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CRANFIELD UNIVERSITY
CRANFIELD SCHOOL OF MANAGEMENT
STRATEGIC MARKETING GROUP
MSc Dissertation
Academic Year 2005-2006
DEBORA CRISTINA DA SILVA PAIVA
The Fair Trade as a business model to converge social and economicdevelopment.
Supervisor: Professor Simon Knox
September 2006
This thesis is submit ted in part fulf ilment of the requirementsfor the degree of Master of Science
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Shoulders Support the World
There comes a time when we no longer say: my God.
A time of absolute purity.
A time when we no longer say: my love.
Because love proved useless.
And eyes don’t cry.
And hands only weave in rough work.
And the heart is dry.
Women knock at the door in vain, don’t open it.
You stay alone, the light goes out,
and in the dark your eyes glow enormous.
You’re convinced, you no longer know suffering.
And you expect nothing from friends.
Old age matters little, what is old age?
Your shoulders support the world
and it weighs no more than a child’s hand.
The wars, famines, and talks in buildings
only prove that life goes on
and not all have freed themselves yet.
Some, finding the spectacle barbarous,
prefer (the delicates) to die.There comes a time when there’s no point in dying.
There comes a time when life is an order.
Merely life, without perplexity.
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THE FAIR TRADE AS A BUSINESS MODEL TO CONVERGE
SOCIAL AND ECONOMIC DEVELOPMENT
The heart of the Fair Trade movement is fairer pricing that gives growers in developing
countries a better price for their work and gives longer term stability to producer/buyer
relationships. Consumers are more conscious of ethical issues and the Fair Trade
phenomenon faces a trade-off as it reaches mainstream due to the partnerships withcorporations like Starbucks that breaks one of the Fair Trade principles. On the other
hand, big retailers’ chains show a concern with brand and reputation reflected in the
implementation of ethical sourcing practices that as the Fair Trade look at the working
conditions of suppliers.
Adopting a literature review method and expert interviews, I apply the critical success
factors framework based on the findings of the literature. As a next step the blue ocean
strategy is used for examining the Fair Trade business model. The blue ocean strategy
proposes a different look at the industry to create market space with the following
application of the four-actions framework.
Aiming to understand how the Fair Trade produces social and economic development,
some research gaps within the Fair Trade literature were identified, including
longitudinal studies to measure the impact in the communities receiving the Fair Trade
premium price.
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Acknowledgement
The development of this thesis came with a move from Brazil to the UK and a
disruption of my home life. A large number of people have helped me along the way.
First, I want to thank my parents for being supportive and ready to tell me words of
encouragement needed for the hard task of taking a Master’s degree in a language otherthan Portuguese. My brothers and sisters helped me in many different ways and this has
made me realize how important they are in my life.
There are a number of people in Cranfield who have helped in various ways. My
supervisor Simon Knox for his critical appraisal of my work. Mary Betts-Gray and
Emma Turner from Cranfield Library for the support. Dr. Roger Palmer and Penny
Mingay gave me a warm welcome and Margaret Norwich gave me all the help a
foreigner could ask for. Ian Crawford gave the research impetus.
Bekim Gashi was a close friend with his endless patience to read my work and help me
with the language. Without his support this one year abroad would not have been as
sweet. I thank my classmates Rene Affolter, Nathan Sukkar, and Roopalee Dave for
their friendship.
Outside Cranfield, my supervisor in Brazil, Prof. Luciano Junqueira and Fatima Silva,
for the encouragement and exchange of ideas. Cirene Catchpole and Adriana
Albuquerque are women who I admire. I thank the interviewees Dr. Lance Moir and Dr.
Iain Davies who gave their time.
This thesis is dedicated to 183 million Brazilians who do not give up.
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Table of Contents
1. INTRODUCTION .............................................................................................. 1
1.1 Introduction .......................................................................................................1
1.2 Review Rationale...............................................................................................2
1.3 Review Objectives.............................................................................................3
2. METHODOLOGY............................................................................................. 4
2.1 Introduction .......................................................................................................4
2.2 The literature review process.............................................................................4
2.2.1 Mapping the field of study................................................................................ 7
2.2.2 Structured search .............................................................................................. 7
2.2.3 Evaluation....................................................................................................... 10
2.2.4 How findings are going to be utilised............................................................. 12
2.2.5 Changes from protocol ................................................................................... 12
2.2.6 The interviews ................................................................................................ 12
3. DESCRIPTIVE FINDINGS ............................................................................ 13
3.1 Introduction .....................................................................................................13
3.2 Papers included in the literature review ..........................................................13
4. THE BUSINESS CASE FOR FAIR TRADE ................................................ 22
4.1 Introduction .....................................................................................................22
4.2 The Fair Trade movement ...............................................................................23
4.3 The Fair Trade principles ................................................................................26
4.4 The Fair Trade story so far ..............................................................................28
4.5 The Fair Trade business model........................................................................30
4.6 The Fair Trade supply chain............................................................................34
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4.9 Corporate Social Responsibility and the Fair Trade........................................46
4.10 Starbucks case study........................................................................................49
5. DISCUSSION OF RESULTS.......................................................................... 52
5.1 Introduction .....................................................................................................52
5.2 Main findings...................................................................................................52
5.3 The blue ocean strategy applied to the Fair Trade...........................................53
5.4 Fair Trade critical success factors ...................................................................555.5 Future of the Fair Trade...................................................................................58
6. CONCLUSIONS............................................................................................... 62
6.1 Re-statement of thesis objectives ....................................................................62
6.2 Summary of the findings .................................................................................62
6.3 Contributions of the report ..............................................................................626.4 Research limitations ........................................................................................63
6.5 Suggestions for future research .......................................................................63
REFERENCES ............................................................................................................. 65
APPENDIX 1 - Elements of the Fair Trade discussed in the papers ..............................70
APPENDIX 2 – Fair Trade product and information flows............................................72APPENDIX 3 - Marks & Spencer code of conduct ........................................................73
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List of Figures
FIGURE 1- LARGEST NATIONAL MARKETS FOR FAIR TRADE ..............................................3
FIGURE 2 - THE LITERATURE REVIEW PROCESS ...................................................................6
FIGURE 3 - FAIR TRADE ADVERTISING ................................................................................8
FIGURE 4 - THEMATIC AREAS ADDRESSED IN INCLUDED PAPERS .......................................13
FIGURE 5 - THE FAIR TRADE AIMS ....................................................................................27
FIGURE 6 - THE FAIR TRADE COFFEE ADVERTISING ..........................................................28
FIGURE 7 - THE LIFE CYCLE OF THE FAIR TRADE ..............................................................30
FIGURE 8 - THE COFFEE COMMODITY CHAIN .....................................................................34
FIGURE 9 - FAIR TRADE PRODUCERS ’ COMMUNITY ..........................................................39
FIGURE 10 - SPECTRUM OF BUSINESS RESPONSES TO ETHICAL TRADE ...............................42
FIGURE 11 - MARKS & SPENCER ADVERTISING OF FAIR TRADE .......................................45
FIGURE 12 - MAINSTREAMING : CRITIQUE OF FAIR TRADE ................................................46
FIGURE 13 - CAFEDIRECT ADVERTISING ...........................................................................54
FIGURE 14 - THE BLUE OCEAN STRATEGY APPLIED TO FAIR TRADE COFFEE .....................58
FIGURE 15 - THE FOUR -ACTIONS FRAMEWORK .................................................................59
FIGURE 16 - THE FOUR -ACTIONS FRAMEWORK FOR FAIR TRADE COFFEE .........................60
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List of Tables
TABLE 1 - LITERATURE R EVIEW OUTPUT ...........................................................................9
TABLE 2 - THE QUALITY MATRIX FOR INCLUDED PAPERS ..................................................11
TABLE 3 - K EY AUTHORS IN THE FAIR TRADE SUBJECT ....................................................14
TABLE 4 - PAPERS INCLUDED IN THE LITERATURE R EVIEW ..............................................15
TABLE 5 - JOURNALS INCLUDED IN THE LITERATURE REVIEW ...........................................21
TABLE 6 - LITERATURE REVIEW SUMMARY ......................................................................22
TABLE 7 - ETHICAL TRADE AND FAIR TRADE ...................................................................43
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1. INTRODUCTION
1.1 Introduction
According to the Fairtrade Foundation, 32% of people correctly associated the
FAIRTRADE mark with the phrase “Guarantees a fairer deal for producers” in 2003
(Mintel, 2004). The research was conducted with 962 adults in the UK and it shows that79% of adults allow their concern for one or more ethical issues to affect their
purchasing behaviour, although the market share of ethical foods is usually of a single
figure only.
