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EXPORT IMPACT FOR GOOD
CONSUMER CONSCIENCE
HOW ENVIRONMENT AND ETHICS
ARE INFLUENCING EXPORTS
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Street address: ITC,54-56, rue de Montbrillant,1202 Geneva, Switzerland
Postal address: ITC,Palais des Nations,1211 Geneva 10, Switzerland
Telephone: +41-22 730 0111
Fax: +41-22 733 4439
E-mail: [email protected]
Internet: http://www.intracen.org
The International Trade Centre (ITC) is the joint agency ofthe World Trade Organization and the United Nations.
International Trade Centre 2009
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Geneva 2009
CONSUMER CONSCIENCE
HOW ENVIRONMENT AND ETHICS
ARE INFLUENCING EXPORTS
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ABSTRACT FOR TRADE INFORMATION SERVICES
2009 F-06.16 CON
INTERNATIONALTRADECENTRE(ITC)ConsumerConscience:HowEnvironmentandEthicsareInuencingExports.Geneva:ITC,2009.ix,60p.
Reportreectingviews,examplesandsuggestionsonhowexporterscanbeneftromtheemergingopportunitiesintheareaoethicaltrade,asexpressedbytheparticipantsotheITCWorldExport
DevelopmentForum,Consumers,EthicsandEnvironment,Montreux,Switzerland,8-11October,2008discussestheconceptoethicalconsumerismacrosstheentiresupplychain;innovationinmeetingconsumerdemandorproductscreatedbyethicallyandenvironmentallyacceptablemeans;publicandprivatestandards;sustainability-relatedfnance,socialentrepreneurship,andtransparencyviatheInternet;globalpartnershipintheserviceopovertyreductionanddevelopment,andtheroleowomeninbusiness;outlineswaysinwhichgovernmentsandtradesupportinstitutionscanhelpethicaltraders.
Descriptors:Corporate Social Responsibility, Fair Trade, Competitiveness, Export Strategy.
EnglishITC,PalaisdesNations,1211Geneva10,Switzerland
Cover:IllustrationbyGilesKershaw
InternationalTradeCentre2009
Allrightsreserved.Nopartothispublicationmaybereproduced,storedinaretrievalsystemortransmitted
inanyormorbyanymeans,electronic,electrostatic,magnetictape,mechanical,photocopyingorotherwise,
withoutpriorpermissioninwritingromtheInternationalTradeCentre.
ITC/P239.E/ES/09-XI ISBN 978-92-9137-379-6
United Nations Sales No. E.09.III.T.8
ThedesignationsemployedandthepresentationomaterialinthispublicationdonotimplytheexpressionoanyopinionwhatsoeveronthepartotheInternationalTradeCentreconcerningthelegal statuso anycountry,territory,cityorareaoroitsauthorities,orconcerningthedelimitationoitsrontiersorboundaries.
Mentionofrmnames,commercialproductsandbrandnamesdoesnotimplytheendorsementoITC.
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Foreword
Globalizationischangingtheconcernsoconsumers.Whileshoppersstillpayattentiontoqualityandprice,morethanevertheyareconcernedabouttheenvironmentalandsocialimpactsotheirpurchases.Theywanttoknowthatpeopleinvolvedthroughouttheprocessarebeingpaidairly,thattheproductsaresourcedinanenvironmentallysoundmanner,andthatthesupplychain
ishandledethically.Becauseothischangeinattitude,airtradeandethicalmarketsaregrowingataasterpacethanregularmarkets.Buthowcanentrepreneursindevelopingcountriesbreakintothesemarkets?
Thatwastheoverridingquestionatthethree-dayWorldExportDevelopmentForumo2008,whereover250expertsdebatedawiderangeoissuesrelatedtoconsumerconscience.Tosmallproducers,ethicalcommerceoersastablemarket;orlargedistributors,itoersdierentiation.Buttherearechallengesthat arenot easilyovercome:trade institutionsarenot alwaysclear aboutwhatkindosupporttooerandhow;andapplyinginternationalandprivatestandardscanbecostlyorproducersindevelopingcountries.
Forethicaltradetobesustainable,expertsstatedthatproducersareadvisedtoocusoninnovation,andnotonlytoseekoutlow-costsolutions.Moresupportisneededorsustainability-relatedfnance,scalingupsocialentrepreneurshipandtransparencyviatheInternet.
Amongallothetopicsdiscussed,therewasonebottomline:howtogrowethicaltradeasatooltoraisethestandardolivingoreveryoneinvolved.
To those o you who joined us at the Forum, ITC thanks you or yourparticipation.GatheringslikethisareinvaluableinhelpingITCtoadviseitsclientsbetter.Forthoseoyouunabletojoinus,ITChopesthatthisbook
helpsdeepenyourunderstandingotheissuesandoersadvicethatyoucanputintopractice.
PatriciaR.FrancisExecutiveDirector
InternationalTradeCentre
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Acknowledgements
This book is based on ITC's World Export Development Forum 2008,developedandcoordinatedbyAntonJ.Said.
Communications management was conducted by Natalie Domeisen. Thecontentorthiseditionisbasedonreportsconductedduringtheeventbythesessionwriters,withcontributionsromITCstawhoservedassessionmanagers.
ThecoordinatorandchieeditororthisbookwasPeterHulm.OwenSkaeandAntonJ.Saidwereco-editors.
Writersovariouschapterswere:RobertCraword,RobertEvans,ChristianHelmers,PeterHulm,SophieKrantz,LeonorvonLimburg,DiannaRienstra,OwenSkae,RichardWaddingtonandJulieWol.
LayoutserviceswereprovidedbyMichelFavre.
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Contents
Foreword iii
Acknowledgements v
Chapter 1
Ethical trade the hope and the reality 1
Fairtrade=unaircompetition? 1NorthvsSouth,orProducervsConsumer? 2Producerconscienceandappropriatetechnologies 2Doesitguaranteeareturnoninvestment? 3Standardsasanon-taribarrier 4NavigatingthroughthethicketsoFairTradelabelsandfctions 5Consumerconusion,retailtherapyorstrappedeconomies 5Consumerconscienceinatimeocrisis 7
Theelephantinthegardenortheproverbialostrich 7Beyondcrisis,beyondlogos 8
Chapter 2
The value of the ethical consumer 9
Towardsanewconsumerism 9Valuesdrivepurchasingdecisions 10Thetriplebottomline 11Apubliclicencetooperate 11
Conrontingthenewconsumerpower 11Marketsizemattersthenumberstellthestory 12Hypeorpotential? 13Thenormratherthanexception 14Ethicaltrademarket:Saerintroubledtimes 14
Deepandenduringchange 15Transparencyisthenewmantra 15Ethicalcompaniesaremorecompetitive 15
Whatisair?Andorwhom? 16Fairnessvsconsumerdemands 16
Successulstoriessell 17
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Chapter 3
Creating the value: Innovation is non-negotiable 19Thesourcesoinnovation 19Themotheroinnovation 20Overcomingmarketconstraints 22Governmentrole 22Financialinstitutions 22Partnershipandlinkagesareparamount 23
Takeadvantageoserendipityinthemarket 24Brandingorconsumerswithaconscience 24Sticompetitionrommultinationals 25Buildingtrust 25
Talestotelltheworld 26
Chapter 4
Raising the value 27
Barriersandcosts 27Whystandardsandlabellingschemes? 27Adouble-edgedsword 28Privatelabelsclarityorconusion? 29Challengesordevelopingcountries 29Beneftsordevelopingcountries 30Convincingconsumers 31
Inormation,participationandcoherence 32Partneringorvalue 33
Scopeoraction 34
Chapter 5
Delivering the value 35
Payingthebill 35Microfnanceandretailsupport 36Socialentrepreneursgrowing 37BureaucraticbarriersintheSouth 38Womenatthecoreosocialentrepreneurship 39E-burdensande-transparency 39Trustmeintoshowme 40Transparencybasedonneeds 41
Chapter 6
Sustaining and distributing value 43
Majorchallengeinhelpingproducers 44Proftandnon-proftworkingsidebyside 44Ethicaltrade:Doesitcomeatadevelopmentcost? 46Vigorousdeence,optimisticoutlook 47
Robustdemand 47Truetestosuccess:Extinction 47
Doesonesizeftall? 48
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Chapter 1
Ethical trade the hope and the reality
"Theshifttosustainableconsumerismprovidesmanyopportunitiesfordevelopingnationsandalsomanychallenges.ExportimpactforgoodisITC'smission.Weareinthebusinessoftryingtohelppeoplegetintoaglobaltradingsystemandtheglobaleconomysothattheycanprosper."
PatriciaFrancis,ExecutiveDirector,InternationalTradeCentre
From a strictlyeconomicpoint oview, ethical trade is an aspiration,not aconditionointernationalcommerce.Itismoreaboutalabelthanastandard.However,itseconomicandsocialpotentialhasbeengrowingexponentiallyinthe21stcentury.ThispromptedITCtomaketheissuethecentrepieceoitsWorldExportDevelopmentForum2008,heldinMontreux,Switzerland,inOctober.
Themainobjectivewastoanswerthequestion:Whatdoesethicaltrademean?Moreimportantordevelopingandtransitioneconomies,howcanexportersexploititsopportunities?Howcantradesupportinstitutionsencourageethical
tradeamongnationalbusinesses,andwhatshouldgovernmentsbedoingtohelpethicaltraders?Thequestionsbecameevenmoreurgentattheendo2008asfnancialshockatershockthunderedacrosstheworldsmajoreconomies.
To small producers, the air trade segment o ethical commerce, oers astablemarket.Forcompetitivedistributorsitpromisesdierentiationthedistinctionbetweenproductsthatattractsconsumersorwhompriceisnotthedeterminingactorinpurchasingdecisions.Buthowwillethicaltradeareontherockyeconomicvoyageacingmostsocieties,andhowarwillconsumerconscienceextendinthesocial,environmentalandeconomicchangespredictedromclimatechange?ITCsWorldExportDevelopmentForum2008heardanumberostoriesothestruggletokeepbusinessesunctioningasnormal.
Fair trade = unfair competition?
Forconventionalexporters,ullyexposedtothetoughrealitiesointernationaltradingconditions,airandethicaltradeotenlookslikeunaircompetition,becauseitprivilegessomeproducersoverothers.Todevelopmentspecialistsitsometimesseemshardtodistinguishromcharityorworkorwelareschemes.Worse,airtradeprovidingaprivileged,protectedchanneltorichmarketsand niche consumers, along with a premiumprice or a small number o
marginalproducershasbeencriticizedorlockingoutsmallarmerswhousuallycannotaordthecostotheprolieratingcertifcations.Itcandeectattention rom the economicallymore signifcant issueo providing access
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2 Chapter1Ethicaltradethehopeandthereality
tomajormarkets or developing and transition countries trying toobtaina securer oothold in international commerce. As ITC Deputy ExecutiveDirectorStephen Browneputsit,MaliwantstobeabletosellitscottonasreelytoAthens,Greece,asithasbeenablesinceMay2000toexporttoAthens, Georgia, under the US AricanGrowth and Opportunity Act.
Fromtheoppositeperspective,bigretailchainsinterestedinopeningtheirsupermarketaislestonichebrandedproducts,whetherairtradeororganic,labelledbio,sustainablyorethicallyproduced,itheyknowcustomersarereadytopaymore,otenmuchmoreproportionallythanorstandardproductswantreliable,regularandimmediatedeliveriesatthelowestpricetheycanobtain.Small,howeverbeautiul,doesntcutitinthesehugemarkets.Doesthatputethicaltradepermanentlyoutoordinarybusinessdealings?
Such considerations have turned researchers like Marc Sidwell o theInternationalPolicyNetworkalmostcompletelyagainsttheairtradeconcept.UnfairTradewashisdescriptionothemovement,arguingthatitreplacedonekindooccultmechanism(multipleintermediariestakinginscrutableproftsall along the valuechain)with an equallyobscure system that still leavesEthiopiancoeeproducerswithabout$1perkiloorthebeansthatsellor$140akilowhentheyturninto$3cupsobeverageinairtradecoeeshops.Khalid Sheikh, aUganda-bornAsian sel-madebusinessmanbased intheUK,declaresvehemently:Aricaisbeingrobbed.
