As brands and retailers begin to abandon the 25-year-old ethical trading scheme we look at what went wrong, and whether in-house programmes will offer a worse or better deal for farmers and the planet
This summer’s row over Sainsbury’s pulling out of Fairtrade for tea, and last year’s decision by confectionery giant Mondelez to pull the Fairtrade mark off its brands, have put the ethical trading sector and some of the world’s biggest brands under the spotlight.
Writing in The Grocer, journalist and author Joanna Blythman summed up the view of many when she said: “Consumer trust is hard-earned and easily lost. If corporates want us to believe that they are indeed ethical concerns, then cherry-picking rent-a-cert bodies to aid and abet the lie that Fairtrade-lite can deliver social justice and equity for farmers and grocers won’t do the trick.
“Any fool can see the downward spiral. First you ditch Fairtrade for a weaker, vaguer lookalike, next you ditch that unconvincing option for a self-serving ‘take our word for it’ in-house equivalent.”
Nigel Sizer, president of the Rainforest Alliance, which is merging with Netherlands certification scheme UTZ later this year, said that the cost of certification schemes was a concern for companies and “may be driving a lot of those corporate decisions” to develop their own schemes.
However, in interviews with Ethical Corporation, big brands, including Mars and Mondelez, denied that they were trying to cut costs. They expressed fears about the resilience of their supply chains, and said this has changed the nature of what they need from certification bodies such as Fairtrade.
Fairtrade looks to lift the incomes of farmers and workers in developing countries by setting social, economic and environmental standards for both the companies buying products and the farmers and workers who grow the food. For farmers and workers, the standards include protection of workers’ rights and the environment; for companies they include the payment of the Fairtrade minimum price and an additional Fairtrade premium to invest in business or community projects of the community’s choice.
Certification schemes set a baseline. But for our substantial suppliers, we engage with them beyond Fairtrade’
The Fairtrade Foundation certifies products ranging from tea, coffee and bananas, to flowers and gold, to check that the standards have been met, and licenses the use of the Fairtrade mark on products and packaging to signal this. Revenue from Fairtrade products rose 2% to £1.64bn in the UK in 2016, the first time that sales had risen since 2013. Fairtrade, says the foundation, offers “better prices, decent working conditions and a fair deal for farmers and workers” in some of the world’s poorest countries.
Other ethical trading certification systems include UTZ and the Rainforest Alliance, which recently announced they are to merge. Unlike Fairtrade, Rainforest Alliance offers no premium to farmers, while UTZ focuses on raising farmers’ incomes by showing them how to grow better-quality crops. UTZ and Rainforest also concentrate on larger producers, while Fairtrade focuses on smallholders. Another big difference is that UTZ employs independent certifiers, while Fairtrade has its own central certifying organisation.
There is also the GlobalGAP scheme, which covers not just crops but also livestock and aquaculture, covering more than 530 certified products and over 170,000 certified producers in more than 120 countries, with a focus on food safety and good agricultural practices.
When Fairtrade started in 1992 it was the only scheme of its kind. “Now there are something like 400 sustainability labels in the market,” says Brian Durkee, chief operating officer at Numi Organic Tea.
However, Fairtrade is seen to have the highest standards and it is the scheme that has the highest level of recognition. It is also the most expensive, for buyers and farmers. Yet the social premium it pays does not go far when it is shared out between thousands of co-operative members. In addition, the minimum price that was set when Fairtrade was established, at a time of plummeting commodities prices, has not been called into use for a long time because of the increase in market prices.
Even its supporters say that Fairtrade needs to move with the times. “Although we are big supporters of Fairtrade, there are improvements to be made,” says Durkee.
One key problem for Fairtrade is that it is not clear that the scheme improves outcomes for farmers and workers. A study from 3IE (the International Initiative for Impact Evaluation) found that certification schemes lift producer prices and agricultural incomes, but have less of a positive impact on wages, household incomes and assets.
“There is no guarantee that living standards improve through certification for farmers and workers,” the report says, in part because “some of these conditions depend on deep-rooted socio-economic factors that are unlikely to be substantially altered by certification”.
Wages are extremely low in places like Malawi and Assam and that’s quite a challenge to Fairtrade and the other certifiers
Furthermore, it is not clear that companies are benefiting either. In a recent PR Week article, Alfonso Gonzalez, chief marketing officer of Nespresso, which has its own AAA Sustainable Quality programme scheme, said: “The reality is that the in-depth knowledge of what that certification stands for is not widely known. For those consumers that value that, we don’t have evidence that these labels drive a different type of value or consumption.”
Accreditation bodies have an important role to play in helping suppliers to operate in an environmentally friendly and ethical manner, says Adil Hamid, marketing controller for Typhoo Tea. Typhoo recently signed up to the Ethical Tea Partnership, which helps producers to reach the standards of the main certification schemes.
However, while these schemes are a good foundational standard, Barry Parkin, chief sustainability officer at Mars, says: “They are not getting farmers to sustainable income levels, so we need a much deeper, more intensive intervention … that allows them to go on a journey to become professional farmers”.
Certification schemes don’t guarantee a lot, says Durkee of Numi Organic Tea. “They set a baseline. But for all our substantial suppliers, we engage with them beyond Fairtrade.”
Tim Aldred, head of policy at the Fairtrade Foundation, agrees that “certification gives you a decent baseline but if you have an acute problem, for example low wages, certification alone is not enough. The power relationship between buyer and seller can be very unequal. But we do know that under Fairtrade, incomes go up.”
