Fairtrade fat cats
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Fairtrade is the new cricket. It's official. Fairtrade has been declared a 'Superbrand' with sales growth up a whopping 51 per cent to 140 million. The funky little green and blue Fairtrade logo is the latest must-have retail status symbol.

Once a quirky niche market dominated by charity-operated companies, Fairtrade is now big - and the big boys are clambering aboard. The wizened faces of coffee and banana farmers gaze, a little bemused, from a thousand corporate websites. In the words of Starbucks, Fairtrade shows 'you can do good and do well at the same time'.

All very warm and fuzzy. But have you ever wondered how much of the almost 1 extra you might pay for a bag of Fairtrade bananas gets back to the farmer? The answer is 4p. How about a 99p bar of Fairtrade chocolate? Just under 2p extra gets back to the grower. Most of the rest gets sucked up by a sticky web of middlemen - the Fairtrade Fat Cats - some of whom have grown very rich on Fairtrade products.

One Fairtrade banana company makes more by selling EU banana licences than the farmers get in Fairtrade premiums. Then, of course, there are the supermarkets that sell Fairtrade as premium lines, with margins to match. As if that's not enough, the Fairtrade market is awash with puffed-up claims, which threaten to discredit the whole movement.

Fairtrade was founded in the Netherlands in 1989 and guarantees to pay above-market prices to Third World farmers. The question is: why does such a minuscule sliver of the extra you pay in the shops end up with the people the movement is designed to help?

Bananas are a good place to start. Waitrose is the supermarket of choice of the middle classes. It likes to talk about its 'commitment to ethical trading' and ran an emotive TV advertising campaign featuring the small growers behind their Windward Island bananas. So you might think that Waitrose at least would make an effort to keep margins down on Fairtrade products.

You'd be wrong. Buy a kilo of ordinary Caribbean bananas at Waitrose and you'll pay 99p. Pick a bag of pre-packed Fairtrade Caribbean bananas and you'll be shelling out 1.79 a kilo:

Waitrose isn't entirely alone. Most of the supermarkets charge a chunky premium for Fairtrade bananas. But if the Co-op can charge 1.25 a kilo, Waitrose at 1.79 ('Good food, honestly priced') must be making a killing - as must Sainsbury's, which charges 1.70.

Of course, Fairtrade bananas cost the supermarkets more and come ready-bagged - together, this adds about 15p a kilo, making a wholesale cost of 95p a kilo. This still leaves Waitrose and Sainsbury's with about four times the profit margin on Fairtrade bananas. Or to put it another way, they make 65p extra margin on a kilo of prebagged Fairtrade bananas for which the farmer gets just 5p more. Waitrose at least seems to be aware of the problem: it has just agreed to sell loose Fairtrade bananas at a lower price - with the profits they've been making, they can afford to. 

But it's not just the supermarkets that are doing very nicely. Fairtrade bananas from the Windward Islands are all imported by Wibdeco, which is owned by the islands' governments. The cost of buying, bagging, boxing and shipping a kilo of Fairtrade bananas to the UK is about 55p. But Wibdeco UK makes a healthy turn by selling the bananas on to the ripening companies for almost 70p a kilo, or ripening the fruit themselves and selling it to the supermarkets for 95p a kilo.

On top of that, Wibdeco UK makes a small fortune out of selling EU banana licences. Originally given to the company to import Windwards' bananas tariff-free, falling production has left them with a windfall of up to 40,000 tonnes of annual licences, some of which are in a joint venture with the Irish family-controlled Fyffes company. Much of this surplus licence is sold to other importers, making Wibdeco UK, by most estimates, several cool millions in clear profit during 2004.

No one can be sure of the exact figures because Wibdeco UK, which likes to trade on the 'ethical' nature of its bananas, barely even admits to licence sales and won't talk figures. It also operates through a Byzantine network of UK and Jersey registered companies, one of which states in its accounts that details 'of our business activity is not provided as it would be prejudicial to the interests of the company'. Whatever it's doing, it's doing it very well, because in 2004 that company made nearly 9 million on a turnover of just under 40 million.

Yet Wibdeco UK pays only very limited amounts back to the islands - despite additional profits from the shipping, which it controls. The company does have some inherited problems, but insiders cite high 'administrative costs' and empire-building - Wibdeco is expanding its ripening facilities when there is already plenty of UK capacity.

And why the Jersey subsidiary? Wibdeco UK claims there are 'historic' reasons, but it is likely that some licence sales go through the offshore company. It's the type of secrecy and paranoia more suited to the arms trade than ethical trade. Wherever the money is going, not much of it gets back to the islands' farmers.

Another big beneficiary of the Fairtrade in bananas is the EU. Buy Fairtrade bananas from Latin America, for example, and the importer will either have to buy EU quota from the likes of Wibdeco or pay an EU tariff of up to 45p a kilo - exactly nine times the Fairtrade premium.

Then there is coffee, the biggest Fairtrade sector. On the face of it, the Fairtrade guaranteed price of 72p a pound for green, high quality arabica beans is worth only 3p extra per 227g pack to the farmer. Coffee prices, however, are notoriously volatile. The Fairtrade guaranteed price gives the growers stability and they pay on the nail. So a more realistic value would be 12p extra a pack - compared with premiums of 50p to 75p by the time the pack hits the shelves.

