Consumer Conscience: How Environment and Ethics are ... · CONSUMER CONSCIENCE HOW ENVIRONMENT AND...

EXPORT IMPACT FOR GOODUnited Nations Sales No. E.09.III.T.8

CONSUMER CONSCIENCE

HOW ENVIRONMENT AND ETHICS ARE INFLUENCING EXPORTS

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USD 50ISBN 978-92-9137-379-6

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Geneva 2009

CONSUMER CONSCIENCE


ii

ABSTRACT FOR TRADE INFORMATION SERVICES

2009 F-06.16 CON

INTERNATIONALTRADECENTRE(ITC)ConsumerConscience:HowEnvironmentandEthicsareInfluencingExports.Geneva:ITC,2009.ix,60p.

Reportreflectingviews,examplesandsuggestionsonhowexporterscanbenefitfromtheemergingopportunitiesintheareaofethicaltrade,asexpressedbytheparticipantsoftheITCWorldExportDevelopmentForum,“Consumers,EthicsandEnvironment”,Montreux,Switzerland,8-11October,2008discussestheconceptof“ethicalconsumerism”acrosstheentiresupplychain;innovationinmeetingconsumerdemandforproductscreatedbyethicallyandenvironmentallyacceptablemeans;publicandprivatestandards;sustainability-relatedfinance,socialentrepreneurship,andtransparencyviatheInternet;globalpartnershipintheserviceofpovertyreductionanddevelopment,andtheroleofwomeninbusiness;outlineswaysinwhichgovernmentsandtradesupportinstitutionscanhelpethicaltraders.

Descriptors:Corporate Social Responsibility, Fair Trade, Competitiveness, Export Strategy.

English

ITC,PalaisdesNations,1211Geneva10,Switzerland

Cover:IllustrationbyGilesKershaw

©InternationalTradeCentre2009

Allrightsreserved.Nopartofthispublicationmaybereproduced,storedinaretrievalsystemortransmittedinanyformorbyanymeans,electronic,electrostatic,magnetictape,mechanical,photocopyingorotherwise,withoutpriorpermissioninwritingfromtheInternationalTradeCentre.

ITC/P239.E/ES/09-XI ISBN 978-92-9137-379-6 United Nations Sales No. E.09.III.T.8

ThedesignationsemployedandthepresentationofmaterialinthispublicationdonotimplytheexpressionofanyopinionwhatsoeveronthepartoftheInternationalTradeCentreconcerningthe legal statusofanycountry, territory, cityorareaorof itsauthorities,or concerning thedelimitationofitsfrontiersorboundaries.

Mentionoffirmnames,commercialproductsandbrandnamesdoesnotimplytheendorsementofITC.

Foreword

Globalizationischangingtheconcernsofconsumers.Whileshoppersstillpayattentiontoqualityandprice,morethanevertheyareconcernedabouttheenvironmentalandsocialimpactsoftheirpurchases.Theywanttoknowthatpeopleinvolvedthroughouttheprocessarebeingpaidfairly,thattheproductsaresourcedinanenvironmentallysoundmanner,andthatthesupplychainishandledethically.

Becauseofthischangeinattitude,fairtradeandethicalmarketsaregrowingatafasterpacethanregularmarkets.Buthowcanentrepreneursindevelopingcountriesbreakintothesemarkets?

Thatwastheoverridingquestionatthethree-dayWorldExportDevelopmentForumof2008,whereover250expertsdebatedawiderangeofissuesrelatedtoconsumerconscience.Tosmallproducers,ethicalcommerceoffersastablemarket;forlargedistributors,itoffersdifferentiation.Buttherearechallengesthat are not easily overcome: trade institutions are not always clear aboutwhatkindofsupporttoofferandhow;andapplyinginternationalandprivatestandardscanbecostlyforproducersindevelopingcountries.

Forethicaltradetobesustainable,expertsstatedthatproducersareadvisedtofocusoninnovation,andnotonlytoseekoutlow-costsolutions.Moresupportisneededforsustainability-relatedfinance,scalingupsocialentrepreneurshipandtransparencyviatheInternet.

Amongallof thetopicsdiscussed, therewasonebottomline:howtogrowethicaltradeasatooltoraisethestandardoflivingforeveryoneinvolved.

To those of you who joined us at the Forum, ITC thanks you for yourparticipation.GatheringslikethisareinvaluableinhelpingITCtoadviseitsclientsbetter.Forthoseofyouunableto joinus,ITChopesthatthisbookhelpsdeepenyourunderstandingoftheissuesandoffersadvicethatyoucanputintopractice.

PatriciaR.FrancisExecutiveDirectorInternationalTradeCentre

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Acknowledgements

This book is based on ITC's World Export Development Forum 2008,developedandcoordinatedbyAntonJ.Said.

Communications management was conducted by Natalie Domeisen. Thecontent for this edition is basedon reports conductedduring the event bythesessionwriters,withcontributionsfromITCstaffwhoservedassessionmanagers.

ThecoordinatorandchiefeditorforthisbookwasPeterHulm.OwenSkaeandAntonJ.Saidwereco-editors.

Writersofvariouschapterswere:RobertCrawford,RobertEvans,ChristianHelmers,PeterHulm,SophieKrantz,LeonorvonLimburg,DiannaRienstra,OwenSkae,RichardWaddingtonandJulieWolf.

LayoutserviceswereprovidedbyMichelFavre.

Contents

Foreword iii

Acknowledgements v

Chapter 1

Ethical trade – the hope and the reality 1

Fairtrade=unfaircompetition? 1NorthvsSouth,orProducervsConsumer? 2Producerconscienceandappropriatetechnologies 2Doesitguaranteeareturnoninvestment? 3Standardsasanon-tariffbarrier 4NavigatingthroughthethicketsofFairTradelabelsandfictions 5Consumerconfusion,retailtherapyforstrappedeconomies 5Consumerconscienceinatimeofcrisis 7Theelephantinthegardenortheproverbialostrich 7Beyondcrisis,beyondlogos 8

Chapter 2

The value of the ethical consumer 9

Towardsanewconsumerism 9Valuesdrivepurchasingdecisions 10

Thetriplebottomline 11Apubliclicencetooperate 11

Confrontingthenewconsumerpower 11Marketsizematters–thenumberstellthestory 12Hypeorpotential? 13

Thenormratherthanexception 14Ethicaltrademarket:Saferintroubledtimes 14

Deepandenduringchange 15Transparencyisthenewmantra 15Ethicalcompaniesaremorecompetitive 15

Whatisfair?Andforwhom? 16Fairnessvsconsumerdemands 16

Successfulstoriessell 17

viii

Chapter 3

Creating the value: Innovation is non-negotiable 19Thesourcesofinnovation 19Themotherofinnovation 20Overcomingmarketconstraints 22

Governmentrole 22Financialinstitutions 22Partnershipandlinkagesareparamount 23

Takeadvantageofserendipityinthemarket 24Brandingforconsumerswithaconscience 24

Stiffcompetitionfrommultinationals 25Buildingtrust 25

Talestotelltheworld 26

Chapter 4 Raising the value 27

Barriersandcosts 27Whystandardsandlabellingschemes? 27Adouble-edgedsword 28Privatelabels–clarityorconfusion? 29Challengesfordevelopingcountries 29Benefitsfordevelopingcountries 30

Convincingconsumers 31Information,participationandcoherence 32Partneringforvalue 33Scopeforaction 34

Chapter 5 Delivering the value 35

Payingthebill 35Microfinanceandretailsupport 36Socialentrepreneursgrowing 37BureaucraticbarriersintheSouth 38Womenatthecoreofsocialentrepreneurship 39E-burdensande-transparency 39Trustmeintoshowme 40Transparencybasedonneeds 41

Chapter 6 Sustaining and distributing value 43

Majorchallengeinhelpingproducers 44Profitandnon-profitworkingsidebyside 44Ethicaltrade:Doesitcomeatadevelopmentcost? 46Vigorousdefence,optimisticoutlook 47

Robustdemand 47Truetestofsuccess:Extinction 47

Doesonesizefitall? 48

ix

North-Southcompanypartnerships 48Roleofwomeninbusiness 49

Whatconsumerswantandhowtogiveittothem 49Embracingconsumerconscience:Astrategicapproach 50

Anationalvision 50Populistbacklash 51Policysupport 51

Tenprinciplesforexportdevelopment 52

Chapter 7 Learning lessons, taking action on ethical trade 53

Whatcanhelpethicaltraders 54Thefairandthefree 54Hittingthemovingtarget 55Consumersbuythestory 55Doubtingvoicesinthesupermarket 56Consumerconscienceinthebusinessmodel 56Consumersneedleadership 57Confusionorclarity? 58Fairtrade’smoraldilemmas 58Trustanddistance 59Supportingethicaltrade 59Theroleofinternationalbodies 60

Figures1. RecognitionoftheFairtradeMark1999-2008 13

Box1. Caughtinthesupermarketwars 32. MillenniumDevelopmentGoals 63. Grassjewelleryandchocolatebars 174. Thefoodmilesdebate:Hearingbothsides 185. Goodcorporatecitizens 266. India’sSpiceRoute 337. Marketingreformandbrand-sharing 408. Movingartisansupthevaluechain 45

Chapter 1

Ethical trade – the hope and the reality

"The shift to sustainable consumerismprovidesmany opportunities for developingnations –andalsomanychallenges.ExportimpactforgoodisITC'smission.Weareinthebusinessoftryingtohelppeoplegetintoaglobaltradingsystemandtheglobaleconomysothattheycanprosper."

PatriciaFrancis,ExecutiveDirector,InternationalTradeCentre

From a strictly economic point of view, ethical trade is an aspiration, not aconditionofinternationalcommerce.Itismoreaboutalabelthanastandard.However,itseconomicandsocialpotentialhasbeengrowingexponentiallyinthe21stcentury.ThispromptedITCtomaketheissuethecentrepieceofitsWorldExportDevelopmentForum2008,heldinMontreux,Switzerland,inOctober.

Themainobjectivewastoanswerthequestion:Whatdoesethicaltrademean?Moreimportantfordevelopingandtransitioneconomies,howcanexportersexploititsopportunities?Howcantradesupportinstitutionsencourageethicaltradeamongnationalbusinesses, andwhat shouldgovernmentsbedoing tohelpethicaltraders?Thequestionsbecameevenmoreurgentattheendof2008asfinancialshockaftershockthunderedacrosstheworld’smajoreconomies.

To small producers, the fair trade segment of ethical commerce, offers astablemarket.For competitivedistributors itpromisesdifferentiation– thedistinctionbetweenproductsthatattractsconsumersforwhomprice isnotthedeterminingfactorinpurchasingdecisions.Buthowwillethicaltradefareontherockyeconomicvoyagefacingmostsocieties,andhowfarwillconsumerconscienceextendinthesocial,environmentalandeconomicchangespredictedfromclimatechange?ITC’sWorldExportDevelopmentForum2008heardanumberofstoriesofthestruggletokeepbusinessesfunctioningasnormal.

Fair trade = unfair competition?

Forconventionalexporters,fullyexposedtothetoughrealitiesofinternationaltradingconditions,‘fair’and‘ethical’tradeoftenlookslikeunfaircompetition,becauseitprivilegessomeproducersoverothers.Todevelopmentspecialistsitsometimesseemshardtodistinguishfromcharityorworkforwelfareschemes.Worse,fairtrade–providingaprivileged,protectedchanneltorichmarketsand niche consumers, along with a premium price for a small number ofmarginalproducers–hasbeencriticized for lockingoutsmall farmerswhousuallycannotaffordthecostoftheproliferatingcertifications.Itcandeflectattention from the economically more significant issue of providing access

2 Chapter1–Ethicaltrade–thehopeandthereality

to major markets for developing and transition countries trying to obtaina securer foothold in international commerce. As ITC Deputy ExecutiveDirectorStephen Browne puts it, Maliwants to be able to sell its cottonas freely to Athens, Greece, as it has been able since May 2000 to exportto Athens, Georgia, under the US African Growth and Opportunity Act.Fromtheoppositeperspective,bigretailchains–interestedinopeningtheirsupermarketaislestonichebrandedproducts,whetherfairtradeororganic,labelled‘bio’,sustainablyorethicallyproduced, iftheyknowcustomersarereadytopaymore,oftenmuchmoreproportionallythanforstandardproducts–wantreliable,regularandimmediatedeliveriesatthelowestpricetheycanobtain.Small,howeverbeautiful,doesn’tcutitinthesehugemarkets.Doesthatputethicaltradepermanentlyoutofordinarybusinessdealings?

Such considerations have turned researchers like Marc Sidwell of theInternationalPolicyNetworkalmostcompletelyagainstthe‘fairtrade’concept.UnfairTradewashisdescriptionofthemovement,arguingthatitreplacedonekindof‘occultmechanism’(multipleintermediariestakinginscrutableprofitsall along the value chain) with an equally obscure system that still leavesEthiopiancoffeeproducerswithabout$1perkiloforthebeansthatsellfor$140akilowhentheyturninto$3cupsofbeveragein‘fairtrade’coffeeshops.Khalid Sheikh, a Uganda-born Asian self-made businessman based in theUK,declaresvehemently:“Africaisbeingrobbed.”

North vs South, or producer vs consumer?

FairtraderssuchasRobin Cameron,ChiefExecutiveofFairtradeLabellingOrganizations International (FLO) point out that similar, though smaller,discrepancies between farm and supermarket prices characterize Northernmarketsaswell.BothheandSheikh,alongwithmajorplayersontheethicaltradescenesuchasSwitzerland’sCoopretailchainandSidwellhimself,putthe emphasisonmovingproducersup thevalue chain throughappropriatetechnologiesandknowledgetransfer fromNorthtoSouth.Sofar,however,food and agricultural commodities have resisted efforts to turn farmingcommunities into processing, packaging and distribution chains. Sheikh’sfoodpackagingbusinessinfactworksfromtheUK,thoughheisplanningtoinvestinAfrica.Theethicaltrademovementhasnoteliminatedmiddlemen,thoughithasreducedthenumberofintermediaries.

Asanumberofbusinessentrepreneurshaveobserved,dealingdirectlywiththebigmarketchainscanputyourbusinessatadisadvantage.Theircriteriarevolvearoundprice,andbeingabletoselltheirproductsatlowerpricesthantheircompetitors.Forsmallproducersinadevelopingcountry,eveniftheycan do a deal – either individually or through an association of producers– thismaynotbeawiseor sustainablebusinessmodel (see ‘Caught in theSupermarketWars’opposite).

Producer conscience and appropriate technologies

ForAshok Khosla,Presidentoftheworld’slargestscience-basedenvironmentalsustainabilityorganization,theInternationalUnionforConservationofNature,

3Chapter1–Ethicaltrade–thehopeandthereality

consumer conscience as conventionallyunderstood isnotmuchmore thanaFirstWorldconcept.Hewouldratherspeakofproducerconscienceandanewparadigm for trade. His Development Alternatives organization in India haspioneereditsownformofproducerconsciencebyspreadingtechnologiesthatareappropriatenotjustinthesenseofbeingcheaporrudimentarybutalsoasinbeingintunewiththeirenvironmentandcreatinglocaljobsandnewincomes.

Does it guarantee a return on investment?

Forpolicymakers thequestion ishowmuchenergyandmoney toput intoencouragingethicaltradeprojectsiftheyaredestinedtoremainamarginalpartofinternationalcommerce.

For trade support institutions, it is not immediately clear what kind ofstimulationandsupporttheyshouldbeofferinglocalexporterstowardsethicaltrade,whensomanyoftheconditionsaresetindividuallybyretailbodiesornon-governmentalorganizationsratherthancreatedbylocalentrepreneurship.

Box1. Caughtinthesupermarketwars

StuartSymington,CEOofSouthAfrica’sFreshProduceExportersForum,explainsprobablybetter thananyonewhyethicaltradeinterestsexporters.Hisvoluntaryorganizationrepresentssome60marketingagentsandproducerssellingfreshfruitto70countries,70%totheEuropeanUnion.TheyaccountforoverhalfofSouthAfrica’sagriculturalexports.Rangingfromsinglefarmerstohouseholdnames,theircollectiveexportsareworth$1.3billionayear.Theyemploy400,000peoplefulltime,withtwomilliondependents.

“Wehavebeenputtingalotofemphasisonethicallyproducedproducts.Iwouldliketolookattheethicsofthetradingenvironment,”hetoldasessionoftheWorldExportDevelopmentForumonsupplychainimplicationsofethicalbusinesslinkages.

Hedefendstheindustryagainst‘ foodmiles’critics(seeappendixtothischapter).“Westartwithamajorcreditbecauseweplanttreesandthosetreeshavetogrowforthreeyearsbeforeyougetanyfruitoffthem.Theytakecarbondioxideandtheygiveoutoxygen.”

By2010heexpects60%ofhisproductstobesoldthroughsupermarkets–“thesefew,powerfulgatekeepers”.Volume-basedreductionsincharges,whichSymingtontermsdiscounts,areanimportantfactorinthismarket.Forexample,shippingcompaniesgivecompaniesa$700percontainerrepaymentattheendoftheseasonifexportersdoenoughbusinesswiththeline.Hisenterpriseputs100,000containersintothevalue-chaineachyear,2.5milliontonnesoffruit.

Butsupermarketshavenowtakenoverthetrucking,qualifyingfortheserebates.Exportersaretoldbycustomerswheretobuytheirpackaging.Theresult:“Wecannolongerproduce[ourpackaging]inSouthAfrica.”Andthesupermarketthatorganizedthedealgetstherebateonthepackagingcontract.

Today,someUKcompanieshaveestablishedofficesinSouthAfricatobuydirectlyfromproducers.“Theygettherebatesnow.Theyareevenbuyingfarms.Sotheyownthewholechain.”

Symingtonasks:“Howethicalisthis?Allthemoneythatwearesupposedtobegleaninginthechainonthesupplysideisbeingtakentothedemandside.Whatdoesthatmean?Itsimplymeanswepayourlabourersless.Wepayourfarmersless.”

ThoughSymingtonagreesanumberofsupermarketsareethicallyresponsible,thesearenottheonlyquestionablebuying practices he has experienced. Supermarkets even sell below the cost-price of a product, eroding thesuppliers’price.“It’sallaboutsupermarketwarsonthehighstreet,andtheyareusingsuppliermoneytofighttheirwarformarketshare.”


Standards as a non-tariff barrier

ITC estimates that international trade now has more than 80 standardsreflecting consumer conscience. On a broader scale, the InternationalOrganization for Standardization has approved more than 500 universalstandardsassociatedwiththeenvironment.

Abusinessseekingcertificationneedstodomorethansimplychoosewhichstandard(s)toapply.Withoutadealalreadyinplace, itneedsasubstantialamountofmoneyforasmallproducer.OneDominicanRepublicparticipantput the regular cash charge at$10,000perproduct, not counting the timeinvolved.EvenforthemostbasicISOenvironmentalstandards,theISO9000andISO14000series,thecostis“very,veryhigh”foratypicalbusinessinadevelopingcountry,hepointedout.Furthermore,theexportersmaynotbeabletocountonapremium.Itcanbethepriceofentrytothemarket,evenwhenretailersetsitsstandardswithoutanyconsultationwiththeexportersonhowreasonablethedemandmaybe.

Theconsumer intheshoppingaisle isunlikelytohavethemeanstoassessthesestandards,letalonejudgetheinformationgivenwhenmakingpurchasedecisions,asPascal Lamy,Director-GeneraloftheWorldTradeOrganization,hasunderlined.HenceWTO’sconcern topromoteandnegotiate standardsthroughgovernments,suchasitssanitaryandphytosanitary(SPS)agreements.Atthesametime,aprivatestandardimposedbyalargesupermarketcanhaveamuchlargerimpactondevelopingcountrytradethananyregulationunderWTO,henoted.

Supermarketsandretailersover-procuresuppliestokeeptheirshelvesfull,andthenrejecttheproducewhenitdoesnotsell.“WhatareyousupposedtodowithfruitthatyouhavepackedinSouthAfricainaparticularsupermarket’s[standardlabelsand]colours?”Some87%offruitintheUKsellsthroughsupermarkets.“Youhavetorepackallthatfruitandmoveittothecontinentatmassiveexpense.”

“Younevergettoldyourprice,”headds.“Yougettoldhowmuchyoumustdeliver,inwhatvariety,inwhichquantity,inwhichweeks.Priceisthewildcard.Sometimesyouaretoldwhenyourproductisonthewater.Sometimesyouaretoldwhenitisinadistributioncentre.Sometimesyouareeventoldafterithasbeensold.Youcan’texerciseyouroptiontosellitsomewhereelse.”

Hismainpointofcontentionis:“Theyaredebrandingallofourproducts.Theyputtheirhousecoloursonyourfruit.BythetimeitreachestheUKandmanyplacesinEuropeyoudon’thaveabrandanymore.”Somesupermarketsalsofalselyclaimtohavelowerpricesfromcompetitorsinordertobringgoodstotheirshelvesmorecheaply.Theyrotatebuyerssothatproducerscannotbuildupalong-termrelationshipwithapartner.Exportersalsofaceadditionalchargesthatareimposedafteragreeingadeal.

Asaresult,exportersaresettingupofficesinEuropetoreclaimthevaluelostbythesecost-cuttingmethods.Symington urges an enforceable price agreement on purchase and a standard contract without additionalcharges.Buyerincentiveschemesshouldberevisedsotheynolongerdependonsqueezingproducers.“Sellingbelowcostshouldbebanned.”Hewouldliketoseeabuyer-suppliersforumwherebothsidesandNGOscantalkregularlyaboutthechallengesfacingthebusiness.

“Ethical trade isnot just about supplyingan ethically producedproduct. It is about creatingan ethicallysoundbusinesscontextfirst,”Symingtonsays.“Buyers’purchasingbehaviourhastobeasethicalastheethicalproductstheydemand.Otherwiseitishypocrisydeluxe.Internationalretailersthroughwhomthebulkofourproductshavebeenchannelledtoconsumersshouldnolongerbeallowedtooperateinaregulatoryvoid.”


Navigating through the thickets of Fair trade labels and fictions

AttheWorldExportDevelopmentForum2008,participantsalsohada200-pagepre-eventpublicationthatsoughttoengagesomeofthebestacademicresearchers and practitioners along with human rights advocates and afuturologisttoputadifferentperspectiveonethicaltradingandtheMontreuxdebates.1Asaresult,anyoneinterestedinethicaltrade,itshistory,itspolicyimplicationsanditsfuturecanfindanauthoritativeguidetotheproliferationoflabellingandapossiblewayforwardthroughthethicketsofregulationsandstandards.Theycanalsoconsultasurveyofthefair-tradefieldfromalong-timepractitioner.Thebook contains a carefuldissectionof thedifferencesbetweenethical,sustainable,environmentalandorganicstandardsintradeasfoundinthegovernancebodiesdealingwithinternationalcommerce.

