ITC CONSUMER CONSCIENCE CONSUMER CONSCIENCE CONSUMER HOW ENVIRONMENT AND ETHICS ARE INFLUENCING EXPORTS USD 50 ISBN 978-92-9137-379-6 EXPORT IMPACT FOR GOOD United Nations Sales No. E.09.III.T.8 © International Trade Centre 2009 The International Trade Centre (ITC) is the joint agency of the World Trade Organization and the United Nations. 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CONSUMER CONSCIENCE HOW ENVIRONMENT AND ETHICS ARE INFLUENCING EXPORTS Geneva 2009 ii ABSTRACT FOR TRADE INFORMATION SERVICES 2009 F-06.16 CON INTERNATIONAL TRADE CENTRE (ITC) Consumer Conscience: How Environment and Ethics are Influencing Exports. Geneva: ITC, 2009. ix, 60 p. Report reflecting views, examples and suggestions on how exporters can benefit from the emerging opportunities in the area of ethical trade, as expressed by the participants of the ITC World Export Development Forum, “Consumers, Ethics and Environment”, Montreux, Switzerland, 8-11 October, 2008 discusses the concept of “ethical consumerism” across the entire supply chain; innovation in meeting consumer demand for products created by ethically and environmentally acceptable means; public and private standards; sustainability-related finance, social entrepreneurship, and transparency via the Internet; global partnership in the service of poverty reduction and development, and the role of women in business; outlines ways in which governments and trade support institutions can help ethical traders. Descriptors: Corporate Social Responsibility, Fair Trade, Competitiveness, Export Strategy. English ITC, Palais des Nations, 1211 Geneva 10, Switzerland The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the International Trade Centre concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers or boundaries. Mention of firm names, commercial products and brand names does not imply the endorsement of ITC. Cover: Illustration by Giles Kershaw © International Trade Centre 2009 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, electrostatic, magnetic tape, mechanical, photocopying or otherwise, without prior permission in writing from the International Trade Centre. ITC/P239.E/ES/09-XI ISBN 978-92-9137-379-6 United Nations Sales No. E.09.III.T.8 Foreword Globalization is changing the concerns of consumers. While shoppers still pay attention to quality and price, more than ever they are concerned about the environmental and social impacts of their purchases. They want to know that people involved throughout the process are being paid fairly, that the products are sourced in an environmentally sound manner, and that the supply chain is handled ethically. Because of this change in attitude, fair trade and ethical markets are growing at a faster pace than regular markets. But how can entrepreneurs in developing countries break into these markets? That was the overriding question at the three-day World Export Development Forum of 2008, where over 250 experts debated a wide range of issues related to consumer conscience. To small producers, ethical commerce offers a stable market; for large distributors, it offers differentiation. But there are challenges that are not easily overcome: trade institutions are not always clear about what kind of support to offer and how; and applying international and private standards can be costly for producers in developing countries. For ethical trade to be sustainable, experts stated that producers are advised to focus on innovation, and not only to seek out low-cost solutions. More support is needed for sustainability-related finance, scaling up social entrepreneurship and transparency via the Internet. Among all of the topics discussed, there was one bottom line: how to grow ethical trade as a tool to raise the standard of living for everyone involved. To those of you who joined us at the Forum, ITC thanks you for your participation. Gatherings like this are invaluable in helping ITC to advise its clients better. For those of you unable to join us, ITC hopes that this book helps deepen your understanding of the issues and offers advice that you can put into practice. Patricia R. Francis Executive Director International Trade Centre iv v Acknowledgements This book is based on ITC's World Export Development Forum 2008, developed and coordinated by Anton J. Said. Communications management was conducted by Natalie Domeisen. The content for this edition is based on reports conducted during the event by the session writers, with contributions from ITC staff who served as session managers. The coordinator and chief editor for this book was Peter Hulm. Owen Skae and Anton J. Said were co-editors. Writers of various chapters were: Robert Crawford, Robert Evans, Christian Helmers, Peter Hulm, Sophie Krantz, Leonor von Limburg, Dianna Rienstra, Owen Skae, Richard Waddington and Julie Wolf. Layout services were provided by Michel Favre. vi Contents Foreword iii Acknowledgements v Chapter 1 Ethical trade – the hope and the reality 1 Fair trade = unfair competition? 