Branding Agricultural Commodities

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Project:New Business Models forSustainable TradingRelationships

Series:Topic Brief Series

Author:Chris Docherty

Branding AgriculturalCommodities: Thedevelopment case for

adding value throughbranding


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This paper is part of a publication seriesgenerated by the New Business Models forSustainable Trading Relationships project.The partners in the four-year project theSustainable Food Laboratory, RainforestAlliance, the International Institute forEnvironment and Development, theInternational Center for Tropical Agriculture,and Catholic Relief Services are workingtogether to develop, pilot, and learn from newbusiness models of trading relationships

between small-scale producers and formalmarkets. By working in partnership withbusiness and looking across a diversity ofcrop types and market requirements freshhorticulture, processed vegetables, pulses,certified coffee and cocoa the collaborationaims to synthesize learning about how toincrease access, benefits, and stability forsmall-scale producers while generatingconsistent and reliable supplies for buyers.

For further information see:www.sustainablefoodlab.org/projects/ag-and-development andwww.linkingworlds.org/

Please contact Abbi Buxton [email protected] if you have anyquestions or comments.

ISBN 978-1-84369-846-3

Available to download at www.iied.org/pubs

International Institute for Environment andDevelopment/Sustainable Food Lab 2012

All rights reserved

Chris Docherty is Chairman of the WestIndies Sugar & Trading Company Ltd,Barbados and a director of WindwardStrategic Ltd based in Bath, UK. Hisbackground is in establishing sustainablebrands in commodity markets with anemphasis on adding value to agriculturalproducers in the developing world. He hasextensive experience in the sugar and oilindustries and has held global positions withShell International. Through WindwardStrategic he works with a range ofinstitutions, governments and producers todevelop profitable branded supply chains inagricultural commodity sectors. He can becontacted at [email protected]

Research support was provided by

David Hebditch, Consultant to IIED.


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Chapter title 1

Branding AgriculturalCommodities: Thedevelopment case for addingvalue through branding

Table of contents

Executive summary 2

The case for commodity branding 2How commodity branding works 2Recommendations 3

1. The case for commodity branding___________41.1 How commodities drive development 41.2 Problems with commodities: the value

trap 51.3 Inequity and opportunities in the

buyer-powered market 61.4 A consumer-focused approach to

commodity chains 10

2. How commodity branding works 122.1 Four product brand types 122.2 Circumventing the barriers to

branding 17

3. Case studies: Barbados sugar andNamibian beef 223.1 Branding Barbados sugar 223.2 Branding Namibian Beef 243.3 Common lessons 26

4. Recommendations 27

4.1 Engaging consumers: Use expertisefrom other categories to developcommodity brands that are genuinelydistinct 27

4.2 Developing products: Use outsourcingto gain competitive advantage andcircumvent quality or standardsconstraints 29

4.3 Expanding markets: Create a portfolioof brands for a variety of markets andchannels 30

4.4 Managing resources: Invest in brandingthat fits producers appetite for risk andsources of funding 32

4.5 Maximizing infrastructure: Build onexisting organizations, using third

parties to fill expertise gaps 34

Conclusion 37

Selected bibliography 38

References 39


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2Branding Agricultural Commodities

2

The case for commodity brandingAgricultural commodities matter to development.Commodity products such as sugar, coffee orbeef contribute to over half of total employmentand more than a quarter of GDP in developingcountries, where over 1 billion farmers derive atleast part of their income from them. As most ofthese farmers are smallholders, raising the valueof commodities can do much to reduce poverty.

Unfortunately, the trend has been the opposite.Modern food chains place increasing importanceon branding, distribution and services, rather thanon farmers traditional role in supplying produce towholesale markets. As a result, primary producersof agricultural commodities have been capturingless and less of the total value of their products. Atthe same time, power has become concentratedin the hands of a small number of buyers themajor supermarket chains and manufacturers whodominate the global food market.

By branding commodities, producer countries

and organizations can reverse this growingimbalance. Branding creates consumer demand,giving producers leverage in negotiations withlarge buyers. Two case studies from thedeveloping world show the potential rewards:branding of Barbados sugar will capture overUS$1 million in added value for producers in2012 alone, while a Namibian beef brand isdelivering price premiums to farmers worthUS$25 million per annum.

The strategy of branding agricultural commodities

is neither new nor the preserve of mature states;successful cases show it is within the reach ofcountries and producer groups with limitedresources. Commodities are physically simpleand easily transported, and with the recentexpansion of outsourcing in sophisticated retail

and industrial markets, complicated operationsand in-country marketing experts are not requiredto add value to products. Yet many institutions andfarmer advocates assume that branding is toocomplex, expensive and risky to serve as adevelopment strategy.

This paper examines the potential for brandingagricultural commodities in developing countries.We look at how producers in these countries canexploit the same commercial marketing principlesand supply chain innovations commonly used in

the mature markets of the developed world.

How commodity branding works

Branding is not just glossy advertising. A brandcomprises all that distinguishes one product orservice from similar competitors fromadvertising and packaging to provenance andethics. For basic commodity products, it mayseem unlikely that consumers will recognize suchdistinctions, but the task is little different frombranding many other consumer products. There isno more physical variation between brands ofmineral water, for example, than types of sugar orbeef.

To distinguish one commodity product fromanother, branding efforts must combine marketingexpertise, an efficient supply chain, financialresources and effective organization. Brandsshould be seen as an integral part of makingsupply chains sustainable and profitable. This

means abandoning a classic mindset aboutcommodities: upon successful branding,commodities core value lies not in the physicalproducts but in the brand intellectual propertyowned in the country of origin.

Executive summary


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RecommendationsIn the developing world, efforts to brandagricultural commodities must overcome a seriesof constraints to reach markets, meet internationalstandards and satisfy the expectations of buyers.Countries also need mechanisms to encourageprivate investment in branding while ensuring thatproducers benefit.

These barriers can be circumvented through afocused, strategic approach. The building blocksof branding are consumers, products, markets,resources and infrastructure, and commoditybranding strategies in developing countriesshould address each of these five elements:

Appeal to consumers by developing brandedproducts that communicate meaningfuldifferences from competitors.

Developproducts around the core strengths ofthe country or company. Gain competitiveadvantage by using outsourcing to circumventinternal weaknesses and external constraints.

Target diverse markets,including domestic,regional and export markets; and offer aportfolio of brands, including niche andmainstream products.

Make the most of limited resources byattracting seed funding and investing inbranding that fits producers appetite for risk.

Build on the infrastructure of existingorganizations and use third-party facilitators tofill gaps in expertise.

By carefully leveraging these building blocks,countries and companies can create globallycompetitive brands with long-term added value,bringing development benefits to farmers and thecommunities that depend on them.

By branding commodities,producer countries can reversethe growing imbalance in powerbetween them and the majorsupermarket chains andmanufacturers.


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Defining brand and commodity

Brands have been defined variously as the public

image of a business, product or individual,1

areason to choose,2the intersection of promiseand expectation3and even love marks.4

Similarly, definitions of commodities range fromthe very simple, a raw material that can bebought and sold,5to the ideological, capital iscommodities,6to the more complex, a good forwhich there is demand, but which is suppliedwithout qualitative difference across a market.7

In this paper we deliberately take a narrowapproach to a complex field and confine ourselves

to product brands that are proprietary throughintellectual property such as trademarks. Whendiscussing commodities, we include agricultural

products such as sugar, bananas, cocoa, cotton,beef and milk while excluding manufactured

goods with multiple ingredients such aschocolate.8

In brief, the definitions used here are:

Brand:Intellectual property that distinguishesone product from another.

Commodity:Primary agricultural producttypically traded in bulk with minimal processing.

1The case for commoditybranding

Agricultural commodities play an important role indevelopment. But traditional commodity trading,based on exporting produce in bulk at low prices,

limits how much of the profits from these productsflows to producers in developing countries. In thissection we explore how a non-traditional approach based on marketing and supply-chain principlescommonly used by large multinational companiesto develop profitable agricultural brands in maturemarkets can help small-scale farmers tocompete in the global economy.

1.1 How commodities drive

developmentOf 141 developing states, 95 depend oncommodities for at least half of their exportearnings,9including the majority of LandlockedDeveloping Countries and Small IslandDeveloping States. In 2000 the seven maintropical commodities sugar, cotton, coffee, tea,rubber, cocoa and tobacco accounted for 61per cent of all agricultural exports from LeastDeveloped Countries.10

KEY MESSAGES

Agricultural commodities such as sugar, coffee and beef are major income sources for developingeconomies as a whole, and small-scale farmers in particular. But a handful of large retailers and

global manufacturers are using their dominance to collect an increasing portion of the total value ofthese products, at the expense of producers.

