Commodities: Fair deal for the Third World is catching on

THIS YEAR, with any luck, Britain will join the list of countries with an active body set up to police standards of fair trading - or giving Third World producers a bigger share of a commodity's retail price.

The first stirrings have already been seen in the UK. Increasing sales of Cafedirect - a ground coffee brand launched by four non-profit- making organisations that ensure fair trade principles are respected when the beans are bought wholsesale - has confirmed that, with good promotion, there is a market for products that benefit developing countries directly.

The new standards body is the Fairtrade Foundation, set up in 1992 by Oxfam and other aid agencies. It is about to swing into action, with three products, tea, instant coffee and chocolate, being considered for its first stamp of approval. Cafedirect could also be a candidate for approval.

British retailers and manufacturers, apparently ready to move quickly once someone sets the ball rolling, have generally been more reluctant to adopt the fair trade idea than Continental companies.

'The sky's the limit over the longer term,' says an optimistic Martin Kunz, secretary general of Transfair, a charitable German foundation that gives its seal of approval to retail commodity products that meet its rigid criteria. The most important of these is that the producer receives the best deal possible on price.

It awarded its first fair trade label, to coffee, early last year and its approved brands are available in 20,000 supermarkets and have 1 per cent of German retail sales.

Transfair, now looking at honey, tea, textiles, tropical timber, bananas and coconut oil, used in washing powder, is treading the path beaten by Max Havelaar, a Dutch foundation. Havelaar has not looked back since giving its first fair trade label to coffee in 1988 and last year added chocolate and honey to its approved products.

In the UK talks are taking place to find a manufacturer or own-label retailer willing to meet the Fairtrade Foundation's criteria for tea. The hope is that brands approved by the Foundation and by Transfair can go on sale simultaneously in the UK and Germany later this year, although several problems have to be overcome first.

'It is much more complicated than developing an environmentally friendly product,' according to Julia Powell, of the Fairtrade Foundation.

A company, for instance, must accept the criteria for the product set by the standards body, which will require it to buy its raw materials from an approved supplier, and probably be prepared to pay over the odds for them. The contracts for coffee approved by Transfair and by Max Havelaar, for instance, set a minimum price of dollars 1.26 a pound that licensed roasters must pay for top-grade Latin American Arabica beans, compared with the current market level of just over 70 cents.

This higher price goes straight to the producer, usually a co-operative or a small family farm, cutting out the middleman who would normally cream off 30-40 cents. The approved growers, who must meet rigid criteria themselves, therefore receive three to four times what they would otherwise, which explains why Transfair is overwhelmed with applications from farmers wanting to sign up as licensed coffee suppliers.

Ensuring a similar arrangement for tea is less easy. Unlike coffee, up to a third of whichis grown by co-operatives and small family concerns, most is produced by big, managed estates. The difficulty is in ensuring that better wholesale prices benefit the tea pickers and factory workers, not the bosses.

Another problem is that the basic tea bag, which accounts for 85 per cent of the British market, contains a blend of up to 30 different tea types to ensure a consistent taste. Since so many sources of supply cannot realistically be monitored, it seems that the first fair trade- labelled tea will be a speciality product, limiting sales opportunities.

The Fairtrade Foundation - which had hoped to launch a fair trade label for coffee last year with the support of a big manufacturer - has reluctantly accepted that its opening shot will have to be less ambitious than it wanted. Using smaller companies for its initiative in the first instance is now seen as the way forward.

This is what has happened on the Continent, where small roasters saw capitalising on growing social awareness as a means of lifting sales in a fairly stagnant coffee market. According to current theory, once fair trade brands reach 4-5 per cent of a commodity's national retail sales - a slice aready achieved by Max Havelaar-approved coffee in Switzerland - the big firms will feel obliged to join in, too.

Surveys on the Continent show that, provided it is a premium brand, consumers are willing to pay as much as 25 per cent more for fair trade products, which are certainly here to stay, although accounting for a fraction of global trade. Transfair, which is already active in Austria and Japan, as well as Germany, is also spreading its message in Australia, New Zealand, North America and Scandinavia.

Within the European Union, meanwhile, the next move, spurred by the single market, will be for the separate fair trade organisations to adopt common standards and contracts. Competition, after all, simply does not make sense when rewarding the producer is the goal. However, different national approaches may cause problems: some German purists think it less than ideal, for instance, that Max Havelaar sets a standard for only the cocoa used in its approved chocolate, not the sugar.

Even though most commodity markets have picked up from recent record lows in real terms, returns to growers by historical standards are still pretty poor. The need to help Third World producers through fair trade initiatives remains as acute as ever.

(Photograph omitted)