Memorandum submitted by Cafédirect
plc
SUMMARY
1.1 Cafédirect welcome the opportunity
to submit evidence to the International Development Select Committee
on Fairtrade and development. This submission draws upon the experience
we have gained over the last 16 years as a business, which balances
the business of making money with making lives better. Our mission
is to strengthen the influence, income and security of growers
and link them directly to consumers by maintaining our position
as the leading Fairtrade hot drinks company. It outlines our recommendations
and highlights key examples of Cafédirect work.
1.2 We believe that public private partnerships
can be an effective way to deliver initiatives and meet overall
global development goals—enhancing and spreading impacts
where it counts, with the marginalized rural population. Cafédirect
always looks at building strategic alliances with institutions
and other agencies in order to create a shared development agenda.
However the involvement of the public sector is missing in the
majority of our work which would ensure a greater impact eg local
market development.
1.3 We suggest Government should work more
closely with the private sector to understand the practical and
commercial realities of working on the ground in developing countries.
It is imperative that the strategic framework is not theoretical,
and excluding of the private sector realities. This engagement
would provide vital understanding and learning, which could further
benefit overall goals. Cafédirect recently participated
in the International Trade Centre Executive Forum Global Debate,
2006 to provide a business perspective on addressing some of the
key development issues.
1.4 Cafédirect has experience of
working with DFID on a few joint funded projects:
(i) For the past two years, Cafédirect
has been working with our six tea partners in Uganda and Tanzania
on the implementation of Hazard Analysis Critical Control Points
(HACCP) food safety methodology. The project has been partly funded
by the Department for International Development (DFID) through
its Business Linkages Challenge Fund. The programme has successfully
assisted all six participating factories to operate under HACCP
systems and trained 12 key factory personnel. It has also developed
local capacity by training four auditors to BRC level. Tea growers'
future international business success depends on implementing
the HACCP system as it means growers are better positioned to
secure additional finance and break into new markets.
(ii) Through one of our Producer Partnership
Programme partners DFID part funded a market research project
to assess the potential for smallholder tea sales into South Africa
initiative where we supported a market research project to assess
the potential for smallholder. This research was part of our objective
to help support growers to understand local market opportunities
for their crops.
1.5 We also believe that the retailers,
and other businesses involved in Fairtrade have a substantial
role to play in communicating to consumers about the benefits
of Fairtrade and the differences between the ethical labels.
1.6 There are a number of key areas where
we believe donors can play a key part in helping to develop the
interests of producer communities in developing countries: setting
up incentives to support small-scale growers; financial support
for scaling up business operations; better co-ordination and co-operation
of local/regional/ national government bodies, and the donor community.
2. INTRODUCTION
2.1 About Cafédirect
(i) Cafédirect is the United Kingdom's
leading 100% Fairtrade hot drinks company. Its tea, coffee and
cocoa products are supplied by 37 producer partners in 12 different
countries, affecting over one million growers and their families.
Established as a company with explicit development aims, Cafédirect
aspires to be the leading brand which strengthens the influence,
income and security of producer partners in the South, by linking
them directly to consumers in developed countries. While Fairtrade
Labelling Organizations International (FLO) provides the industry
standard, Cafédirect strives to surpass it.
(ii) A rapidly expanding social enterprise,
Cafédirect is publicly owned and profitable. Having floated
in 2004, the company generated revenues of £19.5 million
in financial year 2004-05 and paid its first dividend as a public
company to over 4,500 shareholders in April 2005.
2.2 The Cafédirect Business Model
(i) By linking consumers directly to producers,
and by offering quality products, Cafédirect "de-commodifies"
globally traded agricultural produce. This is achieved through
a business model founded on a distinctive approach to partnership,
purchasing and ownership. These three factors are central to Cafédirect's
"Gold Standard", which sets out the terms of business,
by which commercial objectives and development goals are delivered.
(ii) There are three ways in which our growers
receive income and support. Firstly through the premium, secondly
through the PPP (see below) and thirdly through any profit distribution.