North vs South, or producer vs consumer?
FairtraderssuchasRobin Cameron,ChieExecutiveoFairtradeLabelling
Organizations International (FLO) point out that similar, though smaller,discrepanciesbetween arm andsupermarket prices characterizeNorthernmarketsaswell.BothheandSheikh,alongwithmajorplayersontheethicaltradescenesuchasSwitzerlandsCoopretailchainandSidwellhimsel,puttheemphasisonmovingproducersupthevaluechainthroughappropriatetechnologiesandknowledgetranserromNorthtoSouth.Soar,however,ood and agricultural commodities have resisted eorts to turn armingcommunities into processing, packaging and distribution chains. SheikhsoodpackagingbusinessinactworksromtheUK,thoughheisplanningtoinvestinArica.Theethicaltrademovementhasnoteliminatedmiddlemen,thoughithasreducedthenumberointermediaries.
Asanumberobusinessentrepreneurshaveobserved,dealingdirectlywiththebigmarketchainscanputyourbusinessatadisadvantage.Theircriteriarevolvearoundprice,andbeingabletoselltheirproductsatlowerpricesthantheircompetitors.Forsmallproducersin adevelopingcountry,evenitheycandoadealeitherindividuallyorthroughanassociationoproducersthismaynotbeawiseorsustainablebusinessmodel(seeCaughtintheSupermarketWarsopposite).
Producer conscience and appropriate technologies
ForAshok Khosla,Presidentotheworldslargestscience-basedenvironmentalsustainabilityorganization,theInternationalUnionorConservationoNature,
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3Chapter1Ethicaltradethehopeandthereality
consumer conscience asconventionallyunderstood isnotmuchmore thanaFirstWorldconcept.Hewouldratherspeakoproducerconscienceandanewparadigmor trade.HisDevelopmentAlternatives organization in Indiahaspioneereditsownormoproducerconsciencebyspreadingtechnologiesthatareappropriatenotjustinthesenseobeingcheaporrudimentarybutalsoasin
beingintunewiththeirenvironmentandcreatinglocaljobsandnewincomes.
Does it guarantee a return on investment?
Forpolicymakersthequestionishowmuchenergyandmoneytoputintoencouragingethicaltradeprojectsitheyaredestinedtoremainamarginalpartointernationalcommerce.
For trade support institutions, it is not immediately clear what kind ostimulationandsupporttheyshouldbeoeringlocalexporterstowardsethical
trade,whensomanyotheconditionsaresetindividuallybyretailbodiesornon-governmentalorganizationsratherthancreatedbylocalentrepreneurship.
Box1. Caughtinthesupermarketwars
StuartSymington,CEOofSouthAfricasFreshProduceExportersForum,explainsprobablybetterthananyonewhyethicaltradeinterestsexporters.Hisvoluntaryorganizationrepresentssome60marketingagentsandproducerssellingfreshfruitto70countries,70%totheEuropeanUnion.TheyaccountforoverhalfofSouthAfricasagriculturalexports.Rangingfromsinglefarmerstohouseholdnames,theircollectiveexportsareworth$1.3billionayear.Theyemploy400,000peoplefulltime,withtwomilliondependents.
Wehavebeenputtingalotofemphasisonethicallyproducedproducts.Iwouldliketolookattheethicsofthetradingenvironment,hetoldasessionoftheWorldExportDevelopmentForumonsupplychainimplicationsofethicalbusinesslinkages.
Hedefendsthe industryagainst foodmilescritics(seeappendixto thischapter).Westartwithamajorcreditbecauseweplanttreesandthosetreeshavetogrowforthreeyearsbeforeyougetanyfruitoffthem.Theytakecarbondioxideandtheygiveoutoxygen.
By2010heexpects60%ofhisproductstobesoldthroughsupermarketsthesefew,powerfulgatekeepers.Volume-basedreductionsincharges,whichSymingtontermsdiscounts,areanimportantfactorinthismarket.Forexample,shippingcompaniesgivecompaniesa$700percontainerrepaymentattheendoftheseasonifexportersdoenoughbusinesswiththeline.Hisenterpriseputs100,000containersintothevalue-chaineach
year,2.5milliontonnesoffruit.
Butsupermarketshavenowtakenoverthetrucking,qualifyingfortheserebates.Exportersaretoldbycustomerswheretobuytheirpackaging.Theresult:Wecannolongerproduce[ourpackaging]inSouthAfrica.Andthesupermarketthatorganizedthedealgetstherebateonthepackagingcontract.
Today,someUKcompanieshaveestablishedofcesinSouthAfricatobuydirectlyfromproducers.Theygettherebatesnow.Theyareevenbuyingfarms.Sotheyownthewholechain.
Symingtonasks:Howethicalisthis?Allthemoneythatwearesupposedtobegleaninginthechainonthesupplysideisbeingtakentothedemandside.Whatdoesthatmean?Itsimplymeanswepayourlabourersless.Wepayourfarmersless.
ThoughSymingtonagreesanumberofsupermarketsareethicallyresponsible,thesearenottheonlyquestionablebuyingpracticeshehasexperienced.Supermarketsevensellbelowthecost-priceofaproduct,erodingthe
suppliersprice.Itsallaboutsupermarketwarsonthehighstreet,andtheyareusingsuppliermoneytoghttheirwarformarketshare.
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Standards as a non-tariff barrier
ITC estimates that international trade now has more than 80 standardsreecting consumer conscience. On a broader scale, the InternationalOrganization or Standardization has approved more than 500 universalstandardsassociatedwiththeenvironment.
Abusinessseekingcertifcationneedstodomorethansimplychoosewhichstandard(s)toapply.Withoutadealalreadyinplace,itneedsasubstantialamountomoneyorasmallproducer.OneDominicanRepublicparticipantputtheregularcashchargeat$10,000perproduct,notcountingthetime
involved.EvenorthemostbasicISOenvironmentalstandards,theISO9000andISO14000series,thecostisvery,veryhighoratypicalbusinessinadevelopingcountry,hepointedout.Furthermore,theexportersmaynotbeabletocountonapremium.Itcanbethepriceoentrytothemarket,evenwhenretailersetsitsstandardswithoutanyconsultationwiththeexportersonhowreasonablethedemandmaybe.
Theconsumerintheshoppingaisleisunlikelytohavethemeanstoassessthesestandards,letalonejudgetheinormationgivenwhenmakingpurchasedecisions,asPascal Lamy,Director-GeneralotheWorldTradeOrganization,hasunderlined.HenceWTOsconcerntopromoteandnegotiatestandardsthroughgovernments,suchasitssanitaryandphytosanitary(SPS)agreements.
Atthesametime,aprivatestandardimposedbyalargesupermarketcanhaveamuchlargerimpactondevelopingcountrytradethananyregulationunderWTO,henoted.
Supermarketsandretailersover-procuresuppliestokeeptheirshelvesfull,andthenrejecttheproducewhenitdoesnotsell.WhatareyousupposedtodowithfruitthatyouhavepackedinSouthAfricainaparticularsupermarkets[standardlabelsand]colours?Some87%offruitintheUKsellsthroughsupermarkets.Youhavetorepackallthatfruitandmoveittothecontinentatmassiveexpense.
Younevergettoldyourprice,headds.Yougettoldhowmuchyoumustdeliver,inwhatvariety,inwhichquantity,inwhichweeks.Priceisthewildcard.Sometimesyouaretoldwhenyourproductisonthewater.Sometimesyouaretoldwhenitisinadistributioncentre.Sometimesyouareeventoldafterithasbeensold.Youcantexerciseyouroptiontosellitsomewhereelse.
Hismainpointofcontentionis:Theyaredebrandingallofourproducts.Theyputtheirhousecoloursonyourfruit.BythetimeitreachestheUKandmanyplacesinEuropeyoudonthaveabrandanymore.Somesupermarketsalsofalselyclaimtohavelowerpricesfromcompetitorsinordertobringgoodstotheirshelvesmorecheaply.Theyrotatebuyerssothatproducerscannotbuildupalong-termrelationshipwithapartner.Exportersalsofaceadditionalchargesthatareimposedafteragreeingadeal.
Asaresult,exportersaresettingupofcesinEuropetoreclaimthevaluelostbythesecost-cuttingmethods.Symingtonurgesanenforceablepriceagreementon purchase and a standard contractwithoutadditionalcharges.Buyerincentiveschemesshouldberevisedsotheynolongerdependonsqueezingproducers.Sellingbelowcostshouldbebanned.Hewouldliketoseeabuyer-suppliersforumwherebothsidesandNGOscantalkregularlyaboutthechallengesfacingthebusiness.
Ethical tradeisnotjustabout supplyinganethicallyproducedproduct. Itis about creatinganethicallysoundbusinesscontextrst,Symingtonsays.Buyerspurchasingbehaviourhastobeasethicalastheethicalproductstheydemand.Otherwiseitishypocrisydeluxe.Internationalretailersthroughwhomthebulkofourproductshavebeenchannelledtoconsumersshouldnolongerbeallowedtooperateinaregulatoryvoid.
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5Chapter1Ethicaltradethehopeandthereality
Navigating through the thickets of Fair rade labels and ctions
AttheWorldExportDevelopmentForum2008,participantsalsohada200-pagepre-eventpublicationthatsoughttoengagesomeothebestacademic
researchers and practitioners along with human rights advocates and auturologisttoputadierentperspectiveonethicaltradingandtheMontreuxdebates.1Asaresult,anyoneinterestedinethicaltrade,itshistory,itspolicyimplicationsanditsuturecanfndanauthoritativeguidetotheprolierationolabellingandapossiblewayorwardthroughthethicketsoregulationsandstandards.Theycanalsoconsultasurveyotheair-tradefeldromalong-timepractitioner.Thebookcontainsacareuldissectionothedierencesbetweenethical,sustainable,environmentalandorganicstandardsintradeasoundinthegovernancebodiesdealingwithinternationalcommerce.
Further useulmaterial includes an analysiso theEnvironmental KuznetsCurvewhichsuggeststhatgrowthisbynatureboundtopolluteuntilcountriesget relatively rich. Similarly, two economists at the Food and AgricultureOrganizationotheUnitedNations(FAO)getdowntocasesinconsideringwhether a country should aim or internal ood security rather thaninternationalagriculturalearningstoguaranteeitsdevelopmentaquestionthatisnowloominglargeinthebiouelsdebateandthecurrentoodsupplycrisis.Policymakersmayalsowanttolookatthearticleonhowmostoodinuturemaytravelwithacarbonpassport,whileentrepreneurscanconsultasurveyoprospectsorbusinessrombiodiversityalongwiththeneedsandopportunitiesorgovernmentinvestment.Thispaperpointsoutthatthepotentialextendswellbeyondecotourismorcreatingstajobsinnationalparksandturningarmsorganic.Anotherchapterlinksonlineactivismtoaradical
changein relations betweenconsumersandproducers andsuggestsways inwhiche-governancecanrespondtothegrowingdemandorconsumerrights.
Consumer confusion, retail therapy for strapped economies
The blend o theory, reporting on experience, energetic advocacy andproessionaladviceorthosewhohavetoimplementideasandprogrammesound in the background book also characterized the debate at the 2008WorldExportDevelopmentForum.Thedetailscanbeoundintheresto
thisreport.Butwecanpointtoanumberocommentsthatmightsurprisethosecomingtoissuesoconsumerconscienceorthefrsttime.
Theretailshockdeliveredtostoresinthewakeo2008sstockexchangemeltdownsandresultingeconomiccrisesneednoteliminateethicaltradeasaorceininternationalcommerce.Inact,itmayhavetheoppositeeect.
