Fair Trade ... Say What?
Maybe I'm just getting old. But I've been surprised at the plethora of new labeling at Trader Joes and Whole Foods these days (for those Europe- and Asia-based readers, both stores are upscale Western food markets that cater to a culinary and organically inclined clientele). In just a few minutes of strolling through the aisles and actually reading the labels last week, I realized that my vocabulary was evidently not up to snuff to be shopping in such an establishment. So I went back home and studied up, and now I'm a pro. For instance, while I sometimes now consider fruit that is bio-dynamically grown, I also often opt for the "sustainably" raised beef. At the same time, the wild "line-caught" fish no longer intimidates me. And the "free range" hens almost make me want to whip out the gold card on the spot. I can even swing things in the dairy isle, choosing between regular, Bht-free and organic milk.
But there are some terms that I will never understand. And one of those is "fair trade". What is fair trade, you ask? According to Wikipedia, "fair trade's strategic intent is to deliberately work with marginalised producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency. It also aims at empowering them to become stakeholders in their own organizations and actively play a wider role in the global arena to achieve greater equity in international trade."
In other words, if you buy fair trade products, you're paying more because a farmer was paid above and beyond the "fair" market rate for their products. Correct me if I'm wrong, but given this, there's nothing "fair" about the price at all. Rather, it's an elevated clearing price because some sorry sot feels bad because her Land Rover gets 10 MPG. Buying fair trade products enables her to make up for her guilt by spending a few bucks a pound extra on nuts. Go figure. Adam Smith, there's no job for you here (except for detailing the Connolly leather interior of said SUV with organically safe, biodegradable products).
Now, trust me, here. I'm all for charity -- and improving the lives of poor farmers. On a personal note, I'm giving more away more of what I make on both an absolute and relative level than at any time in my life. But I have a hard time paying more than a market rate for what I buy in a store -- especially considering that fair trade products do not guarantee any level of quality (as any true coffee snob who has tasted Starbucks' horrific over-roasted fair trade beans will attest to).
As consumers and businesses in a free market economy, we have the moral obligation to do what we feel is best with our purchasing power -- not what a government or legislative body dictates (which is why I have such a difficult time with government mandated diversity sourcing). Given this perspective, in my view, fair trade is nothing but a racket that discourages poor farmers from improving quality -- enabling them to market their goods at a premium price -- or growing crops that would fetch a better value in the market in general. Hence, if you truly believe in free markets, buy at the market clearing price -- not a penny above. And let the invisible hand work its magical ways behind the scenes. Now that's fair trade.
- Jason Busch
But there are some terms that I will never understand. And one of those is "fair trade". What is fair trade, you ask? According to Wikipedia, "fair trade's strategic intent is to deliberately work with marginalised producers and workers in order to help them move from a position of vulnerability to security and economic self-sufficiency. It also aims at empowering them to become stakeholders in their own organizations and actively play a wider role in the global arena to achieve greater equity in international trade."
In other words, if you buy fair trade products, you're paying more because a farmer was paid above and beyond the "fair" market rate for their products. Correct me if I'm wrong, but given this, there's nothing "fair" about the price at all. Rather, it's an elevated clearing price because some sorry sot feels bad because her Land Rover gets 10 MPG. Buying fair trade products enables her to make up for her guilt by spending a few bucks a pound extra on nuts. Go figure. Adam Smith, there's no job for you here (except for detailing the Connolly leather interior of said SUV with organically safe, biodegradable products).
Now, trust me, here. I'm all for charity -- and improving the lives of poor farmers. On a personal note, I'm giving more away more of what I make on both an absolute and relative level than at any time in my life. But I have a hard time paying more than a market rate for what I buy in a store -- especially considering that fair trade products do not guarantee any level of quality (as any true coffee snob who has tasted Starbucks' horrific over-roasted fair trade beans will attest to).
As consumers and businesses in a free market economy, we have the moral obligation to do what we feel is best with our purchasing power -- not what a government or legislative body dictates (which is why I have such a difficult time with government mandated diversity sourcing). Given this perspective, in my view, fair trade is nothing but a racket that discourages poor farmers from improving quality -- enabling them to market their goods at a premium price -- or growing crops that would fetch a better value in the market in general. Hence, if you truly believe in free markets, buy at the market clearing price -- not a penny above. And let the invisible hand work its magical ways behind the scenes. Now that's fair trade.
- Jason Busch
I'm no tree-hugging Al-Gore-for-President supporter. In fact, I'm as much a free-trade Ayn-Rand objectivist as you. However, I do feel that you've missed the point of fair trade.
True, fair trade does raise the economic well-being of repressed farmers that were previously getting paid less for a week's work than a Grande Skim Latte. And, yes, this does boost the cost of a cup o' gourmet Joe for the Lexus set. (But it actually helps sales and profits.)
