Trans Fair USA Case Study


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Trans Fair USA Case Study

  1. 1. TransFair USA<br />A Case Study on the Social, Environmental and Financial Impact American Consumers can make with their Purchasing Decisions.<br />Introduction:<br />“If we only look at governmental and social goodwill, we won’t get to saving the planet fast enough. We have to build the consumer into the model.” These are Paul Rice’s words and the foundation of TransFair USA. The organization has been built around the vision that the American consumer has the power to direct social and environmental change, through their purchasing decisions. The American’s, who are concerned with the degradation of the environment and human welfare of billions of people living in poverty, now have an opportunity to direct change through their buying patterns. The methodology TransFair USA has created encourages companies to protect the environment, increase product quality, provide community development funds and guarantee a fair price is paid to the producer; while maintaining profitability and competitiveness. They have done this through a grassroots effort to educate, inspire and mobilize consumers, producers, importers, and retailers to live and operate under Fair Trade Principles.<br />The Fair Trade principles are: paying a Fair price to farmers and democratically organized farming cooperatives, which are guaranteed a minimum price for their products, a premium if they grow certified organic, and a premium for community development. For the farmers who need it, there is also pre-harvest credit available. The producers must give their workers Fair labor conditions. These ensure the fair treatment of women and children, pregnant women’s rights, living wages and the freedom of association. The principles encourage Direct trade between importers and producer groups. By reducing the middlemen, there is more money available for the farmers to build capacity, improve quality and make community improvements. The Fair Trade farmers make decisions on how they will invest their Fair Trade revenues through Democratic and transparent organizations. Business and social development projects like; organic certification, building schools, providing education scholarships are all part of Community development. Another key principal is Environmental sustainability. The farmers are learning they must preserve the land for future generations. Harmful agrochemicals are strictly prohibited. Environmentally sustainable farming practices and preserving farm workers health is required.<br />Paul Rice is the President and CEO of TransFair USA, the only independent, third-party certifier of Fair Trade products in the United States. TransFair certifies products are Fair Trade by conducting a rigorous audit. The audit tracks products from farm to finished product and verifies compliance with Fair Trade criteria. If a product meets the Fair Trade standards it can display the Fair Trade CertifiedTM logo on its packaging. The Fair Trade CertifiedTM logo guarantees to consumers that the strict Fair Trade principles of economic, social and environmental criteria were met in the production and trade of the product. Fair Trade Certification is currently available in the U.S. for many products including; coffee, tea and herbs, cocoa and chocolate, flowers, garments, and other farm products.<br />TransFair USA is a 501(c)(3) nonprofit organization. They trace Fair Trade product from producers on the International Fair Trade Register to importers, manufacturers, and distributors in the U.S. Trans Fair USA is one of twenty members, which belong to the Fairtrade Labeling Organizations (FLO), an international organization headquartered in Bonn, Germany. Just as TransFair USA audits the activities of manufacturers and importers in the US, FLO manages the International Fair Trade Register, a list of certified farmers, producers and cooperatives. The work of TransFair USA and FLO complement each other, so that the chain of custody is tracked from the farm to the finished product. FLO reviews each producer that applies for certification. Only those farmers or farm cooperatives that meet the product-specific Fair Trade criteria and are approved by FLO and are eligible to sell to the Fair Trade market. Inspection for compliance with Fair Trade Criteria is required after FLO receives the producer’s application.<br />TransFair USA opened its doors in late 1998 and began certifying Fair Trade coffee in 1999. In the past 10 years, “TransFair has leveraged limited resources to certify over 334 million pounds of coffee into the U.S. market. This translates to an estimated additional 140 million dollars flowing into rural farming communities throughout Latin America, Africa and Asia. At the end of 2009, more than 350 certified producer organizations were affiliated with 813 companies that ranged from boutique shops to artisan coffee roasters to multi-national corporations. This combination has given rise to the over 6,000 Fair Trade Certified products now available in the United States, 259 of which were newly added in 2009.” (TransFair USA, 2010) These farming communities now not only have a better standard of living, but also invest in projects such as building schools, providing healthcare and improving the quality of their farm products. The U.S. Fair Trade market has empowered farmers around the world to determine their most pressing development needs for themselves. They are investing in their communities in appropriate and sustainable ways.