Applying Fair Trade Principles To A Manufacturing Supply Chain - Gero Leson … VERSION... ·...
Transcript of Applying Fair Trade Principles To A Manufacturing Supply Chain - Gero Leson … VERSION... ·...
Applying Fair Trade Principles
To A Manufacturing
Supply Chain
Gero Leson
Director of Special Operations
Dr. Bronner’s Magic Soaps
WFTO Conference Rio de Janeiro
May 2013
Company Background
• Dr. Bronner’s is U.S. best selling
brand of natural soaps.
• Founded 1948 by Emanuel Bronner,
German Jewish soap maker family.
Came to U.S. in 1927, parents killed
in holocaust.
• Emanuel develops world peace plan,
preaches unity across religious and national
boundaries.
• Prints philosophy on his soap labels
• Versatility and uniqueness makes soap
popular in the 60s counterculture.
Social Responsibility –
Traditionally a High Priority
• Good wages, profit sharing, bonuses and free health care
for Dr. Bronner’s staff – benefits unusual for the U.S.
• Maximum salary capped at 5 to 1 ratio
• One third of pre-tax profits spent on “traditional” charity
• Supported orphanages in Haiti and China,
• Donated 1000 acres to boys & girl-scouts for
campground for disadvantaged children
The Next Generation - 2000+
Grandsons David and Mike and Mom Trudy decided to
apply company vision to its own supply chain
Most raw materials come
from developing countries
� decided to extent idea
of social responsibility to
people & environment in
Dr. Bronner’s supply
chain.
Our Products:
Soaps, Lotions, Balms, Hair Care
Raw Materials
& Value Chains
• Natural Soaps are made by “cooking” fats and oil with sodium
or potassium hydroxide
• Dr. Bronner’s uses select plant-based oil because soap
properties vary with fatty acid spectrum of fatty oils oil:
- Coconut oil creates lather
- Palm oil makes bar soap hard and durable
- Olive oil gives a smooth feel to the skin
• Essential oils added as fragrance: peppermint, lavender,
eucalyptus, tea tree...
• Fatty & essential oils are ~ 90% of Dr. Bronner’s raw materials.
Annual consumption: ~2,500 MT (5.5 million lbs)
Dr. Bronner’s
Value Chain
Coconut Palm
NaOH
Oil Palm Olive Tree Peppermint Leaves
Oil Mill / Distillation
Soap Making Finished Product
Shipping
Blending/
Packaging
`
Nuts / Fruits
Building a Value Chain from
“Clean” Raw Materials• 2003: Switched to “certified organic” raw materials,
concerned about workers’ exposure to pesticides.
• Realized that supply chains were still opaque and
organic ≠ socially responsible.
• We wanted to know:
• “Who makes our oils and how”?
• How can we become involved in developing producer communities
• 2005 began shifting all key ingredients to certified Fair Trade
& organic sources.
• Rationale: 3rd party verification to meaningful, transparent and
retail consumer recognized standards, i.e. organic and FT
Our Path to Fair Trade Certification• In 2005, no FLO-certified suppliers for “our” raw
materials, not even standards
• Evaluated other emerging fair trade standards. Selected
IMO’s Fair for Life
• Standards comparable with FLO – except
– No world wide minimum prices and FT premium
– Allows for contract production – but requires support of
farmer’s organizations
– Responsibility for entire chain may rest with private sector
company
– Notably, this includes value added processing (e.g. coconut or
palm oil production), i.e. focus not just on producers
– U.S. brand is audited for domestic practices and commitment.
Path to A Fair Trade Supply Chain
Two types of Fair Trade sources:
1. Our own projects, through five sister companies.
Responsible for entire chain, always involving processing.
Invested > $ 4 million
2. Purchase from other committed FT and organic projects –
fair pricing, terms, support on certification and technical
issues
• All projects were initiated and are operated by mission-driven
private sector companies
“Our” Fair Trade Supply Projects
Dr. Bronner’s & Its Fair Trade
Companies Today
• Organic / fair trade smallholder projects now supply 90+% of all agricultural raw materials.
• All major ingredients FFL certified, several minor essential oils are not
• Virtually all our finished products are FFL certified – with a FT content of 90+%, far above the FFL minimum of 50%.
• Exception: balms since FT content <50% due to insufficient FT jojoba and bees wax supplies
Dr. Bronner’s & Its Fair Trade
Companies Today
• First fair trade & organic retail coconut oil in the U.S. from our Serendipol project in Sri Lanka
• Supply palm and coconut oil to committed companies in the EU (GEPA, CTM, Rapunzel)
Dr. Bronner’s & Its Fair Trade
Companies Today
• Dr. Bronner’s still family-held, no external shareholders to respond to.
• No dividends paid, i.e. freedom to chose what issues to support.
