Consumer Conscience

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    EXPORT IMPACT FOR GOOD

    CONSUMER CONSCIENCE

    HOW ENVIRONMENT AND ETHICS

    ARE INFLUENCING EXPORTS

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    Street address: ITC,54-56, rue de Montbrillant,1202 Geneva, Switzerland

    Postal address: ITC,Palais des Nations,1211 Geneva 10, Switzerland

    Telephone: +41-22 730 0111

    Fax: +41-22 733 4439

    E-mail: [email protected]

    Internet: http://www.intracen.org

    The International Trade Centre (ITC) is the joint agency ofthe World Trade Organization and the United Nations.

    International Trade Centre 2009

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    Geneva 2009

    CONSUMER CONSCIENCE

    HOW ENVIRONMENT AND ETHICS

    ARE INFLUENCING EXPORTS

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    ii

    ABSTRACT FOR TRADE INFORMATION SERVICES

    2009 F-06.16 CON

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

    Reportreectingviews,examplesandsuggestionsonhowexporterscanbeneftromtheemergingopportunitiesintheareaoethicaltrade,asexpressedbytheparticipantsotheITCWorldExport

    DevelopmentForum,Consumers,EthicsandEnvironment,Montreux,Switzerland,8-11October,2008discussestheconceptoethicalconsumerismacrosstheentiresupplychain;innovationinmeetingconsumerdemandorproductscreatedbyethicallyandenvironmentallyacceptablemeans;publicandprivatestandards;sustainability-relatedfnance,socialentrepreneurship,andtransparencyviatheInternet;globalpartnershipintheserviceopovertyreductionanddevelopment,andtheroleowomeninbusiness;outlineswaysinwhichgovernmentsandtradesupportinstitutionscanhelpethicaltraders.

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

    EnglishITC,PalaisdesNations,1211Geneva10,Switzerland

    Cover:IllustrationbyGilesKershaw

    InternationalTradeCentre2009

    Allrightsreserved.Nopartothispublicationmaybereproduced,storedinaretrievalsystemortransmitted

    inanyormorbyanymeans,electronic,electrostatic,magnetictape,mechanical,photocopyingorotherwise,

    withoutpriorpermissioninwritingromtheInternationalTradeCentre.

    ITC/P239.E/ES/09-XI ISBN 978-92-9137-379-6

    United Nations Sales No. E.09.III.T.8

    ThedesignationsemployedandthepresentationomaterialinthispublicationdonotimplytheexpressionoanyopinionwhatsoeveronthepartotheInternationalTradeCentreconcerningthelegal statuso anycountry,territory,cityorareaoroitsauthorities,orconcerningthedelimitationoitsrontiersorboundaries.

    Mentionofrmnames,commercialproductsandbrandnamesdoesnotimplytheendorsementoITC.

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    Foreword

    Globalizationischangingtheconcernsoconsumers.Whileshoppersstillpayattentiontoqualityandprice,morethanevertheyareconcernedabouttheenvironmentalandsocialimpactsotheirpurchases.Theywanttoknowthatpeopleinvolvedthroughouttheprocessarebeingpaidairly,thattheproductsaresourcedinanenvironmentallysoundmanner,andthatthesupplychain

    ishandledethically.Becauseothischangeinattitude,airtradeandethicalmarketsaregrowingataasterpacethanregularmarkets.Buthowcanentrepreneursindevelopingcountriesbreakintothesemarkets?

    Thatwastheoverridingquestionatthethree-dayWorldExportDevelopmentForumo2008,whereover250expertsdebatedawiderangeoissuesrelatedtoconsumerconscience.Tosmallproducers,ethicalcommerceoersastablemarket;orlargedistributors,itoersdierentiation.Buttherearechallengesthat arenot easilyovercome:trade institutionsarenot alwaysclear aboutwhatkindosupporttooerandhow;andapplyinginternationalandprivatestandardscanbecostlyorproducersindevelopingcountries.

    Forethicaltradetobesustainable,expertsstatedthatproducersareadvisedtoocusoninnovation,andnotonlytoseekoutlow-costsolutions.Moresupportisneededorsustainability-relatedfnance,scalingupsocialentrepreneurshipandtransparencyviatheInternet.

    Amongallothetopicsdiscussed,therewasonebottomline:howtogrowethicaltradeasatooltoraisethestandardolivingoreveryoneinvolved.

    To those o you who joined us at the Forum, ITC thanks you or yourparticipation.GatheringslikethisareinvaluableinhelpingITCtoadviseitsclientsbetter.Forthoseoyouunabletojoinus,ITChopesthatthisbook

    helpsdeepenyourunderstandingotheissuesandoersadvicethatyoucanputintopractice.

    PatriciaR.FrancisExecutiveDirector

    InternationalTradeCentre

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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. Thecontentorthiseditionisbasedonreportsconductedduringtheeventbythesessionwriters,withcontributionsromITCstawhoservedassessionmanagers.

    ThecoordinatorandchieeditororthisbookwasPeterHulm.OwenSkaeandAntonJ.Saidwereco-editors.

    Writersovariouschapterswere:RobertCraword,RobertEvans,ChristianHelmers,PeterHulm,SophieKrantz,LeonorvonLimburg,DiannaRienstra,OwenSkae,RichardWaddingtonandJulieWol.

    LayoutserviceswereprovidedbyMichelFavre.

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    Contents

    Foreword iii

    Acknowledgements v

    Chapter 1

    Ethical trade the hope and the reality 1

    Fairtrade=unaircompetition? 1NorthvsSouth,orProducervsConsumer? 2Producerconscienceandappropriatetechnologies 2Doesitguaranteeareturnoninvestment? 3Standardsasanon-taribarrier 4NavigatingthroughthethicketsoFairTradelabelsandfctions 5Consumerconusion,retailtherapyorstrappedeconomies 5Consumerconscienceinatimeocrisis 7

    Theelephantinthegardenortheproverbialostrich 7Beyondcrisis,beyondlogos 8

    Chapter 2

    The value of the ethical consumer 9

    Towardsanewconsumerism 9Valuesdrivepurchasingdecisions 10Thetriplebottomline 11Apubliclicencetooperate 11

    Conrontingthenewconsumerpower 11Marketsizemattersthenumberstellthestory 12Hypeorpotential? 13Thenormratherthanexception 14Ethicaltrademarket:Saerintroubledtimes 14

    Deepandenduringchange 15Transparencyisthenewmantra 15Ethicalcompaniesaremorecompetitive 15

    Whatisair?Andorwhom? 16Fairnessvsconsumerdemands 16

    Successulstoriessell 17

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    Chapter 3

    Creating the value: Innovation is non-negotiable 19Thesourcesoinnovation 19Themotheroinnovation 20Overcomingmarketconstraints 22Governmentrole 22Financialinstitutions 22Partnershipandlinkagesareparamount 23

    Takeadvantageoserendipityinthemarket 24Brandingorconsumerswithaconscience 24Sticompetitionrommultinationals 25Buildingtrust 25

    Talestotelltheworld 26

    Chapter 4

    Raising the value 27

    Barriersandcosts 27Whystandardsandlabellingschemes? 27Adouble-edgedsword 28Privatelabelsclarityorconusion? 29Challengesordevelopingcountries 29Beneftsordevelopingcountries 30Convincingconsumers 31

    Inormation,participationandcoherence 32Partneringorvalue 33

    Scopeoraction 34

    Chapter 5

    Delivering the value 35

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

    Chapter 6

    Sustaining and distributing value 43

    Majorchallengeinhelpingproducers 44Proftandnon-proftworkingsidebyside 44Ethicaltrade:Doesitcomeatadevelopmentcost? 46Vigorousdeence,optimisticoutlook 47

    Robustdemand 47Truetestosuccess:Extinction 47

    Doesonesizeftall? 48

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    Chapter 1

    Ethical trade the hope and the reality

    "Theshifttosustainableconsumerismprovidesmanyopportunitiesfordevelopingnationsandalsomanychallenges.ExportimpactforgoodisITC'smission.Weareinthebusinessoftryingtohelppeoplegetintoaglobaltradingsystemandtheglobaleconomysothattheycanprosper."

    PatriciaFrancis,ExecutiveDirector,InternationalTradeCentre

    From a strictlyeconomicpoint oview, ethical trade is an aspiration,not aconditionointernationalcommerce.Itismoreaboutalabelthanastandard.However,itseconomicandsocialpotentialhasbeengrowingexponentiallyinthe21stcentury.ThispromptedITCtomaketheissuethecentrepieceoitsWorldExportDevelopmentForum2008,heldinMontreux,Switzerland,inOctober.

    Themainobjectivewastoanswerthequestion:Whatdoesethicaltrademean?Moreimportantordevelopingandtransitioneconomies,howcanexportersexploititsopportunities?Howcantradesupportinstitutionsencourageethical

    tradeamongnationalbusinesses,andwhatshouldgovernmentsbedoingtohelpethicaltraders?Thequestionsbecameevenmoreurgentattheendo2008asfnancialshockatershockthunderedacrosstheworldsmajoreconomies.

    To small producers, the air trade segment o ethical commerce, oers astablemarket.Forcompetitivedistributorsitpromisesdierentiationthedistinctionbetweenproductsthatattractsconsumersorwhompriceisnotthedeterminingactorinpurchasingdecisions.Buthowwillethicaltradeareontherockyeconomicvoyageacingmostsocieties,andhowarwillconsumerconscienceextendinthesocial,environmentalandeconomicchangespredictedromclimatechange?ITCsWorldExportDevelopmentForum2008heardanumberostoriesothestruggletokeepbusinessesunctioningasnormal.

    Fair trade = unfair competition?

    Forconventionalexporters,ullyexposedtothetoughrealitiesointernationaltradingconditions,airandethicaltradeotenlookslikeunaircompetition,becauseitprivilegessomeproducersoverothers.Todevelopmentspecialistsitsometimesseemshardtodistinguishromcharityorworkorwelareschemes.Worse,airtradeprovidingaprivileged,protectedchanneltorichmarketsand niche consumers, along with a premiumprice or a small number o

    marginalproducershasbeencriticizedorlockingoutsmallarmerswhousuallycannotaordthecostotheprolieratingcertifcations.Itcandeectattention rom the economicallymore signifcant issueo providing access

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    2 Chapter1Ethicaltradethehopeandthereality

    tomajormarkets or developing and transition countries trying toobtaina securer oothold in international commerce. As ITC Deputy ExecutiveDirectorStephen Browneputsit,MaliwantstobeabletosellitscottonasreelytoAthens,Greece,asithasbeenablesinceMay2000toexporttoAthens, Georgia, under the US AricanGrowth and Opportunity Act.

    Fromtheoppositeperspective,bigretailchainsinterestedinopeningtheirsupermarketaislestonichebrandedproducts,whetherairtradeororganic,labelledbio,sustainablyorethicallyproduced,itheyknowcustomersarereadytopaymore,otenmuchmoreproportionallythanorstandardproductswantreliable,regularandimmediatedeliveriesatthelowestpricetheycanobtain.Small,howeverbeautiul,doesntcutitinthesehugemarkets.Doesthatputethicaltradepermanentlyoutoordinarybusinessdealings?

    Such considerations have turned researchers like Marc Sidwell o theInternationalPolicyNetworkalmostcompletelyagainsttheairtradeconcept.UnfairTradewashisdescriptionothemovement,arguingthatitreplacedonekindooccultmechanism(multipleintermediariestakinginscrutableproftsall along the valuechain)with an equallyobscure system that still leavesEthiopiancoeeproducerswithabout$1perkiloorthebeansthatsellor$140akilowhentheyturninto$3cupsobeverageinairtradecoeeshops.Khalid Sheikh, aUganda-bornAsian sel-madebusinessmanbased intheUK,declaresvehemently:Aricaisbeingrobbed.

    North vs South, or producer vs consumer?

