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This is to certify that the
thesis entitled

ASSESSING THE POTENTIALS OF MARKETING FAIR
TRADE BEANS OF CENTRAL AMERICAN ORIGIN IN THE
UNITED STATES

presented by
LARA MARIE MENDOZA DE VILLA

has been accepted towards fulfillment
of the requirements for the

Agricultural, Food, and
MS. degree in Resource Economics

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ASSESSING THE POTENTIALS OF MARKETING FAIR TRADE BEANS OF
CENTRAL AMERICAN ORIGIN IN THE UNITED STATES

By

Lara Marie Mendoza de Villa

A THESIS

Submitted to
Michigan State University
in partial fulfillment of the requirements
for the degree of

MASTER OF SCIENCE
Department of Agricultural, Food, and Resource Economics

2008

ABSTRACT

ASSESSING THE POTENTIALS OF MARKETING FAIR TRADE BEANS OF
CENTRAL AMERICAN ORIGIN IN THE UNITED STATES

By
Lara Marie Mendoza de Villa

Smallholder bean producers in Central America face innumerable challenges with
the implementation of CAFTA-DR and with the rise of supermarkets as buyers in the
region. To minimize threats faced by smallholder producers and to capitalize on the ever-
changing consumer demand in developed countries, one of the best options for
smallholder bean producers is to pursue niche marketing via fair trade -- a rapidly
growing market in the US (i.e. offering fair trade beans in the US market). However,
beans are currently not marketed as a fair trade product. Hence, this study aimed to assess
the potentials of marketing fair trade beans of Central American origin in the US market.

This study employed a modified ROA approach to assess the market opportunities
of fair trade beans, using market research techniques (i.e. literature review, trend analysis,
and rapid market appraisal) and business analysis tools (i.e. identification of strategic
factors and formulation of market recommendations). Results of the study indicate that
there is a potential market for fair trade beans among the natural product industry agents.
Offering fair trade beans can also capitalize on the growing demand for ethical products,
globalization of tastes, and increasing health consciousness of consumers. Success in
marketing fair trade beans will require matching the product needs of target buyers with
the cluster of benefits that fair trade beans offer, identifying a strategic channel for
marketing fair trade beans, creating effective point of sale materials, and developing

strategic partnerships with fair trade networks, ftos, and support organizations.

ACKNOWLEDGEMENTS

I would like to express my sincere thanks and appreciation to all those who helped
me finish my degree at Michigan State University (MSU). I am most especially grateful
to my major professor and thesis adviser, Dr. Richard Bemsten, for the academic and
research guidance, and for the time he willingly devoted to help me complete my degree.
I would also like to thank the members of my academic committee, Dr. Christopher
Peterson and Dr. Irvin Widders, for their valuable comments and suggestions, and for
their patience and time spent reviewing my thesis over the Christmas break.

I am thankful to the Department of Agricultural, Food, and Resource Economics
(AFRE) for funding my study in MSU, as well as the Bean/Cowpea Collaborative
Research Support Program (B/C CRSP) for funding my research. Special thanks to the
Office of International Students and Scholars (0188) for financing my study during my
last semester and the Council of Graduate Students (COGS) for awarding me a degree
completion grant. I would also like to thank my respondents — the health food stores and
cooperatives, Alter Eco Americas, Equal Exchange, Global Exchange, SERRV
International, United Natural Foods Eastern Region, Whole Foods Market, and Sam’s
Club.

My sincere thanks also goes to those people who shared their time and valuable
suggestions in conceptualizing the preliminary stages of my research, as well as during
the conduct of the study — Dave Finet, Bob Green, Anne Ottaway, Miguel Zamora, Caren

Holzman, Tom Defouw, Maria Paz Gonzalez, Erin Gorman, Joelle Novey, Enid CueIIar,

iii

Orlando Mejia, Kara Gust, Jon Solomon, Dr. James Kelly, Dr. Jack Allen, and Luis
Flores.

I am truly grateful to the faculty members and staff of the Department of AF RE
for helping me complete my degree in MSU; my colleagues in the Department, most
especially Kudzai Mukumbi, Tomokazu Nagai, Domenico Dentoni, Byron Reyes,
Wolfgang Pejuan, Nicole Mason, Nicole Olynk, Laura Donnet, and Thasanee Satimanon;
Dr. Jan Bemsten, Faye Aquino, Anna Medrano, Christine Jolejole, Catherine Ragasa,
Emalyn Lising, and Nelissa Jamora; the Supangco, Mijares, Javier, and Damian families;
and to my friends in the MSU Filipino Club, PACGL, and Fatima Group, for their
encouragement and for making my stay at MSU memorable!

To Geny, I thank you for your unwavering love, support, and encouragement.

To my family and relatives back in the Philippines, especially to Tatay, Nanay,
Ate Rona, Gale, and Cyril, I thank you for your support, encouragement, and prayers.

And last but not the least, I thank the Lord for giving me the strength and wisdom

to persevere and finish what I started at MSU.

iv

TABLE OF CONTENTS

LIST OF TABLES .......................................................................... ix

LIST OF FIGURES ........................................................................ xi

ABBREVIATIONS ........................................................................ xiv

CHAPTER 1. INTRODUCTION ......................................................... l

1.1 Problem Statement ..................................................................... 3

1.2 Objectives ................................................................................ 5

1.3 Research Questions ..................................................................... 5

1.4 Organization of the Paper ............................................................. 7

CHAPTER 2. METHODOLOGY ........................................................ 9

2.1 Approach ................................................................................. 9

2.2 Data Collection ......................................................................... 12
CHAPTER 3. OVERVIEW OF FAIR TRADE AND OTHER ETHICAL

INITIATIVES ............................................................. 17

3.1 Overview of the Fair Trade Movement .............................................. 17

3.1.1 Origins ............................................................................... 18

3.1.2 Key Actors ........................................................................ 19

3.1.2.1 FINE ....................................................................... 20

3.1.2.2 Fair Trade Networks ................................................... 20

3.1.2.3 National Labeling Initiatives and Producer Networks .............. 24

3.1.2.4 Fair Trade Organizations ............................................... 25

3.1.3 International Fair Trade Standards ............................................. 25

3.1.3.1 Fair Trade Standards for Organizations .............................. 27

3.1.3.2 Fair Trade Standards for Labeled Products ........................... 28

3.2 Fair Trade and Other Ethical Initiatives ............................................. 32

3.2.1 Fair Trade vs. Ethical Trade ..................................................... 36

3.2.2 Fair Trade vs. Organic Movement ............................................. 39

3.3 Consumer Demand for Ethical Products ............................................. 42

3.3.1 Fair Trade and Other Ethical Initiatives as Product Attributes ............. 43

3.3.2 Market for Ethical Products ...................................................... 44

3.4 Overview of the Fair Trade Market in the US ....................................... 48

3.4.1 Product Characteristics .......................................................... 49

3.4.2 Market Trends ..................................................................... 52

3.5 Chapter Summary ....................................................................... 54

CHAPTER 4. THE CENTRAL AMERICAN BEAN SUBSECTOR AND ITS

OPPORTUNITIES WITH FAIR TRADE ............................. 56
4.1 Agriculture and the CA Region ....................................................... 56
4.2 Supply Characteristics .................................................................. 57
4.2.1 Area Harvested and Production ................................................ 58
4.2.2 Dominant Bean Market Classes ................................................ 59
4.3 Bean Marketing Channel in CA ....................................................... 61
4.3.1 Intermediaries ..................................................................... 61
4.3.2 Bean Packers ...................................................................... 63
4.3.3 Bean Processors ................................................................... 64
4.3.4 Supermarkets ...................................................................... 64
4.3.5 US Importers ....................................................................... 65
4.3.6 US Ethnic Grocery Stores/U S Supermarkets .................................. 65
4.4 Bean International Trade ............................................................... 66
4.4.1 Imports ............................................................................. 66
4.4.2 Exports ............................................................................. 68
4.5 Competitiveness of the CA Dry Bean Subsector .................................... 70
4.5.1 Domestic Competitiveness ...................................................... 71
4.5.1.1 Seasonality ............................................................... 73
4.5.1.2 Marketing Margins ...................................................... 75
4.5.1.3 Competitiveness Relative to US Imports ............................. 76

4.5.2 International Trade Rules Affecting the CA Bean Subsectors’
Competitiveness .................................................................. 78
4.5.2.1 WTO ....................................................................... 78
4.5.2.2 CAFTA-DR ............................................................... 79
4.5.2.3 US Import Regulations .................................................. 80
4.6 The CA Bean Subsector and Fair Trade ............................................. 81
4.7 Chapter Summary ....................................................................... 84

CHAPTER 5. DEMAND TRENDS IN THE US DRY BEAN SUBSECTOR...... 88

5.1 Demand Trends .......................................................................... 88
5.1.1 Annual Per Capita Disappearance .............................................. 89
5.1.2 Import Demand ................................................................... 90

5.2 Dry Bean Consumption Patterns ...................................................... 93
5.2.1 Location: At Home vs. Away from Home Consumption ................... 94
5.2.2 Regional ........................................................................... 95
5.2.3 Urbanization ....................................................................... 96
5.2.4 Race/Ethnicity ..................................................................... 97
5.2.5 Gender and Age .................................................................. 98
5.2.6 Income .............................................................................. 98

5.3 Major Demand Drivers .................................................................. 100
5.3.1 Convenience ....................................................................... 100
5.3.2 Value ............................................................................... 101
5.3.3 Ethnicity ........................................................................... 102

vi

5.3.4 Wellness ...........................................................................
5.3.5 Indulgence .........................................................................
5.4 Chapter Summary .......................................................................

CHAPTER 6. THE POTENTIAL OF FAIR TRADE BEANS FROM CA IN
THE US MARKET ........................................................

6.] Target Markets for Fair Trade Beans .................................................
6.2 Results of the Survey on Health Food Stores and Cooperatives ..................
6.2.1 General Characteristics of Survey Respondents ..............................
6.2.2 Current Dry Beans Sold .........................................................
6.2.3 Current Dry Bean Suppliers .....................................................
6.2.4 Interest in Fair Trade Beans .....................................................
6.2.4.1 Form of Fair Trade Beans ..............................................

6.2.4.2 Packaging Type for Fair Trade Beans .................................

6.2.4.3 Form for Canned Fair Trade Beans ....................................

6.2.4.4 Type of Information with the Fair Trade Bean Product ............

6.2.4.5 Logo .......................................................................
6246PmmMm ..................................................................

6.2.4.7 The Potential Fair Trade Bean Consumer ............................

6.3 Results of Key Informants Interviews ................................................
6.3.1 Natural Supermarket: Whole Foods Market, Inc .............................
6.3.1.1 Fair Trade Products ......................................................

6.3.1.2 Current Dry Beans Sold ................................................

6.3.1.3 Interest in Fair Trade Beans ............................................

6. 3. 2 Conventional Warehouse Club: Sam’s Club .................................

6. 3. 2. 1 Fair Trade Products ......................................................

6.3.2.2 Current Dry Beans Sold ................................................

6.3.2.3 Interest in Fair Trade Beans ............................................

6.3.3 ATOs ...............................................................................
6.3.3.1 Alter Eco Americas .......................................................................

6.3.3.2 Equal Exchange, Inc .....................................................................

6.3.3.3 Global Exchange .........................................................

6.3.3.4 SERRV International ...................................................

6.3.4 Natural Distributor: UNF I .......................................................
6.3.4.1 Fair Trade Products ......................................................

6.3.4.2 Current Dry Beans Sold ................................................

6.3.4.3 Interest in Fair Trade Beans ............................................

6.4 Opportunities and Potential Constraints to Marketing Fair Trade Beans in the
US ..........................................................................................
6.4.1 Opportunities ......................................................................
6.4.2 Potential Constraints .............................................................
6.4.2.1 Supply Constraints ......................................................

6.4.2.2 Demand Constraints .....................................................

6.4.2.3 Institutional Constraints ................................................

6.4.3 Market Recommendations ......................................................

vii

103
104
105

107

107
108
108
110
112
112
114
115
116
116
117
118
119
121
121
127
128
128
129
I30
130
131
132
132
135
137
139
140
141
142
142

143
143
145
145
145
147
147

6.4.3.1 Product .................................................................... 147

6.4.3.2 Distribution ............................................................... 149

6.4.3.3 Promotion ................................................................. 151
6.5 Synthesis ................................................................................. 152
CHAPTER 7. SUMMARY AND CONCLUSION ..................................... 154
7.1 Fair Trade and the US Market ......................................................... 155
7.2 The CA Bean Subsector ................................................................ 156
7.3 US Demand for Beans .................................................................. 158
7.4 The Potential of Fair Trade Beans from CA in the US ............................. 159
7.5 Limitations of the Study and Future Research ....................................... 161
APPENDICES
Appendix A. IFAT Membership Requirements ......................................... 162
Appendix B. F TF Membership Requirements ........................................... 164
Appendix C. Producer Certification Fees for Fair Trade Certified Products. . . . . 165
Appendix D. Consumers’ Willingness to Pay for Ethical Food Products ............ 168

Appendix E. Gross Sales of the Fair Trade Industry, North America, 2001-2006.. 169
Appendix F. Quantity of Imports and Exports of Dry Beans by Country, CA,

2001-2005 ..................................................................... 170
Appendix G. An Analysis of International Prices for Types (organic and

conventional) of Small Red Beans, Honduras and US, October

2007 ............................................................................ 171
Appendix H. US Dry Bean Imports from CA, 2001-2005 .............................. 172
Appendix 1. Dry Bean Consumption Patterns by Market Class, US, 1994-1996. .. 174

REFERENCES ............................................................................... 175

viii

Table 2.1

Table 3.1

Table 3.2

Table 3.3

Table 4.1

Table 4.2

Table 4.3

Table 4.4

Table 5.1

Table 5.2

Table 5.3

Table 5.4

Table 6.1

Table 6.2

Table 6.3

Table 6.4

LIST OF TABLES

Distribution of Surveyed Health Foods Stores and Cooperatives, US,
2007 ..............................................................................

Characteristics of Predominant Ethical Initiatives ........................

Fair Trade Food Products Certified by TransFair USA and Offered
in the US, 2007 ................................................................

