The value chain for organic and Fairtrade products and its implication on producers in Latin America

1
The value chain for organic and Fairtrade
products and its implication on producers in
Latin America

• by Dr. Bernard Kilian, Connie Jones, Lawrence
  Pratt and Andrés Villalobos
• IAMA Conference 2005
• Chicago, June 25 - 28, 2005

2
Structure

• Introduction
• Market development for organic and Fairtrade
  products the case of banana and coffee
• The value chain for oFT banana
• The value chain for oFT coffee
• Impact analysis of the value distribution along
  the trade channels on producers of oFT products
• Conclusions

3
Fairtrade and organic economic commitments

• Fairtrade
• Pay a price to producers that covers the costs of
  sustainable production and living
• Pay a premium that producers can invest in
  development
• Partially pay in advance, when producers ask for
  it
• Organic
• To provide everyone involved in organic farming
  and processing with a quality of life that
  satisfies their basic needs, within a safe,
  secure and healthy working environment.
• To support the establishment of an entire
  production, processing and distribution chain
  which is both socially-just and
  ecologically-responsible

4
Literature review

• Fairtrade is a Dead-End Proposal (Cato
  Institute, 2003)
• How Fair is Fair Trade ? (The Wall Street
  Journal, 2004)

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Objectives

• What is the economic benefit of these initiatives
  for
• The individual farmer
• The sector

6
Supply development of organic banana in Latin
America
Source CIMS 2003
7
Imports of organic banana in 2002 from Latin
America
Source CIMS 2003
8
Development of global sales of Fair Trade
bananas
Source FLO 2005
9
Evolution of organic coffee production area in
Latin America
Source CIMS 2003 and ICO 2004
10
Market performance

• Fair-trade coffee became the number-one coffee
  brand, sustainable farming practices became a
  new marketing term, and .. almost anything
  organic continued to soar.
• (Foodtechnology 2005 Top 10 Global Food Trends)

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Estimated market volume of
organic and Fairtrade coffee in the US and
Europe
Source CIMS 2003
12
Comparison of FOB and Fairtrade price
development for banana
13
The value chain of oFT banana
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Price ranges on retail level for conventional
and certified bananas (in /kg)
Source CIMS 2003
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Price development of FOB and Fairtrade prices
for coffee
Source NYBOT 2005 and FLO 2005
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Price premiums for oFT coffee (FOB)
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The value chain of oFT coffee
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Price
DS
DS
SS
PFT
C
C
PFT
D
PWH
PPFT
PP
A
B
A
VFT
VFT
Volume
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Conclusions

• On farm level
• In the case of Fairtrade, individual farmers
  benefit significantly.
• In the case of organic, the market turned in some
  cases already significantly more competitive with
  the consequence of decreased price premiums
• On sector level
• Retailers and wholesalers often use their market
  power to increase additionally price for
  sustainable products.

Reduced Market
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Conclusions

• However, due to dynamic growth of sustainable
  food markets, the negative impacts arent felt
  that obvious.