Memorandum submitted by Marks & Spencer
(M&S)
SUMMARY
Marks & Spencer is one of the UK's leading
retailers selling own-brand food and clothing products. We sell
over 50 Fairtrade products which are responsible for over £30
million sales, around 15% of the total UK Fairtrade market. We
plan to expand our Fairtrade offer further.
Our commitment to Fairtrade is part of our wider
commitment to ethical trading and would not be possible without
the foundation of good core labour standards in our supply chain.
Due to high brand recognition, there is also
a strong business case for retailing Fairtrade products. However
we have a strict policy of not inflating our margin on these products.
In some cases, where we have switched whole categories to Fairtrade
we offered these products at the same price to customers. This
is offset by increased sales.
We believe the best approach to involving the
private sector in development is one which utilises business functions
and skills. Fairtrade offers retailers a way to become involved
in development via mainstream business activities, using retailers'
skills and resources. A further strength of the Fairtrade model
it that the local community decides how to spend the extra money
thus ensuring that interventions are appropriate and relevant.
In our experience funds are invested in health and education projects,
product development and diversification. We have also seen evidence
that farmers practicing Fairtrade are better equipped to understand
and participate in the marketplace.
We believe that Fairtrade offers DFID and the
retail sector a good opportunity to work together by investing
in increased supply of Fairtrade produce from the developing world.
Some of the market access programmes we have come across have
little chance of accessing a mainstream market because they are
producer rather than market led. On the other hand, we know that
the UK market for Fairtrade is undersupplied. Therefore, we believe
donors looking to fund market access programmes should consider
putting money into Fairtrade—specifically by investing on
the ground at the supply end to enable expansion. This then levers
further retail investment and consumer engagement.
Our work on Fairtrade has created a positive
cycle of action in the business. For example, it has made us look
more closely at the whole cotton supply chain and drive improvement
in standards right down the chain. It has also given us a better
understanding of the issues at the various levels of our supply
chains.
M&S recognise that Fairtrade is not the
only way for us to achieve development aims. However, it has unlocked
a huge amount of awareness and potential for our business to access
a proactive approach to development, leveraging consumers' desire
to vote with their wallets. We believe that Fairtrade has the
potential to expand further and reach millions more producers
across the developing countries.
1. INTRODUCTION
1.1 We welcome the opportunity to input
to this enquiry on Fairtrade and Development. Marks & Spencer
is one of the UK's leading retailers selling clothing, food and
home products. We have over 450 stores located throughout the
UK and employ 65,000 people. We also have an international business
comprising wholly owned and franchise stores around the world.
Our UK market share is currently 4.3% in food and 10.5% in clothing.
We are nearly 100% own brand and have supply chains which are
spread across many developing countries. Their growth and stability
are crucial to our future business strategy.
1.2 Today Marks & Spencer sells over
50 Fairtrade products in foods and general merchandise (GM). We
have converted our whole coffee and tea business to Fairtrade
(over £20 million retail sales value) and our entire chain
of over 200 in-store Cafés also sell only Fairtrade tea,
coffee and hot chocolate. In addition all of the tea and coffee
in our office and store employee cafes is 100% Fairtrade. Our
products are currently responsible for over £30 million sales,
around 15% of the total UK Fairtrade market. We estimate that
this will grow significantly this year with the rapid expansion
of our Fairtrade cotton programme, after having been the first
major retailer into the Fairtrade cotton market in March 2006.
Our switch to Fairtrade coffee and tea grew sales in this area
by 6% and we estimate that our coffee switch alone has also contributed
to improving the lives of over 50,000 producers.
1.3 We set out below what we believe to
be the ethical and business cases for Fairtrade, our approach
to retailing Fairtrade products and how we have seen it assisting
development in our supply chains. We also offer some observations
on the impact our work on Fairtrade has had on our core business.
2. ETHICAL TRADING
2.1 Our commitment to Fairtrade is part
of wider commitment by M&S to ethical trading. Trust and responsibility
have always been core brand values for us and as our supply chains
have moved across the world we have continued to promote ethical
and sustainable business which benefits all members of the supply
chain. We have been an active member of the Ethical Trading Initiative
since 1999.