Companiesthathavetakenconsumerconscienceonboardintheirbusinesshaveweatheredthecurrenteconomiccrisisbetterthanthosewhohavebeenslowtoappreciatetheconsumeristchangeinmarketingconditions.Inact,manyhaveledratherthanollowedthetrend.Thehistoryoethicaltradeisnotsimplyachronicleoactivistconsumersorcingrecalcitrantcompaniesintogreenwashingtheiroperations.
1 Availableordownloadatwww.intracen.org/wedaspartoITCsWhatif?series.
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Though virtually everyone who has to deal with them deplores theprolierationolabelsandstandardsintheairer-trademovement,notleastbecauseotherequentconusionoconscientiousconsumers,ofcialswhoollowdevelopmentsmostcloselydonotexpectrationalizationtoreducethe number olabels.Retailers like theirown labels and standards that
dierentiateconsumerswhoarewillingtopayextraorthatdierenceromshopperswhodonotfndthatauniquesellingproposition.
While recognizing the pressures or label prolieration, many standard-settingorganizationsarepressingvigorouslyorharmonizationtomakeiteasierorsmallbusinessesanddevelopingeconomiestosecureaootholdininternationalmarkets.
TheForumorganizeditsdebatesaroundfvemajortopics:
The value of the ethical consumer.Thesessionsonthistopictriedtodemystiy the concept, lookat themarketsizeand characteristics, bothquantitativeandqualitative.
Creating the value.Ontheassumptionthattheethicalmarketprovidesa viable business opportunity, sessions explored how exporters romdevelopingcountriescanbegintogearthemselvesuptotakeadvantageothismarketthroughinnovation,branding,andcommunication.
Raising the value.Itisonethingtocreatevalueintheethicaltrademarket,butexportersalsoneedtomeetthestandardsothedevelopedmarkets.Tomany,thesepotentialNTBs(non-taribarriers)arethebiggestobstacletoaction.Howcancompaniesovercomethis?Theorumalsoexploredthecounter-arguments.Whatisairness?Areconsumersthemselvesready?
Delivering the value.Thediscussionherecoveredissuessuchascreatingan environment to oster the development oexporters rom developingcountries who want to take advantage o opportunities presented byethicalmarkets:Financing, scalingupsocialentrepreneursand osteringtransparency.
Sustaining and distributing the value:Canthebeneftsosustainabletradedeliverontheirpromise?Candevelopingcountriesstillhaveaviablebusinessmodelitheyincorporateenvironment,povertyreduction,gender,the MillenniumDevelopment Goals and similar rights issues into theirprogrammes?
Box2. MillenniumDevelopmentGoals
Setfor2015bytheUnitedNationsMillenniumSummitin2000:
Goal1:Eradicateextremepovertyandhunger
Goal2:Achieveuniversalprimaryeducation
Goal3:Promotegenderequalityandempowerwomen
Goal4:Reducechildmortality
Goal5:Improvematernalhealth
Goal6:CombatHIV/AIDS,malaria,andotherdiseases
Goal7:EnsureenvironmentalsustainabilityGoal8:Globalpartnershipfordevelopment
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Consumer conscience in a time of crisis
Howwillthecertaintieso2008lookattheendo2009?Certainly,everydebateattheITCmeetingin2008washauntedbytheprospectoadeeprecession inglobaleconomicactivity.Butnot everyone rompundits topioneerssawthisastheendoprosperityasaneconomicgoal.Khoslacalled or new paradigm or international trade, one examining moreclosely theenvironmental costso therelationship between the local andtheglobal,seeking tocreatelocaljobsandmake themost sustainableuseo local resources.Teava Iro, aCookIsland ruitarmerandmariculturespecialist,seeshisorganic-certifedinternationaltradeasquiteseparateromhis local eorts to reduce costs in environmentally riendlyways. PascalLamymadeclearhestillthoughtthatacompletionotheDohaRoundotradeliberalizationwithitsexplicitdevelopmentgoalsispossiblein2009.Butevenheadmitsthatabigretailersprivatelyimposedstandardscanhave
amuchgreaterimpactonlocaleconomiesthananythingnegotiatedintheDohanegotiations.
The World Export Development Forum also showed that the ethicalproducerandconsumermovementischanginginundamentalways.IrocallshisagriculturalmethodOrganicPlus,andseesanendtoorganicarmingmethods that donot improve sustainability. Fruits and vegetables in theshops today generally have60-70%less nutritional value than during theworstdaysoWorldWar II, hecomplains.TheUShasjust introducedaBeyondOrganicsstandardthatputstheemphasisonhumannutrition,andheoreseesatimewhenproduceontheshelveswillhaveonlyonelabelgivingitssucrosecontentasan indicatoro thenutritional value(seetheboxin
(seeahead).
he elephant in the garden or the proverbial ostrich
Onemajorissuethatwilldirectlyaectoodtradeintheutureisclimatechange an elephant in the garden o international commerce. JohnViljoen,Managing Director o the iedex group o companies, based inAustralia,broughtittothetablewithaconcretestory.Amajorclient,awinegrowingcompany,oundthatoverthepast15yearstheripeningperiodoalloitsvarietyograpesinallitsvineyardsaroundthecountryhasshortenedby1.5days.Thevarietiesnolongerripensequentially.Growingconcentrates in eight weeks rather than eleven, and the ripening o thevarietiesoverlaps.Thecompanyrealizeditwasintroublewhenonewineryhadourkilometresotruckswaitingtodeliverripegrapestoitscrushers.Theripeningperiodhasalsomovedearlierintheyear,tothebeginningoJanuaryinsteadoFebruary.TheoverlapwiththeholidayperiodmakesitdifcultinAustraliatogetcontractlabour,andthestahavetoprepareor this intensive work period instead o spending Christmaswith theiramilies. The company had to invest in parallel crushers and receiving-docks, costing many many tens o millions o dollars. To deny that
climateandenvironmentalchangeishavingamaterialimpactonbusinessoperationsistobehaveliketheproverbialostrichandburyyourheadinthesand.
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Beyond crisis, beyond logos
While many governments seem hypnotized by the immediate fnancialcrisis,othersandanumberointernationalbodiesintheUnitedNations
systemarethinkinghardaboutwhatkindoeconomiesindividualcountriesshouldbeencouragingaterthecurrentfnancialearthquakehasrearrangedthelandscape.AtclimatetalksinPoland,Secretary-GeneralBanKi-mooncalledinDecemberoraGlobalGreenNewDealreminiscentoUSPresidentFranklinD.RooseveltsprogrammetoovercometheGreatDepressionothe1930s.Thiswouldinvolveconcertedmajorinvestmentsbygovernmentstoovercomethecurrenteconomiccrisisthroughenvironmentallysustainablejobgrowth,improvingthesituationonaturearoundtheworld,andidentiyingthestimulusmeasuresneededtoosterthetransitiontogreeneconomies.
Maybesomeothepracticalsolutionsthemicroeconomicanswerstothemacroeconomicchallengescanbeoundintheexperienceoethicaltradeandconsumerconscience.Fromacharityconcernwithunderdevelopment,theethicaltrademovementdevelopedviaNGOsintoawidevarietyospecializedgroupsworkingwith,alongsideandoutsidegovernmentstopromotebetterlivingstandardsorproducers.Manyactorsonthisscene,romRainorestAlliancetotheMongolianmicrofnancebankXacBank,arealreadyapplyingsustainabilitycriteriaintheirdecisionsaboutsupport,investmentandloans.Big companies are sometimes leading the feld in turning green-labelledproducts into market opportunities rom teabags and capsuled coeetoteeshirts, bananasand carseats,throughdealswith local communities,otenmediatedthroughNGOs.Retailersrecognizetheeconomicbeneftsodierentiation,andnotsimplythroughprice.Theairtrademovementhas
realizedthatbrandingmeansmorethanalogosomehowithastotellitsstoryinacompellingwaytotheconsumeriitistomoveitsproductsintothemainstream.Thejobogovernmentandexportpromotionorganizations,as a number o participants in the World Export Development Forumunderlined,istofndwaystoenablenationalbusinessestotelltheirstoriestoaninternationalaudience.
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Chapter 2
he value of the ethical consumer
Conscientiousconsumersareagrowingforceinthemarket.Researchshowsthattheyprizetransparency,accountability,authenticityandfairnessnowmorethaneverbefore.Andtheirinuenceisgrowinginthewakeofthe2008globalnancialmeltdown.Butwithineverycrisisliesopportunity.Thevacuum
createdbyconsumerlackoftrustandfallincondenceinpurelycommercialbusinesshasleftspaceforethicaltradetoexpanditsnicheandforentrepreneurswhohaveappliedtheprinciplesofcorporatesocialresponsibility(CSR)throughresponsibleentrepreneurshipandbusinesspractices.
Ethicalconsumerismandgrowinginormedconsumerismisjustasmuchaboutsupportingperceivedgoodcompanies,asboycottingthebadones.Theconscientiousconsumerdemographicisstillaminority,butincreasinglypeople are choosing to buy ethically made products and services. Ethicalconsumerismmeansdierentthingstodierentpeople andtomarketers.Buttheriseoethics-baseddecision-makingisrunningintandemtoariseinconsumersinterestinbetterunderstandingandtrustworthyinormation
aboutbusinesspractices.Thisgivesawholenewmeaningtothetraditionalconceptoinormedconsumers.Companiesarenolongerseenasresponsiblesolelyoraproduct,butortheirwholebrandandsupplychain.
owards a new consumerism
Thisneedtoknowattitudeamongconsumersisreverberatingacrossentiresupplychains.Producersinbothdevelopedanddevelopingcountriesarebeingorcedtore-examineeverylinkinthesesupplychainsasdiscerningconsumers and the retailers that buy such products to sellproftably to a growingsectionotheircustomersaredemandingairness.Increasingly,airnessmeans working within a ramework o environmental sustainability whiledemonstrating respect or workers rights, better returns to producers andequity intrade.However,manydeveloping-countryproducers,andscepticstowardsthenewmovementinthedevelopedworld,questiontheverydefnitiono airness. Fair trade, they claim, distorts markets, giving uneconomicproducersunairbenefts.Itputsmanyproducersinthedevelopingworldatadisadvantageinseekingmarketaccesswherethesestandardsareappliednotbecauseolackocompetitivenessbutbecauseothecostoobtainingtheclearancesthatwillenablethemtocompete.
Craig Davis, Chie Creative Ofcer o advertising heavyweight JWTWorldwide,confrmsthatatpriceparity,consumerstodaychoosebrandswithhigherethicalstandards.Consumersareincreasinglylookingtodobusiness
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withcompaniesthatare,insomeway,ethically,environmentallyandsociallyresponsible,hetoldtheWorldExportDevelopmentForum2008.
Davisreportedontheresearchthatbacksuphisclaim.TheHenleyCentre,aglobalconsumerresearchconsultancy,reportsthatmorethanever,consumers
areawarethat theirbuyingdecisions haveconsequences. Some buyers arehighlyinormedaboutsustainabilityorethicalissues.Mostsimplywanttosomehowmake a dierence. Theyunderstand thatwhat they buy has aknock-oneect,Davisexplained.
TheHenleysurveytookplaceinJune2008andinvolvedbetween1,000and2,500ace-to-aceand/oronlineinterviewsinsevenmarkets.Morethan50%othosesurveyed, it ound, arereadytomake real changes totheir lives.Thereportcallstheconsumerswhoactonthisreadinesspioneers.Whenbuyingsomething,theyareverycareultoensurethatitmeetsethicalandenvironmentalstandards.Adoptersaredescribedinthesurveyasmakinganeorttogettothispoint.Adoptersandpioneerstogetheraccountor40%o
consumersquestioned.Theyareeitherpredisposedtodotherightthingortheyarebusydoingit,Davissaid.
Interestingly, Chinese consumers had a higher proportion o whatHenleycalledpioneersoradoptersthanintheUKortheUS.