Total Volume of Imports of Fair Trade Certified Products, US,
2001-2006 ......................................................................

Bean Production by Market Class, CA ....................................

Average Share of Bean Imports by Country of Origin, CA, 2000-
2004 .............................................................................

Average Share of Bean Exports by Country of Destination, CA,
2000-2004 ......................................................................

Marketing Margins for Small Red and Black Beans, CA, 2006 ........

Dry Bean Per Capita Disappearance by Market Class, US, 2002-
2006 .............................................................................

Imports from CA as a Share of Total Dry Bean Imports, by Market
Class, 2001-2005 ..............................................................

US Dry Bean Imports from CA, 2001-2005 ..............................

Average Dry Bean Consumption of US Consumers of CA Descent
by Country of Origin, US, 2004 ............................................

General Characteristics of Surveyed Health Food Stores and Co-ops,
US, 2007 .......................................................................

Dry Beans Sold by Market Class and by Form of Product, US, 2007
Beans Sold by Market Class, Type, and Form of Product, US, 2007

Major Dry Bean Suppliers of Health Food Stores and Co-ops, US,
2007 .............................................................................

ix

14

34

50

53

60

68

69

75

9O

92

93

98

109

110

111

112

Table 6.5 Interest in Fair Trade Small Red and Black Beans, US, 2007 .......... 113

Table 6.6 Interest in Fair Trade Small Red and Black Beans by Market Class

and Region, US, 2007 ........................................................ 113
Table 6.7 Willingness to Pay for a Premium for Fair Trade Beans by Market

Class, US, 2007 ............................................................... 119
Table 6.8a General Characteristics of Key Informant’s Company, US, 2007. 122
Table 6.8b Fair Trade Products Sold by Company, US, 2007 ........................ 123
Table 6.8c Companies Engaged in Dry Bean Marketing, US, 2007 ................. 125
Table 6.8d Interest in Fair Trade Beans by Company, US, 2007 ..................... 126

Figure 2.1

Figure 2.2

Figure 3.1
Figure 3.2
Figure 3.3
Figure 3.4

Figure 3.5

Figure 3.6

Figure 3.7

Figure 3.8

Figure 4.1
Figure 4.2
Figure 4.3
Figure 4.4
Figure 4.5
Figure 4.6
Figure 4.7
Figure 4.8

Figure 4.9

LIST OF FIGURES

Research Approach in Assessing the Potentials of Marketing Fair
Trade Beans ....................................................................

Respondents of the Study entitled, Assessing the Potentials of
Marketing Fair Trade Beans from CA in the US] ........................

Key Actors in the Global Fair Trade Movement ..........................
Fair Trade Logos/Labels .....................................................
Two Routes in Marketing Fair Trade Products ...........................
Fair Trade Certification and Labeling Process ............................

Points of Convergence among Fair Trade, Ethical Trade, and
Organic Initiatives ............................................................

Gross Sales of the Fair Trade Industry, North America, 2001-2006...

Percent Share of Fair Trade Certified Products to Total Volume of
Products Certified by TransFair USA, 2006 ..............................

Total Volume of Fair Trade Certified Imports by Product Type, US,
2001-2006 ......................................................................

Map of Central America ......................................................
Total Bean Harvested Area and Production, CA, 2001-2005 ...........
Share on Average Bean Production by Country, CA, 2001—2005......
Dominant Market Classes of Beans, CA ...................................
Bean Marketing Chain in CA to the US ....................................
International Trade in Beans, CA, 2001-2005 ............................
Average Share of Imports in Total Supply of Beans, CA, 2001-2005
Average Share of Bean Imports by Country, CA, 2001-2005 ..........

Average Share of Bean Exports by Country, CA, 2001-2005 ..........

xi

10

16

21

23

26

30

33

48

52

54

57

58

59

6O

62

66

67

67

69

Figure 4.10 Monthly Wholesale Prices of Small Red Beans in Honduras,
Nicaragua, and El Salvador, 2002-2006 .................................... 71

Figure 4.11 Monthly Wholesale Prices of Black Beans in Guatemala and Costa
Rica, 2002-2006 ............................................................... 72

Figure 4.12 Average Monthly Wholesale Prices of Small Red Beans in El
Salvador, Honduras, and Nicaragua 2002-2006 ........................... 74

Figure 4.13 Average Monthly Wholesale Prices of Black Beans in Costa Rica
and Guatemala, 2002-2006 .................................................. 74

Figure 4.14 Annual Wholesale Prices of Small Red Beans in Honduras and
Nicaragua, 2002-2006 ........................................................ 76

Figure 4.15 Annual Wholesale Prices of Black Beans in Guatemala, 2002-2006.. 77
Figure 4.16 Fair Trade vs. Conventional Bean Marketing Chain ..................... 83

Figure 5.1 Share on Average Dry Bean Per Capita Disappearance by Market

Class, US, 2002-2006 ......................................................... 89
Figure 5.2 Average Volume of Imports by Market Class, US, 2002-2006......... 91
Figure 5.3 Average Share on Cooked Dry Bean Consumption by Market Class

and Location, US, 1994-1996 ............................................... 94
Figure 5.4 Average Dry Bean Consumption by Country of Origin of US

Consumers of CA Descent, US, 2004 ...................................... 95
Figure 5.5 Average Share on Cooked Dry Bean Consumption by Urbanization,

US, 1994-1996 ................................................................ 96
Figure 5.6 Average Share on Cooked Dry Bean Consumption by Income as a

Percentage of Poverty Level, US, 1994-1996 ............................. 99
Figure 5.7 Average Retail Price of Dry Beans by Market Class and Country of

Origin, US, 2004 .............................................................. 102
Figure 6.] Preferred Form for Fair Trade Beans, US, 2007 .......................... 114
Figure 6.2 Preference for Packaging Type for Fair Trade Beans, US, 2007 ....... 1 15
Figure 6.3 Preferred Form for Canned Fair Trade Beans, US, 2007 ................ 116

xii

Figure 6.4

Figure 6.5
Figure 6.6

Figure 6.7

Information that Buyers Like Included with the Fair Trade Bean
Product, US, 2007 ............................................................ 117

Preferred Type of Logo for Fair Trade Beans, US, 2007 ................ 118
Characteristics of Potential Fair Trade Bean Consumers, US, 2007... 120

Constraints to Marketing Fair Trade Beans, US, 2007 .................. 146

xiii

AFRE

AMS

ARS

ATO

CA
CAFTA-DR

CBI
cfr
CIAT

cif

CM
COO
CORECA
CSR
CV
EFTA
ELFCO
ERS
ETI

F AS
FAO
FGIS
FINE
FLO
FMI

fob
FTA200
F TF

fto

FTO Mark
GATT
GDP
GMO
ha

IEC
IFAT

IF OAM
IHMA

ILO

ABBREVIATIONS

MSU Department of Agricultural, Food, and Resource Economics
USDA Agricultural Marketing Service

USDA Agricultural Research Service

Alternative Trade Organization

Central America

Central America-Dominican Republic—United States Free Trade
Agreement

Caribbean Basin Initiative

cost and freight

International Center for Tropical Agriculture/Centro Intemacional de
Agricultura Tropical

Cost, insurance, and freight

Certification Mark (logo)

Chief Operating Officer

Consejo Regional de Cooperacion Agricola

Corporate Social Responsibility

Coefficient of variation

European Fair Trade Association

East Lansing Food Co-op

USDA Economic Research Service

Ethical Trading Initiative

USDA Foreign Agricultural Service

Food and Agriculture Organization

Federal Grain Inspection Service

forum of FLO, IF AT, NEWS!, and EFTA

Fair Trade Labeling Organizations, International

Food Marketing Institute

free on board

Fair Trade Audit 200

Fair Trade Federation

fair trade organization

Fair Trade Organization Mark (logo)

General Agreement on Tariffs and Trade

Gross Domestic Product

Genetically Modified Organism

hectare

Information, Education, and Communication

International Fair Trade Association

International Federation of Organic Agriculture Movements
Instituto Hondureno de Mercadeo Agricola/Honduran Agricultural
Market Institute

International Labour Organization

xiv

kg

lb

MBC
MSA
MSU
mt
NEWS!
NGO
OCA
ODAN
OGS
POS
RAFI-USA
RTD
SAI
SEC
SIECA
SIMPAH
UK

UN
UNCHR
UNCTAD
UNFI
US
USAID
USDA
USITC
USTR
WFM
WFP
wro

kilogram

pound

Michigan Bean Commission

Metropolitan Statistical Area

Michigan State University

metric ton

Network of European Worldshops

Non-government Organization

Organic Consumers Association

WF P Emergency Needs and Assessment Branch
IFOAM Organic Guarantee System

Point of sale

The Rural Advancement Foundation International USA
Ready to drink

Social Accountability International

SIECA Central American Specialized Trade Statistics System
Central American Regional Integration Office
Honduran Market Information System for Agricultural Products
United Kingdom

United Nations

United Nations Commission on Human Rights

United Nations Conference on Trade and Development
United Natural Foods, Inc.

United States

United States Agency for International Development
United States Department of Agriculture

United States International Trade Commission

United States Trade Representative

Whole Foods Market, Inc.

World Food Programme

World Trade Organization

XV

CHAPTER 1
INTRODUCTION

The agrifood system has rapidly evolved with globalization. Enhanced
communication and transportation systems, as well as liberalized market policies, have
increased the flow of capital and goods between countries. As these trends progress,
agents in the agrifood system are faced with both opportunities and challenges. The
degree on which these changes impact agents in the agrifood system depends on the
nature of their product and market, and their relative size and position in the commodity
supply chain.

Noticeable trends that have occurred in a globalizing agrifood system include
changes in the nature of products and the structure of food markets. In terms of product
nature, there has been a movement away from trading raw commodities or homogenous
products towards high value-added or differentiated products (Staatz 2006; Goodhue &
Rausser 2003). This change has been facilitated by: (1) a decline in world prices for
commodities relative to that of manufactured goods (Ransom 2001); and (2) rising
incomes and changing consumer tastes and preferences in developed or ‘target markets’.

Besides marked transformation in the nature of products, food markets are also
restructuring. There is an observed increase in international integration -- both
horizontally, through mergers and acquisitions, and vertically, towards more contracting
of manufacturers and retailers. This has occurred in both “industrialized target markets
and emerging region markets over the globalization period” (Reardon and Flores 2006,
2). Likewise, the rise of supermarkets in emerging markets (i.e. Central America, Asia,

and Africa) and associated technologies (e.g. modernized procurement systems, which

require inputs to be sourced from a more centralized and controlled mechanism), have
driven the restructuring of the agrifood system chain (Reardon and Flores 2006). The
implications of these changes vary, depending on the agents in the agrifood system.

This study focuses on small agents in the agrifood system, specifically
smallholder bean producers. AS globalization entails Iiberalizing trade, there are concerns
that smallholders in developing countries will be adversely affected]. A critical issue is
international trade’s impact on the smallholder producers, particularly their market
access. Threats to smallholder producers’ market access emerge due to their inability to
meet the quality and quantity standards of the increasingly consolidated retail and
manufacturing sectors. In cases where smallholders are able to participate in the market,
they often only act as price takers and are subject to the mercy of large buyers -- reducing
smallholders’ incentive to invest in productivity- and quality-enhancing technologies.
Additional factors which constrain market participation of smallholders include limited
access to technology, property rights, market information, infrastructure, and credit.
Without reforms and the introduction of enabling policies to relax these barriers,
smallholder producers in developing countries will increasingly find it difficult to achieve
an acceptable living standard.

One way to lessen the threats to smallholders posed by globalization is to cater to
the ever-changing and diverse consumer demand in target markets while capitalizing on
the opportunities presented by globalization. A potential strategy is to pursue niche

markets, which “uses product differentiation to appeal to a focused group of customers”

 

' Since globalization is a “multidimensional phenomenon,” it impacts smallholders in complex, varied
ways -- both indirectly and directly -- largely due to global drivers (e.g. trade liberalization, food quality
and safety standards, concentration in the agrofood industry) and meta-trends (e.g. rising incomes,
environmental degradation, shifts in product nature) (Narayanan and Gulati 2002).

(Peterson and Phillips 2001, 1). This strategy will widen prospects for smallholder
producers and developing country exporters; thus allowing them to benefit from
international trade.

Agents in the agrifood system view specialty niche markets (e.g. traceability,
place of origin branding/labeling, organic, and fair trade) as opportunities to cater to the
increasing demand for more highly-processed products and niche products such as
specialty coffees and organic cotton among others. Through these strategies, producers
try to distinguish their products by distinct origin, defined processes, or exceptional
quality (Lewin, Giovannucci, and Varangis 2004). Such differentiated products can be
traded through more profitable channels than commodities that flow in the conventional
supply chain. Fair trade2 is considered as one of these differentiated product markets that
could help smallholder producers achieve market access.

1.1 Problem Statement

Smallholder bean producers in Central America (CA) face innumerable
challenges as a consequence of the implementation of the Central America-Dominican
Republic-United States Free Trade Agreement3 (CAFTA-DR). Under CAFTA-DR, CA
countries are required to gradually eliminate import tariffs on sensitive agriculture
products (e.g. beans, rice, and corn) over a 15 to 20 year implementation period. These
staple products provide livelihood to 5.5 million small and medium scale producers in the
region (CIAT). With increased US bean imports under CAFTA-DR, CA smallholder

bean producers will have to contend with declining bean prices, which result in lower

 

2 . . . . . .
Fair trade ensures smallholder producers receive a minimum price and an assured market for their
produce. It also guarantees compliance to several environmental and social criteria.
CAFTA-DR envisions to phase out subsidies, tariffs, and quotas among the US, DR, and CA member
countries.

farm incomes’. Furthermore, the rapid consolidation of retail and processing sectors in
the region threatens smallholder bean producers’ access to local markets (Martinez 2003).
These trends might displace farm workers and laborers and thereby encourage further
migration to the US.

The “United States Agency for International Development (USAID) [estimates
that] over 52 percent of the CA’s inhabitants (approximately 14 million people) are poor
and chronically food insecure” (Martinez 2003, 1). Since beans are one of the most
important crops in CA, development of this subsector is critical to ensuring food security
among the poor in the region.