<br />Intersection of entrepreneurship and social change:<br />The goal of TransFair USA is to have a dramatic improvement in the lives of farmers, their families and their communities around the world. This is big social change. They recognize their dreams are big and the tasks they are undertaking are ambitious. “We are a mission-driven organization that tackles social and environmental sustainability with an innovative, entrepreneurial approach.” (TransFair USA, 2008) TransFair has partnered with conscientious consumers, NGOs, companies and philanthropists to achieve measureable progress toward reducing environmental destruction and the fight against poverty. <br />Fair Trade is a social movement that brings strength, hope and real choice to the worlds consumers. Paul Rice and the staff have brought about social change through marketing and certifying the use of the Fair Trade logo. They have allowed the conscience consumers in the U.S. to vote with their dollars for a better world. They have created a fundamental shift in the way companies do business. Those companies that embrace sustainability and equitable treatment of all people in the supply chain are being rewarded. Beginning in 1998, Paul Rice envisioned the large-scale social impact of Fair Trade. Through his work with TransFair USA, widespread systematic change has been brought about on an international level. He recognized the marginalized, poor coffee farmers lacked the financial means and political clout to achieve transformation. He believed the U.S. consumer’s purchasing power had the potential to rearrange the supply chain. If his vision and belief were successfully implemented the marginalized farmers could see an increase in their income, improve product quality and have a positive environmental impact on the earth. TransFair has forged a stable ecosystem and increased income for the farmers and their communities through Fair Trade certification.<br />TransFair is involved in social activism, although it does not have direct, one-on-one contact with the consumers. They have changed the way consumers, farmers, politicians, and industry leaders look at responsible, sustainable, Fair Trade products. The Fair Trade Certification empowers farmers to lift themselves out of poverty, protect the environment, and invest in their farms to improve crop quality and learn the business skills necessary to compete globally. Social activism is a part of the Fair Trade principles. Farmers are encouraged to spend the Fair Trade premium on education, especially for girls and women. The Fair Trade Standards guarantee regular medical examination and prevent pregnant women from exposure to agrochemicals. The standards also include; a grievance process, sexual harassment training, and that women cannot be fired for being pregnant and are guaranteed a job upon returning to work.<br />Paul Rice, TransFair’s founder, became aware of Fair Trade in the mountains of Nicaragua where he worked for 11 years as a rural development specialist. He spent most of this time working in the fields with growers, creating training programs, to develop farmer’s business capacity. This field experience helped him understand the weakness of “development aid” and the insight into alternative, market-based approaches to sustainable development. In 1990, he founded PRODECOOP in Nicaragua, which became a highly successful Fair Trade organic cooperative representing almost 3,000 small farmers. He led PRODECOOP for 4 years capturing market opportunities in the European Fair Trade market. He then held a position as a strategy consultant and development advisor to 22 cooperatives in Latin America and Asia. The lessons he learned were in global supply chain transparency, social auditing and sustainable agriculture. Paul studied the power of Fair Trade as an innovative strategy for grassroots empowerment; economic, social and environmental sustainability.<br />In 1998 Paul Rice founded TransFair USA in a one room “National Headquarters” in Oakland, California. Most industry leaders did not believe Fair Trade would ever succeed. Paul Rice and TransFair USA have succeeded. Their fortitude and innovation continue with expansion into additional food items, garments and possibly diamonds. Paul himself comments: “I am proud to see the Fair Trade movement going mainstream and uplifting millions of hardworking farmers in the developing world.” (TransFair USA, 2008)<br />National and International recognition have been earned by Paul Rice and TransFair USA. Paul received an Ashoka Fellowship for his work as a social entrepreneur, The Klaus Schwab Foundation Award for Social Entrepreneurship, the Skoll Award for Social Entrepreneurship and The Social Capitalist award four times from Fast Company magazine. Paul continues to advocate and motivate globally. In 2004, he spoke on Fair Trade before hundreds of government, civil society and industry leaders at the World Economic Forum in Switzerland. In 2008, Paul spoke at the Clinton Global Initiative annual meeting and closed with a commitment to launch Fair Trade cotton and apparel. TransFair and Paul Rice have been instrumental in incorporating social responsibility into business strategies by igniting consumer awareness and building demand for Fair Trade certified products. The result is a model for sustainable development and poverty alleviation, which actually increases company’s brand awareness, profitability and growth.