Memorandum submitted by the Shared Interest
Society Ltd.
Shared Interest is the world's leading fair
trade finance organisation. For our borrower customers, both producer
groups and buyers all over the world, we provide access to fair
finance to develop fair trade. For the Society's 8,500 members
who invest more than £20 million with us, it is a chance
to give some of the poorest communities in the world the financial
backing they need to join the fair trade market place and trade
their way out of poverty. For more information see www.shared-interest.com
EXECUTIVE SUMMARY
— Fair trade is growing at a fast rate
and has proved itself to be hugely successful to date at alleviating
poverty through trade.
— So much more could be done and must
be done to increase the impact of fair trade.
— Donor funding channelled primarily
into the developing world could do much to build capacity and
improve the livelihoods of millions of people.
— Government and EU legislation needs
to support the fair trade movement in its work by enabling successful
trade between the developed and developing world but also between
developing world countries who seek to develop a south—south
market.
1. What has been the impact of donor funding
for fair trade?
1.1 Historically there has been good donor
support to one off projects so for example, within the UK a number
of leading Fair Trade Organisations have secured project funding
to develop their fair trade work.
1.2 The Fairtrade Foundation in the UK has
probably been the most successful to date of sourcing funding
from both UK and EU Governments as well as Comic Relief and other
trusts and foundations. Most significantly this funding has been
used to develop the Fairtrade market both through raising consumer
awareness (50% of the public now recognise the Fairtrade mark),
increasing the numbers of products now available in the UK market
(currently more than 1,500 and continuing to grow at approx. 40%
year on year) and engaging the interest of many licensees, now
more than 200 in the UK and the most notable of these are the
big supermarkets who have contributed significantly to the £200
million annual sales of Fairtrade products.
1.3 Another success story is that of the
Divine Chocolate Limited (formerly known as the Day Chocolate
Company) who used Comic Relief funding to establish themselves:
The Day Chocolate Company was originally set
up by Kuapa Kokoo, Twin Trading and The Body Shop in 1998, with
support from Comic Relief and Christian Aid, to give small scale
farmers in Ghana access to the lucrative chocolate industry. At
that point Kuapa Kokoo owned 33%, Twin owned 52% and The Body
Shop owned 14% of the shares. In July 2006 The Body Shop announced
it was donating its shares in the Company to Kuapa Kokoo in recognition
that the enterprise and pioneering business model they had helped
to finance was now successful, dynamic and turning over £9
million (2005-06). At the same time Dutch microfinance specialist
Oikocredit, bought shares in the Company. The new structure now
sees Kuapa Kokoo with 45% of the shares, Twin with 42% and Oikocredit
with 12%. www.divinechocolate.com
1.4 But so much more could be done and needs
to be done and that work needs to be focused on building capacity
in the developing world. If more organisations were able to access
donor funding then the impact of fair trade would grow exponentially.
Shared Interest Foundation, the sister charity to Shared Interest
Society, is currently largely funded by donations from the Society's
members and by sponsored activities. However it is planned that
grants will become a key funding stream over the coming years.
Such donor funding would do much to support the Foundation's focus
on providing education and training, particularly in business
and financial management. The work already carried out to date
has proved successful at developing capacity within producer organisations
and assisting them in improving their business performance.
Mango True Mirage, Wetta, Kenya
Mango True Mirage is a private limited company
established in 1998 by skilled craftsmen and women from economically
marginalised groups in Kenya.
Its mission is to work with marginalised groups
by marketing their products in order to alleviate poverty and
improve their lives and to educate their members that alternative
trade will make them economically independent.
Working with over 2,000 producers, Mango True
Mirage makes, markets and sells a number of handicraft products
such as soapstone and wood carvings and bags.
With a small retail outlet and office in Machakos,
Mango has a wide range of both national and international customers.
Through the Foundation's training in financial
management and business skills, Mango True Mirage has been able
to strengthen its business and implement a number of significant
changes to help build a sustainable business. This will directly
benefit all its 2,000 producers and their families and communities.
"It's like finding hidden gems. I never
knew the resources I had and how much untapped knowledge there
was among my staff."
Beth Wambua, General Manager, Mango True Mirage
2. How best can donors help to develop fair
trade consumer markets in both developed and developing countries?
2.1 Raising awareness with consumers is
key to it all. By spreading the word of how fair trade really
can make a difference, more people will chose to purchase fair
trade products on a regular basis and as this increases demand
for more fair trade products, more producers will be able to trade
their way out of poverty by having a market for their goods.
