Alistair Leadbetter, Heather Parr and Maveen Pereira
The 20th Century saw the rise of the organic consumer movement in the North. Increasing numbers of consumers want to avoid artificial compounds such as those involved in the production of pesticides, herbicides and fertilizers had a negative and wider impact on the eco-system than was predicted and was also detrimental to the health.
Ethical trade is growing dramatically. FLO (Fairtrade Labelling Organisation) report that sales of Fairtrade certified goods increased by 41% between 2005 and 2006 and state that demand for fairly traded cotton has more than doubled. In 2005, research suggested that the market for organic certified food had reached £1.2 billion per year in the UK alone. Ethical trade offers a great opportunity for producers to access new markets and to substantially increase income, with the added value of ethics and fair play.
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Agrocel is a company providing pro-poor agricultural services from pre-tilling to post harvest management to over 20,000 farmers in India. The first service centres were established in Kutch Gujarat, but Agrocel now has over 20 service centres across India. They aim to be a strong support company specialising in ethical and fair trade. When Agrocel started work in Kutch, many cotton farmers in the district had experienced falling yields and increasingly saline soils due to the continued use of chemical inputs. These fertilisers and pesticides were also having a detrimental impact on the health of farmers & workers. Falling cotton prices and access to only a single point of sale added to the economically vulnerability of farmers. This resulted in young people wanting to give up agriculture as an enterprise and migrate to cities in search of better work. Agrocel saw the potential for organic cotton in the market. By providing a choice of low cost services to increase yield without negative environmental impact, and also offering alternative markets with fairer prices for crops, they could see an economically viable model for sustainable business service provision. Key to establishing confidence in the client base was that farmers would be free to sell wherever they wanted. Agrocel & Vericott, (a partner of Agrocel in the UK) sought out the support of Traidcraft Exchange to help them develop and realise this opportunity, and together they worked towards scaling up the activities with the use of external funding through the Shell Foundation, UK. This project involved supporting farmers to move to organic cultivation (initially on cotton & later on rotational crops to cotton), while at the same time exploring fair trade markets. Fair trade, besides its strong value base and positive trading relationships within the supply chain, also supports better prices during the conversion period – which can be up to 3 years. Phase 1 of the project worked with a target of 500 farmers in Gujarat, though ended up with over 600 farmers certified organic. At the end of Phase 1, farmers’ real income had increased by 15% with huge improvements in soil quality and yield, besides perceived reduction in health problems for farmers, their families and the workers. Increasing numbers of farmers have started the conversion to organic year on year. This was supported by Vericott developing a huge market interest in the Agrocel ‘Pure & Fair’ fibre across Europe. By the end of phase 2, there are 3847 certified farmers, where the target was 1500. |
Initially fair trade and organic products were sold to niche markets from specialist stores offering consumers the guarantee that the products were ethically sourced. However, it was recognised that if the ethical trade movement in the North was to have a significant impact on the livelihoods of producers in the South, the goods would have to be retailed through mainstream outlets such as supermarkets and department stores, but must be identified as ethically sourced products through the use of a common brand. This led to a variety of certification schemes.
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When Agrocel initiated its work on cotton there were no international standards for fair trade cotton, and therefore had developed Indian Fair Trade standards. With growing demand from the international market for both, organic & fair trade cotton, accreditation to an international organic certification scheme was necessary to gain access to export organic markets and premium prices. Long term profit from cotton sales would enable Agrocel to absorb future certification costs, while still passing on the benefit to farmers. However an injection of capital was necessary to help cover start up costs. The Shell Foundation 50% grant enabled Agrocel to seek the advice of specialist international consultants and to fund initial certification costs. The consultant provided key recommendations regards to facilitate manageable recording systems. Certification services are provided by SKAL (Dutch agency). Agrocel staff has now been trained to ensure documentation & monitoring for crops reducing costs considerably. Certification increased visibility of the Agrocel fibre in the market and had a positive impact on sales. Agrocel now exports certified organic cotton, rice, sesame, groundnuts, and mustard. |
What is Fair Trade?