2.3 Partnership
(i) Cafédirect's Gold Standard specifies
that partnerships with growers are long term relationships, which
are based on trust, transparency and commitment. Once grower partners
are incorporated into the Cafédirect supply chain, they
receive substantial technical and financial investment to strengthen
the efficiency and competitiveness of their operations. This investment,
delivered through the Producer Partnership Programme. The
aim of this work is to strengthen the business performance of
our grower partner organisations. This ensures a solid base for
returning greater benefits to the growers, their organisations
and their communities, as well as for expanding Cafédirect's
business. The programme is flexible, strategic and responsive
to market conditions, designed to reflect different grower organisations'
specific needs, as well as Cafédirect's. In financial year
2004-05 Cafédirect invested £574,000 representing
86% of its operating profits in its Producer Partnership Programmes.
2.4 Pricing
(i) Cafédirect's Gold Standard pricing
model guarantees that the premiums we pay to growers for all commodities—tea,
coffee and cocoa are higher than the FLO minimum price standards.
(ii) The amount paid to growers from commodity
purchases by Cafédirect totalled £1.6 million in 2004-05.
2.5 Ownership
(i) A further, distinctive, characteristic
of the Cafédirect business model is that producer partners
have a share in the company. Cafédirect Producers Limited
own 5% of group equity. This sets Cafédirect apart from
many other Fairtrade suppliers and ensures that stakeholders throughout
the supply chain are aligned to the same commercial and development
goals.
(ii) Two places on the Cafédirect
board are reserved for representatives of producer partners. In
addition, as shareholders, producer partners have decision-making
powers, and appoint a representative to vote on their behalf at
Cafédirect's Annual General meeting in London each year.
In addition to inclusion in corporate ownership, producer partners
also have autonomy over local investment decisions and local development
priorities.
3. WHAT
HAS BEEN
THE IMPACT
OF DONOR
FUNDING FOR
FAIRTRADE?
3.1 Whilst the funding has not been significant
in scale it has been extremely successful.
3.2 For the past two years, Cafédirect
has been working with our six tea partners in Uganda and Tanzania
on the implementation of Hazard Analysis Critical Control Points
(HACCP) food safety methodology. The project has been partly funded
by the Department for International Development (DFID) through
its Business Linkages Challenge Fund. The total funding was £86,218
over two years.
3.3 The market for tea largely operates
on the principles of supply and demand but due to the current
position of oversupply in the world market place, improving the
quality of the tea made is now seen as a priority to any producer
in order to enhance competitiveness. It is generally accepted
that quality is key to increasing market share in both the Fairtrade
as well as other mainstream markets.
3.4 Although the BLCF funded part of the
HACCP programme came to an end this year. The programme has successfully
assisted all six participating factories to operate under HACCP
systems and trained 12 key factory personnel. It has also developed
local capacity by training four auditors to BRC level. Tea growers'
future international business success depends on implementing
the HACCP system as it means growers are better positioned to
secure additional finance and break into new markets.
3.5 Cafédirect will continue to support
the groups as they work towards HACCP accreditation.
3.6 We believe there is an opportunity
to increase public private partnerships. The voluntary, public
and private sector can together play an important role in addressing
and solving key development challenges facing the world today.
4. How best can donors help to develop Fairtrade
consumer markets in both developed and developing countries?
4.1 Donors have a role to play in raising
awareness of Fairtrade, and communicating the Fairtrade message
to consumers. There is a need to develop awareness and understanding
of the link between trade and development in order that consumers
can make truly informed purchasing decisions and so help build
markets for sustainable businesses from the South.
4.2 Donors have a role in ensuring that
disclosure from companies on the full costs of production (social,
environmental as well as financial)—whether voluntary or
mandatory- is accurate and accountable. This will help consumers
to understand, and assess the impact of their consumer purchases.
4.3 Donors can ensure that procurement policies
do not discriminate against Fairtrade. They should ensure that
Fairtrade products are considered, and given preference within
national procurement policies both in developed, and also developing
countries. For example Mexico, a transitional economy has already
established their own national Fairtrade mark, which recognises
the growth of Fairtrade within their own markets.
4.4 We believe that there should be increased
funding to initiatives which specifically address improving market
access, and gaining marketing selling, and technical skills for
the most marginalized groups.
4.5 Donor should ensure there is a coherent
strategy, SMART indicators and critera in place to make meaningful
assessments of the effective delivery and impact of the initiatives.
The business community should play a vital role in developing
this.
5. How can aid be more effectively mobilised
to help producers improve the quality of their produce in order
to access Fairtrade markets?
