Fair Trade as a Business Model: Don't Look at Fair Trade as a Charity-Treat It as a Business Model, Argues Paola Ghillani, Former Head of the Max Havelaar Fair Trade Organization in Switzerland
Hulm, Peter, International Trade Forum
Q How did you come to take over leadership of Max Havelaar in Switzerland after being at a big business multinational?
A I wasn't the first choice, since I didn't come from the development cooperation field. Max Havelaar Switzerland was created in 1992 by six Swiss NGOs to show solidarity with smallholders in coffee production. In 1998, when the Director had been ill for two years and unable to lead the organization, it was decided to appoint a new director--but with the order to make Max Havelaar self-financing within one and a half years.
This gave me my chance, since I came from management and marketing. And the reason I applied was that I believed in fair trade as a business model. I knew that I did not buy fair trade goods myself out of a sense of charity, but because they represented value for money to me.
Q What was your strategy?
A I set myself the goal of introducing at least one new product per year onto the market, partly to make people aware of the new approach. Each new product exists in a different economic situation, with a different set of problems. We had to make people aware of this.
We started with cut flowers and organic bananas. Of course, you have no guarantee that your approach is going to be successful. But we found a market among people who wanted to buy fresh products and fruit they could safely give to their children.
The retailers were initially suspicious. It required some hard negotiations to persuade them to feature our products. But when they saw that fair trade products were growing by 30-40% per year, after two or three years they came to us and asked for new products to feature.
That's how we achieved the target of making Max Havelaar Switzerland self-financing within 18 months. It gave us the resources to take financial risks, which has not been the case in some other countries. As a result, we were able to develop other fair trade products and improve the income of new beneficiaries in developing countries.
Q What does fair trade mean in your definition?
A It means paying producers enough to cover the cost of sustainable production plus the value of their work (salary, wages) to enable them to develop themselves, their families and their communities. It does not mean what I call the extreme pricing model that we see today in, for example, coffee.
Q What's wrong with that?
A The average cost to produce a pound of coffee is 70-90 cents ($1.56-2 a kilo). The minimum price set for fair trade producers in 1992 was $1.26 * and it hasn't changed. It is no longer in relation with the market price. It is no longer up-to-date and thus is distorted.
On the conventional world market, the coffee price for producers is 40-60 cents a pound. This is due to overproduction that is encouraged by the importers, because they can make higher margins, since the price of coffee to consumers has not gone down much. So that price is distorted, too.
I argue that fair trade producers could accept lower prices for their coffee beans--more in line with the fair trade production costs and the value of their work--and still come out ahead because they could sell a lot more coffee closer to market prices, rather than a small amount at a distorted price.
Q But the consumer is still paying a premium price for fair trade goods ...
A Not necessarily. Fair trade bananas in Switzerland, for example, don't sell for any more than the conventional products. …