• Projected turnover 2013: ~$ 60 million – (~ $10 million in 2002). Grows by 20% p.a., good profitability.
• 100+ staff in SoCal – 500+ staff at sister companies in international fair trade projects: production, admin & field staff
Corporate Activism &
Fair Trade Promotion
• “Viral marketing” – no paid advertising – word of mouth and reputation
• Corporate activism: Fights for meaningful organic and fair trade standards in cosmetics
• Support GMO-labeling campaigns
• Promote Fair Trade through Retail Events and support of Fair World Project
•
WFTO Principles –
For The Entire Supply Chain
• 1. Create opportunities for disadvantaged producers,
workers and communities
• 3. FT Practices: long-term respectful relationships.
• 4. Payment of fair price:
• 7. Good working conditions
• 8. Capacity building – individuals and community
Dr. Bronner’s projects operate according to WFTO principles
– include the entire supply chain
Sri Lanka Project in a Nutshell
• In 2007, Dr. Bronner’s sister company Serendipol built its own
factory. Now employs 220 people, local villagers & professionals
• Converted 600 family-owned coconut (5000) to organic
production and fair trade principles.
• Processes about 20 million coconuts / year, produces ~ 2,000 MT
of coconut oil/year. Currently undergoing expansion
• Fair prices for nuts, help improve farm fertility, ensure fair labor
conditions on farms and in factory, extensive community
development through fair trade premium
• Project has made major economic impact in host community.
• Supplies Dr. Bronner’s and 4 other EU and US companies
committed to fair trade.
• Shelling machines
• Container loading
Capacity and Expansion
• Current output: 1800 MT of “virgin coconut oil”
per year
• Strong demand by Dr. Bronner’s and 3rd parties
• Current expansion in all sections to 2,500
MT/year
• Value added processing of coconut seed cake,
potentially coconut water
Palm Oil from Ghana
• Palm fruits purchased from 500 organic small farmers –
5 – 10 acres (2-4 ha) per plot.
• Training, soil fertility improvement, replanting with
better yielding oil palm hybrids
• Oil mill employs 200+ people from the village, mostly
unskilled women. Largest employer in town of 20,000
• Good working conditions, better pay, free hot lunch,
health insurance, participatory management
• Fair Trade projects in water supply, health care and
sanitation serve as catalyst for community development
• Better of farms
Capacity and Expansion
• Current output of crude palm oil: 320 MT/year
• Growing demand by Dr.Bronner’s and 3rd
parties
• Modify to improve efficiency and output to
600 MT/year
• Leave manual processing element as is
• Need to improve quality control by controlling
product flow – add 3rd shift during peak
season
Key Issues &Challenges
WFTO Principles
• Buying from smallholders – Fair Trading Practices
• Help farmers improve soil fertility and farm productivity
– reduce sensitivity to global climate change
• Education, staff development, reverse rural exodus
• Job creation – man vs. machine
• Value added use of by-products
• Community development through fair trade projects.
• Challenges: Management & controls, cost and
economies of scale
Prices and Payment
• Mills buy from individual farmers – work closely with their
associations on pricing and logistics.
• Minimum price guarantees profitability. Based on thorough
evaluation of ALL cost of production plus profit.
• Never invoked as market prices have escalated since 2007
• Pricing: market + 10% organic premium, transportation & all
cost of certification
• Prompt payment - no prefinancing since no inputs – interest
free loans on compost, seedlings
• 10% Fair Trade Premium goes into fund for community
projects
Key Issues &Challenges
WFTO Principles
• Buying from smallholders – Fair Trading Practices
• Help farmers improve soil fertility and farm productivity
– reduce sensitivity to global climate change
• Education, staff development, reverse rural exodus
• Job creation – man vs. machine
• Value added use of by-products
• Community development through fair trade projects.
• Challenges: Management & controls, cost and
economies of scale
Fertility Matters
• All our projects started with low yields.
• Good maintenance (weeding, pruning) plus
organic matter expect to raise yields by
~30-50% over 5 years.
• Soil fertility increases profit margins for farmers –
improves resistance to drought conditions due to
global climate change
• All projects support soil fertility – as part of our
organic commitment
Key Issues &Challenges
WFTO Principles
• Buying from smallholders – Fair Trading Practices
• Help farmers improve soil fertility and farm productivity
– reduce sensitivity to global climate change
• Education, staff development, reverse rural exodus
• Job creation – man vs. machine
• Value added use of by-products
• Community development through fair trade projects.
• Challenges: Management & controls, cost and
economies of scale
Certification, ICS and Opportunities
• Smallholder projects require internal control
systems for organic AND FT certification
• Involves the employment of trained
agricultural professional – field officers
• Projects facilitate the return of educated
agricultural practitioners from city to
countryside – overcome the cultural divide
and contribute to community development
Hands-on Cooperation
• Participation of foreign mechanics, farmers, oil
mills facilitates training and development of
staff – globalization on a person-to-person
basis.