5.1 Fairtrade is currently an effective instrument
in a long term strategy aimed at poverty reduction. To enhance
and spread impact, Cafédirect always looks at building
strategic alliances with institutions and other agencies in order
to create a shared development agenda. However the involvement
of the public sector is missing which would ensure a greater impact
eg local market development/skills development.
5.2 Cafédirect's focus is on smallholder
production: the impact is generated where it really counts—with
marginalized smallholder growers and their communities within
a wide geographical impact area. (We currently work with 37 grower
organisations in 12 countries.) In addition Cafédirect
takes a wider strategic approach to sourcing of our raw materials.
This means they are not necessarily sourced from the most well-known
grower regions, but also from countries/regions that can offer
higher developmental impact for the population, for example Haiti;
southern Mexico, East Africa. In contrast many of the other ethical
initiatives are often focused on estate/plantation level. This
reduces the scale of impact to wider communities. They also source
predominantly from major production countries. We therefore believe
aid could be more targeted at the most marginalized groups.
5.3 As previously stated the jointly funded
HACCP project is an excellent example of a successful public private
partnership and illustrates how the private sector can provide
a crucial link in enabling producers to access markets. Implementing
quality assurance procedures will ensure that these producers
remain competitive within the market place, as they endeavour
to move away from the traditional route of selling teas through
auction and branch out into increasing their direct sales of tea
to larger blender/packers and suppliers of supermarkets within
the UK as well as Europe. All of these channels will require producers
to be audited to the BRC Global Standard—Food, as well as
demonstrating an understanding of HACCP principles in the processing
of the final product.
5.4 In addition we provide information on
consumer markets, and introduce our grower partners to other Fairtrade
buyers. It is important that aid helps to build capacities and
capabilities within the developing countries. However business
can provide the crucial link to ensuring that the producers can
sell their product in the consumer markets, and build sustainable
businesses.
5.5 Through our Producer Partnership Programme
Cafédirect has recognised the importance of investing in
programmes on quality improvement, which is a basic condition
for improved access for our producer partners. For example at
the Gumutindo co-operative in Uganda, coffee tasting workshops
were run for growers to improve their understanding of the relationship
between green bean quality and how it tastes in the cup. Gumutindo
is revitalising the reputation of coffee from its region—one
reason why it was able to increase its volumes by a further 33%
during 2004-05. There is an opportunity for the private sector
to share experiences and work more closely with donors in order
to meet strategic goals.
6. Is there a role for donors in helping to
develop the interests of producer communities in developing countries
(for example, the Ethiopian coffee trademark dispute)?
6.1 Smallholder organisations in capacity
building
Governments should set in place certain "incentives",
which could include assigning priority of technical and financial
services to smallholder organizations and their members. There
are a range of governmental programmes for small-business development
and support, in most cases financed by international development
organisations, but small-scale growers are usually not able to
access those programmes. This is due to their geographical and/or
social marginalization. Smallholder organisations should be enabled
to access existing national initiatives, and not rely on continuous
international support.
6.2 Financial support for scaling up business
operations
Today smallholder businesses have limited access
to financial markets, which is essential if smallholder businesses
want to invest at the higher end of supply chain to add value
to their products. National policies should facilitate this access.
6.3 Better co-ordination and co-operation
of local/regional/national government bodies in developing countries
Fairtrade premiums do have an important development
impact in communities, often where Government interventions in
social services are lacking. However there is a danger that these
projects substitute Government actions, and therefore there is
a clear need for better co-operation between local/ regional/
national government institutions and smallholder organisations.
This will ensure better synergy for Fairtrade social premium community
projects.
7. How does the international trade system
impact on ethical and Fairtrade production (for example, the impact
of changes in the EU tariff regime for bananas on small developing
country producers)?
7.1 Fairtrade was established to support
marginalised producers access appropriate markets including local,
regional and international markets. Developed-country tariffs
for processed agricultural goods are often much higher than for
raw materials. This poses a critical barrier to the development
of export markets in many goods. It also deprives producers of
the ability to add value to their goods. Cafédirect aims
to works with its grower partners to create added value down the
supply chain. Donors have a role to play in addressing the trade
system at an international policy level, and also supporting initiatives
on the ground that work towards producers scaling up and become
more involved in the supply chain.
