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6.1 pm

The Parliamentary Under-Secretary of State for International Development (Hilary Benn): First, I congratulate my hon. Friend the Member for Plymouth, Sutton (Linda Gilroy) on securing a debate on such an important issue. I know that she takes a strong personal interest in fair trade—that was evident from her remarks—and I greatly enjoyed reading the report that she produced on her visit. She kindly sent me a copy of it, complete with photographs, which brought it to life.

I confess that I discovered the delights of Divine fairly traded chocolate when, early in my ministerial career, I opened my Red Box to discover a couple of bars enclosed with some material about the product and the company that produces it. At that moment, I viewed my new responsibilities in a completely different and more relaxed light. At the end of last year, I attended Dubble's first anniversary celebrations. It was a happy and enjoyable occasion.

Fair trade is a small but significant part of the international trading system. Its aim is simple: to ensure that small and medium-sized producers are able to receive a fair price for their products and thus earn a living in an increasingly international market. In doing that, it tries to create a more equitable trading partnership between north and south.

The growth in sales of fairly traded products in developed countries has been dramatic, albeit from a low base. It has averaged 30 per cent. a year in recent years. Sales in the United Kingdom totalled £23 million in 1999, with chocolate, tea, coffee and, most recently, bananas accounting for most of that. I understand that Day Chocolate is stocked by all the major multiples—Tesco, Sainsbury's, Safeway, Waitrose, Asda, Somerfield, Morrisons, Boots and the Co-op—as well as Blockbuster Video, independent garage forecourts, and Shell.

Day has recently been active in promotional ties with the National Union of Students, the Nickelodeon children's cartoon channel, and the student and children's

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press. All that effort matters, because as my hon. Friend said, the product has to prosper in a strongly competitive market.

There is every indication of the trend continuing. As consumer demand increases, and a growing number of customers want to buy fairly traded goods, I hope that more fairly traded products can become available. Towards the end of last year, I met the Fair Trade Foundation to learn about its work. One of its initiatives is to increase the range of goods that have the Fairtrade label.

Through FLO—the European fair trade labelling organisation—a new process for assessing goods against the Fairtrade standard has been agreed. It is hoped that that will significantly increase the range of goods that can be certified. I echo the comments of my hon. Friend the Member for Edinburgh, North and Leith (Mr. Lazarowicz), who is unfortunately not in his place, about the importance of the fair trade fortnight. I look forward to having the opportunity to support it.

Fair trade has yielded many benefits over the years in the UK and in developing countries. There are opportunities to achieve more, but also challenges to be faced. The story that we have been debating—that of fair trade chocolate, Kuapa Kokoo and The Day Chocolate Company—clearly illustrates the achievements and the challenges.

Ghana is justifiably famous for its high quality cocoa production. It dominated the world cocoa market in the 1960s, but despite a peak in world prices, production fell dramatically in the 1970s and early 1980s. This was largely due to the taxation rate, which resulted in a decrease in industry incentives. Cocoa accounted for more than 75 per cent. of Ghana's export earnings in the 1970s, but for just under a quarter by 1992.

At this time, the Government of Ghana began to liberalise the internal marketing of cocoa. As we have heard, a group of local farmers formed the Kuapa Kokoo farmers union to provide a way of improving the economic and social position of cocoa farmers. Technical support from the UK was provided by Twin Trading, and financial support by the Department for International Development.

Kuapa Kokoo is now 10 years old and, like the British co-operative movement, it has gone from strength to strength. I was greatly stuck by the analogy drawn by my hon. Friend the Member for Plymouth, Sutton between the work being done at Kuapa Kokoo and the origins of the co-operative movement in this country. Kuapa Kokoo is the only major cocoa-producing co-operative in Ghana; it now has 35,000 members and it exported more than 30,000 tonnes of cocoa last year. It is also the largest supplier of fairly traded cocoa in the world, providing almost two thirds of the international supply. It is estimated that over the eight years of its operation to 2000, Kuapa Kokoo has yielded £600,000 in extra income to its members, over and above world market prices.

The benefits of the co-operative are more than just economic, however. Last year a DFID-funded study reported on these benefits and in particular assessed the extent to which they could be attributed to fair trade. The study found that while Kuapa Kokoo fair trade sales have ranged between 2 and 9 per cent. of total sales, the support of the fair trade movement has had a disproportionately positive impact on its members. Indeed, Twin Trading

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played a key role in organising and developing the co-operative in its early years to take advantage of both fair trade and mainstream commercial markets.