Academics and business executives have shown an increasing interest in discussing
ethical issues underpinning the economic activities in society. Whilst some authors
argue that ethical considerations do not impact consumers’ purchase decision making
behaviour (Carrigan & Attala., 2001), the rise of the Fair Trade movement as a business
model selling £ 200 million in 2005, an increase of 43% on the year before (The
Guardian, 2006), sparked an interest in doing this research to find the drivers connecting
the phenomena.
Fair Trade’s philosophy is based on a concept of fairness. But what is fairness?
Fairness is, according to the Cambridge Dictionary:
“…the quality of treating people equally or in a way that is right or reasonable”
In research carried out with suppliers of UK supermarkets, Duffy & Hornibrook (2003)
report about fairness from the perspective of distributive justice. This perspective
describes the fairness of the economic price or outcomes actually received. Looking at
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Our modern and complex society cannot be understood with a view bending to
Manichaeism, where good and evil will fight forever and a black and white approachwould not lead us far on the research journey. However, to discuss Fair Trade the moral
component is inherent, because it belongs to the very ideology that the Fair Trade is
made of, fairness. According to Taylor (2005) the Fair Trade has stemmed from the
clarity of its purposes and principles, and the direct access it enjoyed with consumers It
can be defined as:
“…an alternative approach to conventional international trade. It is a trading
partnership which aims at sustainable development for excluded and
disadvantaged producers. It seeks to do this by providing better trading
conditions, by awareness raising and by campaigning” (Traidcraft , 2006).
Furthermore, the literature findings suggest that the diffusion of the Fair Trade values
includes heightened awareness of Third World issues as a result of media coverage, an
increased number of the Fair Trade products and information available to help ethical
consumers to make informed decisions (Strong 1996).
1.2 Review Rationale
The aim of this dissertation is to investigate the dynamics of the Fair Trade business
model and consequently the interaction between the main actors to understand how Fair
Trade delivers social and economic development.
The Fair Trade is a movement with strong ties in Western Europe and the USA.
Research shows that the Fair Trade is the most important issue of ethical concern in
consumer behaviour in the UK (Shaw & Clarke, 1999). The discussion of the Fair Trade
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The researcher considered doing a literature review on Fair Trade as a valid point to
allow the development of an historical retrospective to understand its driving forces, andto suggest managerial approaches to the challenges the movement faces today. Among
many of these challenges are: the launch of own label Fair Trade products by giants like
Nestle as a market opportunity, and the incorporation of Fair Trade products in some
retailers’ portfolios as a tool of Corporate Social Responsibility strategy.
1.3 Review Objectives
The literature review has the purpose of analysing the research findings that are shared
in the academic arena. The dissemination of these findings helps us to better understand
our world (Hart, 1998). The literature review identified in which context the Fair Trade
issues were being discussed, and the key aspects of these discussions. The overlap of the
Fair Trade and ethical souring and corporate social responsibility (CSR) will also bediscussed. The main focus of this research is the UK, because it is the main market, with
the Fair Trade sales rising by 50% every year (Mintel, 2006) and £63 million of sales in
2002 (Figure1):
Sales in Million Pound s, 2002
5.5 6 6.7
18.8
26.8
32.4
49.4 50.4
58.5
63
d a ly r k ce d s a n n y nd SA UK
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2. METHODOLOGY
2.1 Introduction
This chapter will detail the literature review process, its justification and how the search
in the databases was conducted. In the sequence, I report the criteria to include papers,
the way results are going to be presented and some changes the researcher has done tothe literature review protocol. Finally, I explain the process of the interviews.
The overarching question of this dissertation is “How does the Fair Trade converge
social and economic development?” I approach the question in order to understand
the Fair Trade phenomena and to evaluate its sustainability on a long term basis, and
how the small producers in developing countries can benefit from the scheme.
Following the literature review, I conducted interviews to get expert opinions and in a
further step I applied the findings in the literature into a conceptual framework of
competitive strategy, the blue ocean strategy developed by Kim & Mauborgne (2005).
2.2 The literature review process
Since the ethical consumption and the Fair Trade subject have a fair amount of market
research and primary data is available, it seemed there was no need to conduct surveys
to understand the Fair Trade dynamics.
The search in the literature was based on the search string “Fair Trade”. By “search
string” I mean the word or compound words used to search in databases. The process of
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Due to the huge amount of material produced in the primary search, the results were
narrowed down by restricting the review to scholarly and academic publications.Although the basis for this project is the review in literature, other papers, books and
market research reports were used due to their valid contribution to the subject. They
are related to areas of knowledge such as competitive strategy, strategic marketing and
sustainable development. This project was conducted in two stages: a literature review
and interviews with experts.
The following figure shows the literature review process adopted by Cranfield
University, School of Management for its Masters programmes:
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“…the need for a new study is not as great as the need for the assimilation ofalready existing studies”.
Although many authors discuss the limitations of a systematic review in social sciences,
others see that problems such as bias are an accepted part of knowledge and we should
not try to eradicate it (Denyer & Tranfield 2006).
2.2.1 Mapping the field of study
Ethical consumption and ethical sourcing practices are concepts that the literature shows
as intertwined, and the researcher considers both relevant to this work. Regarding the
ethical consumer, the development of ethical consumption specifically in the UK and inother countries is reported. The consumer behaviour, probably the most extensive
theme, is not going to be examined in depth, because retailers in this case have more
power to create the shift in the agro-food system, and they are the main players in the
grocery retail supply chain. Hence, the search string “supply chain” was used, as it is
shown in Table 1. However, to narrow down the scope, I adopted “ethical sourcing” as a
sub-theme to compound the search strings. Mainly because both the Fair Trade and
ethical trade are underpinned by ethical concerns from the economic point of view.
The aspect of Corporate Social Responsibility (CSR) was addressed as a way to
understand the development of ethical sourcing codes by retailers and the adoption of
own label Fair Trade products.
2.2.2 Structured search
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of these items resulted in the reduction from 308 to 45 papers (Table 1) actually related
to the interest of this research. Since this dissertation has been done within a limitedtime frame, only published papers in scholarly and academic journals were included in
the literature review and some papers were excluded because although related to the
scope of this research they did not bring new information or an innovative approach to
the subject.
The first screening was based on title and abstract. The string “Fair Trade” in
Proquest/ABI covering all dates produced 3,721 entries, and the selection of the criteria
academic/scholarly resulted in 287 works. From these, 24 papers were considered
related to the scope of this dissertation.
The search in EBSCO brought 1,004 papers with 230 academic and 31 papers related tothe scope. The search in Emerald brought 137 papers with 72 academic and 14 papers
related to the scope. The final 24 papers appeared in more than one database, and I
conducted a cross-check to ensure that a substantial amount of academic papers about
“Fair Trade” were screened.
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Database name Search term In Time Frame Number of entries Number relevant
“Fair Trade” All
Schol. Journ.
All dates
All dates
3721
287
45
ethical consum* OR consumer ethic* All
Schol. Journ.
All dates
All dates
292
77
ABI Trade &
Industry
(Proquest) ethical sourc* OR ethic* supply chain All
Schol. Journ.
All dates
All dates
273
42
“Fair Trade” All
Academic. Journ.
All dates
All dates
1004
230
31
ethical consum* OR consumer ethic* All
Academic. Journ.
All dates
All dates
126
92
EBSCO
Business Source
Premier
ethical sourc* OR ethic* supply chain All
Research Paper
All dates
All dates
26
06
“Fair Trade” All
Research Paper
All dates
All dates
137
72
14
ethical consum* OR consumer ethic* All
Research Paper
All dates
All dates
298
140
Emerald
ethical sourc* OR ethic* supply chain All
Research Paper
All dates
All dates
311
72
Table 1 – Literature Review Output
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2.2.3 Evaluation
The selection of papers followed the main criteria of relevance to the investigation and
newness of data. A quality matrix (Table 2) was used to help the researcher to assess the
papers and to decide on the ones to be included. Undoubtedly, the assessment of the
papers and the consequent decision about their inclusion or exclusion is a process open
to my personal bias. Many factors influenced my decision, such as my cultural
background, the current studies I am taking in Strategic Marketing and other elements
that built on each individual’s intellectual fabric.
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Elements LevelPoints/Quality 0 – Absence 1-Low 2-Medium 3-High Not applicable
Contribution The article does not provide enoughinformation to assessthis criterion.
The paper adds little tothe body of knowledgein this area.
Contribution toknowledge is trivia inimportance andsignificance.
Significant addition tocurrent knowledge; fillan important gap.