Key Issues &Challenges
WFTO Principles
• Buying from smallholders – Fair Trading Practices
• Help farmers improve soil fertility and farm productivity
– reduce sensitivity to global climate change
• Education, staff development, reverse rural exodus
• Job creation and staff development – man vs. machine
• Value added use of by-products
• Community development through fair trade projects.
• Challenges: Management & controls, cost and
economies of scale
Key Issues &Challenges
WFTO Principles
• Buying from smallholders – Fair Trading Practices
• Help farmers improve soil fertility and farm productivity
– reduce sensitivity to global climate change
• Education, staff development, reverse rural exodus
• Job creation and staff development – man vs. machine
• Value added use of by-products – More sustainability
• Community development through fair trade projects.
• Challenges: Management & controls, cost and
economies of scale
Key Issues &Challenges
WFTO Principles
• Buying from smallholders – Fair Trading Practices
• Help farmers improve soil fertility and farm productivity
– reduce sensitivity to global climate change
• Education, staff development, reverse rural exodus
• Job creation and staff development – man vs. machine
• Value added use of by-products – More sustainability
• Community development through fair trade projects.
• Challenges: Management & controls, cost and
economies of scale
Fair Trade Premium & Projects
• Customers (Dr.Bronner’s and 3rd parties) pay 10%
fair trade premium on price of fruits and labor.
• Generates some $ 50 – 200 K /year depending on
project size.
• Used for community development projects
selected by a committee involving all
stakeholders.
• So far 500 projects – small and large: health care,
education, water supply, soil fertility
• Compost plant
Key Issues &Challenges
WFTO Principles
• Buying from smallholders – Fair Trading Practices
• Help farmers improve soil fertility and farm productivity
– reduce sensitivity to global climate change
• Education, staff development, reverse rural exodus
• Job creation and staff development – man vs. machine
• Value added use of by-products – More sustainability
• Community development through fair trade projects.
• Challenges: Management & controls, cost and
economies of scale
WFTO Principles – For The Entire
Chain
• 1. Create opportunities for disadvantaged producers,
workers and communities
• 3. FT Practices: long-term respectful relationships. pricing &
payment terms to farmers / Regular and fair business
between Dr. Bronner’s companies and foreign buyers.
• 4. Payment of fair price: always profitable – premiums
(organic, quality of products)
• 7. Good working conditions (safety, respect, personal
development)
• 8. Capacity building – individuals and community
Commercial Fair Trade Projects –
An Opportunity
• Demand-driven commercial fair trade projects can
promote rural development as part of a trade relationship.
• A committed FT company offers demand, management
skills, technological and agricultural know-how, financing –
all key to sustainability
Fair Trade:
Good Management With A Strong Focus On
Community Involvement and
Empowerment?
What’s In It for Us ?• Dr. Bronner’s has spent some $ 4 million to set up our own projects
and pays significant premiums over “just organic” raw materials.
• Our fair supply chains give Emanuel Bronner’s vision of cooperation
between people and planet a modern content.
• The value in fair trade outweighs the cost – philosophically AND
economically:
� Control your product quality,
� Know your suppliers & support development of their communities,
enjoy the interaction.
� Well positioned and respected as a pioneering and credible brand in
an emgering field: organic and fair trade body care. Our growth and
profitability speak for themselves.
� We are inspiring other companies in the Natural Products Industry to
“Go Fair Trade”
THANK YOU
Oil Palm
Farmers
Basic Tenets of Organic and Fair
Trade Agriculture Projects
• Organic:
– no use of synthetic fertilizers, herbicides and
pesticides
– Improve soil fertility through natural means
• Fair Trade:
– Fair prices to farmers paid – prompt payment
– Fair wages and working conditions in field and factory,
no child labor
– Customers pay Fair Trade Premium to finance
community development projects
– Empowerment – of farmers and other stakeholders
So What Again is
Organic and Fair Trade?
• Farmers and workers can earn a living, are treated as partners, and
have potential for personal growth.
• By attracting educated, motivated technical and managerial staff, FT
supports rural life as an alternative to moving to the City
• Formation of farmers groups and associations supports
empowerment
• Organic farming and recycling of nutrients improve soil productivity
and yield and makes small-scale farming more profitable. Eliminates
exposure to pesticides / herbicides.
• Fair Trade premium train communities to execute projects.
Extracurricular projects promote business development.
Dr. Bronner’s Philosophy –in Two Lines
“We are brothers & sisters of the same ever-loving
father, and we must
work together to take
care of each other and
the earth.”