However, despite reforms targeting the development of the CA bean subsector
(e.g. gradual elimination of marketing parastatals, and progressive movement towards an
integrated CA free zone), most CA countries remained uncompetitive due to low
productivity (Martel, Bemsten, and Weber 2000). Low productivity has been a persistent
problem of the subsector since beans are almost entirely produced by smallholder
producers “who have limited access to production technology, credit, and extension
services” (Martinez 2003, 4).

Marketing beans as a fair trade product, which is an alternative mode of selling
beans, would help mitigate threats faced by smallholder bean producers under the
implementation of CAFTA-DR. Offering fair trade beans ensures smallholders higher
prices, via addition of the fair trade quality attribute in the bean product, and direct
market access in target markets. However, as beans are not currently marketed as a fair

trade product, there is a need to assess the prospects of marketing fair trade beans,

 

4 Since most sensitive agricultural commodities are highly protected before CAFTA-DR, the reduction or
elimination of protection in these products may potentially result in “short—term employment and income
losses” to the producers growing these commodities (Jaramillo and Lederman 2006, 153).

specifically the small red and black beans5 produced in the region. This effort is
ultimately geared towards improving smallholder producers’ welfare.
1.2 Objectives

The general objective of this study is to assess the potentials of marketing fair

trade beans from CA in the US. Specifically, this study:

(1) documents (a) the history of the fair trade movement, (b) its difference and
similarities with ethical trade and organic initiatives, and (c) the demand for
ethical products, with emphasis on the US fair trade market;

(2) provides an overview of the CA bean subsector;

(3) describes US demand trends for beans;

(4) evaluates preferences and product needs of potential buyers of fair trade
beans;

(5) identifies key opportunities and potential constraints to marketing fair trade
beans;and

(6) develops recommendations for successfully marketing fair trade beans in the
US.

l. 3 Research Questions
This study attempts to answer the following questions:
(1) What is fair trade and how does it work?
0 What are the origins of fair trade and who are its major players?
0 How are fair trade products marketed and what standards should be

followed?

 

5 Small red and black beans are the dominant market classes produced in CA (Martinez 2003). Also, black
beans are mostly consumed by high-income US consumers (Lucier et al. 2000).

How different or similar is fair trade, compared to other ethical
endeavors such as ethical trade and organic initiatives?
What are the demand trends for ethical products, particularly fair trade

food products in the US?

(2) What are the characteristics of the CA bean subsector?

What are the supply trends and marketing chain of the CA bean
subsector?

What are the current trends in the region’s bean exports and imports?
How competitive is the CA bean subsector with respect to the US?
What are the major challenges facing the CA bean subsector and how

can fair trade help mitigate these challenges?

(3) What is the nature of the demand for beans in the US?

What are the trends in per capita consumption?
What are the trends in imports?
What are the bean consumption patterns of US consumers?

What are the driving forces affecting the demand for beans?

(2) Is there a potential market in the US for fair trade beans from Central

America?

At the retail level

What types of retail firms would be willing to sell fair trade beans (e. g.

health food stores and cooperatives or natural supermarkets)?

o What product attributes or specifications do potential
retailers/consumers prefer (e.g. small reds or black, bagged or canned,
fair trade only or fair trade and organic certified)?

At the distributor/wholesale level

0 What types of firms would be willing to distribute fair trade beans (e. g.
alternative trade organizations [ATOs], natural distributors)?

o What product attributes or specifications do potential distributors
require?

(3) What are the opportunities and potential constraints to marketing fair trade
beans in the US?

(4) Based on the identified opportunities and potential constraints, what market
recommendations can be proposed for marketing fair trade beans from CA in
the US?

1.4 Organization of the Thesis

This thesis is organized into seven chapters. Chapter Two describes the
methodology employed in the study, as well as the data collection methods.

Chapter Three presents an overview of the fair trade movement, fair trade’s
similarities and differences compared to other ethical initiatives, and consumer demand
for ethical products, focusing on demand for fair trade products in the US.

Chapter Four provides background information on the CA bean subsector,
including existing supply trends, marketing chain, international trade, competitiveness,
and opportunities for smallholder bean producers to venture into fair trade bean

production and marketing.

Chapter Five documents US consumers’ demand for beans and the driving forces
affecting this demand.

Chapter Six evaluates preferences and product needs of potential buyers of fair
trade beans, discusses the opportunities and potential constraints to marketing fair trade
beans in the US, and presents market recommendations that would relax the constraints
and enable smallholder bean farmers to seize market opportunities.

Finally, Chapter Seven summarizes the results of the study and proposes
recommendations for marketing fair trade beans in the US, which ultimately intends to

expand market opportunities for smallholder bean producers in CA.

CHAPTER 2
METHODOLOGY

2.1 Approach

This study utilized a “modified rapid opportunity assessment (ROA) approach” to
assess the potential of marketing fair trade beans of Central American (CA) origin in the
US. This approach, which was used by Knudson and Peterson (2005) to assess the
business and product development opportunities for various agricultural products in the
US (e.g. dairy, fruits, and specialty crops), focuses on first, identifying the major driving
forces or trends (i.e. wellness, convenience, ethnicity, value, and indulgence) in the
agrifood system. Then, these key trends are matched to specific product categories in
order to identify market opportunities for existing and potential products. This study
attempted to extend the methodology employed by Knudson and Peterson (2005).

The “modified ROA approach” combined various market research techniques and
business analysis tools to assess market opportunities for fair trade beans, including: (1) a
synthesis of past literature and trend analysis; (2) a rapid market survey of potential
buyers; (3) the identification of strategic factors6 (i.e. opportunities and constraints); and
(4) the formulation of strategic market recommendations, based on the major findings of

the study (Figure 2.1).

 

6 As defined by Hunger and Wheelen (2002), strategic factors are factors which considerably impact a
firm’s or a business’ future.

Figure 2.1. Research Approach in Assessing the Potentials of Marketing Fair Trade
Beans

oooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooooo

 

Literature Review and
Trend Analysis

 

 

Overview of Major Trends

M .OV%Wle;v fifth in the Bean Subsector
ajor ren S 1n 6 0 Supply from Central

Fair Trade Movement America
0 Demand in the US

 

 

 

 

 

 

 

 

 

 

 

 

V

Rapid Market Sgwey
(Questionnaire and Key
informants)

 

Potential buyers’:
0 General characteristics;
0 Preferences; and
0 Product needs/
specifications

I

........................................... l

Identificationr of Strategic Factors

 

 

 

 

 

 

 

 

 

V

Market Market f
Constraints Opportunities

 

 

 

 

 

 

 

 

V

Strategic Market
Recommendations

 

 

0 Product
0 Distribution
0 Promotion

 

 

 

10

First, a review of the literature related to the global fair trade movement and the
CA bean subsector was carried out to provide a background on the two subjects and gain
insights, regarding issues the study needed to address and data that needed to be collected
to address these issues. Secondary data and academic literature on demand trends in the
US bean subsector were also analyzed to determine driving forces that are influencing the
US demand for beans.

The literature suggests that ethical consumers, who shop at stores that sell ethical
products or who purchase any type of ethical product (e. g. organic beans), are likely to be
most willing to buy and pay a premium price for fair trade beans. Thus, to assess the
potential demand for fair trade beans, potential buyers (health food stores and
cooperatives, a major natural supermarket, a key natural distributor, major alternative
trade organizations7 [ATOs], and a major conventional warehouse club) were contacted.
The potential buyers of fair trade beans were either sent a questionnaire (e-mail/mail
survey) or interviewed personally.

The questionnaire that was sent to health food stores and cooperatives solicited
information regarding: (1) the retail stores’ general characteristics; (2) the types of beans
that they sold; (3) their interest in selling fair trade beans; (4) their perceptions regarding
constraints to marketing fair trade beans; and (5) their opinions and comments about the
potential to market fair trade beans in the US. The personal interviews, which were either
done by phone or face-to-face, were conducted with staff employed by a natural
supermarket, a conventional warehouse club store, ATOs, and a natural distributor to

solicit information regarding the firms’: (1) current fair trade offerings and bean sales; (2)

 

7 ATOs are fair trade organizations with the fair trade principles as their main mandate.

11

interest in marketing fair trade beans; (3) requirements for new products/suppliers; (4)
constraints to marketing fair trade beans; and (5) general comments regarding the study.

The information gathered through the rapid market survey (i.e. self-administered
questionnaires for health food stores and cooperatives and key informant interviews with
major supply chain agents) was analyzed to identify characteristics of potential buyers,
their preference for fair trade beans, and their product needs/specifications. The collected
information further aided in the identification of potential constraints and opportunities,
and formulation of strategic recommendations in marketing fair trade beans in the US.

Finally, this information was used to identify strategic factors (i.e. constraints and
opportunities) influencing the potential market for fair trade beans. Based on this
opportunity assessment, strategic market recommendations on product, distribution, and
promotion of fair trade beans were identified.
2.2 Data Collection

The study used multiple-data gathering methods, including a literature review,
analysis of secondary data, intemet searches, an e-mail/mail survey, and personal
interviews with key informants. First, information on the fair trade movement was
sourced from the websites of the major fair trade networks/organizations (Fairtrade
Labeling Organization, Inc. [FLO], TransFair USA8, and Fair Trade Federation [FTF]),
as well as the academic literatures. Likewise, data on trends in US bean imports from CA
and demand trends were collected from the United States International Trade
Commission (USITC) Interactive Tariff and Trade Database and the United States
Department of Agriculture’s (USDA) Economic Research Service (ERS), respectively.

Additional secondary data on the CA bean subsector’s supply and price data were

 

8 The only third party certifier of fair trade certified products in the US.

12

collected from: the Food and Agriculture Organization (FAO) Statistical Database;
Consejo Regional de Cooperacion Agricola (CORECA); Michigan State University
(MSU) Department of Agricultural, Food, and Resource Economics (AFRE) Common
Bean Atlas of the Americas; the Central American Regional Integration Office (SIECA);
Honduran Market Information System for Agricultural Products (SIMPAH); the United
Nations (UN) Comtrade Database; and the USDA Agricultural Marketing Service
(AMS).

Second, informal stakeholder consultations were conducted with key industry
agents to solicit their opinions regarding the possibility of marketing fair trade beans
from CA in the US, including (1) the Director of the Michigan Bean Commission
(MBC); (2) the Manager of the East Lansing Food Co-op (ELFCO); (3) the Director for
Certification and staff of TransFair USA; and (4) a board of director of FTF.

Third, information collected through this preliminary assessment indicated that
health food stores and cooperatives9 were a promising market for fair trade beans. Thus, a
listing of these stores was obtained from the Organic Consumers Association’s (OCA)
directory. A total of 1,086 US health food stores and cooperatives were listed in OCA’S
directory, as of April 2007. This list was used as the sampling frame for selecting health
food stores and cooperatives to be surveyed. Out of this total, 217 stores were randomly
selected, using simple random sampling‘0 (Table 2.1). These potential respondents
(stores) were then phoned to obtain their e-mail addresses or mailing addresses (if the
former was not available) to facilitate the distribution of the self-administered survey

questionnaire. The survey was conducted from May 2007 to August 2007.

 

9 In the US, health food stores and cooperatives are types of natural product retail formats (Mintel 2006).
'0 This sample size corresponds to a 5.95 percent margin of error under a confidence level of 95 percent.

13

Table 2.1. Distribution of the Surveyed Health Foods Stores and Cooperatives, US,

 

 

 

 

 

 

 

 

 

 

2007
Res onse Res onse
Region /State 81:12:18 Rlate Region /State SaTrfitrillles Rate
No. % No. %
Region Mississippi 1 0 0%
Northeast 52 8 15% Missouri 3 0 0%
Midwest 54 I9 35% Montana 4 l 25%
West 56 I 8 32% Nevada 1 0 0%
South 55 I3 24% New _
Hampshire 4 0 0%
Total 217 58 27% New Jersey 5 0 0%
State New Mexico 1 l 100%
Alabama 0 0% New York 13 l 8%
Arizona I 25% North
Arkansas 0 0% Carolina 6 1 l 7%
California 13 5 23% North Dakota 2 O 0%
Colorado 2 67% Ohio 4 i 25%
Connecticut 1 25% Oklahoma 3 0 0%
Delaware 2 0 0% Oregon 8 2 25%
District 9f Pennsylvania 7 0 0%
Columbia 1 0 0% Rhode Island 2 0 0%
Florida 12 3 25% South
Georgia 3 1 33% Carolina 3 l 33%
Idaho 3 0 0% South Dakota 2 0 0%
Illinois 7 2 29% Tennessee 2 l 50%
Indiana 4 2 50% Texas 4 2 50%
Iowa 5 2 40% Utah 3 l 33%
Kansas 2 0 0% Vermont 5 l 20%
Kentucky 2 1 50% Virginia 5 2 40%
Louisiana 2 0 0% Washing-ton 10 5 50%
Mame 5 3 60% mini. 1 o 0%
11:44:: :31: 4 l 25% Wisconsin 8 4 50%
setts 7 2 29% Wyoming 1 O 0%
Michigan 6 2 33% Total 217 58 27%
Minnesota I l 6 55%

 

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

14

In cases where the sampled respondent declined (over the phone) to participate in
the study, a replacement was drawn from the same state to replace these respondents.
Sample respondents were contacted twice, using e-mail or by phone, to remind them to
submit their completed questionnaires. A total of 27 percent (58 respondents) of the
respondents who agreed to complete the survey actually returned the questionnaireI '.

Fourth, key informant interviews were conducted with potential buyers, including
a natural supermarket, a warehouse club store, four ATOs, and a natural distributor to
determine other possible distribution channels for marketing fair trade beans in the US.
Prior to conducting the key informant interviews, the respective companies were phoned
to obtain the name and contact information of the person in the company responsible for
making decisions about introducing new products and purchasing from new suppliers.
Then, the contact persons were e-mailed to set an appointment for the phone interview.
Key informant interviews were conducted with top-level managers at one major natural
supermarket (Whole Foods Market, Inc.), one major conventional warehouse club (Sam’s
Club) that sold fair trade products, four major ATOs (i.e. Alter Eco Americas, Equal
Exchange, Global Exchange, and SERRV International), and a major natural distributor
(United Natural Foods, Inc.) that was identified through the health food stores and

cooperatives survey (Figure 2.2). The key informant interviews were conducted from

June 2007 to October 2007.