This element is notapplicable to this paper.
Theory The article does not provide enoughinformation to assessthis criterion.
Literature review isinadequate; Failure tomotivate study with
practical implications.
Theoretical base isacceptable; Having
practical rationales forstudy in some extent.
Excellent review of prior literature; Strongtheoretical basis.
This element is notapplicable to this paper.
Methodology The article does not provide enoughinformation to assessthis criterion.
The idea of study is poorly executed; Failureto justify proxies foreconomic variables.
Justified researchdesign; Acceptable
proxies for economicvariables; The idea ofstudy is not fullyexecuted.
Research designadequately examines thetheoretical argument;Proxies are adequatelydefined.
This element is notapplicable to this paper.
Data Analysis The article does not provide enoughinformation to assessthis criterion.
Data sampleinsufficiency; Weakconnection betweenstatistical results andeconomic story.
Appropriate datasample; Adequatestatistics but inadequateexplanation.
Adequate data sample;Statistical resultssupport theoreticalarguments.
This element is notapplicable to this paper.
Newness The article does not provide enoughinformation to assessthis criterion.
The article was writtenmore than 5 years ago,and only some findingscan still be applied.
The article was writtenmore than 2 years ago.
The article was writtenin the last 12 months.
This element is notapplicable to this paper.
Table 2- The quality matrix for included papersSource: Adapted from Morgan, 2006
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2.2.4 How findings are going to be utilised
In order to contextualise the research question and to establish the body of knowledge
that will be the scope of the literature review, the researcher presents the findings in
three ways. Firstly, the descriptive format to provide an overview of the lenses used to
address the subject. Secondly, in the thematic format to build the business case. And in
parallel to these two methodologies, the findings are also presented throughout the
dissertation to build a logical line of reasoning.
2.2.5 Changes from protocol
The Cranfield protocol for the literature review is primarily aimed at PhD and Masters
by Research students. In the case of Masters students, the findings in the initial phase ofthis project were presented as a First Review about the research project as a whole, to a
panel and not about the literature review itself. Hence, a data extraction tool as
suggested in the School’s protocol was not developed.
2.2.6 The interviews
Interviewing is one of the most used methods of collecting data in qualitative research,
with the aim of answering the research question (Byrne, 2001). For my dissertation,
however, the interviews had the purpose of accessing the perspective of experts in Fair
Trade and Corporate Social Responsibility, in contrast to the findings from the literature
review. Informal interviews were conducted with the Fair Trade expert, Dr. Iain Davies,
who holds a PhD in “The Management and Implementation of Strategy in Fair TradeCompanies” at Nottingham University . Dr. Lance Moir who holds a PhD in “Why
does business support the arts? Philanthropy, marketing or legitimation” from Cranfield
University.
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3. DESCRIPTIVE FINDINGS
3.1 Introduction
The guiding concept for this literature review is the investigation of Fair Trade issues to
understand how the Fair Trade converges social and economic development.
This part of the dissertation discusses the characteristics of the studies identified in the
literature review. The papers included in this review are addressing the following
thematic areas:
Figure 4 –Thematic areas addressed in included papers
The full description of authors included in the review and the thematic areas they are
MarketingConsumer
Behaviour
SustainableDevelopment
Supply
Chain
Corporate
Governance
Broad
Industry
Fair Trade
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Although academia has been discussing the Fair Trade since 1997, the amount of papers
published is not huge. The authors I consider contribute to the subject are:
Key authors Approach Affiliation
Blowfield, M. Supply chain Boston College, USA
Moore, G. Broad industry New Castle Business School, UK
Nicholls, A. Strategic marketing University of Surrey, UK
De Pelsmacker, P. Consumer behaviour University of Antwerp, Belgium
Raynolds, L. Supply chain Colorado State University, USA
Rice, R. Supply chain Natural Resources Defence
Council, Washington, USA
Strong, C. Consumer behaviour University of Wales, Cardiff, UKTaylor, P. Sustainable
development
Colorado State University, USA
Table 3 – Key authors in the Fair Trade subject
The following table shows the papers included in the review using the criteriauncovered in the quality matrix. As mentioned before, the intent is to give an overview
of the findings that will be shown throughout the dissertation. In order to better
visualize the papers, they are shown in three columns with this criteria in Table 4:
a) author’s surname sorted by alphabetical order,
b) kind of data used in the study,
c) summary of findings.
Table 5 summarises the journals where the paper were published to provide a
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Table 4 - Papers included in the Literature Review
Author Data used in the study Summary of findings
Argenti, 2004 Case study. This article presents collaboration as a growing
and important alternative to confrontation in
business-NGO relations.
Auroi, 2003 Conceptual approach. Peasant and consumer associations should also be
considered as active contributors to the
implementation of fair-trade principles within
world trade.
Bacon, 2005 A research team surveyed 228
farmers to measure the impact of
sales on organic and Fair Trade
markets.
The results suggest that participation in organic
and the Fair Trade networks reduces farmers'
livelihood vulnerability.
Blowfield, 2003 Conceptual approach. It shows that many of the primary concerns among
growers are not included in ethical trade standards.
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Author Data used in the study Summary of findings
Davies & Crane, 2003 Case study in a Fair Trade company
involving work shadowing, semi-
structured interviewing.
The Fair Trade mission of the firm is experienced
as an over-riding ethical claim, which is often
invoked to justify potentially ethically questionable
decisions.
De Pelsmacker, et al., 2006 A survey of 858 Belgians drawn
from the general public and visitors
to Oxfam World Shops.
Highly educated respondents, older people and
people with a high income are more prepared to
pay the Fair Trade premium price.
De Pelsmacker, et al.,
2005
Survey of 808 Belgian respondents. Fair-trade lovers (11%) were more idealistic, aged
between 31 and 44 years and less "conventional."
De Pelsmacker, et al.,
2005
Buying behavior is studied by
means of a web-based survey in a
sample of 750 Belgian consumers,
using conjoint analysis.
The Fair Trade labeled coffee is the most preferred
over eco- and bio-labels.
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Author Data used in the study Summary of findings
Doherty & Tranchell, 2005 Case study. The paper concludes that a Fairtrade company was
successful in meeting its objectives without cocoa
farmer ownership being at the centre of the brand.
Hira &Ferrie, 2006 Conceptual approach. It addresses major challenges such as the extent of
the potential contribution of the Fair Trade to
development under the current system.
Jones, et al., 2003 Case study. It reviews the extent to which the major foodretailers have incorporated Fair Trade products.
LeClair, 2003 Survey conducted with 30
Alternative Trade Organizations
worldwide.
The author warns that there is a precarious future
for the artisans relying on The Fair Trade system.
LeClair, 2002 Case study. Fair Trade prolongs the dependence of developing
countries on products with poor future prospects.
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Author Data used in the study Summary of findings
Nicholls, 2002 Conceptual approach. An ethical strategy matrix is developed, outlining
the strategic options open to retailers for
addressing the increase in ethical consumerism.
Raynolds et al., 2004 A comparative analysis of the
experiences of seven coffee
producer co-operatives in Latin
America.
The capacity building nature of the Fair Trade will
prove the most important in fueling sustainable
development in the long run.
Rice, 2001 Conceptual approach. The philosophical underpinnings of both certified
organic and fair-trade coffee run counter to the
historical concerns of coffee production and trade.
Smith & Barrientos, 2005 Conceptual approach. The paper concludes that convergence of Fair
Trade and ethical trade may occur in some UKsupermarket chains.
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Author Data used in the study Summary of findings
Strong, 1996 Reports on a survey to investigate the
factors contributing to the development of
ethical consumerism in the UK.
It explores features characterizing the
manifestation of ethical consumerism.
Strong, 1997 Conceptual approach. It is proposed that there are several
problems which have hindered the
translation of the Fair Trade principles into
consumer purchase behavior.
Taylor, 2005 Conceptual approach. A framework is proposed for comparative
assessment, focusing on distribution of
benefits, and how internal governance
manages diverse stakeholder interests.
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Journal CountryBritish Food Journal UKCalifornia Management Review USADevelopment CanadaEuropean Journal of Marketing UKGreener Management International UKInternational Journal of Non-profit and Voluntary Sector UKInternational Marketing Review UKJournal of Agricultural and Environmental Ethics NetherlandsJournal of Business Ethics NetherlandsJournal of International Development UKMarketing Intelligence & Planning UKSustainable Development UKThe Journal of Consumers Affairs Not identifiedThe Service Industries Journal UKWorld Development UK and Canada
Table 5 - Journals included in the literature review
The following chapter will present the issues discussed in the literature to set the Fair
Trade industry landscape. It is structured to show the historical perspective and the
dynamics of this economic model and its supply chain. Ethical trading and corporate
social responsibility are also discussed through the case studies of Marks & Spencer and
Starbucks.