2.2 We recently announced Plan A—a
£200 million Eco-Plan including a wide range of social and
environmental commitments which will build on past work and have
an impact on every part of M&S' operations over the next five
years. One of the five pillars of Plan A is our commitment to
be a "fair partner" to those we work with in the UK
and abroad. This includes a commitment to further strengthen our
commitment to good labour standards at our suppliers, strengthening
our relationship with UK farmers, working with suppliers and their
communities and helping disadvantaged groups through the extension
of the Marks & Start employability programme.
2.3 Under Plan A we have also committed
to extend our Fairtrade offer. Our use of Fairtrade cotton will
increase massively as we convert key, high volume clothing ranges
to 100% Fairtrade cotton. Over the next 12 months this will mean
20 million garments made from Fairtrade cotton, equal to around
10% of all the cotton we sell. This equates to around one third
of the world's current total supply of Fairtrade cotton. We will
also build on the success of Fairtrade coffee and tea in our Food
business by offering more Fairtrade bananas, converting all the
sugar in our jams, marmalades and bags of sugar to Fairtrade.
3. THE ETHICAL
TRADING CASE
FOR FAIRTRADE
3.1 Our current commitment to Fairtrade,
and our future plans, would not be possible without the foundation
of good core labour standards that apply to every one of our over
2,000 suppliers and which we have worked on for many years. We
firmly believe that Fairtrade should not be a fig leaf. It is
a visible, positive message for consumers about going one step
further and having a positive impact right at the end of the supply
chain, usually hidden by complex networks of supply. Fairtrade
provides us with engaging evidence for our customers of a much
wider commitment to trading fairly.
3.2 The challenges of meeting our commitment
to ethical trading vary depending on the type of relationship
we have with suppliers. For all of our first tier suppliers we
set standards on labour and the environment and have an active
relationship with those suppliers to monitor and improve their
impacts. For many fresh food products this relationship and standard
setting goes right back to the grower, fishery or farmer at the
end of the chain.
3.3 However, for many years we struggled
to understand the best way to engage with the 100's of thousands
of smallholder farmers at the end of commodity supply chains.
Yet we knew that some significant social and environmental issues
lay at the bottom of these chains with some of the worlds poorest
people. Difficulties included setting and monitoring standards
for such a vast number of smallholder farms; the need for a pricing
mechanism which would incentivise and reward farmers to meet higher
environmental and social standards; and a business justification
for paying higher prices in the form of consumer recognition—a
marketing tool to communicate a very complex issue to our customer.
3.4 Fairtrade answered all of these questions
by providing:
— An internationally recognised mechanism
for offering a fair deal as well as promoting environmental and
social improvements with a huge number of smallholder farmers.
— An International standard for the
price which producers should receive to cover their cost of production
plus a reasonable profit.
— One clear standard which is appropriate
and achievable for smallholders which covers social, environmental
and economic issues.
— A mechanism for retailers to get
involved in development without the need for a new set of skills.
— A development model which allows
the communities themselves to decide how they will use the extra
money generated by Fairtrade. This moves away from a philanthropic
or western centric model of development in which donors make assumptions
about what to give to poor communities.
3.5 We found that in many cases the Fairtrade
model could be applied to our existing supply chains. In converting
tea and coffee to Fairtrade, M&S worked predominantly with
our existing growers as we wanted to reward farmers that had grown
good quality tea and coffee for us for many years.
3.6 Cotton was a different story as M&S
had never before interacted with cotton farmers right at the end
of our textile supply chains. Cotton farmers may be five or more
stages removed in the supply chain from the retailer—beyond
garment manufacturers, fabric mills, dye houses, spinners, ginners
and traders. However, M&S knows all of its garment manufacturers,
fabric suppliers and dye houses because of the strict standards
we set for ethical, environmental and quality parameters. This
gave us a head start in being able to piece together chains which
eventually led to Fairtrade cotton farmers.
4. THE BUSINESS
CASE
4.1 There is a very strong business case
for getting involved in Fairtrade and this is why the market has
been growing so strongly over the last few years.
— Fairtrade is highly visible with
over 50% UK consumers recognising the brand and sustained media
attention.
— According to a recent YouGov survey
commissioned by Marks & Spencer, 59% of consumers say they
already purchase Fairtrade products and 18% said they would buy
Fairtrade items if they were more widely available on the high
street.