 

” Due to the low response rate, which is expected for organizational surveys (Tomaskovic-Devey, Leiter,
and Thompson 1994), this study conducted a follow-up approach (Rogelberg and Stanton 2007) of non-
respondents to verify the generalizability of results from the health food store and cooperative survey. A
total of l59 respondents, who did not respond to the initial survey (May to August 2007), were contacted
through e-mail or by phone to gather information on: (1) whether they sell fair trade products; (2) if they
sell dry beans; (3) their general interest in selling fair trade beans; and (4) the reason for their non-response.
Of the 159 non-respondents to the initial survey, 34 percent (54 respondents) answered the follow-up
survey.

15

Figure 2.2. Respondents of the Study entitled, Assessing the Potentials of Marketing
Fair Trade Beans from CA in the US

NATURAL PRODUCT RETAILER

 

 

Health Food Natural
Stores/Cooperatives Supermarket
58 independent retail Whole Foods Market,
stores Inc. (WFM)

 

 

 

 

 

 

CONVENTIONAL WAREHOUSE CLUB12

 

Conventional
Warehouse Club
Sam’s Club

 

 

 

FAIR TRADE IMPORTER/WHOLESALER/RETAILER

 

Alternative Trade
Organizations (ATOs)
o Alter Eco Americas
0 Equal Exchange
0 Global Exchange
0 SERRV International

 

 

 

NATURAL PRODUCT DISTRIBUTOR

 

Natural
Distributor
United Natural Foods,
Inc. (UNFI)

 

 

 

 

‘2 Retails fair trade certified products and other ethical products (e.g. organic cotton, fair trade certified
coffee).

16

CHAPTER 3
OVERVIEW OF FAIR TRADE AND OTHER ETHICAL INITIATIVES

This chapter provides an overview of ethical initiatives in the agrifood system.
The first part of the chapter traces the evolution of the fair trade movement, including the
origins, key actors, standards, and labeling system of fair trade. The second part of the
chapter clarifies points of convergence and differences between fair trade and other
prominent ethical labels (i.e. ethical trade and organic). A synthesis of existing consumer
preferences studies for ethical products is also presented, as well as the trends that will
likely persist in the near future for these niche markets. Finally, fair trade market trends
are characterized to determine prospects for growth in the fair trade market of the US.

3.1 Overview of the Fair Trade Movement

Fair trade is “a trading partnership which is based on dialogue, transparency, and
respect, that seeks greater equity in international trade” (FINE 2001, as cited by Krier
2005, 21). Its main contribution to sustainable development is “offering better trading
conditions to, and securing rights of, marginalized producers and workers” (FINE 2001,
as cited by Krier 2005, 21). Equity in trading relations between Northern buyers and
Southern producers is the key principle of fair trade. Through this, smallholder producers
from poor countries can gain market access in Northern markets.

Fair trade empowers smallholders by providing them access to markets and
assistance for improving their production and marketing operations. By complying with
the fair trade quality criteria”, smallholder producers are entitled to receive several
benefits, including access to credit, market information, training, knowledge and skills

building, and a price premium for their products.

 

'3 Discussed in detail in the section on international fair trade standards.

17

3.1.1 Origins

The origin of the fair trade movement can be traced to projects initiated by North
American and European churches, designed to provide relief efforts to refugees and
indigent communities by selling their handicrafts in developed countries’ markets
(TransFair USAc). In the US, the origins of fair trade can be traced to Ten Thousand
Villages and SERVV International, which both began selling products from
poor/developing countries in the 19403 (IFATa). In Europe, the earliest traces of fair
trade date back in the late 19503, when Oxfam UK started selling handicrafts made by
Chinese refugees (IFATa), and in 1964 created the first ATO.

The development of fair trade (or alternative trade, as it was called in earlier days)
stemmed from the belief that capitalism, free market, and the rise of multinational
corporations lead to the exclusion and exploitation of the poor (Redfem and Snedker
2002). Thus, fair trade seeks to “create a more equitable balance between the world’s
biggest companies and world’s poorest economically active workers” (Redfem and
Snedker 2002, 4).

Guided by the principle of redistributing the balance of power in trade, ATOs
targeted retail markets in developed countries in an effort to raise consumer awareness
about fair trade products. In countries in Asia, Africa, and Latin America, non-
government organizations (NGOS) have established fair marketing organizations which
provide advice to Southern producers and link them to Northern markets (IF ATa).

In 1968, at the second United Nations Conference on Trade and Development
(UNCTAD), fair trade was identified as an approach to combat poverty, communicating

the message “Trade not Aid” (IFATa). Since then, it has evolved as a model for long-

18

term development assistance (Low and Davenport 2005) for moving the poor out of
poverty by awarding them a fair return for their work and guaranteeing decent working
and living conditions for their families (Barrientos and Dolan 2006).

In the late 19803, fair trade advocates recognized that because fair trade products
have credencel4 attributes, a quality label was needed to differentiate fair trade products
from other products. This label also signifies fair trade and good quality (Tallontire
2006). Hence, in 1988, the Max Havelaar Foundation, a certifying organization based in
Netherlands, pioneered the labeling initiative for fair trade products by standardizing the
fair trade criteria for coffee. The labeling initiative also emerged to support smallholder
coffee producers as coffee prices began to fall in the 19803. After one year, coffee with
the fair trade label achieved a market share of approximately three percent in the
Netherlands (IFATa).

In the ensuing years, similar non-profit certifying organizations were established
in Europe and North America (IFATa), which resulted in the proliferation of fair trade
labels. In order to not confuse producers, importers, retailers and consumers of these
multiple labels, the Fairtrade Labeling Organization International (FLO) -- a fair trade
network -- was created in 1997 and given the mandate to govern the fair trade
certification and product labeling system.

3.1.2 Key Actors

Key actors in the fair trade movement are: (1) FINE, which coordinates four fair

trade networks (i.e. FLO, IFAT, NEWS, and EFTA); (2) the fair trade networks, (i.e.

FLO, International Fair Trade Association [IFAT], Network of European World Shops

 

'4 . . .
An attribute which consumers cannot verify before or even after purchase.

19

[NEWSI], European Fair Trade Association [EFTA] and FTF”); (3) national labeling
initiatives and producer networks; and (4) other fair trade organizations (ftos). Figure 3.]
illustrates the major players in the global fair trade movement.

3.1.2.1 1_~7_I_N_E

FINE is a forum of the four fair trade networks enumerated below. Established in
1998, it seeks to foster cooperation on strategies that critically affect the fair trade
movement including “developing an integrated monitoring system” and conducting
international advocacy and awareness campaigns for the whole fair trade movement
(F LOc; RAFI-USA 2003).

However, FINE, is an informal working group with no formal structure and
decision-making power. Hence, decisions are made by the boards of the FINE members
(RAFI-USA 2003).

3.1.2.2 Fair Trade Networks

 

(1) Eli), established in 1997, is the leading fair trade standard setting body for

fair trade labeled products (IF AT 2007). To this end, it maintains the fair trade register (a

list of certified producer cooperatives and associations, and marketers) and acts as the

umbrella organization for 20 national labeling initiatives and producer networks (FLOa).
Specifically, it seeks to:

o coordinate the work of the national labeling initiatives and unite them with

producer networks (i.e. producer associations in Latin America, Asia, and

Africa);

 

’5 FTF is the main organization in the US, which issues memberships to potential fair trade producers and
marketers of products not certified by TransFair USA. It is also a member of IFAT.

20

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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21

0 develop fair trade standards benefiting smallholder producers and waged

workers/hired laborers while promoting environmental sustainability; and

o facilitate producer support to local ftos by providing training (to insure their

compliance with fair trade standards) and information about new market
opportunities (FLO 2007).

In order to facilitate its task of promoting producer support, FLO has established
25 liaison Offices in 16 different countries in Asia, Africa, and Latin America”. Also,
FLO’s affiliated company -- FLO-CERT'7 -- assists FLO by inspecting and certifying
producer organizations and fair trade traders to insure that they meet the fair trade
product standards that FLO has developed.

(2) LEA—T, founded in 1989, was originally known as the International Federation
for Alternative Trade. Made up of a global network of 300 organizations, it seeks to
improve the livelihood of the poor through market development, fair trade monitoring,
and advocacy initiatives (IF AT 2007).

Members of IFAT include cooperatives or producer associations, exporters,
importers, and worldshops, who may also be FLO-certified producers, FLO-registered
traders, or FLO licensees. Membership in IF AT is also open to other entities that provide
services (technical or financial) to the movement, such as national and regional fair trade
networks (e.g. FTP) and support organizations. One of its greatest contributions is the
linkage that it facilitates between producers from developing countries and importers,

manufacturers, and retailers from developed countries.

 

'6 For instance, liaison offices in Central America are located in El Salvador, Honduras, Nicaragua, Costa
Rica, and Guatemala. They also “relay product and regional information on market interests to FLO, in an
effort to better anticipate demand and producer needs” (F LOb).

'7 Established in 2004, FLO-CERT, although wholly owned by FLO, is an autonomous organization which
coordinates fair trade inspections of producers and traders of fair trade certified products (F LO-CERT).

22

IFAT also issues an FTO Mark18 (logo) to registered IFAT members, who have
complied with the requirements of the IFAT Standards and Monitoring System (Figure
3.2a). The FTC Mark is not regarded as a product label. Rather, it is a logo designed to
build trust within the movement, which identifies ftos19 that support the fair trade
principles (IFATc). IFAT-registered ftos20 are able to use the PTO Mark on headed
paper, websites, posters and other promotional materials.

Figure 3.2. Fair Trade Logos/Labels

is
View

FAIR RTRAD
TRADE IN E

ORGANIZATION

 

 

s I>

 

 

 

 

 

 

 

iti'ii’liitiéé‘téiiitt FEDERATION FAl RTRADE
Source: IFAT Source: FTF Source: FLOe
a. IFAT FTO Mark b. FTF Logo c. International Certification Mark

(3) NEWS!, established in 1994, is an umbrella organization of 15 worldshop

 

associations that operate in 13 countries in Europe. It represents 2,500 worldshops and
100,000 volunteers working in these shops (NEWS!) Its principal aim is to promote fair
trade, particularly in worldshops based in developed countries. In collaboration with
other F INE- members, NEWS! seeks to define common fair trade criteria, and promotes

monitoring and awareness-raising strategies (NEWS!)

 

'8 The FTC Mark indicates that the organization meets fair trade standards “regarding working conditions,
wages, child labor, and the environment" (IFATc).

Fair trade organizations (fios) include producer organizations, ATOs. and worldshops.
2° IFAT-registered fios are organizations which have complied with the first tier of the IFAT monitoring
system (i.e. an approved self-assessment) (IFAT 2007).

23

(4) ELM, established in 1990, is a network of the 11 largest importing
organizations in Europe (EF TA). It seeks to make fair trade importing more effective and
efficient. It also actively participates in advocacy and awareness campaigns, as well as in
harmonizing and coordinating fair trade activities. Its member organizations import fair
trade products from 400 smallholder producer associations in Asia, Africa, and Latin
America (EFTA).

(5) Hi, based in Washington DC, is a trade association of fair trade importers,
wholesalers, retailers, and producers whose members are committed to providing fair
wages and employment to marginalized producers worldwide. Established as a
partnership between buyers from North America and producers in Asia, Africa, and Latin
America, F TF acts as a clearinghouse for information on fair trade and provides resources
and networking opportunities for its members (F TF a).

F TF awards memberships to ftos, who have complied with their established fair
trade criteria. Membership in FTF entitles ftos to use the F TF logo (Figure 3.2b) on their
promotional materials and include the words “Member of the Fair Trade Federation” on
the packaging of their products (FTFc). Producers from developing countries and other
ftos, which would like to market potential fair trade products with no established FLO-
standards, can utilize this route to market their products in the US.

3.1.2.3 National Labeling Initiatives and Producer Networks

National labeling initiatives and producer networks are also major actors in the
fair trade movement. National labeling initiatives such as TransFair, Max Havelaar,

F airtrade Foundation promote fair trade in their respective countries and license fair trade

24

sellers in developed countries to display the International Certification Mark” (CM) on
their fair trade products (Figure 3.2c).

In May 2007, producer networks gained membership in FLO via a change in its
constitution, which F LO’s members approved to make FLO a truly multi-stakeholder
organization (FLO 2007). Producer networks include FLO-certified producer
organizations as members, which the networks also represent within FLO.

3.1.2.4 Fair Trade Organizations

Fair trade organizations (ftos) are groups and associations (i.e. producer
cooperatives, ATOs, worldshops), which directly participate in fair trade through their
production, marketing, and trading activities. These organizations include producer
groups from developing countries, and importers and retailers in developed countries.
Most ftos are either certified by IFAT, are members of the FTF, or both.

3.1.3 International Fair Trade Standards

Producing and marketing fair trade products is based on voluntary compliance
and certification that the products meet a set of fair trade standards. However, to establish
consumer confidence and to expand the market, major players in the industry (fair trade
networks, labeling initiatives, etc.) encourage potential fair trade producers and market
participants to comply with a set of criteria created by one of the three international fair
trade networks (i.e. FLO, IF AT, and FTF). Furthermore, most retailers require
certification that a product meets fair trade standards, before they will agree to source it

from a supplier.

 

2' The International fair trade CM is the label issued by FLO’s national labeling initiatives guaranteeing a
“rigorous process of certifying products... with [FLO’s] international fair trade standards” (FLOe). It is
“only awarded to products and does not make any statement about companies or organizations selling
them” (FLOe). Currently, only TransFair USA and Canada and MaxHavelaar in Switzerland do not use this
label. Instead, they issue their own fair trade certified mark.