Further useful material includes an analysis of the Environmental KuznetsCurvewhichsuggeststhatgrowthisbynatureboundtopolluteuntilcountriesget relatively rich. Similarly, two economists at the Food and AgricultureOrganizationof theUnitedNations(FAO)getdowntocases inconsideringwhether a country should aim for internal food security rather thaninternationalagriculturalearningstoguaranteeitsdevelopment–aquestionthatisnowloominglargeinthebiofuelsdebateandthecurrentfoodsupplycrisis.Policymakersmay alsowant to look at the article onhowmost foodinfuturemaytravelwithacarbonpassport,whileentrepreneurscanconsulta survey of prospects for business from biodiversity – along with the needsandopportunitiesforgovernmentinvestment.Thispaperpointsoutthatthepotentialextendswellbeyondecotourismorcreatingstaffjobsinnationalparksandturningfarmsorganic.Anotherchapterlinksonlineactivismtoaradicalchange in relations between consumers andproducers and suggestsways inwhiche-governancecanrespondtothegrowingdemandforconsumerrights.

Consumer confusion, retail therapy for strapped economies

The blend of theory, reporting on experience, energetic advocacy andprofessionaladviceforthosewhohavetoimplementideasandprogrammesfound in the background book also characterized the debate at the 2008WorldExportDevelopmentForum.Thedetailscanbefoundintherestofthisreport.Butwecanpointtoanumberofcommentsthatmightsurprisethosecomingtoissuesofconsumerconscienceforthefirsttime.

❑Theretailshockdeliveredtostoresinthewakeof2008’sstockexchangemeltdownsandresultingeconomiccrisesneednoteliminateethicaltradeasaforceininternationalcommerce.Infact,itmayhavetheoppositeeffect.

❑Companiesthathavetakenconsumerconscienceonboardintheirbusinesshaveweatheredthecurrenteconomiccrisisbetterthanthosewhohavebeenslowtoappreciatetheconsumeristchangeinmarketingconditions.Infact,manyhaveledratherthanfollowedthetrend.Thehistoryofethicaltradeisnotsimplyachronicleofactivistconsumersforcingrecalcitrantcompaniesintogreenwashingtheiroperations.

1 Availablefordownloadatwww.intracen.org/wedfaspartofITC’sWhatif?series.


❑Though virtually everyone who has to deal with them deplores theproliferationoflabelsandstandardsinthefairer-trademovement,notleastbecauseofthefrequentconfusionofconscientiousconsumers,officialswhofollowdevelopmentsmost closelydonotexpect rationalization to reducethe number of labels. Retailers like their own labels and standards thatdifferentiateconsumerswhoarewillingtopayextraforthatdifferencefromshopperswhodonotfindthatauniquesellingproposition.

❑While recognizing the pressures for label proliferation, many standard-settingorganizationsarepressingvigorouslyforharmonizationtomakeiteasierforsmallbusinessesanddevelopingeconomiestosecureafootholdininternationalmarkets.

TheForumorganizeditsdebatesaroundfivemajortopics:

❑The value of the ethical consumer.The sessionson this topic tried todemystify the concept, look at the market size and characteristics, bothquantitativeandqualitative.

❑Creating the value.Ontheassumptionthattheethicalmarketprovidesa viable business opportunity, sessions explored how exporters fromdevelopingcountriescanbegintogearthemselvesuptotakeadvantageofthismarketthroughinnovation,branding,andcommunication.

❑Raising the value.Itisonethingtocreatevalueintheethicaltrademarket,butexportersalsoneedtomeetthestandardsofthedevelopedmarkets.Tomany,thesepotentialNTBs(non-tariffbarriers)arethebiggestobstacletoaction.How can companies overcome this?The forumalso explored the‘counter-arguments’.Whatisfairness?Areconsumersthemselvesready?

❑Delivering the value.Thediscussionherecoveredissuessuchascreatingan environment to foster the development of exporters from developingcountries who want to take advantage of opportunities presented byethical markets: Financing, scaling up social entrepreneurs and fosteringtransparency.

❑Sustaining and distributing the value:Can thebenefitsof sustainabletradedeliverontheirpromise?Candevelopingcountriesstillhaveaviablebusinessmodeliftheyincorporateenvironment,povertyreduction,gender,the Millennium Development Goals and similar rights issues into theirprogrammes?

Box2. MillenniumDevelopmentGoals

Setfor2015bytheUnitedNationsMillenniumSummitin2000:

Goal1:Eradicateextremepovertyandhunger

Goal2:Achieveuniversalprimaryeducation

Goal3:Promotegenderequalityandempowerwomen

Goal4:Reducechildmortality

Goal5:Improvematernalhealth

Goal6:CombatHIV/AIDS,malaria,andotherdiseases

Goal7:Ensureenvironmentalsustainability

Goal8:Globalpartnershipfordevelopment


Consumer conscience in a time of crisis

Howwillthecertaintiesof2008lookattheendof2009?Certainly,everydebateattheITCmeetingin2008washauntedbytheprospectofadeeprecession in global economic activity. But not everyone – from pundits topioneers – saw this as the end of prosperity as an economic goal.Khoslacalled for new paradigm for international trade, one examining moreclosely the environmental costs of the relationship between the local andtheglobal, seeking tocreate local jobsandmake themost sustainableuseof local resources. Teava Iro, a Cook Island fruit farmer and mariculturespecialist,seeshisorganic-certifiedinternationaltradeasquiteseparatefromhis local efforts to reduce costs in environmentally friendly ways. PascalLamymadeclearhestillthoughtthatacompletionoftheDohaRoundoftradeliberalization–withitsexplicitdevelopmentgoals–ispossiblein2009.Butevenheadmitsthatabigretailer’sprivatelyimposedstandardscanhaveamuchgreaterimpactonlocaleconomiesthananythingnegotiatedintheDohanegotiations.

The World Export Development Forum also showed that the ethicalproducerandconsumermovementischanginginfundamentalways.Irocallshis agricultural method Organic Plus, and sees an end to organic farmingmethods that do not improve sustainability. Fruits and vegetables in theshops today generally have 60-70% less nutritional value than during theworst days of World War II, he complains. The US has just introduced aBeyondOrganicsstandardthatputstheemphasisonhumannutrition,andheforeseesatimewhenproduceontheshelveswillhaveonlyonelabel–givingits sucrose content as an indicatorof thenutritional value (see thebox in(seeahead).

the elephant in the garden or the proverbial ostrich

Onemajorissuethatwilldirectlyaffectfoodtradeinthefutureisclimatechange – an elephant in the garden of international commerce. John Viljoen, Managing Director of the iedex group of companies, based inAustralia, brought it to the table with a concrete story. A major client, awinegrowingcompany,foundthatoverthepast15yearstheripeningperiodof all of its variety of grapes in all its vineyards around the country hasshortenedby1.5days.Thevarietiesnolongerripensequentially.Growingconcentrates in eight weeks rather than eleven, and the ripening of thevarietiesoverlaps.Thecompanyrealizeditwasintroublewhenonewineryhadfourkilometresoftruckswaitingtodeliverripegrapestoitscrushers.Theripeningperiodhasalsomovedearlierintheyear,tothebeginningofJanuaryinsteadofFebruary.Theoverlapwiththeholidayperiodmakesitdifficult inAustralia toget contract labour, and the staffhave topreparefor this intensive work period instead of spending Christmas with theirfamilies. The company had to invest in parallel crushers and receiving-docks, costing “many many tens of millions of dollars”. To deny thatclimateandenvironmentalchangeishavingamaterialimpactonbusinessoperationsistobehaveliketheproverbialostrichandburyyourheadinthesand.


Beyond crisis, beyond logos

While many governments seem hypnotized by the immediate financialcrisis,others–andanumberof internationalbodies intheUnitedNationssystem–arethinkinghardaboutwhatkindofeconomiesindividualcountriesshouldbeencouragingafterthecurrentfinancialearthquakehasrearrangedthe landscape.At climate talks inPoland, Secretary-GeneralBanKi-mooncalledinDecemberforaGlobalGreenNewDealreminiscentofUSPresidentFranklinD.Roosevelt’sprogrammetoovercometheGreatDepressionofthe1930s.Thiswould involve concerted major investments by governments toovercomethecurrenteconomiccrisisthroughenvironmentallysustainablejobgrowth,improvingthesituationofnaturearoundtheworld,andidentifyingthestimulusmeasuresneededtofosterthetransitiontogreeneconomies.

Maybesomeof thepractical solutions– themicroeconomicanswers to themacroeconomicchallenges–canbefoundintheexperienceofethicaltradeandconsumerconscience.Fromacharityconcernwithunderdevelopment,theethicaltrademovementdevelopedviaNGOsintoawidevarietyofspecializedgroupsworkingwith, alongsideandoutsidegovernments topromotebetterliving standards for producers.Many actors on this scene, fromRainforestAlliancetotheMongolianmicrofinancebankXacBank,arealreadyapplyingsustainabilitycriteriaintheirdecisionsaboutsupport,investmentandloans.Big companies are sometimes leading the field in turning green-labelledproducts into market opportunities – from teabags and capsuled coffeeto teeshirts, bananas and car seats, through deals with local communities,oftenmediatedthroughNGOs.Retailersrecognizetheeconomicbenefitsofdifferentiation,andnot simply throughprice.The fair trademovementhasrealizedthatbrandingmeansmorethana logo–somehowithastotell itsstoryinacompellingwaytotheconsumerifitistomoveitsproductsintothemainstream.Thejobofgovernmentandexportpromotionorganizations,as a number of participants in the World Export Development Forumunderlined,istofindwaystoenablenationalbusinessestotelltheirstoriestoaninternationalaudience.

Chapter 2

the value of the ethical consumer

Conscientiousconsumersareagrowingforceinthemarket.Researchshowsthattheyprizetransparency,accountability,authenticityandfairnessnowmorethaneverbefore.Andtheirinfluenceisgrowinginthewakeofthe2008globalfinancialmeltdown.Butwithineverycrisisliesopportunity.Thevacuumcreatedbyconsumerlackoftrustandfallinconfidenceinpurelycommercialbusinesshasleftspaceforethicaltradetoexpanditsnicheandforentrepreneurswhohaveappliedtheprinciplesofcorporatesocialresponsibility(CSR)throughresponsibleentrepreneurshipandbusinesspractices.

Ethicalconsumerism–andgrowinginformedconsumerism–isjustasmuchabout supportingperceived ‘good’ companies, asboycotting the ‘bad’ ones.Theconscientiousconsumerdemographicisstillaminority,butincreasinglypeople are choosing to buy ethically made products and services. Ethicalconsumerismmeansdifferentthingstodifferentpeople–andtomarketers.Buttheriseofethics-baseddecision-making is running intandemtoariseinconsumers’interestinbetterunderstandingandtrustworthyinformationaboutbusinesspractices.Thisgivesawholenewmeaningtothetraditionalconceptof‘informedconsumers’.Companiesarenolongerseenasresponsiblesolelyforaproduct,butfortheirwholebrandandsupplychain.

towards a new consumerism

This‘needtoknow’attitudeamongconsumersisreverberatingacrossentiresupplychains.Producersinbothdevelopedanddevelopingcountriesarebeingforcedtore-examineeverylinkinthesesupplychainsasdiscerningconsumers– and the retailers that buy such products to sell profitably to a growingsectionof their customers – are demanding fairness. Increasingly, ‘fairness’means working within a framework of environmental sustainability whiledemonstrating respect for workers’ rights, better returns to producers andequity in trade.However,manydeveloping-countryproducers, and scepticstowardsthenewmovementinthedevelopedworld,questiontheverydefinitionof fairness. ‘Fair trade’, they claim, distorts markets, giving uneconomicproducersunfairbenefits.Itputsmanyproducersinthedevelopingworldatadisadvantageinseekingmarketaccesswherethesestandardsareapplied–notbecauseof lackofcompetitivenessbutbecauseof thecostofobtaining theclearancesthatwillenablethemtocompete.

Craig Davis, Chief Creative Officer of advertising heavyweight JWTWorldwide,confirmsthatatpriceparity,consumerstodaychoosebrandswithhigherethicalstandards.“Consumersareincreasinglylookingtodobusiness

10 Chapter2–Thevalueoftheethicalconsumer

withcompaniesthatare,insomeway,ethically,environmentallyandsociallyresponsible,”hetoldtheWorldExportDevelopmentForum2008.

Davisreportedontheresearchthatbacksuphisclaim.TheHenleyCentre,aglobalconsumerresearchconsultancy,reportsthatmorethanever,consumersare aware that their buying decisions have consequences. Some buyers arehighly informedaboutsustainabilityorethical issues.Mostsimplywanttosomehow make a difference. They understand that what they buy “has aknock-oneffect”,Davisexplained.

TheHenleysurveytookplaceinJune2008andinvolvedbetween1,000and2,500face-to-faceand/oronlineinterviewsinsevenmarkets.Morethan50%of those surveyed, it found, are ready to make real changes to their lives.The report calls the consumerswho act on this readiness ‘pioneers’.Whenbuyingsomething,theyareverycarefultoensurethat itmeetsethicalandenvironmentalstandards.‘Adopters’aredescribedinthesurveyasmakinganefforttogettothispoint.Adoptersandpioneerstogetheraccountfor40%ofconsumersquestioned.“Theyareeitherpredisposedtodotherightthingortheyarebusydoingit,”Davissaid.

Interestingly, Chinese consumers had a higher proportion of what Henleycalled‘pioneers’or‘adopters’thanintheUKortheUS.

Davis also cited a Marks and Spencer survey that reported about 10% ofshopperssaidtheyarereallycommittedtothecauseofgreenconsumption.Aboutaquarterwerenotinterestedatall.ButinsimilarfindingstoHenley,therestwereinthemiddle.Theywerekeentobegreenaslongastheydidnothave tomakemuchofaneffort todo so.MarksandSpencer, amajorretailchainintheUK,seesthisasahugebusinessopportunity.About75%oftheircustomerscareaboutenvironmentalissuestosomedegreeandmanyofthemwanttobeeducatedandshownhowtheycanmakeadifferencewithoutchangingtheirlivescompletely.

Ethicaltrade’scontributiontoimprovementsinthelivesofpoorcommunitiesisequallysignificant.Manyaremarginalproducerswhomightnototherwisebeabletomakealivingintheirhometerritory.Ethicaltradehasstrengthenedcommunitiesbyenablingthemtoprovideschoolsandhealthclinicswithineasy reach instead of kilometres away, asWillington Wamayeye, GeneralManager of Gumutindo Coffee Cooperative, Uganda, points out from hispersonal experience on Mount Elgon. Robin Cameron, Chief ExecutiveOfficer of Fairtrade Labelling Organization (FLO) International, says FLOtrade directly benefits 1.5 million producers and workers in developingcountries –7.5million including their families.FLO,he told theForum, isworkingwithFairtrade-certifiedproducersin58countries.In2006,Fairtradegenerated€100millioninadditionalincomeforproducersandworkers.

Values drive purchasing decisions

Backinthe1970speoplequestionedwhethercorporatesocialresponsibilitycouldbeavalidconcernforbusiness.ButbusinessleadersfromEurope,JapanandtheUSrealizeditcouldreducelabourandtradetensionsaswellasembracecooperation and respect for human dignity as ethical ideals. Since then, anumberofagreements, standardsandguidelineshavefollowed,particularly

11Chapter2–Thevalueoftheethicalconsumer

inEurope,spellingouttheexpectationstowardsinternationalbusinessonawholerangeofsocialissuesincludingindustrialrelations,healthandsafety,andtheenvironment.Thegrowingdemandforbetterbusinessethicsisnowaworldwidemovement.Increasingly,too,developingcountryproducersandsuppliersaremonitoredbyconsumersathomeandabroadastheyinterconnectthroughglobalsupplychains.

But as many speakers and participants pointed out at the World ExportDevelopment Forum, even though such concerns may be currentlyovershadowedbytheturmoil infinancialmarketsandthebankingsystem,theyarenotgoingtogoaway.Infact,theyare‘hardtruths’facinggovernmentsandcompanieswhentheyrebuildbusinessandrestoretrustinthesystem.

the triple bottom line

Ethical consumerism – or conscientious consumerism – is values driven.Increasingly,bigbusiness,suchasbanks,largesupermarketchains,highstreetretailersandothersare focusingontheircustomers’valuesandunderstandthatsustainabilityisanissueofrisingglobalconcern.The‘triplebottomline’,themantraoftheCSRmovement,hasbecometrulymainstreaminlessthan15years.Davisobserved:“Young,welleducatedconsumershaverealizedthepowerthatliesinthedecisionstheymaketobuyornottobuy.Bypurchasingfromcompaniesthataresociallyresponsible–andnotbuyingfromthosethatarenot–theycanusetheirwalletstopursuetheirvalues.Companiesthatdonotadaptwillpaytheprice.”

A public licence to operate

Thenotionofa ‘public licence tooperate’ isgaining strengthas themediahave the power to ‘name-and-shame’ those perceived to be engaging inenvironmentallyharmfulorunethicalcorporateconduct.EngagedconsumersareevenmoreempoweredbytheInternet.

Companies have always contended with regulatory frameworks, but now,various stakeholder groups have become more adept in mobilizing publicopinion. Mere compliance with regulations is not enough to gain – andmaintain–consumertrust.

Confronting the new consumer powerThe golden rule of public relations, or reputation management, is that ittakes years to build up a reputation and just seconds to destroy it. Ernst von Kimakowitz fromtheUniversityofSt.Gallen,co-founderof theTheHumanisticManagementNetwork,observesthattheconditionsforbusinessare changing decisively. It used to be that consumers expected companiesto operate in accordance with safety and quality regulations. Today, theyarebasingtheirpurchasingchoicesonawiderrangeofsocialconcerns.Ifacompanydoesnotcontinuallyrenewitscompactwithcivilsociety,“itspubliclicencetooperate–itsreputation–wouldfacegraverisks,”hewarns.

Dana Kissinger-Matray from the International Organization forStandardization(ISO)saidthatnotonlyistheinfluenceofconsumersonthe


marketandbusinessbehaviourincreasing.Shealsothinkstheywillhaveafargreaterimpactinthefuture.Therearetworeasons.

First, the “integration of the world’s economies and information systemsprovides unparalleled opportunities for consumers to influence markets,”sheremarks.Globalizationischangingtheconcernsofconsumers.Theyarebecoming aware of how interconnected their lives are with those in otherpartsoftheworld.Inadditiontotheirtraditionalconcernswithqualityandprice, Kissinger-Matray told the Forum, consumers now worry about theimpactoftheirchoicesontheenvironment.Andtheywanttopurchaseinamannerconsistentwithfairtrade.WiththeemergenceoftheWebandothertechnologicaladvances,consumershavegainedtheabilitytobothaccessandtransmitinformationinstantaneously.

Second,shebelieves individualpurchasingdecisionsareonlyoneofseveralwaysthatconsumerscaninfluencemarkets.Toovercometheunethicalbuyingpractices by supermarkets as well as other major retailers, consumers cantodaybeinformedofsuchpractices,whichincreasespressureontheretailers.Mechanismsavailabletoconsumersinclude:

❑Researchandadvocacyactivitiesofconsumerorganizations;

❑Participation as stakeholders in the standardization process, that is, theformulationofvoluntarystandards;

❑Involvementindevelopingmeaningfulproductinformationandlabelling.

Market size matters – the numbers tell the story

Statisticsaboundtoquantifytheboominconscientiousconsumerism.Theycover the gamut of organic foods, fair trade and ethical fashion. Considerjust some of the numbers being used in the growing debate over the newconsumerism.Forexample,ResearchandMarketspredictsthatorganicfoodwillaccountforaround30%oftheUK’stotalfoodmarketby2010.EthicalfashionhasannualsalessurpassingmillionsofpoundssterlingintheUKalone.ThevalueofFAIRTRADElabelledgoodsintheUKhasrisen1,000%inthelastdecadeand50%inthepastquartercomparedtoayearearlier,reportedGareth Thomas,UKMinisterforTrade,DevelopmentandConsumerAffairs(jointlywiththeDepartmentforInternationalDevelopment),attheopeningplenaryoftheWorldExportDevelopmentForum2008.

DatamonitorintheUKpredictsthatglobalconsumerconsciencewillboostfair tradesales in theUKalonetomorethan€1,000millionby2012.Thestandard-settingbodyisFLOInternationalandFLO-CERTisthecertificationsystem designed to allow people to identify products that meet agreedenvironmental,labouranddevelopmentalstandards.TheFLOInternationalFairtrade certification system covers a growing range of products includingbananas, honey, oranges, cocoa, coffee, cotton, dried and fresh fruits andvegetables,juices,nutsandoilseeds,quinoa(anIncacereal),rice,spices,sugar,teaandwine.

In2007,FLOInternationalreportedthatcertifiedsalesamountedtoabout€2.3billionworldwide,a47%increaseover2006.Salesarefurtherexpectedtogrowsignificantlyincomingyears:Accordingtothe2005Just-FoodGlobal


MarketReview,Fairtradecertifiedsalesareexpected to reach$9billion in2012and$20billion-$25billionby2020.

TurnoverinUKsupermarketsisabout£100billionperyear–anappetizingnumber. But less than 3% came from developing countries and only 0.5%fromfair-tradelabelledgoodsin2007.Thesefigures,Thomasobserved,“giveasenseofthescaleofthechallengetoexpandthefairtrademarket.”

Hype or potential?

Speakers and participants at the opening plenary debated whether theconscientiousconsumermarketisallabouthypeorpotential.Theconsensus?Potential.Ethicallygrownandtradedproductsareagrowth,nichemarket.

Pascal Lamy, Director-General of the World Trade Organization (WTO),said that fromthepointofviewofanexporter fromadevelopingcountry,organicand/orfairtrade–whilestillasmallproportionoftotaltrade–oftenrepresentsopportunity.“ForbananagrowersintheCaribbeanislands,goingorganicwasaquestionofsurvival.Theyjumpedtoanothercategoryofthemarketwheretheyweresafe,”hesaid.

TheFairTradeFoundation–thecampaigningandcertificationorganizationbehindtheFAIRTRADEMark–has“putdevelopmentintheUKshoppers’minds,”suggestedGarethThomas.

TherewasagreementfromKaty Leakey,founderoftheLeakeyCollection,adesigncompanythatdevelopshandcraftedproductsforaninternationalmarketandprovidesemploymentopportunitiestoover1,200Kenyan.TheCollectionwasrecognizedin2008foritscontributiontosocialdevelopment.Agreementcame, too, from Neil Kelsall, a consultant who specializes in advisingcompaniesindevelopingcountriesonhowtocapturemoreaddedvaluefrom

theproductstheysell.For example, he hasassisted Madagascarin producing andexporting chocolatebars rather thansimply cocoa. Ms.Leakey and Kelsallestimated that 20%of consumers careabout ethical issueswhile 80% look forthe cheapest goodsavailable. But, theyunderlined, thevalueof goods bought bythe 20% of ethicalconsumers is huge,as is thepotential toreach the remaining80%.