    FairtraderssuchasRobin Cameron,ChieExecutiveoFairtradeLabelling

    Organizations International (FLO) point out that similar, though smaller,discrepanciesbetween arm andsupermarket prices characterizeNorthernmarketsaswell.BothheandSheikh,alongwithmajorplayersontheethicaltradescenesuchasSwitzerlandsCoopretailchainandSidwellhimsel,puttheemphasisonmovingproducersupthevaluechainthroughappropriatetechnologiesandknowledgetranserromNorthtoSouth.Soar,however,ood and agricultural commodities have resisted eorts to turn armingcommunities into processing, packaging and distribution chains. SheikhsoodpackagingbusinessinactworksromtheUK,thoughheisplanningtoinvestinArica.Theethicaltrademovementhasnoteliminatedmiddlemen,thoughithasreducedthenumberointermediaries.

    Asanumberobusinessentrepreneurshaveobserved,dealingdirectlywiththebigmarketchainscanputyourbusinessatadisadvantage.Theircriteriarevolvearoundprice,andbeingabletoselltheirproductsatlowerpricesthantheircompetitors.Forsmallproducersin adevelopingcountry,evenitheycandoadealeitherindividuallyorthroughanassociationoproducersthismaynotbeawiseorsustainablebusinessmodel(seeCaughtintheSupermarketWarsopposite).

    Producer conscience and appropriate technologies

    ForAshok Khosla,Presidentotheworldslargestscience-basedenvironmentalsustainabilityorganization,theInternationalUnionorConservationoNature,

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    3Chapter1Ethicaltradethehopeandthereality

    consumer conscience asconventionallyunderstood isnotmuchmore thanaFirstWorldconcept.Hewouldratherspeakoproducerconscienceandanewparadigmor trade.HisDevelopmentAlternatives organization in Indiahaspioneereditsownormoproducerconsciencebyspreadingtechnologiesthatareappropriatenotjustinthesenseobeingcheaporrudimentarybutalsoasin

    beingintunewiththeirenvironmentandcreatinglocaljobsandnewincomes.

    Does it guarantee a return on investment?

    Forpolicymakersthequestionishowmuchenergyandmoneytoputintoencouragingethicaltradeprojectsitheyaredestinedtoremainamarginalpartointernationalcommerce.

    For trade support institutions, it is not immediately clear what kind ostimulationandsupporttheyshouldbeoeringlocalexporterstowardsethical

    trade,whensomanyotheconditionsaresetindividuallybyretailbodiesornon-governmentalorganizationsratherthancreatedbylocalentrepreneurship.

    Box1. Caughtinthesupermarketwars

    StuartSymington,CEOofSouthAfricasFreshProduceExportersForum,explainsprobablybetterthananyonewhyethicaltradeinterestsexporters.Hisvoluntaryorganizationrepresentssome60marketingagentsandproducerssellingfreshfruitto70countries,70%totheEuropeanUnion.TheyaccountforoverhalfofSouthAfricasagriculturalexports.Rangingfromsinglefarmerstohouseholdnames,theircollectiveexportsareworth$1.3billionayear.Theyemploy400,000peoplefulltime,withtwomilliondependents.

    Wehavebeenputtingalotofemphasisonethicallyproducedproducts.Iwouldliketolookattheethicsofthetradingenvironment,hetoldasessionoftheWorldExportDevelopmentForumonsupplychainimplicationsofethicalbusinesslinkages.

    Hedefendsthe industryagainst foodmilescritics(seeappendixto thischapter).Westartwithamajorcreditbecauseweplanttreesandthosetreeshavetogrowforthreeyearsbeforeyougetanyfruitoffthem.Theytakecarbondioxideandtheygiveoutoxygen.

    By2010heexpects60%ofhisproductstobesoldthroughsupermarketsthesefew,powerfulgatekeepers.Volume-basedreductionsincharges,whichSymingtontermsdiscounts,areanimportantfactorinthismarket.Forexample,shippingcompaniesgivecompaniesa$700percontainerrepaymentattheendoftheseasonifexportersdoenoughbusinesswiththeline.Hisenterpriseputs100,000containersintothevalue-chaineach

    year,2.5milliontonnesoffruit.

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

    Today,someUKcompanieshaveestablishedofcesinSouthAfricatobuydirectlyfromproducers.Theygettherebatesnow.Theyareevenbuyingfarms.Sotheyownthewholechain.

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

    ThoughSymingtonagreesanumberofsupermarketsareethicallyresponsible,thesearenottheonlyquestionablebuyingpracticeshehasexperienced.Supermarketsevensellbelowthecost-priceofaproduct,erodingthe

    suppliersprice.Itsallaboutsupermarketwarsonthehighstreet,andtheyareusingsuppliermoneytoghttheirwarformarketshare.

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    4 Chapter1Ethicaltradethehopeandthereality

    Standards as a non-tariff barrier

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

    Abusinessseekingcertifcationneedstodomorethansimplychoosewhichstandard(s)toapply.Withoutadealalreadyinplace,itneedsasubstantialamountomoneyorasmallproducer.OneDominicanRepublicparticipantputtheregularcashchargeat$10,000perproduct,notcountingthetime

    involved.EvenorthemostbasicISOenvironmentalstandards,theISO9000andISO14000series,thecostisvery,veryhighoratypicalbusinessinadevelopingcountry,hepointedout.Furthermore,theexportersmaynotbeabletocountonapremium.Itcanbethepriceoentrytothemarket,evenwhenretailersetsitsstandardswithoutanyconsultationwiththeexportersonhowreasonablethedemandmaybe.

    Theconsumerintheshoppingaisleisunlikelytohavethemeanstoassessthesestandards,letalonejudgetheinormationgivenwhenmakingpurchasedecisions,asPascal Lamy,Director-GeneralotheWorldTradeOrganization,hasunderlined.HenceWTOsconcerntopromoteandnegotiatestandardsthroughgovernments,suchasitssanitaryandphytosanitary(SPS)agreements.

    Atthesametime,aprivatestandardimposedbyalargesupermarketcanhaveamuchlargerimpactondevelopingcountrytradethananyregulationunderWTO,henoted.

    Supermarketsandretailersover-procuresuppliestokeeptheirshelvesfull,andthenrejecttheproducewhenitdoesnotsell.WhatareyousupposedtodowithfruitthatyouhavepackedinSouthAfricainaparticularsupermarkets[standardlabelsand]colours?Some87%offruitintheUKsellsthroughsupermarkets.Youhavetorepackallthatfruitandmoveittothecontinentatmassiveexpense.

    Younevergettoldyourprice,headds.Yougettoldhowmuchyoumustdeliver,inwhatvariety,inwhichquantity,inwhichweeks.Priceisthewildcard.Sometimesyouaretoldwhenyourproductisonthewater.Sometimesyouaretoldwhenitisinadistributioncentre.Sometimesyouareeventoldafterithasbeensold.Youcantexerciseyouroptiontosellitsomewhereelse.

    Hismainpointofcontentionis:Theyaredebrandingallofourproducts.Theyputtheirhousecoloursonyourfruit.BythetimeitreachestheUKandmanyplacesinEuropeyoudonthaveabrandanymore.Somesupermarketsalsofalselyclaimtohavelowerpricesfromcompetitorsinordertobringgoodstotheirshelvesmorecheaply.Theyrotatebuyerssothatproducerscannotbuildupalong-termrelationshipwithapartner.Exportersalsofaceadditionalchargesthatareimposedafteragreeingadeal.

    Asaresult,exportersaresettingupofcesinEuropetoreclaimthevaluelostbythesecost-cuttingmethods.Symingtonurgesanenforceablepriceagreementon purchase and a standard contractwithoutadditionalcharges.Buyerincentiveschemesshouldberevisedsotheynolongerdependonsqueezingproducers.Sellingbelowcostshouldbebanned.Hewouldliketoseeabuyer-suppliersforumwherebothsidesandNGOscantalkregularlyaboutthechallengesfacingthebusiness.

    Ethical tradeisnotjustabout supplyinganethicallyproducedproduct. Itis about creatinganethicallysoundbusinesscontextrst,Symingtonsays.Buyerspurchasingbehaviourhastobeasethicalastheethicalproductstheydemand.Otherwiseitishypocrisydeluxe.Internationalretailersthroughwhomthebulkofourproductshavebeenchannelledtoconsumersshouldnolongerbeallowedtooperateinaregulatoryvoid.

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    5Chapter1Ethicaltradethehopeandthereality

    Navigating through the thickets of Fair rade labels and ctions

    AttheWorldExportDevelopmentForum2008,participantsalsohada200-pagepre-eventpublicationthatsoughttoengagesomeothebestacademic

    researchers and practitioners along with human rights advocates and auturologisttoputadierentperspectiveonethicaltradingandtheMontreuxdebates.1Asaresult,anyoneinterestedinethicaltrade,itshistory,itspolicyimplicationsanditsuturecanfndanauthoritativeguidetotheprolierationolabellingandapossiblewayorwardthroughthethicketsoregulationsandstandards.Theycanalsoconsultasurveyotheair-tradefeldromalong-timepractitioner.Thebookcontainsacareuldissectionothedierencesbetweenethical,sustainable,environmentalandorganicstandardsintradeasoundinthegovernancebodiesdealingwithinternationalcommerce.

    Further useulmaterial includes an analysiso theEnvironmental KuznetsCurvewhichsuggeststhatgrowthisbynatureboundtopolluteuntilcountriesget relatively rich. Similarly, two economists at the Food and AgricultureOrganizationotheUnitedNations(FAO)getdowntocasesinconsideringwhether a country should aim or internal ood security rather thaninternationalagriculturalearningstoguaranteeitsdevelopmentaquestionthatisnowloominglargeinthebiouelsdebateandthecurrentoodsupplycrisis.Policymakersmayalsowanttolookatthearticleonhowmostoodinuturemaytravelwithacarbonpassport,whileentrepreneurscanconsultasurveyoprospectsorbusinessrombiodiversityalongwiththeneedsandopportunitiesorgovernmentinvestment.Thispaperpointsoutthatthepotentialextendswellbeyondecotourismorcreatingstajobsinnationalparksandturningarmsorganic.Anotherchapterlinksonlineactivismtoaradical

    changein relations betweenconsumersandproducers andsuggestsways inwhiche-governancecanrespondtothegrowingdemandorconsumerrights.

    Consumer confusion, retail therapy for strapped economies

    The blend o theory, reporting on experience, energetic advocacy andproessionaladviceorthosewhohavetoimplementideasandprogrammesound in the background book also characterized the debate at the 2008WorldExportDevelopmentForum.Thedetailscanbeoundintheresto

    thisreport.Butwecanpointtoanumberocommentsthatmightsurprisethosecomingtoissuesoconsumerconscienceorthefrsttime.

    Theretailshockdeliveredtostoresinthewakeo2008sstockexchangemeltdownsandresultingeconomiccrisesneednoteliminateethicaltradeasaorceininternationalcommerce.Inact,itmayhavetheoppositeeect.

    Companiesthathavetakenconsumerconscienceonboardintheirbusinesshaveweatheredthecurrenteconomiccrisisbetterthanthosewhohavebeenslowtoappreciatetheconsumeristchangeinmarketingconditions.Inact,manyhaveledratherthanollowedthetrend.Thehistoryoethicaltradeisnotsimplyachronicleoactivistconsumersorcingrecalcitrantcompaniesintogreenwashingtheiroperations.

    1 Availableordownloadatwww.intracen.org/wedaspartoITCsWhatif?series.

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    6 Chapter1Ethicaltradethehopeandthereality

    Though virtually everyone who has to deal with them deplores theprolierationolabelsandstandardsintheairer-trademovement,notleastbecauseotherequentconusionoconscientiousconsumers,ofcialswhoollowdevelopmentsmostcloselydonotexpectrationalizationtoreducethe number olabels.Retailers like theirown labels and standards that

    dierentiateconsumerswhoarewillingtopayextraorthatdierenceromshopperswhodonotfndthatauniquesellingproposition.