The premiums from fair trade sales fund many of the social services provided by Kuapa Kokoo, including health, education, the credit union to which my hon. Friend referred, water and sanitation. For example, more than 100,000 people—both members and non-members of Kuapa Kokoo societies—have received free medical attention and prescriptions. My hon. Friend also mentioned other benefits in terms of new skills and involvement in decision making.

Kuapa Kokoo has not rested on those achievements, however. Ghana has yet fully to liberalise cocoa export marketing, and state control over export marketing means that prices paid to producers remain relatively low. Kuapa Kokoo was keen to increase the value added to its cocoa, as well as its understanding of global markets. To address both those objectives, it decided to produce its own branded chocolate for sale in western markets. Together with Twin Trading and The Body Shop, and with support from Comic Relief and Christian Aid, it formed The Day Chocolate Company.

The Day Chocolate Company is an ambitious and innovative venture. Unfortunately, the banks perceived it as too risky to finance it themselves. To overcome this problem, DFID provided a bank guarantee until September 2004 to enable a commercial bank to provide £400,000 of loan finance. In doing this, DFID was aiming to lower the perceived risk of similar ventures, and thereby to encourage further participation of private financial institutions in fair trade initiatives, and in development more generally.

The Day Chocolate Company is an award-winning organisational model of partnership between producers, a fair trade organisation and an ethically minded business. It has been successful in helping to promote fair trade through sales and distribution via 15,000 outlets, many of which had never stocked fairly traded items before; through highly impressive media exposure, which is important given the lack of a large budget for advertising; and through innovative development educational activities which are reaching more than 4,000 primary schools and more than 1,700 secondary schools. Kuapa Kokoo has a one-third shareholding in The Day Chocolate Company, and its two elected farmer board representatives give it a new level of involvement in, and understanding of, the global cocoa supply chain.

The case of Kuapa Kokoo and The Day Chocolate Company highlights a number of wider challenges and opportunities for growing trade in both developing and developed countries, and it is to these that I now wish to turn. First, developing country Governments must continue to improve the legal and regulatory environment for processing agricultural products, private sector development and foreign direct investment. If business is to flourish—we know what an important part economic development plays in lifting people out of poverty, which is what we are concerned about—it needs the right climate.

Secondly, the private sector in developing countries needs to enhance its international competitiveness. For example, Ghana is moving to liberalise export marketing of cocoa. By virtue of the technical and marketing capacity that Kuapa Kokoo has built up through Fairtrade

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and its partnership with The Day Chocolate Company, it is likely to be one of only three companies licensed to export in Ghana.

Thirdly, Ghana and other countries may export raw cocoa to Europe, but they face tariff barriers if they want to export processed chocolate. The Department and other donors are working with developing country Governments to strengthen their negotiating power in trade talks.

Fourthly, Fairtrade and other companies promoting trade with developing countries face intense competitive pressure, particularly as they tackle mainstream commercial markets rather than traditional fair trade markets. Such companies are often dwarfed by their competitors' size and advertising budgets, while consumers may not always convert a desire to support Fairtrade into purchases. The Day Chocolate Company, cafédirect and others are showing that innovative marketing and distribution can lead to success.

Fifthly, we need to recognise the link between fair trade in particular and corporate social responsibility more generally. A growing number of companies are becoming interested and involved, and the ethical trading initiative helps them to do business in a more socially responsible way. As the public become more aware of the connection between the way business is done and its impact on the livelihoods of people in developing countries who are trying to earn a living for themselves and their families, so the pressure for greater business awareness will grow, and rightly so.

My hon. Friend the Member for Bristol, West (Valerie Davey) spoke about the links that have been developed between the city that she represents and organisations in her community. As in a number of cities in this country, shops selling fairly traded products are opening.

The issue of fair trade shows how important trade in general is to developing countries. Compared to the UK market for Fairtrade products—the £23 million to which I referred—the total market for such products is £15 billion a year. We must therefore help developing countries to increase their trade and economic activity through international trade agreements. Here, of course, reform is of the highest importance.

That is why the everything but arms agreement is a major step in the right direction towards building fairer competitive markets for agricultural trade between Europe and developing countries, and why the Government are pushing for significant common agricultural policy reform in relation to sugar and other agricultural products, although we know that progress has been slow. To be honest, Members have been debating CAP reform in the Chamber over the past quarter of a century, owing largely to opposition from domestic agricultural interests in continental Europe.

That is why a new trade round—a development round—matters so much following November's Doha agreement. The Doha declaration is encouraging, as it commits World Trade Organisation members to the objective of duty and quota-free access for the least developed countries and puts agricultural trade firmly on the agenda for the world trade negotiations. That is why we were so keen to have a new trade round. Without a new round, there is no possibility of reform and we expect tariff reductions that favour developing country exporters.

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