The Future of the Fair Trade Coffee Industry in Britain - Research Paper Example

Final Paper The future of the Fair Trade Coffee industry in Britain This essay aims to explore the intricacies of the issues involved in the marketing success or failure of Fair trade coffee in the UK market. Particular attention is paid to the premise of the notion which would suggest strong chances of the success of the Fair trade coffee in the UK market from a sociopolitical and economic perspective. There is infact a degree of consumer acceptance with in the British Economy in which the ethical attribute offsets price sensitivity. Apart from the fact that the initial concern with the exploitation of human beings in conditions little different from slavery has evolved to take in wider ethical concerns and mechanisms for changing the structures that perpetuate injustice, Fair Trade has now reached the point where its essential nature in the commercial and marketing context can be articulated and has been questioned again and again in the literature. Coffee itself has a profound relationship with the British culture and economy. The industry has grown rapidly and in the recent years it is now almost impossible to walk down a British high street without being mesmerized by the scent of freshly roasted coffee beans. The coffee culture has created a new and unique social space in Britain. Neither work nor home, nor the pub, the coffee shop has survived criticism of being over- subscribed to become, at least for now, an integral part of everyday life. It is worth noting at the outset that Fair Trade is still considered a niche in the commercial world since as of the year 2002 it has only represented 0.24% of the coffee marketplace. The relations with customers under a Fair Trade approach establish channels of communications so that the producers can better understand the needs of its customer base .The two economic forces that coincide to create the FT marketplace is a two way relationship between developing and developed nation in which the emerging markets or developed entities act as the producers of the valuable commodity while the population in the developed worlds act as the consumers and distributors of FT coffee. During its inception FT coffee used to be specialty premium products whose availability was limited to specialty gourmet shops or special food item stores. (Plunkett Research. 2007) . The market structure of the FT segment of the coffee industry has change a lot in scope and the amount of opportunities for players that desired to capitalize by becoming a member of some part of the supply chain of the business which includes the farmers, international commodity distributors, or the final sales point distributor which may be involved in the business of selling pounds of coffee prepared or hot drinks that fit the needs of customer of consuming a great tasting coffee product. It is worth noting then the scope of Free trade coffee on this lucrative market and predicts a way ahead for marketers and corporate giants eyeing this segment of the market share. The nature of Fair Trade in coffee has been classified as "a trading partnership, based on dialogue, transparency and respect, that seeks greater equity in international trade.. Fair Trade organisations (backed by consumers) are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade". (official definition adopted by the European Fair Trade Association (EFTA)) This conception of the Fair Trade definition is thus meant to engulf the ambit of welfare objectives of higher incomes; improved working conditions; support for local craft traditions; and greater security through guaranteed prices (Hines, Charlotte and Ashley Ames. 2000.) The last factor relates to the economic aspect here as the high fluctuations in commodity prices cause problems for the growers by leading to incomes insufficient to repay loans and subsequent eviction from the land (Hines, Charlotte and Ashley Ames. 2000.) The coffee crisis dates back to the Coffee agreement of 1989. This deregulation caused the farmers to be able to sell at a positive economic outcome no longer exist since there are no longer controls of the amount of worldwide production permitted. The law of supply and demand of an open marketplace naturally drove prices down since the supply exceed the demand. The economic reality of the struggling coffee marketplace is that the average price of coffee at the wholesale level internationally in 2006 was $0.60-$0.70 per pound A lot of farmers in developing country have closed down their shops and many keep them open due to philanthropic reasons since many poor people in developing countries depend on the jobs these operations generated.(Hines, Charlotte and Ashley Ames. 2000.) Due to the necessity of new ways to market and produce coffee in order to turn the industry a new option was formulated called Fair Trade (FT) Coffee (Littrell, Mary A. and Marsha A. Dickson. 1999, Shaw, Deirdre and Ian Clarke. 