Fairtrade New Business Model: Taps Markets in the South: With the Emergence of New Markets in the South, Fairtrade Labelling Organizations International's Standards Are Adapting to Become More Than a Doorway to Export Markets in the North
Altmann, Matthias, International Trade Forum
With the continuing shift in economic activity from developed to developing countries, the trend towards con sumer growth in emerging markets requires transnational corporations to rethink the way they do business in the South. Fairtrade Labelling Organizations (FLO) International sees these global changes as an opportunity to introduce its international social certification system to consumer markets in the South. While this move has the prospect to increase the impact of Fairtrade on producers, it also challenges FLO's traditional business model.
The traditional Fairtrade model--based on consumers in developed countries buying Fairtrade-certified products from disadvantaged farmers in the global South--is undergoing change as the growing number of consumers in emerging markets opens up new opportunities for Fairtrade producers in the South, With the increase in South-South trade, the Fairtrade Certification Mark is acquiring meaning as a quality standard for consumers in the South, This is because, unlike in the North where consumers relate the meaning of Fairtrade certification primarily to support for disadvantaged producers in the South, the newly emerging class of consumers in producer countries places high confidence in the quality and safety of domestic products that are certified in accordance with international standards.
India is a case in point. Despite a rapidly growing middle class currently estimated at 300 million people, India is still home to one-third of the world's poor, (1) and more than 70% of the working-age population depends on agriculture for their livelihood. Small-scale farmers and workers from close to 100 Fairtrade-certified producer organizations currently benefit from Fairtrade's improved terms of trade on export markets, but they still sell an often larger share of what they grow to domestic markets on conventional terms. Tapping the potential of India's growing consumer market has the potential of increasing the impact of Fairtrade for Indian producers while giving consumers domestic products of high quality and safety due to the traceability and environmental standards associated with Fairtrade certification. For FLO International this presents a strong case to invest in the Indian Fairtrade market. In 2009, Fairtrade products with a combined retail value of almost 50,000 [pounds sterling] were sold on the Indian market. With the plan to establish a national Fairtrade initiative that provides marketing support to Indian producers, traders and distributors, we expect our current market position to strengthen considerably.
Fairtrade is already seeing the value of investing in emerging consumer markets in the South. Fairtrade Label South Africa (FLSA) is an example, Established in 2009 as the first Fairtrade marketing organization in a producer country, FLSA made almost 500,000 [euro] in domestic retail sales from 14 certified producers in its first year of operation. By becoming licensees of the Fairtrade mark, they are able to sell a larger share of what they grow on Fairtrade terms and are less dependent on demand from consumer markets in the North, FLSA also shows that domestic products with international certification appeal to consumers in the South.
The new opportunities presented by consumer growth in emerging markets are challenging the way in which the Fairtrade system traditionally works. Firstly, it requires accommodating differences in consumer sentiment towards Fairtrade between developed and developing countries. While Fairtrade is seeking to empower consumers in developed countries to contribute to the fight against poverty in developing countries by purchasing Fairtrade products, poverty is still an everyday reality for consumers in the South. In emerging markets, consumers care more about the development of their own country and people, and the domestic marketing of locally produced Fairtrade products offers them a way to do so in an equitable and sustainable manner. …