Rachel Wilshaw is ethical trade manager at Oxfam, one of several charities that helped establish the mark. She says the Fairtrade movement is in a healthy state, but acknowledges that there are income issues, not just for smallholders but for workers on, for example, tea plantations. “Wages are extremely low in places like Malawi and Assam and that’s quite a challenge to Fairtrade and the other certifiers. If there is no collective bargaining, the owners set the wages. Often, only some of the tea the plantation grows will be sold on Fairtrade terms, but more could be delivered if all of the tea had buyers ready to trade on Fairtrade terms.
“The premium makes a big difference to smallholders, and some difference to workers and it's the best scheme we have right now, but there is a need for it to become even more effective. We need to make sure there is a business model that really delivers for smallholders, workers and consumers alike.”
On average, says 3IE, “schemes such as GlobalGAP and UTZ do better in combining effective capacity-building with access to remunerative markets. For Fairtrade, higher prices are not always high enough to compensate for low yields. Some evidence suggests that demand constraints for certified products are key barriers to increasing market income.”
Increasing farmer incomes is crucial not just for the farmers themselves but also for the giant companies that are their customers. “The smallholder agricultural model has income challenges,” says Parkin. “The 500 million smallholders around the world are the poorest people in the world. The average wage is half what is considered poverty.”
For the large brands and retailers, securing sustainable supplies of commodities at scale is a real business issue. “Mainstreaming is extremely important,” says Jonathan Horrell, global director of sustainability at Mondelez International. “If you’re really concerned about sustainability you should be concerned about improving the sustainability of farming systems across the world. I don’t think ethical or sustainability should be small or niche.”
Mondelez, which has developed its own Cocoa Life programme with the involvement of Fairtrade, says that improving conditions for farmers is about securing future supplies of a key commodity. “We developed Cocoa Life as an investment in the cocoa supply chain. Without the next generation of farmers, there will be no cocoa and without cocoa there is no chocolate,” he says.
Schemes such as GlobalGAP and UTZ do better than Fairtrade in combining effective capacity-building with access to remunerative markets
The problem is that it is not clear that Fairtrade has the same scale of ambition as the buyers of its certified products. “When the Fairtrade model was developed, no one really envisaged that the supermarkets would become big own-brand Fairtrade suppliers,” says Professor Stephanie Barrientos, of the University of Manchester’s Global Development Institute. “There has been a tension in the movement over whether it should be certifying own-brand products sold by large retailers.” Durkee of Numi Orgainics, who was a member of Fairtrade International’s product advisory council a few years ago, says the organisation “is fairly rigid in its ways. Their behaviour makes people think that they don’t want to grow.”
The tension between expansion of sustainable supplies and remaining true to its origins is at the heart of the choice facing Fairtrade, says Barrientos. As some of the world’s largest brands seek to grow the amount of sustainably sourced agricultural commodities, should it return to its core values and being a niche movement or seek to sit in the mainstream?
Companies clearly feel that more needs to be done. Mars, for example, has recently launched the Farmer Income Lab to tackle poverty in FMCG supply chains. Parkin of Mars says this was driven partly by the realisation that if farmers are not being successful growing the crops that companies need they will do something else. “Obviously there is a strong moral need but also a strong business imperative. It is essential we tackle farmer income.”
From buyer to partner
“The movement is at a bit of a turning point,” Barrientos adds. “If it wants to sit in the mainstream with high-volume retailers, it will need to explore deals like the one it has with Mondelez.”
The creation of Cocoa Life changed Mondelez’s relationship with Fairtrade, Horrell says, “but it’s very much a continuing relationship … We moved from being a buyer to being a partner. We are investing directly in our supply chain, with people on the spot working to implement programmes. We have a level of understanding and partnership with our suppliers that changes the relationship,” Horrell says.
He adds: “If you are a buyer in a traditional raw material supply chain, you buy from people who buy from other people. You have to rely on verification schemes to ensure good practice on the ground – and that is ground that you don’t see. Now we are literally on the ground, mapping farms and the like so we have visibility of supply and the original role of Fairtrade as a third-party certifier becomes less relevant.”
Fairtrade is still involved, however, “because they have a lot of expertise, a lot of understanding of the issues and the ability to challenge us on issues such as sustainability and poverty. That perspective is still very important to us.”
The organisation’s continuing work with Mondelez will take three forms, Horrell says. “It will verify the terms of trade, agreeing volumes and premiums upfront. It will work on helping communities to build resilience to climate change and it will identify areas where we can co-operate.”
The Fairtrade movement is at a a turning point. If it wants to sit in the mainstream with high-volume retailers, it will need to look at more deals like the one with Mondelez
It is partnerships such as this that are likely to define the future of Fairtrade. “We are responding to the fact that companies have better ethical capacity than they did in the past, which means that what we provide has to evolve. There are lots of different areas where we want to improve,” says Aldred of the Fairtrade Foundation. “The ability to trace products from the field to the consumer is an area where technology can help and it’s something we are making available to retailers.
“Social conditions, wages and incomes remain astonishingly low in many products but it can be very hard to make progress because it costs money. You can’t have sustainability and ethics for free. We need to find ways to get the right kind of investment to build more resilience for both growers and customers. Let’s have ‘Certification 2.0’, which is doing what people need.”
Simon Coley, co-founder of Karma Cola, a small, ethical soft drink brand, says Fairtrade has been “incredibly supportive of what we do, but there is room to evolve the model. It’s been around for quite a while. If it requires refreshing, then now is the time to do it.”
Horrell of Mondelez, however, thinks the time may have come for the big brands to move on. “We are increasingly seeing companies asking how they can move from having a proportion of their supplies certified to something where they can make agricultural supply chains as a whole more resilient and more sustainable,” Horrell says. “There will be an evolution from compliance-based systems to ones with a stronger focus on impact.”
See also: How Sainsbury's lost its taste for Fairtradeorganic food tea supply chain cocoa supply chain FMCG Fairtrade Foundation Rainforest Alliance GlobalGap UTZ Sainsbury's Mondelez