Figure 1. Recognition of the Fairtrade Mark 1999-2008

Source: MORI/TNS Omnibus studies.

Recognition = % of people who recognized the Fairtrade symbol.NB. 2008 figures remain condidential.


the norm rather than exception

TheUKgovernmentwantsto“catalyzeastepchangesothatfairandethicaltradebecomesthenormratherthantheexception”,GarethThomasdeclared.“WealsowanttoseeanaggressiveexpansionofthesebrandsacrossEuropeandmorebusinesssupportforthem.”Atthesametime,donorgovernmentsshould champion fair working conditions and labour standards in thedevelopingcountriesthatproduceethicallygrownandtradedproducts,heurged.

TheUK’sEthicalTrading Initiative (ETI) – an alliance of companies, non-governmental organizations (NGOs) and trade union organizations – ischallengingUKretailerstobecomeawareofhowtheirsuppliersoperate,withaviewtoimprovinglabourstandards.Sofar,hereported,52firmsinthefoodandclothingsectorsareETImembers.

Perhaps not surprisingly, the emphasis was on South-North trade – morespecificallytoContinentalEuropeandtheUK,andforsomeorganizationstotheUS.However,othercommentatorspointedtothesizeofpotentialmarketsinthedevelopingworld,forexampleinLatinAmerica(Argentina,BrazilandMexico)aswellasChina,IndiaandseveralothercountriesofAsia.

Ethical trade market: Safer in troubled times

Speakers at the opening plenary also agreed that organic, fair trade andethicalproductswillkeeptheirmarket,despitetoday’svolatile,unpredictableeconomic climate. The market for such fair-trade products will likely takea temporary hit, but will bounce back. Thomas assured participants: “Themarketisrelativelyrobust.Giventhecurrentdownturn,therewilllikelybeashort-termhit,butthereismuchmorepotentialthanitscurrentsize.”Infact,thesectorcontinuestobeagoodinvestment.

Alex Brigham, Executive Director of US-based Ethisphere Institute,concurred:“Notonlyisthemarketforethicallygrownandtradedproductshere to stay, it is a growthmarket.”Askedwhether it stillmade sense fordevelopingcountriestoputmoneyintofairtradeprojects,henotedthatinaconsolidatingmarkettherewillbewinnersandlosers.“Butdonotpullbackinvestment in this time of crisis,” he said. “Strong organizations invest intimesoftrouble.”

Astoday’scash-strappedconsumersincreasinglyflocktobudgetsupermarketsinEuropeandtheUS,thereisstillanichemarketforethicallygrownandtradedproducts,Lamynoted.Brighamaddedthatpricepremiumsforethicallyproducedproductscannotalwaysbepassedalongtotheconsumer:“Atmorethana3%pricepremium,theabilitytocapturemarketsharestartstoerode,”he said. But whether this is true for more than the United States remainsopentochallenge.Lamythoughtthatthecurrentfinancialcrisis“willhavealimitedimpactonmarketshareoffairtradebecausemanyconsumerswho[buy]fairtradedonotmindthe3%to10%[price]premium.”Ms.Leakeyputthepremiumevenhigher. In abreakout session, she suggested that ethicalconsumershave shown theyareprepared topay15–25%more for crediblysourcedproducts.Itdependsverymuchonthetypeofproductbeingexportedtomarkets. Itmight be argued that this is fair, given that these producerscannotalwayscountoneconomyofscalebenefits.


Deep and enduring change

Willpeoplestillbeconcernedabouttheenvironmentwhentheyareworriedabout balancing their monthly budget? Will companies still think it isas important to pursue good ethical practices when their profits are beingsqueezed?

“Ithinktheywill.Idonotthinkthistrendtowardsethicalconsumptionisabubblethatisabouttoburst.Itisnotcyclicalorcynical.Itrepresentsadeepandenduringchange in thewayconsumersbuyandcompanies sell,”CraigDavisnoted.

Harriet Lamb of theFairtradeFoundationpoints to the opportunity thatconscientiousconsumerspresenttoembattledsupermarketstokeepholdoftheirprofitmargins,sincesuchbuyerstendtobeolder,bettereducatedandmoreaffluentthanordinaryshoppers–readytoinformthemselves,andpayforgoodcauses.Similarly, thefindingsthatyoungpeoplearewellawareoftheirconsumerpowerforgoodstrengthensbrandloyaltytoretailchainsthatcancommitthemselvestoethicaloperation.

Whatunderliesthisdeep-rootedchangeiswhatDaviscallsthe“newglobalcultureoftransparency.”

transparency is the new mantra

TodayweliveinwhatCraigDavisdescribesas“aworldofradicaltransparency”.Mostconsumersinthedevelopedworldandthemanyinthedevelopingworldcancaptureanddistribute,andseekoutinformationintheformofpictures,wordsorvideoinawaythatishistoricallyunprecedented.HepointstotheGoogle/HSBC initiative, ‘o3b’, standing for ‘other three billion’, which isaimingtobringthewebtothethreebillionpeopleontheplanetwhodonotcurrentlyhaveaccess.

Thereis“nowheretohide”inthisnewageofradicaltransparency,suggestsDavis. For example, a company relying on child labour will eventually beconfrontedwithaphotoofachildinoneofitsfactoriespostedonawebsite.This will be passed around the social networks and the company will bepubliclyshamed.

Transparency,oversightandgoodgovernancearemoreimportantnowthaneverbefore.ITCExecutiveDirectorPatricia Francisexplains:“Goingforward,transparencyisgoingtobeevenmoreimportanttobuildbackthetrustandconfidence to make the market work. Transparency, oversight and goodgovernance.Andpartofgoodgovernance isbeingsocially responsible.Themessagehereisthatcompanies‘doinggood’arealsodoingwell.Themessageisthesameforcountries–theywilldobestbypromotingtransparencyandgoodgovernance.”

Ethical companies are more competitive

TheEthisphereInstitutefindsethicalcompaniestobemorecompetitiveinthelongrun,Alex Brighamreported.Notonlydotheyattractmorecustomersandthosewhovalueethicalstandards.Somealsoenjoyotherbenefits,such


asattractingbetter,smarterandmoreproductiveemployeeswhoalsovalueethicalstandardsoverthehighestwage.

“Theendresultisthatethicalcompaniesoutperformtheircompetitioninthelongruninacapitalistenvironment.Somemightquestionwhetherethicsislessimportantintoday’seconomiccrisis,butactuallyitistheopposite,”hesaid.“Demonstrableethicsinbusinesswillbecomethatmuchmoreimportantasethicalenterprisesareactuallylessrisky.”

Brigham noted that the companies with the highest ethical scores in TheEthisphereInstitute’ssurveyshavehadthefewestproblemsinwhathecalledthe “current global financial maelstrom”. How does heightened consumerconsciencefitintothis?“Itisreal–anditisheretostay,”hedeclared.

Inaddition,moreandmorecompaniesarelookingtopartneronlywithethicalsuppliersastheyknowthatdoingsowillnotonlyreflectwellonthem,butalsothatanethicalsupplychaincanbelessrisky.

What is fair? And for whom?

The theme of the 2008 Forum, ‘Consumer conscience: How environmentandethicsare influencingexports’, raisedmanyquestionsabouttherealorperceived tension between ethical trade and conscientious consumerism.Whileagrowingethicalawarenessamongconsumersinthedevelopedworldcan help create new markets for the goods of poorer countries the reversecould also happen. So–called production standards could be turned into aformofprotectionism.

Therearemanydefinitionsof‘fair’andtherearejustasmanycritics–fromthedevelopedworldandthedevelopingworld–castingascepticaleyeovertheclaimsoffairtradeenthusiasts.AsPascal Lamyasked:Whosetsstandardsfor‘fairness’?Formanydevelopingcountries,criteriaoffairnessremainnon-transparenttoproducersandexporters,oftenasaresultofcompetitionbetweenpublic and private quality and safety standards. Developing countries areincreasinglyputtingthisissueonthetableatWTOnegotiations,heexplained.

Fairness vs consumer demands

Addressingthedebateoverstandards,Lamyarguedoutthatitisnotuptothedevelopedcountries to impose sanitaryandphytosanitary requirementsonexportsfromdevelopingcountriessincethesehavealreadybeennegotiatedbygovernmentsattheinternationallevel.“Consumersinrichmarketsarepushingforgood,butwhatistheimpactoftheseniceintentionsondevelopingcountryproducerswhoseabilitytogrowandmakealivingdependsonaccessingthesemarkets?”heasked.“Thereisabalancethatneedstobefound.”

The issueof fairnessandconscientiousconsumerismwasalsoaddressedbySupachai Panitchpakdi,Secretary-GeneraloftheUnitedNationsConferenceon Trade and Development (UNCTAD) and Ashok Khosla, Chairman ofDevelopment Alternatives, India, and President of the International Unionfor Conservation of Nature (IUCN). Supachai pointed out that developingcountriesalreadyhavetroublemeetingexistingstandardsofproductionandqualitywithoutrichstatesaddingfurtherhurdles.


“Youmustnotallowtraderulestobeabusedbythosewhosaytheyaretheconscience of theworld,”Supachai said. “Youmustnot allow this [ethical]awarenesstobecomeaburdenandputimpedimentsintothetradingsystem.”

Khosla went further. He declared: “Consumer conscience is a problem forthe developed countries.” Even ethical problems can be exaggerated to thedetrimentofeconomicdevelopmentinpoorercountries.“TheproblemoftheThirdWorldishowtoproduce.”

Hecalledforabalancebetweenthedemandforlocalproductsandinternationaltrade.Forthataneweconomicsystemisrequired,heargued.Societiesmustlearn more convincingly “how to create the jobs, goods and services thatpeopleneed.”Theworldneeds“producerconscience”asmuchas“consumerconscience”,hetoldparticipantsatthewelcomedinner.

Kevin O’ Brien,GroupCompanySecretaryofTheSPARGroupLtd.inSouthAfrica, gave something of the same message. He underlined the need forcompaniestodemonstrateintegritytotheirconsumersasawayofoperating,simplybecausethisistherightthingtodoasresponsiblemembersoftheirsociety,whileHarrietLamboftheFairtradeFoundationpointedoutthatanumberoffirmsadoptedethicaltradingprincipleswellinadvanceofconsumerdemand.

Increasingly, though, companies are facing a precarious balancing act,particularlyinfinanciallytoughtimes.Corporatebuyersmustprocureproductsandservicesthatmeetend-consumerrequirements,atthebestprice,conformtostandardsandaredeliveredrapidly.Operatingmarginsaregenerallytight,forcingbuyerstobepricesensitive.Atthesametime,producersmustfulfilethicalandenvironmentalstandardssothatretailerscanbacktheirclaimsonethicalandeco-friendlysourcingtoconsumers.

Successful stories sell

Asaglobaladvertisingexecutive,Craig Davisseesopportunitiesforcompaniesinemergingmarketsto“telltheirstories”inawaythatresonateswithconsumers.Storieshavevaluefromaconsumer,businessandbrandperspective,henotedandpointedout toanewsetof stories:Stories concerning the relationshipbetween what companies do as businesses, and the communities and theenvironment–localandglobal–thattheyaffect.

“Forme,mybusiness,andformanybusinesses,thefactthatconsumersaredemanding higher ethical and environmental standards is a huge creativespark,foreverypartofthebusinessofmyclients.Itdrivesthemandustocreate, curate and communicate more and better stories about what we’redoingforthecommunitiesweworkwithandtheplanetweliveon,”DavistoldparticipantsinMontreux.

Box3. Grassjewelleryandchocolatebars

BothKatyLeakeyandNeilKelsallhave“stories”tosell.Andtheirstoriesarerealsuccessstories,andtheyarenotfinishedyet.InLeakey’sjewelleryandhandicraftsbusiness,“consumerspayforthestory,”sheisconvinced.Ms.Leakeyadds:“Wearestrivingtodirectlyconnecttheend-usertotheproducerbythestoryofourcompany.


adds:“Wearestrivingtodirectlyconnecttheend-usertotheproducerbythestoryofourcompany.Wecanengageyoung,energeticentrepreneurswithastrongsocialconsciencewhowillworkasourcollaboratorsandagentsinourtargetmarkets,”shetoldtheForum.“Thedevelopmentofanetworkalsocanlinkproducerswithend-usersordistributors,enablingthemtoseemutuallybeneficialexchanges.”

Leakeyalsopointedtotheneedtodevelopdetailedcasestudiestoprovideacollectionofbestpracticesandexperienceforothersattemptingtocreatesimilarbusinessventures.

KelsalldescribedhissuccessfulefforttodevelopandsellalineofchocolatesfromMadagascar.In2005,hewenttheretofindaproductaroundwhichhecoulddevelopabusinessthatmovesexportproductsupthevaluechain.Hedevelopedafinechocolateforexport,notonthebasisofaid,butbysoundbusinessprinciples.“Welearnedeverythingwecouldaboutthemarket:Consumerswantedhealthy,organicchocolatethattastedgood.Thenwedid everythingwe could to supply it.”Toaddress questions of sustainability,Kelsallnoted, it ispossibletobuildnewconcernsdirectlyintothebusinessmodel.Forexample,becausethechocolateisproducedfromcocoabeansthatgrowinrainforests,highersalesencouragepreservingtheforests.

Box4. Thefoodmilesdebate:Hearingbothsides

Panellists from both sides in the ‘ foodmiles’ debate – does it help reduce greenhouse gases to buy agro-horticulturalproductslocally?–cametogetherataspecialsessionontheissueattheWorldExportDevelopmentForum 2008, moderated by Asad Naqvi, Programme Officer, UNEP-Economics and Trade BranchCoordinator,UNEP/UNCTADCapacityBuildingTaskForceonTrade,EnvironmentandDevelopment(CBTF).

MarkusArbenz,DirectorofBio-Suisse,Switzerland, emphasized that the focusofhisorganization is toencourageconsumerstobuylocally.Assuch,Bio-SuissepromotesorganicproductionandoperatesalabellingschemeinSwitzerland.Thegroup’slabelsfavourdomesticallyproducedorganicproductsandarenotawardedtogoodsthatareairfreighted,hesaid.Similarly,itdoesnotgiveitslabeltoimportedmilkormeat,becausetheseareavailableinSwitzerland,headded.

Simon Bolwig, Project Researcher Trade and Development Research Unit at the Danish Institute forInternationalStudies,questionedtheenvironmentalcasemadeby‘buylocal’lobbies.“RosesimportedfromKenyahaveasmallercarbonfootprintthanthoseproducedintheNetherlands,”hesaid.Itisalsoamoralissueandaquestionoffairnesstothoseinthedevelopingworld,heargued.

AlexanderKasterine,SeniorMarketDevelopmentAdviseratITC,pointedtotheadvantagesforAfricancountriesofreachingprosperousmarkets.“ThefruitandvegetablesectorinAfricaisoneofthesuccessstories,”hesaid.CountriessuchasKenya,Uganda,Ghana,SouthAfricaandZambiabenefitfromaccesstotechnologyaswellasEuropeanmarkets.Forindividuals, theearnings fromproduceflowntoEuropecanmakearealdifferenceinhouseholdspending.Butsendinggoodsbyship–theformoftransportthatproducesperhapsthelowestemissionsofgreenhousegases–isnotanoptionforfruitandvegetableorflowerexporters.

African producers view the focus on food miles as “ just another way of using the environment” to blockdeveloping-countryexports,headded.

Anumberofotherforumparticipantswerescepticalofthecampaignagainstfoodmiles.PhilipLeakey,aformerKenyanpoliticianandnowentrepreneurwithhiswifeKatey,pointedoutthatmostair-freightedfruitandvegetablesare carried in theholdsofpassengerplanes thatwouldbe travellingregardless.“Wouldweratherhavetheholdflyingempty?”heasked.

Others called for strategies tohelpdeveloping countries to gobeyond thedebate over foodmilesand takeadvantage of opportunities in thedevelopedworld.These includemarketingproductsmore effectivelyandincreased lobbyingon the foodmiles issue.However,becausedeveloping countriesoften lackresourcesandexpertise in marketing and lobbying, they should be provided with help to build capacity in the neededskills.

Chapter 3

Creating the value: Innovation is non-negotiable

Theglobalmarketforgoodsandservicesthatmeetconsumerdemandforproductscreatedbyethicallyandenvironmentallyacceptablemeansoffershugeeconomicopportunitiesfordevelopingcountrybusinesses,entrepreneurs and exporters. But one thing is certain, this will not matter unless the entrepreneurs,producersorevenfarmersareinnovative.Oftenbeingcreativeinmarketingcangoalongwaytowardsseizingtheseopportunities.Themessageis:Brandyourproductinawaythatcharacterizesitdistinctivelyandhelpsitfindamarket.

At the ITC World Development Forum 2008, developing countries wereadvisednottopursueonlylow-coststrategiesintryingtocreatedistinctivecompetencies in world markets. John Viljoen, managing director of theiedexgroupofcompaniesfromAustralia,saiddevelopingcountriesshouldseek to distinguish themselves from each other, and not aim to competeonlyonprice.Craig Davis,ChiefCreativeOfficer, JWTWorldwide,UK,echoed these sentiments: “There are many ways to differentiate yourgoodsandservicesfromothers,andthisdifferentiationiskeytosuccess,”hesaid.

TheimportanceofinnovationasagrowthenablerwasemphasisedbyGavin Staude, director of Investec Business School at South Africa’s RhodesUniversity.“Independentbusinessesindevelopingcountries–iftheyaregoingtoachievesustainablegrowth–havetopursueandcreatenewmarkets,andtheonlywaytheycandothisisthroughinnovation,”heinsisted.

Innovation can take many forms and be brought to bear at differentstages of the production cycle. A product itself can be innovative, such asmaking jewellery from raw materials. Or the innovation may come duringtheproductionprocesswithsomenewmeansorinputsusedtocutcostsorimprovequality,anyofwhichcouldmakeaproductmorecompetitive.Itdoesnotneedtobecomplex(seetheboxinChapter4on‘biological’agriculture,entitled‘BeyondOrganics’).

the sources of innovation

What are the main drivers of innovation? Clearly, consumer demand isa powerful incentive to innovation as producers seek out better and moveremunerative ways to satisfy it. Sometimes, however, the spark can beproduced in the rarefiedatmosphereof auniversityor research institution.From theoriginal invention, innovators buildon the fundamental researchtheretocreateamarketableproduct.

20 Chapter3–Creatingthevalue:Innovationisnon-negotiable

One example comes from the Indian Institute of Sciences at Bangalore. Itdevelopedaprocessforthegasificationofbiomassthatgenerateselectricityfromweeds.Arun Kumar,President-BusinessInitiativesofIndiandevelopment-promotingconcernDevelopmentAlternatives,explainedtheimportancethatitcanhaveforlocaleconomies.

Basically, any carbon-bearing material burned under closed conditions canproducegas.“Youcleanitandyouputitintoagasengine,”hesaid.“Theresultisthatyoueventuallyareinapositiontoproduceelectricityeverywhere.”

Thishasenabledsmallcommunitiestodevelopincome-generatingactivities,particularlyforwomen.“Wehaveplantssetupinareaswhereyoucouldnotimagine electricity services arriving in 100 years.” It takes just 30 days toset up the system and Development Alternatives is already exporting thetechnologytoothercountries.ThereareeventhreesuchplansoperatinginSwitzerland in isolated rural communities where there is a access to readysuppliesoftimberbutnottotheelectricitymains,“Onceyouhaveelectricity,youcandoanything:Agri-processing,chillingofmilk,heatingofmilk,steamgeneration.Youcantransformalocaleconomy,”Kumarobserved.

Thisisanexampleofatransformativetechnologythatcancreatejobswhereitwouldotherwisehavebeennearlyimpossible.Butthefirststeprequiredisinnovation.

According to Anukul Tamprasirt, Deputy General Secretary of theFederationofThaiIndustries,growthinhiscountryisbasedonabundanceofrawmaterials,andthiscreatesmanyofitscurrentchallenges.Thailandisanexportleaderinmanyfields,rangingfromriceandrubbertochicken(theworld’snumberfour)aswellasexportsofcomputerproducts.Thailandhasbeenaspecialistin‘OEM’(originalequipmentmanufacture,i.e.non-branded)products.“Sometimeswedidnotevenknowwhowasbuyingit.”Thechallengeistofindnewexportactivitiesforits70millionpeople.Publishingisarisingfield,recording1,000%growthinoneyear.

ForTamparsirt,successinbothtraditionalandITindustriesismanagementinnovation.Onekeyneedistomakebetteruseofbiomass,henoted.Some70%ofThaimangoesarewastedbecausetheydonotmeetimporting-countrystandards.ThegovernmentisencouragingsolutionsalongthesamelinesasDevelopmentAlternativesinIndia,usingthebiomasstoproduceelectricity.

Thailand’sbiodiversity–ranked17thintheworldforitsvariety–isanothersourceofinnovation,bringingnewgoodstomarket.Entrepreneursarenowexploringhow touse localwisdomonherbs and spices to create exports,rangingfromchickenbonesagainstheartdiseasetosquidinkforcosmetics.“We are not like India. We have based ourselves on abundant resourcesbutwe realize thisabundance isnotgoing to last forever. Itneeds tobemanaged.”

the mother of innovation

Sometimesinnovationcanemergefromsheerdesperation.

Philip LeakeyandhiswifeKatyfoundedtheKenya-basedLeakeyCollection,whichspecialises inproducingjewelleryandhouseholdgoodsfromunusual

21Chapter3–Creatingthevalue:Innovationisnon-negotiable

rawmaterials,suchasgrass.Hisbusinesssprangoutoftheneedtoprovidenear-starving Maasai neighbours with a means of survival when droughtthreatenedtokillofftheirherdsanddestroytheirlivelihoods.

Atthebeginningofthedecade,theareasufferedacripplingtwo-yeardroughtthatkilledupto70percentofthetribes’livestock.Asaresult,manyofthemenleftinsearchofpasturefortheiranimals,leavingthewomenandchildrenbehindwithjustafewgoatstoseethemthroughhardtimes.Butwhentheseanimalsalsodied, thewomenwere leftdestitutewithnomeansof feedingthemselvesandtheirchildren.

AtfirsttheLeakeyshelpedthemwithhandouts.Theyalsosoughtmoneyfromfriends.Butthentheycametotherealizationthatjusthandingoutmoneyandfoodofferednolong-termsolution.WhattheMaasaiwomenneededwasanalternativewaytoearnaliving.Leakeyandhiswifedecided:“Wearegoingtofindaproduct,wearegoingtoinnovate.Thenexttimeadroughtcomesalong,theywillbeinbusiness.”

Therewasnotmucharoundtoworkwith,justatoughtypeofgrass.Butthecoupledecidedtoseewhatcouldbeproducedfromitinthewayofjewellery.Theybeganbycuttingupthegrassintosmallpiecesandstringingittogether.First results were not very attractive. But they persevered and by dyeingthegrassinvariouscoloursandgivingtheir jewelleryan‘ethnic’ look,theyeventuallymanagedtosellsomepiecesintheUnitedStates.