<br />Challenges, Opportunities and Scaling:<br />The most important challenge and opportunity of the next decade: find innovative ways to improve the Fair Trade model to create greater scale and positive impact. I believe the best is yet to come, said Paul Rice. (TransFair USA, 2008) In November of 2009 Trans Fair announced that it was extending the “Fair Trade lifestyle” into cotton clothing, bed and bath products. This Fair Trade certified apparel and home goods is expected to hit the U.S. markets in the spring of 2010. The new standards include strong labor protections to garment workers developed through collaboration between garment workers, consumers, factory managers, NGOs and companies. “Fair Trade garments could be path-breaking in the field of ethical business,” said Gopinath Parakuni of Cividep, a workers rights organization in India, where Fair Trade apparel will be made. Through Fair Trade, workers can begin to truly have a choice about how to be represented in the workplace and how to communicate with their employers.”<br />Doing business with global companies is a challenge for small producers. They lack the production technology, market information, management and capital. TransFair USA created a “Global Producers Services” initiative to work directly with producers to advance their market position. The initiative: created relationships between producers, importers and retailers to create mutually beneficial trade and investment opportunities. TransFair trains cooperative leaders, members and staff on business and financial management and introduce them to leading sources of capital. Then TransFair introduces them to U.S. Fair Trade buyers, establishing trading relationships with more equitable terms.<br />In 2009, TransFair expanded into several new categories, showing there is demand in many new markets. These include: sports balls, Brazil nuts, olive oil, and shea butter. The seven new producer organizations for these products saw almost $30,000 in additional income. Fair Trade certification has helped open U.S. markets for over 1.4 million small family farmers around the world. They are now seeing dramatic improvements in their standard of living and getting a fair price for their efforts.<br />As a nonprofit, TransFair USA depends on a community of donors and social investors to spur the growth of TransFair USA’s innovative model for global poverty alleviation. TransFair has scaled from humble beginnings through hard work, consensus building, business skills, delegation, public relations, advocacy, partnerships and philanthropists. In 2003, the Ford Foundation awarded TransFair almost $3 million over a six-year period. The Peery Foundation and other new funders provided critical general operating support to TransFair in June of 2008. (TransFair USA, 2008) The business partnerships include over 650 U.S. Companies. Included in this list are: Starbucks, Wal-Mart, Whole Foods, Green Mountain and Dunkin Donuts. These firms and others put over 160 million pounds of certified Fair Trade coffee into 50,000 retail outlets and reached $1 billion in retail sales in 2007.<br />Through working closely with their partners, TransFair USA is able to redefine the supply chain to lower unnecessary costs. They took the Whole Foods buyers directly to the flower farmers in Ecuador. The relationships established allowed Whole Foods to bypass the middleman broker, buy directly from the grower, and sell a competitive Mother’s Day Fair Trade certified bouquet of roses for $12.99. Working with Wal-Mart they determined the coffee beans were significantly lighter after roasting. A roaster was contracted to do the roasting at the source for much cheaper then it would have been to ship the beans and roast them in the USA. Wal-Mart was able to put the Fair Trade coffee into stores much cheaper then anyone else.<br />To promote quality improvement for coffee, TransFair USA has created a “Responsible Sourcing Partnership Project.” The farmers participate in coffee quality management training sessions, attend conferences, and receive investments in infrastructure and technical assistance with production and post-harvest processing. The results have been remarkable. In October 2008, Luis Adauto de Oliveira’s coffee was auctioned off for a record price of $7.20 per pound, more than $6 higher than the average price earned by Brazilian coffees. (TransFair USA, 2008)<br />Sustainability and Measurement:<br />The demand for Fair Trade CertifiedTM products has grown rapidly. In TransFair’s 10th year, imports of Fair Trade coffee increased over 30 percent. The expansion into other products showed positive growth as well. Bananas saw demand increase nearly 250 percent. Measurements of the imports are made in pounds. “Imports of Coffee in 2008 were at 87,772,992 pounds, tea was 1,372,261, cocoa 3,847,759, rice 317,652, sugar 8,696172, produce 25,492,767 and flowers 9,835,028 stems.” (TransFair USA, 2008) These