Davis also citedaMarks and Spencer survey that reported about 10%oshopperssaidtheyare reallycommittedtothecauseogreenconsumption.Aboutaquarterwerenotinterestedatall.ButinsimilarfndingstoHenley,therestwereinthemiddle.Theywerekeentobegreenaslongastheydidnothave tomakemuchoaneort todoso.MarksandSpencer,amajorretailchainintheUK,seesthisasahugebusinessopportunity.About75%o
theircustomerscareaboutenvironmentalissuestosomedegreeandmanyothemwanttobeeducatedandshownhowtheycanmakeadierencewithoutchangingtheirlivescompletely.
Ethicaltradescontributiontoimprovementsinthelivesopoorcommunitiesisequallysignifcant.Manyaremarginalproducerswhomightnototherwisebeabletomakealivingintheirhometerritory.Ethicaltradehasstrengthenedcommunitiesbyenablingthemtoprovideschoolsandhealthclinicswithineasyreachinsteadokilometresaway,as Willington Wamayeye,GeneralManager o Gumutindo Coee Cooperative, Uganda, points out rom hispersonal experience on Mount Elgon. Robin Cameron, Chie ExecutiveOfcer o Fairtrade LabellingOrganization (FLO) International, says FLO
trade directly benefts 1.5 million producers and workers in developingcountries7.5millionincludingtheiramilies.FLO,hetoldtheForum,isworkingwithFairtrade-certifedproducersin58countries.In2006,Fairtradegenerated100millioninadditionalincomeorproducersandworkers.
Values drive purchasing decisions
Backinthe1970speoplequestionedwhethercorporatesocialresponsibilitycouldbeavalidconcernorbusiness.ButbusinessleadersromEurope,Japan
andtheUSrealizeditcouldreducelabourandtradetensionsaswellasembracecooperation and respect orhumandignityasethical ideals.Since then,anumberoagreements,standardsandguidelineshaveollowed,particularly
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inEurope,spellingouttheexpectationstowardsinternationalbusinessonawholerangeosocialissuesincludingindustrialrelations,healthandsaety,andtheenvironment.Thegrowingdemandorbetterbusinessethicsisnowaworldwidemovement.Increasingly,too,developingcountryproducersandsuppliersaremonitoredbyconsumersathomeandabroadastheyinterconnect
throughglobalsupplychains.
But asmany speakers and participants pointed out at theWorld ExportDevelopment Forum, even though such concerns may be currentlyovershadowedbytheturmoilinfnancialmarketsandthebankingsystem,theyarenotgoingtogoaway.Inact,theyarehardtruthsacinggovernmentsandcompanieswhentheyrebuildbusinessandrestoretrustinthesystem.
he triple bottom line
Ethical consumerism or conscientious consumerism is values driven.
Increasingly,bigbusiness,suchasbanks,largesupermarketchains,highstreetretailersandothersareocusingontheircustomersvaluesandunderstandthatsustainabilityisanissueorisingglobalconcern.Thetriplebottomline,themantraotheCSRmovement,hasbecometrulymainstreaminlessthan15years.Davisobserved:Young,welleducatedconsumershaverealizedthepowerthatliesinthedecisionstheymaketobuyornottobuy.Bypurchasingromcompaniesthataresociallyresponsibleandnotbuyingromthosethatarenottheycanusetheirwalletstopursuetheirvalues.Companiesthatdonotadaptwillpaytheprice.
A public licence to operate
Thenotionoapubliclicencetooperateisgainingstrengthasthemediahave the power to name-and-shame those perceived to be engaging inenvironmentallyharmulorunethicalcorporateconduct.EngagedconsumersareevenmoreempoweredbytheInternet.
Companies have always contended with regulatory rameworks, but now,various stakeholder groups have become more adept inmobilizing publicopinion. Mere compliance with regulations is not enough to gain andmaintainconsumertrust.
Confronting the new consumer power
The golden rule o public relations, or reputation management, is that ittakes years tobuildup a reputation and just seconds todestroy it.Ernst
von KimakowitzromtheUniversityoSt.Gallen,co-ounderotheTheHumanisticManagementNetwork,observesthattheconditionsorbusinessarechanging decisively. It used tobe that consumers expected companiestooperate in accordance with saety and quality regulations. Today, theyarebasingtheirpurchasingchoicesonawiderrangeosocialconcerns.Iacompanydoesnotcontinuallyrenewitscompactwithcivilsociety,itspubliclicencetooperateitsreputationwouldacegraverisks,hewarns.
Dana Kissinger-Matray rom the International Organization orStandardization(ISO)saidthatnotonlyistheinuenceoconsumersonthe
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marketandbusinessbehaviourincreasing.Shealsothinkstheywillhaveaargreaterimpactintheuture.Therearetworeasons.
First, the integration o the worlds economies and inormation systemsprovides unparalleled opportunities or consumers to inuence markets,
sheremarks.Globalizationischangingtheconcernsoconsumers.Theyarebecoming awareohow interconnected their livesarewith those inotherpartsotheworld.Inadditiontotheirtraditionalconcernswithqualityandprice, Kissinger-Matray told the Forum, consumers now worry about theimpactotheirchoicesontheenvironment.Andtheywanttopurchaseinamannerconsistentwithairtrade.WiththeemergenceotheWebandothertechnologicaladvances,consumershavegainedtheabilitytobothaccessandtransmitinormationinstantaneously.
Second,shebelievesindividualpurchasingdecisionsareonlyoneoseveralwaysthatconsumerscaninuencemarkets.Toovercometheunethicalbuyingpractices by supermarkets aswell as othermajor retailers, consumers can
todaybeinormedosuchpractices,whichincreasespressureontheretailers.Mechanismsavailabletoconsumersinclude:
Researchandadvocacyactivitiesoconsumerorganizations;
Participation as stakeholders in the standardization process, that is, theormulationovoluntarystandards;
Involvementindevelopingmeaningulproductinormationandlabelling.
Market size matters the numbers tell the storyStatisticsaboundtoquantiytheboominconscientiousconsumerism.Theycoverthe gamut o organic oods, air trade and ethical ashion.Considerjust someothe numbers beingused in the growing debateoverthe newconsumerism.Forexample,ResearchandMarketspredictsthatorganicoodwillaccountoraround30%otheUKstotaloodmarketby2010.EthicalashionhasannualsalessurpassingmillionsopoundssterlingintheUKalone.ThevalueoFAIRTRADElabelledgoodsintheUKhasrisen1,000%inthelastdecadeand50%inthepastquartercomparedtoayearearlier,reportedGareth Thomas,UKMinisterorTrade,DevelopmentandConsumerAairs(jointlywiththeDepartmentorInternationalDevelopment),attheopening
plenaryotheWorldExportDevelopmentForum2008.
DatamonitorintheUKpredictsthatglobalconsumerconsciencewill boostair tradesales intheUKalonetomorethan1,000millionby2012.Thestandard-settingbodyisFLOInternationalandFLO-CERTisthecertifcationsystem designed to allow people to identiy products that meet agreedenvironmental,labouranddevelopmentalstandards.TheFLOInternationalFairtradecertifcationsystemcoversagrowingrangeoproductsincludingbananas, honey, oranges, cocoa, coee, cotton, dried and resh ruits andvegetables,juices,nutsandoilseeds,quinoa(anIncacereal),rice,spices,sugar,teaandwine.
In2007,FLOInternationalreportedthatcertifedsalesamountedtoabout2.3billionworldwide,a47%increaseover2006.Salesareurtherexpectedtogrowsignifcantlyincomingyears:Accordingtothe2005Just-FoodGlobal
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MarketReview,Fairtradecertifedsalesareexpectedtoreach$9billionin2012and$20billion-$25billionby2020.
TurnoverinUKsupermarketsisabout100billionperyearanappetizingnumber.But less than3% came rom developing countriesand only0.5%
romair-tradelabelledgoodsin2007.Thesefgures,Thomasobserved,giveasenseothescaleothechallengetoexpandtheairtrademarket.
Hype or potential?
Speakers and participants at the opening plenary debated whether theconscientiousconsumermarketisallabouthypeorpotential.Theconsensus?Potential.Ethicallygrownandtradedproductsareagrowth,nichemarket.
Pascal Lamy, Director-General o theWorld TradeOrganization (WTO),saidthatromthepointoviewoanexporterromadevelopingcountry,organicand/orairtradewhilestillasmallproportionototaltradeotenrepresentsopportunity.ForbananagrowersintheCaribbeanislands,goingorganicwasaquestionosurvival.Theyjumpedtoanothercategoryothemarketwheretheyweresae,hesaid.
TheFairTradeFoundationthecampaigningandcertifcationorganizationbehindtheFAIRTRADEMarkhasputdevelopmentintheUKshoppersminds,suggestedGarethThomas.
TherewasagreementromKaty Leakey,ounderotheLeakeyCollection,adesigncompanythatdevelopshandcratedproductsoraninternationalmarket
andprovidesemploymentopportunitiestoover1,200Kenyan.TheCollectionwasrecognizedin2008oritscontributiontosocialdevelopment.Agreementcame, too, rom Neil Kelsall, a consultant who specializes in advisingcompaniesindevelopingcountriesonhowtocapturemoreaddedvaluerom
theproductstheysell.For example, he hasassisted Madagascarin producing andexporting chocolatebars rather thansimply cocoa. Ms.
Leakey and Kelsallestimated that 20%o consumers careabout ethical issueswhile 80% look orthe cheapest goodsavailable. But, theyunderlined,thevalueo goods bought bythe 20% o ethicalconsumers is huge,asisthepotentialto
reach the remaining80%.
Figure 1. Recognition of the Fairtrade Mark 1999-2008
Source: MORI/TNS Omnibus studies.
Recognition = % of people who recognized the Fairtrade symbol.NB. 2008 gures remain condidential.
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he norm rather than exception
TheUKgovernmentwantstocatalyzeastepchangesothatairandethicaltradebecomesthenormratherthantheexception,GarethThomasdeclared.WealsowanttoseeanaggressiveexpansionothesebrandsacrossEuropeandmorebusinesssupportorthem.Atthesametime,donorgovernmentsshould champion air working conditions and labour standards in thedevelopingcountriesthatproduceethicallygrownandtradedproducts,heurged.
TheUKsEthicalTradingInitiative(ETI)anallianceocompanies,non-governmental organizations (NGOs) and trade union organizations ischallengingUKretailerstobecomeawareohowtheirsuppliersoperate,withaviewtoimprovinglabourstandards.Soar,hereported,52frmsintheoodandclothingsectorsareETImembers.
Perhaps not surprisingly, the emphasis was onSouth-North trade more
specifcallytoContinentalEuropeandtheUK,andorsomeorganizationstotheUS.However,othercommentatorspointedtothesizeopotentialmarketsinthedevelopingworld,orexampleinLatinAmerica(Argentina,BrazilandMexico)aswellasChina,IndiaandseveralothercountriesoAsia.
Ethical trade market: Safer in troubled times
Speakers at the opening plenary also agreed that organic, air trade andethicalproductswillkeeptheirmarket,despitetodaysvolatile,unpredictableeconomic climate.Themarketor such air-tradeproductswill likelytake
a temporaryhit,butwillbounce back.Thomas assuredparticipants: Themarketisrelativelyrobust.Giventhecurrentdownturn,therewilllikelybeashort-termhit,butthereismuchmorepotentialthanitscurrentsize.Inact,thesectorcontinuestobeagoodinvestment.
Alex Brigham, Executive Director o US-based Ethisphere Institute,concurred:Notonlyisthemarketorethicallygrownandtradedproductsheretostay, it isa growthmarket.Askedwhether it stillmade senseordevelopingcountriestoputmoneyintoairtradeprojects,henotedthatinaconsolidatingmarkettherewillbewinnersandlosers.Butdonotpullbackinvestment inthistimeocrisis,hesaid. Strongorganizations investintimesotrouble.
