Examination of Witnesses (Questions 100
- 119)
TUESDAY 13 MARCH 2007
MR MONJURUL
HAQUE, MS
ERICA KYERE,
MS SAFIA
MINNEY AND
MS SOPHI
TRANCHELL
Q100 Ann McKechin: Going back to
John Barrett's question, very quickly, do you think that should
be something which organisations like DFID should be assisting
you with, or is that something which the industry should be funding?
Ms Minney: Because of trade's
huge role, in terms of development and also in creating models
for sustainability and livelihood promotion, I think it is absolutely
DFID's role to support this infrastructure and fair trade supply
chain development, yes.
Q101 Chairman: Can I suggest that
if you can give a bit more thought to that, in a note, it would
be quite helpful, because, as Ann McKechin's question makes clear,
we are exploring the extent to which, if the retailers are deciding
there is a Fairtrade market, why will they not put in a lot more
money, as opposed to DFID? If there are good reasons why DFID
should, as well, or in different ways, that would help us; so
if you have got further thoughts about that and could put them
in a note that would be very helpful.
Ms Minney: Yes. I think there
is a little bit of a misunderstanding here and it is a very easy
one; the media are very confused too, which propagates this misunderstanding.
What we have is ethical fashion; what we are trying to do is move
the mainstream to meet basic social compliance and environmental
legislation and we would welcome the high street manufacturers
embracing these very strict criteria. The ETI[2]
membership, for example, is a voluntary scheme, it has no teeth,
though it is a fantastic start, and it was encouraged and set
up by the NGOs and fair trade organisations, together with industry
and government. What we are looking at is really a push and a
thrust to meet strict social compliance; that is not happening
yet at Marks & Spencer. We are still seeing serious problems
in factories in Bangladesh; we had a collapse of a factory just
18 months ago, killing 70 people, which is a product which is
made for Zara, in the high street, so we are still not grappling
with these huge social compliance and ILO Convention standards
which are set. What we would welcome is some of the mainstream
really embracing these standards, before talking about fair trade
manufacture. Fair trade is working with the most marginalised
people in the developing world; it is looking at the price but
also beyond the price, the technical assistance, so that organisational
capacity building in rural areas and long-term orders can be sustained.
This is the area which is very much DFID's remit; this is about
trade and development amongst marginalised people, it is about
livelihood promotion, it is about empowering producers and also
community development and social development with it. Some people
would argue that the impact of 5,000 producers, at the moment,
in Bangladesh, who are benefiting from fair trade clothing is
quite small. But, this started in the bedroom of my house in Tokyo;
it started with an investment banker salary, for 15 years. Clearly,
there is huge potential. You have ten million hand-weavers in
India and Bangladesh living on starvation wages but actually that
it is an industry robust enough to feed that many people, still,
in this day and age, which shows that this is something which
can create livelihoods in the most rural and remote areas, at
the same time as feeding the people.
Mr Haque: I live in Dhaka City,
the capital of Bangladesh, and in the city things are bad; 37%
of Dhaka City is a slum area, and why was this 37% slum area created?
Bangladesh's foreign earnings come from the government factories,
and most of the government factories were established in Dhaka
City. I live near the Airport, in Uttara, it is a residential
area, and alongside my house is a big garment factory. The factory
workers come from the rural areas and a slum area is created.
In Dhaka City we have problems with electricity, water and traffic.
I calculate that if this 37% of people were not to live in Dhaka
City, with the type of problem we have, the Government could take
a simple initiative, they could take people outside of Dhaka City,
and the Government would establish it, so that people could live
in their own house and their livelihood could be better. Fairtrade
is a small organisation. I work with only 250 people. We work
in a village area with disadvantaged people; this type of disadvantaged
people are not thought about, so Fairtrade comes to work with
them to try to create employment and income-generating activities,
trying to bring benefit in every sector. It is very, very small
and impacts highly on the artisan, but we have got a lot of problems,
such as training and skills, everything, but our hopes, as I told
you before, are that from shari has come a jacket, so this progress
gives us hope that if we are given the opportunity to work we
need some support just to help raise us up.
