Department of Marketing and Statistics Authors
Bachelor ThesisErik Freivald Nielsen
Andreas Onni Robert Persson
Supervisor
Erik Kloppenborg Madsen
Fair Trade
Saving the world – one cup of coffee at a time
Aarhus School of Business
Aarhus University
May 2011
Table of Contents
Abstract
1. Introduction
1.1. Industrial revolution
1.2. North – South division
1.3. Introducing the notion of Fair Trade
1.4. Problem statement
1.5. Three different approaches to defining corporate social responsibility
1.6. Delimitations
2. What is Fair Trade
2.1. The history and evolution of Fair Trade
2.1.1. Four different waves of evolution
2.1.2. The early days of Fair Trade
2.2. Definitions of Fair Trade
2.2.1. Three main components of Fair Trade
2.2.2. Fair Trade as a mixed-form market
2.2.3. Four components of the Fair Trade market
2.2.4. Critique of Fair Trade
3. Fair Trade in the South
3.1. Definition of business ethics
3.2. The green perspective
3.3. Corruption in the South
3.3.1. Corruption classification
3.3.2. Corruption and foreign aid
3.3.3. Consequences of corruption
3.3.4. Misuse of foreign aid
3.3.5. Three windows of corruption
3.4. The role of women
3.5. Local producer point of view
3.5.1. Co-operatives
4. Fair Trade in the North
4.1. Free trade vs. Fair Trade
4.2. Three challenges for Fair Trade
4.3. Fair Trade going mainstream
4.3.1. Cafédirect case example
4.4. Fair Trade marketing mix
4.5. Branding Fair Trade
4.6. Brand identity and brand name
4.7. The six criteria of a brand name
4.8. Fair Trade branding issues
4.9. Certification
4.10. Four imperatives for Fair Trade promotion
5. Facts and figures
5.1. Fair Trade figures from 1995
5.2. Fair Trade in 33 countries
5.3. Fair Trade organizations
5.4. European Fair Trade importers
5.5. EFTA, turnover per member.
5.6. Fair Trade sales per capita
5.7. Fair Trade global sales figures
5.8. Fair Trade growth per product group 2000-2003
5.9. Fair Trade growth per product group 2009-2010
6. Conclusion
7. Bibliography
Abstract
The purpose of this thesis is to review the usefulness of Fair Trade. Consumers are becoming ethically aware therefore the analysis of Fair Trade can prove to be very useful into understanding how ethically aware consumers actually are when faced with a choice: buying Fair Trade or not.
The following thesis will develop the idea of Fair Trade, especially by focusing on two entities: the North and the South. The reasoning behind this approach is that we believe that the North is somehow in debt to the South after the historical abuse of the ex-colonies. Natural resources from Africa played a role in building the industrialized northern world that we are used to today and perhaps it is time for the North to repay the moral debt, and one way to do it could be by Fair Trade.
It will do so by firstly analyzing the meaning of Fair Trade to try and get a better understanding of where it emerged from and why. Definitions of Fair Trade will be provided with the help of some Fair Trade organizations as well as researchers. Hence this will lead to a historical part to gain insight into where Fair Trade originated from. This will be followed up by some critique on the Fair Trade concept.
Furthermore it will take a look at Fair Trade from a southern point of view and elaborate on the challenges that Fair Trade might face. Life in the South is different culturally speaking than life in the North therefore Fair Trade organizations will have to adapt to the challenges that they might face in the South. The challenges include for example corruption and a different view on the role of men and women in society.
Finally a northern point of view is adopted to investigate the possibilities and challenges present for Fair Trade in North America and Western Europe, reviewing different marketing strategies and implications. Fair Trade has evolved and this thesis will dwell on Fair Trade reaching the mainstream before entering more in depth on the marketing aspect of Fair Trade.
After this thorough review of the current literature on Fair Trade the thesis concludes on the state of Fair Trade.
1. Introduction
1.1. Industrial revolution
“Let there be work, bread, water and salt for all“.(Ali-Dinar)These were the words of Nelson Mandela which we can use as a starting point to our thesis. Equality and fairness was for him very important, we are well aware of Nelson Mandela’s fight for freedom and what he has been through as an individual. The before mentioned commodities are for us Western oriented societies relatively basic whereas in some parts of the world people have to fight to barely survive. This can be verified by merely tuning on to your regular TV news stations.