    While recognizing the pressures or label prolieration, many standard-settingorganizationsarepressingvigorouslyorharmonizationtomakeiteasierorsmallbusinessesanddevelopingeconomiestosecureaootholdininternationalmarkets.

    TheForumorganizeditsdebatesaroundfvemajortopics:

    The value of the ethical consumer.Thesessionsonthistopictriedtodemystiy the concept, lookat themarketsizeand characteristics, bothquantitativeandqualitative.

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

    Raising the value.Itisonethingtocreatevalueintheethicaltrademarket,butexportersalsoneedtomeetthestandardsothedevelopedmarkets.Tomany,thesepotentialNTBs(non-taribarriers)arethebiggestobstacletoaction.Howcancompaniesovercomethis?Theorumalsoexploredthecounter-arguments.Whatisairness?Areconsumersthemselvesready?

    Delivering the value.Thediscussionherecoveredissuessuchascreatingan environment to oster the development oexporters rom developingcountries who want to take advantage o opportunities presented byethicalmarkets:Financing, scalingupsocialentrepreneursand osteringtransparency.

    Sustaining and distributing the value:Canthebeneftsosustainabletradedeliverontheirpromise?Candevelopingcountriesstillhaveaviablebusinessmodelitheyincorporateenvironment,povertyreduction,gender,the MillenniumDevelopment 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:EnsureenvironmentalsustainabilityGoal8:Globalpartnershipfordevelopment

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    7Chapter1Ethicaltradethehopeandthereality

    Consumer conscience in a time of crisis

    Howwillthecertaintieso2008lookattheendo2009?Certainly,everydebateattheITCmeetingin2008washauntedbytheprospectoadeeprecession inglobaleconomicactivity.Butnot everyone rompundits topioneerssawthisastheendoprosperityasaneconomicgoal.Khoslacalled or new paradigm or international trade, one examining moreclosely theenvironmental costso therelationship between the local andtheglobal,seeking tocreatelocaljobsandmake themost sustainableuseo local resources.Teava Iro, aCookIsland ruitarmerandmariculturespecialist,seeshisorganic-certifedinternationaltradeasquiteseparateromhis local eorts to reduce costs in environmentally riendlyways. PascalLamymadeclearhestillthoughtthatacompletionotheDohaRoundotradeliberalizationwithitsexplicitdevelopmentgoalsispossiblein2009.Butevenheadmitsthatabigretailersprivatelyimposedstandardscanhave

    amuchgreaterimpactonlocaleconomiesthananythingnegotiatedintheDohanegotiations.

    The World Export Development Forum also showed that the ethicalproducerandconsumermovementischanginginundamentalways.IrocallshisagriculturalmethodOrganicPlus,andseesanendtoorganicarmingmethods that donot improve sustainability. Fruits and vegetables in theshops today generally have60-70%less nutritional value than during theworstdaysoWorldWar II, hecomplains.TheUShasjust introducedaBeyondOrganicsstandardthatputstheemphasisonhumannutrition,andheoreseesatimewhenproduceontheshelveswillhaveonlyonelabelgivingitssucrosecontentasan indicatoro thenutritional value(seetheboxin

    (seeahead).

    he elephant in the garden or the proverbial ostrich

    Onemajorissuethatwilldirectlyaectoodtradeintheutureisclimatechange an elephant in the garden o international commerce. JohnViljoen,Managing Director o the iedex group o companies, based inAustralia,broughtittothetablewithaconcretestory.Amajorclient,awinegrowingcompany,oundthatoverthepast15yearstheripeningperiodoalloitsvarietyograpesinallitsvineyardsaroundthecountryhasshortenedby1.5days.Thevarietiesnolongerripensequentially.Growingconcentrates in eight weeks rather than eleven, and the ripening o thevarietiesoverlaps.Thecompanyrealizeditwasintroublewhenonewineryhadourkilometresotruckswaitingtodeliverripegrapestoitscrushers.Theripeningperiodhasalsomovedearlierintheyear,tothebeginningoJanuaryinsteadoFebruary.TheoverlapwiththeholidayperiodmakesitdifcultinAustraliatogetcontractlabour,andthestahavetoprepareor this intensive work period instead o spending Christmaswith theiramilies. The company had to invest in parallel crushers and receiving-docks, costing many many tens o millions o dollars. To deny that

    climateandenvironmentalchangeishavingamaterialimpactonbusinessoperationsistobehaveliketheproverbialostrichandburyyourheadinthesand.

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    Beyond crisis, beyond logos

    While many governments seem hypnotized by the immediate fnancialcrisis,othersandanumberointernationalbodiesintheUnitedNations

    systemarethinkinghardaboutwhatkindoeconomiesindividualcountriesshouldbeencouragingaterthecurrentfnancialearthquakehasrearrangedthelandscape.AtclimatetalksinPoland,Secretary-GeneralBanKi-mooncalledinDecemberoraGlobalGreenNewDealreminiscentoUSPresidentFranklinD.RooseveltsprogrammetoovercometheGreatDepressionothe1930s.Thiswouldinvolveconcertedmajorinvestmentsbygovernmentstoovercomethecurrenteconomiccrisisthroughenvironmentallysustainablejobgrowth,improvingthesituationonaturearoundtheworld,andidentiyingthestimulusmeasuresneededtoosterthetransitiontogreeneconomies.

    Maybesomeothepracticalsolutionsthemicroeconomicanswerstothemacroeconomicchallengescanbeoundintheexperienceoethicaltradeandconsumerconscience.Fromacharityconcernwithunderdevelopment,theethicaltrademovementdevelopedviaNGOsintoawidevarietyospecializedgroupsworkingwith,alongsideandoutsidegovernmentstopromotebetterlivingstandardsorproducers.Manyactorsonthisscene,romRainorestAlliancetotheMongolianmicrofnancebankXacBank,arealreadyapplyingsustainabilitycriteriaintheirdecisionsaboutsupport,investmentandloans.Big companies are sometimes leading the feld in turning green-labelledproducts into market opportunities rom teabags and capsuled coeetoteeshirts, bananasand carseats,throughdealswith local communities,otenmediatedthroughNGOs.Retailersrecognizetheeconomicbeneftsodierentiation,andnotsimplythroughprice.Theairtrademovementhas

    realizedthatbrandingmeansmorethanalogosomehowithastotellitsstoryinacompellingwaytotheconsumeriitistomoveitsproductsintothemainstream.Thejobogovernmentandexportpromotionorganizations,as a number o participants in the World Export Development Forumunderlined,istofndwaystoenablenationalbusinessestotelltheirstoriestoaninternationalaudience.

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    Chapter 2

    he value of the ethical consumer

    Conscientiousconsumersareagrowingforceinthemarket.Researchshowsthattheyprizetransparency,accountability,authenticityandfairnessnowmorethaneverbefore.Andtheirinuenceisgrowinginthewakeofthe2008globalnancialmeltdown.Butwithineverycrisisliesopportunity.Thevacuum

    createdbyconsumerlackoftrustandfallincondenceinpurelycommercialbusinesshasleftspaceforethicaltradetoexpanditsnicheandforentrepreneurswhohaveappliedtheprinciplesofcorporatesocialresponsibility(CSR)throughresponsibleentrepreneurshipandbusinesspractices.

    Ethicalconsumerismandgrowinginormedconsumerismisjustasmuchaboutsupportingperceivedgoodcompanies,asboycottingthebadones.Theconscientiousconsumerdemographicisstillaminority,butincreasinglypeople are choosing to buy ethically made products and services. Ethicalconsumerismmeansdierentthingstodierentpeople andtomarketers.Buttheriseoethics-baseddecision-makingisrunningintandemtoariseinconsumersinterestinbetterunderstandingandtrustworthyinormation

    aboutbusinesspractices.Thisgivesawholenewmeaningtothetraditionalconceptoinormedconsumers.Companiesarenolongerseenasresponsiblesolelyoraproduct,butortheirwholebrandandsupplychain.

    owards a new consumerism

    Thisneedtoknowattitudeamongconsumersisreverberatingacrossentiresupplychains.Producersinbothdevelopedanddevelopingcountriesarebeingorcedtore-examineeverylinkinthesesupplychainsasdiscerningconsumers and the retailers that buy such products to sellproftably to a growingsectionotheircustomersaredemandingairness.Increasingly,airnessmeans working within a ramework o environmental sustainability whiledemonstrating respect or workers rights, better returns to producers andequity intrade.However,manydeveloping-countryproducers,andscepticstowardsthenewmovementinthedevelopedworld,questiontheverydefnitiono airness. Fair trade, they claim, distorts markets, giving uneconomicproducersunairbenefts.Itputsmanyproducersinthedevelopingworldatadisadvantageinseekingmarketaccesswherethesestandardsareappliednotbecauseolackocompetitivenessbutbecauseothecostoobtainingtheclearancesthatwillenablethemtocompete.

    Craig Davis, Chie Creative Ofcer o advertising heavyweight JWTWorldwide,confrmsthatatpriceparity,consumerstodaychoosebrandswithhigherethicalstandards.Consumersareincreasinglylookingtodobusiness

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    10 Chapter2Thevalueoftheethicalconsumer

    withcompaniesthatare,insomeway,ethically,environmentallyandsociallyresponsible,hetoldtheWorldExportDevelopmentForum2008.

    Davisreportedontheresearchthatbacksuphisclaim.TheHenleyCentre,aglobalconsumerresearchconsultancy,reportsthatmorethanever,consumers

    areawarethat theirbuyingdecisions haveconsequences. Some buyers arehighlyinormedaboutsustainabilityorethicalissues.Mostsimplywanttosomehowmake a dierence. Theyunderstand thatwhat they buy has aknock-oneect,Davisexplained.

    TheHenleysurveytookplaceinJune2008andinvolvedbetween1,000and2,500ace-to-aceand/oronlineinterviewsinsevenmarkets.Morethan50%othosesurveyed, it ound, arereadytomake real changes totheir lives.Thereportcallstheconsumerswhoactonthisreadinesspioneers.Whenbuyingsomething,theyareverycareultoensurethatitmeetsethicalandenvironmentalstandards.Adoptersaredescribedinthesurveyasmakinganeorttogettothispoint.Adoptersandpioneerstogetheraccountor40%o

    consumersquestioned.Theyareeitherpredisposedtodotherightthingortheyarebusydoingit,Davissaid.

    Interestingly, Chinese consumers had a higher proportion o whatHenleycalledpioneersoradoptersthanintheUKortheUS.

    Davis also citedaMarks and Spencer survey that reported about 10%oshopperssaidtheyare reallycommittedtothecauseogreenconsumption.Aboutaquarterwerenotinterestedatall.ButinsimilarfndingstoHenley,therestwereinthemiddle.Theywerekeentobegreenaslongastheydidnothave tomakemuchoaneort todoso.MarksandSpencer,amajorretailchainintheUK,seesthisasahugebusinessopportunity.About75%o

    theircustomerscareaboutenvironmentalissuestosomedegreeandmanyothemwanttobeeducatedandshownhowtheycanmakeadierencewithoutchangingtheirlivescompletely.

    Ethicaltradescontributiontoimprovementsinthelivesopoorcommunitiesisequallysignifcant.Manyaremarginalproducerswhomightnototherwisebeabletomakealivingintheirhometerritory.Ethicaltradehasstrengthenedcommunitiesbyenablingthemtoprovideschoolsandhealthclinicswithineasyreachinsteadokilometresaway,as Willington Wamayeye,GeneralManager o Gumutindo Coee Cooperative, Uganda, points out rom hispersonal experience on Mount Elgon. Robin Cameron, Chie ExecutiveOfcer o Fairtrade LabellingOrganization (FLO) International, says FLO

    trade directly benefts 1.5 million producers and workers in developingcountries7.5millionincludingtheiramilies.FLO,hetoldtheForum,isworkingwithFairtrade-certifedproducersin58countries.In2006,Fairtradegenerated100millioninadditionalincomeorproducersandworkers.

