Fair trade products hold their own during recession

It turns out that a cup of coffee with a conscience might be a better recession-proofing strategy for a company than developing a new frappuccino or selling a new rock CD.

While java floggers such as the ubiquitous Starbucks and other food retailers are seeing revenue drop along with the global economy, fair traders — those firms that purposely pay more for their raw materials like chocolate buds and coffee beans — are posting positive sales growth, even in the current recession.

"Instead of 20 per cent growth, we're talking more now in the five to seven per cent range," said Bill Barrett, director of marketing for Planet Bean Coffee Inc., a Guelph, Ont., company that sells coffee made from beans purchased from poor farmers in countries such as Peru.

But that arrow is still pointing skywards.

"Growth has moderated. But, as one of my friends said, 'Flat is the new up,'" said Juliet Morris, director of marketing for Just Us! Coffee Roasters, a coffee co-operative based in Grand Pre, N.S.

Meanwhile, over at Starbucks, the planet's uber-coffee retailer, sales have fallen in the past two quarters.

Big growth on a small base

To be fair, the fair trade sector constitutes a tiny portion of production in the different sectors in which these companies generally operate — coffee, chocolate, tea, sugar and small-scale crafts.

In 2008, for example, Canadians bought slightly more than five million kilograms of higher-priced, but fairer trade, coffee beans, according to TransFair Canada, a non-profit group that certifies fair trade products.

If that sounds like a lot, consider that this production would be enough to keep fewer than a million Americans, who each gulp down about three kilograms of coffee annually, happy for a year, according to Euromonitor International, a business information-gathering firm .

Or only half-a-million Norwegians, who average a bladder-busting 11 kilograms of coffee in a year.

The growth curve for fair trade products has been remarkably steep during the past few years.

In 2002, Canadians nibbled on a little more than 17,500 kilograms of fair trade cocoa, .

In the past seven years, Canada's chocolate consumers gobbled down 639,000 kilograms of the fair trade version of the Mayan aphrodisiac, TransFair noted.

Similarly, Canadians consumed 425,000 kilograms of fair trade coffee in 2002; by 2008, that figure had jumped to five million kilograms.

Indeed, sales of fair trade sugar, tea and fruit have all enjoyed similar increases, TransFair said.

A new reason to buy

Conscientious importers argue that the superior quality of their products, predicated upon the belief that small-scale farms grow products that taste better, is one factor for solid sales.

Also, the paying public now figures that forking out an extra nickel for a cup of coffee, or 50 cents more for fair trade chocolate, is worth a higher price to help someone in a far-off land, Morris said.

In other cases, the uniqueness of their products, whether jewelry, rugs or office accessories, is a factor for which people will often pay a premium, said Len Rempel, chief financial officer of Ten Thousand Villages Canada, a fair trade handicraft and furniture retailer based in New Hamburg, Ont., which has stores across Canada.

But, to the degree that people are unwilling to store away their planetary concerns during the downturn in search of a cheaper cup of coffee, fair trade companies have built up a recession-slamming strategy for the 21st century.

"People want something more than just the product," Rempel said.

Or perhaps more simply, "when they buy fair trade, they feel good," Barrett said.

Economic laws still apply

But, even with reasonable growth, fair trade companies still face many of the business challenges with which traditional retailers are grappling.

For one thing, the slumping Canadian dollar has hurt the profit margins for many firms.

That is because what they buy, whether cocoa nibs, coffee beans or other raw materials, is priced in U.S. dollars. Thus, a Canuck buck that slipped by 15 cents U.S. from earlier projections translated into a cost hike for fair traders.

Unlike traditional retailers, fair trade companies generally do not ask suppliers for a price reduction in order to boost margins. After all, the whole reason for the existence of these firms is to ensure that small-scale growers get more money than they might selling to other companies.

So, a supplier price cut is definitely not in the cards, retailers said.

"It's a given that we pay for the product what we said we would pay," Rempel said.

For example, dealing with fair trade companies, a farmer might get a minimum of $1.35 US for a pound of beans. 

There is little information on what more traditional coffee retailers pay farmers for a pound of coffee, fair trade executives said.

Anecdotally, Barrett said, farmers gets between 60 cents and 75 cents a pound. 

Squeezing suppliers is exactly the strategy big players use to boost earnings without raising the price consumers pay.

Instead, fair traders have to look at other parts of their businesses to save pennies.

In November, sales for Planet Bean coffee hit a wall, Barrett said, resulting in the cutting of five positions within the organization.

In the end, however, socially conscious companies believe surviving the current recession means they will be in terrific shape to take advantage of an economic uptick.

"We think there is a large untapped market out there," said Rempel, whose company posted $19 million in sales last year. "People are looking for something."

And fair traders think that something isn't about a new package, but about a new planet.