1999.) Thus what began as a concern with the injustices of the coffee trade has now transformed itself into a set of principles and practices aimed at reforming the world trading system and, by implication, global Capitalism itself. EFTA's website itself proclaims that 'Fair Trade is a model of trade that would serve to benefit producers and consumers alike.' In the United Kingdom Fair Trade Coffee is a booming business. Fair Trade Coffee sales in the year 2000 in the UK were 31 million pounds, a figure that represents a sales increase of 400% since 1993 and a 40% sales growth in comparison with the previous year. The growing tendency of Fair Trade Coffee is a world phenomenon (Randall, 2005). In other developed nations such as the United States, Australia and Japan the one year sales growth rate for the year 2000 were 44%, 23%, and 23% respectively (Randall, 2005). A British firm dedicated to the coffee industry since it was founded in 1971 in London that has capitalize on the Fair Trade Coffee strategy is Costa Coffee. One of the best and most effective ways to sell Fair Trade Coffee is by opening up retail coffee shops that sell the coffee prepared in different size cups. The profit margin of selling fair trade coffee increases dramatically when a pound of coffee is used to sell several cups of coffee at 2-4 pounds per cup. It is also the best way to introduce a premium product to a customer base. (MORI. 2000) Today major players in the United Kingdom are dominated by market players like Oxfam which was one of the joint founders of Caf direct which is current the largest UK's fair trade hot drinks company -.Oxfam has been established since 1991 and this is only one of the examples of the various charities that sell fair trade coffee and many other ethically-sourced products in its shops in the UK. (MORI. 2000)Another example is Costa Coffee, which is owned by Whitbread - A British Company, and is e one of the major market leaders with 300 outlets. Currently, Costa is the only British coffee outlets which can compete with Starbucks - the American company. Costa said in the year 2000-5 it could comfortably expand this to 500 outlets. Currently, Whitbread has declared Costa is the only brand which has operating profit 13.3m (+25.5%) compared with their other high street restaurants. (MORI. 2000) The targeted consumer here is the Ethical consumer. The ethical consumer feels responsible toward society and expresses these feelings by means of his or her purchasing behaviour (Ulrich, Peter and Charles Sarasin. 1995) The preference for Fair Trade products particularly coffee has become a new trend with in the corporate world where consumers can express their concern about the ethical behaviour of companies by means of ethical buying and consumer behaviour. According to Doane (2001) ethical consumption is "the purchase of a product that concerns a certain ethical issue (human rights, labor conditions, animal well-being, environment, etc.) and is chosen freely by an individual consumer." This form of ethical consumption has involved environmentally friendly products, fair-trade products, the use of green products or organic food. The consumers will thus can translate their ethical concerns by means of buying products for their positive qualities (e.g., green products) or by boycotting products for their negative qualities (e.g., not buying products made by children). According to a study by Hines and Ames (2000), 51% of the UK consumer base feels that it can make a difference to a company's behaviour and 68% claimed to have bought a product or a service because of a company's responsible reputation. MORI (2000) also reveals that 46% of UK and European consumers claim to be willing to pay substantially more for ethical products (Ulrich, Peter and Charles Sarasin. 1995.)The same study reveals that in comparison American consumers could pay 6.6% premium for green products and while French consumers wanted to pay 10%-25% more for apparel not made by children (MORI 2000). However despite these promising figures research has actually shown that most of the ethical labeling initiatives in the UK like organic food, and fair-trade products, often have market shares of less than 1% (McGillivray 2000).Many academics have rightly pointed out that these attitudes alone are generally poor predictors of buyer behavior particularly the social marketing area. The logical consumer is assumed to pay attention to the price; quality, convenience, and brand familiarity are often still the most important factors affecting the buying decision. In addition to this several studies have tried to identify the socially responsible consumer in terms of age groups and income that younger consumers were more socially conscious, while the effect of their education level was not clear, and income was of no relevance. Dickson (2001) notes that age, income, and employment status were not discriminating between socially conscious consumers who attach a lot of importance one or other FT labels. In addition to this other studies have concluded that the ethical consumer was a person with a relatively high income, education, and social status (Ulrich, Peter and Charles Sarasin. 1995.) The FT concept incorporates environmental as well as social issues. Littrell and Dickson (1999) have defined fair trade as a "Continuum of business practices, from minimum to maximum fair-trade practices. Apart from paying fair wages in a local context and providing a safe and clean workplace (mainstream business), they defined maximum fair-trade practices as also encompassing the development of sustainable businesses, empowerment of artisans, fostering well-being, establishing political and social justice, and developing equitable trade." It has been seen by exercising choice and selecting Fair Trade products the literature is united that the consumers not only contribute to social justice but, for themselves, can forge a more meaningful relationship with the world(Ulrich, Peter and Charles Sarasin. 