So how much is really being made out of Fairtrade coffee and by whom? Clue No. 1 is that coffee prices in the UK are already a good 30 per cent higher than on the Continent. So the answer is: a lot. UK coffee margins are on a caffeine high.

People in the coffee business don't like talking costs, but adding transport, roasting and packaging to the cost of the coffee itself makes about 50p for a 227g pack of good quality Fairtrade coffee. That means the supermarkets cannot be paying much more than 1 for own-brand and perhaps 1.25 for branded Fairtrade coffees such as Percol and Cafe Direct, giving Sainsbury's an estimated 160 per cent gross margin on its own-brand Fairtrade coffee for which it charges 2.49. That's more than it makes on regular own-brand - and, by the way, far more than Fairtrade coffee in far-from cheap Switzerland, where it is available at 1.50 for 250g.

Coffee is also the area where ethical business uncomfortably rubs up against the ethics of private business - and the profits made from Fairtrade coffee are another indication of the fat margins. Percol is one of the Fairtrade coffee pioneers, founded by Brian Chapman in 1988 with 'a vision to create an ethical brand'. It's probably not unfair to say that Percol would not be the brand it is without Fairtrade. Elbowing your way on to crowded supermarket shelves is a tough business. Being a pioneering Fairtrade brand could not have done Percol any harm - it now enjoys 10 per cent of the market for ground, packed coffee.

According to Mr. Chapman, growers and consumers both benefit from Fairtrade: 'It's a real win, win situation!' he gushes on the company website. Win, win, win, in fact, because Mr. Chapman has himself done very nicely out of his Fairtrade sales. Admittedly, last year was not the greatest for Brian Chapman - sales of his company, Food Brands Group Ltd, which owns Percol and in which he is the sole shareholder, fell a little. That meant he could pay himself only 283,000 in salary and dividends, compared with a tasty 1,186 million the year before.

Mr. Chapman's exact pay packet is clouded by a second company called Food Brands Group Holdings Ltd. No surprise that no one at Percol HQ will comment on any of this but it appears that - not counting possible distributions of 517,000 from the opaque Food Brands Group Benefit Trust - over the past two years Brian Chapman has benefited to the tune of just under 2 million in salary, emoluments and dividends - almost certainly more than the growers gained in additional Fairtrade payments from Percol sales.   'Enjoy our coffee, and share our Percol vision,' says Mr Chapman. Smell the aroma!

Not everyone charges a premium for Fairtrade coffee. Starbucks doesn't have to - its packs of regular coffee are already priced well over general Fairtrade prices, so it's 3.90 for a pack of Starbucks, fair or unfair. Or to put it another way, Starbucks sells its Fairtrade coffee for about ten times what it pays the people who grew it.

But Starbucks illustrates another problem of the Fairtrade market - it's awash with ambiguous claims. The company's glossy Corporate Social Responsibility brochure is full of nice pictures of smiley staff and contented coffee-growers alongside a lot of gushy talk about 'partners', 'stakeholders', 'diversity' and 'inclusivity'.

'For all of its coffee,' the brochure states, 'Starbucks pays premium prices that are substantially over and above the prevailing commodity-grade coffee price' - a claim prominently repeated in the Fairtrade section of Starbucks's website. It turns out that only 1.6 per cent of the coffee Starbucks serves is Fairtrade. What the equivocal sentence really means is that it pays more than commodity prices for its premium coffees which, I suppose, is what you might expect, but isn't quite the same thing.

Chocolate is another fast-growing Fairtrade sector, and the Day Chocolate Company's 'Divine' chocolate - 'Chocolate with Heart' - is one of the most heavily promoted brands. Pick up a bar of Divine chocolate and the Christian Aid logo might encourage you to think that the profits went to the charity. Or perhaps the slogan 'It's fair, it's farmer-owned' headlining the company's website might lead you to believe that the cocoa farmers owned at least 51 per cent of the company.

Wrong. In fact the farmers own only 33 per cent; Body Shop, a publicly quoted company, has 14 per cent. Charities own the rest.

'Farmer ownership is our USP,' explains the Day Chocolate Company's managing director, Sophi Tranchell, illuminating the point at which ethical trade meets marketing babble.

Fine. But part-ownership is not quite the same thing as ownership. And, despite the claim on the website that the growers 'share in the profits', in the seven years since the company was founded they have been paid nothing over and above the 2p or so per 99p bar Fairtrade premium and benefits. 'Will' or 'might share' would be a more honest statement.

Some people question the concept of Fairtrade commandeering the word 'fair'.  The real unfairness, they say, is bad government and state intervention - Vietnam's subsidised coffee-planting programme, for example, was significantly responsible for the price slump in 2002. We need, they go on, more free markets, not fewer.

All true, but in a far from ideal world Fairtrade does do a lot of good. Fairtrade suppliers egging up the facts, middlemen plumped with profit and many supermarkets' making premium margins can only do harm to its cause.

In one sense, Fairtrade has to sup with the devil. It needs to work with business and the supermarkets. I suspect, though, that the movement doesn't realise its own power and potential. So here are two suggestions: shame the supermarkets and middlemen who overprice Fairtrade goods; and audit the ads and websites of Fairtrade suppliers.

Otherwise, any intelligent person will ask themselves a simple question: should I pay up to 80p more for my bananas when only 5p will end up with the grower; or should I just buy the regular ones and give the difference to a decent development charity?

Philip Oppenheim.  Reprinted from The Spectator Nov 2005


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Last modified: September 20, 2006