    Values drive purchasing decisions

    Backinthe1970speoplequestionedwhethercorporatesocialresponsibilitycouldbeavalidconcernorbusiness.ButbusinessleadersromEurope,Japan

    andtheUSrealizeditcouldreducelabourandtradetensionsaswellasembracecooperation and respect orhumandignityasethical ideals.Since then,anumberoagreements,standardsandguidelineshaveollowed,particularly

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    11Chapter2Thevalueoftheethicalconsumer

    inEurope,spellingouttheexpectationstowardsinternationalbusinessonawholerangeosocialissuesincludingindustrialrelations,healthandsaety,andtheenvironment.Thegrowingdemandorbetterbusinessethicsisnowaworldwidemovement.Increasingly,too,developingcountryproducersandsuppliersaremonitoredbyconsumersathomeandabroadastheyinterconnect

    throughglobalsupplychains.

    But asmany speakers and participants pointed out at theWorld ExportDevelopment Forum, even though such concerns may be currentlyovershadowedbytheturmoilinfnancialmarketsandthebankingsystem,theyarenotgoingtogoaway.Inact,theyarehardtruthsacinggovernmentsandcompanieswhentheyrebuildbusinessandrestoretrustinthesystem.

    he triple bottom line

    Ethical consumerism or conscientious consumerism is values driven.

    Increasingly,bigbusiness,suchasbanks,largesupermarketchains,highstreetretailersandothersareocusingontheircustomersvaluesandunderstandthatsustainabilityisanissueorisingglobalconcern.Thetriplebottomline,themantraotheCSRmovement,hasbecometrulymainstreaminlessthan15years.Davisobserved:Young,welleducatedconsumershaverealizedthepowerthatliesinthedecisionstheymaketobuyornottobuy.Bypurchasingromcompaniesthataresociallyresponsibleandnotbuyingromthosethatarenottheycanusetheirwalletstopursuetheirvalues.Companiesthatdonotadaptwillpaytheprice.

    A public licence to operate

    Thenotionoapubliclicencetooperateisgainingstrengthasthemediahave the power to name-and-shame those perceived to be engaging inenvironmentallyharmulorunethicalcorporateconduct.EngagedconsumersareevenmoreempoweredbytheInternet.

    Companies have always contended with regulatory rameworks, but now,various stakeholder groups have become more adept inmobilizing publicopinion. Mere compliance with regulations is not enough to gain andmaintainconsumertrust.

    Confronting the new consumer power

    The golden rule o public relations, or reputation management, is that ittakes years tobuildup a reputation and just seconds todestroy it.Ernst

    von KimakowitzromtheUniversityoSt.Gallen,co-ounderotheTheHumanisticManagementNetwork,observesthattheconditionsorbusinessarechanging decisively. It used tobe that consumers expected companiestooperate in accordance with saety and quality regulations. Today, theyarebasingtheirpurchasingchoicesonawiderrangeosocialconcerns.Iacompanydoesnotcontinuallyrenewitscompactwithcivilsociety,itspubliclicencetooperateitsreputationwouldacegraverisks,hewarns.

    Dana Kissinger-Matray rom the International Organization orStandardization(ISO)saidthatnotonlyistheinuenceoconsumersonthe

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    12 Chapter2Thevalueoftheethicalconsumer

    marketandbusinessbehaviourincreasing.Shealsothinkstheywillhaveaargreaterimpactintheuture.Therearetworeasons.

    First, the integration o the worlds economies and inormation systemsprovides unparalleled opportunities or consumers to inuence markets,

    sheremarks.Globalizationischangingtheconcernsoconsumers.Theyarebecoming awareohow interconnected their livesarewith those inotherpartsotheworld.Inadditiontotheirtraditionalconcernswithqualityandprice, Kissinger-Matray told the Forum, consumers now worry about theimpactotheirchoicesontheenvironment.Andtheywanttopurchaseinamannerconsistentwithairtrade.WiththeemergenceotheWebandothertechnologicaladvances,consumershavegainedtheabilitytobothaccessandtransmitinormationinstantaneously.

    Second,shebelievesindividualpurchasingdecisionsareonlyoneoseveralwaysthatconsumerscaninuencemarkets.Toovercometheunethicalbuyingpractices by supermarkets aswell as othermajor retailers, consumers can

    todaybeinormedosuchpractices,whichincreasespressureontheretailers.Mechanismsavailabletoconsumersinclude:

    Researchandadvocacyactivitiesoconsumerorganizations;

    Participation as stakeholders in the standardization process, that is, theormulationovoluntarystandards;

    Involvementindevelopingmeaningulproductinormationandlabelling.

    Market size matters the numbers tell the storyStatisticsaboundtoquantiytheboominconscientiousconsumerism.Theycoverthe gamut o organic oods, air trade and ethical ashion.Considerjust someothe numbers beingused in the growing debateoverthe newconsumerism.Forexample,ResearchandMarketspredictsthatorganicoodwillaccountoraround30%otheUKstotaloodmarketby2010.EthicalashionhasannualsalessurpassingmillionsopoundssterlingintheUKalone.ThevalueoFAIRTRADElabelledgoodsintheUKhasrisen1,000%inthelastdecadeand50%inthepastquartercomparedtoayearearlier,reportedGareth Thomas,UKMinisterorTrade,DevelopmentandConsumerAairs(jointlywiththeDepartmentorInternationalDevelopment),attheopening

    plenaryotheWorldExportDevelopmentForum2008.

    DatamonitorintheUKpredictsthatglobalconsumerconsciencewill boostair tradesales intheUKalonetomorethan1,000millionby2012.Thestandard-settingbodyisFLOInternationalandFLO-CERTisthecertifcationsystem designed to allow people to identiy products that meet agreedenvironmental,labouranddevelopmentalstandards.TheFLOInternationalFairtradecertifcationsystemcoversagrowingrangeoproductsincludingbananas, honey, oranges, cocoa, coee, cotton, dried and resh ruits andvegetables,juices,nutsandoilseeds,quinoa(anIncacereal),rice,spices,sugar,teaandwine.

    In2007,FLOInternationalreportedthatcertifedsalesamountedtoabout2.3billionworldwide,a47%increaseover2006.Salesareurtherexpectedtogrowsignifcantlyincomingyears:Accordingtothe2005Just-FoodGlobal

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    13Chapter2Thevalueoftheethicalconsumer

    MarketReview,Fairtradecertifedsalesareexpectedtoreach$9billionin2012and$20billion-$25billionby2020.

    TurnoverinUKsupermarketsisabout100billionperyearanappetizingnumber.But less than3% came rom developing countriesand only0.5%

    romair-tradelabelledgoodsin2007.Thesefgures,Thomasobserved,giveasenseothescaleothechallengetoexpandtheairtrademarket.

    Hype or potential?

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

    Pascal Lamy, Director-General o theWorld TradeOrganization (WTO),saidthatromthepointoviewoanexporterromadevelopingcountry,organicand/orairtradewhilestillasmallproportionototaltradeotenrepresentsopportunity.ForbananagrowersintheCaribbeanislands,goingorganicwasaquestionosurvival.Theyjumpedtoanothercategoryothemarketwheretheyweresae,hesaid.

    TheFairTradeFoundationthecampaigningandcertifcationorganizationbehindtheFAIRTRADEMarkhasputdevelopmentintheUKshoppersminds,suggestedGarethThomas.

    TherewasagreementromKaty Leakey,ounderotheLeakeyCollection,adesigncompanythatdevelopshandcratedproductsoraninternationalmarket

    andprovidesemploymentopportunitiestoover1,200Kenyan.TheCollectionwasrecognizedin2008oritscontributiontosocialdevelopment.Agreementcame, too, rom Neil Kelsall, a consultant who specializes in advisingcompaniesindevelopingcountriesonhowtocapturemoreaddedvaluerom

    theproductstheysell.For example, he hasassisted Madagascarin producing andexporting chocolatebars rather thansimply cocoa. Ms.

    Leakey and Kelsallestimated that 20%o consumers careabout ethical issueswhile 80% look orthe cheapest goodsavailable. But, theyunderlined,thevalueo goods bought bythe 20% o ethicalconsumers is huge,asisthepotentialto

    reach 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 gures remain condidential.

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    he norm rather than exception

    TheUKgovernmentwantstocatalyzeastepchangesothatairandethicaltradebecomesthenormratherthantheexception,GarethThomasdeclared.WealsowanttoseeanaggressiveexpansionothesebrandsacrossEuropeandmorebusinesssupportorthem.Atthesametime,donorgovernmentsshould champion air working conditions and labour standards in thedevelopingcountriesthatproduceethicallygrownandtradedproducts,heurged.

    TheUKsEthicalTradingInitiative(ETI)anallianceocompanies,non-governmental organizations (NGOs) and trade union organizations ischallengingUKretailerstobecomeawareohowtheirsuppliersoperate,withaviewtoimprovinglabourstandards.Soar,hereported,52frmsintheoodandclothingsectorsareETImembers.

    Perhaps not surprisingly, the emphasis was onSouth-North trade more

    specifcallytoContinentalEuropeandtheUK,andorsomeorganizationstotheUS.However,othercommentatorspointedtothesizeopotentialmarketsinthedevelopingworld,orexampleinLatinAmerica(Argentina,BrazilandMexico)aswellasChina,IndiaandseveralothercountriesoAsia.

    Ethical trade market: Safer in troubled times

    Speakers at the opening plenary also agreed that organic, air trade andethicalproductswillkeeptheirmarket,despitetodaysvolatile,unpredictableeconomic climate.Themarketor such air-tradeproductswill likelytake

    a temporaryhit,butwillbounce back.Thomas assuredparticipants: Themarketisrelativelyrobust.Giventhecurrentdownturn,therewilllikelybeashort-termhit,butthereismuchmorepotentialthanitscurrentsize.Inact,thesectorcontinuestobeagoodinvestment.

    Alex Brigham, Executive Director o US-based Ethisphere Institute,concurred:Notonlyisthemarketorethicallygrownandtradedproductsheretostay, it isa growthmarket.Askedwhether it stillmade senseordevelopingcountriestoputmoneyintoairtradeprojects,henotedthatinaconsolidatingmarkettherewillbewinnersandlosers.Butdonotpullbackinvestment inthistimeocrisis,hesaid. Strongorganizations investintimesotrouble.

    Astodayscash-strappedconsumersincreasinglyocktobudgetsupermarketsinEuropeandtheUS,thereisstillanichemarketorethicallygrownandtradedproducts,Lamynoted.Brighamaddedthatpricepremiumsorethicallyproducedproductscannotalwaysbepassedalongtotheconsumer:Atmorethana3%pricepremium,theabilitytocapturemarketsharestartstoerode,hesaid.ButwhetherthisistrueormorethantheUnitedStatesremainsopentochallenge.Lamythoughtthatthecurrentfnancialcrisiswillhavealimitedimpactonmarketshareoairtradebecausemanyconsumerswho[buy]airtradedonotmindthe3%to10%[price]premium.Ms.Leakeyputthepremiumevenhigher.Inabreakoutsession,shesuggestedthatethicalconsumershaveshowntheyarepreparedtopay1525%moreorcredibly

    sourcedproducts.Itdependsverymuchonthetypeoproductbeingexportedtomarkets. Itmightbearguedthatthis isair, giventhattheseproducerscannotalwayscountoneconomyoscalebenefts.

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    15Chapter2Thevalueoftheethicalconsumer

    Deep and enduring change

    Willpeoplestillbeconcernedabouttheenvironmentwhentheyareworriedabout balancing their monthly budget? Will companies still think it is

    asimportanttopursuegoodethicalpracticeswhentheirproftsarebeingsqueezed?

    Ithinktheywill.Idonotthinkthistrendtowardsethicalconsumptionisabubblethatisabouttoburst.Itisnotcyclicalorcynical.Itrepresentsadeepandenduringchangeinthewayconsumersbuyandcompaniessell,CraigDavisnoted.

