Fair Trade: Evaluating the model's success based on its workability as a market-based model

Résumé du document

In order to create a niche market, a quantitatively significant group of consumer in developed countries must be willing to purchase Fair Trade agricultural products instead of mainstream products. Consumers' role in international trade is to create demand for a given product, as without it a market dynamic cannot exist. As consumers act upon their personal interest (usually referred as consumer preference), they have to prefer Fair trade products relative to others to purchase them. In mainstream economic theories, consumer preference is always the result of a trade-off between price and quality, the only two characteristics of regular products. However, Fair Trade model has imposed a new and additional characteristic for its product, and has thus modified the regular price/quality market dynamic. Certified Fair Trade products are always more expensive than regular ones, though the difference differs among the commodities' categories. However, apart from the logo on the package, Fair Trade products are not distinct from any other products.

Extraits

[...] Robbert Maseland and Albert De Vall, Fair is Fair Trade', De Economist, 3(2002), p European Commission, ‘Attitudes of EU Consumers to Fair Trade Bananas', (1997), as reported by The Fairtrade Foundation, http://www.fairtrade.org.uk, quoted by Anil Hira and Jared Ferrie, ‘Fair Trade: Three Key challenges for Reaching the Mainstream', Journal of Business Ethics, 2(2006), p See a range of empirical research in: Alex Nicholls and Charlotte Opal, Fair Trade: market-driven ethical consumption (London: Sage Publications Ltd, 2006), p Alex Nicholls and Charlotte Opal, Fair Trade: market-driven ethical consumption (London: Sage Publications Ltd, 2006), p Anil Hira and Jared Ferrie, ‘Fair Trade: Three Key challenges for Reaching the Mainstream', Journal of Business Ethics, 2(2006), p Data from Starbuck's official website: http://www.starbucks.com/aboutus/fairtrade.asp. [10]Data from: Stuart Laidlaw, fine print of ethical shopping', The Star September 2007. Available at: http://www.thestar.com/living/article/250730. [...]

[...] However, unlike characterizing Fair Trade as a new ethical business approach or as part of the currently growing concern towards Corporate Social Responsibility the willingness of profit- seeking retailers to offer Fair Trade products should be interpreted as a traditional business and marketing strategy to further increase the corporations' overall profit through a rise in market share and profit margins. Undoubtedly, while all these strategies impact all the type of retailers, their relative significance vary mainly between supermarkets and beverage retailers such as Starbucks. Entering a growing niche market by selling Fair Trade products is a common business strategy to maximize profitability within a highly competitive sector. [...]

[...] This assumption is further strengthened by a European Commission Research reporting that in the European Union would pay 10% more than the normal price for fair trade bananas and 11% would pay 20% more.”[5] Therefore, considering ‘ethical consumption' as a consumer preference and not as a moral obligation, Fair Trade consumers have to value the ‘ethical' characteristic more than the difference in prices to purchase these products given a equal quality level. Using economic terms, the net utility value of Fair Trade products has to be greater than mainstream products. While there are only limited amount of research on the profile of the ‘typical' Fair Trade consumer and its underlying motivation for its consumer preference, some broad characteristics can be identified across most Fair Trade consumers. In terms of motivation, Fair Trade consumption is an expression of an individual's social commitment. [...]

[...] By definition, the profitability of a market is a function between demand and competitors' activity. In the highly competitive retail industry, the profitability is mainly based on the quantity sold, as profit margins are very low for the majority of their products. Therefore, the size of the consumer market is highly correlated to the business potential profit. However, within a niche market, the business strategy is the opposite, as retailers enter a market with less demand but where competition is by definition significantly lower. [...]

[...] Furthermore, especially in retail stores such as supermarkets, the availability of Fair Trade products can attract new customers thus increasing sells for regular products as well as Fair Trade products. As supermarkets' profitability mainly depend on the quantity sold, and that each individual are most likely to make all his purchases in one supermarket rather than dividing them among competing supermarkets, keeping customers as well as attracting new ones are extremely important. Within that market structure, Fair Trade products can be used as a ‘product leader' helping supermarkets to differentiate itself over its competitors. [...]