Establishing effective agricultural brands can gain farmers in developing countries a competitiveadvantage in these buyer-driven global markets. Brands distinguish one product from another inthe minds of consumers, giving producers leverage with buyers and allowing them to succeedagainst much larger competitors in mature markets.


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The case for commodity branding 5

Beyond sheer scale, commodity chains areimportant to developing economies because ofthe widespread participation of small-scalefarmers. More than 1 billion of the 2.5 billionpeople engaged in agriculture in the developingworld derive a significant portion of their incomefrom export commodities, partly enabled bywell-established supply chains, trade practices,standards, distribution and markets that lowerboth the costs and the risks of participation forsmallholders.11Most of the worlds poor live inrural areas where production of agricultural

commodities is the main source of income. Overhalf of all Africans, for instance, live in rural areaswhere commodities represent the single largestsource of income,12and 6070 per cent of theserural people are classified as poor. Generatinggreater value from agricultural commodities cantherefore be one of the most effective means ofalleviating rural poverty:13the rate of growth in thetotal revenue generated by commodities isstrongly correlated with the rate of overall povertyreduction.14

1.2 Problems with commodities: thevalue trap

Commodity markets have historically beendominated by bulk trading of products such assugar, cotton or beef all undifferentiated, easilysubstituted primary products sourced frommultiple locations. Although these supply chainshave facilitated the participation of smallholders,

they have also been characterized by highvolatility, long-term downwards price trends andconcentration of buying power (Fig. 1). Moreover,the value of the commodities is increasingly beingshifted away from developing-world farmers andbusinesses. Todays markets are developing avalue trap that transfers income downstream inthe supply chain.

Jargon buster

Brand:Intellectual property that distinguishesone product from another.

Category:A set of products that have strongshared characteristics. In supermarkets,

products are managed by categories (e.g. thesugar or coffee category), and each categoryincludes a series of competing andcomplimentary products.

Commodity:Primary agricultural product

typically traded in bulk with minimal processing.

Downstream:Downstream businessactivities deliver a product to the point of sale.These typically include sales, marketing,

processing, packing and distribution activities.

Intellectual property:A legal device thatallows ownership of a brand (e.g. a trademark)

Marketing: The process and activities thatcontribute to the image and sales of a brand.

Margin:The profit, normally defined as apercentage of the sale price, that is madewhenselling a product.

Premium:A premium brand is typically aproduct that consumers perceive to be superior insome way to similar competitors. This usuallyresults a higher price (a price premium).

Outsourcing: The contracting of a companysoperations or services to third parties.

Promotion:An activity that promotes the sales

of a product.

Supply chain:The chain of activities involvedin physically moving a product from the primary

producer to the end customer.

Upstream:Upstream business activities resultin the production of a product. These typicallyinclude harvesting and primary manufacturingand quality-control processes.

Value chain:The chain of activities involved inadding monetary value to a product from the

primary producer to the end customer.


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Between 1995 and 2005, rice, palm oil, sugar,cocoa and coffee prices fell by up to 50 per centbefore sharply recovering in 2009. This volatilityhas been exacerbated by the dominance of a fewcompanies; for example, Chiquita, Dole and DelMonte represent 59 per cent of total global salesin the banana market. Multinationals like thesehave driven down profit margins for upstreamprimary producers, exporters and processors inthe developing world while maximizing corporateprofitability through marketing, sales anddistribution downstream activities in maturemarkets. Even though bananas need minimal

downstream processing, less than 12 per cent oftheir total retail value goes to producing countriesand only 2 per cent to farmers.15Similar patternsare repeated for a host of other commodities:

Cocoa:The portion of retail value captured bydeveloping countries, measured as the exportvalue of cocoa beans, cocoa products andchocolate, declined from around 60 per cent in197072 to 28 per cent in 19982000.16

Coffee:the percentage of total retail value

paid to coffee growers and producers declinedfrom 27 per cent in 19711980 to 6 per cent in19891995.

Cane sugar: Major EU sugar companiespurchase sugar from producers in the African,Caribbean and Pacific (ACP) group of states atUS$603 per tonne and sell it to retailers formore than US$1,783 per tonne,17with lessthan 28 per cent of total retail value captured inthe developing world, down from 39 per cent in2008.

The value captured from these products bydominant commodity companies demonstratesthe power of branding and scale. Although the

raw numbers mask costs for back-officeoperations, packing, sales, marketing, distributionand quality control, they still reflect significantvalue added by branded downstream operations.Thanks to this reliable added value, after typicallymore than a century of trading, commoditycompanies such as Tate & Lyle and General Millsare cornerstones of consumer markets, whilethose like ADM and Cargill lead the business-to-business sector.

1.3 Inequity and opportunities in thebuyer-powered market

The trend away from traditional commodity tradingtoward buyer-driven value chains controlled bylarge retail, food service or manufacturing firmshas had serious implications for the livelihoods ofthe rural poor. As global retailers such as Walmartand Tesco become increasingly dominant, thequality and traceability standardsthey impose onsuppliers are making it more costly andcomplicated to enter the global food chain.18

Chiquita logo fragglerawker @flickr

Tesco aleutia @ flickr

Walmart Walmart Stores @ flickr


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Large buyers also leverage their purchasingpower, expertise and resources to drive downprices and negotiate trading terms that minimizebuyers risks. On a global scale, verticalintegration business models, in which onemultinational company physically controls allstages of the supply chain from ownership offarms through to distribution in mature markets,have been replaced with vertical coordination the use of supply agreements with independentfarmers, transferring the risk of production fromthe multinational to producers.

There is a growing gap between smallholderfarming in developing countries on one side andlarge-scale agribusiness on the other, with mostsmaller, family-scale enterprises left as residualsuppliers to bulk commodity or wholesalemarkets.19In this situation, a relatively smallnumber of buyers drive fierce competition amonga large number of suppliers in the developingworld, with the result that value is transferred tothe end consumer in mature markets. This is best

illustrated by the UK retail market, where fivesupermarkets control 72 per cent of all retail salesand have aggressively passed on procurement-driven cost savings in order to increase theirmarket share.

But the buyer-powered market also represents asignificant opportunity for increasinglydisenfranchised producers in the developingworld. There is a crucial difference betweenbuyer-driven and bulk commodity chains: forbuyers such as the dominant supermarket chains,

the end consumer is king. This can prompt asingle-minded focus on price in undifferentiatedproduct categories such as bananas, where retailprices have fallen from US$1.69/kg in 2001 toUS$0.92/kg in 2011, in order to generate footfall.But it also means that producers can rectify someof the imbalances in these chains if they canpersuade end consumers that their product isdistinctive enough to displace establishedcompetitors on supermarket shelves or attract aprice premium. The key to this is branding.

Figure 1: The supply chain bottleneck in Europe

In the supply chain for agricultural products sold in European supermarkets, the bottleneck is a small numberof buying desks. Power is therefore concentrated with these buyers. Source: ref. 20.

Consumers: 160,000,000

Customers: 89,000,000

Outlets: 170,000

Retail formats: 600

Buying desks: 110

Manufacturers: 8,600

Semi-manufacturers: 80,000

Suppliers: 160,000

Farmers/ producers: 3,200,000

Power


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Whats in a brand?

A brand is not simply the slick ads seen on TV,online or in magazines (thats advertising), it is not

packaging or logo (thats design), and it is notarticles or blogs about the brand (thats publicrelations). A brand, as we define it, is everythingthat distinguishes one product from another.

Under this broad definition, brands range from thevery basic to the sophisticated: cattle brands, forexample, have changed very little from their first

use in ancient Egypt to simply denote ownership,21

whereas the Pink Lady apple brand is the result ofcomplex Intellectual property and supply chainstrategies.22Fundamentally, however, there islittle difference between simple and complexbranding.23The brands on those Egyptian cattlethousands of years ago and the sticker on a Pink

Lady apple today have similar potential to add to,or detract from, the products perceived value.They trigger various associations in differentconsumers, including ownership, trust, reputationand quality. In ancient Egypt this would depend on

whether the consumer knew the estate or templethat owned the cattle, how the owner treated theanimals, whether that owner had a reputation forhonesty, the number of cattle kept and the estatessocial prestige. Similarly, an individuals reactionto a Pink Lady apple including the decisionwhether to choose, and pay more for, a Pink Ladyover the other apples on the shelf will depend onwhether that person knows something aboutthe

product, has tried it before or has a positive imageof the brand, as well as on how other people see it.