— It provides a simple brand message
to our customers which they relate to and which incentivises increased
sales.
— It provides a strong campaign message
which all parts of the business (food, clothing and our employees)
can get behind.
— It is significantly easier to get
customer recognition and media interest in Fairtrade than in individual
"own brand" schemes.
This strong business case is driving companies
like M&S to become involved in development, to pay higher
prices for commodities and to interact with producers at the end
of our supply chains. Fairtrade has brought the issue of development
to our 65,000 employees and over 10 million M&S customers.
5. THE M&S
APPROACH TO
RETAILING FAIRTRADE
5.1 When our customers told us they wanted
to be able to buy more Fairtrade products we decided we wanted
to make a bold commitment to demonstrate that being fair to our
suppliers is part of our brand. That is why we converted all tea
and coffee and have made such big commitments to Fairtrade cotton.
5.2 We have a strict policy of not inflating
our margin on Fairtrade products as we believe it is wrong to
profiteer or mislead the customer about the amount of money going
back to farmers. Where we have offered Fairtrade as a "choice"
within a category, the price must reflect normal margin policy
for that category. However where we have switched whole categories
eg tea, coffee, and soon our £5 t-shirts, we offer these
products at the same price to the customers. This is offset by
increased sales in these products—a win win situation for
all.
6. FAIRTRADE
AND DEVELOPMENT
6.1 We believe the best approach to involving
the private sector in development is one which utilises business
functions and skills to contribute to development. Fairtrade offers
retailers a way to become involved in development via mainstream
business activities. It requires the use of retailer skills and
resources. It also contributes to profits, thus providing the
business case to continue to do more. This is in contrast to philanthropic
giving.
6.2 The Fairtrade Premium is an important
element of the Fairtrade certification scheme. One thing we are
all conscious of in the development debate is the need to ensure
that "western" interventions are appropriate. It could
be easy for a business thinking about getting involved in development
to try to fund those interventions that would be most favoured
by customers rather than those that would be most needed by the
communities they are trying to help. With Fairtrade the community
decides how the extra premium that they earn through Fairtrade
is spent. The only important caveat is that the community must
organise itself with a democratically elected committee who decides
how the money will be spent for the benefit off the community.
We believe that this offers a very empowering way of driving development.
6.3 One criticism of Fairtrade has been
that it works against market forces and its elevated prices increase
supply in often already oversupplied commodity markets. We would
refute this criticism. Firstly, from the customer point of view,
we see Fairtrade as another "value adding" quality for
products and if customers are willing to pay for this quality
then this is simply market forces in action. Secondly and importantly
from the farmer point of view it is often difficult for farmers
in developing countries to diversity or obtain market information.
Often the only option open to them in times of low price is to
further increase the amount of land that they cultivate rather
than diversify because opportunities to access the right tools
to diversify are very limited. We have seen two good examples
of this in India and Mali.
6.4 In India our Fairtrade cotton farmers
told us about the treadmill they faced before becoming Fairtrade
certified, being indebted to pesticide companies and traders who
lent them money in exchange for low prices for their cotton when
picked. The farmers told us that their only option was to keep
growing more and more cotton to keep up with the massive debts.
6.5 In Mali the cotton sector is still state
run. Growing conventional cotton is the only way to access a guaranteed
(but still very low) income and one of the only ways to access
farm inputs because of a state run pesticide distribution scheme,
tied into the requirement for all cotton farmers to sell their
cotton back to the state run cotton company. Therefore, in both
India and Mali it is factors in the conventional market which
are driving continued growth in supply even when farmers are unable
to make a decent living.
6.6 Another good example of the development
benefits of Fairtrade were witnessed recently on a trip to Mali.
Malian farmers are some of the poorest in the world. The Fairtrade
price and premium received by the farmers we visited quite literally
changed their lives and those of their children, enabling farmers
to make an income from their land and helping them to build classrooms
to educate their children. However, there was another side to
Fairtrade in Mali which is indicative of a less well understood
benefit of Fairtrade—empowerment. The cotton sector in Mali
will shortly undergo privatisation, opening millions of farmers
up to the harsh realities of the market. Both the current state
owned cotton company and the farmers themselves believe that those
farmers practising Fairtrade will be the most ready for privatisation
as they better understand the market and are structurally organised
into cooperatives within their community groups and are thus able
to better negotiate.