1995.). Thus this will be globalization through Fair Trade and may be of immense benefits to the consumer and producers alike. In this evaluation it is worth exploring the ethical considerations of selling a product with the "Ethical" brand like "Fair Trade". The link between ethics and social responsibility is pivotal to a company's long term growth .From a business point of view " Good ethics is often good business". However it would be useful to argue at this point that not all marketing/business practices are unethical as the media has fervently portrayed for many decades.But this leads to another query i.e. how fair is the business game in the arena of Advertising. Given that the marketplace is not a level playing field should the producers actually be penalised for business tactics to increase sales. Today we have a revival of the conceptions of Corporate Social Responsibility in modern Britain,Europe and also across the Atlantic. It is reported that ethical investment funds amounting in the USA to $650 billion in 1996 and over 1,400 companies belong to Business for Social Responsibility (BSR).Taking the example of The Body Shop which has found great success in having a trade charter that focuses on human rights, long term support for needy communities, environmentally sustainable resourcing, and animal protection. The ethical background of such products seems to have contributed significantly to their success. Another example is the popular coffee house chain of caf's namely Starbucks. The chain became successful for its contribution to good causes for being a top donor to the international aid agency, CARE. (See Stainer 1995).In their article "Is it ethical to compete on ethics"Stainer A, Stainer L (1995)have taken the view that competition should actually be encouraged by ethicists and an overdose of ethics ,(the Going Green trend ) is not helpful in the promotion of good business. Business rivalry is essential therefore for promotion of enterprise and this competition is "indispensable to free enterprise thinking." In conclusion this research paper aimed to discover the intricacies of marketing fair trade coffee in the United Kingdom and the consumer and executive reactions to with realistic economic choice decisions. It was found for the UK consumer base that instead of their attitudes or preferences, their willingness to pay was a focal factor here as a measurement of buying intention that can be considered a realistic proxy for actual behavior. Furthermore it has be noted that for an effective marketing plan the fair-trade coffee label needs to be efficiently monitored and would need third-party certification to gain consumer credibility to pay for more expensive FT coffee.It can also be concluded that the typical FT consumer is relatively highly educated and has a relatively high income and social status. This has a lot to play with moral values but it was also seen that like most buyers of cultural fair-trade products the segment of the consumer base which preferred FT coffee placed more importance to altruism, equality, peace, and a beautiful and environmentally secure world, but not to inner-directed values such as self-respect and inner harmony. Thus the modern bi-polar world with its division between developed and underdeveloped countries and the lack of attention by the international community to the exploited third world labour has widened the economic sustainability and living standards among the two poles. FT coffee is a way out for the Poor suppressed farmer and to resolve the social injustice .Thus marketing Free Trade coffee in the UK and other Western developed nations becomes a matter of ethics and informed advertising. In this vein I can conclude that for the commercial success of fair-trade coffee in the UK the consumer base needs information not persuasion and in the vein different way outs have been discussed above in my brief research paper. References 1. Roberts, James A. 1995. Profiling Levels of Socially Responsible Consumer Behavior: A Cluster Analytic Approach and Its Implications for Marketing. Journal of Marketing - Theory and Practice 97- 117. 2. Ulrich, Peter and Charles Sarasin. 1995. Facing Public Interest: The Ethical Challenge to Business Policy and Corporate Communications. London: Kluwer Academic Publications.(Primary Source) 3. Roberts, James A. 1996. Will the Real Socially Responsible Consumer Please Step Forward Business Horizons, 39 ( 1): 79- 83. 4. Plunkett Research. 2007. Food Industry Trends. 27 February 2008. 5. Littrell, Mary A. and Marsha A. Dickson. 1999. Social Responsibility in the Global Market Fair Trade of Cultural Products. Thousand Oaks: Sage Publications (Primary Source) 6. Shaw, Deirdre and Ian Clarke. 1999. Belief Formation in Ethical Consumer Groups: An Exploratory Study. Marketing Intelligence & Planning, 17 ( 2/3): 109- 119.. 7. Randall, D. "An Exploration of Opportunities for the Growth of the Fair Trade Market: Three Cases of Crafts Organizations". Journal of Business Ethics (2005), 56. 57. 8. Mac Gillivray, Alex. 2000. The Fair Share: The Growing Market Share of Green and Ethical Products. London: New Economics Foundation.(Primary Source) 9. Hines, Charlotte and Ashley Ames. 2000. Ethical Consumerism. A Research Study Conducted for the Co-operative Bank by MORI. London: MORI. 10. MORI. 2000. European Attitudes towards Corporate Social Responsibility. Research for CSR Europe. London: MORI. 11. Straus, Tamara. 2000. Fair Trade Coffee: An Overview of the Issue. available at http://www.organicconsumers.org/starbucks/coffback.htm. 12. "Is it ethical to compete on ethics"Stainer A, Stainer LBusiness Ethics: A European Review (UK), 1995 Vol 4 Issue 4 13. Dickson, Marsha A. 2001. Utility of No Sweat Labels for Apparel Consumers: Profiling Label Users and Predicting Their Purchases. The Journal of Consumer Affairs 35 ( 1): 96- 119. Read More