Rob Katz

Social Capital Markets: The Future of Fair Trade

Champa GujjanuduGuest blogger Champa Gujjanudu is an 1st-year MBA student at the Haas School of Business at UC Berkeley with an emphasis in social impact consulting and community development. Prior to Haas, Champa was a Strategy Consultant with BearingPoint in the Bay Area and in New Zealand. She has held consulting positions in various industries such as Financial Services, Healthcare and Technology. She graduated with a degree from the University of Auckland with degrees in Computer Science, Mathematics and Business Information Systems.

By Champa Gujjanudu

Today, I was privileged enough to attend not one but two great panel discussions on a topic close to my heart, Fair Trade. While being familiar with some of the local and regional Fair Trade associations and retailers, I was blown away by the breadth of experiences and the passion that the various panelists brought to the discussions.

The first panel addressed one of the major challenges in the mainstreaming of Fair Trade – how do we influence the large untapped proportion of consumers to affect long lasting change in preferences? The other important question was how do we compete in the market with other non-Fair Trade products?

The next panel was focused on attracting investment in Fair Trade – tracing the supply chain of Fair Trade and discussing some of the key attributes of Fair Trade that deter traditional financiers and limit micro-financiers such as lack of collateral and the scale of Fair Trade.

Regina Connell, the founder of SaltCellar Productions, a non-profit strategy consultancy, highlighted the issue of product quality parity – the critical requirement that Fair Trade products? be as good as other similar non-Fair Trade products if not better. World of Good’s innovative entrepreneur, Priya Haji expressed a similar sentiment while addressing the issues of marketing Fair Trade to attract investments- her biggest challenge is seeking retailer support. She believes that Fair trade has to compete on all parameters that all other products do such as style, quality, and price. It’s the ethical “fair trade” portion of the model that drives brand loyalty.

A key determinant to mainstreaming Fair Trade will be the perceived value from a consumer’s perspective. Cate Baril from Transfair USA commented on this perspective – Consumers are self selecting and a brand that sells really well at your retail co-op might not have the same kind of effect on the customers at a large retailer. In many ways, Fair Trade has evolved into a niche market that will have to go through the evolutionary process that Organic products or eco-friendly products went through in the last few decades.

Two great success stories were shared by Scott Leonard of Indigenous Designs, a leader in high quality apparel and Edouard Rollet co-founder of AlterEco, a French Fair Trade retailer, who has expanded to the US since 2005. ?Scott’s story is worth noting, particularly in light of his scaled model around supplying products to mainstream high-end retailers such as Neiman Marcus. Indigenous Designs continues to stay close to their fairly traded roots by investing in their producer communities and being committed to quality by subscribing to standards such as GOTS (global organic textile standards). Rollet provided a brilliant insight into the high degree of awareness for Fair Trade products in EU vs. the US. 50% of the bananas sold in supermarkets are Fair Trade and there is a significantly higher rate of commitment amongst the retailers in the EU.

Unfortunately, these success stories don’t automatically translate into investor confidence. Greg Steltenpole, founder of Adina talked to his challenges in the capital process. What to Fair Trade consumers might seem as heartwarming stories about small scale farmers in Columbia and Guatemala providing the ingredients for exotic and healthful beverages were the exact stories that drove many investors away. William Foote from Roote Capital shared his perspective as an investor- their biggest challenge is that the businesses they invest in are not maximizing profit and given the mission critical nature of their purpose, they can’t really charge a high rate. So the solution is to SCALE. He believes that any business that has a cash flow is bankable – this cash flow and the ethically minded business model are the primary sources of collateral.

“Scale” and “Marketing” have been some of the common themes I’ve heard across the various sectors of the social capital markets. This most certainly reigned true in the context of the Fair Trade sector. One parting thought is that, the trends of mainstreaming, retailer support and growth of the Fair Trade sector continue to require customers to “pull” the products onto the shelves – a consumer driven proposition. We need to continue to use multiple touch points for marketing and educating the consumers. I like Regina’s idea of educating children to become champions of the cause by throwing tantrums requesting Fair Trade products – Fair Trade CoCo Puffs anyone?