Is the Fairtrade party over?

It is the 20th anniversary of Fairtrade this year and at first glance, there appears to be plenty to celebrate.

The market has grown 10.8% to £783m over the past year and volumes are up 11.8% [Kantar 52 w/e 10 November 2013]. But a closer inspection reveals some cause for concern. Growth is slowing. In 2012, the Fairtrade market grew almost twice as fast, expanding 19.5% [Kantar 52 w/e 25 November]. And The Co-op, which is the biggest supporter of the movement in retail, suffered a drop in sales after cutting Fairtrade prices.

At the same time, other ethical certification schemes are gaining a bigger following. Consumer awareness of Rainforest Alliance in particular has grown significantly over the past year and it now certifies products from some of the biggest names in global food and drink, including Tesco, Mars, Nestlé and McDonald’s.

So why is Fairtrade suddenly finding it hard to compete and can it return to the phenomenal growth of recent years - or is a slowdown inevitable?

“One key reason for Fairtrade wine’s success has been improvement in the quality”

Brad Hill, The Co-op

In recent years, growth in Fairtrade has come mainly from big brands converting to the mark. Nowhere is that more true than in confectionery, where Cadbury Dairy Milk went Fairtrade in 2009, followed by the four-finger Kit Kat and Maltesers.

The conversion of Maltesers helped increase Fairtrade confectionery sales by more than a quarter in 2012 and last year they grew another 15.8% after two-finger Kit Kat went Fairtrade. As a result, Fairtrade confectionery sales exceeded sales of Fairtrade produce for the first time last year.

Alcohol has also done well, growing 25.8% on the back of strong wine sales, which have been buoyed by one factor in particular, believes Brad Hill, Fairtrade strategic development manager at The Co-op.

“One key reason for the success and growth of Fairtrade wine generally has been the continued improvement in the quality of the Fairtrade wines, with some real star performers such as our Co-operative Fairtrade Argentine Malbec,” he says.

Another encouraging development is Fairtrade’s continued expansion into new categories. Traidcraft has just launched a household cleaning range called Clean & Fair and The Co-op Group has launched fairly traded rubber gloves.

“We see the household cleaning market as the next big Fairtrade category,” says Traidcraft marketing director Laura Bush. “Until now, there’s been the complete absence of a Fairtrade option for consumers who are already buying Fairtrade as a regular part of their shopping.”

However, in other areas the outlook for Fairtrade looks less certain. Some established Fairtrade brands are struggling to justify their premium. For example, Divine Chocolate, which is now up against Mars, Nestlé and Cadbury carrying the Fairtrade logo, reported an 8.4% drop in annual sales to £7.5m in results published in June.

And in hot drinks, which is a well-established Fairtrade category that includes some of the movement’s pioneering brands such as Percol, Cafédirect and Clipper, growth is comparatively weak. Value sales increased 4.7% last year and volumes grew just 2.2%.

“Growth was driven by new people coming into the category, but now the challenge is to find the key to unlock organic growth,” says Nicolas Mounard, MD of Twin, which helped Sainsbury’s launch a Fairtrade Congolese coffee last year.

Price is an issue. The plummeting market price for non-certified coffee in recent years means that the premium for Fairtrade coffee beans is now more than 30% compared with 10% for Fairtrade versus non-certified cocoa.

The cost gap has had a knock on effect on retail prices, hampering the ability of Faitrade brands to compete, especially own-label brands. “A couple of core Fairtrade categories - namely tea and coffee - have seen significant promotional investment by major non-Fairtrade brands,” adds Hill. “The upshot is that our own-brand range, where we have 100% Fairtrade, routinely suffered as customers have continually switched to branded lines that were on promotion.”

The Co-op has sought to improve the price competitiveness of its Fairtrade ranges more generally and this, it says, is one of the main reasons for its disappointing value growth.

“The investment of the business in price and ensuring a competitive offer has naturally affected the average rsp per unit,” says Hill. “Our sales by volume on Fairtrade lines are up 8% but value sales are flat.”

“Growth was driven by new people coming in. Now the challenge is to unlock organic growth”

Nicolas Mounard, Twin

Cost has also put retailers and brands off converting to Fairtrade. Over the past year, a number have chosen Rainforest Alliance ahead of Fairtrade. Aldi and Tesco have brought out Rainforest Alliance-certified own-label teas and Typhoo joined PG Tips in Tetley in switching. Ocado’s new own-label coffee has also opted for the rival mark.

“Fairtrade has been affected by Rainforest Alliance in particular,” says David Brooks, MD of Percol manufacturer Food Brands Group. “Rainforest Alliance’s requirement not to source 100%-certified product and to start from as low as 30% has had an impact and made their scheme attractive.”

Fairtrade has also had to contend with criticism from former advocates. One of Kenya’s biggest tea growers, Williamson Tea, which was one of the first farmers to go Fairtrade in 2006, withdrew its support last year, complaining it was “impossible to keep up with the demands of the Fairtrade Foundation”.

Shortly after, Oxfam published a report claiming that workers earn no more on Fairtrade-certified tea estates than non-certified. It also said wages were no better on Rainforest Alliance and UTZ-certified estates.

“Rainforest Alliance’s requirement not to source 100%-certified has had an impact”

David Brooks, Percol

Fairtrade International is fighting back. Last month, it overhauled its Fairtrade Standard for Hired Labour to guarantee the right to unionise, give workers more say on how Fairtrade premiums are spent and improve wages. Currently wages on Fairtrade estates and plantations are set in line with national and industry levels, but it is now looking to move them onto a living wage.

It has also just launched, although not initially in the UK, a new sourcing programme to help expand the size of the market for Fairtrade farmers and encourage manufacturers to buy more Fairtrade commodities. Under the scheme manufacturers will be able to buy Fairtrade cocoa, sugar or cotton without making a product fully Fairtrade. To market a product as Fairtrade, 20% of the ingredients have to be certified and all that can be certified must be. 
Companies are able to market their involvement using a logo displaying the certified commodity used. “We have worked hard to differentiate the messaging and make it complement the Fairtrade logo that people know, love and trust,” said Fairtrade Foundation policy director Barbara Crowther.

The move has been welcomed in principle, but not without some reservations. “If it generates more money for farmers that’s great, but there is a risk that it may create confusion,” says Mounard.

And that won’t do it any favours if it wants to maintain the sort of growth it has enjoyed in the last 20 years in the next 20.