All these factors make up more than a mark on adomesticated animal or piece of fruit; they form abrand that strongly affects how people see fairlysimple products and distinguish between them.The aspects of a brand that set it apart from othersinclude product quality, consistency and origin,

packaging, supply chain, management, ethics,pricing and the marketing disciplines that supportthe branding process. Typically, the brand ownercreates this package of unique traits in order to

generate value for a business or organization. Thisprocess is illustrated in Figure 2.

Figure 2: How brands influence consumers

The circle at left shows the six main factors that distinguish a brand in consumers minds. By taking controlof these factors and marketing them, producer countries or organizations can bypass buyers and influenceconsumers directly (dotted arrow) resulting in purchase by consumers, leverage with buyers and addedvalue for producers.

OUTLET

(e.g.supermarket)

PRODUCER

(e.g.cooperave)

DemandAdded value

from branding

FeedbackPurchase

BRAND

Delivery SupplyEcient

supply chain

Distribuon

MARKETING

e.g. adversing

BUYER(e.g. retailer)

COMMUNICATIONS& PROMOTIONS

POSITIONINGPRODUCTQUALITY

ORIGIN &ETHICS

PRICING

PACKAGINGPLACEMENT &AVAILABILITY

CONSUMER


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Why brands matter

Ownership of a brand, through intellectualproperty such as trademarks or similar legaldevices, can have enormous value. This value iscommercial in nature, allowing the brand owner to

persuade customers to buy larger volumes or paymore than they would for competing products, butis also increasingly seen as a long-term asset on acompanys balance sheet and as an integral part ofits reputation.

Although techniques of brand valuation are varied

and often complex, one of the more rigorous means,pioneered by the global research group MilwardBrown, combines an organizations financialperformance with quantitative consumer researchthat determines how consumers distinguishbetween brands.24By this measure, the value of theworlds top 100 brands appreciated by 17 per cent toa total value of US$2.4 trillion in 2011. The largest

food and drink brand on the list, Coca Cola, is insixth place and worth more than US$73 billion25 a value larger than the total annual GDP of 131

individual countries, and more than that of thepoorest 44 countries combined.26Even intraditional commodity categories such as sugar,the Tate & Lyle brand was worth US$1.5 billion in2010, representing 32 per cent of the companystotal market capitalization and a significantmultiple of its physical assets.27

But this value equation has a negativecounterpart. Although brands can undeniably be

good for their owners, questions have been raisedas to how good they are for society at large.

Naomi Klein, in her book No Logo,28argues thatglobal brands generate net negative social equitythrough outsourcing to unregulated free-trade

zones and unethical consumer targeting.

Ultimately, however, brands are very much acreation of the companies or institutions thatown them. Just as there are undoubtedlyunethical companies, there are many stronglyethical ones whose brands assist in their social orenvironmental impact. Here we seek todemonstrate that branding can make positivecommercial and ethical contributions to thecommodity sector.

Tate and Lyle clagnut @ flickr

Branding is seen as a long-term

asset on a companys balance sheetand as an integral part of itsreputation.


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1.4 A consumer-focused approachto commodity chains

Producers in the developing world can rebalancevalue chains by applying the same principles ofbranding and supply chain managementused byagribusiness in mature markets. In this way,farmers can retain more of the value generated bytheir agricultural commodities and ensureeffective control over their supply chains.

Even in global commodity chains where large

buyers are at an advantage, end consumersultimately hold the power over how value isdistributed. Although the sheer scale of large retailchains affects consumer behavior, the chainssurvive in a highly competitive environmentprimarily by tracking evolving consumer trendsand responding rapidly often investing

considerable sums in the process. In 2009, Tescospent US$235 million to relaunch its 15-million-member loyalty card, through which the companyboth measures and rewards specific consumerbehavior.30By connecting with this sameconsumer base through branded products,suppliers can gain much-needed leverage(Fig. 3).

Two trends associated with the move fromcommodity to buyer-driven value chains offeropportunities for producers to appeal to

consumers and gain negotiating power withbuyers.

Demand for authenticity. Consumers inmature markets, and increasingly in developingones, are becoming more sophisticated andlooking for provenance, authenticity, qualityingredients and seasonality of food.31

Figure 3: Circumventing the buyer bottleneck through branding

When producers circumvent the buyer bottleneck (Fig. 1) by developing a brand and marketing it toconsumers (dotted arrow), the resulting consumer demand and producer leverage both apply pressure onbuyers. Adapted from ref. 29.

Consumers: 160,000,000

Customers: 89,000,000

Outlets: 170,000

Retail formats: 600

Buying desks: 110

Manufacturers: 8,600

Semi-manufacturers: 80,000

Suppliers: 160,000

Farmers/ producers: 3,200,000

Consumers

Retailers

Farmers

leverage

demand

markeng

BRAND

Boleneck


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Developing-world producers are well-placed todeliver distinctive products that meet theseconsumer needs.

Outsourcing of downstream activities.Outsourcing is no longer restricted to classicupstream activities; it increasingly coversdownstream elements, including packing,distribution, sales and marketing. Withdownstream outsourcing well-established inmature markets, developing-world producerscan add value to their products and circumvent

capacity constraints without high capital orpersonnel investment, by contracting outexpertise and physical production in secondaryprocessing, marketing or sales.

Given the physical simplicity of commodities andtheir ease of storage and distribution, brandingthem does not typically require the sorts ofcomplex and expensive changes in supply chainsand quality standards that are necessary in other,more processed or perishable, sectors. But thereare other important constraints on commodity

brands, and in the next section we explore how toaddress them.


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Product brands come in four types, and theelements of successful branding efforts indeveloping countries can be divided into fivebuilding blocks. Here we explore thesefundamentals and review examples of how theyhave been used to build profitable, sustainablebrands.

2.1 Four product brand types

Developing-world producersand the institutionsthat support them can draw lessons from cases in

which companies have added value to agriculturalcommodities through branding. Here we focus onproduct brands rather than service brands, aimedat consumers rather than businesses, and we lookat four common types of product brands (Fig. 4).32

2.1.1 Producer brands

Chiquita bananas are a good example of how thebrand of a traditional private-sector producer hasevolved the agricultural commodity sector. Thecompany Chiquita Inc. owns the character MissChiquitaas a trademark (registered in 194433),which distinguishes its bananas from those ofother suppliers and adds value both at the retail

level and as a business-to-business device. Netsales of Chiquita bananas were US$1.9 billion in2010, just over a quarter of the world market,driven by innovative branding and supported bystrong domestic distribution and an integratedsupply chain.34

Branded Chiquita bananas sell for higher pricesthan those of their competitors in most retailmarkets even though there is little physicaldifference between their products and those fromother producers a single banana variety,Cavendish, dominates the category. This price

premium in part reflects the rescue of a brand thatin 1992 was tarnished by labor, social andenvironmental issues affecting primaryproducers.35Since then, Chiquita has built ethicalcredentials through participation in the BetterBanana Initiative and work with the RainforestAlliance, and has undertaken innovative marketingto differentiate its products. Thus, Chiquita nowstands out in an industry where producerstypically do little more than apply simple labelsadvertising a company logo.

Fruit is not the only sector where producers aretaking innovative approaches to commoditybranding. Indeed, producer brands have been

2.How commodity brandingworks

KEY MESSAGES

Commodity brands represent potentially valuable intellectual property, which can be owned bycompanies, countries, producer collectives or certification bodies.

The four types of product brand producer, varietal, geographical and certification brands varyin ownership and how they are used to create an advantage for the brand owner.

Five perceived barriers have limited the branding of agricultural commodities in the developingworld: consumers who do not distinguish between physically similar commodity products, productsthat cannot meet export standards, markets uninterested in smallholder produce, and gaps inresources and infrastructure. But successful cases show that all these barriers can be circumvented.


