December 18, 2005
CSR at the Grocery Store
Posted by Gordon Smith

I am a skeptic of attempts to introduce matters of "social responsibility" into corporate boardrooms, but what about social responsibility through consumer activism? I often hear people proclaim their willingness to pay more for products that are produced responsibly, however defined. Frances Stead Sellers refers to this as "guilt-charged spending." Does it make the world a better place or are consumers being duped?

Fairtrade_1According to Philip Oppenheim, writing in The Spectator last month, the "fair trade consumer guarantee" in Europe offers only minimal benefits to its pretended beneficiaries:

[H]ave you ever wondered how much of the almost £1 extra you might pay for a bag of Fairtrade bananas gets back to the farmer? The answer is 4p. How about a 99p bar of Fairtrade chocolate? Just under 2p extra gets back to the grower. Most of the rest gets sucked up by a sticky web of middlemen — the Fairtrade Fat Cats — some of whom have grown very rich on Fairtrade products.

The problem with CSR at the grocery store, according to Sellers, is that most consumers have neither the time nor the inclination to become fair trade experts:

I want to do the right thing, but I'm not prepared to make a career of it. It's not hard to find criticisms online about the Body Shop, for example; it's much harder to verify them. And I'm much less interested in checking out the story behind the bananas I buy than I am in the origin of those origami ornaments. What's more, despite efforts by nonprofits like TransFair and the International Fair Trade Association or IFAT ... , there's a lot of room for misleading labeling in our ethical shopping baskets. So when it comes to my food shopping in particular, I'm left wondering whether I would be doing just as much good if I simply bought the best bargain and sent the money I had saved to a development charity (as Oppenheim would have me do).

Food for thought.

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Comments (8)

1. Posted by Christine on December 18, 2005 @ 22:41 | Permalink

A couple of thoughts. First, our megachurch in Hosuton sold Fair Trade Coffee. We sold it for $6, which is what we paid for it. (We lost a little on each bag because of shipping, I guess.) Other charities sold it for $8. So, $2 off the top went somewhere else. But, who did it go to? So, it may be that for my $3 extra, some amount goes to the farmer, but most goes to a middleman. But, it may be a good middleman that does other things that promote fair trade. (I don't know -- I always thought these churches were scammers.)
But, part of what I pay extra may be seen as a signal to the market that some consumers would like to see more of this. I see dollars as votes for products we would like to see more of.
Now I'm rambling, but it would also be more efficient for me to donate to a family in need than for me to donate to the United Way, but the transaction costs are too high. So, you could buy slave-made chocolate and give the $1 to the United Way, but how many cents make their way to the person in need?


2. Posted by Dave! on December 19, 2005 @ 6:18 | Permalink

I agree that a rise in purchase of "fair trade" items is a signal to the market that consumers may want more of those items. But I think the question that the post was getting at was that consumers often don't know what they are getting.

In a complex marketplace, it's becoming harder and harder for consumers to be educated about each product they purchase. For example, say there is a bar of soap that costs $1.50. A consumer might see that, want it, and notice on the shelf next to it, a bar of soap that costs $2.50 for the exact same thing--but with a "Fair Trade" sticker. Now, the average consumer isn't thinking (I'd be willing to bet) "Wow, if I buy this soap, .04 will go to the poor co-op that made this soap while .96 goes to a middle man." They are thinking that nearly (if not all) of their extra dollar goes back to the people who toiled over making that soap.

So when you say, "art of what I pay extra may be seen as a signal to the market that some consumers would like to see more of this" the question is what exactly is it saying to the market that you want to see more of? Actual business practices that aid developing countries? Or stickers that give lip service to a good cause?


3. Posted by Brian on December 19, 2005 @ 8:03 | Permalink

Show me the country that has been lifted out of its third-world status by aid programs and charity, and I might agree that it's worthwhile to buy the cheaper product and give the difference to a charity.

However, fair trade isn't only about spending more in hopes that more money will get back to the third-world farmer. In the coffee business, fair trade also means that the beans are purchased from growers with ethical labor practices. This often means buying from small coops instead of huge plantations, meaning that a larger portion of the income gets back to the actual laborers, even after the middlemen take a huge bite out of it. This fosters industry and growth, where charity doesn't.


4. Posted by PaulNoonan on December 19, 2005 @ 10:18 | Permalink

Tim Harford tackles this exact topic in The Undercover Economist. His assertion is that "fair trade" goods are just a way that producers take advatnage of non-price-sensitive consumers. The profit margins on "fair trade" products are substantially higher (he lists the same stats as Oppenheim), but the product isn't much different, and the bulk of the mark-up goes to the middleman, not the farmer.

His bottom line: Businesses look for ways to distinguish between those who are price sensitive and those who are not, and for ways to charge both groups the maximum amount that each group will pay for the same product. "Fair Trade" branding is one of those methods.


5. Posted by kgj on December 19, 2005 @ 15:35 | Permalink

Buy Blue (www.buyblue.org) is attempting to cut down the hassle of researching company practices in this area. They started out focusing on the political implications of grocery store purchasing, but have recently spread out into other areas such as the labor and enviromental practices of the companies.

They summarize the findings simply so that you don't have to become an expert on CSR to practice CSR purchases. Gathering that information for consumers cuts down on the information search transaction costs and reduces the opportunity for "CSR Washed" labels.


6. Posted by Derek on December 19, 2005 @ 20:43 | Permalink

“How about a 99p bar of Fairtrade chocolate? Just under 2p extra gets back to the grower. Most of the rest gets sucked up by a sticky web of middlemen — the Fairtrade Fat Cats — some of whom have grown very rich on Fairtrade products.”

I wouldn't worry about that. If the markup is really that high, other similar organizations will pop up to try to grab a piece of the pie—through lower markups.


7. Posted by Stan on December 20, 2005 @ 6:30 | Permalink

"I wouldn't worry about that. If the markup is really that high, other similar organizations will pop up to try to grab a piece of the pie—through lower markups."

Economist 1: "Hey, is that a ten dollar bill on the sidewalk?"
Economist 2: "Nah, couldn't be. Someone would've picked it up already."


8. Posted by Hermes Kelly on December 6, 2011 @ 16:00 | Permalink

It's great to hear from you and see what you've been up to. In your blog I feel your enthusiasm for life. thank you.

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