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4. THE BUSINESS CASE FOR FAIR TRADE
4.1 Introduction
This chapter presents the findings in the literature in the thematic format. They are
summarised in the following table:
Section of Literature Review Content
The Fair Trade movement (4.2) The inequality of global trade with a
macroeconomic perspective.
The Fair Trade principles (4.3) Fair Trade objectives and principles.
The Fair Trade story so far (4.4)
Grassroots, certification and
mainstreaming.
The Fair Trade business model (4.5)
Industry structure, Fair Trade
organisations.
The Fair Trade supply chain (4.6)
Ethical consumers, UK retailers and
producer’s communities.
Ethical trading (4.7)
Codes of conduct and retailers, ethical
sourcing and overlap with Fair Trade.
Marks & Spencer case study (4.8) Drivers towards ethical sourcing.
Corporate social responsibility (CSR)
and the Fair Trade (4.9)
Drivers of CSR.
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4.2 The Fair Trade movement
In 2003, during the World Trade Organisation talks in Cancun, 21 developing nations
refused to negotiate with the USA and the European Union until they agreed to open up
their internal market to foreign trade (Mintel, 2004). This fact illustrates the importance
of the macroeconomic context in order to achieve a more balanced distribution of
wealth among countries.
The Fair Trade objective is:
“to maximise the return to the supplier rather than the margin of the buyer,
within an agreed developmental structure” (Nicholls & Opal, 2005:7)
In which aspects the market fails so that there is a need for the Fair Trade business
model? The Fair Trade is the outcome of a market-driven need attempting to overcome
the structural inequities in the international trading system (Nicholls & Opal, 2005).
Some authors address the Fair Trade with a macroeconomic approach (Auroi, 2003,
Blowfield, 2003 & Nicholls &Opal, 2005) considering the reach of Fair Trade benefits
in terms of social development.
According to Nicholls (2005) the historical origins of the Fair Trade movement are in
the harmful consequences of the development of a distorted global market for trade.
Together with the increase in the level of trade over the last thirty years, the global
unfairness has also grown. The researcher concludes that the benefits of increased free
trade have not been evenly spread among countries and this failure is macroeconomic.
Other important aspects associated with the appearance of the Fair Trade model is the
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• lack of market access,
• lack of access to financial markets,
• lack of access to credit,
• inability to switch to other sources of income generation,
• weak legal systems and enforcement of laws.
Another important aspect is that exports of commodities from developing countries are
under-valued, and face extreme conditions on the supply side, such as climatic
variations and excess product peak production (Auroi 2003 & LeClair 2003).
New globalisation measures have reinforced tendencies of trade monopoly through
concentration process. Hence, a small number of companies regulate trade buying in the
commodity markets of Chicago, New York and London. In the case of coffee, the
decrease in prices over the long run was a result of overproduction in many countries
(Auroi, 2003). On the other hand, most value added is produced on the manufacturing
side of the chain in the Western countries and as a result, the growers in the South are
left in a less favourable position to market their commodities at a profit. This is the gap
the Fair Trade tries to address, because the price received by producers in developing
nations should at least provide for a subsistence standard of living and to cover expenses
(LeClair, 2003).
Some critics point out that instead of trade the most effective way of helping these
disadvantaged farmers would be through targeted developmental aid. The logic behind
this statement is that £1 given to a development charity generates more immediate
income for relieving poverty than £1 spent on a the Fair Trade product. It is a
controversial position, considering that although huge amounts of money are invested in
poor countries through these development agencies, in some economies like Belize the
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Trade’s principles is to provoke the discussion of global trade and according to Kofi
Annan, Secretary-General of the United Nations, this discussion needs to include the
industrialised countries abolishing protectionist policies that actively discourage poor
countries from developing their own industries instead of discussing the Fair Trade
(Annan, 2001).
4.3 The Fair Trade principles
There is no standard definition for Fair Trade and the different key players involved
present some concepts. Moore (2004:73) quotes:
“The Fair Trade is a trading partnership, based on dialogue, transparency and
respect, which seeks greater equity in international trade. It contributes to
sustainable development by offering better trading conditions to and securing the
rights of, marginalized producers and workers – especially in the South”.
According to Traidcraft (2006) the Fair Trade principles can be translated into the
following main actions:
• focusing on trading with poor and marginalised producer groups, helping them
develop skills and sustainable livelihoods through the trading relationship,
• paying fair prices that cover the full cost of production and enable a living wage
and other fair rewards to be earned by producers,
• providing credit when needed to allow orders to be fulfilled and pays premiums
to be used to provide further benefits to producer communities,
• encouraging the fair treatment of all workers, ensuring good conditions in the
workplace and throughout the supply chain,
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activities” (Jones et al., 2003). It can be said that the Fair Trade as an alternative trade
model have created a niche in the trading system to pursue its goals (LeClair, 2002).
Nicholls & Opal (2005:7) define the Fair Trade as:
“…new approach to the buyer-supplier transaction which aims at equality of
exchange within a partnership approach, underpinned by a developmental, rather
than confrontational, agenda”
They mention key practices for the Fair Trade in operational terms, such as:
1) agreed minimum prices, usually set ahead of market minimums,
2) focus on development and technical assistance,
3) direct purchasing from producers,
4) transparent and long-term trading partnerships,
5) co-operative, not competitive, dealings,
6) provision of credit when requested,
7) provision of market information to producers,
8) farmers and workers are organized democratically,9) a sustainable production is practised.
alleviate
extreme poverty
enhance social
capital of
small
producers
Figure 5 The Fair Trade aims
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Figure 6 – The Fair Trade coffee advertising
Source: UNCTAD, Sao Paulo, Brasil, 2004
One of the Fair Trade principles says producer groups have to handle environmental
issues properly, but there are no established timelines or tangible targets (Rice 2001),
which makes one think of how the environmental aspect of the Fair Trade is being
measured. If consumers are told that the Fair Trade products are more environmentally
friendly than mainstream products, it is a claim that adds value to the product but needs
a deeper scrutiny.
4.4 The Fair Trade story so far
The Fair Trade origins can be traced back to 1860, when Max Havellar denounced the
injustices of the coffee trade between Indonesia and the Netherlands. Today there are 17
fair-trade certification organisations, 800,000 producers in developing countries, 1,300 products certified by the Fair Trade Labelling Organization International (FLO) and 45
countries involved, that generates £ 1/2 billion worldwide, meaning 0.01% of the global
trade (Appropriate Technology, 2004).
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“The interesting thing about Fair Trade it is how physically long it has been
around. Not in the forms it is now, like the Fairtrade Foundation, the FLO they
are more recent events. But Fair Trade with the same ideology, the same names,
it has taken a long time to grow it now it hit critical mass it has a long pedigree.”
(Interview with Iain Davies, 2006)
Together with the shape it has now, the Fair Trade has a peculiar element. According toMoore (2004) the element of tension in the Fair Trade is that it works inside and outside
the market, in and against it. The author argues that although the concept of justice
underlies many of the principles on which Fair Trade is established , paying a higher
price not necessarily makes it fair.
In contrast to the statement that the Fair Trade started in 1860, Rice (2001) argues that
the origins of the Fair Trade can be traced as far back as to the 1960s, with its first
appeal being charity-led by a young Catholic group in the Netherlands. However,
Nicholls (2005) shows that the origins can be traced as far back as the post-Second
World War, both in Europe and in the USA (Fig. 7).
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In the USA the
Mennomite
Central
Committee
markets
embroidery from
Puerto Rico
The Fair Trade
certification
marks
Retail
businesses
promoting the
Fair Trade
Traditional
players adopting
Fair Trade
products
(Starbucks,
Sainsbury’s, Sara
Lee,)
Charities in
Western Europe
start importing
handicrafts from
producers in
Eastern Europe
ATOs with a
business
mindset
addressing
social problems
ATOs launched
Cafedirect
and Divine
Chocolate
Retailers
launching own-
label Fair Trade
products (Tesco,
Marks & Spencer)
pos-II WW 1980s 1990s 2000
Figure 7- The life cycle of the Fair Trade
Source: Adapted from Nicholls & Opal, 2005 and websites from Traidcraft, Gepa, Divine Chocolate
4.5 The Fair Trade business model
The concept of business model used in this dissertation is:
Gras sroots Strategic groups Mainstreaming
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From the beginning of the first Fair Trade activities in the post-Second World War
period until nowadays, many important aspects helped to shape the form the movement
has now in the context of an ethical foods market which in the UK was valued at £1.75
billion in 2003 (Mintel, 2004).