25

Currently, fair trade products are marketed through two different routes (Figure
3.3) (IFAT 2007). First, under the ‘traditional route’, products are produced and marketed
(i.e. imported, distributed, and retailed) by organizations (e.g. ATOs, worldshops) that
have fair trade as their main mandate and are certified by IFAT or are members of FTF.
Second, under the ‘fair trade labeling and certification route’, third party certification is
required to verify that the supply chains of market participants adhere to fair trade
standards established by FLO. Fair trade labeling and certification is the typical way to
market fair trade food products and also the usual route used by commercial companies
interested in marketing fair trade products (IF AT 2007).

Figure 3.3. Two Routes in Marketing Fair Trade Products

 

Producer
Organizations

 

 

 

I
l 1

 

 

 

 

 

 

 

 

 

 

T d't' I Fair Trade Labeling and
ra ' Iona Certification
Sold by: Alternative Trade Sold by: Commercial companies
Organizations (ATOs) and (Starbucks, Sam’s Club) and
worldshops some ATOs (e.g. Equal
Certification: IFAT or be an F TF Exchange, Alter Eco)
member . Certification: Third party
Products: Mostly handicrafts Products: Mostly food products
Standard: Fair Trade Standards for Standard: FLO Generic and
. .Organizations Product Specific Standards
Faculitated by: for Producers and Traders
o lntemational Fair Trade Facilitatedfl:
Assocration (iFAT) o Fairtrade Labeling Organization
0 Fair Trade Federation (FTF) (FLO)
o FLO’s National Labeling
Initiatives (e.g. TransFair USA)
0 FLO-CERT

 

 

 

 

 

26

The existing fair trade standards reflect the needs of both routes/approaches to
market fair trade products (IFAT 2007). IFAT established the international fair trade
standards for organizations, while FLO developed the international fair trade standards
for labeled products. Both standards are based on the fair trade definition and principles
stipulated by FINE.

3.1.3.1 Fair Trade Standards for Organizations

IFAT and FTF issue membership to ftos, which comply with the respective
organizations’ fair trade standards and principles. Membership allows the ftos to use the
networks’ mark/logo in selling fair trade products. However, although both fair trade
networks issue memberships to ftos, FTF only provides memberships to prospective
applicants, but does not certify organizations”. In contrast, IFAT certifies ftos if they
comply with its international fair trade standards for organizations.

(1) Fair trade standards developed by [FA T. Fair trade organizations (ftos)

 

seeking membership to IFAT must comply with its fair trade standards for:
“creating opportunities for economically disadvantaged producers; transparency
and accountability; trading practices; payment of a fair price; child labor and
forced labor; non discrimination, gender equity, and freedom of association;
working conditions; capacity building; promotion of fair trade; and environment”
(IFAT 2007, 2).
Each of the standards has a set of indicators and compliance measures, which
differs between ‘entry’ and ‘progress’ levels (IF AT 2007, 2). Also, IFAT has developed a

three-tier monitoring system which includes: (a) bi-annual self assessments conducted by

individual members; (b) peer reviews by trading partners; and (c) random external

 

22 Although FTF does not certify organizations, it requires prospective applicants to submit a detailed
membership application regarding their business practices for review and approval of the FTP Screening
Committee.

27

verification of five to ten percent of registered ftos in a year, to ensure adherence of its
members to IFAT established fair trade standards (IFAT 2007).

IFAT offers two membership stages -- provisional and registered membership.
Provisional membership is awarded to an fto that has passed all the requirements to
become a member (Appendix A) and has been approved by the IFAT Board of Directors.
On the other hand, registered membership is awarded to ftos that have complied with at
least the first tier of the IFAT monitoring system (i.e. bi-annual self assessment). Only
registered members are allowed to use the FTO Mark on their promotional materials.

(2) Fair trade criteria developed by the FT F . An fto seeking membership to the
FTF must adhere to its fair trade criteria, which include:

“paying fair wages in local context; supporting participatory workplaces; ensuring

environmental sustainability; supplying financial and technical support;

respecting cultural identity; offering public accountability; and educating
consmners” (FTFd).

Membership requirements of F TF are detailed in Appendix B. An organization’s
application for membership is subject to approval of the FTF Screening Committee and
must be renewed annually.

3.1.3.2 Fair Trade Standards for Labeled Products

In order to market a product as fair trade certified (e.g. use the F LO’s
International CM), smallholder producers and their trading partners have to comply with

both the applicable generic and product-specific fair trade standards23 developed by the

FLO Standards Committee (FLOd). Generic standards have been developed for both

 

23For a complete listing of FLO fair trade standards visit: http://www.fairtrade.net/fileadmin/user upload
/content/LIST_OF F LO_Standards_August_ 2007.pgf. Currently, FLO has established product-specific
standards for several food products, including coffee, banana, cocoa, and rice.

28

producers (i.e. small farmer organizations and hired labor) and traders“. Generic
standards embody the minimum requirements for fair trade certification. In contrast, the
product-specific standards, which vary by product, “include fair trade minimum. prices
and premiums” and integrate the standards for producers and traders (FLOd).

Although standards are developed separately for each product, they are all based
on a common underlying set of principles (Redfem and Snedker 2002). The fair trade
principles embodied in FLO standards:

“guarantee a minimum price considered as fair to producers;... provide a fair

trade premium25 that the producer must invest in projects enhancing its social,

economic and environmental development;... strive for mutually beneficial long
term trading relationships;... set clear minimum and developmental criteria and
objectives for social, economic and environmental sustainability” (FLOd).

Figure 3.4 illustrates how a product is certified fair trade. To participate in the
fair trade certified supply chain, both the producers and buyers of the products must be
certified. For producers, the process begins with a producer organization that wishes to
produce and trade a product under fair trade terms. Producer organizations seeking fair
trade certification should conduct a self-assessment to determine: (a) if they are able to
meet FLO’s fair trade standards for their product; and (b) if they have prospective buyers
in the developed country where they wish to sell their product under fair trade terms26. In
the course of the carrying out this assessment, the interested organization may seek
advice from the nearest FLO liaison officer. If the producer organization decides to apply

for fair trade certification, it must submit a written application to FLO-CERT. Then,

F LO-CERT responds by notifying the producer organization whether or not it meets

 

2’ Trader standards are currently under revision.
25 Fair trade premium is paid to producers on top of the minimum price, which usually ranges from 5 to 30
percent of the farm gate or free on board (fob) price (FLO 2006).

FLO cannot guarantee producer organizations a buyer, even if they are certified (FLO 2006).

29

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30

FLO’s fair trade generic and product-specific standards and then conducts an initial site
inspection visit, if the organization appears to be qualified. Next, the FLO-CERT
Certification Committee27 reviews the inspection report generated from the site visit and
judges if the organization is eligible for certification. Finally, fair trade certification is
awarded to the producer association or cooperative, if its application is approved by the
Certification Committee. Certification for a specific fair trade product can be renewed,
subject to a yearly inspection”. The newly certified producer organization is “able to sell
their product under fair trade terms, as long as they have a buyer who wants to buy under
those terms” (FLO 2006, 7).

For buyers, in order to market a fair trade certified product purchased from a
certified producer, the buyer must apply to FLO-CERT or FLO’s national labeling
initiatives for trade certification. Also, interested buyers from the developed countries --
importers, distributors, manufacturers, and ATOS —- who would like to be F L0-

29 must register with the national labeling initiative in the country where they

licensees
wish to sell fair trade certified products. Contracts or agreements between fair trade
market participants and FLO-CERT and FLO’s national labeling initiatives “track the
chain of custody from crop to cup” (TransFair USAa).

The fair trade labeling system and certification process, as described above, seeks

to help smallholder producers’ access developed countries’ markets by expanding their

market reach and thus, increasing the benefits that they derive from fair trade.

 

27 The Certification Committee is composed of FLO stakeholders (i.e. national labeling initiatives, producer
associations, traders, etc.)

23 For details regarding producer inspection and certification fees, see Appendix C.

29 Market participants authorized to use the lntemational fair trade CM and market the final fair trade
certified products to worldshops, conventional retailers, or both in developed countries.

31

3.2 Fair Trade and Other Ethical Initiatives

Fair trade and other prominent ethical initiatives -- such as ethical trade and
organic agriculture -- are increasingly evident in today’s marketplace (Smith and
Barrientos 2005). This trend has several sources. First, civil society groups have been
campaigning to increase consumers’ awareness of the plight of smallholder producers
and workers along the global supply chains. Second, consumers are concerned about food
safety and quality, as well as environmental issues (Barrientos and Dolan 2006; Smith
and Barrientos 2005; Raynolds 2006). These factors have pressured firms to adopt social
justice and environmental standards as part of their corporate social responsibility30
(CSR) and require firms along their global supply chains to meet these standards.
Consequently, there has been a marked increase in the production and marketing of
ethical goods and services since the early 19905 -- a trend which responds not only to the
rising demand for ethical products, but also to the need of corporate firms to build a
‘positive’ or humanitarian image (Von Braun 2004; Barrientos and Dolan 2006). Most of
these ethical labeling and certification processes rely on voluntary standards and codes of
conduct (Traidcraft 2004).

This section reviews past studies of fair trade, ethical trade, and organic
initiatives, and highlights their evolution, differences, and points of convergence (Figure

3.5 and Table 3.1).

 

30The principles of corporate social responsibility (CSR) state that “businesses should recognize,
understand and seek to improve their environmental, economic and social impacts” (Traidcraft 2004, l).

32

 

 

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35

3.2.1 Fair Trade vs. Ethical Trade

Ethical trade is defined in different ways. Some view it as “a ‘catch-all’ concept
that includes a range of ethical considerations” (Browne, Harris, Hofny-Colins,
Pasiecznik, and Wallace 2000, 69), including producer and worker welfare, animal
welfare, and sustainable or environment-friendly production. Others define it as ethical
sourcing, which is most often compared to fair trade (Tallontire 2002); while some view
it specifically in terms of labor conditions along a company’s supply chain such as the
Ethical Trading Initiative (ETI). This study adopts ETI’s definition -- an alliance of
NGOs, companies and trade unions, which have developed the Base Code31 to improve
the working conditions of corporate supply chains. ETI Base Code “focuses on the
minimum labor standards set by the International Labor Orgnization ’s (1L0) Declaration
on Fundamental Principles and Rights at Work ” (Traidcraft 2004, 2). Similar to ETI,
Social Accountability lntemational (SAI) has also developed the Social Accountability
8000 (SA 8000), a certifiable standard based on the international workplace norms of the
ILO Conventions, the Universal Declaration of Human Rights, and the UN Convention
on the Rights of the Child for which suppliers can be audited (SAI; Barrientos and Dolan
2006, 16). Both standards -- the ET] Base Code and SA 8000 -- are multi-stakeholder
codes, which specify ethical trade (i.e. codes of labor practice) along the global supply
chains of corporate buyers and retailers (Barrientos and Dolan 2006; ETla). These two
ethical trade standards are “voluntary approaches to enhancing labor standards in global

production systems where key corporate buyers are often beyond the control of national

 

3' The ETl Base Code states that:“employment is freely chosen, freedom of association and the right to
collective bargaining are respected, working conditions are safe and hygienic, living wages are paid,
working hours are not excessive, working hours are not excessive, no discrimination is practiced, regular
employment is provided, and no harsh or inhumane treatment is allowed” (ETla).

36

regulation in countries from which they source” (Barrientos and Dolan 2006, 4).
Compliance with the E TI Base Code and other codes of labor practice is verified by third
party certifiers32.

Ethical trade (codes of labor practice) gained momentum during the late-19805 to
19903, in response to activists concerns regarding the need to address poor working
conditions and worker’s rights along the global supply chains of companies engaged in
the garment, footwear, and agrifood industries (Barrientos and Dolan 2006). Ethical trade
is also driven by concerns of brand image in the market destination, due to pressure
exerted by civil society groups and organizations (Redfern & Snedker 2002). As such, it
has been adopted mainly by medium to large-scale firms (Smith and Barrientos 2005).

Several comparative studies have focused on aspects of fair trade and ethical
trade. These studies used different frameworks in analyzing the difference and
convergence of the two concepts. Although both initiatives are largely the result of
“actions of social movements” seeking to achieve economic and social justice in
international trade (Renard 2003; Jenkins et al. 2002 as cited by Smith & Barrientos
2005); they adopt “different aims and methods” (Barrientos & Dolan 2006, 4). Since each
of these initiatives arose for different reasons, “their principles and scope vary, with fair
trade’s principal focus on terms of trade and ethical trade on labor practices” (Smith &
Barrientos 2005, 190).

However, as both ethical and fair trade movements have matured and widened
their scope, the delineation between the two initiatives has become unclear. For instance,

this has been observed in supermarkets in the United Kingdom (UK) adding fair trade

 

32 For a listing of third party certifiers for the ET] Base Code, visit: http://www.eti2.org.uk/Z/ethtrd
/factsheets/ETl_factsheet_suppliers.pdf. For SA 8000 certifiers, visit: http://www.sa-intl.org/index.cfm
?fuseaction=Page.viewPage&pagelD=702.

37

products to their own-label brand goods while also applying the principles of ethical trade
(e.g. Tesco) (Smith & Barrientos 2005).

To distinguish the concepts’ differences and points where they meet, some studies
used global value chain analysis and the convention theory33 concept of quality in the
context of supermarket retailing in the UK (Smith and Barrientos 2005). Using this
method, they characterize ‘traditional fair trade’ as having a relational value chain, which
is governed by civic and domestic coordination, and ‘traditional ethical trade’ as a buyer-
driven or modular value chain, which is governed by market and industrial coordination.

The emerging overlap between the two initiatives becomes more visible, as the
fair trade movement expands to include fair trade products from plantations and
commercial farms, and markets them through corporate buyers and retailers (Smith and
Barrientos 2005). The implementation of minimum labor standards among waged
workers and hired laborers and the inclusion of fair trade in corporate buyers and retailers
own-label brand product lines bring fair trade into the terrain of ethical trade. On the
other hand, ethical trade has evolved towards including relational commitment along the
agents of the supply chain, which overlaps with some fair trade principles (Smith and
Barrientos 2005).

