Fair Trade, Direct Trade, and The Relationship Model: Millennials Changing The Ethically Sourced Market

We’ve heard a lot about our generation, the famed “millennials.” Often stereotyped as lazy, selfish and entitled, it doesn’t seem like we’re doing much for the world besides trying to build the next great “Angry Birds” app. However, there is an important part of our generation that is not talked about as much, that we are the “do well while also doing good” generation. Our generation wants to see contributions as investments in causes that we care about instead of solely a donation or charity. In finance, there is something called sustainable and responsible investment and “ESG,” which stands for environmental friendliness, social responsibility and corporate governance. This form of investing is known as impact investing, a strategy for investing in companies that do something good for humanity, yet also do well for portfolios.

Impact investing in the US has grown 76% from 2012 to 2014, in only two years (USSIF). Why is this? Because millennials are entering the marketplace and demanding more ethically sourced goods and ethically responsible companies. Although millennials currently may only account for a small percentage of investing, as we age and come into money that we want to invest for our future, we will be a significant driver of impact investing growth. This investment perspective is important for understanding millennial consumption habits, especially in regards to the future consumption of goods and products that have a history of bad ethics and poor social responsibility, such as characterized in the production of chocolate and coffee.

Our generation is extremely influential in its current and potential buying power, and it has a handle on the limitless potential of social media to address issues and be a voice for causes like no other generation before it. As our generation increasingly enters the marketplace, there will be increasing scrutiny of where we invest our money and what good it is doing in the world. There will be increasing scrutiny on transparency, on getting to the bottom of the supply chain, where much, much more of every dollar we spend gets back to the producer, the farmer. I mention these economic and finance terms as a way to frame the importance of understanding what is happening in the marketplace to inform chocolate companies of the coming conscious consumer and how we will see certifications such as Fair Trade and Direct Trade face increased scrutiny, and companies like Taza Chocolate as pioneers in the marketplace grow in popularity.

In its latest annual study, Nielsen revealed that almost two thirds (66%) of consumers are willing to pay extra for products that come from companies who are committed to positive social and environmental impact (Nielsen). This percentage represents a large jump from 55% last year and 50% the year before. Interestingly, willingness to pay more is consistent across income groups. The study also revealed that almost three-quarters of millennials (ages 20-34) claimed they would pay more for sustainable products, up from about half last year. One of the most fascinating parts of this study was that female millennials, in particular, were willing to pay more at 75% (Nielsen). These trends towards more conscious consumption are something chocolate companies should be paying attention to. While at the moment we are most familiar with Taza Chocolate as a pioneer in the Direct Trade chocolate market, I believe we will be seeing more companies and brands come into the Direct Trade ethically sourced market to capitalize on the millennials that will be looking for such differentiated products in the marketplace. As we discovered in class, women buy the bulk of chocolate products, and if millennial women are the most inclined to pay more for an ethically sourced product, it is good news for the ethical chocolate market and for companies like Taza, who have to charge a premium to maintain their Direct Trade business. According to Steve Polski, senior director of responsible supply chains and sustainability at a top consumer company observes, “Businesses today are looking at sustainability differently than they were even a few years ago.” Polski continues, “It’s an exciting time to be working on supply chain sustainability and I think we’re approaching an inflection point among consumers as well” (Mcavoy).

Nielsen-Paying-Premium-Sustainable-Products-Oct2015

Chart showing the incredible rise in millennials being willing to pay a premium for sustainable products – this is good news for ethically sourced chocolate and coffee companies that must charge a premium to stay committed to their ethical sourcing and be willing to cover the high price of maintaining an ethically sourced company with a high quality, pricey product. 

I have had my own first-hand experience with the issue of supply chain sustainability and the new millennial market that I will discuss further. First, however, I will begin by highlighting the difference between Fair Trade and Direct Trade using Taza Chocolate as an example, and then discuss my own experience creating an ethically sourced coffee company without certifications of any type, a trade model I call the “Relationship Model,” or the one-to-one model. There is much to be explored on the topics of ethically sourced chocolate and coffee and many difficulties of supply-chain management. Yet, as noted earlier, the economic trends and research data tells us that the consumer of the future will increasingly demand ethical products, particularly those transparent as to source, and be willing to pay more for these products – the chocolate market needs to think about how to adapt to these trends and answer millennial questions on sourcing.