Notthatitwaseasytoestablishtheirbusiness.“Weidentifiedproblemswiththedyeingandourproductwasexcessivelyexpensivebecauseweweremakingtoofew,”Philliprecalled.The‘ethnic’lookalsoprovedtorestricttheiraccessto the most profitable boutiques and the jewellery was later produced tocontemporarydesignstandards.

Kumaroffered another good example ofhow innovation in theproductionprocess can be used to improve people’s lives by helping forge sustainablelivelihoodsandcreateopportunitiesforexports.

Withhousinganunfulfilledneed inmostpartsof theworld,DevelopmentAlternativesposeditselfthequestionwhetheritwouldbepossibletoproducecheap and affordable bricks without increasing the carbon footprint. Theansweritfoundwasaresounding“yes”.Whatitcreatedisanenergy-efficientprocesswhichisbothwithinthefinancialreachofsmallbusinessesandatthesametime“greener”thantraditionalbrick-producingtechnologies.“Wehaveregisteredthefirstcleandevelopmentmechanism(CDM)bundledprojectinwhichenergysavingsfromeachkilnarebundledtogetherandsold,”hetoldtheITCforum.IndonesiaandPakistanareamongcountriestohaveshowninterestinacquiringthetechnology.

Inasimilarvein,DevelopmentAlternativeshascreatedascaled-downpaperrecyclingplantthatcanfitintoasmallareaandwhichiscapableofrecycling5,10,or20tonnesamonthofhighqualitypaper.Theplantcanfulfilaclearlocal need, providing poor communities with access to paper that childrenneedforeducation,forexample.“Hereisanopportunitytomeetlocalneedandhaveasurplusforexport.Iamagreatbelieverthatasystemhastobemade robustby testing it out fornational economic growthandonly thenexporting the technology, and,or, theproduct. It can stimulate indigenouscommunitiesandthenyoucanworryabouttherest,”saidKumar.Again,itisinnovationatwork.


Overcoming market constraints

Producers,farmersandentrepreneursindevelopingcountriesoftenfacemanyconstraints – first on their ability to innovate and then, where they havecomeupwith the innovations, to see theirproductor serviceembracedbyconsumers.Financeisalsocitedasamajorproblem.

Government role

Governmentscanplayanimportantroleinstimulatinginnovationaction.

Leakey cited the example of South Africa’sMarula tree, which is nownotonlyusedtoproduceafamousliqueurbutalsoprovidesjamsandoilthatisemployedasabaseforsought-afterhealthcareproducts.“Thechainbeginswiththeruralpeople,thepeoplewhocollectthefruit,”hesaid.Butitisthegovernmentthatboughtthepeopletogetherandsupportedresearch.Itisthegovernment that makes sure the trees are protected. “There is now a newrecognitionofthevalueoftheproduct,”hesaid.

Governmentscanalsobeabridgebetweentheproducerandtheirmarket.“AgroupofMaasaiwomenhasnoconceptofwhatthemarketrequiresinEuropeorAmerica.Wearethebridge,”saysLeakey.Butinothersituations,thisisaservicethatgovernmentsorinternationalinstitutionscanprovide.

Informationaboutmarketpossibilitiesandneedsisanotherkeyneed,alongwithhelpinmeetingmanyofthecertificationandotherqualitycontrolsthatstandbetweenadevelopingcountryproducerandaconsumerof“fairtrade”of“organic”goodsinEurope,theUnitedStatesorJapan.

Financial institutions

Financial institutions can play a significant part in getting innovativebusinesses off the ground,particularly thoughmicro-financing in countriessuchasIndiawherethisformoflendingtosmallbusinessesismostdeveloped.InIndia,self-helpgroups–mainlyinvolvingvillagewomenwhocometogethertopoolresources–canbeasourceofstart-upcapital.XacBankinMongoliaspecializesinmicro-financeanditsPresidentcametoMontreuxtoreportontheexperience(seeChapter4).

AsPhillip Leakeypointedout,heandhiswifewereinapositiontofinancethe initialhesitantstepstoseekoutmarkets intheUnitedStates,butthiswouldhavebeenimpossibleforagroupofMaasaiwomentodoontheirown.Theirexperienceshowedthepoweroflinkagesinintegratingruralwomenintoaglobalsupplychain.

Neil Kelsall from the United Kingdom is a pioneer of the Equitrademovement,whichseekstocreatewealthindevelopingcountriesthroughtradeinhighervaluegoodsandservices.Butherecalledhowitwasverydifficulttoattractinvestmentinhiscompanywhosefirstproductwaschocolatebarsbranded ‘Malagasy’ and manufactured in Madagascar. “There wasn’t anyfunding available in Madagascar nor were there any agencies available toinvest,sowehadtouseourownmoneytostarttheproject,”hesaid.Whentheproducthaddevelopedenoughtomakeitworthpresentingthechocolate


atatradefair,thecompanydiscoveredtherewerenogovernmentfundstosupportsuchbusinessventures.Onceagainthemoneycamefromhisownpocket.

ForeignbusinessesaredissuadedfrominvestinginAfricabecauseitisalong-termproposition,henoted.Togetaroundthis,hesaid,governmentagenciesandthemediashouldhelppromotewhatAfricahastooffer–suchasuniquespices,flowersandfoods–inapositivelight.

InKenya,knowledgeofbio-dieselfuelhasbeenalmostentirelyspreadbythemedia.Andsosuccessfulhasitbeenthatmostofthelocaltransportrunsonnothingelse,accordingtoLeakey.“Thereisahugemarketoutthereandhugeinnovationisrequired,”hedeclared.

Partnership and linkages are paramount

Partnerships foster innovation, technical and knowledge transfer and thebenefitsarefeltfromsmall-scaleproducerstolarge-scalecompanies.AsRoland Higgins,PolicyAdvisor,RainforestAlliance,Belgium,noted:“Partnershipsbetweencompaniesandotherorganizationsisimportantintappingintotheconsumerconscience.”

Sybil Anwander, head, quality assurance and sustainability, Coop,Switzerland said thatasSwitzerland’s second largest retailer,hercompanyisexpectedbyitscustomerstoactinasociallyresponsibleway.“Customersexpect products to be produced in an environmentally friendly manner,”Anwandersaid.“Itisgoodbusinesstobeasustainabilityconsciouscompany,wehavehigher turnover,moreproduct range,moremotivated employees,”sheinsisted.

ThishaspromptedCooptoformlong-termpartnershipswithproducersfromdevelopingcountries.

Coopisoneoftheworld’sleadingretailersforfair-tradetextilesfromorganiccottons. Their brand, Naturaline, is based on a partnership with the yarnfactoryRemeiand9,000cottonfarmersinIndiaandTanzania.“Farmersgeta premiumprice for the organic cotton, theyhave a five-year contract andtheygettechnicalsupport,”saidAnwander.CoopandRemeifinancenotonlysocialprojectsinthefarmers’villages,butalsoaschoolfororganicfarming,powergenerationwithbiogasandirrigationsystems.

There are even greater advantages resulting from this partnership as theorganicproductionresultsinfarmersnothavingtospendanincreasingpartoftheirrevenuesonmineralfertilizers,theyhavemorestableyieldsandtheycangrowanothercropwhichimprovestheirfamilies’diets,orcanbeusedtogeneratefurtherincome.

Partnerships canalsobeused toeducate consumersof challenges faced indeveloping countries. Ania Jakubowski, Associate Director in Marketing,Procter&Gamble,Switzerland,spokeofthecooperationwithnon-businesspartnersamonginternationalhumanitarianagenciesandnon-governmentalorganizations as a way to demonstrate a company’s social commitment.Procter and Gamble has partnered with UNICEF, the United NationsChildren’sFund,topromoteimmunizationcampaignsindevelopingcountriesbyallottingfundsfromsalesofitsPampersbranddiapers.


take advantage of serendipity in the market

Onceaproducthasbeendeveloped,astumblingblockoftensurroundshowtotakeittomarket.ForPhillipLeakey’sjewellery,theturningpointcamewhenhewasaskedtogivealecturetoaRomanCatholicgirlsschoolinMonterrey,Californiathattheproductlinewastested.Afterthelecture,hewentuptotheheadteacherandsaid:“Wehaveawholelotofunusual jewellerymadeofgrass.Wewouldliketosellsometoyourkids.”Theysold2,000strandsof grass jewellery inanhourand tookaway$16,000. “Itwas then thatwesaw that thebusinesshad legs.Wewentbackhomeandwent through thebusinessmodeltoseehowwecouldcutcosts.Weanalysedeverything.Thatinnovation,thatslightdifferenceiswhatpeoplearelookingfor,particularlyintheboutiquemarket,”hesaid.

“Boutiqueswantsomethingthatisnotinthesupermarketsandthebigstoresandwehadsomethingdifferent.Wehadgrass.Therewereallsortsoffunnycommentsaboutusmakingalivingoutofgrass,butIwillnotgointothat,”he added. “But essentially, we had a product. We innovated from how westructuredit,howwecutit,howwedyedit,”hesaid.

Branding for consumers with a conscience

Whilethemarketforethicalproductsandservicesisgrowing,carefulbrandingisrequiredtoattractthediscerning,ethicalconsumer.

SpeakersattheITCForumhighlightedtheneedtodevelopspecificbrandingstrategieswhentargetingtheconsciousconsumer.James Porter,ChairmanoftheTBAGroup,Durban,SouthAfrica,notedthatconsumersareincreasinglydrivenbyemotionsandshowgrowinginterestinethicalproductionandareagainstenvironmentaldestruction.“Sellinggoodsbydoinggoodrepresentsgreatopportunities,”henoted.

ThiswasechoedbyCeline Roche,VicePresidentoftheSpecialtyIngredientsDivisionNorthAmerica,Mane.Roche regretted that thefinishedproductsandbrandsinthefragranceindustryhavetodaylosttheiremotionalappealbecauseofaparadox:“Seductionandaestheticvalueshavebeenoverusedintryingtoachievesalesgrowth.”Butethicaltrade,andtheuseofsustainablefarming practices in her industry, will bring back some of the essentialemotionalcontenttoconsumers,sheargued.

Ethicalconsumerlabelshavebeensuccessfullyusedbybusinessesindevelopingcountriesaspartoftheirbrandingstrategiestoaccessforeignmarkets.

TheFairtrademarkisfirmlyestablishedasoneoftheworld’sleadingethicalconsumer labels. According to Harriet Lamb, Executive Director of theFairtradeFoundation,whensevenoutof10consumersintheUKrecognizethebrand,ithasmovedfrombeinganicheideatohavingamajorimpactonthepublic’sattitudetothethingsthattheybuy.“ThisawarenesshastranslatedintosalesvalueofalmosthalfabillionpoundsforFairtradeproductsintheUKin2007,”sheaffirmed.Independentacademicstudies,aswellasanecdotalevidence,havedemonstratedthatFairtradeishavingapositivedevelopmentalimpactforitsproducerpartners,Lambdeclared.


Inthelong-run,inordertoensurethemaximumeconomicbenefitderivestodevelopingcountryproducers, itwillbenecessary todevelopbrandswithinthelocalmarketaswell,andtomoveproducersupthevaluechain,suggestedAnne MacCraig, chief executive officer of CaféDirect, United Kingdom.“Howwemove thedistributionofbenefits further forward isallabouthowwecan locatethebrandinvariousdifferentmarketsaroundtheworld,”shesaid.“Andtheconceptofvaluecreationwithinabrandandthelocationoftheprocessingfacilitiesisessentialtotheamountofrealvaluethatyoucancreateinacountryandanemergingmarket,”sheaffirmed.ThiswouldbeafuturepriorityforCaféDirect,althoughitisnotclearjusthowthisshouldbecarriedout,sheadmitted.

Creatingalocalbrand,however,canbedifficult,particularlywhentheproductconcernedisnotwidelyconsumedinthelocalmarket.SuchisthecaseofcoffeeinUganda,wherethelocaldrinkofchoiceistea,notedWillington Wamayeye,generalmanageroftheGumutindoCoffeeCooperative,aCaféDirectsupplier.

Whilemanybusinesseshaveenjoyedgreatsuccessusingconsumerlabels,somebusinesseshavebeenhesitanttoembracethem.OnesuchexamplecamefromNeilKelsallwhosaidthattheMalagasychocolatecompanydecidedagainsttheuseofsuchalabel,asitwasbelievedthatthiscouldlessentheappealoftheconfectionaryatthehigherendofthemarket.

Experience shows that being considered “ethnic” can be a blessing and aburden,particularlyoutsidethefoodssector.“Ethnic”goodssellonlytofringemarkets,Leakeywarned.TheLeakeysdiscoveredthedisadvantagesastheybegandevelopingtheirinternational.tradeingrassjewellery.“Wewerebeingsidelined into the fringemarket.Therewasno future in that;wewerenotgoingtocreatealotofwork.Weneededtocreateacontemporaryproduct.Something that will sell anywhere.” So, they got rid of the ethnic look oftheirproduct.Today, theLeakey jewellery sellsanywhere fromNewYork’s5thAvenuetoLondon,HollywoodandParis.“Itissellingbecausewetooktheethnicityoutofit.”Itisstillmarketedunderthe‘Zulugrass’label.However,theironythatKenyahasnoZuluswasnotlostonsomeoftheForumparticipantsanddemonstratedthepowerofinnovativebranding.

Stiff competition from multinationals

Developing-country brands face fierce competition from multinationalcorporationsanxioustoestablishbrandsoftheirown,pointsoutJamesPorter.AmagazinesurveyofThirdWorldbusinessmenandconsumerscarriedoutforaSouthAfricanbreweryshowedhighlevelsofdistrustofthemotivesandpracticesofthebiginternationalcorporations,herecalled.

Manyofthesebusinessleadersthoughtglobalbrandsofferedfewbenefitstodevelopingcountries,and80%feltthatglobalbrandshadanunfairadvantageover local brands. “Well known local brands, which have developed trust,experienceerosionwithdumpingfromtheFirstWorld,”Porterdeclared.

Building trust

Buildingtrustisconsideredcriticalwhendevelopingabrandthatisaimedattappingintotheconsumerconscience.Porterwarnedthatthedecisiontotarget


theethicalmarketshouldbecarefullyconsidered.Conscientiousconsumerswillboycottproductsthattheydonotbelievetobegenuine.Headdedthatastheseactivistsflextheirbuyingmuscles,theyactasgoodpolicementhatmarketerscanuseproductivelyas“afingeronthepulseoftomorrow”.AniaJakubowskiagreed:“Consumerswillpickupifwearenotgenuine.”

Whileconsumerswilltakenoteandactoutagainstinsincereethicalofferings,genuineethicalgoodsandservicesarenotguaranteedsales.“Themajorityofconsumerswillnotforegoquality,priceorconvenienceforethicalproducts,”warnedJakubowski.

tales to tell the world

Oncethereisaproduct,therehastobeastrategyforsellingit,forgettingitouttoawidermarket.CraigDavisbelievestherearefewerbetterstrategiesthanhavingagoodstorytotell.

FewstoriescanbetterthatoftheKupiLuwakcoffeebeans.Thecoffeetreegrows on the Indonesian islands of Sumatra and Bali, and their soft redcherriesareafavouritefoodofthePalmCivet,atree-dwellingcrossbetweenacatandamonkey.Thecivetseatthefruitandexcretethebeans,whicharethencarefullycollectedfromthegroundbyplantationworkers.Thecivetsarebelievedtopickonlythebestandripestcoffeeberriesandtheirgastricjuicesmayevenaddtotheflavour.Fewerthan450pounds(200kg)ofcoffeebeansareharvestedeachyear,andaffluentconsumersinBritainarepreparedtopayasmuchas£50sterlingfortheprivilegeoftastingacupofcoffeemadefromtheirbeans.

Clearlynoteverybodyhassuchacolourfultaletotell.ButDavis’advicetoproducersisto“turntheblowtorchbackonyourbusinessuntilitbeginstorevealsomeofitssecrets.”Hebelievesthattherewillbesomethingaboutitthatisdifferent.

Moderntechnologiesarebringingtheproducerandconsumerclosertogether.Websites,orblogscanbelaunchedforjustafistfulofdollars.“Youcandoitwithoutmuchmoneyandareallygoodstory.Youdonotneedanythingbutsomefactsandtheabilitytotellthemwell,”hesaid.

Box5. Goodcorporatecitizens

Innovationcanbeusedtobolstercompetitiveness,andatthesametime,encouragethedevelopmentofsmall-scaleproducersinthedevelopingworld.

KevinO’Brien,GroupCompanySecretary,TheSPARGroupLtd,SouthAfrica,explainedthatalltheretail stores inhis international groupare independently owned.Although inSouthAfricaadistributionnetworkexiststosupplySPAR-labelledproducts,retailersareabletobuylocallyinordertoberesponsivetocustomers’needs.AsO’Briennotes,“TheSPARretailerhashisorherearclosetotheneedsoftheSouthAfricanconsumer.”

Arangeofbenefitsresultfromthisflexibleprocurementarrangement.First,itallowsSPARtoquicklygaininformationonconsumerpreferences throughanalysisofnon-SPARbrandsales. Inaddition, theretailers’freedomtobuylocallyalsoprovidesrevenueandbrandexposuretosmall-scaleproducerswhomightotherwisenothavethescale,knowledge,orcontactstosupplytolargeretailsupermarketchains.

Chapter 4

Raising the value

Ifproducingthegoodsthatappealtoethicalconsumersisachallenge,thenthenextstep–tappingintomarkets–canbeanevenbiggertest.Whilethesemarketsaredynamicandoffermuchpotential,theyarealsosegmented,rapidlychangingandconfusing.Toreachsuchmarkets,developingcountryproducersmustnavigateagrowingvarietyofproductstandards,bothpublicandprivate.

Copingwiththechallengesofsecuringaplaceinthemarketcomesontopofthemore traditionaldifficulties facedbysuchexporters, includingdistancefrom market, lack of information regarding demand trends and problemsassociatedwithmeetingtherequirementsoflarge-scaleimportersandretailers,particularlysupermarkets.

Barriers and costsThe issue of standards stirs considerable controversy. Some advocates fordevelopingcountriesaccusedevelopednationsofseekingtoimposetheirvaluesandconcernson the restof theworld.Standardscanalsoactasnon-tariffmeasuresdesigned toprotect localmarkets.And there canbe considerablecostsinvolvedwithcompliance.

Ontheotherhand,privatestandardscanofferpricepremiumsandopenthewaytolucrativenichemarkets,especiallyforsmallproducers.Moreover,bothpublicandprivatestandardscanhelpraisethequalityofdevelopingcountryproductsaswellascontributetoenvironmentalsustainabilityandimprovedsocialconditions.

TheseissuesfeaturedprominentlyattheForum,bothinthesessionsregardingaccess to markets and in the wider debate. Participants identified ways toensurethatstandardsbecomelessofanobstacle.Suggestionsincludedfundingprogrammesindevelopingcountriestohelpproducerscopewithstandards,greaterinvolvementofthedevelopingworldinstandardsettingandexpandedefforts to provide developing country producers with the information theyneedtoreachmarkets.Therewasalsosupportforgreatercoherenceamongthevariousstandards,withsomecallingforharmonization.

Why standards and labelling schemes?Countries and regional groupings, such as the European Union, have longapplied national safety and quality standards for domestic production and

28 Chapter4–Raisingthevalue

imports. To ensure that these aren’t used to protect domestic producers,membersoftheWTOhaveagreedonasetofrules.Inconjunction,standards,particularly regarding food, plant and animal health, are negotiatedinternationallyandrecognizedbytheWTO.TheWTOalsocanbecalledontoadjudicatedisputesaboutstandardsamongitsmembers.

Recentyearshaveseenmorestringentpublicfoodsafetyrulesinthedevelopedworld,followingaseriesofhealthscareslinkedtoagriculture,aswellasgrowthinpublicstandardsintheareaofenvironmentalprotection.

Suchstandards,however,canpreventdevelopingcountries fromaccessingmarkets, even when the products they are exporting are not subject toimporttariffs.AsWTODirector-GeneralPascal Lamypointedout,safetyissuescancreatea“bottleneckthatmustbeaddressed.”Citingtheexampleof EU rules on the level of pesticide residue allowed in flowers, he saidthat“ifthemaximumpesticideresiduedeviatesafewmilligramsfromEUstandards,itisnolongerfreetrade,itisnotradeatall.”TheAidforTradeinitiativeisworkinghelptodevelopingcountriesovercomesuchproblems,hesaid.

A double-edged sword

Whilemeetingpublicfoodsafetyandagriculturalhealthstandardscanposeachallenge,italsopavesthewayforimprovementsindevelopingcountries,includingsaferandmoresustainableproductionandprocessingpractices.

Inadditiontoaffectingpublicstandards, increasedethicalconcernsamongconsumershaveledtomanyprivateandNGOinitiativestopromoteethicaltradeandproduction.Thesearevoluntaryschemesandaresometimesknownas“sustainabilitystandards”.Theyalsoreflectthefactthatinaworldofglobalproductionprocessors,consumerswantcompaniestotakeresponsibility fortheirsupplychains.

Meanwhile,developmentagencies,NGOsandothers,suchastheorganicandfair trade movements, view certification and labelling schemes as a way toachievesocialandenvironmentalgoals.Theseincludespreadingsustainableenvironmental practices, improving living standards andpromotinghumanandlabourrights.

Withthisinmindthe2008ForumorganizedasessionentitledEnvironmentalStandards for Global Markets: Implications for Developing Countries,moderatedbyJacqueline Coté,PermanentRepresentativeinGenevaoftheInternationalChamberofCommerce(ICC).

“These standards are in the end a critical tool in the drive towardsustainableproductionandconsumptionmethods,”saidUlrich Hoffmannof the United Nations Conference on Trade and Development. Jochen Krebuehl, Programme Officer for Social and Ecological Standards inGermany’stechnicalcooperationagencyGTZ,believesthatincomingyearsgovernmentswillwanttoplayalargerroleinstandard-setting.ThistrendisalreadyemerginginEuropeanUnioncountriesinrelationtobiofuels,hetoldtheForum.Globalizationcanbepursuedinasustainableandhumanwaybytheapplicationofstandardswhoseproliferationthistrendiscausing,said.

29Chapter4–Raisingthevalue

Private labels – clarity or confusion?

Hoffmann suggested the private labelling schemes run by retailers andproducers are designed mainly to differentiate products and reassureconsumers.Insuchinstances,labelstendtobeaimedatguaranteeingqualityand may be viewed as marketing tools. However, their proliferation hascontributedtoconsumerconfusion,andtheefficacyoftheseasamarketingtoolisnowbeingquestioned.