Still, some view ethical trade and fair trade as “points on an ethical continuum’

(Redfem and Snedker 2002). Contrary to ethical trade, fair trade moves beyond

 

33 Convention theory deals with “non-price means of coordination that complement the price system”
(Montpellier 1994, as cited by Staatz 2003). Conventions are ways to coordinate the economy or industries
through norms and value, standards of uniformity, and rules and institutions to apply these standards (Flora
undated). Four coordination mechanisms, which define product quality based on convention theory are: (1)
“industrial coordination, [based] on standards, norms, objectivized rules and testing procedures; (2)
domestic coordination, based on face-to-face relations, and trust of people, places or brand names; (3) civic
coordination, [based] on adherence of a group of actors to a set of collective principles, its structures and
economic relations; and (4) market coordination, market laws, or mechanism based on prices” (Renard
2003, as cited by Smith and Barrientos 2005, 192).

38

compliance to minimum labor standards and works to empower the smallholder
producers and waged workers. Fair trade also seeks to insure equity in trading relations,
while ethical trade does not consider this (Redfem and Snedker 2002). F urthermore, from
a business perspective, fair trade and ethical trade differ in terms of “marketing
strategies” (i.e. ethical trade does not allow ETI membership to be used as a tool for
product promotions, while fair trade allows firms to use a fair trade label to promote their
products) (Redfem and Snedker 2002, 14).

As fair trade continuously expands into mainstream markets, which include
corporate buyers (e. g. Sam’s Club and Starbucks in the US), and as ethical trade strives to
broaden its initiative to include small scale agents in its supply chain, these two initiatives
will increasingly overlap. Fair trade and ethical trade may merge in some value chains
(e.g. UK supermarkets), while “in others they will continue as inherently different
[initiatives] -- depending on the values, culture and strategies of the companies involved”
(Smith and Barrientos 2005, 197).

3.2.2 Fair Trade vs. Organic Movement

The organic agriculture movement stemmed from diverse initiatives in the US and
Europe, which were critical of the “unsustainable and unhealthy nature of industrial
agriculture and agro-industrial foods,” respectively (Raynolds 2006, 49). Currently, the
global organic movement promotes and encourages “trade in agricultural commodities
produced under certified organic conditions and processed goods derived from these
commodities” (Raynolds 2006, 49). Principles of organic agriculture focus on concerns
about “safe food production, environment, animal welfare and issues on social justice”

(Browne et al. 2000, 69). Due to this wide-ranging scope of organic agriculture, it is

39

defined in many different ways. However, general agreement exists “that it represents a
system of farm management based on natural methods of enhancing soil fertility and
resisting disease, rejection of synthetic fertilizers and pesticides, and minimization of
damage to the environment” (Raynolds 2006, 51)

Compared to fair trade and ethical trade, there has been considerable progress in
terms of the institutionalization and harmonization of organic standards and certification
procedures in North America, Europe and other leading organic markets (Raynolds
2000). The creation of the lntemational Federation of Organic Agriculture Movements
(IF OAM) in 1972 -- the umbrella organization of organic agriculture organizations and
institutions worldwide -- has contributed significantly to the progress that the organic
movement has achieved. IFOAM has developed and implemented a harmonized set of
criteria -- the Organic Guarantee System34 -- to ensure integrity of organic products
globally (IF OAMa).

On the other hand, in the US, the production and marketing of organic products in
both domestic and international markets is regulated by the US Department of
Agriculture-National Organic Program (USDA-NOP) (Busch, Thiagarajan, Hatanaka,
Bain, Flores, and F rahm 2005). Only those firms which have been certified by accredited
USDA certifying organizations35 are able to label and market organic products in the US

(Busch et al. 2005).

 

3“ The “005 unites the organic world through a common system of standards, verification, and market
identity” (IFOAMa).

35 For a listing of the USDA accredited organic certifying agents, visit: http://wwwams.usdagov/NOP
{CertifyingAgents/Accredited.html

 

40

Since the early 19905, organic certification and labeling has grown more popular
and widespread, as consumers become increasingly concerned about the link between
production conditions and the health and safety of food products (Raynolds 2006).
Hence, “although organic certification started as a voluntary activity, the market began to
demand it for sales transactions, and now it is required by the regulations of many
governments for any kind of an ‘organic’ claim on a product label” (lFOAMb).

Increasingly, the organic initiative is associated with other ethical initiatives such
as fair trade and ethical trade, suggesting a synergy between organic and other ethical
initiatives (Bell and Valentine 1997, as cited by Browne et a1. 2000). For instance, the use
of organic certification in marketing fair trade products is increasingly gaining
importance in developed markets. Although fair trade does not require organic
certification, it is expected that in the future organic and fair trade initiatives will
converge as fair trade moves towards organic compliance. Some evidence suggests that
“the fair trade premium has been the catalyst for conversion to organic [among producer
groups]” (Robins and Roberts 1997, as cited by Browne et a1. 2000, 83). To date,
although both the organic and fair trade initiatives function separately, certain products
can be both certified organic and fair trade (Raynolds 2006). However, in the US, the
majority of fair trade certified products are also certified organic.

Also, the recent inclusion of codes of conduct (basic human rights criteria) in
IF OAM’s organic standards places the organic initiative into the terrain of fair trade and
ethical trade. However, these social criteria embodied in IFOAM’s organic standards are

not yet reflected in international law (Raynolds 2006).

41

The main players in the organic and fair trade movements propose that the
synergy between these initiatives be intensified”, since fostering the convergence of
these two movements would bring a holistic approach to sustainable development
(Cierpka 2000). However, the convergence of organic and other ethical initiatives (i.e.
fair trade and ethical trade) has implications on the volume of trade, and producers’
ability to meet demand requirements, as well as producers’ livelihood and welfare
(Browne et al. 2000), which should be systematically investigated in the future.

3.3 Consumer Demand for Ethical Products

This section examines the nature of demand for fair trade and other ethical
products, and provides a synthesis of past consumer behavior and preference studies that
have focused on these types of products.

The growing interest in and proliferation of ethical products in current market has
been both consumer and trade driven (Browne et al. 2000). Consumers’ heightened
interest in ethical sourcing puts pressure on corporate buyers and retailers to incorporate
ethical policies in their operations. Conversely, these corporate buyers also realize “the
commercial value of an ethical policy and are positioning themselves as socially
responsible companies” (Barrientos and Dolan 2006, 180).

Lifestyle changes among consumers in developed countries have also influenced
demand for ethical (sustainable) products. Rising incomes in developed countries “make
it possible to adopt a lifestyle which does not focus on basic needs, but also on needs of

higher order, such as self-respect and self-fulfillment” (Meulenberg and Viaene 2005,

 

3" According to IFOAM, cooperation between the two initiatives will be further intensified due to: (1) the
producers’ perspective that since organic and fair trade initiatives use similar questionnaires for inspection,
by working closely together saves labor; and (2) the consumers’ perception that when they buy a fair trade
product, it will automatically be organic or vice versa (Cierpka 2000).

42

27). Affluence, in this sense, creates greater diversity of food eaten, such as a rise in
ethnic food consumption and other specialty products (Schaffner, Schroder, and Earle
1998). Also, in developed countries, most consumers are “increasingly concerned [about]
the safety of foods, its nutritional value, its long-term effects (mostly in regard to illness
and their health), and its social and environmental effects” (Schaffner et al. 1998, 99).
However, some academicians’ argue that “ethical food is not limited to a class or sector
of society... and has a cross-class appeal” (Rice-Oxley 2007). This is contrary to the
point of view of food marketers who consider ethical food as a “status symbol” of the
affluent in the society (Rice-Oxley 2007).

3.3.1 Fair Trade and Other Ethical Initiatives as Product Attributes

Quality attributes play a crucial role in product development and marketing
(Senauer, Asp, and Kinsey 1991). This idea is highlighted in the extension of demand
theory developed by Lancaster (i.e. people demand attributes and not the good per se,
thereby driving the dynamics in the food system).

Fair trade, organic, and ethical trade can be considered quality attributes, which
have increasingly gained acceptance among consumers in developed countries. The
growing recognition of fair trade and other ethical qualities in the agrifood system is in
“response to evolving forms of consumption, in which product demand is tied to shared,
socially constructed values such as environmental conservation, food safety or regional
character” (Renard 2005, 421). This quality is oriented towards the ethical (i.e. socially
conscious) segment of the market that might be willing to pay higher prices, if guaranteed
that a price premium will be provided to producers (Renard 2005), or if improvements on

the environment and labor conditions are insured.

43

However, consumers’ willingness to buy and pay37 for ethical products at
premium prices may not necessarily translate into actual purchases (Bougherara and
Grolleau 2004; Strong 1997, as cited by Nicholls 2004). A probable reason for the
discrepancy between “what consumers say they do and what they actually do is that
‘green’ [ethical] products might not meet the consumer criteria of price, performance and
quality” (Hurtado 1998, as cited by Galarraga and Markandya 2004, 1).

Since fair trade and other ethical qualities (e.g. organic and ethical trade) are
attributes that consumers cannot verify even after purchase, they are termed as credence
goods. Producers or suppliers, in this case, have more knowledge on the quality of their
products than consumers, implying information asymmetry. Hence, although fair trade
products, for instance, claim to have respect for the environment and equity in trading
relations, the value attached to these products depends on the consumers’ confidence on
fair trade as a quality attribute (Renard 2005). In turn, consumer confidence is subject to
the information that reaches them and the confidence that they have in the truthfulness of
that information (Carimentrand and Ballet 2004, as cited by Renard 2005). Thus,
demand for ethical products, such as fair trade, organic, or ethical trade, is dependent on
their credibility as a fair trade, ethical, or organic product and the value that consumers
attach to these products.

3.3.2 Market for Ethical Products

A study of UK-based organizations and firms engaged and committed to ethical

sourcing, analyzed how these firms characterize an ethical consumer (Browne et al.

2000). The study revealed that there is widespread agreement among ATOs regarding the

 

37 For a summary previous literature on consumers’ willingness to pay for ethical products. see Appendix
D.

44

“hierarchy of ethicalness” among consumers. This ethical hierarchy of consumers, as
defined by ATOs, is as follows: (1) true ethical , roughly two percent of consumers,
“who will go out of their way to buy on a cause-related basis”; (2) semi-ethical or
armchair ethical, 20 to 30 percent of consumers, who shop at supermarkets but will
occasionally buy fair trade certified coffee or organic produce “because they are
convinced of its claims and are prepared to pay a modest premium”; and (3) the would be
ethical, about 80 percent of consumers, who will buy ethical products “if there was no
price premium and no special effort was required to buy ethically” (Browne et al. 2000,
79). ATO respondents of the study were aware that “they cater to the fully ethical ‘2%’
and that [mainstream] supermarkets are capable of supplying, the latent demand of the 80
percent [of the population]” (Browne et al. 2000, 79).

Furthermore, the respondents (i.e. UK-based organizations) classified the
concerns of the ethical consumers that influence their buying behavior as related to: (1)
health -- “what is in the food”; (2) the environment -- “how the food is produced”; (3)
animal welfare -- “humane treatment of animals”; and (4) the working and living
conditions of producers in poor countries -- “not exploiting the people who produce the
food” (Browne et al. 2000, 79). The balance (i.e. the relative importance to consumers)
among these four sets of motives depends on the type of retailer the consumer is
patronizing (e. g. worldshops or mainstream supermarkets) (Browne et al. 2000).

Another study on ethical markets, which drew on Mintel Reports (1994),
classified consumers into three main clusters -- the ethical (23%), semi-ethical (56%),
and selfish (17%) consumers (Bird and Hughes 1997, as cited by Moore 2004). The study

also revealed that over the four year period since the previous Mintel study in 1990, the

45

proportion of ethical and semi-ethical consumers had increased at the expense of the
selfish consumers (Moore 2004). Furthermore, a number of surveys on ethical
consumption done by the Co-operative Group (2000) found that ethical consumers were
no longer a minor pressure group; “one-third of the public now see themselves as
strongly ethical” (Nicholls 2002, as cited by Moore 2004, 81). And contrary to the main
ethical concern of the 19805 (i.e. environment friendly practices), issues being tackled
currently focus on supply chain operations in the global agrifood system, emphasizing
human and social factors (N icholls 2002, as cited by Moore 2004).

Looking further at willingness-to-pay, Galarraga and Markandya (2004) found
that consumers are willing to pay a price premium of approximately 5 to 15 percent for
ethical products. Based on UK-Studies, consumers who were most willing to pay a
premium for ethical products were women, individuals in the middle-to-high brackets,
and consumers under 35 years of age (Mintel 1994, as cited by Moore 2004).

In terms of consumer preference for different ethical products, several UK-based
ethical organizations (i.e. ATOs, activist, and consumer groups) claimed that “the same
sorts of people are interested in both” (i.e. ethical and organic) (Browne et al. 2000, 83).
Further, a study that used contingent valuation techniques to compare consumers’
willingness-to-pay for fair trade, organic, and shade grown coffee products revealed that
fair trade coffee carried the highest premium, about $0.22 per pound over the original
price, followed by shade grown ($0.20/1b), and organic ($0.16/lb) coffees (Loureiro and

Lotade 2005).

46

Consumer interest in ethical products also varies geographically. In general,
“Europe leads on ethical consumption (i.e. labor and working conditions), whereas in the
US environmental interests are more prominent” (Murray and Raynolds 2000, as cited by
Moore 2004, 81). This attitude is further reflected in supermarket retailing.
“Supermarkets in the US stress food safety, while European supermarkets tend to
emphasize workers’ welfare and environmental protection as well as food safety” (FAO
2004, as cited by Barrientos and Dolan 2006, 7).

From 2005 to 2006, global sales of fair trade certified products increased by 42
percent, totaling €1.6 billion (US$ 2.4 billion) in 2006, albeit constituting a small fraction
of the total market (FLO 2007). And although Europe dominates fair trade sales,
accounting for approximately 61 billion in 2006, the strong market growth in the US (45
percent increase in fair trade certified coffee sales from previous year) offers the greatest
potential for expanding the fair trade market in the ensuing years (Barrientos and Dolan
2006). On the other hand, growth in the global organic market is much slower than for
fair trade, with demand expanding at roughly 20 percent annually, albeit constituting a
much greater share of the total retail market than fair trade (Sahota 2004, as cited by
Raynolds 2006).