7. THE FAIRTRADE
PREMIUM
7.1 Fairtrade producers selling into M&S
have used their premium in a multitude of different ways—for
health and education, product development and diversification.
7.2 Farmers in Gujarat in India have installed
a fresh drinking water tank into their local school, helping their
children to live free from disease. In Mali we have seen a number
of farmers invest in warehouses which has improved the quality
of their cotton. In one village this meant that it freed up the
school building which had previously had to house the cotton meaning
that children did not get schooling for months after the harvest.
Also in Mali we have bought cotton from a number of cooperatives
who have joined forces with the local government to co-invest
in providing classrooms for their children.
7.3 In Indonesia, revenues from Fairtrade
are helping coffee farmers fund various improvement programmes
including nurseries for seedlings and the construction of a cupping
lab, wet mills, a tasting room and a training centre in order
to help them understand what happens to their coffee after it
leaves their fields. In Honduras, farmers are using revenues from
Fairtrade to invest in coffee processing equipment and diversification.
In Ethiopia Fairtrade coffee farmers are experimenting with intercropping
other crops with coffee, investing in coffee processing machinery
and training programmes for farmers to maximise efficient production.
7.4 In India, because of the link with the
market, our cotton farmers have been able to talk with major retail
brands across the world and are now investing in diversifying
into other Fairtrade rotation crops such as nuts and spices and
mangoes which grow around the fields. This will further improve
their income. Improving income allows farmers to think of the
future not just the basics that they need for today and so we
have seen that many of our Fairtrade groups have begun a positive
cycle of development through increasing their revenue generating
activities so that they can help themselves to a more secure future.
8. DFID/DONORS
8.1 We believe that Fairtrade offers DFID
and the retail sector the perfect opportunity to work together
for the benefit of all by investing in increased supply of Fairtrade
produce from the developing world.
8.2 Many millions of pounds are spent by
donors all over the world on market access programmes. Some that
we have come across have dubious market opportunities and are
producer rather than market lead, meaning they often have little
chance of accessing a mainstream market. On the other hand, recent
customer research by the firm Fruit Passion showed that the market
for Fairtrade is massively under supplied in the UK and many thousands
of uncertified producers are unable to access a market where consumers
are willing to pay more to buy Fairtrade products.
8.3 Fairtrade has proven itself both in
terms of a market and also as a development model. Therefore donors
looking to fund development via market access should consider
putting their money into this system. This then acts as a "lever"
unlocking private sector investment in development via the purchase
of Fairtrade products.
8.4 M&S has already begun to work with
donors to invest in Fairtrade. In India, we have worked with the
Shell Foundation, who have invested in Agrocel (the Fairtrade
cotton cooperative we mentioned earlier in India). An initial
investment of funds and business skills by the Shell Foundation
helped the farmers to secure much needed orders for their cotton.
Once M&S was involved we also bought our own business skills
and expertise to help the farming organisation. Shell Foundation
interventions ranged from providing training and materials—some
as simple as hairnets and cotton bags to gather cotton in the
fields so that it was not contaminated during harvesting, to building
a stockpile so that the cotton wholesaler could guarantee M&S
and other customer's orders. M&S helped by linking Agrocel
into our network of spinners and is now setting up long term purchasing
contracts.
8.5 Once donor money and orders help to
secure the future of the organisations we work with, the Shell
M&S partnership looks to help them leverage finance, for example
from development banks such as Triodos Bank, so that they begin
to become sustainable businesses. Once farmers have Fairtrade
certification and the money is flowing back to them and their
community there is no reason why these communities should need
further donor funding as they now have a mechanism for generating
a sustainable living.
8.6 We believe donor funds should be directed
to investing on the ground at the supply end to enable the Fairtrade
system to expand, thus leveraging further retail investment and
consumer engagement.
8.7 DFID could support the Fairtrade system
in two valuable ways. The first is strengthening their "on
the ground" teams to build local awareness and capacity both
in certification and producer support. This would drive increase
in supply and numbers of producers benefiting from their Fairtrade
system to meet the increasing customer demand. The second would
be to strengthen the capacity of the Fairtrade Labelling Organisation
and Fairtrade Foundation as their current systems and processes
are struggling to cope with their move from niche to mainstream.