2.2 There are many ways to raise awareness.
At a local level, initiatives such as the Fairtrade Foundations
Fairtrade Towns campaign has proved highly successful at spreading
the word among members of the UK population and the Fairtrade
Foundation's counter parts in Europe have also expressed an interest
in this type of campaign and are looking to roll this out themselves.
The Fair Trade Scotland and Fair Trade Wales campaigns are now
mobilising large numbers of fair trade consumers and support for
initiatives such as these will facilitate achievement of the Fair
Trade Nation criteria and hence increased awareness and sales.
2.3 Networks such as the British Association
of Fair Trade Shops (www.bafts.org.uk) also do much to raise consumer
awareness at the shop level. They are a network of more than 100
retail outlets dedicated to selling fair trade products. They
are the British arm of a wider network within Europe called the
Network of European World Shops (www.worldshops.org).
2.4 Shared Interest itself runs an Ambassador
scheme which promotes awareness of fair trade and the work of
Shared Interest. Its Ambassadors take part in a wide range of
activities such as generating local media coverage, speaking to
groups, dispensing leaflets and staffing exhibition stalls.
2.5 All of these activities result in a
heightened awareness on the part of the consumer. But it need
not stop there, raising awareness with businesses as to what they
could do to support fair trade would bring huge benefits too.
2.6 Capacity building—As noted earlier,
building capacity in the developing world is the real way forward.
Funding support needs to be in the form of long term relationships
with producer communities. It should not result in an over reliance
on grant funding as fair trade is always about creating independent
and sustainable businesses but for so many of the producer communities
that Shared Interest works with and knows about, some appropriately
focused funding would make a huge difference.
2.7 Often when out visiting producer communities,
Shared Interest is aware of groups that need relatively small
sums of funding in order to make the next step change in their
work. This could be in the form of grants to cover for example
the cost of becoming Fairtrade certified which then opens up market
opportunities. Or it could be to cover the cost of purchasing
one key piece of machinery which would improve the production
process significantly.
2.8 Shared Interest does provide an increasing
number of term loans to support the development of many producer
groups' businesses. Whilst Shared Interest does lend to some of
the riskiest groups in difficult parts of the world, one of the
constraints to expanding this type of lending is the level of
risk involved. If there was access to a loan guarantee fund that
would provide security for high risk lending then Shared Interest
would be able to support more of the most disadvantaged producer
groups.
In 2006 Shared Interest provided a loan to ELOC
farms in Ghana to purchase a new tractor. ELOC is a family owned
farm that operates four farm sites involving some 80 producers
of pineapples sold almost entirely to the European Fairtrade market.
The new tractor is being used to move pineapples
from the field to the packing area—often the roads are impassable
for other vehicles. The tractor will also help the farms move
to full organic production (currently 60% of the produce is organic).
The tractor will be used to spray ethylene gas which increases
the flowering rate of pineapples by up to 80% without contravening
the organic certification.
"Our needs during the past months were huge,
but the support we had from Shared Interest Shared Interest, though
small, has impacted greatly. We took delivery of the tractor barely
two weeks ago and the staff motivation is very high. ... it has
been raining recently and all the farm roads are in a deplorable
condition and it is only the tractor that can ply the roads."
James Cole, Managing Director ELOC Farms
This is an example of producer group that is
able to manage the repayments on a five year loan. For some this
is not viable but grant funding could reap rewards such as those
detailed above.
2.9 Sadly, there are case studies in the
field where funding has been made available over a short time
span, the producer community has made an asset purchase for example
a piece of machinery, to secure the funding but then due to a
poor infrastructure (for example lack of electricity connections)
the machinery is not able to be used and then sits there as a
wasted investment. This is where donors need to know and understand
the producer groups they are assisting and engage the help of
fair trade networks such as the International Fair Trade Association
(www.ifat.org) and Fairtrade Labelling Organisations International
(www.fairtrade.net) who are both well placed to identify communities
needing assistance. The International Fair Trade Association (IFAT)
is made up of more than 200 member organisations from around the
globe. Its work is centred on market development, advocacy and
monitoring. It has sub networks in Africa, Asia and Latin America
who develop the work of their individual regions. Fairtrade Labelling
Organisations International (FLO) is an association of twenty
labelling initiatives that promote and market the Fairtrade certification
mark in their country. The UK arm is the Fairtrade Foundation.
FLO regularly visits and inspects more than 500 producer organisations
in more than 50 countries in Africa, Asia and Latin America.
