alone (see box on page 157). The objectives are not always unambiguous. Fair trade has emerged from its niche market and token role, says Giorgio Dal Fiume, the head of CTM Altromercato. This means that it has been equipped at various levels with companies able to invest, professional skills, the ability to renew and extend its product catalogue to innovative and mass-consumption goods (Editor s note: fresh fruit, soft drinks, cosmetics, clothing and fashion), and create and co-ordinate its main networks. However, the fact remains that this is not happening in a uniform, homogeneous way. How the market is evolving The results of a wide-ranging survey on fair trade ( Fair trade and solidarity: analysis and evaluation of a new development model ), launched in 2004 by Cattolica University s CRC, Centre for Research on Co-operation, and the political economics department of the University of Milano-Bicocca, were published just before the summer. The survey reveals strong growth trends in terms of sales volumes in Italy. Sales of rice, for example, went from 34 tons in 2004 to 115 tons in 2005 (+200%). Italian consumers mainly buy coffee (+8%), tea (+11%), bananas (+20%) and fresh fruit, especially pineapples and mangoes (+ 100%). Sales of sugar, another popular item, went from 186 to 282 tons (+50%). These are respectable percentages, but they must be weighed in absolute values and inserted into a European context, emphasises Gianpaolo Barbetta, a political economics lecturer at Cattolica University and in charge of one of the two survey themes (Patrizio Tirelli of the University of Bicocca handled the other theme fair trade and solidarity in developing countries). 155
THE BOOM IN FAIR TRADE WORLDWIDE Levels of fair trade product consumption are in fact higher in other European countries. According to the CRC, the U.K., for example, buys 3,300 tons of fair trade coffee against a mere 223 tons in Italy; France consumes 109 tons of tea, Italy 9. The U.K. is the European country with the highest level of retail sales at about 217 million, followed by Switzerland ( 138 million) and Italy ( 97 million). In terms of turnover per inhabitant, on the other hand, the Swiss lead with a per-person spend of 18.74, followed by the Dutch ( 3.99), the British ( 3.63), the Austrians ( 2.86), the Belgians ( 2.66), the Italians ( 1.70), the French ( 1.31) and the Germans ( 0.94). "From the demand point of view, we are witnessing an increase in the number of responsible consumers concerned about the social consequences of their choice of consumer goods, says Tirelli. These are relatively upmarket consumers. The growth in the number of fair trade products available to meet potential demand depends on the ability of these products to fit into the retail system. This involves and indeed has already partly involved a change in the strategies used by fair trade operators in Europe and Italy. Retail: different models in the various European countries Fair trade in Italy started with about a 15-year delay as compared to Northern Europe the Netherlands, for example, as well as Germany and the U.K., say CMT Altromercato representatives. "However, Italy has been quick to catch up. Unlike the countries where fair trade first developed, the Italian market mainly functions around the World Shop retail network. In the U.K., on the other hand, licensees of the FLO mark (Fair Trade Labelling Organisations, the international certification body of which TransFair Italia forms part) sell the bulk of their products through large-scale retail channels. Germany and the Netherlands have a mixed retail system, with products sold through large-scale retails channels as _Tea and coffee compose the lion s share of sales to fair trade customers, but consumption of bananas, fresh fruit and sugar sales of the latter have gone from 186 to 282 tons is also up. 156
MANAGEMENT Volumes in Europe have doubled in four years Olycom/Sipa The 2005 Krier survey shows that the retail value of fair trade products was 660 million in Europe in 2005 two and a half times higher than in 2001 ( 260 million). The sector has 79,000 sales outlets on the Old Continent (57,000 supermarkets, 19,000 businesses and 2,850 World Shops all over Europe) that employ over 100,000 volunteers. These are among the most significant figures of the survey, carried out in 25 European countries the 23 EU member states in which fair trade activities take place (excluding Cyprus and Estonia) plus Switzerland and Norway. The number of sales outlets in which fair trade products are sold has gone up by 24% compared to 1997, with an especially rapid growth in large-scale retail channels (32%) and a more contained increase in small sales structures (7%) and World Shops (4%). In absolute terms, the fair trade sales network is particularly widespread in Germany (about 24,000 outlets), France (10,000), Italy (5,500), Norway (4,000), the Netherlands (3,500), the U.K. (3,200) and Switzerland (2,800). There are also significant numbers of sales outlets in other historic EU member States, and the first fair trade outlets are starting to open in countries that have recently joined the EU. Corbis well as small shops. The World Shops were started up towards the end of the 1980s, expanding into a widespread sales network in Italy in the three-year period from 2000 to 2003. There are nearly 500 World Shops today, mainly in the northwest (38%) and northeast (22.6%) of Italy, with fewer stores in the south and the islands (20.7%) and central Italy (18.7%). According to the CRC survey figures, the most widespread forms of trade are associations (52.2%) and cooperatives (24.4%). Overall turnover is 54.39 million a year (equally divided between crafts and food products) against outgoings of 54.51 million (a loss of 121,000 euros). 157