Since1995,moreprivate international food-relatedstandardshaveemergedthaninthepreviousfivedecadescombined,saidDaniele Giovannucci,co-founderoftheCommitteeonSustainabilityAssessment(COSA),basedintheUnitedStates.Hundredsoflabellingandcertificationschemesnowexist.Isthisarunawaytrain?

The need to differentiate ethically produced products as well as convinceconsumersoftheirvaluetojustifyhigherpricesensuresthatissuessurroundingstandards,labelling,certificationandotherschemesarelikelytoaccompanythegrowthinethicaltrade.

Challenges for developing countries

Theparadoxisthattheproducerswhomgovernmentsanddonorsmostwanttohelp“tendtobemarginalizedorcompletelyexcluded”frommarketsbecauseofstandardslinkedtoethicalconsumerism,Ulrich Hoffmannobserved.

Among the issues cited by exporters, NGOS and policymakers: Too manydifferent standards; high certification costs, rapidly changing requirements;lackoftransparencyandinformation;limitedparticipationfromdevelopingcountriesinstandard-setting;andinadequatecoherencebetweenpublicandprivatestandards.

“Manysmallholdersarebeingparalysedbymultiplecertificationprocedures,saidAnne MacCaig,ChiefExecutiveofCaféDirectintheUnitedKingdom.“Wearekiddingourselvesifwethinkthis isasustainablewaytooperate,”sheadded.

Moreover,privatestandardscanbedesignedtoencourageconsumerstobuylocalordomesticgoods,tothedetrimentofthosecomingfromthedevelopingworld.Andretailerswithabigshareofthemarketcanuselabelsorstandardstolimitcompetition.

The frustration felt by some developing country producers is evident andcameoutstronglyinasessiononEthicsandBusinessLinkages:SupplyChainImplications for Exporters, moderated by Ashok Sharma, Director of theIndianAcademyofManagement.

Stuart Symington,ChiefExecutiveOfficerofSouthAfrica’sFreshProduceExporters’Forum,saidthatwhileethicalcodescouldimprovelabourpractices,theyshouldnotbe“foisted”onproducers.

TheForumalsoheardconcernsamongparticipantsthatethicalconsumerismis focusing too narrowly on the producer, placing an inordinate amountof the burden on developing countries. These critics argued that ethical


considerationsshouldapplythroughoutthevaluechain,includinginpracticesof importers and retailers. For example, according toSymington,manybigchainsemployquestionablepoliciessuchassellingbelowcost,removingbrandnamesandwithholdingpriceinformationfromproducersuntilitistoolatetoswitchdeliveries(seeboxentitled‘CaughtintheSupermarketWars’intheIntroduction).

Others raised questions about the degree to which businesses are really“thinkinggreen”intheiroveralloperations.John Whelan,ChiefExecutiveOfficeroftheIrishExportersAssociation,observedthat,positionedbetweentheUSandtherestofEurope,Irelandisproportionallytheworld’sbiggestimporterofmaterialsre-exported(70%).Asaresult,Irishproducersareveryawarethattheyarejustonelinkinanincreasinglyglobalizedsupplychain,raisingquestions aboutwhere the ethical standards are tobe applied:Byproducersorconsumers.Cargoshippingfleets,forexample,havedoubledinthepastfiveyearsasaresultofrocketingdemand.Forthepasttwodecades,consumershavebeenlookingforvarietyandlowercostingoods.Risingcostsoffuelfrom$30abarrelthreeyearsbeforewillchangethesituationincomingyears,sincetransportaccountsforone-thirdofworldenergyconsumptionincommerce.Thoseinvolvedintransportthereforefacehighertaxesdesignedto reduce carbon-emitting activities. Greening the supply chain is ofteneasiest forEuropeanproducers if they support the ‘buy local’movement.ThiscouldbenefitIrishfarmersbecauseoftheirproximitytotheUKmarket.Butfairtradeproducersindevelopingcountrieswillfindthemselveslosingout,sincemostoftheirproductsarefreshfoodwheretransportisamajorcost. This raises ethical questions about Irish producers’ behaviour, henoted.

Similarly,Bernhard Herold,Coordinator of theFairWear Foundation, ofSwitzerland,saidhisorganizationisscepticalaboutthebenefitsofcertificationinhisindustry,whenthemainissuesarelabour-standardcompliance.Ethicallyproducedtextilesandclothingdonotnecessarilyhavealabelwhichstatesthatworkershavebeenpaidafairwageandthelabelsthatexistonlyguaranteetheproductitselfratherthantheoverallconditionsofwork.

Benefits for developing countries

Nonetheless, theexpansionofethicalstandardshaspavedthewayfor fast-growingandlucrativemarketsthatcanbeideallysuitedtodevelopingcountryexporters.Whileannualglobalmarketgrowthforconventionalfoodshasbeenat2%to4%inrecentyears,thefiguresfor“sustainabilitystandard”marketsrangesfrom5%to100%,accordingtoHoffmann.Theseare“veryattractivemarkets”withlargepotentialprofits,headded.

Nichemarketsinvolvingprivatelabelsprovideexportopportunitiesforsmallproducerswhoarenotinthepositiontocompeteonpriceorvolume.Thatisthe experienceof Indianorganic spice growers, according toSunil Joseph,GeneralManagerofPDSOrganicSpicesinIndia(seebox).

Pascal LamyoftheWTOhighlightedthecaseofCaribbeanbananaexporters,whofacedgreaterglobalcompetitionwhentheirpreferentialaccesstotheEUmarketwasscaledback(seeChapter1).


Despite difficulties with certification, the nature of production in thedeveloping world can be advantageous for labelling schemes. For example,unlike their developed world counterparts, many producers in developingcountriesdonotrelyonfertilizersandpesticides,easingthewayfororganiclabelling.

Standardscanalsoimproveproductqualityandproductivityindevelopingcountries,especiallywhendevelopmentaidagenciesandNGOsareinvolvedinhelpingwith theapplicationof such standards. Inaddition toopeningupnewmarkets,organic,ethicalandfairtradeschemescanprovidepricepremiums, especially compared with domestic markets in developingcountries.

Convincing consumers

The ability of developing country exporters to succeed in raising the valueof their products by tapping into the market for ethical goods does notonly depend on meeting public and private standards. Developed countryconsumersmustbereadytobuytheproducts,andinmostcasespaymoreforthemthanforcomparablestandardproducts.

Astowhethertheyarewillingtodothisornot,theevidenceismixed.Ethicaltrade is growing, albeit from a small base, and often involves the type ofconsumerwhoiswillingtoacceptapricepremiumandthereforeislikelytobe lessvulnerabletoeconomiccycles.Keyspeakersforecastthatwhilethemarket for ethically produced products might be hurt temporarily by theeconomicdownturnof2008,itslong-termoutlookwasfavourable.

However,thereareissuestobeaddressed.Theproliferationofdifferentlabelsandstandardsconfusesconsumersaswellasproducers.UNCTADSecretary-GeneralSupachai Panitchpakdi spokeof consumeruncertaintyabout themeaning of ‘carbon-friendly’ labelling on supermarket products. Otherswarned that the proliferation of labels risks undermining their credibility.Scepticalconsumerscouldbecomeevenmoreso,theysaid.ThisparticularlyconcernedBernhardHerold.

Inaddition, ifethicaltradeistomovebeyondnichestatus, itmustbuildawiderconsumerbase.It’sunclearwhethersuchawidebaseexists.Anumberofstudieshaveshownadisparitybetweenconsumerattitudesandbehaviour,with many more saying they would like to shop ethically than those whoactuallydo.Thisispartlyduetopricefactors,particularlyintimesofeconomichardship.Butotheraspectsofconsumerbehaviourmaybeatworkinadditiontotheconfusionmentionedabove.

Developing country exporters received a reminder of the difficulties fromChris Sellers,ChiefExecutiveOfficerofAgentrics,whosebusinesssuppliestechnologyandlogisticalservicestoretailerswhoserevenuestogetherareasimportantindollartermsastheworld’sninthlargesteconomy.“Theaverage[company] buyer spends 13 seconds considering the introduction of a newproduct into their retail chain,” he told participants. They use a databaseof product attributes to make their decisions, but a small bottle of liquidsoapcould require1,000wordsof text tomeet regulatory requirementsoninformationandidentifyitselftobuyers.Theattributeshavetobeclearfortheitemtogointothedatabaseofproductsfromwhichretailchainbuyersmaketheirchoices.


Information, participation and coherence

Asthe2008Forumdiscussionsmadeclear,effortsarenecessarytoimprovetheabilityofdevelopingcountryexporterstobenefitfromethicalconsumerismaswellasensurethatstandardsandlabelsdonotactasbarrierstotrade.

Suggestionsrevolvedaroundthreethemes:

❑Theneed fordevelopingcountries tohavemore informationonmarkets,labellingandstandards;

❑Greaterinvolvementofthedevelopingworldinallaspectsofethicaltrade,particularlystandardsetting;and

❑Increasedcoherenceamongstandards.

Governments, international organizations, NGOs and the private sectorshouldbeinvolvedinsuchefforts,participantsstressed.

Trade experts and developing country exporters agree that producers needtoknowmuchmoreaboutcertificationproceduresaswellas thecostsandbenefitsofjoininglabellingschemes.Theyalsolackinformationaboutmarketdevelopments,especiallygiventherapidevolutioninethicaltrade.

Regarding standards, recommendations focus on greater involvement ofdevelopingcountriesaswellastheneedtospreadknowledge.

Kevin McKinley,DeputySecretary-GeneraloftheInternationalOrganizationforStandardization(ISO),encourageddevelopingcountriesto“helpsetthebar” for international standards. ISO standards result from negotiationsamongnationalstandardsagenciesfrom157countries,hepointedout.Whileinitiallytheseareprivatestandards,theycanbetranslatedintonationallawto become public ones. At ISO, “everybody has an equal voice” so that “asmalldevelopingcountryinAfricahasthesamevoteastheUSintheISOvotingprocess,”McKinleyobserved.ISOworkswithdevelopingcountriestobuild their capacity to influence thedebate on standards aswell as spreadknowledge.

Theneed forbroad-basedefforts tohelpdeveloping countries through themazeofpublicandprivatestandardswasarecurrentthemeattheForum,where many participants came from organizations and companies thatworktolinkdevelopingcountrybusinessesintotheinternationaleconomy.UNCTAD’sHoffmann, for example, recommendedusingpublic fundsanddevelopmentaidtocreatenationalprogrammes indevelopingcountriesonmeetingstandards,whichcouldassistproducers.

While the plethora of private standards offers considerable opportunitiestoexporters,manyviewthecurrentsituationasunsustainable(seeDanieleGiovannucci,HowNewAgrifoodStandardsareAffectingTrade,inConsumers,EthicsandEnvironment,thepre-debatepublication).Giovannuccinotes.“Since1995,more private international food-related standards have emerged thanin the previous five decades combined.” He adds: “What appeared to belimitedtoOECDnationshasbeenshowntobeoccurring,atanevenfasterpace of adoption, in many developing nations…. certification is emergingasasignificantregulatorymechanismintheglobalagrifoodsystem.”Someat the Forum advocated greater coherence or streamlining, while otherscalled for harmonization – both solutions advocated also by Giovannucci.


Suggestionsincludedestablishingcorerequirementsthatwouldmakeiteasierforproducerstojoinseverallabellingorcertificationschemesatonce.Moreambitiousproposalswereforcentralizedapplicationsystems,administeredbynationaltrademarkofficesorinternationalorganizations.Reducingthecostofcertificationisalsoimportant,withsomecallingforgroupcertification.

Moreover, more clarity is needed. “From the consumer perspective, theproliferationoflabelsmakesitdifficulttoknowwhattheselabelsmean,”saidBernhard Herold,whosefoundationhelpstopromotegoodlabourpracticesamongmakersofclothing,butdoesnotoperatealabellingscheme.

The interplay between public and private standards is also a complicatingfactorinthebusinessofethicaltrade.Publicstandardsrepresentthebaselinefor producers to gain entry to a national or regional market, while privatestandardscanallowaccesstospecificretailersandmarketsegments,suchasfairtrade,aswellaspricepremiums.Unclearorcontradictoryrequirements,however,arelikelytobeaheadacheforproducers.Hencetheviewthatgreatercoherenceisdesirable.

Someexpecttoseearationalizationofexistingsustainablelabellingschemes.Sibyl Anwander,headofqualityassuranceandsustainabilityatSwitzerland’sCoop,predictedthatlabelsunabletosupporttheircredentialswithastrongcommunicationarelikelytofadefromthescene.

Partnering for value

Partnershipsplayinimportantpartinensuringthatdevelopingcountriesandtheirproducerssucceedinraisingvaluethroughethicaltrade.Theforumsawmuchevidenceofsuchefforts,includingcrucialworkbeingdonebythosethathelptocreateandmarketethicalproducts,buildcapacityofexporterstomeetstandards,andcampaignontheirbehalf.

PanellistsbroughtexamplesfromasfarafieldasUganda,Ecuador,IndiaandSouthAfrica.

Box6. India’sSpiceRoute

WithitsexperienceincarvingoutanichemarketforIndianorganicspices,PDSOrganicSpicesofSouthernIndiaprovidesvaluableinsightsintohowtosucceedinthecomplexworldofethicaltrade.Inassociationwiththe officialSpicesBoardof India,PDSpromotes organic spice cultivation,particularlypepper (blackandwhite),gingerandturmeric.

Perhapsmostimportantisthenatureoftheenterpriseitself.ItisaunitofPeermadeDevelopmentSociety(PDS),asocialserviceorganizationoftheDioceseofKanjirapally,namedafterthefamousplantationtownofPeermade.ThespicebusinessispartofwidereffortsofPDStopromotesocioeconomicdevelopmentamongsmall,marginalandtribalfarmersinIndiainanenvironmentallysustainablemanner.

In this,PDSOrganicSpices has something in commonwith other successful ethical trade ventures – theinvolvement of outside supporters, such as nongovernmental organizations or national and internationalagencies.Notonlyisitdifficultfordevelopingcountryproducerstomeetmarketrequirementsontheirown,butethicaltradealsobringswithit“anentirelynewlexicon”ofstandardsthatmightnotberelevantorentirelyunderstoodinthe localcontext,saysSunilJoseph,GeneralManager.This isespeciallydifficult forsmallfarmerprojects,whichcanfacetoughercertificationstandardsthanlargeplantations,headds.


Scope for action

However,thereremainsconsiderablescopeforactionandinnovationonthisfront,especiallywhenitcomestohandlingthecomplexworldofstandards,labellingandcertification.Amongideastoemergewere:

❑Encouragingschemesinwhichthelargeretailerssharethecostofcertificationbecauseitbenefitstheircustomers;

❑Providing funding and technical assistance to help governments andexporterscopewithstandards;

❑Developing information programmes on ethical consumerism atinternational,regionalandnationallevels;and

❑Increased participation of developing countries in setting standards,includingvoluntaryones.

TheseareinadditiontopursuingfurtherthedevelopmentworkbeingdonewithdevelopingcountryproducersbyNGOsandnationalandinternationaltechnicalcooperationagencies,includingITC.

Through regional integration and cooperation, developing countries canworktoaligntheirownstandardswiththoseappliedinthedevelopedworld.Theycanalsocreateregionallabellingschemesandfocusondevelopinglocalmarketsforethicaltrade.

Nonetheless,Josephseesopportunities,providedproducersunderstandandadapttotheneedsoftheircustomers,whetherthesearealocalexporter,importer,wholesaler,retailerorthefinalconsumer.“Inourcasewehavebeenabletoincreasevalueofproductsbygoinginforanicheandgrowingmarketsuchasorganicspicesinsteadoftargetingthebiggerconventionalspicesmarket.”ThisstrategyreflectsthefactthatPDSmainlyworkswithsmallandmarginalfarmerswhohavelimitedproductioncapability.(PDScurrentlyhasmorethan2,000organic-certifiedfarmersinandaroundIdukkidistrictofKerala.State)

Italsooftenmakessensetolookbeyondsupermarketstootherretailers,Josephobserves.“Weneedtoexplodethemyththatsellingtosupermarketsisthebestandonlyoptionavailabletoproducers,”hesaid.Supermarketstend to beabout volumeandprice competition, something thatproducers arenot inaposition to change.“SometimesworkingwithSMEsector,particularlyspecialtystores,providesabetterfit.Weareincreasinglyseeingthatthesmallbusiness/retailerbasedintheEUorUSistryingtosurviveinthehighlycompetitivemarketofthewestbyidentifyinguniqueproducts,”headded.

Chapter 5

Delivering the value

Empoweringproducerstobecomeethicalexportersfromdevelopingcountriescanofferanumberofwin-winscenariosforsustainability,ethicalbusinesspracticesandprofitability.Nonetheless,establishinganenvironmentwhichenablesthedevelopmentofsuchexportersremainsafundamentalchallenge.

Participants at ITC’s World Export Development Forum 2008 agreed thatthereareatleastthreeareasthatmustbegivenattentionifdevelopingcountryexporters are to succeed: Sustainability-related finance, scaling up socialentrepreneurship,andtransparencyviatheInternet.

Anthony Lumby,wholivesinSouthAfricaandisPresidentoftheInternationalInterdisciplinaryEnvironmentalAssociation,notedthereislittledisputethattradehasplayedanimportantroleinpromotingeconomicgrowth,butthereismountingconcernaboutthesustainabilityofthewayinwhichthegoodsandservicesthatunderpinthattradeareproduced.Inhisview,theprevailingmethodsofproductionmustbere-examinedtopromotesustainability.

Inreviewingexistingproductionmethods,producersindevelopingcountriescanbefacedwithaheavyfinancialburdenwhenlookingtoimplementcostlyenvironmentallyfriendlyproductionmethods.Thisposesthequestion:Whowillpickupthebill?

Paying the bill

Firms willing to undertake the necessary investment to adjust productionmethods, find themselves needing to ensure access to external financing.However,asChairmanofTitikavekaGrowersAssociationoftheCookIslands,Teava Iroworriedthatfarmersfacedifficultiesinapplyingforfinancefrombanks, particularly if they are involved in areas of production outside ofmainstreamcommerce,suchasthe‘biologicalagriculture’thatheisdeveloping(see‘BeyondOrganics’inthissection).

Bold Magvan,PresidentofXacBank,Mongolia,agreedthat itcanbehardfor smallbusinesses to face thefinancialcostsofadoptingenvironmentallyfriendly technologies. It is here that micro-financing organizations such asXacBank (which is part-owned by the World Bank’s International FinanceCorporationand theEuropeanBank forReconstructionandDevelopment)alongwithethicalinvestorshavearoletoplay.“Ourbankstronglybelievesthatifabusinessisconcernedabouttheenvironmentandsociety,thatisamoresustainablebusiness,”hesaid.

36 Chapter5–Deliveringthevalue

InaccordancewithXacBank’s‘People-Planet-Profit’businessmodel,thebanktakesaccountoftheenvironmentalstandofacompanywhenassessingwhatinteresttochargeonloans.“Ifsomeoneistakingenvironmentallyconsciousdecisions,thenwecanlowertheinterestrate,”hesaid.Inthiswaythebankcansimultaneouslypromotebothpovertyalleviationandhighstandardsonenvironmentalprotection.

The bank is not being purely philanthropic; its stance also makes goodeconomicandfinancialsense.Byactingthisway,thebankgainsmorerespect.Morerespectmeansmoreclients,andmoreclientsmeansmoretrust,whichinturnmeansmorebusinessandhigherprofits.Commercialbanks,enjoinedbyshareholderstoberisk-averseintheirordinaryoperations,onlygiveloanstoenterprisestheyconsidergoodbusinessprospects.

Furthermore,Magvanbelieves,microfinanceinstitutionscanplayasignificantroleintheeducationofitsclientsinthefieldofsustainability.Theycantraincustomers to take into account environmental concerns in their businessmodels, in hiring and job creation, and in their practices and everydayoperations.Whilethesevaluescanbehardtoinstillwhensurvivalconcernsareparamount,XacBankworkstoenforcethembythecreationofincentivesystems,reportingrequirements,andsimilarmeasures.

XacBank’s model may be difficult to replicate by all commercial banks ormicrofinanceinstitutions,asitreceives$5millionfromtheEuropeanBankforReconstructionwhichenablesittohaverepresentationacrossthecountry,includinginruralvillages.However,thestrategyadoptedbytheXacBankoflending to environmentally sustainable businesses should be considered byotherlenders.

Microfinance and retail support

Whilemicrofinancecanfinanciallyassistdevelopingcountryproducers,anddriveenvironmentallyandsociallyfriendlyproduction,Astrid Ruiz Thierry,presidentofWomeninWorldMarketsofSpain,warnedthat“microfinancehasattimesbecomeabarriertowomenandattimesisdangerous,withsomelenders charging 5% interest each month and lending to persons with notechnicalexperience.”Thiscallsformoremainstreamfinancefromcommercialbanks to become available to support developing country businesses, inadditiontomicrofinancebeingavailable.

There is also a role for FirstWorld businesses to playwithpickingup thecosts. Sibyl Anwander, Head of Quality Assurance and Sustainability atSwitzerland’s second largest retailer, the Coop, explained that customersexpecthercompanytoactinasociallyresponsibleway.InadditiontoCooppayinggoodwagesandeducatingitsemployees,shesaid,“customersexpectproducts tobeproduced inanenvironmentally friendlymanner”.This canserveasanimportantpointofleverageforproducersintheSouth:Bypointingouttheexpectationofconscientiousconsumersthatcorporationsshouldtaketheleadinpromotingsustainability,theycanpressurefirmstofootpartofthebill.

Asmuchas10%oftheCoop’sturnoverismadeupoforganicorothercertifiedproducts.Althoughconsumerspayapremiumforcertifiedproducts,thereis

37Chapter5–Deliveringthevalue

noreasonwhythatpremiumshouldbeexcessivelyhigh,shesaid.ShearguedthatitwouldbeamistakeforThirdWorldproducerstoassumethattheywillbeabletorelyontherealwaysbeingapricedifference.Itmakesmoresensetoseekwaysofkeepingcostsdownrather thancountonapricepremium,Anwanderadvised.

Organic cotton is one of the Coop’s success stories. By adopting fair tradestandardsandpracticesfor itsNaturalinebrand,theCooppaysapremiumpricefororganiccottonto9,000cottonfarmersinIndiaandTanzania.WhileCoopcustomerspayalittlemorefortheseorganiccottonproducts,becausetheCoophasforgeddirectlinkswithproducers,thesehighercostsarereasonable,sheobserved.

Inaddition,Coopinvests inlocalcommunitiesviathecreationoffinancialinfrastructureaswell as supportingeducation initiatives.Thisarrangementresults in a more effective value and supply chain that link producers andconsumers together. The Coop’s organic cotton initiative employs a yarnfactorypartnertofinancesocialprojectsinthefarmers’villagesandaschoolfor organic farming, power generation in biogas, and irrigation systems.The Coop also supports the Institute for Research in Organic Agriculture(the FiBL), in Switzerland, which enables producers to overcome technicalproblemsassociatedwithorganicfarming.Theresearchissharedwithfarmersindevelopingcountries.

