Still sweet? Fairtrade, Kraft/Cadbury and beyond

The hot debate over US food giant Kraft's bid for Cadbury - manufacturer of iconic British sweets - is still simmering. A new source of tension reared up this week with discussions in the UK Parliament on how much Kraft is committed to sticking to Cadbury's market-leading investment in Fairtrade cocoa.

In 2009, Cadbury catapulted Dairy Milk-the UK's bestselling chocolate bar-into the ethical consumer arena by converting to 100 per cent Fairtrade cocoa in the recipe. Not only did this effectively transform the bar - it also represented a coup for what had, to date, been regarded as a ‘niche' certification scheme.

But Cadbury has gone further, and will now source all its Fairtrade Dairy Milk cocoa from Ghana, expanding Fairtrade to its Canadian, Irish, Australian, and New Zealand markets. More, it's advertising strongly references the Ghanaian cocoa origin-a decision rare within the industry. With this move to the mainstream for Fairtrade, sales of Fairtrade cocoa from Ghana will triple, bringing 350 million Fairtrade bars of chocolate to stores.

Some were concerned that Kraft would axe the Fairtrade programme once the takeover was complete (according to Oxfam, the corporation has shown little interest so far in treating small farmers fairly). But Kraft have reassured consumers that this is not the case.

The commitment might seem vague for some who fear for the medium-term prospects of Cadbury's Fairtrade range, but Kraft have committed in principle to honouring Cadbury's existing Fairtrade contracts. There is no public information available as to when these contracts expire or whether Kraft will approve expansion of Fairtrade into other Cadbury product ranges.

Why chocolate's hot: the bitter truth

What's sure is that in the current cocoa market Kraft are on a win-win with the Cadbury Fairtrade commitment.

On the one hand, Kraft is showing it backs Cadbury's autonomy to a degree, in line with the UK company's ethical principles and national identity. And on the other, Fairtrade is an attractive option at the moment, as cocoa prices have gone through the roof so manufacturers can buy in to Fairtrade on the cheap. This is because the additional cost above the global market price they must pay for Fairtrade cocoa is limited to the Fairtrade ‘social premium' (a fixed US$150 per tonne which is around 5 per cent of current market price).

In fact, last year cocoa prices hit a 24-year high, reaching US$3183 per tonne, well above the Fairtrade minimum price floor of US$1600 - that is the price farmers are guaranteed to receive no matter how the market fluctuates. It is when the market price falls below the floor price that Fairtrade becomes more of a cost burden for manufacturers.

What's driving the high cocoa price is a combination of scarcity and increased demand. Crop failure and political unrest in Côte d'Ivoire, which produces 40 per cent of the world's cocoa, has disrupted supplies. So these have been tough times for farmers in the beleaguered West African country.

Meanwhile, it also seems that demand for cocoa - which took a hit at the beginning of the global recession - is picking up again more quickly than expected, coinciding with falling supply. Part of the demand is the growing taste for the sweet stuff in new markets like China and the Ukraine.

In the UK, sales are up by around 6 per cent and Cadbury announced ‘an outstanding' 2009 - perhaps revealing once again that comfort eating and cheap treats rule in recession.

Mainstreaming Fairtrade

But Dairy Milk will soon be joined by a new kid on the Fairtrade chocolate block: Nestlé's Fairtrade KitKat, a rival mainstream bar. Kraft itself has begun certifying some products under Rainforest Alliance and Utz Certified schemes - although these have been criticised for standards requiring only 30 per cent of certified product.

This demonstrates a willingness by the large manufacturers to enter the certification market and could increasingly become a competitive point of difference. Yet what are the long-term prospects for mainstreamed Fairtrade? That could depend on a number of interrelated factors.

First, take a product that's a market leader - Dairy Milk for instance. When times are good - that is when the manufacturer can buy into Fairtrade cheaply - Fairtrade is an attractive bet. If demand for that product soars, and it is seen to be linked to consumer support for Fairtrade, then it is difficult for manufacturers to abandon it in bad times.

Secondly, if cocoa prices stay high for a long time, that may affect the likelihood of Kraft/Cadbury expanding its current range and renewing existing contracts.

The flack against Fairtrade

Finally, some argue that if Fairtrade certification is to survive in the mainstream - particularly in a recession - it needs to better address some of the criticisms directed at it.

The core aim of Fairtrade is to improve the lot of small farmers - including their long-term income stability. Crop prices are notoriously volatile.

Yet the likes of the educational development charity Worldwrite claims that an obsession with ‘small is beautiful' is a missed opportunity. By focusing on achieving a fair price for poor farmers, adherents fail to address issues of mechanisation and industrialisation - radical changes that might allow farmers in the developing world to stop doing backbreaking work and break out of the poverty cycle.

Equally, Fairtrade has been accused of promoting a state of dependence in the farmers it is meant to help - articulated by the free-market advocate, the Adam Smith Institute: ‘the (Fairtrade) movement effectively makes farmers "prisoners to our market". They become dependent on us continuing to pay premium prices for their goods.'

The fact that the certification itself is very tightly and centrally controlled inhouse by the Fairtrade Labelling Organisation (FLO) seems to support that view.

The certification process is also accused of being complex to set up - needing cooperatives of small-farmers to come together for certification to be viable. These groups must be managed democratically, have transparent administration, and be politically independent. Noble principles, but ones that demand time, capacity and money to establish; and the cost of the certification has to be borne by the members.

There are also concerns that the certification does not sufficiently address the needs of the poorest - the landless hired farm labourers.

The big brands claim Fairtrade is not sufficiently flexible - perhaps because of the nature of the certification. Kraft recently said of Proctor and Gamble's move to Fairtrade coffee: ‘Fair trade is a niche market based on the guaranteed minimum price. The Rainforest Alliance is bringing the concept of sustainability into the mainstream.'

Like Kraft, many other big manufacturers are opting for other less stringent certification schemes such as Utz Certified, Rainforest Alliance, or are focusing on the emerging barrage of best environmental practice initiatives on sustainable commodities such as the Roundtable on Sustainable Palm Oil and the recently formed Roundtable for a Sustainable Cocoa Economy.

A balanced view

Perhaps a pragmatic view of Fairtrade as a certification standard is that it has led the debate on ethical consumerism, despite the critics. And it has kept the bar higher than other certification standards. Pushing it towards the mainstream and out of the middle-class niche is not a bad thing - particularly for producers.

It also has to be said that no one is claiming the Fairtrade label is the answer to the world's inequality. The acid test for the long-term survival - and ultimate usefulness - of Fairtrade will be its growth in the mainstream. And for this it is likely to have to adapt.

Perhaps Fairtrade will be remembered as a pioneering example to ‘fairer trade'-that is, a world where ethical supply chains are the norm. This would demand not only that consumers vote with their feet, but also that governments, retailers, manufacturers, and producers work together and take responsibility to ensure that the faces, places, lives, and livelihoods behind our goods are honoured, and that ‘commodity think' becomes a mindset of the past.

Ben Garside is a researcher in the Sustainable Markets Group