Chairman: We hear you.
Q102 John Bercow: Safia, you argued
passionately for public funding of Fairtrade organisations, yet
one of the attractions of the fair trade movement is the way in
which it has sprung up, evolved and developed independently of
governments. Given that necessarily there will be an issue of
the displacement cost of public funding eventually being withdrawn,
can you offer to the Committee some estimate of the size of public
funding which you think is required and over what period?
Ms Minney: Can I clarify your
question, John. Are you talking about specifically fair trade
clothing manufacture supply chain development; or are you talking
about the whole fair trade movement?
Q103 John Bercow: I was talking more
widely, but I am very happy to narrow and concentrate the question
on the sector about which you are especially knowledgeable. You
said, unhesitatingly and with some enthusiasm, that you thought,
yes, public funding, whether for embryonic businesses, fledgling
organisations or for those already established—you can elaborate
on that—was desirable; you proceeded to explain why you
thought it was desirable. My simple question is, what is the scale
of the need and how long would it last, and I hope that is pretty
clear?
Ms Minney: Firstly, I think that
the best way to work is with the fair trade company pioneers within
each sector, because they have the expertise and can develop a
model which is the most practical, which gives the most efficiency
and value for money. The social impact, we all have many years
of logging what is working and what is not, how much input and
how much impact, in terms of livelihoods and in terms of sales.
An organisation like People Tree, for example, with a share issue
to the producers, would benefit enormously from a loan guarantee
of as little as £1 million, for example, which would strengthen
the organisation and allow us to invest in design services and
technical assistance services to small-scale producers. If one
looks at grants, for example, to bring about a Fairtrade organic
cotton project in Bangladesh, which is one country only, one might
be looking at £250,000 over a period of three years to get
an infrastructure which is a beginning. Half a million pounds
would enable technical assistance and capacity building to 30
groups which we are partnering within the area of textiles in
South East Asia. Specifically, if one were looking at creating
an infrastructure within Africa or within Latin America, this
again would be some £250,000, per region, as a ballpark,
just to begin to set up the infrastructure. The key is really
where to build on the strengths; the strengths are in Asia. We
are talking with, for example, Social Venture Capital and investment
banks but there is no funding available to do this kind of work,
and I think DFID certainly need to support this development of
the fair trade supply chain. I am pleased at DFID's visionary
support of Day Chocolate, because I think that this given birth
to the fair trade chocolate industry which then has encouraged
the mainstream to improve its trading practice.
Q104 John Bercow: Have you put in
bids for the sort of funding which you have described to me so
pithily?
Ms Minney: No, I have not. I work
a 16-hour day and I have not quite mastered it; sorry.
Q105 John Bercow: It is only a matter
of time, Safia, is it not, before your funding application will
be winging its way to the appropriate department?
Ms Minney: Yes; absolutely, John.
Q106 John Bercow: Forgive me, because
you did say something about how the principles of Fairtrade could
be extended, or should be extended, but I am still not entirely
clear, in my own mind, how you expect the beneficial effects of
your own operations and those of other Fairtrade producers to
extend to mainstream supply chains. I would be grateful if you
could elaborate on that just a little bit, and in particular reduce
it to terms which are readily intelligible to the average member
of the public who is not familiar with the interstices of supply
chains. Is it your view that, on the whole, we are paying too
little for important products and that we need to pay more for
them, or is it your argument—I see some shaking of a head,
from a sedentary position, from somebody who is not a witness
but no doubt who is knowledgeable about and attending to our proceedings—that
you think simply the profit margins are too big and that prices
could be kept down, but at some cost, in terms of profitability?
What is the gravamen of the argument?
Ms Minney: Obviously, developing
countries labour markets compete with each other for business.