TheCoopisalsothefirstretailertojointheCommonCodefortheCoffeeCommunity, known as the 4C initiative. It offers an alternative to fairtrade,accordingtowhichproducersarepaidmarketprices,thoughmembercompanies commit to pay a fee to train producers and provide trainingmaterials, translation services, and the exchange of best practice betweencooperatives,countries,andcontinents.

“Itisgoodbusinesstobeasustainabilityconsciouscompany,wehavehigherturnover,moreproductrange,moremotivatedemployees,”shesaid.“Wearedemonstratingthatcommercializingenvironmentallyfriendly[practices]canbegoodbusinessforall.”

Social entrepreneurs growing

Thesocialentrepreneurshipmovementisontheriseacrosstheworld,stimulatedboth by local needs for jobs with better living and working conditions indeveloping countries and by the rise of conscientious consumerism in theNorth.Parag Gupta, Associate Director and Head of South Asia, SchwabFoundation for Social Entrepreneurship in Switzerland stated that “socialentrepreneurs enable business creation, livelihood development and, SMEdevelopment,andtheydothisasintermediaries.”

Socialentrepreneursoperateas“changeagents”forsociety,seizingopportunitiesthat others miss in order to improve systems, invent and disseminate newapproaches,andadvancesustainablesolutionsthatcreatevalue.Theirprincipalaimistogenerate“socialvalue”,inadditiontobusinessprofits.

InRuizThierry’swords,socialentrepreneurshipis“thepracticeofrespondingto market failures through innovations that transfer failures into successesandsolvesocialproblemsatthesametime”.Socialentrepreneursare“natural


activists” who can skillfully build coalitions and networks to further theirgoals,whichnewtoolsontheinternetcanmagnify.

At present, entrepreneurs in the South face serious structural problems ingettingtheirbusinessesoffthegroundandinestablishingtheirproductsonmajor world markets. Often street-wise and energetic, these entrepreneursneverthelessrequirecoaching,counselling,accesstoresourcesandnetworks,andmarketintroductions.Suchtradesupportservicesaremoreimportanttothemthangeneralskillstraining.Mostimportant,potentialexportersmustbegivenaccesstotechnologytoensuretheycanproduceonascalethatmeetstherequirementsofbigpurchasersoninternationalmarkets.Moreover,socialentrepreneursthemselvesneedtocreatenetworksacrossnationalboundaries–RuizThierrysuggestedLatinAmericancountriescouldoffersupporttoAfricancountriesbasedontheirownexperiences–andsetupSouth-Southexchanges.

Bureaucratic barriers in the South

In many developing countries, social entrepreneurship is stifled by a rangeof bureaucratic barriers, from the failure to provide the information thatentrepreneursneedtodeveloptheirbusinessestobureaucraticimpedimentsthatlimittheirabilitytoexport.

Toaddressthedifficultiestheyface,itisvitalfromtheverybeginningthatentrepreneursgetinvolvedatthegrassrootslevelwithproducers,saidRonke Daniel,CEOofLadmokinNigeria.HercompanyisapioneerinprovidingfinancialandmaterialsupporttoruralwomenproducersofcassavainNigeria,helping to turn it intoacompetitiveexportproduct throughacooperative.In addition, she argued, social entrepreneurs must be able to effectivelycommunicate what they are trying to do in terms of combating povertyandcreating the chanceofabetter life for small communities,notonly toconsumersintheoutsideworld,butalsoinlocalmarkets.

InDaniel’sview,thereisalsoabigroleforgovernmentstostepinandactasenablers:Theycanhelptoensureaccesstomicrofinance,inparticularwheninterestrateschargedbycommercialbanksaretoohighforsmallproducers,aswellastoinformationandtechnologiesrequiredforgrowth.“Governmentshavetobepresent,”shesaid.

Nonetheless,thereisadangerthatsomegovernmentofficialsmightseesocialentrepreneursascompetitors.Notonlycansocialentrepreneurschallengetheauthorityandeventhemandateofgovernmentswiththeirmission,officialsmightfailtoseethatsocialentrepreneurscanoffermarket-basedsolutionstopoliticalandeconomicissuesandbecomeaneffectivepartnerforgovernmentsbecause of their profit-oriented approach. Social entrepreneurs, as RuizThierrypointedout, canaddressmarket failures throughfinancially viableandsustainableprojectsaimedatsolvingsocialproblems.

But she insisted. “Social entrepreneurs are not organizations. They areindividuals.” They bring to problems the passion to succeed and innovate.Theydonotcalculateinadvancewhethertheyhaveenoughresourceswhilebeingverygoodatobtainingtheresourcestheyneed.Asaresult,theyhaveamuchwider impact than seems initially– “averywideand internationalimpact”.


Shedeclared:“Atruesocialentrepreneurisamassrecruiteroffollowers,oflocalchangemakers.Theyhavethatexponentialeffectbecausetheyhavethatpassioninresolvingthatproblem.”

Women at the core of social entrepreneurship

Astrid Ruiz Thierry and Elizabeth A. Vazquez, Executive Director ofQuantum Leaps,which offersmanagerial training towomen inChina andIndiaregardingexportmarkets,arguedthatwomenprovidethecoreelementinsocialentrepreneurshipindevelopingcountries.

“Womenhavealwayshadtoberesourceful.Thishasbeengoingonforever,”said Vazquez. Ruiz Thierry also told the Forum: “Historically women aresocial entrepreneurs, part of the character of women entrepreneurs.” Thequestion,shesaid,is:Whyithastakengovernmentssolongtorecognizethesocialinitiativeshownbywomen?“Whyhasitbeensoinvisible?Whyhavewomennotgottenthatsupport?Ifwomenwithoutthatsupporthavegottensofar,imaginewhattheycouldhavedone[withproperbacking].Ifyousupportwomen,youwillsupportsocialentrepreneurshipimmensely.”

Socialentrepreneurscanshowbigbusinesswhatsocialcorporateresponsibilityis about, that it is not a marketing tool, she observed. Vazquez noted theimportanceofensuringthatmeasurestopromotewomen’s initiativesreallydoopenupthemarketstothem:“Youhavetogivethemrealcontracts,realbusiness,not just training,not justawareness-raising.”Neelam ChhiberofIndustree,Bangalore,India,hasalsofoundthatworkingwithwomenisthesecurestwayofensuringthatbenefitsspreadtothecommunity(seeChapter5 box Moving Artisans Up the Value Chain). John James, ProgrammeDirectorofSouthernAfricanBusinessLinkages,alsostressesthebenefitsofconcentratingonwomeninsupportingentrepreneurship,particularlybecauseoftheirrecognitionofsocialproblems.

Now thatwomen’s importancehasbeen recognizedby thebusiness sector,however, care must be taken not to focus on women entrepreneurs to theextentthattheirmalecounterpartsthenfindthemselvesdiscriminatedagainst,theyadded.Atthesametime,RuizThierrycautionedagainstbelievingthatappropriate technology comes only from the North and pointed to LatinAmerica as a source of entrepreneurial innovation in low-cost technologythatcouldbenefitotherregionsatlowerlevelsofdevelopment.Forherpart,VazquezreportedonaneweffortintheUnitedStatestosetupanorganizationcertifyingwomen’sbusinessesforgovernmentprocurementandsimilarbuyers.

E-burdens and e-transparency

The roleof e-transparency is ahighlydebated area. Integrated systemsareunderdevelopmenttothepointthatperhapstherewillbe‘noplacetohide’inthefuture.Thereis,however,aneedtoidentifyhowstakeholderneedsanddesirescanberealisticallymetandtoacknowledgethatthesesystemsmightmerelycreateadditionalburdensfordevelopingcountries.

Telojo Onu,ManagingDirectoroftheCaribbeanInstituteofE-BusinessandInternational Trade, noted that telecom technologies, which are becoming


evermorecollaborativeandinteractive,areenablingstakeholderstoexaminethebehaviourofcompaniestoanunprecedentedextent.Whilethetelecominfrastructureiscostly,shebelievesthatthebenefitsoutweighthecost.

Developing countries, in her view, should acquire simple systems that areappropriate to their uses, develop locally relevant content, and educatecitizens in their proper use. “Technology is important, but processes mustbe developed and people must be empowered to use them,” she explained.“Asharedunderstanding–acommongoal–mustbedevelopedtofacilitatethe development of the transfers and linkages required.” Robert Jackson,Managing Principal of Audit Education from Hilton, South Africa agreed:“Wemustembracetechnologyandgrowwithit.”

trust me into show me

Ged Buffee,PresidentoftheAfricanOrganicFarmingFoundationofSouthAfrica,agreed,addingthattheproliferationofe-transparencyschemesposeschallengesregardingtheprotectionoftheirintegrity.Nonetheless,theyofferaneffectivemeanswithwhichtomonitorandimprovethecertifiedmarketmechanisms,the“trustmarks”suchastheFairtraderequirements.

AccordingtoBuffee,certainwebsitestodayareattemptingtooffercomprehensiveinformationonthebehaviourofbothproducersindevelopingcountriesandthepurchasingbehaviourofmultinationalcorporations.Inadditiontoofferinganalysesthathighlightwhomakesmoneyatwhatpointandwheninthevaluechain,hereported,“theycandisplayphotosandwebcamfilmstodemonstratethatcertifiedparticipantsarebehavingthewaythattheypromisedtheywould.”

“E-transparencywillbeusefulbecauseitistransforming‘trustme’into‘showme’,”hedeclared.Stakeholders,hebelieves,willbebroughttogetherbytheneedtomaintaintheintegrityofthecertificationsystemsinwhichtheyparticipate.

Box7. Marketingreformandbrand-sharing

SouthAfrican-bornGedBuffeehadbeenenjoyingasuccessfulinternationalcareerinmarketingandadvertisingwhensome10yearsagohecametowhatcalls“aregrettableobservation”.

Hisskills,herealized,werebeingappliedtopersuadingconsumerstobuymorewithlittleconcernfortheimpactthatproducinganever-increasingvolumeofgoodswashavingontheenvironment–inotherwords,destroyingbiodiversityandexhaustingnaturalresourceswhilecreatingpollutionandwaste.

Asa result of his reflections, he switchedhis personal efforts to promoting organic products,workingasaresearcher,analystandstrategistwithtoporganicbrandleadersandorganizationsintheUnitedStates,wherehemadehishome.

Butgiventhegrowingweightofevidenceofthedamagethatrunawayconsumptionhasbeendoingtotheplanet,onequestionconstantlybotheredhimandcolleaguesinvolvedinthesustainabilitymovement:“Whatdrivesindividualsandnationstomakechoicesthatsometimesruncountertotheirlong-terminterestsanddestroybiodiversityintheprocess?”

“Itwascleartomethatmarketingwasoneofthekeyfactors,alongwithsocio-economicandpoliticaldrivers,andfacilitatingashiftinmarketingpracticeswaswhereIcouldmakeadifference....Marketing,inmyview,needstoberehabilitated,andthiswasmystartpoint.”


transparency based on needs

Ian Sanderson fromtheaccountingfirmDeloitteSA,offeredacautionaryperspective.WhiletheInternetcanbringtogetherthosewhoshareconcreteinterests, the probability of win-win scenarios rapidly diminishes as thenumberofstakeholdersincreases.Forexample,heexplained,ifamultinational

Themarketingbusiness,saysBuffee,istornbetweentwoconflictingdemands:Formoreconsumptionandforbetterconsumption,whileacompanymayfeelpulledinthreedifferentdirectionsbytheconsumerlookingforlowerprices,theshareholder lookingforhigherreturnsoninvestment,andthesocialstakeholderaskingforsustainability.

However,heargues,“there isanever-growingbodyofevidence tosupport theassertionthat improvementsinethical,environmentalandsocialperformancecanbringbusinessbenefits,”heargues.“Itismyviewthatbrandsthatdo‘good’outperformbrandsthatdo‘bad.’”

Butcompanydecision-makersneededtobeconvincedofthiswithhardfacts.ResearchheconductedwithUSeconomistsandstatisticiansshowedadirectlinkbetweenthegeneralcorporateperformanceofarangeofUScompanies,theirreputationforsocialresponsibilityandtheirmarketvalue.

Ona10-pointscale,asimpleone-pointadvantageinreputationforanaveragecompanyvaluedat$3billioncouldgiveitanadditionalmarketvalueof$52million,thestudyfound.“Thisshowedthatwecanreallytrackandmeasureadded-valuewhenbrandsdogood.”

Thediscoveryledhimtobeginshapinganew“integritybranding”concept–embodiedinhisownBRANDTRUST initiative, that could open the door to real engagement with potential partners among leadingcorporations.“Theconceptplaysdirectlytothetangibly-enhancedbrandvaluesthatmanyfinancialanalystsseemtocurrentlyignore,butwillnotbeabletocontinueignoring,”hesays.

“Simplyput,theextentofabrand’ssocialresponsibilityisbeginningtoinfluenceandshapeanewsetofbrandvaluationmetrics–existingbrandvalueandreputationboostedbysocial-purposevaluewhichinturnisaboutcreatingvaluewithvalues,andprofitwithprinciples.”

Asconsumersmoveincreasinglytofavourbrandsthataregenuinelydoingtherightthingsocially,economicallyandenvironmentally,companieswillthemselveshavetoaddressthischallenge,Buffeeargues.

ButthesightsofBRANDTRUST–whichhesayshisthreedaysatthe2008Forumhaveinspiredhimtoreinvigorate–aresetwellbeyondthecompaniesandmulti-nationalcorporationsbasedinrichcountries.“Iwanttoinvestigatenewethicalbrandconfigurationsthateffectbrand-co-ownershipandresultingreatersharingofabrand’sintangiblevaluewithpoordevelopingworldproducers,”hesays.

Today,upto90-95%ofproductvaluegoestothebrandidentityestablishedbythedistributionchain,andstudiessuggestedthatbrandvaluemakesupasmuchas80%ofthetotalmarketcapitalizationofbothmajorcorporationsandsmallercompanies.

“Thesadrealityisthatjustafewdevelopingworldproducersarefortunateenoughtogainownershipoftheintangiblevalueassociatedwiththeirproducts,”saysBuffee–whoisalsofounderandleaderoftheAfricanOrganicFarmFoundationwhichaimsto integrate farmingandnationalresourcemanagementtogenerateeconomicandsocialsustainabilityacrossseveralcountriesofSouthernAfricawhichfacethethreatofpotentialdevastatingenvironmentaldecline.

“Withoutdoubtachievingco-ownershipofbrandsisgoingtobearealbreakthroughforAfricandevelopment,”hepredicts.Newco-ownedethicalbrandswouldensurethattheoutflowofmillionsofdollarsinlostvaluebeinggivenawaybyAfricanproducerstobrand-marketingcompaniesishalted,andmoreequitablyshared.

“ThisistheexcitinggoalIamtargetingwithBRANDTRUST–New,moreequitablemarketmechanismconfigurationsinordertobuildrealwealthforpoorproducersratherthanjustextrapennies,”declaresBuffee.

“Achievingthesenewconfigurationsisgoingtoprovidethatbigstepneededtoenablepoorfarmersandproducerstoriseoutofpovertybysharingownershipofthecrownjewelsofcapitalism–successfulbrands.”


corporatepurchaserlearnsthataproducerhasalargercarbonfootprintthanoneofitscompetitors,itcandemandalowerpricebyarguingthatthecarbonratingwillcauseproblemswith itscustomers.Thisdoesnotsolvethe issueofcarbonemissionsandworksagainstthedevelopmentaimsofethicaltradesupporters.Sandersonargued:“Ifyouwanttocreatevalueforthedevelopingcountries,youneedtofocusontheirneeds.”

Sanderson added that because corporations are beginning to include theirenvironmental accomplishments andotherprogrammes involving corporatesocialresponsibilityintheirannualreports,itisonlyamatteroftimebeforeauditingfirmswillwanttomeasureandevaluatethisperformanceifitformspartofanofficialfinancialreport.Manyissuesarise,therefore,regardingthecompleteness and accuracy of certification information. In response, Onuasked:“Whowillholdtheaccountantsaccountable?”

Furthermore, Sanderson noted, the big brands are largely uninterested inparticipating in standard certification programmes and support only thosetheyestablish.“Theyhavethemeanstoadvertisetheirstrengthsthemselves.Thatwaytheycankeepall theglory for themselves,”hesaid.Nonetheless,bothOnuandBuffeeargued,giventhenewmeansofcommunicationavailableto them, consumers collectively may be able to force their will on the bigbrands.Buffeeconcluded:Whiletherearemanyissuestoresolve:It’saboutrecruitingnewconsumersintothecause.Theywillbecomeengagedwiththerightinformation,education,andtrustintheprocess.”

Chapter 6

Sustaining and distributing value

Canethicaltradebeapanaceafortheproblemsofdevelopmentformarginalcommunities?Canitdeliveron its promise of environment improvements, poverty reduction, genderawareness, achievement of theMillenniumDevelopmentGoals?Does it still representaviablebusinessmodelable to succeed inthemarketordoesitdependontechnicalassistance,developmentsupportandgoodwill–fromdonorsandconsumers–toachievethesegoals?

DiscussionduringITC’sWorldExportDevelopmentForum2008concludedthat ‘business as usual’ can certainly not deliver on the UN’s MillenniumDevelopmentGoals(seeIntroduction).ButhowmustbusinessesintheNorthandSouthchangetoachievethe«GlobalPartnershipforDevelopment»assetoutinMDG8?ThisgoalcallsforapartnershipbetweenthepublicandtheprivatesectorsoftheNorthandtheSouthto«developfurtheranopen,rule-based,predictable,non-discriminatorytradingandfinancialsystem”and,itsays,“includesacommitmenttogoodgovernance,developmentandpovertyreduction-bothnationallyandinternationally».

But some participants did express doubts whether the benefits of what isadmittedlyonlyasmallpartofglobaltradearedistributedwidelyoreffectivelyenoughtoenabledevelopingcountryproducerstomakethequantumleapintogenuinesustainability.However,asignificantnumberofForumparticipantsexpressed the view that the underlying drive for ethical trade will have asnowballeffectthatpushesandpullsproducersandconsumersaliketowardsamoreequitableworld,onewhereaspirationwillbecomereality.

For now, many people still question whether fair trade, with its commonfocusonpoorcommunitiesinmountainareas,isinfactsustainabletrade.Forinstance,RainforestAllianceinsiststhatitisinthebusinessofsustainabilityratherthansimplyfairtrade.Thequestionremainswhetherethicalprinciplescaninfluenceoveralltradeinapositivedirection.Thefairtradersarethemselvesconvincedthatitcanandpointtoanecdotalevidencethatsuggeststhisisso.ButresearcherSimon BolwigoftheTradeandDevelopmentResearchUnitattheDanishInstituteforInternationalStudies(DIIS)hasnotbeenabletofindevidenceeitherwaysofar.

The session presented three different approaches, not necessarily mutuallyexclusive, to put a global partnership to work and to deliver for povertyreductionanddevelopment:

❑Aglobalpartnershipasper internationallyagreedpolicy frameworksandthemultilateraltradetalks.

❑A global partnership through market mechanisms and consumer-drivendevelopmentalconsiderationsforproductionandtradeofgoodsandservices

44 Chapter6–Sustaininganddistributingvalue

❑AglobalpartnershipbasedonCorporateSocialResponsibilityandownershipofdevelopmentbytherecipients.

Anne MacCaig, CEO of CaféDirect PLC in the UK, used her company’sexperiencetoanalysetheissues.Setup17yearsagoduringaglobalglutofcoffeeproductionandaresultingsharpfallinpricespaidbythetraditionalmiddlemerchant-buyers and end-product manufacturers in the North,CaféDirectpurchasedonecontainerofgreencoffeeeachfromthreedesperatecommunitiesinMexico,PeruandCostaRica.Thebeans,onceroasted,weresoldinchurchhalls,incharityshopsandatlocalevents.Todaythecompany–oneofthefirstethicaltradeorganizationstofloatitselfpublicly–workswith39growerorganizationsacross13developingcountries,usingover260,000farmersanddirectlyimprovingthelivesofmorethan1.4millionpeople.Thegrowthofbusinessshowsthatthepotentialistheretomakearealdifferencetoproducers’lives,evenifitisstillnotfullyrealized,MacCaigargues.

Major challenge in helping producers

But the CaféDirect boss recognizes there is a major challenge in helpingproducers add value and move up the chain to achieve a truly sustainablebusiness. Value has to be taken back into developing countries so thatproducerscouldearnmoreandachievesustainablebusinesses,saidMacCaig.“Butitisvitalthatbusinessesareefficientandabletocompete.Itiscrucialtodeveloplocalmarkets.”Sheisawarethatrelyingonexportmarketsaloneisnotapanaceaforethicalproductiontoflourish.

MacCaig was backed by Willington Wamawaye, General Manager of theGutmutindoCoffeeCooperativeinsouth-eastUganda.Gutmutindocoverssixvillagecooperativeswithjustover3,000farmersproducingwashedArabica.ItworkswithanalternativeUKtradingorganizationthatsourcesfair-tradecoffee for partners like CaféDirect. Wamawaye told WEDF participantsthat the arrangement offers a stable market and encourages the growth ofcloseandlong-termrelationshipsrightalongthevaluechain.SinceFairtradecertification in2004and through judicious investmentofpartof thepricepremium,ithasmadepossibleagradualimprovementinhouseholdincomesandvillage infrastructure inanotherwisedeprivedarea. Ithasenabledthecommunitytobuildaclinicandhasgivencoffeefarmers, largelywomen,asenseofempowerment.

Profit and non-profit working side by side

ABangalore-basedcompany,IndustreeCraftsproducesgoodsthatrangefrompackagedfoodandclothingtoofficeaccessoriesandhomedecorsuchasfloortiles based on Indian patterns. Its aim, says co-founder Director Neelam Chhiber, is to ensure maximum benefits for rural artisans by assuringthem amarket for their products. The tiles are sold in theUK through acompanycloselyinvolvedintheethicaltradingmovement,INTERFACEflor.ForChhiber,thefor-profitmodelhasproveditsworth,enablingtheartisansto survive business cycles. Its “non-profit” arm works on building up theproductionbasebyencouragingartisans to invest in theirownbusinesses.

45Chapter6–Sustaininganddistributingvalue

This has become increasingly possible in India with the rise of micro-financing.Artisansdonotneedthecostlyadministrative layers thatmanytradesupportinitiativesinvolve,saysChhiber.Theycanorganizethemselves,workingtogethertoacquirethetoolsandtechnologyneededtomoveupthevaluechain.

Thiskindofprofit/non-profitlinkageandpartnershipcanbeamodelformanysmallproducersseekingtoexpandtheirbusinessandgetintoexporting.