Before entering the core of the topic a little flashback could be very helpful in order to understand how today’s world functions. This flashback takes us back to the Industrial Revolution which “was a major turning point in world history”. (Wyatt III 2009, p1)The Industrial Revolution lead to countries in Europe (later in the Americas) developing at an alarming rate, but at that time we can assume that little considerations were made in regards to the environment and Lee T. Wyatt III further confirms our assumptions by stating that “factory owners […] at first resorted to any means available to stoke the industrial engine with little regard for human or environmental consequences”.(Wyatt III 2009) As the authors points out “it opened a passage to an era of previously untapped energy”(Wyatt III 2009, p1)All that energy has been used for some centuries and with retrospect we now know that it is not unlimited. We shall not go into too much detail about the facts and figures but we can point out that Europe before the Industrial Revolution was plagued with diseases, war, famine, and peasant uprisings.(Wyatt III 2009, p11) To some extent the pessimists could compare it to the situation the South actually is in (we shall define later on what we mean by “South”).
Thanks to mainly the Industrial Revolution we can see that European countries as well as Northern America increased their life expectancy, and their capita per income leading to much better living conditions. The following quotation: “[t]he impact and momentum of the Industrial Revolution was maintained throughout the 20th century and has continued to influence developments in other parts of the world” (Wyatt III 2009, p3)illustrates the fact that the Industrial Revolution did have a large impact on the development of the western World. According to Lee T. Wyatt III until the late 1860ies East Asia and the sub-Saharan Africa “remained free from Western industrial intrusion”.(Wyatt III 2009, p143) African countries did not jump on the band wagon therefore they lagged behind and are still playing catch-up today. (Barratt Brown 2007)Put in these words it seems that the northern Countries have been positively evolving creating better living conditions, but with retrospect we are able to see the implications of such revolution that have affected our Planet. Today we see that the poor countries are trying to have their own revolution. Of course this raises questions about how environmentally friendly the whole process is. For instance today we know that a lot of industries pollute or have polluted heavily (for instance coal or mining) and are not environmentally friendly; so the rich countries (referred to as the North throughout this thesis) try to limit this pollution by having regulations hindering the South developing as they wish. These regulations are various, such as the Kyoto Treaty which provides the stepping stones into what kind of pollution-free future we would like to live in.
1.2. North – South division
One view is to use the traditional division of the world into North and South, and we will use this throughout the thesis, where North represents Western Europe and North America, and South represents the sub-Saharan African countries. In his book, Greening the GATT, Daniel C. Esty introduces a term called “Ecoimperialism”. To elaborate this term, seen from a southern point of view the actions taken by the then northern world could be seen as a form of paternalism and even hypocritical, given that the northern world took advantage of the southern world during the industrialization era. The point here is that now that the northern world wants to impose limitations to the use of natural resources, the South sees this as an attempt to hamper their development (as they are then not able to gain riches in the same way as the northern world did), fearing that they will be forever left behind. (Esty 1994, p185)
An overview of the Industrial Revolution and its potential consequences on Africa such as for instance the abundant use of its resources has been provided. It could now be useful to try and see what can be done to help the South. This is where Fair Trade comes into the picture. We will mainly turn our attention to sub-Saharan Africa. According to Ali M. El-Agraa’s opinion formulated in 1997 it seems that these sub-Saharan African countries had high hopes on their own will to cooperate with each other in order to create a better environment for all. They wanted to create a multitude of different alliances, unions allowing better working conditions, better trade and improved circulation of people between the countries. This initiative could be on a certain level compared to other integrative unions such as the European Union, the Latin American Union and so on. Although the Preferential Trading Area for East and Southern Africa (PTA) has failed to live up to its expectations (El-Agraa 1997, p348) much more was awaited from the Common Market for Eastern and Southern Africa ((COMESA 2011) which also aimed at creating a common monetary union in the long term future. Creating such a monetary union is not exempt from problems, at the time this book was published in 1997 “three monetary unions exist[ed] in Africa”. (El-Agraa 1997, p349) Needless difficulties occurred due to what will be explained below about corruption, wars and so on. Retrospectively we can argue the fact that these monetary unions have failed to deliver substantial change even though there was hope for “favorable effects for the macroeconomic policies and financial institutions of the countries concerned if they are fully implemented”.(El-Agraa 1997, p351)
1.3. Introducing the notion of Fair Trade
Getting back to the notion of Fair Trade we could make an indirect link between what happened during the Industrial Revolution and what is happening today. A little elaboration might be needed, Europe has taken advantage of African economies during their colonial reign, this can hardly be refuted as history shows Europe enriched itself thanks to natural resources brought in from Africa. Even after the former colonies gained their independence, they were still depending on the export of raw materials as their main source of income. Many European countries put tariffs and import taxes on processed goods, making it that much harder for Africa to compete in that market. (Barratt Brown 2007)Africa has tried diverse methods of unification without any great success notably with their monetary unions. Therefore it could be interesting to see if Europe has a part to play into helping Africa with some of their current problems.
