A response to Trade Aid, New Zealand

by Dilhan

The New Zealand Herald of Monday March 17th, quotes my father, Dilmah Founder Merrill J. Fernando, referring to Fairtrade as a ‘farce’. Newspapers like sensational headlines and that probably accounts for the title which picks up on just one of many aspects of the interview he gave. Reading on, there is a very significant truth that is exposed by the discussion between Merrill J. Fernando and reporter Eloise Gibson. That comes to an extent from my father’s comments and the reaction of New Zealand Fairtrade Organization, Trade Aid through their spokesman, Justin Purser.

Mr. Purser counters that “Dilmah could not match Fairtrade’s assurances about its growers’ methods.” Quite right. In a system originally devised in colonial times, the roles of grower, packer and sometimes also brand owner, were separated. In Sri Lanka, tea that was produced with tremendous effort and dedication by tea pickers, tea makers and tasters in Sri Lanka, was taken away in bulk, to auctions in London. It was a finished product when manufacture was complete in Sri Lanka, but it was taken away, the hardest and least rewarding part of the process completed, to London. There it was sold to the highest bidder who packed, branded and distributed the product through retailers. Needless to say, they gained the lion share of the eventual retail price, and hence a disproportionate amount of the final consumer price of the tea.

The reward for any producer lies largely in the process of value addition – branding and marketing. The system of Fairtrade – as a brand and organization – ignores these aspects by focusing only on raw material production or growing. In doing so Fairtrade perpetuates the dysfunctional system where the producer is restricted to producing, and someone elsewhere – in the case of tea, that is usually a large, multinational company – reaps an unfair part of the benefit of that producer’s effort. With Fairtrade, that middleman can also make a token payment to the raw material producer and receive a pat on the back for being fair – as defined by Fairtrade and represented by their Fairtrade logo.

It is a very natural evolution of the role of the producer, to be involved in post harvest activity and to benefit from it. The fairest form of trade after all, is one that everyone has known for centuries – the farmer bringing his crop to market. I am sure every Kiwi would understand that there is less appeal in producing wool in bulk, than in having that wool converted into branded jumpers or overcoats and selling those to consumers. The money, and the benefit, is clearly in the process of value addition (branding, marketing and selling to end user).

The resurgence of the Farmers’ Markets in Europe must therefore be welcomed as a very positive development, although the miniscule impact of those markets on inequities in the agricultural sector – in relation to the size of the problem – mirrors another weakness of Fairtrade. That is, it’s very limited impact on only a handful of producers.

In citing these problems, we really do not want to ‘throw the baby out with the bath water’ for Fairtrade is a noble cause. It has highlighted the desperate situation of the producer, and it has propelled that issue to the consumer and political agenda in Europe, Australia, New Zealand and the USA. Fairtrade also offers a very convenient way for a shopper to demonstrate their concern for worker welfare, by supporting Fairtrade products in their local supermarket.

As a producer, we – both as Dilmah and as a family – were born in a country where the dysfunctionality of that colonial form of trade is manifest in daily life. Dilmah was the first producer owned tea brand in the world, and that has given us an unique insight into both sides of the issue, from the producer’s perspective and also from the market perspective. It is with that vision that the real solution and the limitations of Fairtrade as an organization, become clear.

Fairtrade has enjoyed double digit growth since 2002 and in all probability that trend will continue. That is a good thing and we support it. However, it is not the solution, for in the case of tea, Fairtrade legitimizes an unfair system of trade which needs fundamental restructuring. Fairtrade Tea is purchased from producers, and sold through the conventional means where a packer converts the tea from bulk to packed form, a brand owner adds their branding and a retailer sells the product, with a Fairtrade Premium.

The Fairtrade Foundation nobly contends that “The Fairtrade premium is a sum of money paid on top of the agreed Fairtrade price for investment in social, environmental or economic development projects, decided upon democratically by producers within the farmers’ organisation or by workers on a plantation.”