We have discussed and explored in depth the various issues with the Fair Trade and Direct Trade certifications in the chocolate world. Fair Trade USA promises “the money you spend on day-to-day goods can improve an entire community’s day-to-day lives” (Fair Trade USA). While this goal is promising, taking a closer look at Fair Trade USA’s standards reveals that this certification is not enough to directly impact cacao farmers (Martin). There is no guarantee that money from the purchase goes directly to the farmers’ pockets. Instead, farmers must shoulder high fees, pay premiums, and other charges that come with the Fair Trade certification (Martin). This furthers the sad reality that very little, if any, money actually goes the farmers at the origins of the supply chain. Fair Trade USA promises a fair minimum price for cocoa, but in reality it “barely differs from the current world market price” (Leissle). Ultimately, the research tells us that that Fair Trade USA’s promises and commitments are misleading, and “lack of evidence of impact” makes its certification less appealing to informed consumers seeking ethically sourced products, particularly among millennials (Martin).

By contrast, Direct Trade moves beyond Fair Trade USA’s standards to create a clearer connection between cacao farmers and chocolate makers, or coffee farmers and coffee makers. Direct Trade hopes to go further than Fair Trade USA and be the solution that “make[s] for more ethical, sustainable production in an industry with a long history of exploitation” (Shute). Direct Trade tries to realize this benefit by eliminating the “middleman,” allowing chocolate makers and coffee makers to speak and interact directly with the farmers at the beginning of the supply chain to negotiate prices for the beans. Such direct negotiation, eliminating the cost and burden due to the middleman, should make it possible to compensate farmers at a “premium price they should earn for the high quality cacao they produce” (Taza Chocolate). In addition, Direct Trade eliminates the fees that come with Fair Trade USA certifications. The direct interaction between the farmers and chocolate and coffee makers means the farmers and farms are not obligated to be a part of cooperatives and can thus earn even more (Martin). These structural details of the Direct Trade process make it a better solution than Fair Trade USA for consumers seeking truly ethically sourced products and who want to see more of their money getting back to the farmer and making a difference. Importantly, those who seek ethically sourced products are growing in numbers and are mostly made up of millennials, whose purchasing power is only increasing. Now is when the Direct Trade market can do well while also doing good in the world. As millennials, we care about where the products we eat come from and that the money we spend is going to a good cause, thus enabling companies to charge a premium to make sure that their products are up to our new millennial standards and be assured that these premium prices will not hinder the profits of their business.

Taza Chocolate marketing labels showing their “Direct Trade” icon and their marketing slogan, “seriously good and fair for all.” We should question what these labels mean and recognize the vague notion of “Direct Trade” and the lack of standards it implies. 

While the Direct Trade model eliminates most of the issues buyers have with the Fair Trade USA certification system, certain problems of inconsistency arise due to the lack of set standards for Direct Trade. Buyers who directly source from farmers can have different standards when it comes to what a so-called “premium price” actually represents, what “quality cacao” means, and what the expectations are for farms with “fair working conditions” (Martin). Taza Chocolate maintains that they have “direct relationships with cacao producers,” and pay a set “premium price” to cacao producers and continues to “purchase high quality beans” but does not offer too much into detail of where exactly the money from the premium pricing goes (Taza Chocolate).

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Screengrab of Taza Transparency Report meant to highlight that the transparency reports do not detail the amount of money received by individual farmers or the “premium” paid – it seems as if these “Transparency” reports are no more than a marketing scheme to appear transparent. The details of the economics of the cooperatives and the income of the farmers is left out. 

Taza’s particular company-developed souring transparency also brings forth concerns about inconsistencies in Direct Trade’s more general, less specific standards amongst other producers claiming to source their products via Direct Trade.