    Harriet LambotheFairtradeFoundationpointstotheopportunitythatconscientiousconsumerspresenttoembattledsupermarketstokeepholdotheirproftmargins,sincesuchbuyerstendtobeolder,bettereducatedandmoreauentthanordinaryshoppersreadytoinormthemselves,andpay

    orgoodcauses.Similarly,thefndingsthatyoungpeoplearewellawareotheirconsumerpowerorgoodstrengthensbrandloyaltytoretailchainsthatcancommitthemselvestoethicaloperation.

    Whatunderliesthisdeep-rootedchangeiswhatDaviscallsthenewglobalcultureotransparency.

    ransparency is the new mantra

    TodayweliveinwhatCraigDavisdescribesasaworldoradicaltransparency.Mostconsumersinthedevelopedworldandthemanyinthedevelopingworld

    cancaptureanddistribute,andseekoutinormationintheormopictures,wordsorvideoinawaythatishistoricallyunprecedented.HepointstotheGoogle/HSBC initiative, o3b, standing or other three billion, which isaimingtobringthewebtothethreebillionpeopleontheplanetwhodonotcurrentlyhaveaccess.

    Thereisnowheretohideinthisnewageoradicaltransparency,suggestsDavis.For example,a companyrelying on child labour will eventually beconrontedwithaphotooachildinoneoitsactoriespostedonawebsite.Thiswill be passed around the social networks and the companywill bepubliclyshamed.

    Transparency,oversightandgoodgovernancearemoreimportantnowthaneverbeore.ITCExecutiveDirectorPatricia Francisexplains:Goingorward,transparencyisgoingtobeevenmoreimportanttobuildbackthetrustandconfdence to make the market work. Transparency, oversight and goodgovernance.Andpartogoodgovernanceisbeingsociallyresponsible.Themessagehereisthatcompaniesdoinggoodarealsodoingwell.Themessageisthesameorcountriestheywilldobestbypromotingtransparencyandgoodgovernance.

    Ethical companies are more competitive

    TheEthisphereInstitutefndsethicalcompaniestobemorecompetitiveinthelongrun,Alex Brighamreported.Notonlydotheyattractmorecustomersandthosewhovalueethicalstandards.Somealsoenjoyotherbenefts,such

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    asattractingbetter,smarterandmoreproductiveemployeeswhoalsovalueethicalstandardsoverthehighestwage.

    Theendresultisthatethicalcompaniesoutperormtheircompetitioninthelongruninacapitalistenvironment.Somemightquestionwhetherethicsis

    lessimportantintodayseconomiccrisis,butactuallyitistheopposite,hesaid.Demonstrableethicsinbusinesswillbecomethatmuchmoreimportantasethicalenterprisesareactuallylessrisky.

    Brigham noted that the companieswith the highest ethical scores inTheEthisphereInstitutessurveyshavehadtheewestproblemsinwhathecalledthe current global fnancial maelstrom. How does heightened consumerconscienceftintothis?Itisrealanditisheretostay,hedeclared.

    Inaddition,moreandmorecompaniesarelookingtopartneronlywithethicalsuppliersastheyknowthatdoingsowillnotonlyreectwellonthem,butalsothatanethicalsupplychaincanbelessrisky.

    What is fair? And for whom?

    The theme o the 2008 Forum, Consumer conscience: How environmentandethicsareinuencingexports,raisedmanyquestionsabouttherealorperceived tension between ethical trade and conscientious consumerism.Whileagrowingethicalawarenessamongconsumersinthedevelopedworldcanhelp createnewmarkets or the goodso poorer countriesthe reversecouldalso happen.Socalledproductionstandards couldbeturned intoaormoprotectionism.

    Therearemanydefnitionsoairandtherearejustasmanycriticsromthedevelopedworldandthedevelopingworldcastingascepticaleyeovertheclaimsoairtradeenthusiasts.As Pascal Lamyasked:Whosetsstandardsorairness?Formanydevelopingcountries,criteriaoairnessremainnon-transparenttoproducersandexporters,otenasaresultocompetitionbetweenpublic and private quality and saety standards. Developing countries areincreasinglyputtingthisissueonthetableatWTOnegotiations,heexplained.

    Fairness vs consumer demands

    Addressingthedebateoverstandards,Lamyarguedoutthatitisnotuptothedevelopedcountriestoimposesanitaryandphytosanitaryrequirementsonexportsromdevelopingcountriessincethesehavealreadybeennegotiatedbygovernmentsattheinternationallevel.Consumersinrichmarketsarepushingorgood,butwhatistheimpactotheseniceintentionsondevelopingcountryproducerswhoseabilitytogrowandmakealivingdependsonaccessingthesemarkets?heasked.Thereisabalancethatneedstobeound.

    TheissueoairnessandconscientiousconsumerismwasalsoaddressedbySupachai Panitchpakdi,Secretary-GeneralotheUnitedNationsConerenceonTradeandDevelopment (UNCTAD)and Ashok Khosla,ChairmanoDevelopmentAlternatives,India,andPresidentotheInternationalUnion

    orConservation oNature (IUCN). Supachaipointedout thatdevelopingcountriesalreadyhavetroublemeetingexistingstandardsoproductionandqualitywithoutrichstatesaddingurtherhurdles.

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    Youmustnotallowtraderulestobeabusedbythosewhosaytheyaretheconscienceotheworld,Supachaisaid.Youmustnotallowthis[ethical]awarenesstobecomeaburdenandputimpedimentsintothetradingsystem.

    Khoslawent urther. He declared: Consumer conscience is a problem or

    thedevelopedcountries. Even ethicalproblemscan beexaggeratedtothedetrimentoeconomicdevelopmentinpoorercountries.TheproblemotheThirdWorldishowtoproduce.

    Hecalledorabalancebetweenthedemandorlocalproductsandinternationaltrade.Forthataneweconomicsystemisrequired,heargued.Societiesmustlearn more convincingly how to create the jobs, goods and services thatpeopleneed.Theworldneedsproducerconscienceasmuchasconsumerconscience,hetoldparticipantsatthewelcomedinner.

    Kevin OBrien,GroupCompanySecretaryoTheSPARGroupLtd.inSouthArica, gave something o the samemessage. He underlined the need orcompaniestodemonstrateintegritytotheirconsumersasawayooperating,simplybecausethisistherightthingtodoasresponsiblemembersotheirsociety,whileHarrietLambotheFairtradeFoundationpointedoutthatanumberofrmsadoptedethicaltradingprincipleswellinadvanceoconsumerdemand.

    Increasingly, though, companies are acing a precarious balancing act,particularlyinfnanciallytoughtimes.Corporatebuyersmustprocureproductsandservicesthatmeetend-consumerrequirements,atthebestprice,conormtostandardsandaredeliveredrapidly.Operatingmarginsaregenerallytight,orcingbuyerstobepricesensitive.Atthesametime,producersmustulflethicalandenvironmentalstandardssothatretailerscanbacktheirclaimson

    ethicalandeco-riendlysourcingtoconsumers.

    Successful stories sell

    Asaglobaladvertisingexecutive,Craig Davisseesopportunitiesorcompaniesinemergingmarketstotelltheirstoriesinawaythatresonateswithconsumers.Storieshavevalueromaconsumer,businessandbrandperspective,henotedandpointedouttoanewsetostories:Storiesconcerningtherelationshipbetween what companies do as businesses, and the communities and theenvironmentlocalandglobalthattheyaect.

    Forme,mybusiness,andormanybusinesses,theact thatconsumersaredemanding higher ethical and environmental standards is a huge creativespark,oreverypartothebusinessomyclients.Itdrivesthemandustocreate, curate and communicatemore and better stories about whatweredoingorthecommunitiesweworkwithandtheplanetweliveon,DavistoldparticipantsinMontreux.

    Box3. Grassjewelleryandchocolatebars

    BothKatyLeakeyandNeilKelsallhavestoriestosell.Andtheirstoriesarerealsuccessstories,andtheyare

    notnishedyet.InLeakeysjewelleryandhandicraftsbusiness,consumerspayforthestory,sheisconvinced.Ms.Leakeyadds:Wearestrivingtodirectlyconnecttheend-usertotheproducerbythestoryofourcompany.

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    adds:Wearestrivingtodirectlyconnecttheend-usertotheproducerbythestoryofourcompany.Wecanengageyoung,energeticentrepreneurswithastrongsocialconsciencewhowillworkasourcollaboratorsandagentsinourtargetmarkets,shetoldtheForum.Thedevelopmentofanetworkalsocanlinkproducerswithend-usersordistributors,enablingthemtoseemutuallybenecialexchanges.

    Leakeyalsopointedtotheneedtodevelopdetailedcasestudiestoprovideacollectionof bestpracticesandexperienceforothersattemptingtocreatesimilarbusinessventures.

    KelsalldescribedhissuccessfulefforttodevelopandsellalineofchocolatesfromMadagascar.In2005,hewenttheretondaproductaroundwhichhecoulddevelopabusinessthatmovesexportproductsupthevaluechain.Hedevelopedanechocolateforexport,notonthebasisofaid,butbysoundbusinessprinciples.Welearnedeverythingwecouldaboutthemarket:Consumerswantedhealthy,organicchocolatethattastedgood.Thenwedideverythingwe couldtosupply it.Toaddressquestionsof sustainability,Kelsallnoted,it ispossibletobuildnewconcernsdirectlyintothebusinessmodel.Forexample,becausethechocolateisproducedfromcocoabeansthatgrowinrainforests,highersalesencouragepreservingtheforests.

    Box4. Thefoodmilesdebate:Hearingbothsides

    Panellists frombothsidesin the foodmilesdebate does ithelp reducegreenhouse gasesto buyagro-horticulturalproductslocally?cametogetherataspecialsessionontheissueattheWorldExportDevelopmentForum 2008, moderated byAsadNaqvi, Programme Ofcer, UNEP-Economics and Trade BranchCoordinator,UNEP/UNCTADCapacityBuildingTaskForceonTrade,EnvironmentandDevelopment(CBTF).

    MarkusArbenz,DirectorofBio-Suisse,Switzerland, emphasizedthatthefocusofhisorganizationistoencourageconsumerstobuylocally.Assuch,Bio-Suissepromotesorganicproductionandoperatesalabelling

    schemeinSwitzerland.Thegroupslabelsfavourdomesticallyproducedorganicproductsandarenotawardedtogoodsthatareairfreighted,hesaid.Similarly,itdoesnotgiveitslabeltoimportedmilkormeat,becausetheseareavailableinSwitzerland,headded.

    Simon Bolwig, Project ResearcherTrade andDevelopmentResearch Unit at the Danish Institute forInternationalStudies,questionedtheenvironmentalcasemadebybuylocallobbies.RosesimportedfromKenyahaveasmallercarbonfootprintthanthoseproducedintheNetherlands,hesaid.Itisalsoamoralissueandaquestionoffairnesstothoseinthedevelopingworld,heargued.

    AlexanderKasterine,SeniorMarketDevelopmentAdviseratITC,pointedtotheadvantagesforAfricancountriesofreachingprosperousmarkets.ThefruitandvegetablesectorinAfricaisoneofthesuccessstories,hesaid.CountriessuchasKenya,Uganda,Ghana,SouthAfricaandZambiabenetfromaccesstotechnologyaswellasEuropeanmarkets.Forindividuals,theearningsfromproduceowntoEuropecanmakeareal

    differenceinhouseholdspending.Butsendinggoodsbyshiptheformoftransportthatproducesperhapsthelowestemissionsofgreenhousegasesisnotanoptionforfruitandvegetableorowerexporters.

    African producers view the focus on foodmiles as just anotherway ofusing the environment toblockdeveloping-countryexports,headded.

    Anumberofotherforumparticipantswerescepticalofthecampaignagainstfoodmiles. PhilipLeakey,aformerKenyanpoliticianandnowentrepreneurwithhiswife Katey,pointedoutthatmostair-freightedfruitandvegetablesarecarriedintheholdsofpassengerplanesthatwouldbetravellingregardless.Wouldweratherhavetheholdyingempty?heasked.

