Examination of Witnesses (Questions 320
- 333)
TUESDAY 17 APRIL 2007
MR GARETH
THOMAS MP, MR
OWEN BARDER,
MS LAURA
KELLY AND
MS AMANDA
BROOKS
Q320 Mr Davies: I want to pick up
on the discussion you had with my colleague Hugh Bayley, Mr Thomas.
I see from the Fairtrade Foundation—a document you will
have seen, which is the executive summary of the new fund concept
which they submitted to you—it says "For the last four
years, the value of UK Fairtrade sales has risen by 42% year on
year. In 2006 retail sales reached £300 million, generating
producer sales of £47 million." That means that the
actual retail sales were six times the payments to producers,
in other words they are working on a 600% mark-up or 85% gross
margin, whichever way you would like to look at it. It is very
surprising to me—perhaps it is not surprising to you and
you could explain the logic of it—that a business that is
that profitable, which has that sort of margin, cannot find from
the private sector its own sources of finance to further develop
itself. Is that surprising to you or is not surprising to you?
Mr Thomas: As I said in answer
to Hugh Bayley, there is more that we as a Government should be
pressing the Fairtrade Foundation to be doing in terms of financial
sustainability of resources that come from the private sector.
There has been encouraging progress, they are up to about 70%
of their finances from private sources. In terms of the £50
million concept proposal that you are specifically talking about,
my understanding is that it is their intention to approach the
private sector sources. One of the reasons they have come to us
in the first instance is that we are a donor with whom they have
a relationship already and in that sense I am not surprised that
they want us to indicate whether we support their initiative,
but I do agree with you that there should be considerable scope
to draw funds from the private sector to support this initiative.
Q321 Mr Davies: I am not surprised
they come to you, Mr Thomas—anybody who thinks the Government
might give them money would be a fool not to come to you for it.
If I thought you were going to give me some money I would probably
come and ask for it.
Mr Thomas: Always happy to see
you, Mr Davies.
Q322 Mr Davies: But the question
is whether this is the sort of situation involving market failure
essentially where progress can only be made by the public sector
making a contribution or whether it is actually quite a successful
business which ought to be able to look to generate the kind of
cash flows required to make a return on investment, and if that
is the case the private sector will supply the initial investment
funds. If I can move on to another matter that I want to ask you
about, one of the issues about fair trade does appear to be that
it works pretty well with organised farmers, certainly not with
the poorest farmers but with the relatively prosperous farmers—and
it is a very good thing of course that they should be relatively
prosperous and they should be organised—in countries that
on the whole are not doing too badly, places like Ghana and South
Africa even, which is a relatively middle income country. However,
it has not actually had much impact so far on the really poor
farmers, the people who really remain close to subsistence, who
are a long way from markets and who are not organised, the massive
number as we all know of poor peasants in this world that we most
want to help. I do not mean we do not want medium farmers to continue
to thrive, of course we very much do, but it may well be that
they would then be in a situation where market mechanisms are
sufficient to support their future development. The concern of
everybody in this room, probably on both sides of this table,
is really with the poorest and with those who are least well-organised
and furthest away from markets and all that markets can deliver.
Is it your impression that fair trade has made much impact on
those poorest farmers? Of course they are more remote, they are
poorer, they are less organised and the challenge is much greater,
but in so far as public money is being used would it not be a
good idea to look and see whether public money could not help
leverage greater efforts in the direction of the poorest?
Mr Thomas: I suppose that concern
is one of the things that is driving us to say there needs to
be a more rigorous impact assessment of the successes that the
Fairtrade Foundation and indeed other initiatives have had so
far. There are examples we know of where farmers who are not organised
have been helped to organise into co-operatives and sell goods
and achieve standards. Your point as to whether or not this is
being done on a sustainable basis and is it the very poorest who
are being helped or is it just those who are not worst-off who
are being helped is an entirely appropriate question and it is
one that we want to work through with the Fairtrade Foundation
and indeed with the other schemes before we take a decision about
how much money, if indeed any, we will give to the Fairtrade Foundation's
£50 million fund proposal.
Q323 Mr Davies: Perhaps I could just
say, Mr Thomas, that I am pleased to hear that response because
Fairtrade has done a good job and it is good to see farmers from
developing countries getting a reasonable return. At the same
time we realise that this is a business which, for the reasons
I have just mentioned, ought so far as the existing business is
concerned to have a pretty good future on ordinary fundamental
market principles. It does seem to me that there is a considerable
need to ask what we can do for those who are worst off and, on
present prospects at least, are most unlikely to be touched by
market mechanisms. Therefore, if you can find a way in your conversation
with the Fairtrade Foundation to move in that direction a lot
of us would be much happier to see public money being used in
that way, where it is obviously much more difficult to get private
sector money invested.
Mr Thomas: I agree with your view
of the Fairtrade Foundation on that—I do think they have
done an excellent job and they deserve recognition for what they
have achieved so far. The Fairtrade Foundation are not the only
group obviously, and I know you are not saying this, in which
we can try and do more to help the non-organised get organised
and get their products to market. I mentioned the Africa Challenge
Fund that is due to be launched with $60 million we hope within
its fund where a whole series of projects and programmes can be
supported in that way to help the very poorest, so there is a
variety of ways in which we engage with this very question.