8. Do existing government guidelines on procurement
of ethical and Fairtrade products provide an enabling environment
for the development of this market and the opportunities for producers?
8.1 Cafédirect successfully built
its brand, achieving strong sales growth through retail grocery
channels. It is currently the sixth largest coffee brand in the
UK and seventh largest in tea. Huge success is now being witnessed
for Cafédirect in the out-of-home market, where sales soared
59% in Financial Year 2004-05. Out-of-home sales now account for
12% of Cafédirect's total sales.
8.2 The Government has clearly expressed
a desire to support social enterprises through the recently published
Action Plan. They define their role as "to create social
enterprises but to create an environment that allows them to succeed."[66]
8.3 A clear way of supporting social enterprises
and taking leadership on this issue would be to encourage public
sector institutions to purchase Fairtrade products. The Action
Plan even goes on further explain the role of government as "raising
awareness among potential investors and customers . . . and are
included in public service delivery, we aim to help create the
conditions to enable them to succeed."
8.4 As a first step Cafédirect urge
the Government to give Fairtrade a boost by publicly supporting
and promoting it through more flagship projects such as the 2012
Olympic games. Cafédirect welcomed the announcement by
the Scottish and Welsh government to become Fairtrade countries
and encourage Westminster to follow suit.
8.5 We believe it is important for the Government
to work across departments on its guidelines to ensure a consistent
and joined-up approach.
9. What is the role of supermarkets, retailers
and businesses in supporting ethical and Fairtrade production?
9.1 We welcome the involvement of supermarkets,
retailers and businesses in supporting ethical and Fairtrade production
and urge everyone involved to take a long-term approach to ethical
and Fairtrade production. Our Producer Partnership Programme is
a true long-term partnership between Cafédirect and its
grower partners—a business relationship conceived by all
to be a shared investment, and one which is flexible, strategic
and responsive. This is vital in order to achieve change and real
impact of the ground.
9.2 Regardless of being involved in a Fairtrade
product it is important for everyone to be encouraged to look
at their practices throughout the supply chain. In particular
those practices which have a negative impact on the small-scale
growers. It is important to address the unbalanced trading relationship
which will ultimately benefit the developed and developing world.
10. How can trade unions help to ensure that
the drive for cheaper produce does not undermine social and environmental
standards in developing countries?
10.1 This is a task for the private, public
and voluntary sector as well as trade unions.
11. In an increasingly crowded ethical marketplace
how can consumers be supported to distinguish between different
Fairtrade brands, labels and codes?
11.1 The growing phenomenon of ethical consumerism
has led to the proliferation of ethical trade schemes and of sustainability
standards, not only for agricultural products but increasingly
for other goods as well (clothing, footwear, toys, forest products
etc). This has led to increasing confusion for the UK consumer
on what each label stands for and the benefits of each scheme.
11.2 Companies, and Governments, must continue
to find ways to get the message across that different ethical
labels are not the same and also achieve different in their impacts
on the ground. The growth in Fairtrade sales highlights the recent
success in bringing the message to a mainstream audience, to people
who have previously been untouched. But the challenge now is in
ensuring peoples' understanding of the depth of the issues. There
is a need to develop greater awareness among consumers on the
link between trade and development, in order that they can make
truly informed purchasing decision and so help build markets for
sustainable business from the South.
11.3 Cafédirect's trading and business
model is helping to transform attitudes, markets and lives. And
to compete effectively in the market place the marketing and brand
communications to the consumers must be revolutionary. It is important
to stress that the Fairtrade mark is a certification mark and
not a brand. It is the role of any brand to communicate its unique
selling proposition and how it is different from other brands.
Marketing a Cafédirect product depends
on communicating a number of different messages: product quality,
the unique Gold Standard Fairtrade trading and business model,
and how growers benefit from this. It's a complex communications
challenge and one that we have responded to through a variety
of partnerships, live events and innovative promotions eg Flight
5065, Teadirect decency campaign. We also support retailers to
raise awareness of Fairtrade. In addition we would welcome retailers
continuing to develop their awareness programme throughout the
year not just at Fairtrade Fortnight, and ensure there are clear
sign posts in store, point of sale material and shelf barkers
explaining the labels and codes.
February 2007
66 Social Enterprise Action Plan, Cabinet Office,
November 2006. Back
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