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How Commodity Branding Works 13

successful in categories seldom associated withbranding. Bolthouse Farms, a 35,000-tonne-per-

annum US carrot producer, has reversed along-term sales decline in key US markets byselling baby carrots in snack food-style foil packswith cartoon images aimed at children.36TheRooster Potatoes produced by Albert Bartlett Ltd.are delivered to UK consumers in brandedpackages to raise the product above regular loosepotatoes; the brand is valued at US$47 million.37Arla, a Scandinavian milk producer, hasdeveloped Cravendale filtered milk into a US$107million UK brand, sold for up to US$0.28 moreper liter than competitors.38Similarly, Florette hasestablished itself as one of the few branded offersin the salad category, with sales of US$525million in 2010 and growth of 5 per cent above the

Figure 4: Four common product brand types

Purpose Examples Ownership Legal device

Pro

ducer

brands

Disnguish

between

dierent

products and

their producers

Chiquita

bananas

Jablum coee

Plantaon

Reserve sugar

Typically primary

producers or

processors

Trademark

Varieta

l

brands

Disnguish

between

dierent

variees of

product type

Pink Lady

apples

Tenderstem

broccoli

Zespri kiwi

fruit

Typically the

owner of the

variety in

queson

Trademark

with associated

patent

Geograp

hica

l

brands

Disnguish

products

through their

geographical

origins

Darjeeling tea

Champagne

Idaho

potatoes

Typically public

sector bodies or

regional

associaons

Geographical

Indicator or

Appellaon of

Origin

Cercaon

brands

Disnguishproducts

through ethical

or social

standards

FairTrade Rainforest

Alliance

Organic

Typicallycercaon

bodies

Trademark

Cravendaleadav@fl

ickr


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overall market.39These examples echo theexperience of traditional commodity players suchas Tate & Lyle, Cadbury and many tea and coffeecompanies, who have established profitablebranded offers across mature markets.

2.1.2 Varietal brands

Varietal brands share many of the characteristicsof producer brands but work in slightly differentways to distinguish between products inagricultural commodity categories. The case ofPink Lady apples serves to highlight thesedifferences.

Pink Lady is the brand name for a patented applevariety, Cripps Pink, established through naturalbreeding techniques in Australia. In 2010 thebrand had a share of almost 9 per cent of the UKapple market and was worth over US$85 millionin sales at an average retail price premium of 38per cent above unbranded apple varieties.40Although the effect of branding is similar to thoseof producer brands discussed above, neither thevariety nor the brand is owned by producers. Thebrand and variety owner allows production andbranding under license (producers pay a levy to

the owner) and imposes strict quality standards.

The benefit to producers is an established marketfor their products at a premium price, with thebrand owner ensuring that Pink Lady is marketedeffectively and supported by strong product andsupply chain management. This outsourcedapproach delivers differentiated products tomarket while circumventing classic problems withexport markets and global supply chains.

Pink Lady has therefore been called thebenchmark for branded agriculture and food.41Jazz and Sundowner branded apples, Zesprikiwi fruit and Tenderstem broccoli follow asimilarly successful supply chain and marketingmodel.

Florette

myfruit.i

t@fl

ickr

Pink

ladyiainsimmons@fl

ickr

TenderstembroccoliGeoblogs@fl

ickr


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2.1.3 Geographical brands

A geographical indicator is a branding tool thatgives a product an assurance of distinctivenessattributable to its origin in a defined geographicalarea.42Whereas Chiquita bananas are sourcedfrom multiple countries, and Pink Lady applesgrown under license around the world,geographical indicators are defined by a singlelocation. The case of Darjeeling tea illustrates thekey advantage of these indicators that brandownership is registered to the country of origin.

The Darjeeling region of India produces a uniquetea product primarily due to geographical andclimatic factors, including high humidity andrainfall, elevated cultivation, specific soil types andsteep drainage gradients, but also due to thewidespread use of traditional processingmethods. Almost three-quarters of Darjeeling teais exported, with a value of US$30 million peryear. Registration of Darjeeling as a geographicalindicator has led to more effective policing of theuse of the term through Compumark, an

intellectual property monitoring agency, but alsogenerates a license fee for producers payable bythe packer, which varies by country of export.43

The fact that Darjeeling tea is physically differentfrom other teas helps the brand, but is not critical.Although Champagne is registered as ageographical indicator and has acquired obviousvalue exports were worth US$2.57 billion in201044 almost identical grapes and methods areused in other parts of the world to produce muchless valuable sparkling wines that, nonetheless,

often surpass real champagne in blind tests.45

From Idaho potatoes to Stilton cheese, there isclear value in geographical indicators.46Butalmost 90 per cent of the 10,000-plus productsregistered with one of three types of geographicalindicators under Article 22 of the World TradeOrganizations Agreement of Trade RelatedIntellectual Property Rights (TRIPS)47are frommature markets. The exceptions, includingDarjeeling tea and Jamaican Blue Mountaincoffee, demonstrate the potential value ofgeographical brands. These indicators are mosteffective, however, when consumers in export

markets already have some awareness of theproducts origin and positive associations with it;in this case, the brand will still require ongoingprofessional management to remain commerciallyrelevant and sustainable in the long term.

2.1.4 Certification brands

Although not traditionally classed as brands,ethical and social certification marks such asFairtrade and Rainforest Alliance have become so

widespread and sophisticated that they oftenbehave in much the same way as the producerbrands outlined above. The main certificationbrands are large and increasingly valuableintellectual properties in their own right: US$4.3billion of Fairtrade certified products were sold in2009 alongside US$12 billion of their RainforestAlliance equivalents,48while sustainable coffeesales (those certified as 4C, UTZ, RainforestAlliance, Fairtrade or Organic) made up 392,000tonnes, or nearly 10 per cent, of the world market

in the same year.

49

A key distinction from producer brands is thatcertification is most often used to add an ethicaldimension to an existing product brand. The linkbetween Chiquita and Rainforest Alliance is agood example of this,50as is the widespread useof the Fairtrade mark on Tate & Lyle sugar.51

FairtradelogoTonyChocolonely@fl

ickr


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Increasingly, however, producers who areunwilling or unable to invest in building a brand arelooking to add value to their products by sellingthem to intermediaries and retailers under theselabels bananas in UK supermarkets, forexample, might have a Fairtrade sticker but noother form of brand identification. This helps todistinguish a more expensive but ethical productfrom an almost identical generic competitor and is

attractive to producers because some sort ofprice or social premium is typically built into thecertification model. It also represents anopportunity for supermarkets to raise the value oftheir own branded products (such as genericTesco bananas) by adding an ethical dimensionto their brand while retaining the freedom tosource from multiple producers and theassociated buying power.

Water: the ultimate branded commodity?

The exponential growth in brands of bottled wateroffers a challenge to the argument that physicallysimilar, easily substituted agriculturalcommodities present very little opportunity forniche branding.

As journalist Charles Fishman writes, thecontinuing success of water brands provides thedeveloped world with twenty or thirty varietiesof something for which there is no actualvariety.52

Effective marketing for Perrier starting in the1970s made the entire category of bottled water not

just acceptable but desirable over the next 40years, creating a global industry worth more thanUS$60 billion, with sales of 115 billion liters in2008.53

And despite a clearly negative environmental andsocial impact, Evian, the best-known water brandtoday, has a turnover of more than US$750million based on a retail price of US$1.42 per liter

more than 710 times the average cost of tapwater.54

Given that there is noobvious physicaldifference betweenbottled water products,the impact of brands inthe water industrysuggests traditionalagriculturalcommodities are equallyripe for branding.

Evian San Francisco Fred @ flickr

Perrier Nestle @ flickr


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2.2 Circumventing the barriers tobranding

If brands generate clear commercial value andleverage with buyers in an environment that isincreasingly unfavorable to developing producers,and have been applied effectively to a range ofcommodities, why are they not more widespread?Policymakers and development institutionstypically point to several apparent problems withbranding of agricultural commodities, primarilyrelated to producers limited capacity to pursue

branding strategies55In this section we discussthe most common explanations for the fact thatcommodity producers seldom take a consumer-led approach, and show how these perceivedbarriers can be circumvented.

Concerns about commodity branding indeveloping countries point to five areas consumers, markets, products, resources andinfrastructure (Fig. 5) as do the solutionsdeveloped by successful brands.

2.2.1 Consumers

The barrier: Commodities do not represent asustainable branding opportunity because oftheir physical similarity with competing products

and the expertise gaps in producer countries.To succeed, brands must convince consumersthat the product is special distinct in some wayfrom similar competing products. Manydevelopment professionals assume that basic

Figure 5: The building blocks of branding

Effective branding requires basic infrastructure at the producer level, including clear intellectual propertyownership and organizational capacity; the human and financial resources to carry it out; a supply chain todeliver products effectively to targeted markets; and consumer demand at the point of sale.