Yet the so called ‘Fairtrade premium’ is shared down the line from retailer to producer, in most cases boosting their profit from the product, and offering only a small proportion of that amount to the producer. The Economist estimates that the amount received by the producer is just 10% of the premium. That figure is disputed hotly, although even double that would still be much less than what the consumer who pays the premium would expect the producer to receive.

The producer, at the end of the line that includes retailer, distributor, brand owner, possibly a packer or importer – must share that ‘Fairtrade Premium’ with those ahead of that imaginary line. Certainly the incremental benefit is a cause for celebration, and as the Fairtrade website and ‘producer appearances’ in various promotional events highlight, enhance life. That enhancement though is restricted to a few, and is a token, which when heavily promoted and advertised as Fairtrade does, only serves to blur vision of the true and much more difficult solution.

Why a ‘Fairtrade Premium’ at all? Even if only 10% of that premium were to reach the producer, one must see it as a benefit to producers. But why should the consumer, and not the packer or brand owner, be called upon to meet the social justice obligation that is not a non optional part of every business’ community commitment?

As a family business founded on family values, our commitment to sharing our success with our workers initially, then with the wider community as the business grew, came naturally. It started in the 1960s, when my father gave school books, uniforms and financial assistance to buy land and homes, to his workers. It has expanded as it rightly should with the expansion of our business, to include tea plantation workers, then the wider community in Sri Lanka, and as our business has been blessed with continued growth, to the international community, starting in Africa. That excludes assistance offered for a decade or sometimes longer, to deserving organizations in many countries, including Australia and New Zealand.

It is only in the past few years, as ‘ethical consumerism’ made a business case for ethics, that what should be considered to be basic human values, have become magnified and distorted under the guise of various acronyms. Every product should be fair. The existence of Fairtrade as an organization confirms the reality that most trade is unfair. In then seeking to whitewash the ugliness of that unfairness is as exploitative as unequal trade itself.

It is unethical for brands to play upon the conscience of consumers in legitimizing their own brands by adding fair-trade certified products, and delegating to consumers thereby a responsibility they should assume themselves. Caring for workers, producers and the underprivileged in our communities is really not so complicated an issue as to require a vast global organization called Fairtrade, to manage and monitor. Many of the brands that are publicly embracing Fairtrade are doing so for a small portion of their products. That begs the question, is offering a ‘Fairtrade’ certified range within a brand portfolio an admission that most of that brand is unfair, or whether it is simply a response to the consumer research that strongly suggests that consumers are more likely to buy ethical products. In the same vein, is it legitimate for an organization claiming to represent Fairtrade and denounce unfairness in trade, to embrace some part of a brand, and allow the uncertified majority of the brand to continue to be unfair and at the same time benefit from that association.

There is a bigger irony here. A parallel category to tea, the global coffee industry, is dominated by a handful of multinational brands. They all benefited from the crisis that brought coffee producers to their knees [see Fortune Magazine’s excellent overview in [Crisis in a Coffee Cup at money.cnn.com/]. Yet those same corporations are becoming beneficiaries of Fairtrade, not due to any change of heart, but due to the commercial benefit in associating their brands with Fairtrade.

One amongst them launched a Fairtrade certified line, at the time just one of some 8,000 products they offer [see www.babymilkaction.org/]. The UK’s Private Eye Magazine exposed that attempt at whitewashing the brand’s involvement in causing enormous harm to coffee farmers.