In the last 30 years fair trade has added clear value to enhancing trading opportunities for small farmers and producers. The fair trade certification scheme that is widely being used particularly for food products is that which is supported by the Fairtrade Labelling Organisation (FLO) (www.fairtrade.net). Fair trade is a way of trading which seeks to empower producers who are disadvantaged by the structures of conventional trade. It does this by adhering to certain principles and standards of behaviour in trading relationships and also by campaigning to challenge mainstream trade structures. Fair trade seeks to reduce poverty by trading specifically with poor and disadvantaged producers and micro to small enterprises (MSEs). Fairtrade certification promises not only fair prices, but also guarantees the principles of ethical purchasing. These principles include compliance with International Labour Organisation (ILO) agreements such as those banning child and slave labour, guaranteeing safe workplaces, the right to unionize, adherence to the United Nations charter of human rights, a fair price that covers the cost of production and facilitates social development, and protection and conservation of the environment. The Fairtrade certification system also promotes long-term business relationships between buyers and sellers and greater transparency throughout the supply chain.
| Agrocel were able to sell fairly traded cotton and other products to a few retailers and fair trade companies who were prepared to vouch for good practice through their own standards. However, it needed certification in order to reach the mainstream market. However, cotton standards had not yet been developed by FLO. |
| Agrocel, Vericott and Traidcraft used their experience with fair trade to engage major players in the UK fair trade movement to support the development of Cotton Standards. Consumer demand and the keen interest of major UK high street retailers who were eager to buy from fair trade sources led to the Fairtrade Labelling Organisation (FLO) prioritising Indian cotton. Agrocel was the first certified supplier of Fairtrade Cotton to the UK. |
While fair trade provides access to producers to international markets, the certification process can be fairly cumbersome and expensive. For instance, the cost of getting certification from FLO for a small producer will cost a minimum of €1,400. The cost increases depending on the level of processing undertaken, the size of the organisation (based on the number of cooperative members and workers involved). Certification also requires a significant investment in time and effort to achieve and maintain the standards required though FLO does provide support through their liaison officers. The organisations along the fair trade supply chains who market their products as being fair trade certified must also pay a license fee to the Fairtrade Labelling Organisation.
The focus on supply chains provides significant insight into the value chains to which producers belong. An analysis of the value chain can frequently identify inefficiencies which add costs but little value to the product. By considering their position in the value chain, organisations can seek to remove inefficiencies, seek to have more control on the processing stages by value addition, and pull back more returns to the producers. Traidcraft aims to support small producers towards this end.
| Traidcraft and its partners have worked with Agrocel on understanding their products and the markets, seek feedback from buyers, and support business development to meet the demands of the market. This included in house training, participation in trade fairs, and direct market linkages. Agrocel also identified opportunities for local value addition, and has now developed good relationships with ginning, spinning & manufacturing units. These have been monitored & certified by buyers for organic & fair trade standards, which has led to increased consumer confidence and resulting sales. |
The additional value that FLO certification brings with is a fair trade premium. The premium is an amount that is sent directly to the Producer Organisation, to be invested in the development of producer organisations, their members and their communities. Each producer organisation sets up a premium committee whose role is to decide how the premiums could be spent. Examples of use include educational facilities, clean water, health clinics or development of environmental protection schemes.
Fairtrade standards require organisations to move toward values of democracy, gender equality and transparency. In preparation towards this end, a lot of motivation and capacity building is involved help farmers come together. However, fair trade makes a business case for such values, and often access to new market serves as an initial incentive for change, which then becomes a part of the functioning of the organisation.
| Agrocel now sells fair trade certified cotton, rice and nuts. The average premium received by farmers is between 8 to 15% depending on the market price. The total premium received in 2007 was $139,091. Besides the premium Agrocel holds annual farmer meetings in each region to agree on the price for the basic products besides having a discussion on premium. An association of farmers for each of the crops has been registered to provide a legal entity, a collective voice and a democratic framework to implement fair trade and organic standards. |
Compliance with Standards:
Fair trade offers microenterprises a great opportunity to participate in beneficial and equitable trading relationships. However producers need some support and guidance to participate effectively in the fair trade market.
Our experience of working with MSEs has indicated that the understanding of the concept of fair trade is restricted at the level of farmers and producers, limited to the ‘difference’ in the trading relationship with a particular intermediary organisation in comparison to others. It can therefore be difficult to get commitment from microenterprises to make the changes necessary to comply with fair trade standards. In the last year, the risks of producers not adhering to fair trade standards has thrown up risks to fair trade companies in Europe through negative media coverage. This we realised was either that microenterprises are not fully informed about the supply chains, and/or they do not have enough resources to make the change happen. Traidcraft has therefore begun a process to reduce these anomalies in the movement through a process of supporting players in the supply chain understand their roles and responsibility and further commit to a partnership that supports and invests in change for mutual benefit.
| Fair Trade+ is a project that has been initiated by Traidcraft and Fair Trade Forum India that is a membership organisation of Fair Trade organisations in India. This project aims to support better understanding of Fair Trade, generic standards, as well as support better understanding of issues surrounding compliance between buyers and producers. This project will be able to make a significant contribution to producers who are involved in or interested in supplying fair trade traders and retailers in the global North. By building the capacity of the actors in the chain to understand and handle ethical standards we can strengthen all the actors’ positions. |
For further details please see the project website: http://www.fairtradeforum.org/tradeplus/home.html
Satisfying certification criteria and the associated audits can be very expensive and can reduce the resources available for producers to develop production capacity and credible brands. Simply having products that are Fairtrade certified is not a guarantee that producers will be able to sell all or even some of their produce for the fair trade prices.
