Select Committee on Administration Written Evidence


Memorandum submitted by The Sustainable Enterprise Research Group (SERG) at Liverpool John Moores University (Faculty of Business and Law)

WHAT HAS BEEN THE IMPACT OF DONOR FUNDING FOR FAIR TRADE?

THE IMPACT OF THE DIVINE CHOCOLATE COMPANY (FORMERLY THE DAY CHOCOLATE COMPANY) ON THE UK CONFECTIONERY INDUSTRY

  The Sustainable Enterprise Research Group (SERG) at Liverpool John Moores University (Faculty of Business and Law) would like to offer the following comments on the question, posed by the committee:

1.1  What has been the impact of donor funding for Fairtrade?

  1.1.1  In 2000 DFID guaranteed a bank loan for £400,000 to The Day Chocolate Company (now Divine Chocolate Ltd) as part of it poverty alleviation programme in Ghana. This was the first time this financial instrument has been used. It was a good example of joined up Government where DFID worked with the DTI small business unit to assess the risk and then signed off the Guarantee through the Ghana desk who then monitored it though an Independent Director on the Board. An impact assessment was also commissioned. (See L Ronchi: Monitoring Impact of Fairtrade Initiatives, Twin, and November 2002). This is the first report. The impact assessment process is ongoing, carried out by the Sustainable Enterprise Research group (SERG) at Liverpool John Moores University (Faculty of Business and Law). Also, further evidence can be seen in "New Thinking in International Trade: A Case Study of The Day Chocolate Company", (Tranchell and Doherty, Journal of Sustainable Development, Issue 13, 2005 and Doherty, B. and Meehan, J (2006) "Market entry based on social resources: The Case of Day Chocolate Company in the UK confectionery sector", Journal of Strategic marketing, Volume 14, Issue 4.

  1.1.2  The Sustainable Enterprise Research group (SERG) at Liverpool John Moores University (Faculty of Business and Law) have been commissioned by both the Department for International Development and Twin Trading to carry out a Monitoring and Evaluation Study to measure the impact of Divine Chocolate Ltd (formerly The Day Chocolate Company) on the UK Confectionery Industry. The study will measure impact over a three-year period (2005-08). This summary contribution here uses extracts from the first iteration of this M&E study. This contribution should also be cross referenced to the report submitted by Divine Chocolate Ltd.

  1.1.3  This M & E study involves a range of data collection methods involving a significant number of semi-structured interviews with key stakeholders in the UK confectionery industry including supermarket buyers, supermarket ethical trading managers, key informants in other channels of distribution such as wholesalers, independents, whole food network, Coffee shop chains and alternative channels such as Oxfam shops etc. In addition key media experts, senior management representatives from Divine Chocolate's competitors, The BCCCA (Biscuit Cake Chocolate & Confectionery Association) and key opinion formers in the Fairtrade movement. A large sample of key informants were chosen in order to fully identify the key avenues of impact. All interviews have been recorded and transcribed to print. Additional fieldwork involved sourcing and analysing stakeholder policies and documents. From content analysis of this data a number of key themes are emerging which will be further tested in the second iteration of this study to take place from April 2007.

  1.1.4  It is important to note the strategic objectives of Divine Chocolate (formerly The Day Chocolate Company):

—  To take a quality and affordable range of fair trade chocolate bars into the mainstream chocolate market.

—  To raise awareness of fair trade issues among UK retailers and consumers of all age groups.

—  To be highly visible and vocal in the chocolate sector and thereby act as a catalyst for change.

—  To be the leading Fairtrade chocolate company in the UK.

—  To pay a fair trade price for all cocoa used in the products.

  1.1.5  This summary report will focus on the first three key objectives above. It is clear from market statistics that Divine Chocolate is the leading UK Fairtrade Chocolate Company and only uses Fairtrade cocoa. This contribution uses extracts from the full study.

2.  KEY FINDINGS

  Findings are grouped under the strategic objectives identified above.

2.1  To take a quality and affordable range of fair trade chocolate bars into the mainstream chocolate market

  2.1.1  90% of all key informants interviewed identified the quality of Divine Chocolate's products as a key factor in the companies' success in the mainstream. Also 80% identified pricing as appropriate. One leading supermarket retailer specifically mentioned the impressive quality of Divine Dark (70% cocoa content), "Divine Dark is one of our strongest performing plain chocolate products, the recipe is excellent". Both Divine Chocolate's own label customers (Starbucks UK and The Co-operative Retail group) identified both an increase in sales performance and improved feedback from consumers on the taste of their Fairtrade Chocolate ranges. Two major supermarket retailers commented on the good performance across all age groups including young people and older consumers.

2.2  To raise awareness of fair trade issues among UK retailers and consumers of all age groups

  2.2.1  Divine Chocolate is regarded by 90% of key informants as very successful at raising the awareness of Fairtrade with UK retailers. Trading Director at one key multiple retailer commented, "Divine Chocolate has really proved some experts wrong, they have managed to develop a high quality range of Fairtrade chocolate products and gain impressive distribution, they have used their links back to producers to demonstrate to us all the importance of people and relationships in supply chains. Remember chocolate is a highly competitive market and is very difficult for any new product to succeed".