As a millennial, I know how difficult it is to be a conscious consumer. Until a few years ago I was unaware of the struggles farmers faced in their supply-chains and how little income farmers were able to make by selling to conventional markets or to big companies. It was only when a started a coffee company myself was I able to truly understand how difficult it is to create a great company with a great product, how difficult it is for the farmer to reap the benefits while also being able to make a profit to sustain a business. But the success of the business is a real case study in changing consumer habits and of the new supply chains consumer changes are causing. In 2011, I visited the Ngorongoro Crater in Tanzania, Africa. There, I met Paskali Gwandu, our guide in the crater for a week and a wonderful horticulturist. He introduced my family to the most wonderful coffee we had ever tasted, grown and roasted right on his farm in his village down the road from the campsite. Over the course of the week my family drank his coffee and explored the crater. At the end of the week we exchanged email addresses so we could send some photos we had taken and keep in touch about his horticulture studies. In a couple of emails, my family asked about his family and his great coffee, which led to him sending us his coffee beans, rare Tanzanian Peaberry, for a small money transfer of $50, as a thanks for him sharing his knowledge with us. To our surprise, the coffee arrived in just over a week, wrapped in beautiful Tanzanian stamps and with a gift of a blanket interwoven with exotic cowrie shells and with my own name, “Catherine” on it – a thank you from Paskali’s wife and family.

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My brother (on left) with Paskali Gwandu, the talented horticulturalist and coffee farmer. Evidence of direct relationship. 

We continued this email exchange and money transferring to receive his amazing coffee every few weeks. After a while, friends and extended family began asking about Paskali and the coffee and started buying it through us. For my senior multimedia project, I decided to build a website for Paskali as a way for it to be easier for both customers and Paskali to order coffee, naming it “Gwandu Coffee.” Since that point, I have been trying to help Paskali and his family by marketing Gwanducoffee.com and learning about the complex coffee business in Africa. The small amount of coffee we have sold has changed Paskali’s life, allowing him to earn tuition to send his children to school and invest in new coffee plants, things that Paskali never thought were possible before.

Screengrabs from GwanduCoffee.com, the website I made in my multimedia class. Fully functional credit card processing and order transfer to Paskali’s email at the village computer which he checks daily. 

I discovered that by selling this coffee direct from Tanzania to the consumer via the internet, Paskali could get $4 per pound, compared to max $.50 per pound he would get at the markets. I have seen first hand what transparency can do for both the consumer and the farmer. Paskali’s coffee is of highest quality, and he takes deep care of his coffee because he knows he is sending it directly to the consumer’s doorstep and getting paid a premium to care for the consumer and the coffee.

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From GwanduCoffee.com, our simple infographic showing the supply-chain from farm to consumer. 

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A screengrab of my research slide detailing the current issues with the coffee market in Tanzania and how GwanduCoffee.com is a solution to those problems. Detailing the significant price change to the farmer. 

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A screengrab from GwanduCoffee.com showing again the supply chain as direct from farm to consumer, truly “Direct” trade, no middlemen (buyers, sourcers, packaging, etc. – such as Taza must use)

Here, my model goes one step further, in what I like to call the one-to-one or Relationship Model of trade. In this model, you, the consumer, know the exact farmer and farms where your coffee is grown and roasted and can directly witness the impact you make. You know that this coffee is from Paskali Gwandu, not from just from farms in a region or a cooperative. A common question that comes up from people is, “Is this coffee Direct Trade or Fair Trade” and this is where I have to tell them no, it’s much more than that. It’s a relationship trade with Paskali, his family, his village, the coffee and the consumer. It was clear that people knew about fair trade but were unaware of what it did or what it did not do for farmers.

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Straight from GwanduCoffee.com website under the “The Company” tab. Gwandu gvies all the credit to Paskali Gwandu and makes sure to give background to him and the company. Pictured below the information is a photo of Paskali Gwandu himself. 