    Otherscalledforstrategiestohelpdevelopingcountriestogobeyondthedebateoverfoodmilesandtakeadvantageofopportunitiesinthedevelopedworld.Theseincludemarketingproductsmoreeffectivelyandincreasedlobbyingon thefoodmiles issue.However,becausedevelopingcountriesoftenlackresourcesand

    expertise inmarketing and lobbying, they should beprovidedwith help tobuild capacityin the neededskills.

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    Chapter 3

    Creating the value: Innovation is non-negotiable

    Theglobalmarketforgoodsandservicesthatmeetconsumerdemandforproductscreatedbyethicallyandenvironmentallyacceptablemeansoffershugeeconomicopportunitiesfordevelopingcountrybusinesses,entrepreneurs and exporters. But one thing is certain, thiswill notmatter unless the entrepreneurs,

    producersorevenfarmersareinnovative.Oftenbeingcreativeinmarketingcangoalongwaytowardsseizingtheseopportunities.Themessageis:Brandyourproductinawaythatcharacterizesitdistinctivelyandhelpsitndamarket.

    At the ITCWorldDevelopment Forum2008, developing countries wereadvisednottopursueonlylow-coststrategiesintryingtocreatedistinctivecompetencies in worldmarkets. John Viljoen,managing director o theiedexgroupocompaniesromAustralia,saiddevelopingcountriesshouldseektodistinguishthemselvesromeachother,andnotaimtocompeteonlyonprice.Craig Davis,ChieCreativeOfcer,JWTWorldwide,UK,echoed these sentiments: There are many ways to dierentiate your

    goodsandservicesromothers,andthisdierentiationiskeytosuccess,hesaid.

    TheimportanceoinnovationasagrowthenablerwasemphasisedbyGavinStaude, director o Investec Business School at South Aricas RhodesUniversity.Independentbusinessesindevelopingcountriesitheyaregoingtoachievesustainablegrowthhavetopursueandcreatenewmarkets,andtheonlywaytheycandothisisthroughinnovation,heinsisted.

    Innovation can take many orms and be brought to bear at dierentstagesotheproductioncycle.Aproductitselcanbeinnovative,suchasmaking jewellery rom rawmaterials.Orthe innovationmay comeduring

    theproductionprocesswithsomenewmeansorinputsusedtocutcostsorimprovequality,anyowhichcouldmakeaproductmorecompetitive.Itdoesnotneedtobecomplex(seetheboxinChapter4onbiologicalagriculture,entitledBeyondOrganics).

    he sources of innovation

    What are the main drivers o innovation? Clearly, consumer demand isa powerul incentiveto innovation asproducers seek outbetter andmoveremunerative ways to satisy it. Sometimes, however, the spark can be

    producedintherarefedatmosphereoauniversityorresearchinstitution.Fromtheoriginalinvention,innovatorsbuildontheundamentalresearchtheretocreateamarketableproduct.

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    20 Chapter3Creatingthevalue:Innovationisnon-negotiable

    One example comesrom the Indian Instituteo SciencesatBangalore. Itdevelopedaprocessorthegasifcationobiomassthatgenerateselectricityromweeds.Arun Kumar,President-BusinessInitiativesoIndiandevelopment-promotingconcernDevelopmentAlternatives,explainedtheimportancethatitcanhaveorlocaleconomies.

    Basically, anycarbon-bearingmaterial burnedunder closed conditions canproducegas.Youcleanitandyouputitintoagasengine,hesaid.Theresultisthatyoueventuallyareinapositiontoproduceelectricityeverywhere.

    Thishasenabledsmallcommunitiestodevelopincome-generatingactivities,particularlyorwomen.Wehaveplantssetupinareaswhereyoucouldnotimagineelectricityservicesarrivingin100years.Ittakesjust30daystoset up the system and Development Alternatives is already exporting thetechnologytoothercountries.ThereareeventhreesuchplansoperatinginSwitzerland inisolated ruralcommunitieswherethere isa accessto readysuppliesotimberbutnottotheelectricitymains,Onceyouhaveelectricity,

    youcandoanything:Agri-processing,chillingomilk,heatingomilk,steamgeneration.Youcantransormalocaleconomy,Kumarobserved.

    Thisisanexampleoatransormativetechnologythatcancreatejobswhereitwouldotherwisehavebeennearlyimpossible.Butthefrststeprequiredisinnovation.

    According to Anukul Tamprasirt, Deputy General Secretary o theFederationoThaiIndustries,growthinhiscountryisbasedonabundanceorawmaterials,andthiscreatesmanyoitscurrentchallenges.Thailandisanexportleaderinmanyfelds,rangingromriceandrubbertochicken(theworldsnumberour)aswellasexportsocomputerproducts.Thailandhas

    beenaspecialistinOEM(originalequipmentmanuacture,i.e.non-branded)products.Sometimeswedidnotevenknowwhowasbuyingit.Thechallengeistofndnewexportactivitiesorits70millionpeople.Publishingisarisingfeld,recording1,000%growthinoneyear.

    ForTamparsirt,successinbothtraditionalandITindustriesismanagementinnovation.Onekeyneedis tomakebetteruseobiomass,henoted.Some70%oThaimangoesarewastedbecausetheydonotmeetimporting-countrystandards.Thegovernmentis encouragingsolutionsalongthesamelinesasDevelopmentAlternativesinIndia,usingthebiomasstoproduceelectricity.

    Thailandsbiodiversityranked17thintheworldoritsvarietyisanother

    sourceoinnovation,bringingnewgoodstomarket.Entrepreneursarenowexploringhowtouselocalwisdomonherbsandspicestocreateexports,rangingromchickenbonesagainstheartdiseasetosquidinkorcosmetics.We arenot like India.We have based ourselves onabundant resourcesbutwerealizethisabundanceisnotgoingtolastorever.Itneedstobemanaged.

    he mother of innovation

    Sometimesinnovationcanemergeromsheerdesperation.Philip LeakeyandhiswieKatyoundedtheKenya-basedLeakeyCollection,whichspecialisesinproducingjewelleryandhouseholdgoodsromunusual

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    21Chapter3Creatingthevalue:Innovationisnon-negotiable

    rawmaterials,suchasgrass.Hisbusinesssprangoutotheneedtoprovidenear-starving Maasai neighbours with a means o survival when droughtthreatenedtokillotheirherdsanddestroytheirlivelihoods.

    Atthebeginningothedecade,theareasueredacripplingtwo-yeardrought

    thatkilledupto70percentothetribeslivestock.Asaresult,manyothemenletinsearchopastureortheiranimals,leavingthewomenandchildrenbehindwithjustaewgoatstoseethemthroughhardtimes.Butwhentheseanimalsalsodied,thewomenwereletdestitutewithnomeansoeedingthemselvesandtheirchildren.

    AtfrsttheLeakeyshelpedthemwithhandouts.Theyalsosoughtmoneyromriends.Butthentheycametotherealizationthatjusthandingoutmoneyandoodoerednolong-termsolution.WhattheMaasaiwomenneededwasanalternativewaytoearnaliving.Leakeyandhiswiedecided:Wearegoingtofndaproduct,wearegoingtoinnovate.Thenexttimeadroughtcomesalong,theywillbeinbusiness.

    Therewasnotmucharoundtoworkwith,justatoughtypeograss.Butthecoupledecidedtoseewhatcouldbeproducedromitinthewayojewellery.Theybeganbycuttingupthegrassintosmallpiecesandstringingittogether.First results were not very attractive. But they persevered and by dyeingthegrassinvariouscoloursandgivingtheirjewelleryanethniclook,theyeventuallymanagedtosellsomepiecesintheUnitedStates.

    Notthatitwaseasytoestablishtheirbusiness.Weidentifedproblemswiththedyeingandourproductwasexcessivelyexpensivebecauseweweremakingtooew,Philliprecalled.Theethniclookalsoprovedtorestricttheiraccessto the most proftable boutiques and the jewellery was later produced to

    contemporarydesignstandards.

    Kumaroeredanothergoodexampleohowinnovationintheproductionprocess canbeused to improve peoples livesbyhelping orge sustainablelivelihoodsandcreateopportunitiesorexports.

    Withhousinganunulflledneedinmostpartsotheworld,DevelopmentAlternativesposeditselthequestionwhetheritwouldbepossibletoproducecheap and aordable bricks without increasing the carbon ootprint. Theansweritoundwasaresoundingyes.Whatitcreatedisanenergy-efcientprocesswhichisbothwithinthefnancialreachosmallbusinessesandatthesametimegreenerthantraditionalbrick-producingtechnologies.Wehave

    registeredthefrstcleandevelopmentmechanism(CDM)bundledprojectinwhichenergysavingsromeachkilnarebundledtogetherandsold,hetoldtheITCorum.IndonesiaandPakistanareamongcountriestohaveshowninterestinacquiringthetechnology.

    Inasimilarvein,DevelopmentAlternativeshascreatedascaled-downpaperrecyclingplantthatcanftintoasmallareaandwhichiscapableorecycling5,10,or20tonnesamonthohighqualitypaper.Theplantcanulflaclearlocalneed,providingpoorcommunitieswithaccesstopaperthatchildrenneedoreducation,orexample.Hereisanopportunitytomeetlocalneedandhaveasurplusorexport.Iamagreatbelieverthatasystemhastobemaderobustbytestingitoutornationaleconomicgrowthandonlythen

    exportingthetechnology,and,or,theproduct.Itcanstimulateindigenouscommunitiesandthenyoucanworryabouttherest,saidKumar.Again,itisinnovationatwork.

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    22 Chapter3Creatingthevalue:Innovationisnon-negotiable

    Overcoming market constraints

    Producers,armersandentrepreneursindevelopingcountriesotenacemanyconstraints frst on their ability to innovate and then,where they have

    comeupwiththeinnovations,toseetheirproductorserviceembracedbyconsumers.Financeisalsocitedasamajorproblem.

    Government role

    Governmentscanplayanimportantroleinstimulatinginnovationaction.

    LeakeycitedtheexampleoSouthAricasMarula tree,which isnownotonlyusedtoproduceaamousliqueurbutalsoprovidesjamsandoilthatisemployedasabaseorsought-aterhealthcareproducts.Thechainbeginswiththeruralpeople,thepeoplewhocollecttheruit,hesaid.Butitisthe

    governmentthatboughtthepeopletogetherandsupportedresearch.Itisthegovernment thatmakes sure the trees areprotected. There isnowanewrecognitionothevalueotheproduct,hesaid.

    Governmentscanalsobeabridgebetweentheproducerandtheirmarket.AgroupoMaasaiwomenhasnoconceptowhatthemarketrequiresinEuropeorAmerica.Wearethebridge,saysLeakey.Butinothersituations,thisisaservicethatgovernmentsorinternationalinstitutionscanprovide.

    Inormationaboutmarketpossibilitiesandneedsisanotherkeyneed,alongwithhelpinmeetingmanyothecertifcationandotherqualitycontrolsthatstandbetweenadevelopingcountryproducerandaconsumeroairtrade

    oorganicgoodsinEurope,theUnitedStatesorJapan.

    Financial institutions

    Financial institutions can play a signifcant part in getting innovativebusinessesotheground,particularlythoughmicro-fnancingincountriessuchasIndiawherethisormolendingtosmallbusinessesismostdeveloped.InIndia,sel-helpgroupsmainlyinvolvingvillagewomenwhocometogethertopoolresourcescanbeasourceostart-upcapital.XacBankinMongoliaspecializesinmicro-fnanceanditsPresidentcametoMontreuxtoreportontheexperience(seeChapter4).

    AsPhillip Leakeypointedout,heandhiswiewereinapositiontofnancetheinitialhesitantstepstoseekoutmarketsintheUnitedStates,butthiswouldhavebeenimpossibleoragroupoMaasaiwomentodoontheirown.Theirexperienceshowedthepowerolinkagesinintegratingruralwomenintoaglobalsupplychain.