What is clear is that the social costs and the environmental costs
are not incorporated in the price of products sold on the British
high street. I have just come from the slums of Delhi, where children
are making accessories which are heading for the British high
street. There is no policing of those slums, there is no transparency
of agency sub-contractors, and it is extremely difficult to have
this transparency, which is why transparency is so incredibly
important within the context of fair trade. Clearly, John, the
social and environmental costs, the social costs are based on
the ILO Convention, based on basic human rights, the provision
of a livelihood, the provision of the minimum wage, health and
safety in the workplace are being ignored. Factory mass production
and economic policy is often depriving people of their incomes,
as Monjurul has explained. Middle-class people are going to banks
to get loans to start a power looms unit—each power loom
takes away nine jobs from the hand-loom sector, so the economic
structure is undermining livelihoods and promoting poverty. The
way that fair trade creates work is not only by paying a higher
price and the longevity of order and stability through understanding
what will sell in the market and giving technical assistance to
produce a marketable product, it is also creating consumer awareness,
so that there is pressure on the mainstream to begin to look at
the triple bottom line, to incorporate the real social and environmental
costs in the products. Whether DFID feel that actually they could
create more social impact by improving the factory conditions
of two million garment workers in Bangladesh, or whether DFID's
motivation would be to create incomes and livelihoods for a smaller
number of the most marginalised people in Bangladesh is a philosophical
question. The point is how do we create a tool which really empowers
the producer and the consumer, because what is quite clear is
that the market is not working to bridge this gap of information
and to create the opportunity to support people to eat.
John Bercow: Thank you very much.
Chairman: Thank you. You mentioned chocolates;
we will move into chocolate and I will ask Joan Ruddock to start
off.
Q107 Joan Ruddock: I think twice
Safia has referred to the loan to the Day Chocolate Company, which
is now Divine, and I would like to invite Sophi to tell us something
about Divine's experience, because I understand that in your written
evidence to us you attributed the success of your launch very
much to the fact that you had a loan guaranteed by DFID, in conjunction
with the DTI's Small Business Unit. I would like to ask why should
DFID underwrite guarantee loans to small companies in the sort
of business that you are in?
Ms Tranchell: DFID's underwriting
of the guarantee is the first time that instrument has been used.
For the individuals involved, I think it was quite a courageous
move, because they had to go to the European Commission and put
it to the Competition Commission, and eventually they had to change
the Charity Act, so it was not something which was done lightly.
It was signed off from the Ghana Desk, whose aim is to alleviate
poverty in Ghana; they have a lot of interesting private sector
development, they support government infrastructure and private
sector development. What Divine offered was the opportunity to
support the farmers in Kuapa Kokoo, which Erica can tell you about,
which is a co-operative of cocoa farmers in Ghana, based in over
1,200 village societies. What the loan guarantee enabled us to
do was enter into an incredibly competitive market in the UK,
this is a market worth £3.6 billion, it is dominated by three
players and they own 80% of the market, and so to come into that
market and to think you could do this, with very little access
to finance, obviously was a huge challenge. The loan guarantee
made it possible to do it in a way which gave the farmers ownership.
If what we had to do was just come back to Britain and find investors
to invest in the proposition, normally when people are investing
in a company they put in 30% of the money and they get 30% of
the company; what we had to do was persuade people to come into
the company and not get 30%, so they discount immediately what
they are putting in by 30%. The loan guarantee enabled us to access
finance, which was missing because of our ownership structure,
but it was not only that it enabled us to access finance, it gave
people confidence in the proposition we were making. It made people
realise that, although it was a very lovely idea and a rather
sweet idea, also it had some legs, we were here to stay and there
was a business proposition behind what we were saying. The fact
that DFID did that was fantastic, and the thing which is interesting
now is, here we are, eight years later, and I think what is missing
from what has been said is that we have built a Fairtrade market.
It is not a sort of magic that if you do things with people in
developing countries and you produce nice things then people will
go out and buy them. Over the last 10 years, specifically, we
have worked really closely with other Fairtrade pioneer companies
and with the Fairtrade Foundation and with some very committed
NGOs, some of which are on our board, such as Christian Aid, to
build the market and build awareness with the population of Britain.