Fair Trade today is in the center of attention of European researchers especially in the field of marketing and management literature. (Witkowski 2005) Fair Trade as we know it “proposes a model of economic development through linkages between poor country producers and rich nation consumers”(Witkowski 2005) therefore analyzing these relations will shed more light of how it really can affect the North and the South in their quest for economical justice. As Witkowski further explains, marketing does have a part to play into the development of poor countries “but not necessarily through establishing North-South linkages” (Witkowski 2005) which sends a contradictive message. This last statement by Witkowski seems contradictive because the whole notion of Fair Trade makes us believe that the North has to change its relationships with the South and aims at doing so with the use of Fair Trade.
1.4. Problem statement
This thesis sets out to explore the fairly new concept of Fair Trade. We want to study the concept in detail to get to the bottom of what it actually means and if it is indeed a helpful attempt of a solution to the problems with poverty and injustice in the world today. From a neutral point of view, Fair Trade sounds initially like a good thing, the word fair is most often associated with something good, but what we want to explore is if this is actually the case. What we specifically want to investigate is the results of Fair Trade on the countries in sub-Saharan Africa and the Western World.
In our attempts to deal with this overall problem we will approach it from three different points of view. We will start of by looking at how and when Fair Trade started followed by the different definitions of Fair Trade. The second view point will then be what Fair Trade is like from a southern perspective (i.e. for the Sub-Saharan countries). Here we seek to establish whether or not there are any actual benefits of Fair Trade for this area, and what challenges and issues that might be present in the southern part of the world that will have an impact of the outcome of Fair Trade. Finally the third view point would be much like the second but from a northern (i.e. Western Europe and the USA) retailer and consumer perspective. We want to establish if there is an actual market for Fair Trade here and if it is a valid alternative given the circumstances and market conditions currently in place.
So the main question we want to answer can be summed up in “Is Fair Trade doing any good?”. This overall question can be divided into the following sub-questions that together will help answer the overall question.
-How did Fair Trade come to be, what is it now and how did it develop into what it currently is?
-Does Fair Trade actually benefit the southern Producers, and what circumstances could hinder or aid Fair Trade from achieving the sought after results.
-Is Fair Trade a valid marketing option for northern Producers?
Not only have we used books and articles, but this thesis will also be developed around the information found on different relevant Fair Trade relevant websites such as the European Fair Trade Association (EFTA) or other similar organizations so as to get more information about their activities thus having a better understanding of how Fair Trade is affecting lives today. Furthermore Fair Trade websites can prove to be very helpful as they seem more open about their “organizational objectives and strategies than their big corporate counterparts”.(Witkowski 2005) It is also very important to be able to distinguish a credible source from a somewhat biased source (Witkowski 2005) therefore a lot of efforts are made to be very objective and not take sides in the Fair Trade debate.
Fair Trade is a part of corporate social responsibility (CSR) and to further aid the understanding of the topic it is now useful to review a definition of CSR through three different approaches, this will be done in the following section.
1.5. Three different approaches to defining corporate social responsibility
The European Commission defines CSR as “[a] concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”(European Commission ). This definition is quite broad, but the concept can be subdivided into three main areas or factors for consideration for CSR; the legal factor, the ethical factor and the social responsibility factor. (Kotler et al. 2009, p786). Let us proceed by having a closer look at these factors.
The legal factors are basically everything that has to do with following legislation and making sure that the company as well as its employees respect and abide to the rules and legislations that affect a particular business process. This might seem obvious but nevertheless it is a very important factor for being a CSR aware company.
The ethical factors are equally important although ethics are arguably harder to define than law. While laws are in place and governed by the governments and courts around the world, ethics are more loosely defined and it can be difficult to judge whether one’s actions are unethical or not. In other words:“Companies must adopt and disseminate a written code of ethics” (Kotler et al. 2009, p786). This has also become increasingly important especially in the world of today where failures to abide to ethical rules can result in widespread bad publicity. Now thanks to the development of the internet and the international media coverage, whistleblowers are quickly able to spread information about unethical behavior to the outside world. (Kotler et al. 2009, p786).