    Neil Kelsall rom the United Kingdom is a pioneer o the Equitrademovement,whichseekstocreatewealthindevelopingcountriesthroughtradeinhighervaluegoodsandservices.Butherecalledhowitwasverydifculttoattractinvestmentinhiscompanywhosefrstproductwaschocolatebarsbranded Malagasyandmanuactured inMadagascar. Therewasnt any

    undingavailableinMadagascarnorwerethereanyagenciesavailabletoinvest,sowehadtouseourownmoneytostarttheproject,hesaid.Whentheproducthaddevelopedenoughtomakeitworthpresentingthechocolate

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    23Chapter3Creatingthevalue:Innovationisnon-negotiable

    atatradeair,thecompanydiscoveredtherewerenogovernmentundstosupportsuchbusinessventures.Onceagainthemoneycameromhisownpocket.

    ForeignbusinessesaredissuadedrominvestinginAricabecauseitisalong-

    termproposition,henoted.Togetaroundthis,hesaid,governmentagenciesandthemediashouldhelppromotewhatAricahastooersuchasuniquespices,owersandoodsinapositivelight.

    InKenya,knowledgeobio-dieseluelhasbeenalmostentirelyspreadbythemedia.Andsosuccessulhasitbeenthatmostothelocaltransportrunsonnothingelse,accordingtoLeakey.Thereisahugemarketoutthereandhugeinnovationisrequired,hedeclared.

    Partnership and linkages are paramount

    Partnerships oster innovation, technical and knowledge transer and thebeneftsareeltromsmall-scaleproducerstolarge-scalecompanies.AsRolandHiggins,PolicyAdvisor,RainorestAlliance,Belgium,noted:Partnershipsbetweencompaniesandotherorganizationsisimportantintappingintotheconsumerconscience.

    Sybil Anwander, head, quality assurance and sustainability, Coop,SwitzerlandsaidthatasSwitzerlandssecondlargestretailer,hercompanyisexpectedbyitscustomerstoactinasociallyresponsibleway.Customersexpect products to be produced in an environmentally riendlymanner,Anwandersaid.Itisgoodbusinesstobeasustainabilityconsciouscompany,wehavehigherturnover,moreproductrange,moremotivatedemployees,sheinsisted.

    ThishaspromptedCooptoormlong-termpartnershipswithproducersromdevelopingcountries.

    Coopisoneotheworldsleadingretailersorair-tradetextilesromorganiccottons.Their brand,Naturaline, isbased on a partnership with the yarnactoryRemeiand9,000cottonarmersinIndiaandTanzania.Farmersgetapremiumpriceortheorganic cotton,theyhave afve-yearcontract andtheygettechnicalsupport,saidAnwander.CoopandRemeifnancenotonlysocialprojectsinthearmersvillages,butalsoaschoolororganicarming,powergenerationwithbiogasandirrigationsystems.

    There are even greater advantages resulting rom this partnership as theorganicproductionresultsinarmersnothavingtospendanincreasingpartotheirrevenuesonmineralertilizers,theyhavemorestableyieldsandtheycangrowanothercropwhichimprovestheiramiliesdiets,orcanbeusedtogenerateurtherincome.

    Partnershipscanalsobeusedtoeducateconsumersochallengesacedindevelopingcountries. Ania Jakubowski,AssociateDirectorinMarketing,Procter&Gamble,Switzerland,spokeothecooperationwithnon-businesspartnersamonginternationalhumanitarianagenciesandnon-governmentalorganizations as a way to demonstrate a companys social commitment.

    Procter and Gamble has partnered with UNICEF, the United NationsChildrensFund,topromoteimmunizationcampaignsindevelopingcountriesbyallottingundsromsalesoitsPampersbranddiapers.

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    24 Chapter3Creatingthevalue:Innovationisnon-negotiable

    ake advantage of serendipity in the market

    Onceaproducthasbeendeveloped,astumblingblockotensurroundshowtotakeittomarket.ForPhillipLeakeysjewellery,theturningpointcamewhen

    hewasaskedtogivealecturetoaRomanCatholicgirlsschoolinMonterrey,Caliorniathattheproductlinewastested.Aterthelecture,hewentuptotheheadteacherandsaid:Wehaveawholelotounusualjewellerymadeograss.Wewouldliketosellsometoyourkids.Theysold2,000strandso grass jewelleryin anhourandtookaway$16,000.Itwas thenthatwesawthatthebusinesshadlegs.Wewentbackhomeandwentthroughthebusinessmodeltoseehowwecouldcutcosts.Weanalysedeverything.Thatinnovation,thatslightdierenceiswhatpeoplearelookingor,particularlyintheboutiquemarket,hesaid.

    Boutiqueswantsomethingthatisnotinthesupermarketsandthebigstores

    andwehadsomethingdierent.Wehadgrass.Therewereallsortsounnycommentsaboutusmakingalivingoutograss,butIwillnotgointothat,he added. But essentially,wehad aproduct.We innovated romhowwestructuredit,howwecutit,howwedyedit,hesaid.

    Branding for consumers with a conscience

    Whilethemarketorethicalproductsandservicesisgrowing,careulbrandingisrequiredtoattractthediscerning,ethicalconsumer.

    SpeakersattheITCForumhighlightedtheneedtodevelopspecifcbrandingstrategieswhentargetingtheconsciousconsumer.James Porter,ChairmanotheTBAGroup,Durban,SouthArica,notedthatconsumersareincreasinglydrivenbyemotionsandshowgrowinginterestinethicalproductionandareagainstenvironmentaldestruction.Sellinggoodsbydoinggoodrepresentsgreatopportunities,henoted.

    ThiswasechoedbyCeline Roche,VicePresidentotheSpecialtyIngredientsDivisionNorthAmerica,Mane.Rocheregrettedthatthefnishedproductsandbrandsintheragranceindustryhavetodaylosttheiremotionalappealbecauseoaparadox:Seductionandaestheticvalueshavebeenoverusedintryingtoachievesalesgrowth.Butethicaltrade,andtheuseosustainable

    arming practices in her industry, will bring back some o the essentialemotionalcontenttoconsumers,sheargued.

    Ethicalconsumerlabelshavebeensuccessullyusedbybusinessesindevelopingcountriesaspartotheirbrandingstrategiestoaccessoreignmarkets.

    TheFairtrademarkisfrmlyestablishedasoneotheworldsleadingethicalconsumer labels. According toHarriet Lamb, Executive Director o theFairtradeFoundation,whensevenouto10consumersintheUKrecognizethebrand,ithasmovedrombeinganicheideatohavingamajorimpactonthepublicsattitudetothethingsthattheybuy.ThisawarenesshastranslatedintosalesvalueoalmosthalabillionpoundsorFairtradeproductsinthe

    UKin2007,sheafrmed.Independentacademicstudies,aswellasanecdotalevidence,havedemonstratedthatFairtradeishavingapositivedevelopmentalimpactoritsproducerpartners,Lambdeclared.

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    25Chapter3Creatingthevalue:Innovationisnon-negotiable

    Inthelong-run,inordertoensurethemaximumeconomicbeneftderivestodevelopingcountryproducers, itwill benecessarytodevelopbrandswithinthelocalmarketaswell,andtomoveproducersupthevaluechain,suggested

    Anne MacCraig, chie executive ofcer o CaDirect, United Kingdom.Howwemovethedistributionobeneftsurtherorwardis allabouthow

    wecanlocatethebrandinvariousdierentmarketsaroundtheworld,shesaid.Andtheconceptovaluecreationwithinabrandandthelocationotheprocessingacilitiesisessentialtotheamountorealvaluethatyoucancreateinacountryandanemergingmarket,sheafrmed.ThiswouldbeauturepriorityorCaDirect,althoughitisnotclearjusthowthisshouldbecarriedout,sheadmitted.

    Creatingalocalbrand,however,canbedifcult,particularlywhentheproductconcernedisnotwidelyconsumedinthelocalmarket.SuchisthecaseocoeeinUganda,wherethelocaldrinkochoiceistea,notedWillington Wamayeye,generalmanagerotheGumutindoCoeeCooperative,aCaDirectsupplier.

    Whilemanybusinesseshaveenjoyedgreatsuccessusingconsumerlabels,somebusinesseshavebeenhesitanttoembracethem.OnesuchexamplecameromNeilKelsallwhosaidthattheMalagasychocolatecompanydecidedagainsttheuseosuchalabel,asitwasbelievedthatthiscouldlessentheappealotheconectionaryatthehigherendothemarket.

    Experience shows that being considered ethnic can be a blessing and aburden,particularlyoutsidetheoodssector.Ethnicgoodssellonlytoringemarkets,Leakeywarned.TheLeakeysdiscoveredthedisadvantagesastheybegandevelopingtheirinternational.tradeingrassjewellery.Wewerebeingsidelinedintotheringemarket.Therewasno uturein that;wewerenotgoingtocreatea lotowork.Weneededtocreateacontemporaryproduct.Somethingthatwillsellanywhere.So,theygotridotheethniclookotheirproduct.Today,theLeakeyjewellerysellsanywhereromNewYorks5thAvenuetoLondon,HollywoodandParis.Itissellingbecausewetooktheethnicityoutoit.ItisstillmarketedundertheZulugrasslabel.However,theironythatKenyahasnoZuluswasnotlostonsomeotheForumparticipantsanddemonstratedthepoweroinnovativebranding.

    Stiff competition from multinationals

    Developing-country brands ace ferce competition rom multinational

    corporationsanxioustoestablishbrandsotheirown,pointsoutJamesPorter.AmagazinesurveyoThirdWorldbusinessmenandconsumerscarriedoutoraSouthAricanbreweryshowedhighlevelsodistrustothemotivesandpracticesothebiginternationalcorporations,herecalled.

    Manyothesebusinessleadersthoughtglobalbrandsoeredewbeneftstodevelopingcountries,and80%eltthatglobalbrandshadanunairadvantageover local brands. Well known local brands,whichhave developed trust,experienceerosionwithdumpingromtheFirstWorld,Porterdeclared.

    Building trust

    Buildingtrustisconsideredcriticalwhendevelopingabrandthatisaimedattappingintotheconsumerconscience.Porterwarnedthatthedecisiontotarget

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    26 Chapter3Creatingthevalue:Innovationisnon-negotiable

    theethicalmarketshouldbecareullyconsidered.Conscientiousconsumerswillboycottproductsthattheydonotbelievetobegenuine.Headdedthatastheseactivistsextheirbuyingmuscles,theyactasgoodpolicementhatmarketerscanuseproductivelyasafngeronthepulseotomorrow.AniaJakubowskiagreed:Consumerswillpickupiwearenotgenuine.

    Whileconsumerswilltakenoteandactoutagainstinsincereethicaloerings,genuineethicalgoodsandservicesarenotguaranteedsales.Themajorityoconsumerswillnotoregoquality,priceorconvenienceorethicalproducts,warnedJakubowski.

    ales to tell the world

    Oncethereisaproduct,therehastobeastrategyorsellingit,orgettingitouttoawidermarket.CraigDavisbelievesthereareewerbetterstrategiesthanhavingagoodstorytotell.

    FewstoriescanbetterthatotheKupiLuwakcoeebeans.Thecoeetreegrows on the Indonesian islands o Sumatra and Bali, and their sot redcherriesareaavouriteoodothePalmCivet,atree-dwellingcrossbetweenacatandamonkey.Thecivetseattheruitandexcretethebeans,whicharethencareullycollectedromthegroundbyplantationworkers.Thecivetsarebelievedtopickonlythebestandripestcoeeberriesandtheirgastricjuicesmayevenaddtotheavour.Fewerthan450pounds(200kg)ocoeebeansareharvestedeachyear,andauentconsumersinBritainarepreparedtopayasmuchas50sterlingortheprivilegeotastingacupocoeemaderom

    theirbeans.Clearlynoteverybodyhassuchacolourultaletotell.ButDavisadvicetoproducersistoturntheblowtorchbackonyourbusinessuntilitbeginstorevealsomeoitssecrets.Hebelievesthattherewillbesomethingaboutitthatisdierent.