However, your argument fails to see the forest for trees. (More on that later.) Setting aside human decency for a moment, Fair Trade is really about sustainability. Labor wages are only one part of the equation. Fair Trade also is about supplier development, introducing new, less environmentally threatening growing and harvesting methods that will actually (are you listening?) LOWER THE COST OF COFFEE (or whatever) in the long run.
Fair Trade -- like Corporate Responsibility -- is about developing sustainable and renewable materials, energy, and supply sources.
Pundits and competitors laughed at HP when it began its aggressive program to recycle end-of-life PCs, monitors, and printers. Now HP gets 60% more of its precious metals -- like gold and copper -- from recycling than from mines. With prices for these core commodities at an all-time high, they're not laughing anymore. In fact, burnt by higher material prices, Apple and Dell announced plans to step up their own recycling efforts late last year.
What about Wal-Mart, which worked with suppliers of its private-lable toys to eliminate excessive packaing. The retailer found that each year these actions save $2.4 million in shipping costs, 3,800 trees, and one million barrels of oil. Wal-Mart also used its muscle to encourage CPG giants Procter & Gamble and Unilever to replace bulky plastic jugs with condensed, slimmed down versions of all its liquid laundry detergents. The smaller package saves on energy, shipping costs, and shelf space.
Or how about forest products giant UPM's safe-harvesting and reforesting initiatives? This helps them replenish their core asset -- trees -- and is a positive marketing spin that boosts sales (and profits).
And even you would agree that socially and labor-conscious supply strategies provide marketing and sales. (Not to mention their ability to create new markets of consumers.) Consider the damage suffered by K-Mart or Nike due to exposes on their sweat-shop methods.
Before you dispute my claims, let me point you to a Spend Matters post you authored on December 19, 2006: LCCS: Beyond the Sweatshop. And I quote: "Now, obviously activities like this makes for good PR, which is critical when you're supplying textiles and retail goods to companies like Nike and the Gap, organizations which live in fear of discovering their latest duds were woven together by child labor. But it's also a model for other low cost suppliers to follow that shows that you don't need to take advantage of your employees to still deliver the best total value to your customers."
Sage advice Jason.
Spend Matters readers interested in learning more about sustainable supply strategies should check out this recent Supply Excellence post: http://supplyexcellence.com/blog/2007/01/24/sustai...
There's plenty examples of companies that are using environmentally and socially responsible supply strategies to do good for the world and good for their businesses.
Nice retort, I will admit. But my issue with “fair trade” is specifically around the definition as it applies to retail goods – which are not superior in anyway, except for the fact that a farmer or supplier was paid more to support a “living wage”. This is not fair trade, but a disruption of market forces based on Western guilt.
Regarding green and sustainable procurement, that’s different. I agree. You raise a number of excellent points, my friend, in this regard.
Goes back to something I've been pondering lately related to human judgement vs. quantifiable facts in determining the "right" strategy or tactic for a business. A lot depends on your time perspective. Are you thinking about this quarter, this year, this decade...what? Big companies and governments have the luxury and resources to think in longer cycles. Smaller organizations and most individuals operate at a higher frequency. Which is the "right" way to engage the market? An interesting question for your readers.
This was evident in a conversation I had with a VP of Supply Chain at a global high-tech manufacturer earlier this week: “We agree we should get more involved in helping with product development and inventory strategies. But those functions have their own goals. And we continued to be measured on one thing: year-over-year cost reductions.”
It is also evident in other CPOs bragging about reducing the requisitioning cycle or winning pricing concessions from their suppliers. This old-school mindset focuses narrowly on creating internal efficiencies and reducing spend.
Sure, these heavy-handed tactics can deliver measurable results. But, to your point, for how much, how fast, and for how long? There is mounting evidence that these traditional approaches can expose enterprises to unforseen supply risks and offer limited sustainable impact. And they are certainly insufficient to capitalize on or even survive in the new global economy.
Transformation requires not only near-term impact, but also long term sustainability. Contrast the above mindset and approaches with Toyota's insightful development and long-term commitment to labor and suppliers in recessed regions (like post-industrial America) or with innovative technology (like hybrid engines) but inadequate capabilities for volume manufacturing. Or Hewlett-Packard's "buy-sell" relationships with key contract manufacturers or their much-heralded recycling and sustainable supply programs. Or how Abbott Laboratories is using improved spend visibility to drive savings and performance improvements and to give supply management a seat at the strategic merger and acquisition (M&A) table.
For more on the approaches top enterprises are using to speed and sustain supply management transformation and results, view this post: http://supplyexcellence.com/blog/2007/03/23/are-yo...
http://www.globalcommunity.org/business/pastevents...