The majority of the Fair Trade products are in the food sector: coffee, bananas, cocoa,
tea, rice, honey, sugar, fruit juices and fresh fruits (Raynolds et al., 2004) and according
to Nicholls & Opal (2005) the key Fair Trade organisations are:
• FLO – Fairtrade Labelling Organization International: is the global umbrella
organization for the 19 The Fair Trade certification initiatives. It inspects
producer groups to certify them for fulfilment with Fair Trade standards,
• IFAT – The International Fair Trade Association: it is a global trade group for
Fair Trade producers and trades of both FLO-certified products and non-certified
products. It works to develop the market to the Fair Trade, to build trust and to
articulate for the Fair Trade,
• EFTA - The European Fair Trade Association – it is an advocacy and research
body. It is a network of eleven Fair Trade organizations in nine European
countries. It works to make the Fair Trade importing more efficient and
effective, and to promote the Fair Trade to commercial and political decision-
makers,
• NEWS - The Network of European World Shops: it aims to promote the Fair
Trade by stimulating, supporting and linking world shops in Europe that retailthe Fair Trade products, representing about 2,500 World Shops in Europe,
• The Fair Trade Federation – it is a US-based trade association of the Fair
Trade wholesalers retailers and producers
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The Fair Trade movement faces governance problems, such as the “pyramid decision-
making structure” of the main organisation FLO. Research shows that this structure
does not allow a good communication flow with the base, and that there are concerns
that the organisation would be subjugated by Northern interests (Taylor, 2005):
“The Fair Trade label organisation currently is not in the standard it needed to be
for the benefit of Fair Trade… This lobbying instance disappeared. There were
lots of people offended when the Fair Trade got into supermarkets. It lost the
campaigning instinct…” (Interview with Iain Davies, 2006)
Global brands such as Nestlé, Kraft and Sara Lee have moved into the ethical coffee
marketing with their branded products, producing heavy criticism as their movement
can be seen as an attempt to cash in on a growing market other than a more socially
responsible approach to the business (The Observer, 2006). The introduction of
powerful new corporate actors produces two important facts within the Fair Trade
movement. First, a dramatic growth and secondly, a greater vulnerability to the Fair
Trade if these big players decide to withdraw (Taylor, 2005).
As the Fair Trade proposes a more ethical approach to the global trade, Davies & Crane
(2003) researched about the ethical component in the governance of a Fair Trade
organisation. They show that ethical issues do not have a permanent innate moral
strength for each individual. The researchers identified the developing of a “moral
curtain” which divided certainty from uncertainty in ethical decision making within this
Fair Trade organisation.
Adding to the controversy in the Fair Trade corporate governance, there is the issue
concerning the original targets of the Fair Trade critique, the powerful global
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mainstream the claim to include the most disadvantaged among the marginalized groups
is also legitimate.
Doherty & Tranchell (2005) studied a Fair Trade organisation and they conclude that
barriers southern producers face in marketing their goods such as capital, expertise and
market understanding are overcome by the governance structure of the organisation. In
the case study they present, Body Shop had the ownership structure of the Fair Trade
chocolate company what helped to solve the problem of distribution. A product andinformation flow for a Fair Trade chocolate is depicted in Appendix 2.
Another important operational aspect is the certification process. Certification is a:
“procedure by which a third party provides written assurance that a product,
process or service conforms to specified standards, on the basis of an audit
conducted to agreed procedures” (Taylor, 2005:132)
Hira & Ferrie (2006) argue that one important challenge the Fair Trade movement has is
how to certify itself. Many Fair Trade vendors adhere to the basic standards but they are
not certified and the institutions charged with the certification process cannot cope withthe demand. The solidification of the certification process would lead to an international
public standard that would compel public agencies to assume responsibility of the
process making it more efficient.
In this respect, the French government is setting a standard, as it was proactive to
regulate the proliferation of ethical products to avoid the consumer being misled and to
reinforce the trust in the Fair Trade label. The aim is to constrain labels called ethical,
but that have no commitment to sustainable development (Datamonitor, 2005).
C rrentl there are Fair Trade prod cers ith FLO accreditation and those itho t
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4.6 The Fair Trade supply chain
The figure 8 shows the two dominant models and the Fair Trade model.
Figure 8 - The coffee commodity chain
Source: Adapted from Taylor, 2005
4.6.1 Ethical consumers
Fair Trade
Localmiddlemen
Large
landowners
Plantationworkers
Exporters
Multiple brokers
Importers
Roaster -distributors
Processors
Retailers
Consumers
Co-o peratives
Small producers
Small producers
World shops,
Co-Op, Oxfam,
Big retailers
Ethicalconsumers
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USA has only 1% of market share. The researcher argues that ethical consumer
behaviour can be influenced by different aspects, such as dogmatism, conservatism and
alienation. How much marketing can act to influence these aspects? It is a matter of
better understanding how each informational component is effective in the talk with
these consumers.
The ethical component is inherent to the discussion of the Fair Trade scheme.
According to Mintel (2004) the Fair Trade products are labelled in the category “ethical
food” which originates the discussion of the ethical consumption theme in this
dissertation. The ethical food concept considers three attributes:
a) animal welfare,
b) environment and sustainability and
c) the Fair Trade.
The authors supporting the existence of ethical consumers classify them as having the
same concerns as the green consumers, but with a greater focus on people, while the
green consumer is worried about the environment. Strong (1997) emphasises that ethical
consumers are concerned about goods produced in the Third World by people receiving
a fair wage and working in good conditions, and who benefit from this activity. On the
other hand, De Pelsmacker et al., (2005) define ethical consumption with a broader
perspective, including the concerns with issues such as animal well-being and
environment. In contrast to Strong’s position, Doane (2005) argues that consumers are
passive and do not place ethics as a priority when they go shopping, as other factorssuch as price and taste and are at the top of their list of concerns.
Market research shows that ethical consumers are concerned primarily with
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information now, which leads to an increase in claims regarding products in general.
However, it is not realistic to expect consumers alone to drive the change towards a
more socially responsible approach to business, and to the increase of the market share
of ethical products.
“The ethical concern issue actually I don’t think it matters in the end. If you can
pay a premium for something you really got two choices: charity or selling a
product. If you want me to give money to help poor farmers make out the point.If you ask me to buy a premium price product why should we lose all those other
good characteristics that go with buying a premium product: quality,
presentation, all the others basics of marketing? (Interview with Lance Moir,
2006)
Regarding fair-trade buying behaviour, personal values such as altruism, peace, and
equality values play an important role (De Pelsmacker et al., 2005). This research has a
bias due to the research sample being university students and staff, meaning over-
representation of segments in the sample. However, it is interesting to see which aspects
are important in the fair-trade buying behaviour for coffee in Belgium. One of thefindings is that the brand attribute has the highest relative importance for the total
sample, and the fair-trade label and the flavour were considered in second place by
consumers. As coffee is a low-involvement good, any attribute is of low importance,
although the involvement with specialty coffee is high.
Looking at consumers, there seems to be a gap between behaviour and attitude towards
products with an ethical dimension. In a survey of 858 Belgian consumers, it was found
that only 10% of the sample wanted to pay the 27% price premium for the fair-trade
coffee and e can see price as an obstacle to the Fair Trade gro th The Belgian
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The strategy canvas is going to analyse the ethical component as a critical success factor
to the Fair Trade industry.
4.6.2 UK retailers
European Union food products represented around 60% of retail turnover of which
approximately 50% was from coffee sales in 1999 (Moore, 2004).
The UK retail sector has become increasingly dominated by a relatively small number
of large players (Jones et al., 2003), and they realised that major savings can be made by
dealing with fewer suppliers. Grocery retailing in the UK has shown such an economic
impact that the government set an inquiry to investigate allegations of price fixing and
abuse of market power (Pal & Byrom, 2005).
The retailer’s response to the Fair Trade market is underdeveloped, and this market is
being more properly targeted recently (Nicholls, 2002). According to the Fairtrade
Foundation, most supermarkets are interested in developing the Fair Trade as a category
and the discussions are on methods of achieving this. Together with adopting the Fair
Trade products, there is an interest in developing own-label Fair Trade lines. The FairTrade products have the challenge of getting more space on supermarket shelves and
providing consumers with the necessary information about the concept. Jones et al.
(2003) argue that the promotion of the Fair Trade products in conventional retailer’s
stores is not adequate, and that the staff sometimes cannot provide appropriate
information. Since promotion is a component of the marketing mix that influences the
purchase decision (McDonald & Christopher, 2003), it is an issue that needs to be
addressed.