Much of the future increase in ethical products’ sales will be driven by the
continuous mainstreaming of these products in major supermarkets in Europe and the US
(Barrientos and Dolan 2006; Raynolds 2006). Also, as civil society groups increasingly
demand some form of ethical practices or initiatives in global agrifood system supply
chains, demand for ethical products will continuously expand, moving beyond niche

marketing in the near future.

47

3.4 Overview of the Fair Trade Market in the US

As discussed earlier, the US fair trade market is seen to have the greatest potential
for expanding fair trade sales, due to the magnitude of this market and its untapped
potential for fair trade products. Compared to the European and Pacific Rim (i.e. Japan,
New Zealand, and Australia) markets, the rate of growth in North Americas’ fair trade
market (i.e. US, Canada, and Mexico) is higher than the global average for fair trade
certified product retail sales. From 2001 to 2006, sales of fair trade products in the North
American market increased by an average of 49 percent annually (Figure 3.6), which is
slightly above the 42 percent increase for the global fair trade market (2005-2006).

Figure 3.6. Gross Sales of the Fair Trade Industry”, North America, 2001-2006

 

 

 

 

 

 

 

 

900 7 77 , , . , 7 W- 7
] 809.75
l ””1“
AnnualGrowth Rate =49°/
a _- ____ __-,°__l
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Year

 

 

 

 

Sources of basic data: FTF (2005); TransFair Canada (2007); TransFair USA (2007)

For several years, the US has led the rest of the developed world in terms of its market

share of global fair trade retail sales. For instance, in 2006, US sales of coffee alone

 

38 Detailed gross sales data shown in Appendix E.

43

accounted for 31 percent in global fair trade sales, with a fair trade turnover of US$ 730
million (€499 million) (FLO 2007).
3.4.1 Product Characteristics

Table 3.2 shows the fair trade certified products (i.e. certified by TransF air USA)
offered in the US, as well as their key characteristics. Most of these fair trade certified
products are food products, some of which are highly perishable. Due to their perishable
nature, whenever possible, TransF air USA recommends that small producer
organizations minimally process (i.e. bag/pack, roast) their products. This also has the
potential to improve the income of producers, due to the value-added captured from
processing and packaging.

Most fair trade certified products (mostly food) sold in the US are sourced from
CA (FTF 2005). In terms of fair trade certified coffee, approximately one-half of the
suppliers are from CA and Mexico. CA also accounts for the largest number of
organizations certified for fresh fruit and cocoa (FTF 2005). Generally, fair trade certified
products are supplied by small family farms, except for bananas which are mostly grown
in plantations, employing farm workers.

Compared to conventional food products, producers of fair trade certified
products are paid an average price premium of 5 to 10 percent over and above minimum
cost (i.e. based on local conditions). This premium is intended to compensate smallholder

producers for meeting fair trade quality standards.

49

 

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51

3.4.2 Market Trends

In terms of market shares among fair trade certified products in the US in 2006,
fair trade certified coffee accounted for approximately 84 percent (Figure 3.7), albeit
constituting only three percent of overall coffee sales. Fair trade coffee was followed by
banana (7%), sugar (5%), cocoa (2%), and tea (1%) of the total volume of fair trade
certified imports. Certified products, which accounted for the other 1.35 percent of
imports, were mango, rice, vanilla, and pineapple.

Figure 3.7. Percent Share of Fair Trade Certified Products to Total Volume of
Products Certified by TransFair USA, 2006

 

  
 
  
 
 
  
  
 
   

Banana
7.37%

Sugar
4.62%
Cocoa
2.34%

Tea
0.81%
Others
‘ 1.35%

Coffee
83.51%

 

 

Total=35,l83mt J J

 

Source of basic data: TransFair USA (2007)

The total volume of imports of fair trade certified products increased by 67
percent annually from 2001 to 2006 (Table 3.3). Most of the increase can be attributed to
coffee and fresh fruit imports. Although fresh fruits were the second most important fair
trade products, since 2004, imports have declined by 16 percent annually. A key reason

for the decline in fresh fruit imports was the 31 percent reduction in banana imports from

52

2004 to 2006 (TransF air USA 2007). On the other hand, during the period 2001 to 2006
imports of coffee rose by 59 percent yearly. Imports of fair trade coffee, tea, and cocoa
are projected to increase further in the future. These trends indicate growing consumer
awareness and a widening market for these fair trade certified products in the US. For
example, TransFair USA (2007) reported that from 2005 to 2006 awareness of fair trade
coffee among US coffee drinkers increased from 15 to 20 percent. Among the aware
population, 56 percent made a fair trade purchase (TransF air USA 2007).

Table 3.3. Total Volume of Imports (mt) of Fair Trade Certified Products, US, 2001-

 

 

2006
. Fresh .
Year Coffee Tea Cocoa Rice Sugar Fruit Vanilla Total
2001 3,025.18 29.60 0 0 0 0 0 3,054.78
2002 4,421.47 39.33 6.37 0 0 0 0 4,467.17
2003 8,726.76 43.40 81.14 0 O 0 0 8,851.30
2004 14,957.09 81.79 330.03 0 0 3,998.08 0 19,366.99
2005 20,223.77 234.74 470.24 33.49 123.23 3,349.45 0 24,434.92

2006 29,381.49 285.76 823.00 177.29 1,624.59 2,801.83 89.43 35,183.38
Average 13,455.96 119.10 285.13 35.13 291.30 1,691.56 14.90 15,893.09

 

 

SD 10,143.65 11 1.93 324.41 70.92 655.03 1,891.32 36.51 12,665.76
CV 75% 94% 1 14% 202% 225% 1 12% 245% 80%
Annual Growth Rate

2001-2006 59% 68% 399% 429% [218% -16% n.a. 67%

 

Note: n.a. - not applicable
Years with zero values mean the product has not yet been introduced.

Source of basic data: TransFair USA (2007)

Furthermore, growing interest among US consumers in organic fair trade certified
products is also driving the increasing demand for fair trade certified products (Figure
3.8). From 2001 to 2006, organic fair trade certified products accounted for a 73 percent
share of the total volume of fair trade certified imports and registered an average annual

increase of 66 percent.

53

Figure 3.8. Total Volume of Fair Trade Certified Imports by Product Type, US,

 

 

 

 

 

 

 

 

 

 

 

2001-2006
40,000 T —-
30.000 « , - . - -
7.?
E
3 20,000 1 A i
O
O.
E
10000 ~ -
2001 2002 2003 2004 2005 2006
Year

 

 

i | [:1 Organic I Conventional

1 a

L

Source of basic data: TransFair USA (2007)

 

 

3.5 Chapter Summary

The fair trade movement, which began in 19403, has become a worldwide
movement that has raised global consciousness regarding the plight of smallholder
producers and farm workers in poor countries. Governed by several fair trade networks
(i.e. FLO, IFAT, and FTF), fair trade envisions alleviating global poverty through
promoting equitable trade and expanding market access of the poor. These fair trade
networks have established standards for both products and organizations, which focus on
social justice and environmental sustainability.

Fair trade and organic standards are expected to converge, as the fair trade
movement incorporates organic certification into most of its products and organic
initiatives integrate social justice standards into its criteria. On the other hand, the

demarcation between fair trade and ethical trade is fading, as large corporate buyers

54

increasingly market fair trade products and ethical trade initiatives tailor their codes of
conduct to include small agents of the agrifood system.

Trends in the demand for ethical food products (fair trade, ethical trade, and
organic) indicate bright prospects in the US market. Growing interest among US
consumers for these types of products has been driven by their growing consciousness
and concern about global issues, including food safety and health concerns, persistent
global poverty, and environmental degradation. Continuous mainstreaming of ethical
products in supermarkets and other retail outlets, as well as the extension of product
breadth, especially for fair trade, will further stimulate demand and increase the
consumption of these types of products.

As a major player in global fair trade market, the US market has a strong grth
potential. Expansion of fair trade to include additional food products and untapped
markets provides the possibility to further boost demand for fair trade products in the US.
In turn, this will offer increased opportunities for smallholder producers and farm
workers to improve their production and marketing operations, and ultimately their

welfare.

55

CHAPTER 4
THE CENTRAL AMERICAN BEAN SUBSECTOR AND
ITS OPPORTUNITIES WITH FAIR TRADE

This chapter provides background on the agricultural sector of the Central
American (CA) region. Specifically, it details the supply, marketing, and international
trade of the CA bean subsector. This section also evaluates the competitiveness of CA
beans”, specifically with respect to US beans of similar market classes imported by the
region, and provides a brief description of international trade rules affecting the region’s
bean trade. Lastly, it identifies current threats to smallholder bean producers and assesses
opportunities for them to exploit niche marketing, particularly exporting fair trade beans
to the US market.
4.1 Agriculture and the CA Region

CA includes seven countries (i.e. Belize, Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua, and Panama) with a total land area of 51 1,000 km2 (Figure 4.1). In
2006, agriculture contributed 14 percent of the total Gross Domestic Product (GDP)
(World Bank Key Development Data and Statistics) and employed approximately 25
percent of the region’s total labor force40 (ILO Database of Labour and Statistics).

In CA, beans are the second most important “basic grain” for human consumption

after maize, accounting for 12 percent of the region’s total harvested crop area (Martinez

 

39 Dry beans mainly include species of common beans (p. vulgaris, e.g. black, navy, pinto, kidney, small
red). However, some countries also include vigna species (e.g. cowpeas, mung beans, adzuki) when
reporting data for dry beans. Thus, FAO data for dry beans typically includes data for both p. vulgaris and
vigna species. While vigna species are not commonly grown in CA, FAO import and export data may
include small quantities of vigna species. In this chapter, while beans refer to common beans, the data may
include small quantities of vigna species.

‘0 Varies by CA country (e.g. 39% of labor force in Honduras are engaged in agriculture, 29% in
Nicaragua, 50% in Guatemala).

56

2003). Most smallholder producers grow corn and beans for both home consumption and
as a major source of income.

Figure 4.1. Map of Central America

Belize

Guatemala

Q

El Salvador

  

Nicaragua

  

Costa Rica

    
 

Panama

4.2 Supply Characteristics
Similar to other basic grains, beans are a semi-subsistence“ crop (Martinez 2003).
They are generally produced in hillside areas (about 80 percent of the planted area) and

mostly on marginal land (C IAT). Beans are primarily grown on fragmented and dispersed

 

4' Semi-subsistence means “agricultural holdings which produce primarily for their own consumption and
also market a proportion of their output” (European Commission Agriculture and Rural Development
2005).

57

farms by smallholder producers who have limited access to productivity-enhancing
technologies, credit, and extension services (CIAT). As the growing season varies by
country, varying quantities are supplied to the market each month.
4.2.1 Area Harvested and Production

Over the 2001 to 2005 period, the harvested bean area increased by an average of
two percent per annum, while production rose by one percent per year (Figure 4.2). On
average, the area planted to beans in the region totaled 608,000 ha. Nicaragua accounted
for approximately 42 percent of the harvested area, followed by Guatemala (22%),
Honduras (16%), El Salvador (14%), Costa Rica (3%), Panama (2%), and Belize (1%).

Figure 4.2. Total Bean Harvested Area and Production, CA, 2001-2005

 

    

 

 

 

 

660 lb- iv A, ~ *7 —Av——‘—~~¢ W ~!—7« 47— ~7—— 520
E Area Harvested

640 -- l _, 500
’3 620 «»
4: —» 480 a?
g E
9 600 ~» 9
E ~» 460 §
*-' 580 ~ g
8 ._
E «— 440 ‘g’
N -t
I 560 .8
N l-
qa 420 n.
E 540 ,

520 ~~ "' 400

500 — — 380

 

 

 

 

Source of basic data: FAOSTAT Database

58

On the other hand, the region’s production averaged 463,296 mt per year (Figure
4.3). Of this total, Nicaragua accounted for approximately 42 percent, followed by
Guatemala (20%), El Salvador (17%), Honduras (16%), Costa Rica (3%), and Belize and
Panama -- each with one percent shares.

Figure 4.3. Share on Average Bean Production by Country, CA, 2001-2005

 

Panama
- 1°/
Costa Rica ° 1%

‘ Belize
3%

     
 
 

 

l Honduras
| 16%
l Nicaragua
1 42%

El Salvador

17%

l
l
i Guatemala __ Average = 463, 296 mt

 

 

l 20%
Source of basic data: F AOSTAT Database

 

4.2.2 Dominant Bean Market Classes

Small red and black beans are the dominant bean market classes grown in CA
(Figure 4.4). Small red beans are produced primarily in Nicaragua, El Salvador, and
Honduras, while black beans are grown mostly in Guatemala and Costa Rica (Table 4.1).
This production pattern reflects differences in consumer preferences among countries in

the region.

59

Figure 4.4. Dominant Market Classes of Beans, CA

   

Black Beans

Source: MSU AFRE Common Bean Atlas ofthe Americas

Differences in consumer preferences among countries affect the extent to which
each country is vulnerable to imports (Martinez 2003). Since black beans produced in CA
have similar characteristics as black beans from the US, Canada, and Argentina, imports
from these major exporting countries threaten domestic production in Guatemala and
Costa Rica (Martinez 2003). On the other hand, since there is no close substitute for
small red beans, imports are limited unless there is a large deficit in the region (CORECA
1999, as cited by Martinez 2003).

Table 4.1. Bean Production by Market Class, CA

 

 

 

Country Small Red Black Others
Nicaragua 85% 15% 0
Guatemala 2% 97% 1% 1
El Salvador 90% 10% 0
Honduras 80% 20% 0
Costa Rica 20% 80% 0
Belize 0 15% 85% 2
Panama n.a. n.a. n.a.

‘White

2Dark Red kidney
n.a. ~ not available

Source: MSU AFRE Common Bean Atlas ofthe Americas

6O

4.3 Bean Marketing Channel in CA

Figure 4.5 characterizes the marketing chain for beans in CA, including exports
to the US. Bean marketing channels are similar among countries in the region (Martinez
2003). Marketing begins with producers, mostly smallholders, who own or rent land on
the hillsides -- although some large-scale producers grow beans in valleys. Since most
bean producers are semi-subsistence growers, they keep some of their production for
home consumption and sell the rest at rural markets, or to intermediaries (traders) who
transport the beans to urban markets.