Astodayscash-strappedconsumersincreasinglyocktobudgetsupermarketsinEuropeandtheUS,thereisstillanichemarketorethicallygrownandtradedproducts,Lamynoted.Brighamaddedthatpricepremiumsorethicallyproducedproductscannotalwaysbepassedalongtotheconsumer:Atmorethana3%pricepremium,theabilitytocapturemarketsharestartstoerode,hesaid.ButwhetherthisistrueormorethantheUnitedStatesremainsopentochallenge.Lamythoughtthatthecurrentfnancialcrisiswillhavealimitedimpactonmarketshareoairtradebecausemanyconsumerswho[buy]airtradedonotmindthe3%to10%[price]premium.Ms.Leakeyputthepremiumevenhigher.Inabreakoutsession,shesuggestedthatethicalconsumershaveshowntheyarepreparedtopay1525%moreorcredibly
sourcedproducts.Itdependsverymuchonthetypeoproductbeingexportedtomarkets. Itmightbearguedthatthis isair, giventhattheseproducerscannotalwayscountoneconomyoscalebenefts.
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Deep and enduring change
Willpeoplestillbeconcernedabouttheenvironmentwhentheyareworriedabout balancing their monthly budget? Will companies still think it is
asimportanttopursuegoodethicalpracticeswhentheirproftsarebeingsqueezed?
Ithinktheywill.Idonotthinkthistrendtowardsethicalconsumptionisabubblethatisabouttoburst.Itisnotcyclicalorcynical.Itrepresentsadeepandenduringchangeinthewayconsumersbuyandcompaniessell,CraigDavisnoted.
Harriet LambotheFairtradeFoundationpointstotheopportunitythatconscientiousconsumerspresenttoembattledsupermarketstokeepholdotheirproftmargins,sincesuchbuyerstendtobeolder,bettereducatedandmoreauentthanordinaryshoppersreadytoinormthemselves,andpay
orgoodcauses.Similarly,thefndingsthatyoungpeoplearewellawareotheirconsumerpowerorgoodstrengthensbrandloyaltytoretailchainsthatcancommitthemselvestoethicaloperation.
Whatunderliesthisdeep-rootedchangeiswhatDaviscallsthenewglobalcultureotransparency.
ransparency is the new mantra
TodayweliveinwhatCraigDavisdescribesasaworldoradicaltransparency.Mostconsumersinthedevelopedworldandthemanyinthedevelopingworld
cancaptureanddistribute,andseekoutinormationintheormopictures,wordsorvideoinawaythatishistoricallyunprecedented.HepointstotheGoogle/HSBC initiative, o3b, standing or other three billion, which isaimingtobringthewebtothethreebillionpeopleontheplanetwhodonotcurrentlyhaveaccess.
Thereisnowheretohideinthisnewageoradicaltransparency,suggestsDavis.For example,a companyrelying on child labour will eventually beconrontedwithaphotooachildinoneoitsactoriespostedonawebsite.Thiswill be passed around the social networks and the companywill bepubliclyshamed.
Transparency,oversightandgoodgovernancearemoreimportantnowthaneverbeore.ITCExecutiveDirectorPatricia Francisexplains:Goingorward,transparencyisgoingtobeevenmoreimportanttobuildbackthetrustandconfdence to make the market work. Transparency, oversight and goodgovernance.Andpartogoodgovernanceisbeingsociallyresponsible.Themessagehereisthatcompaniesdoinggoodarealsodoingwell.Themessageisthesameorcountriestheywilldobestbypromotingtransparencyandgoodgovernance.
Ethical companies are more competitive
TheEthisphereInstitutefndsethicalcompaniestobemorecompetitiveinthelongrun,Alex Brighamreported.Notonlydotheyattractmorecustomersandthosewhovalueethicalstandards.Somealsoenjoyotherbenefts,such
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asattractingbetter,smarterandmoreproductiveemployeeswhoalsovalueethicalstandardsoverthehighestwage.
Theendresultisthatethicalcompaniesoutperormtheircompetitioninthelongruninacapitalistenvironment.Somemightquestionwhetherethicsis
lessimportantintodayseconomiccrisis,butactuallyitistheopposite,hesaid.Demonstrableethicsinbusinesswillbecomethatmuchmoreimportantasethicalenterprisesareactuallylessrisky.
Brigham noted that the companieswith the highest ethical scores inTheEthisphereInstitutessurveyshavehadtheewestproblemsinwhathecalledthe current global fnancial maelstrom. How does heightened consumerconscienceftintothis?Itisrealanditisheretostay,hedeclared.
Inaddition,moreandmorecompaniesarelookingtopartneronlywithethicalsuppliersastheyknowthatdoingsowillnotonlyreectwellonthem,butalsothatanethicalsupplychaincanbelessrisky.
What is fair? And for whom?
The theme o the 2008 Forum, Consumer conscience: How environmentandethicsareinuencingexports,raisedmanyquestionsabouttherealorperceived tension between ethical trade and conscientious consumerism.Whileagrowingethicalawarenessamongconsumersinthedevelopedworldcanhelp createnewmarkets or the goodso poorer countriesthe reversecouldalso happen.Socalledproductionstandards couldbeturned intoaormoprotectionism.
Therearemanydefnitionsoairandtherearejustasmanycriticsromthedevelopedworldandthedevelopingworldcastingascepticaleyeovertheclaimsoairtradeenthusiasts.As Pascal Lamyasked:Whosetsstandardsorairness?Formanydevelopingcountries,criteriaoairnessremainnon-transparenttoproducersandexporters,otenasaresultocompetitionbetweenpublic and private quality and saety standards. Developing countries areincreasinglyputtingthisissueonthetableatWTOnegotiations,heexplained.
Fairness vs consumer demands
Addressingthedebateoverstandards,Lamyarguedoutthatitisnotuptothedevelopedcountriestoimposesanitaryandphytosanitaryrequirementsonexportsromdevelopingcountriessincethesehavealreadybeennegotiatedbygovernmentsattheinternationallevel.Consumersinrichmarketsarepushingorgood,butwhatistheimpactotheseniceintentionsondevelopingcountryproducerswhoseabilitytogrowandmakealivingdependsonaccessingthesemarkets?heasked.Thereisabalancethatneedstobeound.
TheissueoairnessandconscientiousconsumerismwasalsoaddressedbySupachai Panitchpakdi,Secretary-GeneralotheUnitedNationsConerenceonTradeandDevelopment (UNCTAD)and Ashok Khosla,ChairmanoDevelopmentAlternatives,India,andPresidentotheInternationalUnion
orConservation oNature (IUCN). Supachaipointedout thatdevelopingcountriesalreadyhavetroublemeetingexistingstandardsoproductionandqualitywithoutrichstatesaddingurtherhurdles.
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Youmustnotallowtraderulestobeabusedbythosewhosaytheyaretheconscienceotheworld,Supachaisaid.Youmustnotallowthis[ethical]awarenesstobecomeaburdenandputimpedimentsintothetradingsystem.
Khoslawent urther. He declared: Consumer conscience is a problem or
thedevelopedcountries. Even ethicalproblemscan beexaggeratedtothedetrimentoeconomicdevelopmentinpoorercountries.TheproblemotheThirdWorldishowtoproduce.
Hecalledorabalancebetweenthedemandorlocalproductsandinternationaltrade.Forthataneweconomicsystemisrequired,heargued.Societiesmustlearn more convincingly how to create the jobs, goods and services thatpeopleneed.Theworldneedsproducerconscienceasmuchasconsumerconscience,hetoldparticipantsatthewelcomedinner.
Kevin OBrien,GroupCompanySecretaryoTheSPARGroupLtd.inSouthArica, gave something o the samemessage. He underlined the need orcompaniestodemonstrateintegritytotheirconsumersasawayooperating,simplybecausethisistherightthingtodoasresponsiblemembersotheirsociety,whileHarrietLambotheFairtradeFoundationpointedoutthatanumberofrmsadoptedethicaltradingprincipleswellinadvanceoconsumerdemand.
Increasingly, though, companies are acing a precarious balancing act,particularlyinfnanciallytoughtimes.Corporatebuyersmustprocureproductsandservicesthatmeetend-consumerrequirements,atthebestprice,conormtostandardsandaredeliveredrapidly.Operatingmarginsaregenerallytight,orcingbuyerstobepricesensitive.Atthesametime,producersmustulflethicalandenvironmentalstandardssothatretailerscanbacktheirclaimson
ethicalandeco-riendlysourcingtoconsumers.
Successful stories sell
Asaglobaladvertisingexecutive,Craig Davisseesopportunitiesorcompaniesinemergingmarketstotelltheirstoriesinawaythatresonateswithconsumers.Storieshavevalueromaconsumer,businessandbrandperspective,henotedandpointedouttoanewsetostories:Storiesconcerningtherelationshipbetween what companies do as businesses, and the communities and theenvironmentlocalandglobalthattheyaect.
Forme,mybusiness,andormanybusinesses,theact thatconsumersaredemanding higher ethical and environmental standards is a huge creativespark,oreverypartothebusinessomyclients.Itdrivesthemandustocreate, curate and communicatemore and better stories about whatweredoingorthecommunitiesweworkwithandtheplanetweliveon,DavistoldparticipantsinMontreux.
Box3. Grassjewelleryandchocolatebars
BothKatyLeakeyandNeilKelsallhavestoriestosell.Andtheirstoriesarerealsuccessstories,andtheyare
notnishedyet.InLeakeysjewelleryandhandicraftsbusiness,consumerspayforthestory,sheisconvinced.Ms.Leakeyadds:Wearestrivingtodirectlyconnecttheend-usertotheproducerbythestoryofourcompany.
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adds:Wearestrivingtodirectlyconnecttheend-usertotheproducerbythestoryofourcompany.Wecanengageyoung,energeticentrepreneurswithastrongsocialconsciencewhowillworkasourcollaboratorsandagentsinourtargetmarkets,shetoldtheForum.Thedevelopmentofanetworkalsocanlinkproducerswithend-usersordistributors,enablingthemtoseemutuallybenecialexchanges.
Leakeyalsopointedtotheneedtodevelopdetailedcasestudiestoprovideacollectionof bestpracticesandexperienceforothersattemptingtocreatesimilarbusinessventures.
KelsalldescribedhissuccessfulefforttodevelopandsellalineofchocolatesfromMadagascar.In2005,hewenttheretondaproductaroundwhichhecoulddevelopabusinessthatmovesexportproductsupthevaluechain.Hedevelopedanechocolateforexport,notonthebasisofaid,butbysoundbusinessprinciples.Welearnedeverythingwecouldaboutthemarket:Consumerswantedhealthy,organicchocolatethattastedgood.Thenwedideverythingwe couldtosupply it.Toaddressquestionsof sustainability,Kelsallnoted,it ispossibletobuildnewconcernsdirectlyintothebusinessmodel.Forexample,becausethechocolateisproducedfromcocoabeansthatgrowinrainforests,highersalesencouragepreservingtheforests.
Box4. Thefoodmilesdebate:Hearingbothsides
Panellists frombothsidesin the foodmilesdebate does ithelp reducegreenhouse gasesto buyagro-horticulturalproductslocally?cametogetherataspecialsessionontheissueattheWorldExportDevelopmentForum 2008, moderated byAsadNaqvi, Programme Ofcer, UNEP-Economics and Trade BranchCoordinator,UNEP/UNCTADCapacityBuildingTaskForceonTrade,EnvironmentandDevelopment(CBTF).
MarkusArbenz,DirectorofBio-Suisse,Switzerland, emphasizedthatthefocusofhisorganizationistoencourageconsumerstobuylocally.Assuch,Bio-Suissepromotesorganicproductionandoperatesalabelling
schemeinSwitzerland.Thegroupslabelsfavourdomesticallyproducedorganicproductsandarenotawardedtogoodsthatareairfreighted,hesaid.Similarly,itdoesnotgiveitslabeltoimportedmilkormeat,becausetheseareavailableinSwitzerland,headded.
Simon Bolwig, Project ResearcherTrade andDevelopmentResearch Unit at the Danish Institute forInternationalStudies,questionedtheenvironmentalcasemadebybuylocallobbies.RosesimportedfromKenyahaveasmallercarbonfootprintthanthoseproducedintheNetherlands,hesaid.Itisalsoamoralissueandaquestionoffairnesstothoseinthedevelopingworld,heargued.