THE BOOM IN FAIR TRADE WORLDWIDE Retail outlets with a dual function The negative closing balance conditions employment. In 2005, the sector had only 461 employees and 479 agents, plus 4,412 volunteers and 51 conscientious objectors and/or young people doing civil service. However, the project has a large number of partners: 58,000 people contribute financially to setting up associations (52.2% of the total) or co-operatives (24.4% of the total) for the purpose of opening fair trade shops. Another feature of the retail network is the dual function of shops. They are retail outlets on the one hand and places that provide developmentrelated information and education on the other (96.4% of all shops). People who work in a World Shop have two different jobs, says Barbetta; one is to sell products and the other is awareness building, which, while important, has to either be supported by profit-making sales activity or must necessarily be dependent on volunteers. In Italy, the various Botteghe del Mondo are finding it increasingly difficult to guarantee the viability of the shop, for a number of reasons, from lower consumption to the excessive fragmentation of retail operations, adds Grazia Rita Pignatelli, President of AGICES (the Italian fair trade industry association: with 115 members, it represents about 80% of fair trade businesses in Italy). The situation in Italy is different from that in the rest of Europe. In Europe, unfortunately, fair trade shops are increasingly losing their central role and being sidelined to a token presence. In Italy, on the other hand, the World Shops still have a key role in the movement: these are not merely sales outlets, they are real political laboratories, which must increasingly come to terms with business management. As regards retail problems in Italy, Paolo Pastore, the director of TransFair Italia, says: We must guarantee an increasingly varied range of products to give consumers more buying choices. The area with the highest potential for development today is cotton and hence the clothing sector. Another aspect to develop is quality: it is no longer sufficient to have ethical products with scarce attention paid to this 158
MANAGEMENT aspect. Consumers want goods that satisfy the same standards as conventional products. Contrasto (2) More space on supermarket shelves The other critical factor is the inadequate size of retail outlets, which are too small. The World Shops are inefficient because they are tiny, says Barbetta; they need large spaces if they are to be profitable. On the other hand, since prices are fixed, profit margins do not exceed 20-30%. In other words, a shop must have a turnover of at least 100,000 a year, otherwise it will run at a loss. The only sustainable model is that of a polarized sales network with many widespread sales outlets to raise awareness and a few larger retail centres fair trade supermarkets, as it were to make profits and compensate for the losses of the other outlets. This is a feasible retail strategy that some have already undertaken. However, success in large-scale retail will also be required if sales volumes are to grow. Currently, the retail value of fair trade products in the 5,100 Italian hypermarkets and supermarkets where they are sold is only 46.8 million. Large-scale retail chains have been taking an interest in the fair trade sector for a few years now, explains Dal Fiume of CTM Altromercato. They have been stocking our products on their shelves and replacing non-equitable products with fair trade products. This is an important and, we believe, irreversible process, but it also has some contradictions, such as the certification in the U.K. of some products from the multinational company Nestlé, which has been contested by all the Italian and not just the Italian fair trade organisations. Paolo Pastore adds: One of the key issues in Italy is the relationship between the World Shops and large-scale retail chains. Right now, one of the most _Success in large-scale retail channels is required to increase sales volumes. Currently, the value of fair trade products in the 1,500 Italian supermarkets where they are sold is only 46.8 million 159
