Fairtrade profits rise, but is the small farmer missing out?

More supermarkets are taking up the brand which sounds so ethical and offers attractive profit margins

Once, people laughed at the notion that fair trade could infiltrate the profit-hungry world of retail. Yet new figures from the Fairtrade Foundation will reveal tomorrow that UK consumers take the issue very seriously, spending half a billion pounds on Fairtrade-branded products last year.

However, the rush to fair trade is prompting questions about how "fair" it really is to small farmers in developing nations. The rate of sales growth rocketed during 2007, up 80 per cent on the previous year as companies from Sainsbury's to Virgin Atlantic stepped up their commitment to fairly traded goods. The total value of Fairtrade sales hit £490m, up from £273m in 2006.

Sainsbury's move to stock only Fairtrade bananas meant the supermarket chain almost tripled the value of its Fairtrade sales to £140m. Its tea, coffee, hot chocolate and sugar brands will be next to get the Fairtrade badge, helping to put the Fairtrade Foundation, which licenses the mark to products sold in the UK, on course to quadruple its annual sales to £2bn by 2012.

Speaking ahead of Fairtrade fortnight, which starts today, the Fairtrade Foundation's executive director, Harriet Lamb, said: "People laughed when we first started talking about fair trade [in 1994]. But now it is an increasing part of consumers' shopping habits."

With a recent poll showing that more than half of UK shoppers recognise the Fairtrade logo, even the big brands are waking up to the selling power of the black, green and blue symbol. Tate & Lyle this weekend became the biggest company yet to carry it, promising to make all of its retail range Fairtrade by the end of 2009.

It isn't just Sainsbury's giving Fairtrade products more shelf space: the Co-operative Group has switched all its own-brand hot beverage drinks to Fairtrade; Waitrose only sells Fairtrade bananas and Marks & Spencer is expanding the Fairtrade clothing range to its fashionable Limited Collection.

Cynics claim their devotion to the cause is less than altruistic, however, pointing to the higher profit margins some Fairtrade products enjoy and the fact that the goods provide a useful marketing tool as supermarkets attempt to paint themselves a greener hue.

Tim Harford, author of The Logic of Life, who first highlighted that some chains were profiteering from Fairtrade, said: "At the UK consumer end, some companies have charged a far higher mark-up on Fairtrade products than ever goes to producers. Fairtrade is about a promise for fair value to the producer, not a fair price to the consumer."

Research this month by the consumer group Which? found that Fairtrade products were 9 to 16 per cent more expensive per gram than their non-Fairtrade equivalents. Philip Booth, at the Institute of Economic Affairs, a free-market think tank, said: "How much of that higher price finds its way back to the grower?"

Douglas Holt, L'Oréal professor of marketing at Oxford's Saïd Business School, said the extra amount that Fairtrade producers received was "nice but relatively trivial". He added: "Until you have the whole value chain, especially retailers, buying into Fairtrade and taking lower margins so they can pass on as much profit as possible, Fairtrade can never make more than a marginal difference."

Other critics go further, claiming the Fairtrade system leaves unaccredited farmers worse off. A new report from the Adam Smith Institute criticises the movement's core stipulation: that farmers must belong to co-operatives to get the Fairtrade premium.

Even Tate & Lyle's move will help only those farmers supplying the retail branded side of its business, not its bigger ingredients arm. Claire Melamed, head of trade and corporates at ActionAid, said: "Fairtrade is still essentially a niche product. The challenge is to get all trade conducted according to much fairer principles."

Where it works, though, the fair-trade movement is much feted. For more than 6,000 farmers on the Iriaini tea plantations in Kenya's Central province, Fairtrade has increased their income by about a third, paying for school fees and healthcare costs that for generations have been beyond them.

"Fairtrade is not just about the money. It changes the people's attitude. [It also] creates a better product," said Matthew Nd'enda, the unit manager of the Iriaini plantation. Bridges have been built, leaf collection centres upgraded and a centre for orphaned children has been established.

That's the image UK shoppers will be buying into when they next buy a Fairtrade product.

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