AlexanderKasterine,SeniorMarketDevelopmentAdviseratITC,pointedtotheadvantagesforAfricancountriesofreachingprosperousmarkets.ThefruitandvegetablesectorinAfricaisoneofthesuccessstories,hesaid.CountriessuchasKenya,Uganda,Ghana,SouthAfricaandZambiabenetfromaccesstotechnologyaswellasEuropeanmarkets.Forindividuals,theearningsfromproduceowntoEuropecanmakeareal
differenceinhouseholdspending.Butsendinggoodsbyshiptheformoftransportthatproducesperhapsthelowestemissionsofgreenhousegasesisnotanoptionforfruitandvegetableorowerexporters.
African producers view the focus on foodmiles as just anotherway ofusing the environment toblockdeveloping-countryexports,headded.
Anumberofotherforumparticipantswerescepticalofthecampaignagainstfoodmiles. PhilipLeakey,aformerKenyanpoliticianandnowentrepreneurwithhiswife Katey,pointedoutthatmostair-freightedfruitandvegetablesarecarriedintheholdsofpassengerplanesthatwouldbetravellingregardless.Wouldweratherhavetheholdyingempty?heasked.
Otherscalledforstrategiestohelpdevelopingcountriestogobeyondthedebateoverfoodmilesandtakeadvantageofopportunitiesinthedevelopedworld.Theseincludemarketingproductsmoreeffectivelyandincreasedlobbyingon thefoodmiles issue.However,becausedevelopingcountriesoftenlackresourcesand
expertise inmarketing and lobbying, they should beprovidedwith help tobuild capacityin the neededskills.
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Chapter 3
Creating the value: Innovation is non-negotiable
Theglobalmarketforgoodsandservicesthatmeetconsumerdemandforproductscreatedbyethicallyandenvironmentallyacceptablemeansoffershugeeconomicopportunitiesfordevelopingcountrybusinesses,entrepreneurs and exporters. But one thing is certain, thiswill notmatter unless the entrepreneurs,
producersorevenfarmersareinnovative.Oftenbeingcreativeinmarketingcangoalongwaytowardsseizingtheseopportunities.Themessageis:Brandyourproductinawaythatcharacterizesitdistinctivelyandhelpsitndamarket.
At the ITCWorldDevelopment Forum2008, developing countries wereadvisednottopursueonlylow-coststrategiesintryingtocreatedistinctivecompetencies in worldmarkets. John Viljoen,managing director o theiedexgroupocompaniesromAustralia,saiddevelopingcountriesshouldseektodistinguishthemselvesromeachother,andnotaimtocompeteonlyonprice.Craig Davis,ChieCreativeOfcer,JWTWorldwide,UK,echoed these sentiments: There are many ways to dierentiate your
goodsandservicesromothers,andthisdierentiationiskeytosuccess,hesaid.
TheimportanceoinnovationasagrowthenablerwasemphasisedbyGavinStaude, director o Investec Business School at South Aricas RhodesUniversity.Independentbusinessesindevelopingcountriesitheyaregoingtoachievesustainablegrowthhavetopursueandcreatenewmarkets,andtheonlywaytheycandothisisthroughinnovation,heinsisted.
Innovation can take many orms and be brought to bear at dierentstagesotheproductioncycle.Aproductitselcanbeinnovative,suchasmaking jewellery rom rawmaterials.Orthe innovationmay comeduring
theproductionprocesswithsomenewmeansorinputsusedtocutcostsorimprovequality,anyowhichcouldmakeaproductmorecompetitive.Itdoesnotneedtobecomplex(seetheboxinChapter4onbiologicalagriculture,entitledBeyondOrganics).
he sources of innovation
What are the main drivers o innovation? Clearly, consumer demand isa powerul incentiveto innovation asproducers seek outbetter andmoveremunerative ways to satisy it. Sometimes, however, the spark can be
producedintherarefedatmosphereoauniversityorresearchinstitution.Fromtheoriginalinvention,innovatorsbuildontheundamentalresearchtheretocreateamarketableproduct.
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One example comesrom the Indian Instituteo SciencesatBangalore. Itdevelopedaprocessorthegasifcationobiomassthatgenerateselectricityromweeds.Arun Kumar,President-BusinessInitiativesoIndiandevelopment-promotingconcernDevelopmentAlternatives,explainedtheimportancethatitcanhaveorlocaleconomies.
Basically, anycarbon-bearingmaterial burnedunder closed conditions canproducegas.Youcleanitandyouputitintoagasengine,hesaid.Theresultisthatyoueventuallyareinapositiontoproduceelectricityeverywhere.
Thishasenabledsmallcommunitiestodevelopincome-generatingactivities,particularlyorwomen.Wehaveplantssetupinareaswhereyoucouldnotimagineelectricityservicesarrivingin100years.Ittakesjust30daystoset up the system and Development Alternatives is already exporting thetechnologytoothercountries.ThereareeventhreesuchplansoperatinginSwitzerland inisolated ruralcommunitieswherethere isa accessto readysuppliesotimberbutnottotheelectricitymains,Onceyouhaveelectricity,
youcandoanything:Agri-processing,chillingomilk,heatingomilk,steamgeneration.Youcantransormalocaleconomy,Kumarobserved.
Thisisanexampleoatransormativetechnologythatcancreatejobswhereitwouldotherwisehavebeennearlyimpossible.Butthefrststeprequiredisinnovation.
According to Anukul Tamprasirt, Deputy General Secretary o theFederationoThaiIndustries,growthinhiscountryisbasedonabundanceorawmaterials,andthiscreatesmanyoitscurrentchallenges.Thailandisanexportleaderinmanyfelds,rangingromriceandrubbertochicken(theworldsnumberour)aswellasexportsocomputerproducts.Thailandhas
beenaspecialistinOEM(originalequipmentmanuacture,i.e.non-branded)products.Sometimeswedidnotevenknowwhowasbuyingit.Thechallengeistofndnewexportactivitiesorits70millionpeople.Publishingisarisingfeld,recording1,000%growthinoneyear.
ForTamparsirt,successinbothtraditionalandITindustriesismanagementinnovation.Onekeyneedis tomakebetteruseobiomass,henoted.Some70%oThaimangoesarewastedbecausetheydonotmeetimporting-countrystandards.Thegovernmentis encouragingsolutionsalongthesamelinesasDevelopmentAlternativesinIndia,usingthebiomasstoproduceelectricity.
Thailandsbiodiversityranked17thintheworldoritsvarietyisanother
sourceoinnovation,bringingnewgoodstomarket.Entrepreneursarenowexploringhowtouselocalwisdomonherbsandspicestocreateexports,rangingromchickenbonesagainstheartdiseasetosquidinkorcosmetics.We arenot like India.We have based ourselves onabundant resourcesbutwerealizethisabundanceisnotgoingtolastorever.Itneedstobemanaged.
he mother of innovation
Sometimesinnovationcanemergeromsheerdesperation.Philip LeakeyandhiswieKatyoundedtheKenya-basedLeakeyCollection,whichspecialisesinproducingjewelleryandhouseholdgoodsromunusual
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rawmaterials,suchasgrass.Hisbusinesssprangoutotheneedtoprovidenear-starving Maasai neighbours with a means o survival when droughtthreatenedtokillotheirherdsanddestroytheirlivelihoods.
Atthebeginningothedecade,theareasueredacripplingtwo-yeardrought
thatkilledupto70percentothetribeslivestock.Asaresult,manyothemenletinsearchopastureortheiranimals,leavingthewomenandchildrenbehindwithjustaewgoatstoseethemthroughhardtimes.Butwhentheseanimalsalsodied,thewomenwereletdestitutewithnomeansoeedingthemselvesandtheirchildren.
AtfrsttheLeakeyshelpedthemwithhandouts.Theyalsosoughtmoneyromriends.Butthentheycametotherealizationthatjusthandingoutmoneyandoodoerednolong-termsolution.WhattheMaasaiwomenneededwasanalternativewaytoearnaliving.Leakeyandhiswiedecided:Wearegoingtofndaproduct,wearegoingtoinnovate.Thenexttimeadroughtcomesalong,theywillbeinbusiness.
Therewasnotmucharoundtoworkwith,justatoughtypeograss.Butthecoupledecidedtoseewhatcouldbeproducedromitinthewayojewellery.Theybeganbycuttingupthegrassintosmallpiecesandstringingittogether.First results were not very attractive. But they persevered and by dyeingthegrassinvariouscoloursandgivingtheirjewelleryanethniclook,theyeventuallymanagedtosellsomepiecesintheUnitedStates.
Notthatitwaseasytoestablishtheirbusiness.Weidentifedproblemswiththedyeingandourproductwasexcessivelyexpensivebecauseweweremakingtooew,Philliprecalled.Theethniclookalsoprovedtorestricttheiraccessto the most proftable boutiques and the jewellery was later produced to
contemporarydesignstandards.
Kumaroeredanothergoodexampleohowinnovationintheproductionprocess canbeused to improve peoples livesbyhelping orge sustainablelivelihoodsandcreateopportunitiesorexports.
Withhousinganunulflledneedinmostpartsotheworld,DevelopmentAlternativesposeditselthequestionwhetheritwouldbepossibletoproducecheap and aordable bricks without increasing the carbon ootprint. Theansweritoundwasaresoundingyes.Whatitcreatedisanenergy-efcientprocesswhichisbothwithinthefnancialreachosmallbusinessesandatthesametimegreenerthantraditionalbrick-producingtechnologies.Wehave
registeredthefrstcleandevelopmentmechanism(CDM)bundledprojectinwhichenergysavingsromeachkilnarebundledtogetherandsold,hetoldtheITCorum.IndonesiaandPakistanareamongcountriestohaveshowninterestinacquiringthetechnology.
Inasimilarvein,DevelopmentAlternativeshascreatedascaled-downpaperrecyclingplantthatcanftintoasmallareaandwhichiscapableorecycling5,10,or20tonnesamonthohighqualitypaper.Theplantcanulflaclearlocalneed,providingpoorcommunitieswithaccesstopaperthatchildrenneedoreducation,orexample.Hereisanopportunitytomeetlocalneedandhaveasurplusorexport.Iamagreatbelieverthatasystemhastobemaderobustbytestingitoutornationaleconomicgrowthandonlythen
exportingthetechnology,and,or,theproduct.Itcanstimulateindigenouscommunitiesandthenyoucanworryabouttherest,saidKumar.Again,itisinnovationatwork.
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Overcoming market constraints
Producers,armersandentrepreneursindevelopingcountriesotenacemanyconstraints frst on their ability to innovate and then,where they have
comeupwiththeinnovations,toseetheirproductorserviceembracedbyconsumers.Financeisalsocitedasamajorproblem.
Government role
Governmentscanplayanimportantroleinstimulatinginnovationaction.
LeakeycitedtheexampleoSouthAricasMarula tree,which isnownotonlyusedtoproduceaamousliqueurbutalsoprovidesjamsandoilthatisemployedasabaseorsought-aterhealthcareproducts.Thechainbeginswiththeruralpeople,thepeoplewhocollecttheruit,hesaid.Butitisthe
governmentthatboughtthepeopletogetherandsupportedresearch.Itisthegovernment thatmakes sure the trees areprotected. There isnowanewrecognitionothevalueotheproduct,hesaid.
Governmentscanalsobeabridgebetweentheproducerandtheirmarket.AgroupoMaasaiwomenhasnoconceptowhatthemarketrequiresinEuropeorAmerica.Wearethebridge,saysLeakey.Butinothersituations,thisisaservicethatgovernmentsorinternationalinstitutionscanprovide.
Inormationaboutmarketpossibilitiesandneedsisanotherkeyneed,alongwithhelpinmeetingmanyothecertifcationandotherqualitycontrolsthatstandbetweenadevelopingcountryproducerandaconsumeroairtrade
oorganicgoodsinEurope,theUnitedStatesorJapan.