1 North vs South, or Producer vs Consumer? 2 Producer conscience and appropriate technologies 2 Does it guarantee a return on investment? 3 Standards as a non-tariff barrier 4 Navigating through the thickets of Fair Trade labels and fictions 5 Consumer confusion, retail therapy for strapped economies 5 Consumer conscience in a time of crisis 7 The elephant in the garden or the proverbial ostrich 7 Beyond crisis, beyond logos 8 Chapter 2 The value of the ethical consumer 9 Towards a new consumerism 9 Values drive purchasing decisions 10 The triple bottom line 11 A public licence to operate 11 Confronting the new consumer power 11 Market size matters – the numbers tell the story 12 Hype or potential? 13 The norm rather than exception 14 Ethical trade market: Safer in troubled times 14 Deep and enduring change 15 Transparency is the new mantra 15 Ethical companies are more competitive 15 What is fair? And for whom? 16 Fairness vs consumer demands 16 Successful stories sell 17 viii Chapter 3 Creating the value: Innovation is non-negotiable 19 The sources of innovation 19 The mother of innovation 20 Overcoming market constraints 22 Government role 22 Financial institutions 22 Partnership and linkages are paramount 23 Take advantage of serendipity in the market 24 Branding for consumers with a conscience 24 Stiff competition from multinationals 25 Building trust 25 Tales to tell the world 26 Chapter 4 Raising the value 27 Barriers and costs 27 Why standards and labelling schemes? 27 A double-edged sword 28 Private labels – clarity or confusion? 29 Challenges for developing countries 29 Benefits for developing countries 30 Convincing consumers 31 Information, participation and coherence 32 Partnering for value 33 Scope for action 34 Chapter 5 Delivering the value 35 Paying the bill 35 Microfinance and retail support 36 Social entrepreneurs growing 37 Bureaucratic barriers in the South 38 Women at the core of social entrepreneurship 39 E-burdens and e-transparency 39 Trust me into show me 40 Transparency based on needs 41 Chapter 6 Sustaining and distributing value 43 Major challenge in helping producers 44 Profit and non-profit working side by side 44 Ethical trade: Does it come at a development cost? 46 Vigorous defence, optimistic outlook 47 Robust demand 47 True test of success: Extinction 47 Does one size fit all? 48 ix North-South company partnerships 48 Role of women in business 49 What consumers want and how to give it to them 49 Embracing consumer conscience: A strategic approach 50 A national vision 50 Populist backlash 51 Policy support 51 Ten principles for export development 52 Chapter 7 Learning lessons, taking action on ethical trade 53 What can help ethical traders 54 The fair and the free 54 Hitting the moving target 55 Consumers buy the story 55 Doubting voices in the supermarket 56 Consumer conscience in the business model 56 Consumers need leadership 57 Confusion or clarity? 58 Fair trade’s moral dilemmas 58 Trust and distance 59 Supporting ethical trade 59 The role of international bodies 60 Figures 1. Recognition of the Fairtrade Mark 1999-2008 13 Box 1. Caught in the supermarket wars 3 2. Millennium Development Goals 6 3. Grass jewellery and chocolate bars 17 4. The food miles debate: Hearing both sides 18 5. Good corporate citizens 26 6. India’s Spice Route 33 7. Marketing reform and brand-sharing 40 8. Moving artisans up the value chain 45 Chapter 1 Ethical trade – the hope and the reality "The shift to sustainable consumerism provides many opportunities for developing nations – and also many challenges. Export impact for good is ITC's mission. We are in the business of trying to help people get into a global trading system and the global economy so that they can prosper." Patricia Francis, Executive Director, International Trade Centre From a strictly economic point of view, ethical trade is an aspiration, not a condition of international commerce.