Sales of fairly traded products have bucked the trend of decline in the UK retail market to grow by 12% in the last year. The value of Fairtrade products sold through shops reached £1.32bn in 2011, compared to £1.17bn in 2010, according to figures from the Fairtrade Foundation, as it launches its annual marketing fortnight on Monday.
Unlike other premium sectors such as the organic market, which have lost ground as consumers struggle with the combination of rising food and energy prices and stagnant incomes, the Fairtrade market has continued to expand.
The growth largely reflects a move among major supermarkets to sell Fairtrade goods at the same price as conventionally produced equivalents. Alternatively they have switched whole ranges to the Fairtrade sector rather than pass on the premium paid to farmers as a higher cost to consumers. All the Co-operative’s own-brand tea, coffee and sugar are now Fairtrade. The company will announce this week that it is to make all its bananas Fairtrade, in line with Sainsbury’s and Waitrose, who have already converted their whole banana category to Fairtrade.
The Fairtrade cocoa and sugar sectors have seen the most significant growth in the past year, with 34% and 21% increases over 2010 respectively. Morrisons will announce this week that it will join other major retailers, including the Co-op, M&S, Waitrose, Sainsbury’s and Tesco, who have committed to converting all their bagged sugar stocks to Fairtrade sugar from Tate & Lyle. This move will bring Fairtrade’s share of the UK retail bagged sugar market to 42%, and will make sugar the biggest single Fairtrade product.
The UK is the largest market for fairly traded products, helped by support from the trade unions, faith groups and the Fairtrade Towns campaign. The sector as a whole remains very small, however. Approximately 0.01% of all food and drink sales worldwide are certified as fairly traded, according to the free market thinktank, the Institute of Economic Affairs. The thinktank has criticised the movement for exaggerating its potential to help poorer countries develop.
The shift in the sugar sector is held up by the Fairtrade Foundation as an example of how the movement can achieve sufficient scale to have a major impact. “A number of people have been sceptical about Fairtrade’s ability to scale up. But in the 18 years since we started, we’ve hit 42% of UK retail sugar being Fairtrade.
“Because of that, 40% of all sugar exports from Belize are now Fairtrade, and that’s really significant to the economy of a small country like that,” Fairtrade Foundation director Harriet Lamb, said. When the Co-op switches its banana supply, 38% of all that sector in the UK will be Fairtrade.
Tate & Lyle became the first major sugar brand to convert to Fairtrade in 2008. The decision was driven by both a marketing opportunity and a business imperative, according to the company’s FT manager Julia Clark. “We wanted to differentiate our brand in what is a commodity market, but it’s expensive to pay the Fairtrade premium, and that alone might not have got the idea off the ground.”
The factor that made the business case irresistible was a concern that the smallholders who provide around 20% of the volume in Tate & Lyle’s supply chain were in danger of being driven out of farming.
Reform of the EU sugar regime required by a World Trade Organisation ruling that it was illegal in 2005 has removed many of the protections and subsidies provided to European sugar farmers and to smallholders in former colonies. Without preferential access to the EU, developing country producers faced being overwhelmed by exports from big exporting economies such as Brazil. “We were worried that our smallholder suppliers would no longer be economically sustainable, and we can’t refine cane sugar if the cane growers can’t afford to grow it,” Clark explained.
Tate & Lyle sells its Fairtrade sugar at prices that match those of its major competitor British Sugar. It is not believed to have been able to pass the cost of the premium on to retailers in the form of lower margins for them. “We hope we will gain by achieving more market share,” Clark said.
Several chocolate companies have also switched to Fairtrade supplies, driven by a similar need to ensure they can buy cocoa in a global market where demand outstrips supply. Cadbury switched its leading brand Dairy Milk chocolate to Fairtrade in 2009, and was followed by Kit Kat four finger bars. Maltesers will join them this year, in a Fairtrade chocolate market pioneered by brands such as Green & Black’s and Divine. Unilever will also convert all its Ben & Jerry’s ice-creams to Fairtrade this year.
Most Fairtrade products are commodity goods and critics have argued that the higher margins made in processing are still by and large taken in developed countries not poorer countries, where the food is grown.
In a significant development, M&S has just launched a Fairtrade tea, which is being not only sourced but also processed and packaged in Kenya. Supported by a grant from the Department for International Development, the retailer has helped a group of Kenyan tea producers to set up their own processing factory.
Iriaini tea producers are paid a Fairtrade premium of nearly double the open tea auction price for the raw tea. By processing it they can achieve five times the profit they would on the Fairtrade premium alone.