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Analysing the distribution component, big retailer chains feel constrained to committing
to a Fair Trade product on the shelf and not having a guarantee of the supply on a long-
term basis, considering that Fair Trade producers are marginal farmers working in
remote locations (Jones et al., 2003). This concern coming from retailers can be added
to major concerns regarding the producers, such as management and training in the
cooperatives of the small growers. Rice (2001) states that the financial security and the
enterprise longevity rely upon the development of professional managerial staff. This
factor would impact directly on the operational effectiveness of the cooperatives.
The Competition Commission, a UK independent public body which conducts in-depth
inquiries into major regulated industries, found out that the nature of trading
relationships and retail buyer behavior varies considerably between retailers. However,
research shows that in some cases, retailers use their purchasing power to drive down
supplier’s prices to uneconomic levels. Suppliers face threats of de-listing, and
consequently by being squeezed by retailers, they squeeze the primary producers at the
end of the chain (Duffy & Hornibrook, 2003).
Supporters of Fair Trade going to big supermarkets claim the benefits of greater sales
and economies of scale. However, Low & Davenport (2005) are dissenting voices
warning about the risks inherent to crossing the line between more income to producers
to dependency on the mainstream market. They conclude that isolation from retailers
brings the risks of being irrelevant, and consequently is not going to deliver the extent
of change necessary to support producers appropriately.
There is some concerns that big grocery retailers are probably adopting the Fair Trade
as a market opportunity, and not necessarily as an action aimed at long-term change in
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4.6.3 The Fair Trade producer’s communities
Although reliable impact metrics in social accounting are still under development(Nicholls & Opal, 2005), there are some figures to support the statement that the Fair
Trade movement is benefiting small-scale producers. According to TransFair USA, in
five years of activity in the USA, the Fair Trade has returned to coffee farmers over
£16.8 million above that which they would have received in the non-fair trade market
(Nicholls & Opal, 2005).
Figure 9 – Fair Trade producers’ community
Source: Marks & Spencer, 2006
One important aspect is how to measure the benefits from the Fair Trade business model
to producers, and which benefits are more important. Research on measuring impact
show that case studies are the preferred methodology rather than comparativeassessments that could show how a Fair Trade community is impacted against a non-
Fair Trade community. As the Fair Trade principle is the empowerment of small scale
producers, the social outcome of the Fair Trade is very important because is the main
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external stakeholders. As reputation is a valuable corporate asset the ethical sourcing
comes with the statutes of a competitive strategy rather than with a flavour of altruism.
.
“Traditional” fair trade “Traditional” ethical trade
Classic features
• guarantee of a “fair” pricefor producers,
• long term relationships andtrust,
•
premium for socialdevelopment,• campaigns against
conventional trade rulesand practices.
• codes of labour practiceto ensure decentconditions for workersin global value chains,
•
buyer monitoring ofsupplier compliance.
Parties involved
• small scale producers indeveloping countries,
• alternative tradingorganizations and worldshops.
• medium and large scale producers,
• retailers, brands andtheir agents.
Value chain governance • relational • modular (buyer driven)Quality coordination • civic (and domestic) • industrial (and market)
Table 7 – Ethical trade and Fair Trade
Source: Smith & Barrientos, 2005
Scrutiny of companies’ activities according to the profile of the brand-led corporations
resulted in actions to avoid risks, as did Marks & Spencer (M&S) with its Global
Sourcing Principles. However, if M&S can track action in its supply chain, the same is
not that simple for confectionery brands companies for example. They face the triplechallenges of long supply chains, diffuse sources and powerful intermediaries (Roberts
2003).
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- payment of living wages,
- prohibition of discrimination,
- regular employment relationships,
- prohibition of harsh or inhumane treatment.
Marks & Spencer is one of the members of the ETI and through the case study
discussed in the next section the researcher aims to provide a better understanding of
how the momentum took place to produce the existing code of conduct.
4.8 Marks & Spencer case study
Marks & Spencer (M&S) is a retailer of clothing, footwear, gifts, home furnishings, and
foods in UK. Its products carry the M&S own label. Marks & Spencer operates 450
stores in the UK and provides products to franchise operators in more than 30 other
countries. M&S has approximately 70,000 employees and revenues of £ 8.1 billion. The
company has a differentiated relationship with suppliers due to its position as the largest
solely “own brand” retailer in the UK (Marks & Spencer, 2006).
The development of M&S code of conduct for ethical trading is based on its concernwith reputation and the commitment to the corporate social responsibility strategy of the
organisation. The company was recognised as the top company in UK for responsible
business receiving the Business in the Community’s Awards for Excellence 2006.
According to Johnson (2004) M&S had to build long-term relationships with its
suppliers to keep up with the dynamics inherent to the segment. M&S used to buy most
of its materials and products within the UK. But as its competitors developed offshore
production capabilities due to the high UK labour costs, M&S had no choice and did the
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Figure 11 – Marks & Spencer advertising of Fair Trade
Source: Marks & Spencer, 2006
M&S developed its own code of conduct for ethical sourcing in 1999 called Global
Sourcing Principles (GSP). An episode involving allegation of child labour in Morocco
made the overseas sourcing practices linked to low standards of human rights in the
mind of many consumers and that fact made M&S act immediately to avoid damage to
the company’s reputation and consequently to the brand (Johnson 2004):
“…the whole point about it wasn’t M&S products being produced by child labour,
but their supplier was using child labour for other customers but not for M&S. How
far does that go? M&S dealt with it appropriately, they were really concerned that it
might be true. It is all to do with the longevity of the issue and the quality of theorganisational response” (Interview with Lance Moir, 2006).
M&S’ Global Sourcing Principles were codified in 1999. The code has seven main
areas of action described in Appendix 3. In 2006, M&S assessed 1,250 clothing, food
and homewear suppliers against its Global Sourcing Principles.
In March 2006, M&S switched its entire coffee range (Figure 11) to Fair Trade
producers (The Guardian, 2006) and developed clothing lines made purely from Fair
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convergence of Fair Trade and ethical trade depends on the organisation’s culture and
strategy and it seems to be the case of M&S.
4.9 Corporate Social Responsibility and the Fair Trade
The intersection of the Fair Trade and Corporate Social Responsibility (CSR) is
primarily due to the ethical component underpinning both subjects, meaning the
principle of ethics related to business. When Starbucks decided to introduce the FairTrade coffee into its portfolio (Argenti 2004), there are implications at many different
levels. For the Fair Trade it meant a huge step towards a wider and important market in
the USA. For Starbucks it meant the adoption of a strategy to protect image and to gain
support from important stakeholders. However, Fair Trade partnerships with big
corporations face fierce criticism (Figure 12).
Figure 12 – Mainstreaming: critique of Fair Trade
Source: New Internationalist, 2006
“I firmly believe that the Fairtrade Foundation broke some of its founding
principles accepting Nestle because one of its principles was we (Fair Trade
organisations) will not work with large multinational corporations that we can
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bring unexpected and sad outcomes, like Enron and WorldCom (Doane 2005). But why
do companies spend resources on CSR programmes? According to Roberts (2003), one
of the key drivers for implementing CSR initiatives is a desire to avoid risks to
corporate reputation. The idea is that environmental and social issues can offer risks to
the corporate reputation and to the brand. Environics carried out a survey in 1999 with
25,000 individuals in 26 countries and found out that more consumers base their
impression of a company on their CSR actions than on brand reputation or financial
factors. Among the many benefits from CSR investment we can quote that companies
engaged in CSR programmes can attract, motivate and maintain good employers
(Roberts 2003).
Voguel (2005) claims that CSR makes sense only to some companies in some
circumstances. It means that the one-size-fits-all approach is not applicable. These
companies in need of CSR are the ones threatened by activists’ campaigns or with very
exposed brands. But who is driving the change towards a more socially responsible
approach to business?
“I think it is very complex to say how this is coming about but it is a combination of
factors. Undoubtedly there are some trends from shareholders. In the UK at least
one of the requirements is that firms have to explain to their pension funds whether
they took account of the social-environmental factors, with a key step to beginning
to make boards think about it” (Interview with Lance Moir, 2006).
Brand owners in a whole range of sectors have had their reputations affected bynegative publicity about issues in their supply chains (Roberts 2003) and that is where
ethical sourcing has become part of the organization agenda together with CSR.
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threats were about ignoring the NGO’s claims fighting back in a long and unpredictable
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threats were about ignoring the NGO’s claims, fighting back in a long and unpredictable
journey or accepting to negotiate.