numbers are significant and they continue to grow. Coffee, Fair Trade’s flagship product, and its 2009 growth resulted in over $45 million in additional income paid to farmers. This is measured as the price paid above the market rate and the value of the community development premium paid to farmers. The additional income empowers the farmers to reinvest in their business, to make improvements in their communities’ health care, schools and roads. Of the $45 million, $14 million will be invested in these community development projects. (TransFair USA, 2010)<br />Mr. Rice measures the social return on the investment by how many additional dollars above market pricing TransFair channels back to the growers relative to its annual expenses as an organization. “For the last 10 years, we’ve been running at five-to-one. So for every dollar TransFair spends on our programs, we’re able to generate about $5.00 in additional income for those farmers.” (Weston, 2010) TransFair maintains a high level of visibility into the supply chain and the pricing. This is due to the stringent reporting requirements in fair trade deals. What an importer or retailer pays a producer is a matter of record. TransFair USA finds the dollar and capital impacts from looking at these records. The transparency of these records is also used for marketing to new producers. They can see the results.<br />TransFair USA has empirical data and anecdotal evidence that money is being spent on education, housing, water quality, and a host of community and enterprise sustainability type of investments. The next evolution of measurement is longitudinal data; such as how long a kid (from a community with fair trade) stays in school compared to a kid (from a non-fair-trade community) said Paul Rice. (Weston, 2010) <br />Conclusion:<br />The future looks sustainable for TransFair USA. As the conscious consumer increases their purchases of Fair Trade CertifiedTM products, companies who see the growing market for Fair Trade products are joining the movement. Large international companies are partnering with TransFair USA to investigate whether Fair Trade criteria could be developed for their products. Recent examples of this are Levi Straus and Columbia Sportswear who have paid TransFair to develop criteria for garment workers and Tiffany & Co. contribution for TransFair to research their industry. The sustainability is from TransFair’s ability to generate revenue as they explore new markets. In the financial summary of their 2008 Annual Report, TransFair listed 61.7 percent of revenue came from license fees (certification) 35.1 percent from grants and contributions and the remainder from in-kind donations, other income and trade show support.<br />The bulk of TransFair expenses are in Programs. While 7% is spent on fundraising and 13% on Management and general operating expenses, a whopping 80% is spent on programs. These include producer education, training and coffee cupping contests to promote quality. They continued to advocate and promote the global benefits of Fair Trade through grassroots efforts. The TransFair USA web site lists many ways for individuals, schools, clubs, organizations, and companies to put on Fair Trade events. The tools provided include stories of the people whose lives have been improved and menus for parties serving Fair Trade products. All of this is part of TransFair’s effort to give people a voice and promote Fair Trade.<br />Paul Rice identified the marginalized poor farmers in Nicaragua. Through his awareness of the global Fair Trade movement, he and the members of TransFair USA have been able to create systematic change and use of American’s spending power to improve the lives of these people. The Fair Trade movement is scalable and has been successfully transferred to other products and industries. The market potential is dramatic. In the USA, 20 percent of Americans are aware of Fair Trade principles while in the Netherlands 90 percent of their population supports Fair Trade.<br />The members of TransFair USA are committed to spreading the Fair Trade message. They value freedom of choice and empowerment. The integrity and relationships formed are built on honesty, trust and mutual respect. They engage in sustainable solutions and practice innovation, creativity and lead by example. TransFair believes in personal and community development where diversity of perspectives, collaboration and ownership are supported. Above all else is the fairness to create opportunities to benefit all people, everywhere, through positive solutions that achieve meaningful social and environmental change.<br />Bibliography<br />Starbucks is the Largest Purchaser of Fair Trade Coffee. (2010 13-April). YouTube Video, Cafe Estima . Seattle, WA, USA: Starbucks.TransFair USA. (2008). Annual Report 2008. Oakland, CA: TransFair USA.TransFair USA. (2010 20-April). Fair Trade Overview. Retrieved 2010 20-April from TransFair USA: http:/www.transfairusa.orgTransFair USA. (2010 20-April). Mission, Vision, and Values at TransFair USA.Retrieved 2010 20-April from TransFair USA: http:/www.transfairusa.orgTransFair USA. (2010 15-April). Press Release. Oakland, CA, USA: TransFair USA.Weston, R. (2010 19-February). TransFair: Supply Chain Visibility and Demand Sensing in Fair Trade. AMR Research Content . <br />