These new ways of trade and sourcing chocolate and coffee beans leaves more questions to be asked pricing, quality control, marketing, and the disruption of old supply chains, and whether consumers may be exploited from labels and buzzwords, but that is a larger conversation. The important conclusion is that millennials coming into the marketplace and demanding more ethically sourced products, and willing to pay more for them, bodes well for the positive future of farmers and chocolate and coffee businesses.

Even further than the Relationship Model I propose, is a relationship much like World Vision, a charitable organization in which a specific child or family is sponsored over time by a contributing family. Perhaps in this extended relationship model, a farmer could be supported by multiple families or people over a longer period of time, to make a real difference and receive high quality coffee or chocolate. This may be wishful thinking for the future of coffee, but we must continue to think of new ways to innovate the supply-chain and how to increase transparency.

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It is advised to avoid all certifications on packaging to not stray consumers with false advertising, but this is an example of a possible relationship model trade icon, if the market demands such labeling. 

Of course, not every person has access to a coffee or chocolate farmer and can create a company, but consumers can take control of their knowledge and quickly identify which companies are doing good for humanity. Something as small as a chocolate bar or a cup of coffee in the morning can change the life of a farmer half way across the world. As a millennial, I believe the market place will start to make this form of conscious consuming more available to us, as companies will want to capitalize off our changing concerns about where our food is from and where our money is going to support. Companies like Taza Chocolate and Gwandu Coffee are not only paving a new path for companies of the future, but also serving as a contrast to present company ethics and serving as a way for consumers to question current supply-chain practices. Our generation can and will create real positive change in the chocolate and coffee industry. I feel honored to be a part of this change and look forward to the future of an industry so marred with a dark past and even a dark present.

 

Works Cited:

Leissle, Kristy. “What’s Fairer than Fair Trade? Try Direct Trade with Cocoa Farmers.”YES! Magazine. YES! Magazine, 04 October 2013. Web. 02 May 2016.

Mcavoy, Kaitlyn. “Ethical Sourcing: Do Consumers and Companies Really Care?” Spend Matters. N.p., 15 Feb. 2016. Web. 2 May 2016. <http://spendmatters.com/2016/02/15/ethical-sourcing-do-consumers-and-companies-really-care/&gt;.

Martin, Carla. “Alternative Trade and Virtuous Localization/globalization.” AAAS 119x Lecture. CGIS South, Tsai Auditorium, Cambridge, MA. 6 Apr. 2016. Lecture.

Nielsen. “GLOBAL CONSUMERS ARE WILLING TO PUT THEIR MONEY WHERE THEIR HEART IS WHEN IT COMES TO GOODS AND SERVICES FROM COMPANIES COMMITTED TO SOCIAL RESPONSIBILITY.” Nielsen. Nielsen Press Room, 17 June 2014. Web. 2 May 2016. <http://www.nielsen.com/us/en/press-room/2014/global-consumers-are-willing-to-put-their-money-where-their-heart-is.html&gt;.

Nielsen. “Sustainable Selections: How Socially Responsible Companies Are Turning a Profit.” Nielsen. Nielsen Press Room, 12 Oct. 2015. Web. 2 May 2016. <http://www.nielsen.com/us/en/insights/news/2015/sustainable-selections-how-socially-responsible-companies-are-turning-a-profit.html&gt;.

Shute, Nancy. “Bean-to-Bar Chocolate Makers Dare to Bare How It’s Done .” NPR: The Salt. NPR, 14 February 2013. Web. 02 May 2016.

REPORT ON US Sustainable, Responsible and Impact Investing Trends 2014. 02 May 2016

“Taza Chocolate Direct Trade Certified Cacao.” Taza Chocolate. Taza Chocolate, 2015. Web. 02 May 2016.

 

Images:

Nielsen chart: http://www.marketingcharts.com/traditional/will-consumers-pay-more-for-products-from-socially-responsible-companies-60166/

All Gwandu Coffee Images are from author and from Gwanducoffee.com website.

“Relationship” icon: http://blog.seattlecoffeeworks.com/in-the-news/introducing-relationship-trade/

Taza Direct Trade and Taza Chocolate: Via Taza Chocolate website

 

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