Ecient,

compliant,

consistent,

Supply chain

Funding

Experse

Intellectual Property

Organisaon

Targeted channels

& markets

Posioning

Communicaons

Packaging

Pricing

Category Management

Consumers

Buyers

Farmers

supply

demand

1. CONSUMERS

2. MARKETS

4. RESOURCES

3.PRODUCTS

5. INFRASTRUCTURE


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commodity products cannot be profitablybranded, given that they can easily be substitutedby competitors offerings and that high levels ofmarketing expertise and experience in newproduct development are required to buildattractive brands that compete profitably withestablished global players.

The solution: Use expertise from othercategories to develop commodity brands thatare genuinely distinct.

The commodity categories of highly competitive

markets are typically defined by a lack of

consumer interest in the differences betweendifferent products or brands.It therefore requiresa creative approach to offer customers somethinggenuinely distinct. All the products described insection 2.1 including bottled water deliverclear benefits to end customers regardless ofphysical product differentiation. Marketingexpertise is needed to identify and communicatethese benefits, and supply chain expertise todeliver them consistently. But the successes ofbeers and other beverages from developing statesshow that such expertise is available to producers

in these countries.

The case of beer: marketing successes from developing countries

Consumers in mature markets are sophisticated,while competitors and retailers are typicallyaggressive and there are real capacity issues indeveloping states, as evidenced by the limited numberof cocoa or sugar brands from these countries on the

shelves of supermarkets in the EU and US. But acursory review of beers manufactured, branded andexported from developing states, including Least

Developed Countries in Africa, provides acounterpoint. These number in the hundreds, andtypically dominate the domestic market, often incompetition with international brands such as

Heineken, as well as providing an export revenue stream, withexports sold primarily to the diaspora from each country. In

principle there is little difference between branding and exportingbeer versus any other locally produced product, despite some

peculiarities in the acceptance of beverage brands by maturemarket.56

A good example is Red Stripe beer in Jamaica, manufactured bylocal beverage company Desnoes & Geddes, which produced morethan one million cases annually prior to their acquisition in 1993 byGuinness (now Diageo). Other similar cases include Jose Cuervotequila from Mexico, Mount Gay rum from Barbados, and FijiWater. One factor in these successes is in ease of transportation,non-perishability, relatively good market access and a nicheaudience. Nevertheless, they show that branding expertise andexport development is not restricted to mature markets and could be

applied to commodity categories.

Red Stripe bottle Nicholas Laughlin @ flickr

FijiwaterbottleChaseLindberg@flic

kr


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2.2.2 Products

The barrier: Products from developing-worldproducers will not be of consistent quality or willfail to meet export standards.

The governance and processing required to boostthe value of branded products is expensive andrequires expertise in procurement, purchasingand supply chain development, as well as anability to manage suppliers over time. To gainaccess to markets and acceptance from buyers,producers also need to offer a consistent supplyand comply with export market standards.

The solution: Use outsourcing to gaincompetitive advantage and circumvent quality orstandards constraints

Even where a physical product is notfundamentally different from competitors, it stillneeds to be clearly distinctivethrough packaging,availability, origin, consistency, quality, ethics,positioning or services. The successful brands

described above are all supported by an efficientsupply chain that is commercially viable at alllevelsfrom producer through to exporter, importer,wholesaler, distributor, customer and endconsumer, that effectively conforms to appropriateregulations in export markets and that consistentlydelivers on brand claims.

From a development perspective, the advantageof focusing on traditional agricultural commoditiesis that relatively little additional processing orquality control is needed to meet consumer

expectations and regulatory requirements inmature markets. Tate & Lyle, for example, brand,package and retail raw cane sugar in the UKdomestic market with little more than a quality-controlled packing operation. This is mirrored inCadburys production of branded cocoa powder,which is simply roasted, pressed, ground andpackaged cocoa.57Outsourcing is nowcommonplace in downstream activities such asquality control, secondary processing,manufacturing of packaging, and supply-chainmanagement. As a result, producers from thedeveloping world can replicate the types ofoperations seen at Tate & Lyle and Cadbury if they

intelligently outsource some of their supply chain.Outsourcing has the potential to circumventclassic capacity constraints and ensure thatimported products conform to standards such asISO 9002 and British Retail Consortium (BRC)accreditation without the need for largeinvestments in capital or personnel. The resultcould be a much more level playing field.

2.2.3 Markets

The barrier: Buyers will not purchase commoditybrands from the developing world in sufficientvolume to make a difference.

Regardless of their potential value to theconsumer, producer-branded commodities arehampered by competition with much largermultinational companies and the difficulty ofengaging with major buyers in retail, food serviceor manufacturing channels. Although brandedagricultural commodities are already sold in large

volumes by existing importers and processors,there are real market limits. Direct branded salesthrough retail stores account for a relatively smallpart of commodity markets; in the UK sugarmarket, they represent less than 25 per cent of thetotal, with the remainder in food service (e.g.restaurants) and ingredients (e.g. manufacturers)channels, where products are typically notbranded to the end consumer.58In addition, thedominance of large retailers and their own-labelbrands means that 38 per cent of food is now sold

under these labels.59

The solution: Create a portfolio of brands forappropriate markets and channels.

Branding of a commodity need not be restrictedto export or retail markets, and in fact it can helpproducers to access alternative channels for theirgoods. Although this paper does not focus onbusiness-to-business brands, we note that brandsoffering quality, provenance, service or otherattributes backed by an effective supply chain cancut out middlemen and enter those segments ofindustrial markets that are not driven purely byprice. Upscale restaurant chains are interested in


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How Commodity Branding Works21

rely on several other basic systems, not all ofwhich can be outsourced. These include arelatively stable business environment andlegal system that ensures the security of bothphysical and intellectual property, goodtelecommunications and internet links, a reliablesupply of raw materials, access to a labor forcewith the necessary skills, and consistent taxationpolicies.

Still, most countries do possess sufficientinfrastructure to brand their commodities. The fact

that brands exist in, and are exported from, almostall countries in the world even if ownership ofthe brands in question is often by mature marketcompanies shows that this basic infrastructureis in place. Branding programs may, however,need help from third-party facilitators such asdevelopment institutions to ensure the brandedproducts find a profitable nicheand that primaryproducers benefit from this. Facilitators can helpin-country organizations realize the key benefitcommon to branded supply chains through avariety of models, they allow producers to capturea larger portion of the total retail value of theirproduct.

Other barriers to commodity branding are drivenby classic mindsets about commodities, atraditional approach to capacity constraints and abelief that consumer-led branding operations incommodity sectors require significant expenditureand risk with little potential for real rewards. Weargue throughout this paper that many of thesetraditional assumptions are fundamentallymistaken. Branding as a means of ensuring that aproduct is distinctive and owned by producerscan add measurablevalue to agriculturalcommodities if approached from a consumer-

driven commercial perspective. This is bestdemonstrated by the results from two specificcommodity brands.


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To see how the building blocks of branding cometogether in practice, we will look in depth at two

branded commodities that have broughtsubstantial rewards to producers: sugar inBarbados and beef in Namibia.

3.1 Branding Barbados sugar

Although not as important as it once was, sugar inBarbados remains key to foreign exchangeearnings, rural employment and the environment.As in other small island developing states,however, the small scale of productionand high

relative wages mean that Barbados sugar cannotcompete on price in the world market. Theindustry has incurred significant losses in recentyears, exacerbated by the reduction in EU pricesubsidies from 2004, after the World TradeOrganization challenged the EUs preferentialtrade agreements with African, Caribbean andPacific (ACP) states.61

To reverse these losses, the West Indies Sugar &Trading Company Ltd. (WISTCO) wasestablished in 2007 as a partnership between thegovernment of Barbados and the private sector,with a mission to build a sustainable business that

supports the Barbados sugar industry through thedevelopment of a portfolio of sugar brands for

profitable export. The company pays producersmore than double the typical Fairtrade price forselected large-crystal cane sugar.62Prices paid tothe nationalized sugar company are determinedon a cost plus basis, with farmers receiving afixed percentage of revenue, to ensure that everylink in the supply chain is sustainable.

Despite paying high prices, WISTCO profits fromevery tonne of sugar sold. The key is effectivebranding, which lets the company pass on thehigh costs of production through premium pricing

in upscale stores. In the mass market, itsoutsourced business model reduces downstreamcosts and cuts out traditional intermediaries in

3.Case studies: Barbados sugarand Namibian beef

KEY MESSAGES

Branding of Barbados sugar has offset a disadvantage in production costs and will capture overUS$1 million in added value in 2012 alone. A Namibian beef brand overcame compliance costs andnow delivers price premiums to farmers worth US$25 million per annum.

Common factors in their success included aggressive outsourcing; a multi-channel, multi-product

portfolio approach to branding; diversification into local, regional and export markets; public-sectorsupport; and a foundation in existing organizations.