That also has been funded by DFID, so a lot of our education work
has been funded on a joint bid with Comic Relief and we have developed
some very nice educational materials for that, a recent copy of
which I will leave with you. We have not done this just magically,
actually we have worked very hard at bringing the two ideas together,
so that the loan guarantee has ended up not costing anything because
the money is now back with DFID and DFID can decide now how they
would wish to recirculate that money. Here we are, turning over
£9 million, making half a million pounds profit and we expect
to distribute a dividend this year, so the shareholders will receive
some money from it, and the farmers get three other income streams
from our company. They get a guaranteed minimum price, a social
premium of $150 a tonne, which they invest in community projects,
and a producer support and development income, which is 1.5% of
our revenue income, which is invested in their organisation. If
anybody has had any experience of running co-operatives, that
is a big challenge; if you are running a co-operative with 45,000
people in 1,200 villages in remote and rural Africa, where you
do not have access to clean water let alone a telephone and the
internet, that is an amazing organisational feat, so that income
stream helps them to do that. They had an election last year where
2,500 people turned up and they were supervised by the Electoral
Commission of Ghana, and they voted on ballot forms, for each
position, which had photographs of each candidate, and they came
up with a new executive. That is an amazing piece of organisation
in Africa; so that when you hear stories of Africa and how we
build up civil society this is an incredible contribution to it
and it is exactly the sort of thing which DFID ought to be doing.
Q108 Joan Ruddock: It is an amazing
success story. I can tell you that we have Divine chocolate in
the House of Commons, and I think we would like to know how you
ran such a very successful election; as politicians, probably
we could learn quite a lot from that. You make a distinction between
the fact that you had a loan guarantee but also you were saying
you had actual money from DFID, in the form of grants. You have
given us really a very clear idea of why a loan was absolutely
critical. Why do you think DFID should give grants to people trying
to do what you have done?
Ms Tranchell: The DFID Development
Awareness Fund: Mini Grant Scheme, which is available for people
who are raising awareness in the UK; the money went to Comic Relief
so it did not come to a commercial company and it was with a very
innovative education scheme. When we came into Fairtrade, in 1998,
the demographic for Fairtrade was about 55-plus, so the market
for Fairtrade was older people, and that was because the products
which were available were coffee and tea. When we came in we had
an enormous challenge on our hands, that if we were going to make
this work we needed some young people to know about Fairtrade.
What the Development and Awareness Fund enabled us to do was come
up with a really fantastic education plan, which involved competitions
which were supported by BBC television, so we levered up the money,
and involved doing education packs, which went into 17,000 schools
in Britain for free and has been part of their Citizenship curriculum,
which I think is something which the Government has been very
keen to have, some materials which are available to use in Citizenship
education. From that, eventually we set up a website for Dubble,
which is a product we do for young people, where you can sign
up to be a Dubble Agent to change the world chunk by chunk, and
now we have more than 50,000 young people signed up on that website
for their mission, so that when they sign up they get a `mission
pack'. The mission is to change the world in the ways that they
can, so whether that is changing the way they buy things or their
schools buy things, or whether it is asking their council to do
something and to do petitions and it is getting them to be active
citizens. It was not a piece of funding which was subsidising
a commercial company. We were going well beyond what was necessary
to sell a product and we were creating the people who enabled
Make Poverty History to happen, the year before last. So that
when Make Poverty History happened and the Governments did what
they did and G8 came here, the reason why Britain was behind that
campaign was because of the work, work like we have done, which
was funded by DFID. For the £200,000 that we got from that
grant scheme, I think they got more than they could possibly have
imagined. The engagement of Comic Relief, the celebrities that
they deliver, the fantastic proposition of a chocolate company
owned by farmers, and the inspiration all that brings, really
geared up the use of that money, so I think it was a really creative
way to spend money. I think all of the Fairtrade sector has proven
to use the money incredibly innovatively and really levered it
for the benefit of producers in developing countries, and for
the benefit of consumers in the UK whose consumption has become
so much more active and interesting by the proposition we put
on the table.
Q109 Richard Burden: You have emphasised
there, Sophi, the importance of support from the Development Awareness
Fund. I wonder how easy it was to get the money. We have had some
evidence put in, from some quarters, suggesting that, compared
with accessing grants from, say, the Department of Trade and Industry,
actually it is very difficult to access grants like that from
DFID given their procedures, and so on. What is your experience
of that?