“Starbucks came saying they were selling fair trade coffee, when in reality it was
an option one day a week you kind of say this is all Fair Trade but you are
selling me the ordinary stuff trying to take more credit than you really earned.
That seems to me that the marketing approach didn’t think it through, so
legitimate attack” (Interview with Lance Moir, 2006).
The company came to an analysis of all implications of each of these three choices. As
Starbucks was already paying a premium price for quality coffee ($1.20 per pound,
when the price stipulated under the Fair Trade standard is $ 1.26) the financial aspect of
adopting Fair Trade was not prohibitive. However, to accept GE’s claims would make
Starbucks appear fragile and they could be targeted by other NGOs with other demands.
One of the value propositions of Starbucks was the offer of quality coffee. Adding the
Fair Trade coffee to the portfolio the company could not guarantee the consistency of
product standard and the availability would be of unknown quantity. As an alternative
solution Starbucks have decided to develop its own Fair Trade supply chain in Mexico,
to have more control over the process and to protect its reputation (Argenti, 2004).
“Social inequalities, poverty, this kind of big social issues are always there to be
taken on and to be challenged…when you adopt an issue you can not simply drop it.
Fair trade is this season’s “must have” and now I am going to helping orphans in
Brazil. No, sorry you cannot choose your social issues as if they were marketing
fads. You got an issue and you’ve got to see it through.” (Interview with Lance
Moir, 2006).
with specific stakeholders but past reputation for responsible behaviour does not give
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with specific stakeholders but past reputation for responsible behaviour does not give
immunity to activist attacks Argenti (2004).
The following chapter will present the findings in the literature in a thematic format.
The researchers’ opinions will be compared, to provide a wider view of the main issues.
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5. DISCUSSION OF RESULTS
5.1 Introduction
This chapter will discuss the findings in the literature and the expert’s opinions. The
blue ocean strategy is applied to the Fair Trade coffee segment based on the critical
success factors compared to a mainstream coffee. The chapter concludes with adiscussion about the future of the Fair Trade.
5.2 Main findings
The literature shows that there is a lack of data to prove to what extent ethical issuesaffect consumer behaviour in the UK. Research so far is not conclusive.
The Fair Trade and the ethical sourcing address welfare of producers in developing
countries, and some organisations are embracing both the Fair Trade and the ethical
sourcing as part of their Corporate Social Responsibility strategy. The Fair Trade is
discussed in the literature in the context of different disciplines like marketing and
supply chain.
Macroeconomic barriers produce a major impact in the agro-food system which gives
the Fair Trade a limited power, but definitely a stronger power now in comparison to its
origins in the post Second World War.
Fair Trade organisations are working to reach mainstream and it seems to be already a
mainstream product in the coffee segment. However, this move faces critics for
Retailers act as important drivers to the Fair Trade due to their efficient distribution
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p
systems and direct access to consumers, and they are helping the Fair Trade to reach
mass-market. This new stage of the movement requires an improvement in the metrics
in social impact to assure the benefits for the growers. As a brand intending to leave the
niche market, it needs to adopt competitive and aggressive positions that will be
discussed in the next section.
The findings in the literature show the broader picture of where the Fair Trade
movement is now. Drawing upon its core philosophy of fairness, I found out
peculiarities inherent to its social nature and similarities with other business models. As
the Fair Trade reaches the mainstream, other obstacles and enablers came up. In order to
establish the relationship linking key burning issues impacting the Fair Trade, I applied
a managerial tool to expose the findings in the Fair Trade literature and to provide a
basis for conclusions and recommendations.
5.3 The blue ocean strategy applied to the Fair Trade
Among the wide range of business strategy tools available, the researcher has chosen
the blue ocean strategy to apply to the Fair Trade industry to analyse how Fair Tradecan create an uncontested market space. The blue ocean strategy was developed
through the research of 150 companies in 30 industries during more than a decade. The
analogies used by the researchers W. C. Kim and R. Mauborgne are blue oceans
denoting all the industries not in existence today and consequently with no competitors
and red oceans for the existing industries. They found out that to create a blue ocean
strategy, competitors were not used as benchmarks, to allow an out-of-box thinking.
The proposition of the strategy is the reorientation of the strategic focus. In the red
ocean strategy the structural conditions are given and companies compete within, then
“The creation of blue oceans is about driving cost down while simultaneously
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g y
driving value up for buyers. This is how a leap in value for both the company
and its buyers is achieved.” (Kim & Mauborgne, 2005:109).
Fair Trade operates now in a niche market, with the exception of coffee that has double
digit market share, as demonstrated previously. As trade barriers are dismantled and
information on prices and products become instantly available, the trend is that niche
markets will continue to disappear (Kim & Mauborgne, 2005). As brands are becoming
more similar, consumers decide based on price, and the premium price of Fair Trade
commodity products becomes an obstacle to growth, although premium price coffee is
the category that shows highest growth in the UK (Mintel, 2006).
The analysis of the literature and the interviews showed that if the Fair Trade movement
wants to increase market share, it has to readdress its strategy in the ethical consumptionindustry to convert the non-consumers creating new demand for the Fair Trade
products. Mainly because Fair Trade buyers today are not necessarily ethical
consumers.
“… I think a lot of people who now buy Fair Trade don’t buy it because they are
ethical consumers. Especially with Cafedirect the 5065 brand, the majority of its
purchases is not of what it is considered “ethical consumer” they have been
more into premium price products” (Interview with Iain Davies, 2006).
In order to better understand the use of the strategy, the Fair Trade coffee will be taken
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as an example, as coffee is the world’s top fairly traded product (McDonagh, 2002).
5.4 Fair Trade critical success factors
According to McDonald (2003), any given market segment must establish its critical
success factors (CSFs) and how well it compares with its closest competitors. After the
review in the literature it is possible to identify which are the CSFs for the Fair Tradecoffee.
The objective of the CSF analysis is to provide an overview of relative competitiveness
when measured against the main competitors, in this case the mainstream coffee brands
in the UK. It is aimed also at highlighting the areas where improvements might be made
due to weaknesses and threats (McDonald & Christopher, 2003).
The Fair Trade industry competes with mainstream products of companies that have
scale economies and competitive advantages in vital areas such as distribution and
brand awareness (Nicholls & Opal, 2005).
The critical success factors for Fair Trade coffee are:
Brand: Conflicting messages in the media arising from the huge amount of information
available (Mintel, 2004) poses a threat to Fair Trade growth. Nicholls & Opal (2005)
argue that the Fair Trade brand was developed in a decentralized and not very strategic
process. There are different groups offering the brand such as Fairtrade Foundation, Fair
Trade companies (Cafedirect, Day Chocolate) and own label products like Tesco’s and
Marks & Spencer’s. The consequence is the difficulty in creating effective overall
coherent message for each category and this consistency builds trust in the consumer’s
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mind. In this component the Fair Trade groups need to work together to avoid consumer
confusion (Nicholls & Opal, 2005).
Price: The premium price of the Fair Trade products can work as a barrier because it
keeps the price-conscious consumers away (De Pelsmacker, 2006). Some consumers
accept paying this higher price because they see this sacrifice as a way to benefit the
small producers on the other side of the chain. Conversely, if the Fair Trade aims to
really be a mainstream product it needs to look at this element and work towards price
reduction. This reduction could come via agreements on incentives with local
governments reducing taxes or the Fair Trade price could be reduced as supermarkets
increasingly introduce own-label Fair Trade products at more competitive prices. In
this factor the Fair Trade is doing well regarding the premium price category. However,
there is an oversupply of Fair Trade coffee so it is necessary to gain market share inother categories also to get more volume.
Distribution: Belgian research shows that consumers complain that they are not able to
buy Fair Trade products in a regular supermarket (De Pelsmacker et al., 2006).
However, in the UK Fair Trade products can be easily found in big grocery retailer’s
chains such as Tesco, Marks & Spencer and Sainsbury’s. This factor needs to be
improved in other countries than the UK. As the basis of this comparison is the UK, I
consider the Fair Trade and the mainstream brand having the same position in this
factor.
New product development: There is stiff competition in the hot drinks market andinnovation is one of the key drivers of growth, as consumers become knowledgeable
about coffee products being able to specify a preference for Kenyan or Costa Rican
coffee (Mintel 2006) The narro offer of the Fair Trade portfolio can be considered as
economic model has a problem with the certification process, which creates a time lag
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between product development and the awarding of the mark (Nicholls & Opal, 2005).