The core value of these companies lies not in their physical products but in their intellectual property their branding. This provides leverage in negotiations with buyers and long-term value to thecompanies and the communities that depend on them.

West Indies Sugar Logo The West Indies Sugar & TradingCompany Ltd, Barbados


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Case studies: Barbados sugar and Namibian beef23

order to ensure commercial viability. In 2012,WISTCO will purchase almost two-thirds of thefood-grade raw cane sugar produced in Barbados with most of the remainder going to the

domestic market and will deliver over US$1million in added value to the industry.63

WISTCO has applied private-sector marketingprinciples to a commodity category in whichinnovation and brand management have otherwisebeen limited. The resulting portfolio of brands,under the Plantation Reserve and PlantationTraditional trademarks, have been well received bymedia, consumers and trade partners. Their retaildistribution comprises over 1,400 UK stores,including Waitrose supermarkets and Harrods,and over 200 more stores across the EU and theCaribbean where the company markets itsproducts to the 500,000 annual tourists fromEurope.64

To establish a branded supply chain with minimalinvestment, and to circumvent classic constraintson market access, quality standards anddownstream capacity, WISTCO was establishedon the basis of three operating principles:

1. Outsource everythingnot related to core

activities in consumer marketing and suppliermanagement.

2. Do things differently to give the company andBarbados sugar a competitive advantage.

3. Act responsibly to ensure all operations are

socially and environmentally sustainable.Outsourcing, in particular, sets WISTCOsbusiness model apart. Operations that manybusinesses consider central, such as qualitycontrol and packaging, are done by third parties inthe EU (Fig. 6).65This has allowed WISTCO toensure cost efficiency, compete with much largerplayers, comply with EU and retailer qualitystandards (including ISO9002, HACCP andBRC accreditation), fill gaps in expertise (such asknowledge of UK sales and logistics), limit fixed

costs and flexibly rescale its activities dependingon market conditions. WISTCO relies heavily onoutsourcing because it understands that thecompanys value lies not in products but in theintellectual property that provides leverage withbuyers.

But the case of Barbados sugar also reveals limitsto the benefits of branding. Although WISTCOwill more than double its sales in 2012, it hastaken almost four years to reach a point wherebranded products have started to make anoticeable difference throughout the sector andthe sugar industry in Barbados remains heavilyindebted.66Although effective branding

Plantation Reserve product range TheWest Indies Sugar & Trading Company Ltd,Barbados


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supported by efficient supply chains can help tomeet development objectives, branding alone willnot provide a comprehensive solution to anindustrys structural problems.67

3.2 Branding Namibian Beef

Producer branding in the Namibian beef sector isan interesting counterpart to the case ofBarbados sugar, offering several parallels. The

Namibian beef industry has historically relied onprofitable exports of prepared beef carcasses toEuropean markets under EU-ACP quotaarrangements. But the industry came underpressure from 2000, when the EU switched fromdomestic price support which kept EU pricingabove that of the rest of the world to direct aidpayments. Beef pricesfell by 36 per cent between2000 and 2002, and despite a recent rebound inprices and ongoing declines in EU beef

Figure 6: Branding of Barbados sugar by the West Indies Sugar & Trading Co.

3. PRODUCTS (outsourced)

Secondary processing

Quality control

Distribuon & Sales

Back oce

4. RESOURCES

Barbados public sector

UK ethical investor

5. INFRASTRUCTURE

Barbados IP ownership

Added value to farms

The West Indies Sugar & Trading

Company

2. MARKETS

1,400 EU retail stores

Food service outlets

Caribbean tourist market

1. CONSUMERS

Plantaon brand porolio

Markeng outsourcing

Award-winning Packaging

Communicaons

Public Relaons acvity

Consumers

Buyers

Producers

The boxes at left show the building blocks used to develop an effective Barbados sugar brand in the contextof a buyer-driven global market (bottleneck at right, see Fig. 2). These include solid infrastructure basedon intellectual property ownership, resources from both the Barbados public sector and UK investors, and

establishment of WISTCO as an entity that manages the development of a consumer brand and outsourcedsupply chain in order to get products to market.


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Case studies: Barbados sugar and Namibian beef25

production, price volatility is likely to continue inthe medium term.68

This stress has been worsened by Euro exchangerate issues as well as increasingly onerous foodsafety controls. Namibian programs to ensurecompliance with EU standards for sanitation, foodsafety and animal welfare, including the relativelysophisticated Farm Assurance Namibia (FAN)scheme, are expensive and likely to increase incomplexity and cost over time. The impact ofthese requirements on smaller developing-world

markets has been so great that that countriessuch as Swaziland can no longer profitably exportbeefto the EU.

Given these changes, Namibian beef exportersrecognized that they would not be able tocompete on price against larger countriesthatcan exploit economies of scale, such as Braziland Argentina. Instead, in 2008 Namibias largestprocessor and exporter of beef, Meatco,launched a proprietary brand, Natures Reserve(Fig. 7).

Figure 7: Branding of Namibian beef by Meatco

3. PRODUCTS (outsourced)

Technical & Quality

Market access

Supply chain

Compliance

4. RESOURCES

Namibia parastatal

UK intermediary

5. INFRASTRUCTURE

Namibia IP ownership

Added value to farms

Meatco Namibi

2. MARKETS

UK, Scandinavia, South Africa, EU

retailers

Namibian market

1. CONSUMERS

Nature Reserve porolio approach

Long term brand investment

Clear consumer benet

Consumers

Buyers

Producers

The approach in Namibia was similar to that taken in Barbados (Fig. 6), with effective consumer brandingby a local company generating pull in multiple markets, backed by an effective product supply chain andsufficient infrastructure and resources to ensure success.


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Branding allowed Meatco to leverage the publicand private-sector investments made to complywith EU quality standards, applying them to arange of distinct, added-value products. TheNatures Reserve brand has taken a portfolioapproach, offering a selection of grades based ona good-better-best model (Choice, Select andFinest grades); the different grades meetcustomer requirements by market, sector and cut.

The focus was not only extracting higher pricesfrom existing markets but also diversifying into

new export markets. Meatco has expandedfrom abase of EU buyers to relationships with otherdeveloped economies such as Norway, and largeregional markets including South Africa.

Long-term institutional initiatives, including FAN,played a part in establishing Natures Reserve as apremium brand in a highly competitive categorydominated by retailer own-label products. But asin the case of Barbados sugar, another importantmove was outsourcing key elements of the supplychain and brand management.69For Meatco, the

core of the business is a good rearingenvironment for cattleand basic traceability of themeat products and the company outsources otheractivities . In this way Meatco has acquiredworld-class expertise in positioning, sustainabledevelopment, market access, retailer entry, andongoing technical and quality assurance.

The brand has entered major supermarkets in theUK, Scandinavia, Western Europe and SouthAfrica. In total, the premium that Natures Reservebeef generates, above prices received by

comparable farmers, amounts to US$25 millionper annum. As important is the establishment ofSouth Africa as a strong alternative export market,absorbing 29.5 per cent of production incomparison to the EUs 39.6 per cent, as well asthe development of a strong domestic market.This market expansion has diversified revenuestreams and provides an effective hedge againstfuture problems complying with standards inexport countries.70

3.3 Common lessonsWhereas WISTCO has sought to rectify adisadvantage in production costsfor theBarbados sugar industry, the branding ofNamibian beef was driven more by the need tooffset the costs of compliance with exportstandards. But the two cases offer commonlessons, including the following:

Outsourcing is an important tool that allowsdeveloping-world producers to circumventcapacity constraints and do well against muchlarger competitors through an effective,efficient, compliant supply chain.

Sustainable value comes from buildingproprietary intellectual property in the countryof origin.

With a portfolio approach, industries canbalance production of large volumes of genericcommodities with smaller volumes of high-margin branded products to ensure overallprofitability.

Commodity exporters can hedge against risksby balancing domestic, regional andinternational markets.

A long-term commitment to innovate and investin branding is also needed; support for thiscommitment often comes from the publicsector when strategic industries are involved.

There is potential to build on existingorganizational structures, including public-private partnershipssuch as WISTCO, in orderto deliver branded products.

These lessons form the basis for a series ofrecommendations for the effective establishmentof commodity brands in developing economies.


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Our recommendations for producer countries andorganizations correspond to the five buildingblocks of branding described in section 2.2. Theydo not represent a one-size-fits-all solution to theentrenched problems surrounding traditionalagricultural commodity chains in developingcountries; no such generic solution is possible, asgeographical contexts, products and expertisevary widely. Branding, therefore, should be viewedas simply one of a series of ways in whichcountries and industries can increase incomesand reduce poverty within wider country andinstitutional strategies.