Private Eye commented, “An advertising feature in a recent issue of Radio Times about [coffee brand’s] noble work with down-trodden coffee farmers in El Salvador had many poverty campaigners choking over their lattes… It described how coffee farmer Adán Humberto Flores Galan had joined the … project, a “fair-trade” co-operative which, said [brand], aims to help coffee farmers diversify, improve their product and receive a “fair price” for their harvest. Not long ago, the feature gushed, life was very different for farmers like Adán. They suffered “the devastating pressure that low coffee prices put on his family’s livelihood”; and Adán was forced to sell his family’s possessions to survive. Alas, [brand] (turnover: £38 billion) didn’t have space in the propaganda feature to explain its own role in helping force down those prices. With the other big coffee roasters, they buy half the world’s coffee beans. The lifting of restrictions on the international coffee trade, exposing it to the full force of the free market, along with the monolithic purchasing power and outrageous profiteering of the coffee roasters, has seen the price of coffee fall by almost 50 percent in recent years to a 30-year low.

As Oxfam’s “poverty in your coffee cup” campaign shows, the livelihoods of about 25 million small producers around the world are under threat. So [brand’s] boast that is now helping 200 El Salvadorean farmers – while all well and good for them and their dependants – does nothing to help the other 23,288 El Salvadoreans who aren’t in the scheme, let alone the millions worldwise who are at the mercy of the market.”

As Private Eye highlights above only a fraction of producers are actually part of the Fairtrade system. The certification process favours organized, middle class producers, not the poorest of the poor whom Fairtrade claim to support, and the process also leaves out the majority of producers.

In Business Action for Africa [businessactionforafrica.blogspot.com] Zahid Torres-Rahman offers a very balanced commentary in posing to himself the question ‘What difference can Fairtrade really make?’. He writes,”..despite rapid growth, it remains tiny – stubbornly stuck outside the mainstream. For the vast majority of small scale producers, the cost and complexity of qualifying means that it remains far out of reach. It unfairly deflects attention away from the wide range of good business practices out there (not Fairtrade = unFairtrade?). And it could never substitute for real progress on world trade reform – making trade fair for all developing country producers.”

Importantly he goes on to write, “But this should not obscure the important ways in which Fairtrade is already making a difference …. Fairtrade is not the panacea it is sometimes made out to be. But it has very real value in getting the right things on the agenda.”

In the final analysis, trade offers the most tangible and potent opportunity for the less developed countries to change their fortunes. Inequities and distortions exist, and they must be addressed, but genuinely fair trade requires a paradigm shift. Fairtrade claims to be, “.. the only independent guarantee of a better deal for Third World producers.” It is not. Third World producers do not need interventionist solutions that simply perpetuate a system based on inequity. They need the opportunity to share in the process of branding and value addition, so that they can themselves help their own communities.

Making that opportunity available to producers requires fundamental change in the way the world does business. Dilmah is the first, but yet only major international tea brand from a tea producing country. That excludes Tata, which bought its Tetley Tea brand from the UK’s Tetley Tea, and the smattering of other brands which have a regional presence in some parts of the world. Imagine if a much larger proportion of Ceylon Tea than the 30-35% currently, were to be exported in the form of value added products, under Sri Lankan owned brands? The revenue would come back to the producing country, and have an enormous effect on employment, development, ancillary industries, the viability of the ailing tea industry and of course on tea estate workers.

Back to Mr. Purser’s comments. In condemning Dilmah’s Ethical Trade initiative and the supporting elements, he refers to his visit to a Trade Aid tea supplier in Sri Lanka and how it had schools, a bank, medical centres and spacious housing – in contrast to the bulk of Sri Lankan tea estates, where half the industry’s 450,000 workers lived in cramped conditions without running water. He went on to say that initiatives like Dilmah’s charitable fund were no substitute for fair trade.

“That sort of charity is what we’re railing against with Fairtrade. We think farmers need a fair price upfront so they don’t need these handouts.”

The reality is that the issues are far more complex than Mr. Purser or the organization he represents can anticipate, for as a Sri Lankan company which has fought a struggle over decades against multi origin blending, and championed the cause of quality Ceylon Tea, we have done a significant amount to help the viability of Ceylon’s Tea Industry. Tea is mostly grown on large estates as a legacy of the 1970s nationalization of the industry. Whilst Ceylon Tea is known for quality, cleanliness (free from pesticides) and variety, it is also the most expensive on average. Most multinational companies have moved away from Ceylon tea, to cheaper origins, in order to maximize their profits. This meant that the industry and workers had a potentially bleak future as demand for more expensive, but high quality, Ceylon Tea disappeared.