Ms Tranchell: I suppose my experience
of running Divine has been that lots of people have tried to help
us, and one of the fantastic organisations which have helped us
is Comic Relief. Obviously Comic Relief has a very well-developed
education team and a very well-developed education proposition,
where they are not wanting people to give money just once every
two years, they want to change the way people think and the way
that people do things in order to alleviate poverty for ever.
We worked with them on that application and we had the benefit
of their expertise on that, and certainly, the first time round,
they led the application; the second time round it was on much
more of an equal footing but it was still in their name. I cannot
comment on how difficult it is compared with anywhere else, because
I have not applied anywhere else.
Q110 Richard Burden: Do you think
that, in a sense, from that, your perfectly proper connections
with Comic Relief, the fact that Divine, by that stage, already
did have a bit of a profile gave you an advantage, and if you
had not had that it might have been difficult to find your way
through to things like the Development Awareness Fund?
Ms Tranchell: There are two things.
We did not have any profile, because they gave the grant in 1999
so it was before we had a profile, but obviously Comic Relief
had a fantastic profile. I think they did have the imagination
to think this was a proposition which had legs and that it would
engage with people. Probably one of the things is, the fact that
Safia has not applied to it means that it is not something people
know about. So whether that is because the process is complicated.
For big grant applications the process ought to be complicated,
you ought to be able to put in a proposition which stacks up properly,
but probably more people need to know that those sorts of funds
are available and what the cycles are.
Q111 Chairman: We do not know that
they are available. The Fairtrade Foundation have asked for £50
million. That is what we are exploring with you, whether they
should be?
Ms Tranchell: I think the reason
why Fairtrade has done so well in Britain is that there has been
a rich range of people making what is now the Fairtrade proposition.
I think it would be good if the money was divided among a group
of organisations and not that you would give an enormous grant
to one organisation.
Q112 John Barrett: In the world of
chocolate, on which I am somewhat of an expert, branding is very
important; we have Cadbury's, Mars and Nestlé. Can you
say what contribution branding has made to the success of Divine
and is there a different growth of branding in the Fairtrade marketplace,
or is it in direct competition with the big boys of the chocolate
world? Divine has been very successful with its branding but the
cocoa which is used in Divine is also used in other products.
The distinct success of the branding, does it have a particular
role in the Fairtrade marketplace or does it have a wider impact?
Ms Tranchell: I think Britain
has been very interesting, because until last year we were the
biggest Fairtrade territory, so we were the biggest market for
Fairtrade in the world, and we have just been overtaken by America,
this late on. If you look at the different European territories,
some of which have been doing it for a lot longer than us, the
difference is that we have some brands doing Fairtrade, and so
Café Direct came in as the first brand on the shelf and
showed that consumers were engaged by a proposition which was
giving farmers benefit. They came in before the Fairtrade Mark
came in and then they put the Fairtrade Mark on when the Fairtrade
Mark came in. Clearly, being a brand has been a huge asset, but
being a brand which has Kuapa Kokoo as the owners—Kuapa
Kokoo are also a brand, in a way, because their story has been
so completely interlinked with our story, and when you go on our
website you will see them, and when you read the back of our blurb
it says about Kuapa Kokoo and the co-operative and the cocoa that
they are producing to make this product. Obviously, Divine is
a fantastic brand. I cannot claim it, as it was there already
when I got there. Brands speak to consumers in a way that nothing
else does, and so clearly having brands is a good route to market.
Q113 Chairman: Maybe that is an opportunity
to bring in Erica, because obviously you sell your cocoa to Divine
but also you sell it to other companies. How do you negotiate
with the other companies and to what extent does your connection
with Divine help or hinder you in that process?
Ms Kyere: For us, in Ghana, there
is a guaranteed market for cocoa so we do not actually have to
negotiate with anybody. We have the Fairtrade buyers who buy our
cocoa; the major buyers are Divine and Body Shop, also the Co-op.