4.1 Engaging consumers: Useexpertise from other categories todevelop commodity brands that aregenuinely distinct

Mature export markets are characterized byintense competition, few buyers, sophisticatedconsumers and complex supply chains. Faced

with undifferentiated commodity products,consumers are typically less interested inspending time making a buying decision thanwhen shopping for food in other more developedcategories. On average, 28 per cent of USconsumers are actively disengaged from theproducts they use that is, they have no loyalty tothe brands they are purchasing beyond functionalfactors such as convenience and price. In lessdeveloped commodity categories this rises to asmuch as 64 per cent.71

4.Recommendations

KEY MESSAGES

The building blocks of branding are consumers, products, markets, local resources and infrastructure.Countries and organizations looking to develop agricultural commodity brands for the benefit ofdeveloping world producers should:

Appeal toconsumers

by developing branded products that communicate meaningful differencesfrom competitors.

Developproducts around the core strengths of the country or company, using outsourcing tocircumvent internal weaknesses and external constraints.

Target diverse markets including domestic, regional and export,with a portfolio of brands,including niche and mainstream products.

Make the most of limited resources by analyzing risks and attracting seed funding.

Build on the infrastructure of existing organizations and exploit the expertise of third-partyfacilitators.


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Thus, unless a brand is clearly and convincinglydistinct from alternative products, it will notsucceed against much larger establishedcompetitors. Such differentiation requires expert

understanding of consumers, markets, channelsand products and the creativity to translate thisinto an innovative brand in language thatpersuades consumers. Figure 8 analyzes theattributes that can differentiate a commodity fromcompetitors.

In the case of Barbados sugar, the brand waspositioned around the slogan Barbados CaneSugar for Cooks, evoking the functional benefit ofusage this sugar was distinctively suited for usein cooking along with the more emotional qualityof provenance. This targeted a growing segmentof consumers interested in both cooking from

scratch and the origin of their ingredients aconsumer group that competing sugar brandswere not catering to. This positioning wastranslated into appropriate packaging, using

symbols such as wooden spoons to appeal tocooks; pricing at a significant premium abovewhite sugar; placement only in retailers where thetarget segment shop regularly; and relevantpromotion, for instance through offers of holidaysto the taste of Barbados food festival.

Such complex, multifaceted brand-building is aspecialist field, requiring significant commercialexperience. Just as the West Indies Sugar &Trading Company outsourced its physical supplychain, the intellectual property was developedthrough third-party contractors, includingagencies for advertising, design, public relations

Figure 8: Creating distinctive commodity brands: potential positioning routes

Beneft

Funconal Emoonal

Diferenator

Pro

duct

Taste Provenance

Process

Quality

Standards

Social

Responsibility

Consumer

Usage Exclusivity

Using sugar as an example, this table lists benefits that could, in theory, differentiate a commodity fromcompetitors. These are divided into functional (tangible) and emotional (intangible) benefits. Shadinghighlights the main marketing messages used for Barbados sugar provenance and usage.


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Recommendations29

and consumer research. It was this base ofmanagement and branding expertise that allowedWISTCO to make the most of its outsourcedsuppliers,overcome classic capacity constraintsand create a highly distinctive brand that sold theequivalent of 2.4 million retail bags in 2011.

A large and growing literature offers in-depthinformation on the art and craft of buildingdistinctive brands: see the Bibliography for furtherreading.

4.2 Developing products: Useoutsourcing to gain competitiveadvantage and circumvent quality or

standards constraints

The use of outsourcing by producers fromdeveloping countries may be fairly new, but it hasbeen used in mature markets for centuries as ameans of circumventing both shortages ofexpertise and limits on physical capacity.Regardless of the industry or product, businessesoutsource supply chain links or managementtasks that do not add real value to theorganization.72Given developing countriesknowledge gaps and other capacity constraintsexplored above, the question of what representscore value and what to outsource is critical in anydiscussion of branding commodity products.

This approach avoids the limitations of traditionalmeans for adding value to commodities

Classically, the key tool for boosting commoditiesvalue would be investments in increasedprocessing capability at the source. Foreign directinvestment in agricultural processing facilities hasbeen high since the 1970s as multinationals havesought efficiencies in less regulated markets withlower labor costs73and higher potential futuregrowth. But this has not typically applied tocommodity sectors; instead, demand trends forcommodities have concentrated physical addedvalue towards the mature market end of the supplychain. A typical example is coffee, wheredominant coffee roasters based in mature marketscapture much of the final products value.

Developing a brand demands a different mindset,starting with outsourcing that focuses producerson their core competencies. In the case ofBarbados sugar, a traditional solution topackaging product for export markets would havebeen to invest in a packing facility, which wouldraise the products value and create jobs inBarbados. But this would have been capitalintensive, requiring construction of clean rooms tointernational standards, recruitment of skilledemployees with associated quality and safetytraining, and audits by multiple certification

bodies. Even if the time and cost involved had notprovided a disincentive, in-country processingwould have added unnecessary costs. Unless acountry has a clear competitive advantage in thephysical processing involved (in this casepacking) and can efficiently build and maintain theprocessing plant, the facility will be underutilizedand unprofitable.74

Contracting an existing manufacturer, co-packeror processor either close to the producercountry or to its end market can limit such fixedcosts, provide greater operational efficienciesthrough specialization and allow the flexibility forvolumes and formats to vary with demand.Outsourcing also frees resources to support thearea with real potential to add value in exportmarkets, namely the companys intellectual, ratherthan physical, property.

Outsourcing has its own costs: it requires adegree of expertise to find and contractappropriate partners and ensure quality, and it

represents some loss of control for a company.But the gains may be enormous for companiesand countries with well-defined capacity gaps.Strategic outsourcing can go well beyond thephysical processes traditionally contracted out byprocurement managers in global companies; it ispossible to circumvent knowledge gaps of allkinds. If marketing expertise is lacking, the largestglobal advertising agencies have offices in over90 countries worldwide and can managecomplex branding projects.75If the problem is alimited understanding of supply chains andpricing in mature markets, or sales into largeretailers, there are agents and distributors who


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constantly look to source and sell interesting newproducts.

Using these agencies and similar systems,developing countries and their companies need toestablish what they do well and outsource therest. This represents the only way to ensurecompetitiveness and circumvent the barriers tobranding agricultural commodities.

4.3 Expanding markets: Create a

portfolio of brands for a variety ofmarkets and channels

4.3.1 Portfolio management

In their paper How to Brand Sand, Hill, McGrathand Dayal show that, although it is indeedpossible to brand a product as basic as sand,success depends on understanding that not allcustomers will be interested in, or prepared to paymore for, a branded commodity. This appliesequally to agricultural products.

A useful model comes from classic thinking onportfolio management for fast-moving consumergoods. Companies marketing these goods dividetheir customers into three groups: the GoldStandard, who want something more than just thecheapest price and who represent between 5 and25 per cent of a market; Potentials, who make up3045 per cent of a market and are occasionallywilling to try an innovative product if there areclear benefits; and the remaining Incorrigibles,

who are focused almost exclusively on price.

76

Fortraditional agricultural commodities, incorrigiblescan make up substantially more than half of themarket and should not be targeted by anybranding strategy. But commodity markets aretypically large enough that, for most developing-country producers, even securing a tiny portion ofbranded sales within a large mature market isenough to raise profits substantially. The Pareto or8020 principle applies as much, if not more, tocommodities as to more complex categories: 80per cent of margin comes from 20 per cent ofcustomers. For branding strategies, that 20 percent is critical.

The approach of one of the worlds largestretailers, Tesco, shows the value of appealing to avariety of consumer groups. Tesco recognized inthe 1990s that it was losing a significant revenuestream by selling its own-label products only toIncorrigibles, or price-sensitive consumers. Itestablished a second brand, Tesco Finest, whichprovides premium variants of its price-competitiveTesco Value products, sourced for quality. In2008, Tesco Finest became the UKs biggestgrocery brand with sales of US$1.8 billion andgrowth of 6.3 per cent in 2011.77

Barbados sugar and Namibian beef likewise useda portfolio approach to branding, rather thanrelying solely on products with high added value.The organizations building the brands recognizedthat although a portion of customers will pay fordefined additional benefits, the majority are simply

interested in a reasonably good product at acompetitive price. Luxury niche branding makesheadlines, but in basic commodity markets it doesnot offer the scale needed to help producerindustries, and cannot even attract enoughconsumers to generate substantial profits for anindividual company.