Financial institutions
Financial institutions can play a signifcant part in getting innovativebusinessesotheground,particularlythoughmicro-fnancingincountriessuchasIndiawherethisormolendingtosmallbusinessesismostdeveloped.InIndia,sel-helpgroupsmainlyinvolvingvillagewomenwhocometogethertopoolresourcescanbeasourceostart-upcapital.XacBankinMongoliaspecializesinmicro-fnanceanditsPresidentcametoMontreuxtoreportontheexperience(seeChapter4).
AsPhillip Leakeypointedout,heandhiswiewereinapositiontofnancetheinitialhesitantstepstoseekoutmarketsintheUnitedStates,butthiswouldhavebeenimpossibleoragroupoMaasaiwomentodoontheirown.Theirexperienceshowedthepowerolinkagesinintegratingruralwomenintoaglobalsupplychain.
Neil Kelsall rom the United Kingdom is a pioneer o the Equitrademovement,whichseekstocreatewealthindevelopingcountriesthroughtradeinhighervaluegoodsandservices.Butherecalledhowitwasverydifculttoattractinvestmentinhiscompanywhosefrstproductwaschocolatebarsbranded Malagasyandmanuactured inMadagascar. Therewasnt any
undingavailableinMadagascarnorwerethereanyagenciesavailabletoinvest,sowehadtouseourownmoneytostarttheproject,hesaid.Whentheproducthaddevelopedenoughtomakeitworthpresentingthechocolate
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atatradeair,thecompanydiscoveredtherewerenogovernmentundstosupportsuchbusinessventures.Onceagainthemoneycameromhisownpocket.
ForeignbusinessesaredissuadedrominvestinginAricabecauseitisalong-
termproposition,henoted.Togetaroundthis,hesaid,governmentagenciesandthemediashouldhelppromotewhatAricahastooersuchasuniquespices,owersandoodsinapositivelight.
InKenya,knowledgeobio-dieseluelhasbeenalmostentirelyspreadbythemedia.Andsosuccessulhasitbeenthatmostothelocaltransportrunsonnothingelse,accordingtoLeakey.Thereisahugemarketoutthereandhugeinnovationisrequired,hedeclared.
Partnership and linkages are paramount
Partnerships oster innovation, technical and knowledge transer and thebeneftsareeltromsmall-scaleproducerstolarge-scalecompanies.AsRolandHiggins,PolicyAdvisor,RainorestAlliance,Belgium,noted:Partnershipsbetweencompaniesandotherorganizationsisimportantintappingintotheconsumerconscience.
Sybil Anwander, head, quality assurance and sustainability, Coop,SwitzerlandsaidthatasSwitzerlandssecondlargestretailer,hercompanyisexpectedbyitscustomerstoactinasociallyresponsibleway.Customersexpect products to be produced in an environmentally riendlymanner,Anwandersaid.Itisgoodbusinesstobeasustainabilityconsciouscompany,wehavehigherturnover,moreproductrange,moremotivatedemployees,sheinsisted.
ThishaspromptedCooptoormlong-termpartnershipswithproducersromdevelopingcountries.
Coopisoneotheworldsleadingretailersorair-tradetextilesromorganiccottons.Their brand,Naturaline, isbased on a partnership with the yarnactoryRemeiand9,000cottonarmersinIndiaandTanzania.Farmersgetapremiumpriceortheorganic cotton,theyhave afve-yearcontract andtheygettechnicalsupport,saidAnwander.CoopandRemeifnancenotonlysocialprojectsinthearmersvillages,butalsoaschoolororganicarming,powergenerationwithbiogasandirrigationsystems.
There are even greater advantages resulting rom this partnership as theorganicproductionresultsinarmersnothavingtospendanincreasingpartotheirrevenuesonmineralertilizers,theyhavemorestableyieldsandtheycangrowanothercropwhichimprovestheiramiliesdiets,orcanbeusedtogenerateurtherincome.
Partnershipscanalsobeusedtoeducateconsumersochallengesacedindevelopingcountries. Ania Jakubowski,AssociateDirectorinMarketing,Procter&Gamble,Switzerland,spokeothecooperationwithnon-businesspartnersamonginternationalhumanitarianagenciesandnon-governmentalorganizations as a way to demonstrate a companys social commitment.
Procter and Gamble has partnered with UNICEF, the United NationsChildrensFund,topromoteimmunizationcampaignsindevelopingcountriesbyallottingundsromsalesoitsPampersbranddiapers.
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ake advantage of serendipity in the market
Onceaproducthasbeendeveloped,astumblingblockotensurroundshowtotakeittomarket.ForPhillipLeakeysjewellery,theturningpointcamewhen
hewasaskedtogivealecturetoaRomanCatholicgirlsschoolinMonterrey,Caliorniathattheproductlinewastested.Aterthelecture,hewentuptotheheadteacherandsaid:Wehaveawholelotounusualjewellerymadeograss.Wewouldliketosellsometoyourkids.Theysold2,000strandso grass jewelleryin anhourandtookaway$16,000.Itwas thenthatwesawthatthebusinesshadlegs.Wewentbackhomeandwentthroughthebusinessmodeltoseehowwecouldcutcosts.Weanalysedeverything.Thatinnovation,thatslightdierenceiswhatpeoplearelookingor,particularlyintheboutiquemarket,hesaid.
Boutiqueswantsomethingthatisnotinthesupermarketsandthebigstores
andwehadsomethingdierent.Wehadgrass.Therewereallsortsounnycommentsaboutusmakingalivingoutograss,butIwillnotgointothat,he added. But essentially,wehad aproduct.We innovated romhowwestructuredit,howwecutit,howwedyedit,hesaid.
Branding for consumers with a conscience
Whilethemarketorethicalproductsandservicesisgrowing,careulbrandingisrequiredtoattractthediscerning,ethicalconsumer.
SpeakersattheITCForumhighlightedtheneedtodevelopspecifcbrandingstrategieswhentargetingtheconsciousconsumer.James Porter,ChairmanotheTBAGroup,Durban,SouthArica,notedthatconsumersareincreasinglydrivenbyemotionsandshowgrowinginterestinethicalproductionandareagainstenvironmentaldestruction.Sellinggoodsbydoinggoodrepresentsgreatopportunities,henoted.
ThiswasechoedbyCeline Roche,VicePresidentotheSpecialtyIngredientsDivisionNorthAmerica,Mane.Rocheregrettedthatthefnishedproductsandbrandsintheragranceindustryhavetodaylosttheiremotionalappealbecauseoaparadox:Seductionandaestheticvalueshavebeenoverusedintryingtoachievesalesgrowth.Butethicaltrade,andtheuseosustainable
arming practices in her industry, will bring back some o the essentialemotionalcontenttoconsumers,sheargued.
Ethicalconsumerlabelshavebeensuccessullyusedbybusinessesindevelopingcountriesaspartotheirbrandingstrategiestoaccessoreignmarkets.
TheFairtrademarkisfrmlyestablishedasoneotheworldsleadingethicalconsumer labels. According toHarriet Lamb, Executive Director o theFairtradeFoundation,whensevenouto10consumersintheUKrecognizethebrand,ithasmovedrombeinganicheideatohavingamajorimpactonthepublicsattitudetothethingsthattheybuy.ThisawarenesshastranslatedintosalesvalueoalmosthalabillionpoundsorFairtradeproductsinthe
UKin2007,sheafrmed.Independentacademicstudies,aswellasanecdotalevidence,havedemonstratedthatFairtradeishavingapositivedevelopmentalimpactoritsproducerpartners,Lambdeclared.
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Inthelong-run,inordertoensurethemaximumeconomicbeneftderivestodevelopingcountryproducers, itwill benecessarytodevelopbrandswithinthelocalmarketaswell,andtomoveproducersupthevaluechain,suggested
Anne MacCraig, chie executive ofcer o CaDirect, United Kingdom.Howwemovethedistributionobeneftsurtherorwardis allabouthow
wecanlocatethebrandinvariousdierentmarketsaroundtheworld,shesaid.Andtheconceptovaluecreationwithinabrandandthelocationotheprocessingacilitiesisessentialtotheamountorealvaluethatyoucancreateinacountryandanemergingmarket,sheafrmed.ThiswouldbeauturepriorityorCaDirect,althoughitisnotclearjusthowthisshouldbecarriedout,sheadmitted.
Creatingalocalbrand,however,canbedifcult,particularlywhentheproductconcernedisnotwidelyconsumedinthelocalmarket.SuchisthecaseocoeeinUganda,wherethelocaldrinkochoiceistea,notedWillington Wamayeye,generalmanagerotheGumutindoCoeeCooperative,aCaDirectsupplier.
Whilemanybusinesseshaveenjoyedgreatsuccessusingconsumerlabels,somebusinesseshavebeenhesitanttoembracethem.OnesuchexamplecameromNeilKelsallwhosaidthattheMalagasychocolatecompanydecidedagainsttheuseosuchalabel,asitwasbelievedthatthiscouldlessentheappealotheconectionaryatthehigherendothemarket.
Experience shows that being considered ethnic can be a blessing and aburden,particularlyoutsidetheoodssector.Ethnicgoodssellonlytoringemarkets,Leakeywarned.TheLeakeysdiscoveredthedisadvantagesastheybegandevelopingtheirinternational.tradeingrassjewellery.Wewerebeingsidelinedintotheringemarket.Therewasno uturein that;wewerenotgoingtocreatea lotowork.Weneededtocreateacontemporaryproduct.Somethingthatwillsellanywhere.So,theygotridotheethniclookotheirproduct.Today,theLeakeyjewellerysellsanywhereromNewYorks5thAvenuetoLondon,HollywoodandParis.Itissellingbecausewetooktheethnicityoutoit.ItisstillmarketedundertheZulugrasslabel.However,theironythatKenyahasnoZuluswasnotlostonsomeotheForumparticipantsanddemonstratedthepoweroinnovativebranding.
Stiff competition from multinationals
Developing-country brands ace ferce competition rom multinational
corporationsanxioustoestablishbrandsotheirown,pointsoutJamesPorter.AmagazinesurveyoThirdWorldbusinessmenandconsumerscarriedoutoraSouthAricanbreweryshowedhighlevelsodistrustothemotivesandpracticesothebiginternationalcorporations,herecalled.
Manyothesebusinessleadersthoughtglobalbrandsoeredewbeneftstodevelopingcountries,and80%eltthatglobalbrandshadanunairadvantageover local brands. Well known local brands,whichhave developed trust,experienceerosionwithdumpingromtheFirstWorld,Porterdeclared.
Building trust
Buildingtrustisconsideredcriticalwhendevelopingabrandthatisaimedattappingintotheconsumerconscience.Porterwarnedthatthedecisiontotarget
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theethicalmarketshouldbecareullyconsidered.Conscientiousconsumerswillboycottproductsthattheydonotbelievetobegenuine.Headdedthatastheseactivistsextheirbuyingmuscles,theyactasgoodpolicementhatmarketerscanuseproductivelyasafngeronthepulseotomorrow.AniaJakubowskiagreed:Consumerswillpickupiwearenotgenuine.
Whileconsumerswilltakenoteandactoutagainstinsincereethicaloerings,genuineethicalgoodsandservicesarenotguaranteedsales.Themajorityoconsumerswillnotoregoquality,priceorconvenienceorethicalproducts,warnedJakubowski.
ales to tell the world
Oncethereisaproduct,therehastobeastrategyorsellingit,orgettingitouttoawidermarket.CraigDavisbelievesthereareewerbetterstrategiesthanhavingagoodstorytotell.
FewstoriescanbetterthatotheKupiLuwakcoeebeans.Thecoeetreegrows on the Indonesian islands o Sumatra and Bali, and their sot redcherriesareaavouriteoodothePalmCivet,atree-dwellingcrossbetweenacatandamonkey.Thecivetseattheruitandexcretethebeans,whicharethencareullycollectedromthegroundbyplantationworkers.Thecivetsarebelievedtopickonlythebestandripestcoeeberriesandtheirgastricjuicesmayevenaddtotheavour.Fewerthan450pounds(200kg)ocoeebeansareharvestedeachyear,andauentconsumersinBritainarepreparedtopayasmuchas50sterlingortheprivilegeotastingacupocoeemaderom
theirbeans.Clearlynoteverybodyhassuchacolourultaletotell.ButDavisadvicetoproducersistoturntheblowtorchbackonyourbusinessuntilitbeginstorevealsomeoitssecrets.Hebelievesthattherewillbesomethingaboutitthatisdierent.