Nestle launched its ethical coffee in 2005 to compete in this element which forcedCafedirect to improve its portfolio with new product development (Nicholls & Opal,
2005). The Fair Trade scheme is slow in the introduction of new products. It is focusing
largely on producer-driven product development instead of looking at the emerging
demand of the key target segments (Nicholls, 2005). This could be analysed as an
intrinsic characteristic of the trading model because some markets have a propensity to
be supply-side driven (McDonald & Christopher, 2003).
Ethical component: Ethical factors are having an increasing impact on consumer buying
behaviour (Jones et al., 2003) as mentioned before. Ethical coffees are becoming more
high-profile, as a result of coffee shops’ support, for example, Pret-a-manger, and also
the increased shelf space in supermarkets (Mintel, 2006). This element can have animpact on brand image, as can be seen with M&S successful campaign “look behind the
label” (The Independent, 2006) where the company is trying to build an ethical “bridge”
with consumers. The company claims to be the most ethical place to shop and it needs
to be observed how consumers are going to react to this marketing approach.
Figure 14 shows the Critical Success Factors for the coffee industry identified in the
literature, compared to the mainstream brand leader. Fair Trade used the ethical
component to get differentiation from mainstream coffee, and it can be considered the
main competitive advantage for the brand.
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Brand Price Distr ibution New productdevelopment
Ethicalcomponent
Fair Trade Coffee Mains tream Coffee
Figure 14 - The blue ocean strategy applied to Fair Trade coffee
Source: Adapted from Kim & Mauborgne 2005
However, with well established brands entering the ethical food segment, this advantage
is no longer exclusive. The second step of the blue ocean strategy is the practical
approach with the four-actions framework that I present in the next section.
5.5 Future of the Fair Trade
Although a growing trading model, the Fair Trade alone is not capable of making the
shift necessary to make the global trading system fairer. As exposed at the UNCTAD XI
meeting (Nicholls, 2005), the Fair Trade declaration demands some actions to produce a
spread effect in the global commodity chain. Nicholls & Opal (2005) state that
consumer education and brand equity are key factors in the scheme. The researcher also
believes that strengthening FT advocacy in the international political arena is necessary.
High
Low
Critical
Success
Factors
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Figure 15 – The four-actions framework
Source: Kim & Maugorgne, 2005
The definition of the critical success factors for the Fair Trade is a result of the findings
in the literature and the analysis of the interviews. These factors will be used as a basis
to capture the current state of play in the known market and to apply the four actions
framework (Fig. 16) to the Fair Trade coffee aiming to create uncontested market space.
The mainstream product will be used as a basis of comparison for the implementation of
the strategy.
Based on the critical success factors identified in the literature and contrasting with the
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interviews, I suggest the following actions for the Fair Trade coffee:
Figure 16 - The four-actions framework for Fair Trade coffee
Source: Adapted from (Kim & Mauborgne 2005)
Developing southern markets, the South-South Fair Trade is pointed out as a next step
to the Fair Trade movement:
“I actually think that is going to be new growth area to Fair Trade. There are
plenty of people who have the money and have the national pride who want to
help their own people anyway. Having the product available, Fair Trade will be
RAISE
• Brand equity
• Coherent communication
•Dynamic new productdevelopment
CREATE
• South to South Fair Trade
• Fair Trade innon-commodities
segments
ELIMINATE
• Certification bottleneck
• “ have to” message
REDUCE
• Premium pric e
A New
Value Curve
RAISE
• Brand equity
• Coherent communication
•Dynamic new productdevelopment
CREATE
• South to South Fair Trade
• Fair Trade innon-commodities
segments
ELIMINATE
• Certification bottleneck
• “ have to” message
REDUCE
• Premium pric e
A New
Value Curve
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Regarding the communication strategy the growing involvement of supermarkets should
be exploited to help support the Fair Trade messaging and the value of word-of-mouth
communications should be developed through debating societies, community and
university activities.
A move away from negative “guilt” or “have to” marketing positioning towards more
positive quality and aspirational or lifestyle statements (something you want to do).
Reducing the premium price and the elimination of the bottleneck in the certification
process are issues already discussed.
“I would rather focus on the more positive; it is easier to sell positive stories than to
persuade people to boycott negative stories….” (Interview with Lance Moir, 2006).
The move towards non-commodities segment could create the opportunity of adding
value in the primary layer of the chain, the producers.
The arrival of big corporations comes adding new concerns to the Fair Trade:
6. CONCLUSIONS
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6.1 Re-statement of thesis objectives
This thesis set out to understand the Fair Trade business model and the key factors
underpinning its dynamics. It is positioned with the Fair Trade literature using it as a
base to understand how the Fair Trade converges social and economic development.
6.2 Summary of the findings
In order to benefit the more impoverished producers, the Fair Trade movement needs to
go mainstream and to work with the corporate actors that it was established to critique.
The real challenge to the model is to incorporate powerful conventional actors
effectively into a formal governance scheme represents the interest of distinct actors
(Taylor, 2005).
It needs to be recognised that the Fair Trade scheme has a restricted impact on the
global trade and it does not question the system but tries to cash on it. If the system is
unequal and unfair in its essence, the ethical label does not change this.
6.3 Contributions of the report
The findings of this research provide contributions to two distinct groups: academicsand managers within the industry. The academic contribution is the review of main
authors and their position on the main issues.
6.4 Research limitations
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The first limitation of this research is time. As distinct from a PhD thesis with 3 years to
be developed or a Masters by Research thesis with a timeline of 1 year, the Master of
Science thesis has a shorter timeframe. From this perspective some aspects of the
business case were classified to “further research” as during the process I had some
insights and directions for a more in-depth approach to the subject.
This research has been positioned within the Fair Trade literature and one of thelimitations is that the analysis is made primarily with the perspective from the UK
market because it is the first market for the Fair Trade. The analysis of the Fair Trade
model in other markets, mainly due to any potential cultural specificity would enrich the
findings in the literature.
Another limitation was regarding the interviews. The first objective was to interview at
least one actor in each of the layers of the Fair Trade chain. Unfortunately it was not
possible to reach a Fair Trade producer and a Fair Trade retailer. These very important
actors would add to the research a legitimate and wealthier dynamics acting as a
counter-argument to some of the findings in the literature.
6.5 Suggestions for future research
I conclude this project by suggesting some areas for further research.
Comparative assessments of communities engaged with the Fair Trade and communities
working with non-Fair Trade crops is an important area needing research and not
covered appropriately so far. In the same approach it should be investigated if the cost
of certification is a barrier for producers to join the scheme.
the price paid for Fair Trade goods is arrived at? How much of the price the consumer
pays goes to the small farmer and what costs are included in the production costs?
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pays goes to the small farmer and what costs are included in the production costs?
As a consequence of the expansion of the Fair Trade market, research into the
organisational structure of the Fair Trade movement is necessary, mainly because of the
complex networks involved in the scheme. Also, the interrelationship of different
networks in which this economic model operates and how to prevent possible loss of
original purpose with the arrival of large retailers and manufacturers.
From a broad industry perspective research should focus on how to create mechanisms
of strengthening legal and social support for Fair Trade networks and at what extent
government and other elements of civil society could help in this process.
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APPENDIX 1 - Elements of the Fair Trade discussed in the papers
Supply ChainNr. Author Marketing
Consumer
Behaviour
Corporate
Governance
Sustainable
Development (Retailers) (Producers)
Broad
Industry
1 De Pelsmacker et al. , 2006
2 Hira & Ferrie, 2006
3 De Pelsmacker et al. , 2005
4 De Pelsmacker et al. , 2005
5 Bacon, 2005
6 Doherty & Tranchell, 2005
7 Taylor, 2005
8 Low & Davenport, 2005
9 Smith & Barrientos, 2005
10 Moore, 2004
11 Nicholls, 2004
12 Raynolds et al., 2004
13 Argenti, 2004
14 LeClair, 2003
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Supply ChainNr. Author Marketing
Issues
Consumer
Behaviour
Corporate
Governance
Sustainable
Development (Retailers) (Producers)
Broad
Industry
15 Jones et al., 2003
16 Davies & Crane, 2003
17 Blowfield, 2003
18 Auroi, 2003
19 LeClair, 2002
20 Nicholls, 2002
21 McDonagh, 2002
22 Rice, 2001
23 Strong, 1997
24 Strong, 1996
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APPENDIX 2 – Fair Trade product and information flows
Source: Nicholls & Opal, 2005
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APPENDIX 3 - Marks & Spencer code of conduct
Global
Sourcing
Principles
Supplier ’s
responsibility
Dedicated
production
units
Commitmentto
extending
principles
through
the supply
chain
Environmental
responsibility
Regular
assessment
Production
sites
and
labelling
Workforce
rights
Source: Johnson, 2004
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