For Barbados sugar, an ultra-premium tin, sold asa gift item in the duty-free channel across theCaribbean and in UK department stores such asHarrods, is less important as a revenue stream

than as a marketing tool to encourage newcustomers to try the brand. The PlantationTraditional line, aimed at the mass market, is a

Tescovalue

go@fl

ickr


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Recommendations31

low-margin product that provides the volumesrequired to both support the sugar industry andcover the companys fixed costs. And PlantationReserve, aimed at Gold Standard customersthrough upscale supermarkets such as Waitrose,rounds out the portfolio to deliver overallprofitability.78

Namibian beef mirrors the pattern: NaturesReserve Finest is aimed at the top end of themarket, with free-range, grass-fed beef from230- to 280-kilogram carcasses typically

destined for export; this contrasts with thestandard Natures Reserve Choice beef fromanimals of grades B and C.79In short, effectiveportfolio management means that brandedcommodities need not be limited to a small niche.

4.3.2 Domestic markets

Just as companies should look beyond GoldStandard consumers, domestic and regionalmarkets in developing countries are as important,

if not more so, as the high value export marketsthat are often the focus of development studies.Although developed countries represent verylarge, potentially profitable markets, they are alsohighly competitive environments that addcomplexity, cost and risk to basic commodityproducts. And when hidden costs such asstandards compliance, export, secondaryprocessing, quality control and retailer listing feesare factored in, doing business in these countriescan be less profitable than serving markets closer

to home.It is telling that in 2008, developing countriesbought more than half of US food exports, withUS$6.4 billion in sales to Africa alone.80If UScompanies find it profitable to export brandedfood products to Africa, there clearly is anopportunity for locally owned brands to compete.A country that buys more domestic brands notonly reduces foreign exchange outflows byreplacing costly imports with domesticproduction, but also generates long-term value in

country. Where simple primary packaging orprocessing facilities exist, successful domesticbrands channel more value to commodity

producers, who would otherwise export in bulk atlow prices.

Several experiences in branding for local marketsare outlined in the Royal Tropical Institutes paperBranding for development,81and these examplesshow what innovative local brands can do forfarmers. In particular, the branding of Dakadoavocados and Than Ha Thieu lychees for localmarkets in Vietnam has significantly benefittedprimary producers. In the case of lychees,fluctuations in raw lychee prices prompted a

regional cooperative to develop a labeling andintellectual property strategy that has helped tosecure sales, through distributors, of brandedproduce into supermarket chains, with an averageprice premium of US$0.15 per lychee incomparison to unbranded varieties. In the Daklakregion of Vietnam, rising prices have turnedavocados from a peripheral crop into acommercial one. A supply chain and brandingexercise has allowed producers to enter the retailmarket through traders, with substantial priceincreases estimated at US$0.19 per kilogram.82

For more mainstream agricultural commodities,the opportunities are even greater. Before 2008there was no local sugar, branded or otherwise,on the shelves of Barbados supermarkets, despiterelatively high margins for retail sugar sales. Thegap was filled by branded imports from othersugar-producing countries, including the US,Guyana, Mauritius and the UK (through Tate &Lyle). Today, the Caribbean region, includingBarbados, accounts for 10.8 per cent of

WISTCOs sales but a significantly largerpercentage of its total profits, mainly throughhigh-value revenues from the regional tourismmarket. In Namibia, Meatcos branding strategyhas successfully captured a portion of therelatively sophisticated South African market, andthese customers now represent almost a third ofsales and absorb over 12 per cent of totalproduction.83Given the reduced costs andcompliance requirements associated withdomestic and regional markets, a strong case canbe made to focus on branding commodities forthese markets, if only as a defensive strategyagainst foreign imports prior to exploring largerbut more competitive export opportunities.


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Moreover, the rapid spread of supermarkets in thedeveloping world will amplify the potential gainsfrom domestic and regional branding. Chainssuch as Shoprite and Massmart now representbetween 15 per cent and 65 per cent of retail foodsales in southern and eastern Africa, for example,and resemble more mature retail markets such asArgentina.84Driven by urbanization and theexpansion of the African middle class, who nowexceed 131 million people, supermarket growthhas transformed domestic markets and changedthe stores image from luxury niche to mass-

market merchandisers. This is a historicopportunity for local producers to accessdomestic markets through established supplychains but these producers will need moreprofessional management, branding andassociated resources to extract the maximumpossible value from a large base of retailcustomers.

4.4 Managing resources: Invest inbranding that fits producersappetite for risk and sources offunding

In developing countries where resources likefunding, infrastructure and expertise are scarce,strategy is all the more crucial for complexcommercial enterprises. The key ingredientsinclude effective management of stakeholders,partners and suppliers; an appetite to take risks;and, above all, willingness to pursue tangibleaction rather than academic studies. Althoughcountries, industries, products and theirassociated supply chains are highly diverse, thereare two approaches common to successfuldeveloping-world commodity brands likePlantation Reserve sugar or Natures Reservebeef: they adopted a brand strategy appropriateto producers needs and risk profiles andattracted seed funding from the public anddevelopment sectors.

4.4.1 Different brands, different risks

The four types of brands producer, varietal,geographical and certification brands carrydifferent risk profiles, with corresponding potentialrewards (Fig. 9). The type of brand that producerslook to develop should be based firmly on the levelof risk they are willing to accept , the level ofmarketing expertise and the resources they cancall upon to mitigate this risk.

Producer and varietal brandscan be ownedby the producers themselves (or by patent

holders in the case of varietal brands) andtherefore offer the highest potential financialreturns. But this is balanced by the significantrisks associated with developing proprietaryintellectual property. For every four newproduct brands that enter development, onlyone typically makes it to market, and of these,at least one in three fails to achieve commercialsuccess.85Although the risk can be mitigatedthrough effective planning, research andmanagement, it should be carefully considered

in the planning of any branding exercise. Geographical brandsare owned by regional

associations or similar public-sector bodies orcooperatives. This spreads and dilutes the riskof developing regional brands, but it also limitsthe potential value of these brands to individualproducers or producer collectives. Undercollective ownership, quality standards andbrand management can be weak; theireffectiveness depends almost exclusively onthe competence of the certification body. For

every globally recognized geographicalindicator such as champagne or Darjeeling,there are many more with relatively limitedconsumer awareness and therefore a lowercommercial value for example, Papantlavanilla from Mexico, or Kashubian gardenstrawberries from Poland.

Certification brandsare typically owned byEU- or US-based labeling organizations86thatinvest significant resources in buildingconsumer and buyer demand for certifiedproducts. This provides a ready-madeaudience that substantially reduces the risks ofbrand-building and the associated needs for


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expertise, funding and strong organizations.The benefits are obvious, particularly forsmallholders who lack the resources todevelop producer brands. But the financialgains from such branding are substantially less and falling as the number of standardsgrows. In the UK alone there are currently more

than 80 separate ethical certification marks,meaning less impact on consumers for eachmark.

4.4.2 Certification

If branding is based on adding distinctiveness to aproduct, a generic certification such as Fairtradehas most value as a complement to, rather thanreplacement for, producer brands. This is not toignore the positive role of social and ethical

standards in bringing many of the issuesdiscussed in this paper to the attention ofmature-market consumers. But with the

mainstreaming of marks such as Fairtrade andRainforest Alliance, and the growingsophistication of markets and branding, brandingstrategies increasingly need to go beyond simplecertification marks.

The costs and benefits of certification have been

covered in some detail by others.87

The below twoexamples show how certification can work in thecontext of branding: bananas in the WindwardIslands, and the Cafdirect coffee brand.

The Windward Islands banana industry, like itscounterparts in other small island developingstates, cannot compete on price with much largerglobal operations. With unit production costsmore than three times those of producers such asEcuador,88the industry has historically only beenviable due to preferential EU-ACP trade

arrangements. As these trading partnershipsdeclined, producers on the islands became someof the first to achieve Fairtrade and Organic

Figure 9: Risk-reward profile for different branding types

Reward

HIGH MEDIUM LOW

Risk

HIGH

producer

brands

varietal

brands

MEDIUM

geographical

brands

LOW cercaon

brands


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status. This has enabled market access,distribution through some of the UKs largest retailchains, and both a commercial and socialpremium that has raised profits for producers.

But the Windward Islands case also illustrates thelimitations of certification brands in an increasinglycompetitive global market. Bananas froml

Branding Agricultural Commodities

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