THE BOOM IN FAIR TRADE WORLDWIDE critical points at the international level is the relationship with multinationals and hence the possibility of drawing up sure and clear rules for those interested in the fair trade market, so that it does not become merely a marketing choice. It takes more than just a fair trade line of products to become a company that operates ethically. Steps taken by the European Parliament For many fair trade sector operators, the arrival of new players on the market is one of the key issues. Often, these are traditional companies of trans-national dimensions, explains Pignatelli, interested in the business of fair trade rather than the spread of its values and sales practices. With the number of zeroes in fair trade figures increasing, multinational companies are showing growing interest in the sector. Institutions, whether at the national or the European level, are, however, also paying greater attention, as the European Parliament s approval on 6 July of the Report on Fair Trade and Solidarity shows. Moreover, there was an interesting debate in the EU s Development Commission presided by Luisa Morgantini in early summer on a future EU resolution concerning fair trade. The European Parliament s last significant move in this regard (the Resolution on Fair Trade and Solidarity) dates back to July 1998. On that occasion, the European Parliament acknowledged the social value of fair trade and solidarity as an instrument for promoting human development and promoting international economic and trade rules designed to achieve greater justice and equity between North and South. The resolution invited the European Commission and the EU Council to use resources devoted to fair trade and encourage the creation of a common European fair trade label. These steps were never taken. In Italy, regulations for the fair trade sector are in place at the regional level (in Tuscany, Lombardy, Umbria and Liguria) and a bill on the fair trade sector is being studied at the national level, thanks in part to collaboration between AGICES and the Inter-Parliamentary Association for Fair Trade and Solidarity set up by Realacci and Iovene. Today, over 120 MPs belonging to different political parties, both centre-left and centre-right, support AIES. How should possible future scenarios for an Italian law on fair trade be sketched? It will have to be a law that recognises fair trade as an economic activity and not just one of co-operation, says Pastore. Another aspect is certification, which should be recognised as a tool to safeguard both producers and consumers, as in the case of the organic products sector. The law has now become necessary to avoid abuse. The role of certifying bodies Let s take a closer look at certification. The main role in monitoring the quality of fair trade at the international level has been played for the last several years by certifying bodies grouped under FLO, a Germany-based non-profit organisation founded in April 1997. Its members are national brands such as TransFair in Italy, Germany, Austria, Canada, Japan and the United States; Max Havelaar in Switzerland, the Netherlands, Belgium, Denmark, France and Norway, Fair Trade Mark in Ireland and the Fair Trade Foundation in the U.K. These national initiatives are non-profit entities that promote fair trade, carry out lobbying activities, negotiate with importers and retail sellers and spread International fair trade organisations The major international organisations working in various areas to promote fair trade are FLO (Fair Trade Labelling Organisations, the international certification body of which TransFair Italia forms part), NEWS (Network World Shops, the international co-ordinator for World Shops), EFTA (European Fair Trade Association) and IFAT (International Federation of Alternative Trade, the global network of importers and producers). These organisations are grouped under the informal umbrella FINE, an acronym for FLO, IFAT, NEWS and EFTA. FINE provides a coordination base for these networks to help them draw up common strategies that make it easier for small producers to gain access to the market. 160
MANAGEMENT Grazia Neri_WPN _Fair trade benefits nearly one million families of workers in 39 countries in Africa, Asia and South America. 20,000 volunteer workers are estimated to be involved in Italy s fair trade sector information about fair trade. FLO sets trade criteria and ensures that producers and importers respect the criteria. The FLO system works with 270 certified producer organisations representing 400,000 primary level producer co-operatives. Overall, fair trade benefits nearly one million families of workers in 39 countries in Africa, Asia and South America. Other major international networks work alongside FLO (see box on page 160). FLO is the sole fair trade certifying body, says Dal Fiume. The IFAT accreditation mark identifies accredited members as fair trade organisations, providing a useful distinction between genuine and fake fair trade organisations, while EFTA co-ordinates 11 European importers. Adds Pignatelli: There is no doubt that fair trade takes different forms at the international level. But I believe there is room still for dialogue and shared action. However, it is necessary to have the various players clarify the tasks entrusted to each and redefine other criteria. For example, the standards of Italy s certifying body, TransFair Italia, rule out the possibility of certifying a company like Nestlé, which is the target of a boycott campaign. Things are different in the U.K. 161