The Government, we buy from the farmers then we sell everything
back to CMC[3]
and the CMC finds buyers outside, but Fairtrade actually has helped
a lot of farmers in Ghana. We started in 1993 with 1,000 people
and now we are talking about 45,000 farmer members. If they had
not benefited from it I am not sure we would have got to where
we are now; and by owning Divine we have had a voice everywhere
in the world. I think we are here today because you have heard
about us. If it had not been for Divine and then saying that we
own Divine, I am not sure we would be here or that people would
have heard of us, so Fairtrade really has helped us.
Ms Tranchell: The extra bit is
that the cocoa market in Ghana is only semi-liberalised, so that
the Ghanaian Government sells out all of the cocoa, so Kuapa Kokoo
do not have direct relations with any other buyer.
Q114 Chairman: This is a well-established
market intervention in Ghana, given that they had collapses in
previous times; this is Government policy, to provide a floor
in the market?
Ms Kyere: Yes, it is.
Ms Tranchell: Yes.
Q115 Chairman: What you have said
is that you would not have got there without Divine, or certainly
you would not be here. For example, you sell Kuapa Kokoo to the
Co-op, or whatever it may be; is your relationship with Divine
helpful in that, or is it irrelevant, it is just another product
and you can sell it as a Fairtrade product?
Ms Kyere: It is very helpful because,
at the end of the day, we own shares in Divine and so everybody
knows that Kuapa owns shares in Divine. Also Twin Trading helped
form Kuapa. Twin Trading is an NGO based there. Actually, they
are well versed in trade between the north and the south. Twin
got us registered with FLO, that is the Fairtrade Labelling Organisation,
and that is what has helped us; so Twin, Divine, Comic Relief,
and everyone, have helped us.
Q116 Chairman: Presumably, you have
a sales operation based in the UK, if you are selling to other
companies: yes?
Ms Kyere: No.
Q117 Chairman: How does that work?
Ms Tranchell: If I can explain,
Erica is a Research and Development Officer and so she can tell
you a lot about the work on the ground and with the farmers. The
Fairtrade market, there is an importer who brings the cocoa from
Ghana into Europe and then you can buy from them Kuapa Kokoo's
Fairtrade cocoa. We supply all of the Co-op's own-brand chocolate
anyway, so the Co-op does not have a direct relationship but it
does have a direct friendship partnership, so it goes to Kuapa
and talks with them and does business with them, but it does not
actually buy the cocoa. Kuapa Kokoo's commercial organisation,
which is Kuapa Kokoo Limited, which is wholly owned by the parent
company, which is Kuapa Kokoo Farmers Union, is a trading company
which trades, this year, about 60,000 tonnes of cocoa, of which
only 2% is sold on the Fairtrade market.
Q118 Chairman: I am sorry if I am
being a bit dim but if you have got a fixed price within Ghana
what extra benefit do you get from the Fairtrade dimension?
Ms Kyere: What the Fairtrade market
does for us is give us a guaranteed price of US$1,600 per tonne;
so the 60,000 tonnes that we are selling this year is times 1,600.
Also it gives us social premiums of US$150 per tonne and this
is what is invested back into the communities in which we operate;
so if you drive through Ghana you come across a lot of boreholes,
in Ghana we have drilled a lot of boreholes, about 300, in the
villages where we operate. The co-operative has been able to invest
a lot, with the help of Fairtrade, in education, so there are
seven schools to the co-operative's credit, also it has links
with the medical school in Ghana, so we support them and also
they give the farmers medical services. Cocoa is a seasonal crop,
it is not a whole year round crop, so for half of the year there
is cocoa, for half of the year there is no cocoa. What do the
farmers do, because their income is in the cocoa which they produce,
so we have also built a lot of capacities in that, so, apart from
the cocoa, farmers now have other skills, they make special textiles,
which they sell, others bake bread, others rear different kinds
of animals which also they sell, so that the whole year round
they can have money. There is a credit union which serves as a
bank, so they can always go there, borrow money and then petty
trade with it. This is what the co-operative has been doing in
Ghana.
Q119 Chairman: There are quite a
lot of extras you get out of being part of the Fairtrade dimension?
Ms Kyere: Yes.
2 Ethical Trading Initiative (ETI). Back
3
The Cocoa Marketing Company (CMC). Back
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