  2.2.2  It is important to note that 75% of retailers identified the credibility of Divine Chocolate's links back to producers as a key reason for the successful mainstreaming of Divine's products. This is demonstrated by both Divine's own label customers; The Co-operative Retail Group and Starbucks Coffee Company using stories of Kuapa Kokoo Co-operative farmers on their chocolate bar wrappers. Interestingly both the above companies identified that Divine Chocolate had proven despite being in a highly competitive market the viability of their unique business model which challenges the conventions of International trade. The Co-operative Retail Group in 2002 (3,000 shops in the UK) converted all its own labelled chocolate to Fairtrade sourced from Divine Chocolate. This move by the Co-op led to a documentary screened in November 2002 on BBC News 24 about Fairtrade Chocolate, the CRG produced a campaign document in 2002 called "The Chocolate Report" which discusses in depth the inequalities in the world trading system and how both FT consumption and lobbying the large multinationals to convert to FT can make a difference. The Chocolate report was distributed to consumers, Co-op Membership, food industry experts and academics. From this M &E study two other UK retailers identified the position taken by the Co-op has influential in their own decisions to stock Fairtrade products. It is also worth noting here that with a number of major retailers Divine Chocolate has been involved in staff training with both head office and store staff.

  2.2.3  Divine Chocolate's success in mainstreaming has also resulted in greater consumer awareness of Fairtrade. Bruce Crowther[67]66 commented; "Being able to tell young people and adults that Divine and Dubble Fairtrade Chocolate were available in the local supermarkets was a huge advantage in ensuring our Fairtrade campaign was practical and credible". There is also evidence from retailers that Divine's work in raising the awareness of Fairtrade has resulted in a very loyal customer base. Head Chocolate Buyer at a leading UK retailer explained "Divine chocolate has a very high ranking score for performance, which takes into account both rate of sale and loyalty of the people who buy the product. Divine has a very loyal customer base".

2.3  To be highly visible and vocal in the chocolate sector and thereby act as a catalyst for change

  2.3.1  From this M&E study research it is evident that Divine has influenced the strategies and policies of other companies in the UK Confectionery industry, one leading retailer commented, "Working with Divine Chocolate has been a real learning process for us, it has assisted in helping us look at our other supply chains and raise our ethical standards". One of the UK's leading coffee chains commented that "Working with Divine on Fairtrade chocolate has provided us with access to the `Fairtrade Community' which is a diverse group of individuals, NGO's, companies and opinion formers. Being a part of this broad group is healthy and provides us with the opportunity to understand and contribute to the debate". Both The Co-operative Retail and Waitrose specifically mentioned the positive influence of Divine Chocolate on second tier manufacturers such as Ashbury's. The Co-op highlighted the increased dialogue about Fairtrade from such second tier manufacturers due to the work of Divine. One retailer commented on the acquisition of Green & Blacks by Cadbury Schweppes as an indicator of Divine's impact.

  2.3.2  Another avenue of impact identified is the work of Divine Chocolate with young consumers. A major branded multi-national manufacturer of chocolate explained that "Divine's work in schools has had an impact; every week we receive letters from school pupils asking us to develop Fairtrade chocolate products". It is important to note here that Divine in partnership with Comic Relief launched a Fairtrade Education pack into 15,000 schools in 2001. The same branded manufacturer also commented "Divine, Cafe« direct and the Fairtrade Foundation have raised the consumers' awareness of both developmental issues and where products come from this has influenced our own debates internally about our own supply chains".

  2.3.3  There is also more evidence that Divine's impact going beyond confectionery, The Co-operative Retail Group explained "Divine's impact on our business strategy is significant, we would not have developed our own label Fairtrade Coffee range if it was not for our success on Fairtrade Chocolate, which provided the business case. Our sales of Fairtrade chocolate show a 35% growth above sales of our previous own label range".

  2.3.4  There is also some evidence of Divine having some influence in the way smaller suppliers work with larger retailers. One retailer explains "The relationship is a real partnership with Divine. We both have a shared vision and a shared ownership perspective of key issues. Discussions are easier and there is a greater degree of flexibility in the relationship in comparison to the major players, which actually means the relationship between us, and Divine is stronger. For example the relationship with the major players is based on the need to make more money. With Divine it is a different level of relationship, of course there is a need to make money but what we are doing together is much broader than just making money". This aspect of building relationships will be investigated further in the second iteration.

2.4  Conclusion so Far from Monitoring and Evaluation Study: So what has been the impact of DfID's loan guarantee facility for Divine Chocolate Limited?

  2.4.1  In summary, the success of Divine Chocolate in the mainstream shows that an alternative business model that challenges the conventional international trading system can work. Both its links with producers via farmer ownership and excellent product quality have been essential to its success in the mainstream. The wider distribution created by mainstreaming enables Divine Chocolate to speak to a greater number of people and organisations, gaining their attention because of their mainstream presence. This strategy has enabled Divine Chocolate to strengthen the original ethical interest of the FT venture by bringing a positive influence to other stakeholders including consumers, retailers, wholesalers and competitors. These aspects will be explored further in the second iteration of this study.

Bob Doherty

February 2007





67   66 Bruce Crowther is a Fairtrade Campaigner from Garstang Lancashire, previously Head of Oxfam campaigns in Garstang and now Fairtrade Foundation's Fairtrade Towns Co-ordinator. Back


 
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