29th January 2014

What will be the impact of Fairtrade Sourcing Programs?

There has been much talk in Fairtrade over the last few years about “scaling up with integrity” or “mainstreaming” – i.e. growing the Fairtrade system by working with big corporate players while also ensuring that the core values and social, economic and environmental standards of Fairtrade are not compromised.

Although there have been some original principles that have fallen by the wayside – the basic Fairtrade proposition has remained the same. It is a product-based certification system, in which all ingredients in a product that can be Fairtrade must be Fairtrade, with guaranteed prices for producers, including a minimum price, a Fairtrade premium and an organic premium, social and environmental standards, and obligations on traders and importers.

Despite the rise of numerous alternative certification systems, Fairtrade has mostly stuck to its guns and kept the same model, arguably the gold standard of ethical certification marks. And a campaigner movement of activist consumers – particularly in the UK – has responded to that gold standard and voted with their wallets.

That now looks set to be shaken up, as Fairtrade International have launched a new business model that gives companies a wider and more flexible range of options for engaging with the Fairtrade system. The model is called ‘Fairtrade Sourcing Programs’ and currently applies to three commodities: cocoa, cotton and sugar.

“Rather than focusing on all the ingredients for one final product, Fairtrade Sourcing Programs means companies can now make big commitments to use Fairtrade cocoa, sugar or cotton across product ranges or even their whole business. It is one more way to work with Fairtrade alongside labelling products with the FAIRTRADE Mark. Farmers continue to benefit from all the same Fairtrade Standards, including the Fairtrade Premium, and the Fairtrade Minimum Price when applicable.”
- Fairtrade International website, 27th January 2014

The current Fairtrade Mark model is based on certifying products, with an important principle being that any ingredients that can be Fairtrade must be Fairtrade certified. The ‘All That Can Be’ rule means that in a ‘composite’ product like a chocolate bar, not only the cocoa must be sourced on Fairtrade terms, but also the sugar and vanilla. If the bar had nuts in it, these might well have to be Fairtrade certified.

The new Fairtrade Sourcing Programs introduce a commodity-based approach. Companies can commit to buying only Fairtrade cocoa, without having to deal with the complexity and cost of certifying the other ingredients. For example, Mars will now be sourcing all the cocoa for their Twix bar in the German market on Fairtrade terms, but not the sugar. In the case of the cotton Fairtrade Sourcing Program, companies can purchase a certain percentage of their total cotton purchases on Fairtrade terms. Swiss apparel brand Switcher, for example, will be purchasing 35% of their total cotton under the new commodity program.

Companies can talk about their commitments either through corporate responsibility communications or by using a new Fairtrade Sourcing Program Mark on product packaging.

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The new model is a response to different opportunities and threats in the case of the three commodities for which it has been launched.

The biggest driver has probably been the opportunities within the chocolate industry. Mars pledged in 2009 to certify 100% of its cocoa as “sustainably produced” by 2020. Ferrero and Hershey have followed suit with similar commitments. Mondelēz International and Nestlé – the other two big players – also take the issue of sustainability within the cocoa supply chain seriously. However, none of them are particularly interested in sugar, and certification schemes Utz Certified and Rainforest Alliance have reaped the benefits of this. Fairtrade will now be in a position to pitch for this business under the Fairtrade Sourcing Programs.

In the case of cotton, the new model is a response to falling sales of Fairtade cotton. The current model isn’t working very well and taking part in Fairtrade incurs high costs along the value chain.

In the case of sugar, there is a potential opportunity for companies to purchase Fairtrade sugar at a whole business level, as sugar is a common ingredient in a wide range of products. The fact that companies are doing this is also something they would not necessarily want to draw attention to on product packaging, as sugar has an increasingly bad health reputation, so the option to make a corporate responsibility statement under the Fairtrade Sourcing Program could be more attractive than using a mark on a product.

The new model is a big shift for the global Fairtrade system, with far reaching impacts, both positive and negative.

The benefit is that it offers a way for companies that don’t want to commit to the full cost of certifying their products or are only interested in particular commodities to engage with the Fairtrade system. This will deliver considerable increases in volumes being purchased from Fairtrade certified farmers. A Twix bar contains around 10% cocoa solids, so only 10% of that German Twix bar will be Fairtrade. But in aggregate, it’s still a lot of cocoa. The commitments announced by Fairtrade International are projected to increase global Fairtrade cocoa sales by 6,000 metric tonnes, an increase of 14%.

The danger of the new model arguably lies in its introduction of a new Fairtrade Sourcing Program Mark to sit alongside the original Fairtrade Mark. Not only does it introduce yet another certification mark contributing to consumer confusion and marketplace fatigue, but the new mark is less stringent about what constitutes a ‘Fairtrade product’ and is cheaper for companies to adopt. There is a high risk it will devalue Fairtrade.

There is now an incentive for companies to trade down from the Fairtrade Mark option to the new Fairtrade Sourcing Program option, given that both will give you the option to put a fair trade seal on your products. Big corporate players are not likely to be meaningfully committed to Fairtrade: they are partners of convenience attracted by the halo effect of Fairtrade. If they can buy this more cheaply, they will do so. Furthermore, there will no longer be the incentive for companies to convert more minor ingredients in composite products, like vanilla or nuts, to Fairtrade.

A key point is whether consumers can distinguish between the original Fairtrade Mark and the Fairtrade Sourcing Program Mark. There will be some additional information to distinguish the new mark and the assumption being made is that consumers will be able to tell the difference between the old gold standard mark and the new watered down version.

However, it’s worth being cautious about this assumption. There is now a substantial body of knowledge from social psychology and behavioural economics that demonstrates how irrational humans are when making decisions, particularly when faced with overwhelming amounts of choice as is the case with modern consumers. A key cognitive bias is that we simplify and we make decisions based on surface level information without probing any further: “what you see is all there is”.

Fairtrade has always been pragmatic and the system is faced with staunch challenges at the global level from rival certification marks. The shift towards a commodity sourcing model is a valid response to those challenges.

But what about the following proposal? To clearly distinguish Fairtrade Sourcing Programs from the original Fairtrade Mark model, it would make sense that rather than having their products carry a mark, companies would communicate their commitment as a corporate responsibility communication of some kind. The new business model could then be a stepping stone to deeper commitment, as companies that went further and adopted the ‘All That Can Be’ model could then reap the benefits of putting the trusted Fairtrade Mark on their products.

In other words, scaling up with integrity.

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