Mr Davies: Of course I agree with
that and clearly where the problem is remoteness investment in
infrastructure perhaps you will say is absolutely key; we both
agree on that. Thank you.
Q324 Joan Ruddock: Minister, I do
not know if you are familiar with the European Parliament Development
Committee's report on fair trade.[3]
Mr Thomas: I would not want to
say I am familiar with it. I am aware they have done one.
Q325 Joan Ruddock: I just thought
I would ask the question because I know they would be interested
because they do have messages for Member States as well as the
EU itself. One of the recommendations they make is that Member
States should take appropriate measures to ensure that consumers
have access to all the information they need in order to make
informed choices. In your conversations with us today you have
said that more could be done. I certainly as a busy consumer am
aware that I cannot really distinguish when I am shopping between
the various claims. So I would just ask you again if you are content
that people have sufficient information to be able to make an
informed choice.
Mr Thomas: Let me put it this
way: I believe there is more the Government could do to make more
information available to consumers and it is then for the individual
consumer to in a sense take the trouble to look and to make that
judgment from there. As I say, the Defra model in terms of green
labels is quite an interesting model and it is one that I intend
to certainly look at.
Q326 Joan Ruddock: We have already
spoken about a kite-mark and you have referred to Defra several
times. Does that imply that work is underway or is this something
that you would be prepared to consider but has not actually started?
Mr Thomas: It is something that
I am prepared to consider but has not actually started.
Joan Ruddock: It has not actually
started. Thank you very much.
Q327 Richard Burden: Could we look
at public procurement for a minute? Obviously there is a huge
impact that can be had through public procurement and apparently
the supply of food and catering services in England accounts for
more than £1.8 billion annually. Speaking of my patch I am
very pleased that Birmingham has got its status as a Fairtrade
city and there have been quite a lot of efforts to try to encourage
other places to do the same, and the OGC guidelines are designed
to help promote that. However, there is some concern that the
interplay of European rules and regulations and then the interpretation
of those through the OGC[4]
can lead to bureaucracy and create an impression that it is actually
quite difficult to move down the road of procuring goods and services
on a fair trade basis, and the European Parliament again in their
report of July last year called on public authorities in Europe
to integrate fair trade criteria into their public tenders and
purchasing policies. The will seems to be there from all directions,
therefore, to try and promote fair trade in public procurement,
but when that will is translated through into action it then becomes
really, really difficult. Is there anything that the Government
can do to simplify that to ensure that the moral steer it has
given is translated into a steer that says you can actually do
this as well as hope to do it?
Mr Thomas: There are two specific
things that we can do as a Department: one, we can do more to
encourage other government departments and other agencies of the
state to have a look at the whole question of using fairly traded
goods in the offers that they make to employers et cetera. A number
of government departments such as ourselves, Defra, the Treasury
and the Houses of Parliament already do use some fair traded goods
and I am intending to write round to every government department
and agency to ask them (a) what they are doing and (b) encourage
them to look at what else they can do. There is then a second
issue about the clarity of the guidance that is available and
we have started a review of whether the guidance needs to be clearer
to help government agencies and others and that will be part of
the next stage of that—it is part of what I am going to
write round to other government departments about.
Q328 Mr Davies: Surely what is needed,
Mr Thomas, is a clear, authoritative steer from some legal opinion
essentially—maybe from the European Commission—first
of all as to whether the decision to buy fair trade products is
consistent with the public procurement directive. It is a legal
question, is it not, and people need an authoritative answer to
it. You need that and other government departments need that and
local government needs that. Secondly, local government needs
a steer from central government—and that is a decision you
can take within the Government without any legislation and without
asking any lawyers for any opinions—simply as to whether
or not it is consistent with the Treasury rules on better value
and so forth for them to adopt fair trade purchasing policies.
As far as I can see there is no such authoritative statement available,
either to central government or to local government at the present
time. Do you have plans to ensure that one is provided?
Mr Thomas: There are a number
of different tensions in terms of public procurement. There is,
as you say, a need to secure value for money; there is the issue
which we touched on in earlier answers that there is not any agreed
definition of what constitutes a fair traded good and so we need
to be slightly careful about the definitive assessment that we
make; and one of the reasons for wanting to write round to government
departments is to ask them what problems they are having in terms
of the clarity of the guidance and to see whether or not we can
give clearer, more definitive guidance to them. As I say, I do
not know what we are going to get back, I am just about to write
out, but I recognise that lack of clarity has been one of the
concerns that some people had about the guidance that is on offer.
Q329 Mr Davies: Your answer just
confirms that there is complete obscurity about this, where there
should be some clarity, and you certainly cannot expect local
government officers to take a decision which might land them in
very hot water indeed with the Audit Commission or with central
government—it might even affect their future career—because
they have obviously got to play it safe unless they have clear,
unambiguous guidance from central government. So far as central
government is concerned, you obviously have to make sure that
you do not land yourselves in trouble with the European Court
of Justice, so here clearly we need to get an opinion. The normal
way in my understanding to get a clear opinion as to how a directive
should be interpreted is to get a decision from the Commission.