Agrocel were able to justify certification costs as they had committed buyers. Furthermore they had staff in place that was trained to respond to the demands for organic and fair trade certification. They were also working at a large enough scale for certification costs to be cost effective.
Nevertheless, as part of its business strategy Agrocel is also clear on diversifying its market. With this in mind it has developed its own brands for the domestic as well as the international market. ‘Sahaj’ and ‘Agrocel’ is sold in the domestic market, while ‘Satya’, which is a garment brand, is for the European market. Agrocel has been awarded the ‘Be Fair” award by the Government of Belgium for ‘Satya’.
Organic & Fair Trade?
A common dilemma exists where organisations look at fair trade and organic certification. The two schemes aren’t mutually exclusive but certification costs can prohibit embracing both at once.
Where organic farming is a clear option, one approach that has been usefully employed is to begin with fair trade certification, which farms are ‘in conversion’ for organic certification purpose. This enables farmers to access quicker benefits which yields fall due to shift in the form of cultivation. Organic certification can take over three years to achieve as it requires land to be completely free from banned chemicals. Besides, the documentation process for fair trade standards helps build capacity for the more complicated processes required by organic certification. In some cases the fair trade premiums paid have been invested to achieve organic certification. Organic farming brings its own challenges as it requires an attitudinal shift and long-term commitment of farmers.
Fairtrade certification was essential to the long term Agrocel business plan.
In the transition to organic practices farmers experienced a definite dip in yield and income. In the first years of the project there was a serious risk that farmers would revert to non-organic practices. The fair trade premium was necessary as an incentive to maintain trust while supporting the conversion to organic. It is also important to note that with the adoption of organic practices the cost of production goes down considerably, so returns need to be assessed based on reduced costs, increased savings and better prices.
Over the last six years Agrocel organic farmers have increased their yield to the equivalent of conventional hybrids through better farm management. An independent review of the project indicated that in the Mandvi district as organic yield increased from 500kg to 1100 kg, hybrid has dipped from 1500kg to 1000kg. Once established, the organic annual yield is more stable with fewer inputs allowing farmers to plan financially. Now that living case studies are available in their communities, farmers are more likely to stay with the programme as the economic improvement they can see speaks for itself.
Fairtrade and organic certification can be used as a mechanism for entering mainstream markets but an organisation may require investment in improving production quality and consistency. Mainstream buyers may be nervous about the lack of consistency in product quality from fair trade producers.
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Agrocel has also found that some buyers have paid extra for cotton which is produced without pesticides, but does not yet meet international organic standards. This has also helped the ease the transition. To ensure an improved standard of raw cotton, Agrocel arranged to buy at the farm gate. In this way they had control over possibility of contamination significantly. As well as achieving a higher quality product, this had the added benefits of achieving economies of scale in terms of transport costs, reducing expenditure for the farmers as the costs, freeing up time for farmers to other activities such as building self capacity building sessions on organic compost and drip irrigation which have also had a positive impact on soil quality & and thereby on the quality of the cotton |
Yet there may also be significant benefits from engaging in the certification process that are difficult to put a monetary value on. Workers within the organisation can be empowered by greater involvement in the decision making process and this can increase motivation, productivity and the organisation’s levels of innovation. By seeking to broaden and diversify the products offered and markets accessed, an organisation can protect itself from damaging fluctuations in demand and / or prices in a market it has allowed itself to become dependent on.
Traidcraft Plc, as a fair trade business, supports suppliers to grow and develop, assisting them to access new markets so as to reduce dependence on fair trade markets. By providing access to additional markets and supporting growth, fair trade organisations are able to avoid a dependency between supplier and retailer, encourage growth and thus increase the number of people who are positively impacted by trade.
To enable better storage and meeting buyer demand on time Agrocel has established a yarn bank to store the organic yarn, which helps to ensure that it remains free of contamination and in bales that can be delivered to buyers very quickly.
Vericott has supported Agrocel to access new markets by focussing on creating vertical supply chains. As a result Marks and Spencer’s launched their fair trade organic range using Agrocel cotton, and continues to support and buy from Agrocel to date.
Effective branding and participation in trade fairs also enabled Agrocel to gain new buyers. The yarn bank has enabled Agrocel to respond effectively to small customers and sell when prices are advantageous.
The purpose of fair trade is to support the concept of “Trade Not Aid” and to provide a route for small businesses and producers in the South to achieve higher prices and greater revenue from international trade. A supporting key element of fair trade is the long term relationship that both customer and supplier should invest in. Through this relationship suppliers are often able to access inputs such as training and development regarding design and production techniques as well as business skills such as finance and basic business skills.