    Moderntechnologiesarebringingtheproducerandconsumerclosertogether.Websites,orblogscanbelaunchedorjustafstulodollars.Youcandoitwithoutmuchmoneyandareallygoodstory.Youdonotneedanythingbut

    someactsandtheabilitytotellthemwell,hesaid.

    Box5. Goodcorporatecitizens

    Innovationcanbeusedtobolstercompetitiveness,andatthesametime,encouragethedevelopmentofsmall-scaleproducersinthedevelopingworld.

    KevinOBrien,GroupCompanySecretary,TheSPARGroupLtd,SouthAfrica,explainedthatalltheretailstoresinhisinternationalgroupare independentlyowned.AlthoughinSouthAfrica adistributionnetworkexiststosupplySPAR-labelledproducts,retailersareabletobuylocallyinordertoberesponsivetocustomersneeds.AsOBriennotes,TheSPARretailerhashisorherearclosetotheneedsoftheSouthAfricanconsumer.

    Arangeofbenetsresultfromthisexibleprocurementarrangement.First,itallowsSPARtoquicklygaininformationonconsumerpreferencesthroughanalysisofnon-SPARbrandsales.Inaddition,theretailers

    freedomtobuylocallyalsoprovidesrevenueandbrandexposuretosmall-scaleproducerswhomightotherwisenothavethescale,knowledge,orcontactstosupplytolargeretailsupermarketchains.

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    Chapter 4

    Raising the value

    Ifproducingthegoodsthatappealtoethicalconsumersisachallenge,thenthenextsteptappingintomarketscanbeanevenbiggertest.Whilethesemarketsaredynamicandoffermuchpotential,theyarealsosegmented,rapidlychangingandconfusing.Toreachsuchmarkets,developingcountryproducers

    mustnavigateagrowingvarietyofproductstandards,bothpublicandprivate.

    Copingwiththechallengesosecuringaplaceinthemarketcomesontopothemoretraditionaldifcultiesacedbysuchexporters,includingdistancerom market, lack o inormation regarding demand trends and problemsassociatedwithmeetingtherequirementsolarge-scaleimportersandretailers,particularlysupermarkets.

    Barriers and costs

    The issue o standards stirs considerable controversy. Some advocates ordevelopingcountriesaccusedevelopednationsoseekingtoimposetheirvaluesandconcernsontherestotheworld.Standardscanalsoactasnon-tarimeasuresdesignedtoprotectlocalmarkets.Andtherecanbeconsiderablecostsinvolvedwithcompliance.

    Ontheotherhand,privatestandardscanoerpricepremiumsandopenthewaytolucrativenichemarkets,especiallyorsmallproducers.Moreover,bothpublicandprivatestandardscanhelpraisethequalityodevelopingcountryproductsaswellascontributetoenvironmentalsustainabilityandimprovedsocialconditions.

    TheseissueseaturedprominentlyattheForum,bothinthesessionsregardingaccess tomarkets and in the wider debate. Participants identifedways toensurethatstandardsbecomelessoanobstacle.Suggestionsincludedundingprogrammesindevelopingcountriestohelpproducerscopewithstandards,greaterinvolvementothedevelopingworldinstandardsettingandexpandedeorts toprovidedevelopingcountry producerswiththe inormationtheyneedtoreachmarkets.Therewasalsosupportorgreatercoherenceamongthevariousstandards,withsomecallingorharmonization.

    Why standards and labelling schemes?

    Countriesand regional groupings, suchas the EuropeanUnion, have longapplied national saetyandqualitystandards or domestic production and

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    28 Chapter4Raisingthevalue

    imports. To ensure that these arent used to protect domestic producers,membersotheWTOhaveagreedonasetorules.Inconjunction,standards,particularly regarding ood, plant and animal health, are negotiatedinternationallyandrecognizedbytheWTO.TheWTOalsocanbecalledontoadjudicatedisputesaboutstandardsamongitsmembers.

    Recentyearshaveseenmorestringentpublicoodsaetyrulesinthedevelopedworld,ollowingaseriesohealthscareslinkedtoagriculture,aswellasgrowthinpublicstandardsintheareaoenvironmentalprotection.

    Suchstandards,however,canpreventdevelopingcountriesromaccessingmarkets, even when the products they are exporting are not subject toimporttaris.AsWTODirector-GeneralPascal Lamypointedout,saetyissuescancreateabottleneckthatmustbeaddressed.Citingtheexampleo EU rules on the level o pesticide residue allowed inowers, he saidthatithemaximumpesticideresiduedeviatesaewmilligramsromEUstandards,itisnolongerreetrade,itisnotradeatall.TheAidorTrade

    initiativeisworkinghelptodevelopingcountriesovercomesuchproblems,hesaid.

    A double-edged sword

    Whilemeetingpublicoodsaetyandagriculturalhealthstandardscanposeachallenge,italsopavesthewayorimprovementsindevelopingcountries,includingsaerandmoresustainableproductionandprocessingpractices.

    Inadditiontoaectingpublicstandards,increasedethicalconcernsamong

    consumershaveledtomanyprivateandNGOinitiativestopromoteethicaltradeandproduction.Thesearevoluntaryschemesandaresometimesknownassustainabilitystandards.Theyalsoreecttheactthatinaworldoglobalproductionprocessors,consumerswantcompaniestotakeresponsibilityortheirsupplychains.

    Meanwhile,developmentagencies,NGOsandothers,suchastheorganicandair trademovements,view certifcationandlabelling schemesas away toachievesocialandenvironmentalgoals.Theseincludespreadingsustainableenvironmentalpractices,improvinglivingstandardsandpromotinghumanandlabourrights.

    Withthisinmindthe2008ForumorganizedasessionentitledEnvironmentalStandards or Global Markets: Implications or Developing Countries,moderatedbyJacqueline Cot,PermanentRepresentativeinGenevaotheInternationalChamberoCommerce(ICC).

    These standards are in the end a critical tool in the drive towardsustainableproductionandconsumptionmethods,saidUlrich Hoffmanno the United Nations Conerence on Trade and Development. JochenKrebuehl, Programme Ofcer or Social and Ecological Standards inGermanystechnicalcooperationagencyGTZ,believesthatincomingyearsgovernmentswillwanttoplayalargerroleinstandard-setting.ThistrendisalreadyemerginginEuropeanUnioncountriesinrelationtobiouels,he

    toldtheForum.Globalizationcanbepursuedinasustainableandhumanwaybytheapplicationostandardswhoseprolierationthistrendiscausing,said.

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    29Chapter4Raisingthevalue

    Private labels clarity or confusion?

    Homann suggested the private labelling schemes run by retailers andproducers are designed mainly to dierentiate products and reassure

    consumers.Insuchinstances,labelstendtobeaimedatguaranteeingqualityand may be viewed as marketing tools. However, their prolieration hascontributedtoconsumerconusion,andtheefcacyotheseasamarketingtoolisnowbeingquestioned.

    Since1995,moreprivateinternationalood-relatedstandardshaveemergedthaninthepreviousfvedecadescombined,saidDaniele Giovannucci,co-ounderotheCommitteeonSustainabilityAssessment(COSA),basedintheUnitedStates.Hundredsolabellingandcertifcationschemesnowexist.Isthisarunawaytrain?

    The need to dierentiate ethically produced products aswell as convince

    consumersotheirvaluetojustiyhigherpricesensuresthatissuessurroundingstandards,labelling,certifcationandotherschemesarelikelytoaccompanythegrowthinethicaltrade.

    Challenges for developing countries

    Theparadoxisthattheproducerswhomgovernmentsanddonorsmostwanttohelptendtobemarginalizedorcompletelyexcludedrommarketsbecauseostandardslinkedtoethicalconsumerism,Ulrich Hoffmannobserved.

    Amongthe issuescitedby exporters,NGOSand policymakers:Toomanydierentstandards; high certifcationcosts, rapidlychangingrequirements;lackotransparencyandinormation;limitedparticipationromdevelopingcountriesinstandard-setting;andinadequatecoherencebetweenpublicandprivatestandards.

    Manysmallholdersarebeingparalysedbymultiplecertifcationprocedures,saidAnne MacCaig,ChieExecutiveoCaDirectintheUnitedKingdom.Wearekiddingourselvesiwethinkthisisasustainablewaytooperate,sheadded.

    Moreover,privatestandardscanbedesignedtoencourageconsumerstobuy

    localordomesticgoods,tothedetrimentothosecomingromthedevelopingworld.Andretailerswithabigshareothemarketcanuselabelsorstandardstolimitcompetition.

    The rustration elt by some developing countryproducers is evident andcameoutstronglyinasessiononEthicsandBusinessLinkages:SupplyChainImplications orExporters,moderated by Ashok Sharma,Director o theIndianAcademyoManagement.

    Stuart Symington,ChieExecutiveOfceroSouthAricasFreshProduceExportersForum,saidthatwhileethicalcodescouldimprovelabourpractices,theyshouldnotbeoistedonproducers.

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

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    30 Chapter4Raisingthevalue

    considerationsshouldapplythroughoutthevaluechain,includinginpracticesoimportersandretailers.Forexample,accordingtoSymington,manybigchainsemployquestionablepoliciessuchassellingbelowcost,removingbrandnamesandwithholdingpriceinormationromproducersuntilitistoolatetoswitchdeliveries(seeboxentitledCaughtintheSupermarketWarsintheIntroduction).

    Others raised questions about the degree towhich businesses are reallythinkinggreenintheiroveralloperations. John Whelan,ChieExecutiveOfcerotheIrishExportersAssociation,observedthat,positionedbetweentheUSandtherestoEurope,Irelandisproportionallytheworldsbiggestimporteromaterialsre-exported(70%).Asaresult,Irishproducersareveryawarethattheyarejustonelinkinanincreasinglyglobalizedsupplychain,raisingquestionsaboutwheretheethicalstandardsaretobeapplied:Byproducersorconsumers.Cargoshippingeets,orexample,havedoubledinthepastfveyearsasaresultorocketingdemand.Forthepasttwodecades,

    consumershavebeenlookingorvarietyandlowercostingoods.Risingcostsouelrom$30abarrelthreeyearsbeorewillchangethesituationincomingyears,sincetransportaccountsorone-thirdoworldenergyconsumptionincommerce.Thoseinvolvedintransportthereoreacehighertaxesdesignedto reduce carbon-emitting activities. Greening the supply chain is oteneasiestorEuropeanproducersitheysupportthebuylocalmovement.ThiscouldbeneftIrisharmersbecauseotheirproximitytotheUKmarket.Butairtradeproducersindevelopingcountrieswillfndthemselveslosingout,sincemostotheirproductsarereshoodwheretransportisamajorcost. This raises ethical questions about Irish producers behaviour, henoted.

    Similarly,Bernhard Herold,CoordinatorotheFairWearFoundation,oSwitzerland,saidhisorganizationisscepticalaboutthebeneftsocertifcationinhisindustry,whenthemainissuesarelabour-standardcompliance.Ethicallyproducedtextilesandclothingdonotnecessarilyhavealabelwhichstatesthatworkershavebeenpaidaairwageandthelabelsthatexistonlyguaranteetheproductitselratherthantheoverallconditionsowork.

    Benets for developing countries

    Nonetheless,theexpansionoethicalstandardshaspavedthewayorast-growingandlucrativemarketsthatcanbeideallysuitedtodevelopingcountryexporters.Whileannualglobalmarketgrowthorconventionaloodshasbeenat2%to4%inrecentyears,thefguresorsustainabilitystandardmarketsrangesrom5%to100%,accordingtoHomann.Theseareveryattractivemarketswithlargepotentialprofts,hea