2.10 For many producer communities they
don't only wish to trade with the developed world but also want
to seek opportunities with others in the developing world, in
what has been termed south-south trade. COFTA the African arm
of IFAT is developing a Southern fair trade shop as a way of promoting
this area of trading which of course gives their members additional
market. This is another way of empowering producer communities
to gain the benefits of a wider fair trade market.
2.11 Building capacity also comes in the
form of sharing knowledge. For many producer communities they
are isolated from the wider world and learning about how others
have developed their businesses also gives them the opportunity
to grow and develop their work. Again the networks of IFAT and
FLO are already established to support this sharing of knowledge
and funding channelled into strengthening these networks could
do much for the groups in the developing world.
2.12 Product development is of course key
to the producers securing a market. By empowering the producers
with market knowledge, they are able to develop and diversify
their product range to satisfy the ultimate consumer. They need
support therefore to understand the wider market but also support
at a local level to source the appropriate raw materials, or access
the right machinery or develop the right quality control in order
to get the product right for the market.
3. How can aid be more effectively mobilised
to help producers improve the quality of their produce in order
to access fair trade markets?
3.1 There are a number of ways to help producers
improve the quality of their produce. Firstly they need to have
market knowledge. They need to understand what the market wants
and then to understand how to develop their product to satisfy
that market. The market of course regularly changes its demands
so there needs to be a regular stream of market knowledge for
communities to work with.
3.2 Then having established the markets
requirements producer communities need to develop the skills to
produce the product. They need to ensure quality standards are
in place and that they are consistently producing a high quality
product. Most of all they need excellent business and administration
skills in order to be able to run a professional and self sufficient
business if they are to be successful for the long term.
3.3 All of this requires training—training
to understand how they need to develop their business to provide
the quality product required. This could be financial or business
training or it could be quality control training or it could be
training very specifically focused on the product—for example
appropriate drying techniques for dried organic fruit.
3.4 This needs huge investment on the part
of the producer community before they are even able to access
the market and this is where aid can bring significant benefits.
Much in Little a producer group in Philippines,
produces baskets and carvings. They received a loan from Shared
Interest to replace old office equipment, including a computer,
copying machine, binding machine and a digital camera to take
quality merchandise pictures. The equipment will also be used
for training seminars for producer groups which will include the
design and testing of new products. Further training in technical
and managerial skills will also be given. All of this equipment
purchase and training will inevitably result in increased productivity
and quality for their producer groups as well as improved communication
with both foreign and local buyers.
Again this is an example of a producer group
able to develop its business sustainably by managing this term
loan. For others aid would bring the same benefits at a lower
cost.
4. Is there a role for donors in helping to
develop the interests of producer communities in developing countries
(for example the Ethiopian coffee trade mark dispute?)
4.1 Producer communities often require assistance
in engaging effectively with their own Governments and with others
in their supply chain. Donors can play a role by supporting this
advocacy work. Work is already being done in this respect by the
networks of IFAT and FLO but funding support in this area would
be very useful as often advocacy comes second to market development.
Empowerment in this area is so important as too often the producer
communities are disadvantaged when trading with the transnational
companies.
5. How does the international trade system
impact on ethical and fair trade production (for example, the
impact of changes in the EU tariff regime for bananas on small
developing country producers)?
5.1 Fair trade has proved to be an extremely
successful model of how people-centred development can effectively
reduce poverty and improve livelihoods. But if the trade system
is to benefit all on a long-term basis, governments have to manage
trade effectively, taking into account its social and environmental
impacts.
5.2 The last round of WTO negotiations,
the so-called Doha Development Round, failed to deliver on promises
to reduce tariff and non-tariff barriers, or to reduce subsidies
to developed country farmers. Developing countries need special
and differential treatment to allow them the space and flexibility
to develop appropriate trade and development policies and this
has yet to be provided for. Economic Partnership Agreements (EPAs),
as currently being negotiated between the EU and 77 ACP (African,
Caribbean and Pacific) countries, threaten this space and flexibility
and risk the livelihoods of many millions of producers in poor
countries.
5.3 Shared Interest and others in the Trade
Justice Movement believe that the government must do more, at
the EU and global level, to create the macro-economic environment
necessary to enable producers in developing countries to have
genuine market access. That means that tariff and non-tariff barriers
to EU markets are removed, that developed countries deliver on
their commitment to eliminate export subsidies and ensure that
that global trade policies and practices do not undercut internationally
agreed social and environmental standards, in particular core
labour standards and to ensure that the principle of special and
differential treatment is upheld in trade policy to allow developing
countries to protect their own markets.
6. Do existing government guidelines on procurement
of ethical and fair trade products provide an enabling environment
for the development of this market and the opportunities for producers?
