On Your Behalf - June Report

Working With Companies to Promote Fair Trade™ Products

This edition of On Your Behalf highlights a current initiative we have underway with grocery store chain Kroger to sell and promote Fair Trade products in its stores. The Fair Trade™ certification on various commodity products, most notably, coffee, ensures consumers that the producers have received a fair price for their goods. Fair Trade™ certification currently applies to coffee, tea, sugar, honey, cocoa, bananas and orange juice.

What is the Issue and Why is it Important to the General Board?

The Fair Trade™ movement and certification process came about in response to free trade agreements, which deregulated markets and lifted barriers to trade between countries throughout the 80s and 90s. According to these agreements, free trade works by increasing economic activity between nations and the flow of capital around the world. Developing nations gain by opening up their economies to the free flow of capital in the international economy and by challenging their industries to improve in order to compete in the growing international market.

While recognizing that economic growth and participation in an open, global economy is crucial to countries in the developing world, proponents of Fair Trade argue that current free trade policies do not create an even playing field. Global competition is particularly fierce for small contractors in developing countries who must compete by lowering the price of their labor, and for small-scale farmers whose resources and production capacity pale in comparison to large-scale producers.

In the past 20 years, reports from international organizations such as the United Nations and the World Bank have documented increasing rates of poverty throughout the world and a polarization of wealth distribution at the highest and lowest levels. Often-cited statistics from the United Nations Human Development Programme report disturbing findings: Developing countries, which make up 80% of the world's population, account for roughly 21% of global Gross Domestic Product. The world's poorest or the bottom fifth of the population, received only 1.4% of the world's income, a decline from 2.6% 30 years before. Over the same period of time, the world's richest or the top fifth, increased their share of the world's income from 70% to 85%. The remaining global income was thus shared by 80% of the world's people.

How does Fair Trade Certification work?

Small-scale farmers who are democratically organized in cooperatives or associations may apply for certification. Criteria for certification include:

1. The majority of the members of the association must not depend on hired labor but manage the farm with family labor;
2. The association must be transparent, with full participation by all members in decision-making;
3. The association must strive for greater self-sufficiency and improvement of production techniques and diversification of crops;
4. The association must commit to environmentally sustainable farming techniques. Once an association is certified, the Fair Trade Labeling Organization (FLO-International) conducts site visits to monitor compliance. Fair trade cooperatives operate in Asia, Latin America and Africa.

In return for their compliance with Fair Trade standards, certified farmers are guaranteed a price for their goods above the market price. The extra premium added to the price goes directly to the farmer association and is reinvested to help the business or is invested in social projects such as clinics and schools within the community. According to the Fairtrade Foundation (2001) 4.5 million producers and their families are Fair Trade certified and received $14 million dollars more than what they would have received on the open market.

There is a growing market for Fair Trade products. In 2003, Fair Trade coffee accounted for 5% of all specialty coffee sales, and U.S. certified coffee imports increased 91% in 2003. Starbucks began offering free trade coffee in 2000, and Dunkin Donuts uses only Fair Trade coffee for its espresso drinks. All of the bulk coffee in Wild Oats stores is Fair Trade coffee. Procter and Gamble introduced a Fair Trade coffee under its Millstone label as a result of increased consumer interest, and both Kraft and Nestle offer Fair Trade coffee selections in Europe. Sara Lee offers free trade coffee to food services and other restaurants.

In the end, it is the consumer who makes the conscious choice to pay a higher price for products knowing that the price goes directly to the producers and their communities and assures small farmers a living wage. Just as corporations are recognizing the social and environmental impact of their business operations, consumers are increasingly aware of the impact of personal buying decisions. Supermarkets and retailers can play a major role in making these products and information about these products even more accessible to consumers.

Why is this important to the General Board?

Labor conditions around the world are a major focus of the shareholder advocacy work of the General Board. We dialogue with the world's largest corporations on this issue across many industries. Fair Trade ensures a fair wage for small-scale farmers around the world. In fact, this issue is addressed in the Social Principles (¶163, H. Family Farms):

The value of family farms has long been affirmed as a significant foundation for free and democratic societies. In recent years, the survival of independent farmers worldwide has been threatened by various factors, including the increasing concentration of all phases of agriculture into the hands of a limited number of transnational corporations. The concentration of the food supply for the many into the hands of the few raises global questions of justice that cry out for vigilance and action.

For us, encouraging supermarkets and retailers to stock and promote more Fair Trade products accomplishes the goal of supporting these farmers, meeting consumer demand for the choice for goods produced in a responsible manner and enhancing the reputation of the company through more ethical policies.

The General Board Responds

In November 2004, the General Board wrote a letter to Kroger requesting information about the company's sale and promotion of Fair Trade products. A letter in response from the company did not address our request for information. In March 2005, we drafted an investor sign-on letter that we circulated to the social and religious investment community that again repeated our request for information and a meeting. Nearly twenty institutional investors representing over $23 billion in assets signed the letter. We will keep you informed in the coming months of our progress with this company.

UPDATE: A letter dated June 7, 2005 from a Kroger representative stated: "Our policy about Fair Trade Certified™ is simple; we are committed to offering a wide range of FTC™ products: however the extent of these offerings will be measured by customer acceptance and tempered by product availability."