We believe that the status quo system should be self financing
but that it is right for donor money to be spent to help the system
to make the very big step from niche to mainstream and to help
Fairtrade move into new areas such as handicrafts to allow even
more people to benefit from the system.
8.8 A concern expressed by some donors is
that retailers who want Fairtrade products should be funding the
whole system. However, retailers already support the Fairtrade
system through the licence fees and Fairtrade producers through
the Fairtrade minimum price and premium. On top of this retailers
make large investments of time and expertise in the process of
converting product to Fairtrade. Marks & Spencer has also
invested time working with the FLO and Fairtrade Foundation to
ensure that system remains robust and able to cope with increasing
demand. We believe that relatively small "pump-priming"
investment by DfID reaps significant returns.
9. IMPACT ON
M&S
9.1 Our work on Fairtrade has created a
positive cycle of action in the business. The marketing of Fairtrade
products to the consumer made it even more important that we were
effectively managing our core ethical standards across our supply
chain.
9.2 In addition, Fairtrade made us look
more closely at the whole cotton supply chain. In order for a
cotton product to carry the Fairtrade cotton mark, all levels
of the supply chain must have an independent ethical audit thus
ensuring that on top of our usual standards applied to garment
factories as our direct suppliers, suppliers all the way down
the chain are checked for issues such as health, safety, minimum
wages paid and minimum age of employment. This has both helped
to drive improvement at those facilities as well as giving us
a better understanding of the issues at the various levels of
the supply chain and has been a factor contributing to a commitment
under Plan A to extend our monitoring of standards down the supply
chain.
9.3 This demonstrates again that Fairtrade
has not only influenced development of Fairtrade producers but
has indirectly contributed to raising awareness and standards
across our cotton supply chain largely based in the developing
world.
9.4 Engaging with Fairtrade has also been
a relatively easy way for our business to access the world of
development and subsequently other opportunities have started
to emerge based on other Fairtrade and non-Fairtrade supply chains.
However, it is worth stressing that it has been much more difficult
to engage with non-Fairtrade businesses that give themselves a
"fairly traded" tag as it is harder to set and monitor
appropriate standards for these organisations. Standards and decisions
taken with the Fairtrade system are discussed and supported by
the producers themselves, businesses, NGOs and trade unions such
that they have a robust justification. This level of stakeholder
engagement and robustness of decision making is not possible for
individual companies and individual initiatives and thus the scale
and pace which non-Fairtrade products can be developed and rolled
out can be inhibited by lack of clear guidance for companies and
a lack of consumer understanding of development issues. In short,
Fairtrade makes it simple for businesses and for consumers to
do their bit.
10. ADDRESSING
A CROWDED
MARKETPLACE
10.1 We accept Fairtrade isn't the only
certification scheme and is not the only way for business to become
involved in development. But we are pleased to use it as part
of a suite of ways in which we contribute to development because
it has a visibility across the UK and increasingly internationally
too (for example our Hong Kong stores have recently started to
promote Fairtrade coffee and tea).
10.2 FLO are also constantly developing
new standards in order to benefit other types of producers. One
of those which FLO are hoping to set are for handicrafts and DFID
sponsorship of an initiative to complete this project could open
up a currently very fragmented and niche market which we believe
has the opportunity to expand.
11. CONCLUSION
11.1 M&S recognise that Fairtrade is
not the only way for us to achieve development aims. Our trading
with good suppliers in Africa and South Asia, with whom we set
and monitor good labour standards, remains we believe our most
significant contribution to development within these countries
and industry sectors.
11.2 However, Fairtrade has unlocked a huge
amount of awareness and potential for our business to access a
proactive approach to development, leveraging the consumers desire
to use their shopping to support some of the world's poorest people.
We believe that Fairtrade has the potential to expand further
and reach millions more producers across the developing countries.
Now that we have become involved with development and recognise
the customer demand for products which positively contribute,
we are also actively investigating other possibilities for using
our products and supply chains to drive development.
11.3 The current capacity of the Fairtrade
Foundation and FLO both in Europe and on the ground can not keep
pace with the market demand for Fairtrade products. Therefore
we strongly recommend that DFID investigate the possibilities
for funding a system which we believe has an unrivalled proven
track record of driving sustainable development.
February 2007
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