Moderntechnologiesarebringingtheproducerandconsumerclosertogether.Websites,orblogscanbelaunchedorjustafstulodollars.Youcandoitwithoutmuchmoneyandareallygoodstory.Youdonotneedanythingbut
someactsandtheabilitytotellthemwell,hesaid.
Box5. Goodcorporatecitizens
Innovationcanbeusedtobolstercompetitiveness,andatthesametime,encouragethedevelopmentofsmall-scaleproducersinthedevelopingworld.
KevinOBrien,GroupCompanySecretary,TheSPARGroupLtd,SouthAfrica,explainedthatalltheretailstoresinhisinternationalgroupare independentlyowned.AlthoughinSouthAfrica adistributionnetworkexiststosupplySPAR-labelledproducts,retailersareabletobuylocallyinordertoberesponsivetocustomersneeds.AsOBriennotes,TheSPARretailerhashisorherearclosetotheneedsoftheSouthAfricanconsumer.
Arangeofbenetsresultfromthisexibleprocurementarrangement.First,itallowsSPARtoquicklygaininformationonconsumerpreferencesthroughanalysisofnon-SPARbrandsales.Inaddition,theretailers
freedomtobuylocallyalsoprovidesrevenueandbrandexposuretosmall-scaleproducerswhomightotherwisenothavethescale,knowledge,orcontactstosupplytolargeretailsupermarketchains.
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Chapter 4
Raising the value
Ifproducingthegoodsthatappealtoethicalconsumersisachallenge,thenthenextsteptappingintomarketscanbeanevenbiggertest.Whilethesemarketsaredynamicandoffermuchpotential,theyarealsosegmented,rapidlychangingandconfusing.Toreachsuchmarkets,developingcountryproducers
mustnavigateagrowingvarietyofproductstandards,bothpublicandprivate.
Copingwiththechallengesosecuringaplaceinthemarketcomesontopothemoretraditionaldifcultiesacedbysuchexporters,includingdistancerom market, lack o inormation regarding demand trends and problemsassociatedwithmeetingtherequirementsolarge-scaleimportersandretailers,particularlysupermarkets.
Barriers and costs
The issue o standards stirs considerable controversy. Some advocates ordevelopingcountriesaccusedevelopednationsoseekingtoimposetheirvaluesandconcernsontherestotheworld.Standardscanalsoactasnon-tarimeasuresdesignedtoprotectlocalmarkets.Andtherecanbeconsiderablecostsinvolvedwithcompliance.
Ontheotherhand,privatestandardscanoerpricepremiumsandopenthewaytolucrativenichemarkets,especiallyorsmallproducers.Moreover,bothpublicandprivatestandardscanhelpraisethequalityodevelopingcountryproductsaswellascontributetoenvironmentalsustainabilityandimprovedsocialconditions.
TheseissueseaturedprominentlyattheForum,bothinthesessionsregardingaccess tomarkets and in the wider debate. Participants identifedways toensurethatstandardsbecomelessoanobstacle.Suggestionsincludedundingprogrammesindevelopingcountriestohelpproducerscopewithstandards,greaterinvolvementothedevelopingworldinstandardsettingandexpandedeorts toprovidedevelopingcountry producerswiththe inormationtheyneedtoreachmarkets.Therewasalsosupportorgreatercoherenceamongthevariousstandards,withsomecallingorharmonization.
Why standards and labelling schemes?
Countriesand regional groupings, suchas the EuropeanUnion, have longapplied national saetyandqualitystandards or domestic production and
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imports. To ensure that these arent used to protect domestic producers,membersotheWTOhaveagreedonasetorules.Inconjunction,standards,particularly regarding ood, plant and animal health, are negotiatedinternationallyandrecognizedbytheWTO.TheWTOalsocanbecalledontoadjudicatedisputesaboutstandardsamongitsmembers.
Recentyearshaveseenmorestringentpublicoodsaetyrulesinthedevelopedworld,ollowingaseriesohealthscareslinkedtoagriculture,aswellasgrowthinpublicstandardsintheareaoenvironmentalprotection.
Suchstandards,however,canpreventdevelopingcountriesromaccessingmarkets, even when the products they are exporting are not subject toimporttaris.AsWTODirector-GeneralPascal Lamypointedout,saetyissuescancreateabottleneckthatmustbeaddressed.Citingtheexampleo EU rules on the level o pesticide residue allowed inowers, he saidthatithemaximumpesticideresiduedeviatesaewmilligramsromEUstandards,itisnolongerreetrade,itisnotradeatall.TheAidorTrade
initiativeisworkinghelptodevelopingcountriesovercomesuchproblems,hesaid.
A double-edged sword
Whilemeetingpublicoodsaetyandagriculturalhealthstandardscanposeachallenge,italsopavesthewayorimprovementsindevelopingcountries,includingsaerandmoresustainableproductionandprocessingpractices.
Inadditiontoaectingpublicstandards,increasedethicalconcernsamong
consumershaveledtomanyprivateandNGOinitiativestopromoteethicaltradeandproduction.Thesearevoluntaryschemesandaresometimesknownassustainabilitystandards.Theyalsoreecttheactthatinaworldoglobalproductionprocessors,consumerswantcompaniestotakeresponsibilityortheirsupplychains.
Meanwhile,developmentagencies,NGOsandothers,suchastheorganicandair trademovements,view certifcationandlabelling schemesas away toachievesocialandenvironmentalgoals.Theseincludespreadingsustainableenvironmentalpractices,improvinglivingstandardsandpromotinghumanandlabourrights.
Withthisinmindthe2008ForumorganizedasessionentitledEnvironmentalStandards or Global Markets: Implications or Developing Countries,moderatedbyJacqueline Cot,PermanentRepresentativeinGenevaotheInternationalChamberoCommerce(ICC).
These standards are in the end a critical tool in the drive towardsustainableproductionandconsumptionmethods,saidUlrich Hoffmanno the United Nations Conerence on Trade and Development. JochenKrebuehl, Programme Ofcer or Social and Ecological Standards inGermanystechnicalcooperationagencyGTZ,believesthatincomingyearsgovernmentswillwanttoplayalargerroleinstandard-setting.ThistrendisalreadyemerginginEuropeanUnioncountriesinrelationtobiouels,he
toldtheForum.Globalizationcanbepursuedinasustainableandhumanwaybytheapplicationostandardswhoseprolierationthistrendiscausing,said.
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Private labels clarity or confusion?
Homann suggested the private labelling schemes run by retailers andproducers are designed mainly to dierentiate products and reassure
consumers.Insuchinstances,labelstendtobeaimedatguaranteeingqualityand may be viewed as marketing tools. However, their prolieration hascontributedtoconsumerconusion,andtheefcacyotheseasamarketingtoolisnowbeingquestioned.
Since1995,moreprivateinternationalood-relatedstandardshaveemergedthaninthepreviousfvedecadescombined,saidDaniele Giovannucci,co-ounderotheCommitteeonSustainabilityAssessment(COSA),basedintheUnitedStates.Hundredsolabellingandcertifcationschemesnowexist.Isthisarunawaytrain?
The need to dierentiate ethically produced products aswell as convince
consumersotheirvaluetojustiyhigherpricesensuresthatissuessurroundingstandards,labelling,certifcationandotherschemesarelikelytoaccompanythegrowthinethicaltrade.
Challenges for developing countries
Theparadoxisthattheproducerswhomgovernmentsanddonorsmostwanttohelptendtobemarginalizedorcompletelyexcludedrommarketsbecauseostandardslinkedtoethicalconsumerism,Ulrich Hoffmannobserved.
Amongthe issuescitedby exporters,NGOSand policymakers:Toomanydierentstandards; high certifcationcosts, rapidlychangingrequirements;lackotransparencyandinormation;limitedparticipationromdevelopingcountriesinstandard-setting;andinadequatecoherencebetweenpublicandprivatestandards.
Manysmallholdersarebeingparalysedbymultiplecertifcationprocedures,saidAnne MacCaig,ChieExecutiveoCaDirectintheUnitedKingdom.Wearekiddingourselvesiwethinkthisisasustainablewaytooperate,sheadded.
Moreover,privatestandardscanbedesignedtoencourageconsumerstobuy
localordomesticgoods,tothedetrimentothosecomingromthedevelopingworld.Andretailerswithabigshareothemarketcanuselabelsorstandardstolimitcompetition.
The rustration elt by some developing countryproducers is evident andcameoutstronglyinasessiononEthicsandBusinessLinkages:SupplyChainImplications orExporters,moderated by Ashok Sharma,Director o theIndianAcademyoManagement.
Stuart Symington,ChieExecutiveOfceroSouthAricasFreshProduceExportersForum,saidthatwhileethicalcodescouldimprovelabourpractices,theyshouldnotbeoistedonproducers.
TheForumalsoheardconcernsamongparticipantsthatethicalconsumerismis ocusing too narrowly on the producer, placing an inordinate amounto the burden on developing countries. These critics argued that ethical
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considerationsshouldapplythroughoutthevaluechain,includinginpracticesoimportersandretailers.Forexample,accordingtoSymington,manybigchainsemployquestionablepoliciessuchassellingbelowcost,removingbrandnamesandwithholdingpriceinormationromproducersuntilitistoolatetoswitchdeliveries(seeboxentitledCaughtintheSupermarketWarsintheIntroduction).
Others raised questions about the degree towhich businesses are reallythinkinggreenintheiroveralloperations. John Whelan,ChieExecutiveOfcerotheIrishExportersAssociation,observedthat,positionedbetweentheUSandtherestoEurope,Irelandisproportionallytheworldsbiggestimporteromaterialsre-exported(70%).Asaresult,Irishproducersareveryawarethattheyarejustonelinkinanincreasinglyglobalizedsupplychain,raisingquestionsaboutwheretheethicalstandardsaretobeapplied:Byproducersorconsumers.Cargoshippingeets,orexample,havedoubledinthepastfveyearsasaresultorocketingdemand.Forthepasttwodecades,
consumershavebeenlookingorvarietyandlowercostingoods.Risingcostsouelrom$30abarrelthreeyearsbeorewillchangethesituationincomingyears,sincetransportaccountsorone-thirdoworldenergyconsumptionincommerce.Thoseinvolvedintransportthereoreacehighertaxesdesignedto reduce carbon-emitting activities. Greening the supply chain is oteneasiestorEuropeanproducersitheysupportthebuylocalmovement.ThiscouldbeneftIrisharmersbecauseotheirproximitytotheUKmarket.Butairtradeproducersindevelopingcountrieswillfndthemselveslosingout,sincemostotheirproductsarereshoodwheretransportisamajorcost. This raises ethical questions about Irish producers behaviour, henoted.
Similarly,Bernhard Herold,CoordinatorotheFairWearFoundation,oSwitzerland,saidhisorganizationisscepticalaboutthebeneftsocertifcationinhisindustry,whenthemainissuesarelabour-standardcompliance.Ethicallyproducedtextilesandclothingdonotnecessarilyhavealabelwhichstatesthatworkershavebeenpaidaairwageandthelabelsthatexistonlyguaranteetheproductitselratherthantheoverallconditionsowork.
Benets for developing countries
Nonetheless,theexpansionoethicalstandardshaspavedthewayorast-growingandlucrativemarketsthatcanbeideallysuitedtodevelopingcountryexporters.Whileannualglobalmarketgrowthorconventionaloodshasbeenat2%to4%inrecentyears,thefguresorsustainabilitystandardmarketsrangesrom5%to100%,accordingtoHomann.Theseareveryattractivemarketswithlargepotentialprofts,hea
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