Why do you not simply ask the Commission the question and see
if you can get a written opinion from the Commission that would
be justiciable and if you ever had any problems with the European
Court of Justice you could then use that in your defence. Is that
not a sensible way forward?
Mr Thomas: If we need to talk
to the European Commission then we can obviously talk to the European
Commission. The first stage is to write round to government departments
and government agencies to see what problems they are having.
Q330 Mr Davies: You and I know what
the problem is: they do not know, they do not understand what
the rules are and what they can and cannot do. That is the problem
and you and I know that. By all means write round, but we all
know that that is the answer you are going to get and you are
then going to have to do something about it, are you not?
Mr Thomas: Absolutely, we are
then going to have to do something about it and going to the European
Commission may well be one option, but there may be other options.
We are at the beginning of the process, Mr Davies, and I am happy
to keep the Committee up to speed on where we come out at the
end of that process but I do think I need to get some responses
first from colleagues in other government departments.
Q331 Ann McKechin: Mr Thomas, given
that we have Fairtrade schools, Fairtrade colleges, fair trade
churches and Fairtrade towns and cities quite a lot of people
might feel quite surprised that the Government actually has not
done very much about becoming a Fairtrade government. If you are
only just writing round now to government departments to ask what
they are doing, in what way do you think the Government and your
Department are going to actually promote Fairtrade within government
departments themselves? If we actually had No 10 as a Fairtrade
No 10 or departments actually saying openly they are using Fairtrade,
just as local authorities are doing up and down the country, surely
that would be a very big step forward in actually changing the
culture?
Mr Thomas: It would be fairly
unfair to damn us as not committed to fair trade given all the
work we are doing in terms of the Doha Round, EPAs et cetera and
the funding we have given to the Fairtrade Foundation and indeed
other initiatives. As I say, I accept that there is more we can
do politically as a government, that is why I am going to be writing
round and that is why we are going to be looking sympathetically
at the Fairtrade Foundation's proposal and indeed others.
Q332 Ann McKechin: If you have a
Fairtrade town or a Fairtrade city—take a local authority
such as Glasgow which I represent—the local authority actually
has to go through department after department and decide what
they are actually going to do to promote Fairtrade products, yet
we have a government at the moment where although your own department
and one or two other departments you mentioned are using Fairtrade,
we still have large swathes of government—for example you
would have thought Culture, Media and Sport with its contacts
about the Olympics would be trying to promote it and deal with
other departments trying to make sure that your message is coming
out very clearly across the board. It does not seem to me that
there would have to be a huge amount of effort by Government but
it would actually support a lot of the work that is going on through
the rest of the country.
Mr Thomas: As I said, I accept
that there is more we can do and hopefully the letter that I am
about to write will be the catalyst for more being done across
Government. I do say the funding we have given to the Fairtrade
Foundation and the other stuff we have done in terms of international
trade does need to be taken into account in the assessment of
where Government is on fair trade in general.
Q333 Chairman: Mr Thomas, thank you
for coming along at this final stage of our inquiry. It is fair
to say first of all that the Committee has already produced two
reports on free trade and the Doha round and we recognise that
that is a much, much bigger issue for poor people in poor countries—or
at least it would be if we got it. Nevertheless, we have also
been surprised really by the scale and the speed with which fair
trade has taken off which of course gives individual citizens
the ability to take decisions in their lives that they feel have
a direct consequence on poor people in some countries, although
as Mr Davies has pointed out they are often not the poorest people
in the poorest countries, and we will inevitably make our own
recommendations. You can tell from the flavour of this that the
Committee has not really fully digested all the information we
have got or come to any definitive conclusions, but we will do
that in the next three or four weeks and I hope we will have some
recommendations to your own Department and other government departments
which you will regard as helpful and constructive in terms of
what we think the Government might do to maximise the potential
reach of fair trade as well as also to perhaps adjudicate on them
because clearly the Fairtrade Foundation feels very, very strongly
about their achievements, which are very admirable, but they are
one organisation and we all take the point that we want fair trade
as a principle to be as widely extended as possible as long as
it is delivering real and practical benefits to poor people. I
hope when we come to give our conclusions, we will have a report
that people will find worth reading. I do not think we know yet
quite what we are going to write, but we have certainly found
the inquiry extremely worthwhile and helpful. It is possible that
inadvertently we got drawn into the Ethiopian coffee row with
Starbucks and perhaps—who knows—we are a catalyst—(to
use your own term)—in helping it to be resolved in a way
that is not quite as Starbucks had intended when we started this
inquiry. Thank you very much.
Mr Thomas: Chairman, thanks very
much and I will obviously look at your conclusions with great
interest and respond to you in the usual way.
3 European Parliament Committee on Development, Session
2004-09, Report on Fair Trade and Development, A6-0207/2006. Back
4
Office of Government Commerce. Back
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