Box8. Movingartisansupthevaluechain

WhentheITCspeaksoftheneedtohelpThirdWorldartisanproducersmoveupthevaluechain“itislikemusictoourears,”saysIndiansocialentrepreneurNeelamChhiber.

TheBangalore-basedcompanyIndustree,ofwhichChhiberisaco-founder,hassoughtoverthepast12yearstodojustthatforthesome3,000ruralIndianartisanswithwhomitproducesawiderangeofhouseholdgoodsandaccessoriesmadefromnaturalfibres.Salesin2007topped$1million,withexportsaccountingforaroundonethird.IkeaandInterfaceUKareamongstIndustree’sinternationalclients.

Unlikefarmers,who“atleasthavealobby”,India’smillionsofruralartisanshavetraditionallyattractedlittleofficialattention.Artisansneedhelpinaccessingmarketsandincreatingproductssuitableforincreasinglysophisticatedconsumers,shesaid.“Forexample,theymaybemakingcheapgrassmatsfortheirlocalvillagemarket.Wetrainthemsothatthegrassissplicedfiner,itiswoventighterandthecoloursarebetter.Theystartmakingahighervalueproductforopenmarkets.”

“Itisnotjustaboutthemmakingasleepingmat.Inurbancentres,peoplesleeponbeds,somaybeitcouldbecomeayogamat,afloormat,whichmayneedtobeheavier.Theycouldmakeplacematsorboxesorcushioncovers.”Butsheinsists:“Iftheyaretomakethecompleteproductinthevillage,theyneedaccesstotraining.”

Around80%ofIndustree’sartisansarewomen.“Itiseconomicallymorebeneficialifyoustartwiththewomen;ithasabetterrippleeffectbecausewomenusethemoneybetter,spendingitongettingbetterfood,educationforthekids.Itisabetterglobalstrategytoworkwiththewomen,”shesaid.

Industree’s philosophy is that the artisans themselves shouldalso invest in creating thenecessary businessinfrastructure.ItismadeeasierinIndiabythefactthatbetween60and80percentofruralwomenbelongtoso-calledself-helpgroups,whichcangivethemaccesstofinancing.“Ifthegrouphasahistoryofsaving,lendingwell,thegroupiscalleda‘ functioninggroup’andbanksareauthorizedtolendthemthreetofourtimes[theamounttheyhold].Theycanthenhaveaccesstocapital,”Chhiberexplains.“Itisadevelopmentstrategyofthegovernment.”

Shenotes:“Ifyouwantpeopletomoveupthevaluechaintheyneedaccesstobetterinfrastructure.Itisnotjustaboutbuyingacowandgettingmilk.Itisaboutbuyingafridgesothatthemilkdoesnotgetspoilt,makingbutteretc.Normallythisisdonethroughacooperativeandsomebody,saythegovernment,comesinandsetsuptheinfrastructure.Wearelookingatadifferentmodel.Youcannotalwayswaitforsomebodytostepin.Wearelookingatgroup-ownedenterprisesinwhichwe,too,haveaninvestmentalongwiththelocalbank.”

Only a commonly owned infrastructure makes it possible for rural artisans, who often live in differentcommunitieskilometresapart,tomoveupthevaluechain,Chhiberdeclared.“Iftheyhavetodyematsthesamecolour,theyneedaccesstoacommondyeingfacility.Ifsomebodyordersathousandredmats,youcannotsendthemalldifferentshades,itdoesnotwork.Youneedacommondyeingfacility.”

Industreealsowantsartisanstobecomeshareholdersinthecompany.Ithassetaside14percentofitscapitalforartisanstobuysharesataparticularlyadvantageousrate.“Webelievethewealthiscreatedinthebrand.Ifyoureallywanttomovethemupthevaluechainthentheyneedalsotohaveastakeinthebrand.Intheartisansectorthisiskey,”shestressed.

ThecompanysellsthroughitsownstoresandthroughleadingIndianretailoutletsunderitsIndustreebrand,CurrentlyitispreparingtoopenuplargerformatstoresacrossIndia,withthefirststoreinBangalore,underthenameMotherEarth.IndustreewillbecomeMotherEarth,andthestorewillsellalotofothersocialbrands.


Ethical trade: Does it come at a development cost?

Thefreetrade/fairtradedebate–whetherethicaltradecomesatadevelopmentcost–cametotheforeinaForumplenarywhereWorldTradeOrganization(WTO) Chief Economist Patrick Low and Robin Cameron of FairtradeLabelling Organizations International (FLO) were panellists, along withKhalid SheikhoftheUKCliftonPackagingGroup.

Therecentriseinpopularinterestintheissues,Lowsaid,isverymuchrootedinafeelingthatthecurrentsystemisnotworking.But“ethicaltrade”isanimpreciseterm.Itcoversawidespectrumofconcepts–fairtrade,environmentalprotection, sustainability,organic farming, gender equalityandhumanandlabourrights,amongmanyothers--thatdonotnecessarilysitwelltogether.

Inthislight,heposedfivequestionsaboutethicaltradeinitiatives:

❑Dotheygenuinelysecurearedistributionofbenefits?(Brandvalueremainswiththemarketersandretailersanddoesnotcomebackdownthechaintotheproducers.)

❑Dotheyinfactachievethegoalsforwhichtheyaredesigned,ordotheyhaveunforeseenconsequencesforothersectorsofanationaleconomy?

❑Dothey,becauseoftheirexclusiveandpiecemealnature,putotherproducersofthegoodstheycoveratadisadvantage,perhapsdrivingthemdeeperintopoverty?

❑Aretheydurable, inthesensethattheyareenabling,ordotheydependonprivileged arrangements that itmaynot bepossible tomaintainoverlengthyperiodsoftime?

❑Does the “feel good” factor they create among consumers not carry therisk of diverting attention from wider-ranging efforts to achieve morecomprehensiveandeffectivesolutionstotheunderlying issuesofpovertyandunder-development?

Ethicaltradeinitiativescouldcertainlyofferaccesstowhatforsomeproducerscouldbepromisingnichemarkets,butthiswouldprobablynotbeenoughtoenablethemtoreallyclimbupthevaluechain.Inotherwords,Lowsuggested,wouldtheenergyandenthusiasmdevotedtothese initiativesnotbebetterspentinworkingthroughtheWTOforafairerglobaltradingsystem,that,amongotherchanges,wouldbringtheeliminationofdevelopedcountrytariffescalationthatpenalizesproducersintheSouthwhoseektoaddvaluetotheirgoodsbyprocessingandpackagingthemselves?

Exportinghasplayedan important role in the company’sdevelopmentby teaching ithow tohandle scale,Chhibersaid.“Yougetordersforthousandsofpieces,whichwouldneverhavehappenedinthedomesticmarketwhereitwasmorevarietythanvolumes.”

Anotherimportantelementinthecompany’ssuccesshasbeenitshybridstatus.Industreehasboth“ forprofit”and“non-profit”arms.Itisthroughthenon-profitfoundationthatthecompanycarriesoutcapacitybuildingwiththehelpofstategrants.

“Weneedtobuildcapacity,weneedtotrainartisansinnewskills.Thisisnotentirelypossiblewithinaprivatecorporation.Youhavetohaveaccesstoboth‘ forprofit’and‘nonprofit’funds,”shesays.ItisoneofIndustree’sstrengthsthatitknowshowtocombinebotharmswell.


Inaseparatesession,Grant Aldonas,PrincipalManagingDirectorofSplitRockInternationalintheUS,turnedthequestionaround.TheDohaRoundofnegotiationson trade liberalization is supposed todeliverdevelopmentalbenefitstopoorcountries.Butithasbeennegotiatedonconventionaltradeterms.Ifcountrieshadreallyembracedtheprinciplesofdevelopmentinthewayconcessionswerenegotiated theoutcomeswouldhavebeencompletelydifferent,andthecurrentproblemsintyingupagreementsmightnotexist,hesuggested.

Vigorous defence, optimistic outlook

Cameron, while accepting that fair-trade offers no ultimate solution fordevelopment problems, mounted a vigorous defence of the concept andofferedanoptimisticoutlookforitsfutureexpansionintonewareas.Hisownorganization,whichservesasastandardsandcertificationbody,isworkingwithfair-tradeproducers in58countries.Through20national initiatives italsolicencestheFLOlabeltoindustry.

Cameron rejected assertions by critics of the fair-trade concept that italmostexclusivelybenefitsfarmersalreadypossessingtheirownland,andinparticularrelativelylargelandholders.“Thereisahugecasetobemadeforthebenefitsfairtradecanbringtolandlessworkers,”hesaid.FLOseesitscurrentprogrammesofworkingwith largedevelopingcountryproducersemployinglandlesslabourasamajorgrowthareaforthefuture.

Robust demand

“Ibelievethereisarobustdemandforfair-tradeproducts,”hetoldtheForum.FLO labels offered consumers an independent guarantee of productionstandardsthattheycouldtrust.IncentralandeasternEurope,threeformerSocialisteconomies–theCzechRepublic,SlovakiaandSlovenia–havebeenthefirstwhereconsumersinthisregioncanbuyFLO-certifiedproducts.InHungaryandEstoniamanufacturers,aswellasretailers,arebeinglicensed.EconomicslowdowninEuropecouldleadthegrowthcurveforfair-tradesalestolevelofftemporarily,althoughnoactualdropinsalesseemslikely.However,Cameronargued,thereishugepotentialforSouth-Southgrowth,tappingintoarising“ethicalconsumer”conscienceamongtheemergingmiddle-classesandbetter-offsectorsofsocietyindevelopingcountries.

AlreadyFLOworkswiththreetransnationalfair-tradesupportorganizationsforsmallandmedium-sizedfarmersandproducersinAfrica,intheCaribbeanandLatinAmerica,andinAsia,allofwhichhavebeenestablishedoverthepastfourtofiveyears.In2007theSouthernAfricaFairTradeNetworkwaslaunchedwiththeaimofexploringmarketopportunitiesinotherdevelopingcountries for FLO-certified products including craft goods, jewellery, wine,coffeeandtea.

true test of success: Extinction

There are problems with fair-trade, Cameron agreed. “It is not the onlymechanism.Itisnotapanacea.Therearetimeswhenwegetitwrong.”He


acceptedthatfarmershadsometimesgonetotheexpenseoflaunchingintothecertificationprocessonlytofindthattheexportsalestheywereexpectingwouldnotberealized.However,this issueisbeingaddressed.“Wehaveanextensivenetworkofliaisonofficerstoensurethatproducersdon’tcomeinonthebasisthattheywillgetamarketcomewhatmay,”hesaid.Intheend,heargued,fair-trade“ismakingaverypositivedifference,andwearegoingtokeeppushingaheaduntilweseethekindofchangesthatmeanwenolongerneedtoexist.”

Does one size fit all?

Inaworldof rapidly evolving social andenvironmental change, companiesinbothdevelopedanddevelopingcountriesarecompelledtoreviewbusinessmodels that have until now been successful. The ethical and fair-trademovements,feedingonpublicconcernintheNorthovercontinuingand,insome regions, growingpoverty in theSouth,have increasedpressures forarethinkalongthelinesoftherecommendationsoftheFrameworkforAction,set out in 2007 by former United Nations Secretary-General Kofi Annan,onhowbusinesscanbesthelpensureachievementoftheUN’sMillenniumDevelopmentGoalsby2015.

Yet,giventhewidevarietyoflocalconditionsinwhichcompaniesoperateindevelopingcountries,cantherebeasinglemodelansweringtheprescriptionsoftheFramework?Towhatextentshouldfairandethicaltradecertificationandlabellingbeintegratedintothemodel?

As a possible response to points made earlier in the debate, John Viljoen,Managing Director of the Australian iedex group, warned that widespreadlow-costmodelsofthepastarealmostcertainlydoomedtofailuretoday.Bothimportingcompaniesindevelopedcountriesandtheconsumerstheyserveputahighpremiumonobservanceofsustainabilityprinciplesintheproductionofthegoodstheypurchase.

Global warming will require investment to cope with the new technicalchallengesitcreates,whilethedemandofmarketsforconsistentqualityandsafeproducts“requiresatechnologyinvestmentbeyondalow-costmodel,”hesaid.

Further,businesseswillhavetoincorporateintheirmodel,atsomeadditionalcost,systemstoprovideevidence,ratherthanjustassurances,thattheytakesustainabilityseriously.Certificationandlabellingaretheobviousroute,butshouldnotdominatethepathchosen.“Don’tlosesightofyourbusinessmodelandbecomeaslaveofcertification,”Viljoencautioned.

North-South company partnerships

Toeasetheburdenofincorporatingsustainabilityprinciplesintothemodelfor companies in both North andSouth, partnerships between groups andindividualbusinessesisapromisingwayforward,Viljoensaid.Forthebuyerinadevelopedeconomytheyofferthebestwayofensuringatanacceptablecost theconsistentproductqualityandsafetydemandedbythepublicandgovernments.


Forsuppliersinadevelopingcountry,partnershipsprovidebusinessstability,accesstosustainabilityinvestmentfundingfromtheNorthernpartner,andwhat he called “a truly scalable business” allowing a company to use thepositiveprofilecreatedtogainentryintootherdevelopedmarkets.“Althoughtherearesomeseriousobstaclestoovercome,Ithinkthepartnershipmodelhas great potential because it makes business models globally sustainable,whichshouldbeourultimateobjective,”hedeclared.

John James,ProgrammeDirector,SouthernAfricanBusinessLinkages,alsofavoursthisapproachbutwithspecialemphasisontie-upsbetweennationalbusinessestoshareexperiencesof,andthegenerallyburdensomeproceduresand costs involved in, reshaping models through standards certification tomeetsustainabilityrequirementsandthechallengesposedbyclimatechangeand newly-emerging social patterns. In South Africa, he said, purchasingpower has largely shifted from the formerly dominant but minority whitecommunity to the majority black population. This requires changes in therangeandtypeofproductsacompanymakes,aswellasadjustmentstotheproductsofferedintheservicessector,whileatthesametimecreatingnewbusinessopportunities.

Jamesarguedthatsmallandmedium-sizedcompaniesmustlooktotheirlocalsupply chains and ensure that they are functioning on a sustainable basis,beforeattemptingtoventureontotheinternationalmarket.“Ethicaltradeandbusinessbeginsathome,”hesaid.Oncertification,businessesshouldviewtheprocess“notasacost,butasaninvestmentinthefuture”.

Role of women in business

InSouthAfrica and the regionaswhole, Jamesnoted, theparticipationofwomeninestablishedbusinessisstillrunningatarelativelylowlevel,althoughitisundoubtedlyontherise.Atthesametime,recentsurveysshowedthatwomenfaroutscoredmeninawarenessofsocialissuesandtheneedtotacklethemsuccessfully.

“Women are more progressive in their social outlook,” said James, andcompanies determined to improve their corporate social awareness shouldtapintothisreservoiroftalent.“Itseemstomethatweneedmorewomenprovidingleadershipingovernment,corporationsandpolicy-makingbodiestogetthesustainableandsocialconscience-drivenmodelthatweneed.”

What consumers want and how to give it to them

Harriet Lamb,ExecutiveDirectorof theUKFairtradeFoundation,arguedthatanysuccessfulbusinessmodelintheworldtodayhastobebasedontheconsumerdemandforsustainability.“Nobusinesswouldarguethatyoudonothavetogivethecustomerwhathewants,”shesaid.Theexponentialgrowthofthefair-trademovementhasencouragedcompaniesthatinthepastpaidlittleattentiontothemethodsusedtoproducemanyofthegoodsfromdevelopingcountries that theysell to switch their sourcing tocertifiedsuppliers. Inatleastonewell-publicizedcase,amajorsupermarketchaintookatemporarylossinprofitsduringtheadjustmentperiod.Shedidnotaddressthequestionwhetherthiswouldbepossibleforsmallbusinessesindevelopingcountries,


butadvised:“Whenthe(developedcountry)publichearsthatcompaniesaredoingtherightthing,theyarereadytopaymorefortheproduct.”Thishadclear implications fordevelopingcountryproducers.“Thepublichasshownthatitisreadytomaketradeandbusinesssociallyresponsible,”shedeclared.

However,forabusinessmodelbasedonsustainabledevelopmenttobeassuredofsuccess,aconcertedeffortofmarketingandcommunicationisrequiredtoensurethatconsumersat largeareawareof thechoicestheymakeandtheeffectthesecanhave.Lambsuggestedthatcustomersalreadyconvincedofthe“moralsuperiority”oftheirsustainablepurchasechoicesarethebestbearersofthemessagetothepublicatlarge.

Summing up the discussion, moderator Osman Atac of ITC said thereappeared to be consensus that non-compliance with standards, or withconsumerdemandsbasedonsustainability,arenolongeranoptionforanycompany.However,therearegoodbusinessreasonstooptforasustainablemodel.Doinggoodmakesgoodbusinesssense.Atthesametime,companieshavetocommunicatewhattheyaredoingiftheyaretogainanycompetitiveadvantagefromtheirchosenmodel.

Embracing consumer conscience: A strategic approach

The rise of the conscientious consumer, coupled with the common North-South interest in economic and environmental sustainability, makes oldstrategies forpursuing international trade relationsnotonly redundantbuteven counter-productive.Trade canprovide a stimulus todevelopment andethicalprinciplesofferaframeworkaroundwhichnewstructurescanbebuilt,participantsinForum’s2008’sfinalplenaryagreed.

A national vision

Presentingthevisionofasmallbutgeographicallydiversecountryofnearly14millionpeoplewhoseeconomyhasbeenlongdominatedbybananaproductionand the oil industry, Ricardo Estrada of Ecuador’s export promotionorganization CORPEI sees pursuing niche markets for ethical goods as anintegral elementof anewNationalExportStrategy,workonwhichwas tobeginshortlywithITC.

Thegovernment,tradesupportinstitutionssuchasCORPEIandproducersandexporterswouldbeinvolvedinthedesignofthestrategy.Itwillincludecarefulanalysis of value chains to establish where Ecuadorean companies neededtoadapt to complywith consumermarketdemands thatworkersbebetterpaid,thatwomenhavegreataccesstoemployment,thatcarbonemissionsbereducedandthatconsumptionofwaterbeminimized.Companieshadtobeencouragedtoworktogethertowardsachievingtheseaims.

Government policies should be shaped to create an environment helpingproducersandexportersalike tocomplywith sustainability requirements–byallocatingresourcestoprogrammespromotingcertification;creatinglong-andmedium-termfinance arrangements for the adjustments thatwouldberequired; and by investing in research and development into technologiesthat could ease the transition to sustainable production. The government


shouldalsoensurecreationofanationalinvestmentclimateencouragingbothnationalandforeign ‘ethical’capital tomove inandactasdriversof fastergrowth,saidEstrada.

The role of trade support institutions should be to identifynichemarkets,analysetheirpotentialandkeeptrackoftheirgrowth.Theyshouldalsopromoteandco-financewherepossiblethecertificationthatmeetingtherequirementsofthesenew‘ethical’markets,andcarryoutcertificationprogrammesforthegovernment.

Populist backlash

Grant Aldonas said it is vital – amid a clear populist backlash againstglobalizationthatislikelytogrowwithworldeconomicrecession–tomakecleartoconsumersatlargethatinternationaltradecanbeethical.Otherwiseprotectionistsentimentcouldgrow,tothedetrimentofeconomiesandlivingstandards intheNorthaswellastheSouth.Tothisend, inaworldwhereimportersandmultinationalcorporationsdrawtheirgoodsandcomponentsfromawide rangeof sources, supplyandvaluechainshave tobecarefullymanagedandshowntorunsmoothlyandsustainably.

ForproducersintheSouthandtheirNorthernbusinesspartners,onepracticaltoolisa“supplychainmap”identifyingstakeholdersandtheirinstitutionalaffiliationsandrequirementsallalongthechain.Suchamapcanalsoshowwhere barriers, more likely today to be linked to standards rather than totariffs,exist,andhelpsbringbuyerstomarkets.

Policy support

Speaking from theperspective of a governmentdonororganization,Hans-Peter EglerofSwitzerland’sStateSecretariatforEconomicAffairs(SECO),saidanationalstrategypromotingsustainabledevelopmentcouldonlybelongtermandmustcovernotonlyproducercountriesbutalsothehomemarketand its consumers. SECO itself had a mandate to inform the Swiss public– includinggovernmentofficials,NGOsandeven school students --on theissuesinvolved.

Indevelopingcountries,donorbodiesshouldoffersupportfortheelaborationofpoliciesandregulatorycontrolsrelatingtosustainableproduction,sharingtheirownnationalexperienceinareassuchasorganicfarming,Eglersuggested.Financing should also be directed towards helping to develop local know-howoncertificationandcreationoflocalbodiestoconducttheprocess.ItisimportanttodemonstratethatcertificationisnotjustademandimposedbytheindustrializedNorthbutsomethingthatisaninvestmentratherthanacostandworksinthecommoninterest.

The elaboration of standards also needs to be democratized, said Egler.Developingcountrygovernments,producersandcivil societybodies shouldbe closely involved. Donor support programmes should be action-orientedwithtargetedimpact,butalsoflexibleandopentocontinuousadaptationandimprovementbasedonfeedbackfromtherecipients.

ITCDeputyExecutiveDirectorStephen Browneaskedwhetherthecurrentinternationaltradingsystem,althoughcloselyregulatedthroughWTOrules


andothermechanisms, couldbe seen as anymore ethical than theunder-regulatedglobalfinancialsystemattheheartofthecurrentworldeconomicturmoil.Developingcountriesstillfacemanyhightariffsontheirgoods,tariffescalationiftheyattemptedtoaddvaluetocommoditiesorrawproducts,andarangeofnon-tariffbarrierswhichthegrowingemphasisonstandardscouldextendfurther.Theeightroundsofglobaltradenegotiations–undertheoldGATT – have not brought as many benefits for the South as developmentspecialistshoped.TheemphasisondevelopmentinthepresentDohaRoundshouldhavemade itdifferent–which iswhynegotiatorsconcernedmainlywithdomesticpolicyimplications“arediggingintheirheels,”hesuggested.

ten principles for export development

Browne commended the 10 principles for export development embracingconsumerconscienceelaboratedbytheITCinits“Consumers,EthicsandtheEnvironment”pre-Forumpublicationasabasis foractionbypolicy-makersandbusinessesinthecountriesoftheSouth.

Thesesuggestedthatdevelopingcountriesthatwanttogainfullbenefitsfromtheethicaltradetrendshouldconcentrateon:

❑Exportswhichrespondtoconsumerconscienceaboutdevelopmentimpact;

❑Exportsthatarebasedonnon-exploitativeproductionsystemsandarenon-discriminatory,excludechildor forced labour,are safeandhygienic,andprovideadequateremunerationforallworkers;

❑Exports that result in thenet creationof new jobs, bearing inmind thegenderdimension;

❑Exportsthatconnectpeoplewithnaturalresourcessustainably,ratherthanalienatingthemfromtheirenvironments;

❑Export that are lessdetrimentalor, evenbetter, beneficial to thenaturalenvironmentthroughtheproductionandconsumptionstages;

❑Exportsthatarecompatiblewithmeetingfoodsecuritygoals;

❑Exportsthatarelinksininternationalglobalchainsandexportsfromlargernationalandmultinationalcompanieswhichutilizetheoutputsofmicro,smallandmediumenterprises;

❑Exports that promote complementarity and interdependence amongstdevelopingcountriesanddevelopregionalmarkets;

❑Exportsofgoodsandservices frommicro,smallandmediumenterprisesthatareprofitable;

❑Exportstogrowing,ratherthanstagnating,globalmarkets.