6.1 The supply of food and catering services
in England accounts for more than £1.8 billion. The existing
guidelines are designed to help public authorities incorporate
fair trade principles into their sourcing whilst remaining within
EC public procurement rules. However according to research undertaken
by the Fairtrade Foundation some local authorities have indicated
they are frustrated by both the EC procurement rules and the Office
of Government Commerce (OGC) interpretation of them, as they relate
to the procurement of Fairtrade. There still appears, at European
level, too much legal uncertainty about integrating fair trade
principles into procurement and this is undermining efforts to
promote it.
6.2 The problem seems to be that the guidelines
take a very technical approach to quality that does not appear
to include social and environmental production methods in the
same way that technical quality issues for example health and
safety are included. This has been legally interpreted by some
as a barrier to the procurement of ethical and fair trade products.
6.3 The issue of public procurement guidelines
was raised again at the recent Fair Trade Scotland workshop in
Perth as being a critical enabler to increasing the fair trade
market throughout the UK.
7. What is the role of supermarkets, retailers
and businesses in supporting ethical and fair trade production?
7.1 Supermarkets have an enormous role to
play in supporting fair trade production. In 2005 labelled Fairtrade
product sales topped £200 million growing from £100
million just three years prior. This statistic alone demonstrates
the rising level of public consciousness in the need for trade
to be fair and sustainable and of a desire by consumers to make
a difference through their shopping choices. The single largest
contributing factor to this growth is the recognition given by
supermarkets to Fairtrade goods and the increasing shelf space
they are being given.
7.2 In December 2006 Sainsbury's announced
that it will switch all its banana supplies to Fairtrade certified.
This is the biggest single commitment to Fairtrade made by any
one company globally to date. Sainsbury's sells 2,000 tonnes of
bananas (or about 10 million individual bananas) every week. This
move will more than double the volume of Fairtrade bananas bought
by Britain's increasingly fair trade-minded shoppers and extend
the unique benefits of the Fairtrade guarantee to thousands more
farmers and workers in Central & South America and the Caribbean.
Bearing in mind it was only seven years ago that the first Fairtrade
banana became available in the UK, it shows the power of the supermarkets.
Sainsbury's in making this move has also strengthened its commitment
to developing a long term relationship with the banana producers
in the Windward Islands and this is where the real benefit lies.
The supermarkets can play an enormous role in increasing the volume
and shelf space to fair trade goods but where they add even more
value is in supporting producers in their production. The Sainsbury's
announcement, together with expected growth elsewhere in the UK
market, means that the Windward Islands could be selling all of
their bananas under Fairtrade terms by the end of 2007. Smallholder
producers in the Dominican Republic will also be selling more
of their bananas under Fairtrade terms and new farming groups
there and in Colombia will be able to sell their bananas for the
first time to the UK Fairtrade market.
7.3 It is to be hoped that other supermarkets
will follow the lead taken by Sainsbury's and increase their support
to fair trade. A vision for the future would be to see supermarkets
in the developing world taking on the same volumes of sales of
Fairtrade products.
7.4 Of course, the pioneers in Fairtrade
"category shifts" were the Co-op. They have been offering
Fairtrade own brand coffee and chocolate for more than three years
and have consistently campaigned for Fairtrade in all of their
marketing materials. More recently, Marks and Spencers in January
2007 announced that it will be switching key clothing ranges to
Fairtrade as part of its sustainability programme. This means
that more than 20 million cotton garments available at their stores
will be Fairtrade certified. This is due no doubt as a result
of the overwhelmingly positive response from customers to their
100% switch to Fairtrade coffee and tea in 2006.
7.5 These are the success stories and, with
more commitments on the parts of both supermarkets and all other
retailers, lots more could be done.
7.6 Businesses can play a huge part as well.
At a simple level providing fair trade refreshments for staff
but on a wider procurement basis many items could be fair trade
sourced. The Fairtrade Foundation have been running a "switch
your workplace" campaign to encourage businesses to provide
Fairtrade goods, something which is being supported by Trade Unions.
The Government can play a key role by putting greater requirements
on businesses to source products ethically.
8. In an increasingly crowded ethical marketplace
how can consumers be supported to distinguish between fair trade
brands, labels and codes?
8.1 Of primary importance is clarity to
the consumer. For many there is a bewildering range of products
available claiming to be fair trade and it is important that simple,
clear information is available to the consumer to ensure they
are able to make an informed choice. For those making false claims
it is similarly important that they are exposed.
February 2007
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