Dilmah stubborn loyalty to the tea that made the young brand an international success, has spurred many international brands to rethink the extent of their move to multi-origin blends. In Mr. Purser’s own New Zealand, when Dilmah dislodged the centuries old former category leader, it also reminded that brand’s owners of Ceylon Tea, where its roots lay. They came to Sri Lanka and sourced a Pure Ceylon Tea brand, to try and restore its fortunes. The same resurgence of interest in Ceylon Tea is repeating itself in other countries, as the success of Dilmah forces competing brands to offer their own Ceylon Tea.

That aspect, together with the opportunity that developing countries have to grow and build their economies by taking control of their produce, and its marketing and value addition, is entirely missed by Fairtrade. Its singular focus on the producer is laudable. The problem is much bigger though and in allowing policy makers to ignore the real solution, and cover up the more grotesque features of inequality in international trade by showing off the ‘Fairtrade solution’ makes Fairtrade a part of the problem.

As a Sri Lankan family, which lives and works amongst tea pickers, we understand the issues they face and we could not agree more with Mr. Purser that handouts are not what the underprivileged in our country need. Examples of how those notions translate into tangible benefits for tea pickers and the wider community are available online at www.mjffoundation.org. The MJF Foundation’s Small Entrepreneur Programme has made entrepreneurs of more than 300 extremely poor individuals, the Local Heroes Programme has transformed communities dependant on traditional agriculture, by empowering them, Foundation schools and University Scholarships around the country benefits over 3,000 students, whilst our hospitals and clinics offer free treatment and medicine to over 6,000.

Those programmes continue, and will in 2008 see the first, free Specialist Eye Surgery unit in the tea country, a natural medicine hospital to treat 1,000 people each week, a centre for abused women and children, a creche and development centre for disabled children, and the opening of another 30 Child Development Centres. That is just a part of the work of the MJF Foundation in the area of humanitarian service.
With the link between the environment and human welfare becoming increasingly clear, Dilmah embarked in 2007 on a Dilmah Conservation Initiative. Its work in supporting the conservation of elephants and easing the human-elephant conflict, in establishing an arboretum for endangered medicinal plant species and as a ‘laboratory’ for understanding the possibility of harmonious interaction between man and nature, its support for the Amphibian Ark and other global conservation efforts, earned Dilmah Conservation acclaim from no less than IUCN, the World Conservation Union (www.dilmahconservation.org).

Mr. Purser is right – we do not need handouts. Instead with fair trade, an opportunity to participate in the most appealing and lucrative aspects of our production, will help us to make our trade truly fair. We will then have a thousand Dilmah’s, our economies will be buoyed by a greater share of the revenue from the sale of our tea, coffee, bananas, mangoes etc., and we will not need to seek handouts for we will be able to help ourselves.

Fairness in trade demands more radical change. It requires that producers interact directly with consumers, and that is to the benefit of both for it will offer the guarantee of fairness as well as quality, something Fairtrade has failed to do. The example of Dilmah serves to illustrate what might be in such a scenario, for a middle sized entity, which has integrated ethics and social justice into its business model, has some significant achievements in the area of humanitarian and environmental service through the exercise of basic family values of integrity and ethics. Broadening that model, to many more industries and players, will unleash the potential that fair trade offers, as the engine of growth and development of less developed countries.

We appreciate what Fairtrade does for our farmers and for its role in bringing the issue of inequality in trade to the fore. Their claim that they are the only option is what irks us. They are not, for they are only a modest but yet inadequate improvement in a fundamentally unfair system of trade; a small step in the right direction, but no substitute for the fundamental change that is required to make trade genuinely fair.

Related Posts