International vs. Domestic Markets
Ethical export markets are often seen as the panacea for Southern producers as they seek to increase their income. As we have seen, export markets can be difficult to access and products are not always to the taste of Northern consumers. Local markets are often ignored, perhaps in the belief that a local market for ethically traded goods does not exist. However our work in India has taught us otherwise.
Practical lessons from the Agrocel model:
- Farmers need to recognize and own the benefits of change to make it sustainable.
- There is need for an embedded communications strategy in place from day one to ensure good practice
- Farmer collectives enable sharing of experience & good practice with each other while also facilitating capacity building
- Engaging the market before investing in expensive accreditation alleviates risk
- Most farmers will need ongoing support with recordkeeping in order to achieve and maintain accreditation for certified fair trade or organic products.
- Investing in specialist guidance at the early stages facilitates the setting up of effective recording systems
- Working at scale makes accreditation a more affordable option
- Achieving accreditation is not enough to ensure sales. Ongoing marketing development is key to increased sales and benefits for farmers
- Organisational teams need enough resilience to ensure continuity and sustainability of initiatives.
- As farmers will suffer a short term dip in yield/ income in the initial years it will be difficult for extremely poor farmers to cope unless a project can offer support for the transition
- Focusing on the holistic organic cultivation has led to increased income & reduced risk for farmers (focus on multiple, rotational crops, animal husbandry for agricultural inputs).
- The Agrocel model worked best when the service centre was closer to the farms.
Over recent years, India has seen its GDP grow and has seen many people rise out absolute poverty. Its middle class is rapidly increasing with the growth in the economy, particularly in the industrial, technology and outsourcing sectors. India’s middle-class is larger than the total population of the USA – a market waiting to be tapped. This is what prompted us to turn our attention to the domestic market. It was however important to first draw out the learnings from Europe, which would help to reduce failures while also stop us from re-inventing the wheel!
PROFIT is an exciting and innovative project initiated in India by Traidcraft Exchange in partnership with International Resources for Fairer Trade (IRFT) with support from donors, including the European Union, Belgian Technical Corporation, and the Dutch ICCO. By focusing on potential domestic fair trade markets PROFIT will spread the benefits of Fair Trade to microenterprises across India.
This project is being implemented through a multistakeholder involvement, and will ensure that the weaknesses of the international fair trade initiatives can be reduced through more context appropriate standards, and a much reduced cost of certification that will allow for small producers to come on board. For more information please see the project website: www.profit.org.in
Although the market for ethically certified goods is currently primarily located in the global North, efforts to increase demand in the producers’ local and national markets are essential. As more consumers become aware of the consequences of their purchasing decisions, certification schemes will become more important. By focusing on domestic markets we are also ensuring that producers’ have more control on the entire supply chains, which in the long run, will be more sustainable.
Conclusion
As our experience has shown, there is no single solution for supporting small farmers and producers to access markets and important, get a fairer deal in this globalised economy. However, any such initiative will provide small producers vital opportunities to enhance and diversify their livelihoods. However, they must first overcome a wide range of constraints to accessing such markets, including limited access to production inputs, transportation links, and market information. As intermediary organisations this is a critical role we plan without creating a sense of dependency, or pushing producers down a road of high risk. This is a delicate balancing act!!
Alistair Leadbetter, Heather Parr and Maveen Pereira
The authors work with Traidcraft. Established in 1979, Traidcraft is the UK’s leading fair trade organisation. Traidcraft has a unique structure being both a trading company (Traidcraft Plc) and a development organisation (Traidcraft Exchange). Traidcraft Exchange works in South Asia, South East Asia and East Africa to enable small producers and artisans access markets.
References
TOMKINS, S (2007) Keeping it under their hats, BBC, Thursday, 22 March 2007, London, http://news.bbc.co.uk/1/hi/magazine/6476645.stm
FLO (2007) Shaping Global Partnerships – FLO Annual Report 2006/07, Bonn, Fairtrade Labelling Organisation
BBC (2005), British organic food sales soar, London, BBC, http://news.bbc.co.uk/1/hi/uk/4551304.stm
RAFI-USA (2000) Greener Fields: Signposts for Successful Eco-Labels, Pittsboro, NC.
RENARD, M. C. (2005) Quality Certification, regulation and power in fair trade. Journal of Rural Studies, 21, pp. 419 – 431
BLOWFIELD, M. (1999) Ethical trade: a review of developments and issues. Third World Quarterly, 20(4), 753 – 770
REDFERN, A. & SNEDKER, P.(2002) Creating Market Opportunities for Small Enterprises: Experiences of the Fair Trade Movement. Geneva, International Labour Organization.