Implementationoftheseprincipleswouldhelpthemestablishafirmpresenceon Northern markets for ethical goods and services, he said. The type ofprogramme that theyoutlinewould alsopoint theway to an expansionofSouth-Southtrade.“ConsumerconscienceissomethingofaNorthernconcept,butthereisnoreasonthatitshouldremainsoforever,”Brownesuggested.

Chapter 7

Learning lessons, taking action on ethical trade

The story of ethical trade so farhas beena sagaalmost exclusively of civil society initiative, privateendeavour,individualstruggleandnon-governmentalachievement.

AgroupofLatinAmericancoffeeproducerstookthechanceofsendingthreeshippingcontainerstoEuropeinapricecrisis,leadingeventuallytoCaféDirect.A Ugandan cooperative persuaded a few coffee farmers to join together in1998.Today2,500farmersonMtElgonhelpsupplyMountaincoffeetoUKstores.ANigerianwomanusedherownfundstoprovidelocalwomenwiththeequipmenttosellcassavatoChina.AformerKenyanpoliticianandhiswifeworkedtohelpMaasaiwomensurvivehardtimesbysettingupabusinesstoexportjewellerymadefromgrass.AnIndiandesignerstartedamulticraftcompanywithonestoretoproduceincomeforvillagewomen.

But many of these entrepreneurs underlined the crucial role they see thatgovernmentsandtradesupportinstitutionscanplayinputtingtheirbusinesseson a sound footing, enabling them to flourish and encouraging would-beexportersinethicaltrade.

At different stages along the line, non-governmental organizations andothers,includingITC,cameintothepicture.TheUgandancoffeecooperativeorganizersareconvincedtheycouldnothaveachievedtheirsuccesswithoutCaféDirect. The Rainforest Alliance has been working with the food giantUnilevertocertifyoneoftheUK’smostpopularteas,afterthefirmbecamethe first company to commit to sourcing all its tea to the standards ofenvironmentalsustainability.PDS,thePeermadeDevelopmentSocietyactivemainlyinIndia’sKeralaState,haspraisedITCforhelpingitobtainessentialinformationonEuropeanmarkets.

Relationswithgovernmentarelesspredictable.WhileprobablystilltheonlyprivatesocialentrepreneurshipcompanyinIndia,theIndustreedesignfirmsetup anNGO tohandlebusiness contracts from the government.But itsmanagers remain convinced that the companyonly survivedbyholding totheprinciplesofprivateenterprise.TheNigeriancassavaexporterfoundnosupportfromgovernment,asshetoldtheWorldExportDevelopmentForum2008.TheKenyancoupledidnotneedgovernmentcashbuttheyareawareofhowdifficultitwouldhavebeenfortheMaasaiwomentobuildthemselvesasafetynetagainsthardtimesontheirown.PDSworkswiththeSpiceBoardof India to promote organic production and has funding from the WorldBank and UNCTAD. Probably the best known fair trade label, FairtradeLabellingOrganizationsInternational,hasthebackingandpatronageoftheUKGovernment.

54 Chapter7–Learninglessons,takingactiononethicaltrades

What can help ethical traders

ThoughfewofthesebusinessesshowcasedattheWorldExportDevelopmentForumnoted theyhavenotdependedonpublic finance, the entrepreneursandNGOsareclearwhattheywantfromgovernmentsandofficialsources,what would have helped them in the start-up phase, and what they neednow.ThesameideasrecurredlikeadrumbeatthroughtheForumin2008.Governmentsshould:

❑Foster abusiness environment that recognizes the specialneedsof smallbusinessexportersandstart-ups

❑Enablefinancialinstitutionstoprovidetheunderpinningfinanceforsmallbusinessesandnewexporterstotakepartinworldmarkets

❑Helpethicalexporters tofind informationonmarkets,buyers, standardsandconditions

❑Ensurethatstandardsarenotabarriertoentrepreneurship

❑Usetheirconsiderableprocurementpowertogivecontractstoethicalandsustainablebusinessesforsupplyingauthoritieswithgoodsandservices.

Nothingverysurprisinginanyoftheseproposals.Exceptthattheyarerarelyactedon,andhavenotbeentheruleovermostofthehistoryofethicaltrade.

Oneachofthesetopics,participantsintheforumhadavarietyofpracticalsuggestions,alongwithexamplesfromtheirownexperience,forexample:

❑Providesupporttobringentrepreneurs,particularlywomen,intotheexporteconomy

❑Givethemmanagerialtrainingandsimilarcapacity-buildingtoenablethemtocompeteeffectively

❑Extendlinesofcredittosmallfirmstotakepartinmajorethicaltradefairsthatcouldexpandtheirmarket

❑Help businesses find ethical trade partnerships with importing firms inconsumerconscience-drivenmarkets

❑Encouragecompaniesinthesamebusinesstojointogetherincertificationeffortstodefraythecostsforsmallproducersinobtainingafair-tradelabel.

Asisclear,fewoftheideasapplyexclusivelytoethicaltrade.RicardoEstradaofEcuador’stradepromotionagencyCORPEIreportedthatsimilarproposalsformpartofthedraftnationalexportstrategythathiscountryisworkingonwithITC.

the fair and the free

Infact,apowerfulcurrentofthoughtinthefairtrademovementisagainsttoomuchgovernmentinvolvementintheirbusiness–fearingslownessofresponse,ignoranceofbusinessrealities,minimumratherthanaspirationalstandards,andeveninstitutional jealousybyofficialsagainstentrepreneurswhoshakeupthestatusquo.

55Chapter7–Learninglessons,takingactiononethicaltrade

From the other side, ethical trade raises questions fair-traders find hardto answer because they are by definition not part of mainstream trade: Issupporting such efforts the best way for authorities to achieve nationaldevelopment? How useful are privately set standards in improving livingstandardsforlargercommunities?Howmuchdothelabelsactuallymean?Itisoftendifficulttoknow.Isitrighttounderpinmarginalcommunitieswhoseproductionisnototherwiseeconomicallyviable?

Manyoftheseexportersaresupplyingrawcommodities.Shouldn’tthemoneyrathergointomovingthemupthevaluechain?

Fair-tradeguaranteespricesbutnotamarket.Often,producerscansellonly20% of their harvest through fair-trade channels. Hopeful farmers haveinvestedinbusinessessuchascertifiedorganiccotton,whichtakesthreeyearstomaketheswitch,andthenfoundtheyhadnomarket.

Hitting the moving target

Againstthis,theethicaltraderscancitenumerousstatistics.Only3%ofthecostofachocolatebargoestothecocoaexporter.Themarketinsustainablyproducedgoodshasbeengrowingbyupto100%comparedto2-4%formostothers. And companies that embrace ethical trade seem to be weatheringthe current economic storm better than the others. Standards may be “amovingtarget”,asUlrichHoffmannofUNCTADsuggested,buttheycanalsoencouragemodernizationasproducersseekcertification,hepointedout.Fairtraderscanalsoclaimtohaveachievedtheiroriginalaim:Toimprovelifeforpoorcommunitiesexcludedfromconventionaltradechannelsorforcedtolivewith rockbottomcommoditypricesdue inpart tooverproductionbymorecompetitiveexportersforthemainstreammarkets.

Similarly, no matter what the answers to the questions from governmentsandcritics,allthespecialistsseemconvincedthatthenumberoflabelsandstandardswillcontinuetoincreaseinnumber,notleastbecausemajorretailerswanttodifferentiatetheirproductstodiscerningconsumers.

Fair tradersalsopoint to thecontinuing subsidies to richworldagriculturethatdistort commoditymarketsandsupplies, the slowprogress inopeningupworldmarketstodevelopingcountriesdespitetheeffortsofWTO,andtheacknowledgementthatstandardssetbyaretailerlikeWal-Mart,theworld’slargest retailer, will have an impact on developing countries beyond anygovernment-negotiatedagreementundertheWTO.ItwaspointedoutthattheDohaAgendamayhavebeenforadevelopmentroundoftradeliberalizationbutithasbeennegotiatedasaconventionaltradepactwithoutgivingprioritytothisadditionaldimension.

Consumers buy the story

Ethical trade exporters are also well aware of the power of consumerconscience.ItmaybeaNorthernconcept–buttherearesignsthatcountriesoftheindustrializingSouthareevenmoreferventsupportersofitsprinciples,evenifthechannelstosupplythemarenotyetestablished.HarrietLamb


of the Fairtrade Foundation says conscience-driven consumers in theUKwouldbuymorebut they cannotfind enoughof theproducts in theshops.

For small exporters like Katy and Philip Leakey as well as for the ChiefCreativeOfficeroftheadvertisinggiantJWTCraigDavis,consumers“buythestory”withethicalproducts–somuchsothatevenbigbankslikeHSBCareplayingtheethicalcardintheirtelevisionadvertising.“Communicationneedstobestrong,loudandvividthewholeway,”saysKatyLeakey.Thefrustrationnewexportersfeelishowtomaketheirstoryknown.HarrietLambpointsoutthatword-of-mouth, ratherthanadvertising,createdFairtrade’sexponentialgrowth.

Doubting voices in the supermarket

But is it all about the label and the story?Ethical tradingdoesnotalwaysinvolvealabelevenifitmeanscertification,forexampleonworkingconditionsandhumanrights.Evensomeethicalexportersaresuspiciousofthelabelsandlabelling.TheFairWearFoundationdoesnotseehowlabellingaspecificproductcanguaranteeanythingmorethanatemporaryimprovementinconditions.TeavaIro,Chairman,TitikavekaGrowersAssociation(GVA),CookIslands,exportscertifiedproducebutwouldrather see fruitandvegetables ticketedwitharatingoftheirnutritionalvalueratherthana fair trade label.RobinCameron of Fairtrade Labelling Organizations International (FLO) foreseesatimewhenthelabelwillberedundant,becausealltradewillembodyfair-trade’sdevelopmentprinciples.

Not surprisingly, a number of participants consciously reject “the MiltonFriedmanmodel”ofsocietyinwhichbusiness’sonly‘socialresponsibility’istomakeaprofit.Theyalsocautionagainsttryingtosetupanethicalbusinesstosupplytolargeretailchainswhosedrivingmotivationistooffergoodsatlessthantheircompetitors.

Thesupermarketsthemselvesmayhaveitwrong.HarrietLambseesethicalconsumers as a market the retail chains should be targeting – the “goldenshoppers” – tomaintainprofits in adepression,while fairtrade exports aremainlycommodityitemsthatareresistanttomassiveconsumptiondownturns.Behindthesupermarket’sownlabels–promotedonceasananswertoheavilyadvertisedandmoreexpensivebrands–mayliearealitythatthelowercostsare achieved at the expense of exporters indeveloping countries.Not onlyarethesesuppliersbeingforcedtoacceptexploitativecontractsbutarebeingforced out of the lucrative rebate-payingparts of the value chain andonlysurvivebypayingworkersless.Itisthesortofpracticethatleadsdevelopingcountryexporterstoaskwhether“ethicaltrade”principlesarenotmuchmorethanasham.

Consumer conscience in the business model

Consumerconscienceitselfmaynotextendasfarasexportershopeandmaynotoffer thebest businessmodel for long-term survival.TheSpar group,though itsadvertisingagencyTBWA,assistedITC inaskingcostumers in


itsSouthAfricanstoreshowmuchtheybuyaccordingtotheirconscience.AsSpar’sKevin O’BrienalsotoldtheForum,theshoppersputpriceatthetopoftheirconcerns,givingthesupermarketsratherthanthestorytellerstheedgeincredibility.Hence,theLeakeysargumentthatethicalexportersshould focus on markets where the story will be heard. For them, thesewereboutiques rather than supermarkets.Sunil Joseph of thePDS spiceexportingorganizationinKerala,India,agrees.“Wearenottryingtoselltotheworld,”heinsists.Smallfarmershavealimitedabilitytoproduce.“Wepickandchooseourmarkets.”PDSisalsotrainingfarmerstomanagetheeffectsofclimatechange,whenspicescannolongerbegrownintraditionalplaces but only in higher elevations and farmers will have to switchcrops.

Forexportersthemselves,itcanbeeasytofixonastorythatdoesnotsell.Ironically,ifnotunexpectedly,ethicalgoodsbegantotakeoffwhentheylosttheir “charity” tinge and began to compete on quality. The Leakeys foundtheirgrassjewellerybusinesssetuptohelpMaasaiwomenhadtoshakeoffits“ethnicdesign”characteristicstomakeitbiginUSspecialtystores.Neil KelsalldeliberatelymarketedhischocolatebarsfromMadagascarasaluxuryproduct intheswankiestUKstoresratherthanaThirdWorldexport.ThemajorMaxHavelaarethicalandorganictradeorganizationturnedtheCoopbananabusiness inSwitzerland intoa fair-trademonopolyby stressing thehealthinessofitspesticide-freeproducts,andMaxHavelaar’sformerbossinSwitzerlandhascreditedhersuccesstocomingfromthebusinessratherthanNGOworld.

Consumers need leadership

Even once you have the story right, fairtraders are convinced that ethicalconsumersneedleadership.“Consumerswouldliketohaveitsimple,butthisisverydifficult toachieve,” remarksBernhard Herold,Coordinatorof theFairWearFoundationofSwitzerland.Sometimescompanieshaveprovidedthislead,takingariskbyanticipatingmarketgrowth.

However,consumers themselvesare rarely informedofmarket realities.Forexample,theLeakeysnote,fewconsumersknowthatevenboutiquesusuallyrequireexporters to signcontracts tobuybackunsoldgoodsataprice theshops specify rather than the one they paid. This puts all the risk on thedeveloping country producer. Stuart Symington documented all the waysinwhichsupermarketscanimmiseratefruitandvegetableexporters(seetheIntroduction’sboxentitledCaughtintheSupermarketWars).Ann MacCaig ofCaféDirectnotedthatintryingtomoveTanzanianteafarmersupthevaluechainbyprocessingandpackagingtheirproductsshehastoweighthereturnsagainst the environmental costs of flying in the paper and cardboard. Theinformedconsumerisarelativeterm.

Thedebateoverlocalsourcingandtheimpactof“foodmiles”onthe‘carbonfootprint’ofairfreightedfreshproducts(seespecialsection)exemplifiessomeoftheproblemsofrelyingonconsumerconscience.Friedrich von KirchbachofITCsaidithasbeenestimatedthatproducingamilkcoffeefromamachineputsouttheequivalentincarbonemissionsofa1.5kmtripinasmallcar.Coffeeproductionaccountsfor30%oftheseemissions,providingthemilkfor38%,andbrewingthehotwater29%.


Confusion or clarity?

We may be “moving from a trust me world to a show me world” as Ged Buffeeof theAfricanOrganicFarmingFoundationsuggests,butanumberofparticipantssuspectcompaniesandactivistsofaimingforconfusionratherthan claritywith their labels and arguments.Herold suggests they can actas “a smokescreen in frontof the realperformanceof companies”.Daniele Giovannucci reports uncovering more than 400 private standards in foodandagricultureand243differentecolabels.Yetthisonlyscratchesthesurface.EvenhehadnotseenanumberoflabelsthatITCpublishedinitsmagazineafteraseparateresearchexercise.

Consumerconfusioncancomesimplyfromthevarietyofproducts,howeverlabelled.Celine Roche,Vice-Presidentinamajorflavoursandfragrancesfirm–thefirstsuchfirmtosigntheUN’sGlobalCompactforbusinessresponsibility,observesthat in1950thenumberofnewfragrances launchedtotalledonly10.ByOctober2008therehadbeen479thatyear–“veryconfusingforthecustomer”.Insuchaworld,retailbuyersforbigstoresspendanaverageofonly13secondsdecidingwhethertoorderproducts,Chris SellersofAgentricstoldtheForum.

Retailers,anticipatingcustomerneeds,alsowantcompletelyorganicessentialoils, Roche reported. But this is simply not possible at the moment, sheexplained. The volatility in prices and supplies of natural products meansmany,suchasvanilla,arebeingreplacedbychemicals.

Fair trade’s moral dilemmas

Agoldenopportunityforinterventionbyfair-traders?Notso,arguesRobin Cameron. FLO faces “a moral dilemma” in seeming to stamp its approvalonproductswherethediscrepancybetweenthepricepaidtotheingredientproducers and the cost to consumers of the marketed product is so huge.African farmers have asked FLO to put the label on tobacco, and othershavesuggestedwine,butheretoofair-tradeprinciplesrunupagainstotherstandardsthatconsumersmaysupport.

Bothsidesinthefairtrade/freetradedebateareawarethattherisksofbankingyourbusinessoncredibilitywithconsumerscanbehuge.OnewomaninSpar’s‘voxpop’saidshenolongerboughtChineseproductsbecauseoftwoscandalsearlier over toxic materials in exports. Ged Buffee, who has served on thecertifying InternationalForestStewardshipCouncil, suggests “trustmarks”willdeterminethecredibilityoflabelsinthefuture.Butattemptstosimplifyandharmonizestandardshavehadlittlesuccess,Giovannuccipointsout.

This iswhere internationalbodiessuchasWTO,theFoodandAgricultureOrganizationoftheUnitedNations(FAO)andtheInternationalOrganizationforStandardization(ISO)canpointtotheircomparativeadvantage.TheWTOagreements on sanitary and phytosanitary (SPS) measures were negotiatedbygovernmentsandapplyinternationally.TheWTOacceptstheFAO’sall-importantfoodandveterinarystandardsintheCodexAlimentarius(ajointprogramme with the World Health Organization). ISO observes that itsvoluntarystandardsareoftentakenoverbygovernmentstosetmandatory


national regulations. As WTO Director-General Pascal Lamy underlined,government-enforcedstandardsdonotrequireconsumerstoinformthemselvesintheshopinordertobesureofbeingprotectedagainstabuse.

trust and distance

For the rest, trust is often a function of distance, suggests ISO’s Kevin McKinley.Thisputsdevelopingcountriesatadisadvantageinseekingtoselltomoreconsumerconscience-drivenmarkets.Hencetheappealoflabelsandstandards.Theyoffer“acommonvocabulary,acommonlanguagetoreachanewcustomerinanothercountry.”

Ethicaltradeappealstobusinessesasawaytomanageriskaswellasguaranteesourcing.Forexample,madcowdiseaseintheUKdevastatedtheeconomiesofmanyruralareasdependentontourismforatleasttwoyears,Giovannuccireported. Standards thus appeal to governments concerned with overalldevelopment.Jochen KrebuehloftheGermanagencyGTZtoldtheForumanagencystudyfoundthatvoluntarystandardsnotonlyraiselivingstandardsand reduce pesticide use. They also had an impact on poverty reduction,preservationofbiodiversity,economicdevelopmentandgoodgovernance.

Nevertheless,ethicaltradeishardlyuniversal.TheUK’sOverseasDevelopmentInstitute (ODI) found African countries are massively underrepresented insuchschemes,comparedtotheirproportionoffoodexports,especiallywhenmultiple standards are inplace.The risk,Karen Ellis ofODI said, is thatethicaltradeisleavingoutthepoorestwhoneedthetrademost.AnnMacCaigadds:“Manysmallholderorganizationsarebeingparalysedbythecertificationsystems and the costs. It is such a resource-intensive process even to staywithinthatsystem.Weareabsolutelykiddingourselvesifwethinkthatthisisasustainablewaytooperate.”

Forproducerssettingupinethicaltradeoutsidetheestablishedorganizationalchannels,thechallengesofoperatingthebusinesscanbealmostimpossibletoovercome.TheLeakeysthoughttheiraccessoryandhouseholdgoodsenterprisewasabouttotakeafter155buyersshowedinterestatatradeshow.Withinthreemonthsthebusinesslostalmost90%ofthembecauseitwasunabletofollowupproperlyinthebushwherephonecallscost$4aminute.Withno-oneonthegroundtorepresentthemintheUS,theycouldnotcommunicatewiththeircustomers.

Supporting ethical trade

Whatkindofsupportwouldhavehelpedtheethicalproducerstodealwithsuchproblems?

❑TheLeakeyssuggestedthatyounggraduatesandbuddingentrepreneursinmarketingintheUnitedStatescouldhaveprovidedtheall-importantlinkwithcustomersatlowcost–iftheyhadknownwheretofindthem.

❑Otherssuggestedahow-to-guideforethicaltrade,settingoutthepitfalls,explainingstandards,andhowtogoaboutgettingintothebusiness.


❑Where are the outlets for ethical products? Participants said a guide tomarketopportunitiesisamajorneed.

❑Sellersobservedthatinaworldofmultiplestandards,coordinatedauditscouldreducecosts.

❑KevinO’BrienofSparproposedthatgovernmentsshouldstronglyencourageretailerstoengagewithsmallproducersandthelocalcommunities.

❑Exportersshouldlookatregionalopportunities:InEastandSoutheastAsia,three-quartersofhorticulturalexportsareintraregional.

Where does this leave governments and international organizations? Theexperts are convinced that governments shouldnotbe standard-settersbutact as an enabling and facilitating agent. They can undertake pro-activeadjustmentstrategies,forexample,byensuringcoherencebetweenofficialandvoluntaryrequirements,settinganationalpolicyframeworkandaddressingcapacityconstraints.Atthesub-regionallevel,governmentcanhelpbuildtheinfrastructureforcertificationandtesting.

the role of international bodies

UNCTAD, reported Ulrich Hoffmann, has several concrete activitiesto support adjustment policies. It is bringing NGOs into discussions onenvironmental requirements and market access for developing countries(somethingnotpossible inWTOat themoment).AlongwithmajorpolicyresearchgroupsitiscarryingoutanassessmentoftheimpactofsustainabilitystandardswithregardtoWTOregulations.

ISO has a Policy Development Committee on Developing Countries andpromotes twinning to enable developing country experts to lead standardscommittees,McKinleytoldtheForum.

Participantsalsosaidthereareanumberofkeyareas,whichITCandotherorganizationscoulddeveloptohelpproducers.

❑Integratedevelopingcountryproducersincooperativesystems;

❑Traincooperativesinmanagementpracticesandmarketing;

❑Listandexplainthemanylabelsthatexist;benefitsandchallenges;

❑Developtheunderstandingofbuyersaboutculturalissues;

❑Promoteknowledgeaboutethicaltradepractices.

Finally,apanelproposedacollectionofbestpracticesandinspiringsuccessstories.

Thisreportisinpartaresponsetothatsuggestion.

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