4.3.1 Intermediaries (Traders)

In the CA region, there are two types of intermediaries who purchase beans from
producers -- traditional and non-traditional (Martinez 2003). Traditional intermediaries
are traders who purchase beans from producers and sell to wholesalers, packers, and
processors. They perform key tasks in marketing beans, including assembling production
from remote areas and delivering these to rural and urban markets. Sometimes, traditional
intermediaries also provide credit (i.e. cash advance before harvest) to smallholder
producers (Martinez 2003). However, since traders do not require producers to grade and
clean their beans, they pay producers -- especially smallholders -- low prices. On the
other hand, because traders add value to beans (i.e. sorting, grading, cleaning, and
bagging), they obtain higher prices when selling to processors and packers (Martinez

2003)

61

Figure 4.5. Bean Marketing Chain in CA to the US

 

CA Dry Bean Producers

0 Small, medium-scale growers

 

o Large-scale growers

 

 

 

 

 

i7

Retailers
0 Rural Market/
Supermarket

 

 

 

 

 

 

V

 

Intermediaries

 

 

 

V

 

Producer
Associations

 

 

 

 

V

Processors E.—

 

 

 

 

l T i

ll

 

 

Wholesalers Packers E

Non-traditional
Intermediaries

 

 

l 1

l

 

 

Distributors I

 

 

 

Done bv large-scale growers

 

 

 

 

iv tr

 

CA Exporters I

 

 

 

 

V V

 

l,

 

V

 

 

Retailers
0 Market Vendors

 

 

 

 

 

 

 

 

+7 US Importers P—

US Distributors I

 

 

V

 

 

US Retailers

0 Ethnic
grocery stores

0 Supermarkets

 

 

 

 

Source: Adapted from Martinez (2003) and Zamora (2005).

62

 

Retailers
Supermarkets

 

On the other hand, non-traditional intermediaries are individuals or firms
representing supermarkets or big processing firms, which “work closely with retailers to
assure a sufficient, high quality, and constant supply of beans during the year” (Martinez
2003, 66). While these traders usually source their beans domestically from large-scale
farms or producer associations; they may also source beans from outside the region.
These traders follow rigid grades and standards to supply the needs of the increasingly
consolidated processing and retail sectors”.

4.3.2 Bean Packers

Packers source most of their beans from local intermediaries. However, packers
may also source directly from large-scale bean producers or producer associations
(Martinez 2003). For instance, some producer associations (e.g. Costa Rica, Nicaragua)
having at least 100 producer-members, collect beans from association members in
different producing areas of the country. After assemblage, the beans are transported to
urban markets where value-adding activities take place (e.g. cleaning, grading, and
packing) (Martinez 2003).

Increasingly, packers in the region are sourcing beans from companies that import
beans from major exporting countries (e.g. US, Argentina, Canada) (Martinez 2003).
Also, packers bag beans for supermarket chains, which they sell under their own label

brand. Some packers also sell directly to local bean exporters or US importers.

 

42 Studies in the retail sector of Latin America (Reardon and Berdegue 2002), specifically Costa Rica
(Alvarado et al. 2002, as cited by Martinez 2003), suggest that this type of marketing might prevail in the
future.

63

4.3.3 Bean Processors

Sources of beans for processors vary by market class. For example, some
Guatemalan processors of black beans source from US exporters due to price and quality
considerations (Martinez 2003), while others source their black beans from domestic
intermediaries. In contrast, processors of small red beans buy beans from the domestic
market, since there is no comparable substitute for this market class from abroad.

As of 2002, approximately 10 large processing firms operated in CA. Seven of
these processors were based in Guatemala while the rest were located in Costa Rica (2)
and Honduras (1) (Martinez 2003). Hence, most canned beans sold in the region are
Guatemalan brands.

Although some processors export canned beans (e.g. “Ducal”, a Guatemalan
brand), firms that want to export to countries like the US, Argentina, and Canada face
high barriers to entry due to the presence of numerous brands (Martinez 2003). However,
in the US, a niche market exists for beans of CA origin in urban areas with high
concentration of residents from the region (e.g. cities in California, Florida, and Texas) --
people who have strong preference for beans of CA origin (Zamora 2005).

4.2.4 Supermarkets

1n the past, most CA consumers purchased bagged or canned beans from
traditional markets or small stores, which are mostly independent businesses (Martinez
2003; Reardon and Berdegue 2002). However, supermarkets are capturing a greater
market share, not only in bean retailing, but in the food retail sector as a whole.

Supermarkets gain competitive advantage using their solid supply chain (i.e. ability to

64

purchase centrally quality products and make them readily available to consumers at
reasonable prices).

In 2000, the market share of supermarkets in food retailing (among CA countries)
ranged from 35 to 54 percent (Reardon and Berdegue 2002). These data, which are close
to a decade old, document the growing consolidation of the retail sector in CA and the
decreasing market share held by other types of stores (Reardon and Berdegue 2002;
Martinez 2003).

4.3.5 US Importers

Importers of beans from CA are usually US-based firms, which are owned by
people of CA origin and based in US cities with a large population of ethnic Central
Americans (Zamora 2005). They buy directly from their representatives in CA, mostly
relatives or CA wholesalers, who procure beans for them. Some importers also source
directly from large-scale CA bean producers. US importers import beans in bulk (100 lb
bags) or bagged (e. g. 1 lb), which they sell either directly to retailers or through specialty
product distributors (Zamora 2005).

4.3.6 US Ethnic Grocery Stores/US Supermarkets

Most beans imported from CA are sold in Hispanic grocery stores in US cities
with a high population of Hispanics (Zamora 2005). Hispanics of CA descent usually
shop at these stores, due to the availability of products which they previously used in
their country of origin (Zamora 2005). However, US supermarkets within the vicinity of

US cities with a high population of Hispanics also sell beans of CA origin.

65

4.4 Bean International Trade

Over the 2001 to 2005 period, CA bean imports exceeded exports -- primarily due
to imports by Costa Rica and El Salvador (Figure 4.6). Imports averaged 69,042 mt,
(CV=10%), while exports averaged 57,234 mt (CV=16%) (Appendix F).

Figure 4.6. lntemational Trade in Beans, CA, 2001-2005

 

 

 

40 ~ — Wee—He.-. -. ——»— ——

 

 

 

{El Imports I Exportsj

 

—.___ , . ___,_.__‘_

Quantity ('000 mt)

 

 

 

 

 

 

 

 

M ——4

1, Nicaragua Honduras Belize Guatemala El Salvador Panama Costa Rica

Country

 

 

Source of basic data: F AOSTAT Database
4.4.1 Imports

Over the five-year period (2001-2005), imports accounted for an average of 13
percent of the region’s total bean supply. However, the average import share of total
supply ranged from a high of 70 percent in the case of Costa Rica to a low of one percent
for Nicaragua —- the largest bean-producing country in the region (Figure 4.7).

Costa Rica accounted for close to one-half of the region’s imports, largely due to
a secular decline in the harvested area, followed by El Salvador (32%), Guatemala (10%),

Honduras (8%), Panama (3%), and Nicaragua (3%) (Figure 4.8).

66

Figure 4.7. Average Share of Imports in Total Supply of Beans, CA, 2001-2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100% ._ — —_ 7 _ , A
3‘1 <1
1‘? ‘li't H
”‘3 35; ‘35
80% . .1» L: 31
g; i. 3'?
A {u it ' _. 3
E: 60% 4 , - it:
9." 5 .. .51
m 'l . 1. Bit :31
E5 40% < :3 E g" ‘,
; 3. «i
20% ~ ..3. .
‘i flu: ‘ H '1.‘
.1; .:‘. " '. 1, - $9
0% J g" i’ i’ f ..
Nicaragua Guatemala El Salvador Honduras Costa Rica Belize Panama
°°""t'v

 

 

Source of basic data: FAOSTAT Database

Figure 4.8. Average Share of Bean Imports by Country, CA, 2001-2005

 

Nicara ua .
09 Belize

  
 
 
 
 
    

30
Honduras
8%

Guatemala
10%

El Saliador
32%

AVEEE‘LT 69,042 mt l

 

 

 

 

Source of basic data: FAOSTAT Database

67

 

The majority of CA’s imports were sourced from the US, Canada, and Argentina
due to the “availability of cheaper beans” from these countries (Martinez 2003, 76)
(Table 4.2). However, some countries like El Salvador and Costa Rica also imported

beans from other countries within the region,

Table 4.2. Average Share of Bean Imports by Country of Origin, CA, 2000-2004

 

 

C°“".".y 0f Nicaragua Guatemala El Hondurasl (30.8“. BelizeI Panama2
Origin Salvador Rica
USA 65% 68% n.a. 63% n.a. 64% 66%
Canada 2% 21% n.a. 3% n.a. 33% 28%
Argentina n.a. 8% n.a. n.a. 26% n.a. 1%
Nicaragua n.a. 1% 60% 27% 44% n.a. n.a.
Guatemala n.a. n.a. 2% n.a. l 1% n.a. n.a.
El Salvador 19% n.a. n.a. 6% n.a. n.a. n.a.
Honduras 3% n.a. 36% n.a. 10% n.a. n.a.
Costa Rica n.a. n.a. <1% n.a. n.a. n.a. n.a.
Others 11% <3% <1% 1% 9% 3% 5%

 

‘Data: 1999-2003

zData: 1998-2002
n.a. — not available

Source of basic data: DESA/UNSD, as cited by MSU AF RE Common Bean Atlas of the Americas

4.4.2 Exports

During 2001 to 2005, CA countries exported approximately 57,000 mt of beans
per year (Figure 4.9). Nicaragua accounted for most of these exports (63%), followed by
Honduras (15%), Belize (8%), Guatemala (6%), El Salvador (5%), Panama (2%), and
Costa Rica (1%).

Although a shortage of beans exists in the region, CA countries export beans
within the region and to niche markets in the US and other developed countries

(CORECA 1999, as cited by Martinez 2003) (Table 4.3).

68

Figure 4.9. Average Share of Bean Exports by Country, CA, 2001-2005

 

‘ Panama
El Sahador 2% Costa Rica
5% 1%

    
 
  
 
  

Guatemala

6%
Belize

8%

Honduras

0
15 A Nicaragua

63%

_ évgrass.:513_2_34 mt

 

 

 

Source of basic data: FAOSTAT Database

Table 4.3. Average Share of Bean Exports by Country of Destination, CA, 2000-

 

 

2004
3:3?J3i3: Nicaragua Guatemala Salildor Hondurasl 328:: Belizel Panama2
USA 3% 2% 75% n.a. 22% 2% n.a.
Canada n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Germany n.a. n.a. n.a. 1% n.a. n.a. n.a.
Caribbean n.a. n.a. n.a. n.a. n.a. 81% n.a.
Nicaragua n.a. <1% 16% 6% 42% n.a. n.a.
Guatemala n.a. n.a. 4% n.a. n.a. n.a. n.a.
El Salvador 43% 29% n.a. 85% 15% n.a. n.a.
Honduras 9% n.a. 4% n.a. n.a. n.a. 41%
Costa Rica 42% 69% n.a. 8% n.a. n.a. 6%
Panama n.a. n.a. n.a. n.a. 12% n.a. n.a.
Others 3% <1% 1% <1% 9% 17% 53%

 

'Daia: 1999-2003
2Data: 19923-2002
n.a. — not available

Source ofbasic data: DESA/UNSD, as cited by MSU AFRE Common Bean Atlas ofthe Americas

69

The rise in ethnic food restaurants in developed countries (Martinez 2003) and the
strong preference of consumers of CA origin for beans produced in their home country
have contributed to the growing demand for CA beans in the international market
(Zamora 2005; Batres-Marquez et al. 2001, as cited by Martinez 2003). For instance, in
the US, beans from CA are priced 25 to 50 percent higher than US beans of similar
market classes (Zamora 2005). This suggests a likely potential to boost exports to
developed countries by targeting this niche market. However, beans for export to
Hispanic communities abroad are most likely sourced from large-scale producers or
growers who are members of a producer association, thereby limiting access of
smallholder bean producers to this niche market.

4.5 Competitiveness of the CA Bean Subsector

Competitiveness is defined as “a set of institutions, policies, and factors that
determine the level of productivity of a country” (Sala-I-Martin, Blanke, Hanouz, Geiger,
Mia, and Paua 2007, 3). Thus, it indicates the degree to which a country is able to
produce goods and services while generally improving its people’s welfare (Castells
1996, as cited by Muendo, Tshirley, and Weber 2004).

The competitiveness of the CA bean subsector is evaluated using an analysis of
price trends (i.e. seasonality, marketing margins, and domestic bean prices), which is
based on the assumption that price trends are influenced by factors that may be
determinants of competitiveness43 (Martinez 2003). Also, competitiveness of the CA
bean subsector was partly assessed by measuring the price competitiveness of beans from

relevant countries of the region versus US bean imports of each market class.

 

‘3 The determinants of competitiveness are diverse and complex, including infrastructure, technology/
innovation, and institutions (Sala—I-Martin et al. 2007).

70

Furthermore, international trade rules that affect the level of competitiveness of the CA
bean subsector are identified.
4.5.1 Domestic Competitiveness

Trends in the region’s wholesale bean prices were analyzed. As suggested by
Martinez (2003), the relevant prices for El Salvador, Honduras, and Nicaragua are the
prices of small red beans, while for Costa Rica and Guatemala it is the prices of black
beans.

During the period 2002 to 2006, bean wholesale prices in CA were highly erratic
(on average, CV=22%), with the exception of black bean prices in Costa Rica (CV=9%)
(Figures 4.10 and 4.11). This trend is primarily due to seasonality in bean production,
which is further discussed in this section, and irregular factors (e.g. natural disasters)

(Martinez 2003).

Figure 4.10. Monthly Wholesale Prices (nominal) of Small Red Beans in Honduras,
Nicaragua, and El Salvador, 2002-2006

 

 

 

 

 

 

 

 

 

 

 

 

 

1200 .-,---i-.,-z--fi ,__-- _-- -—~v~~--- - —-—~
2:
5
(I) 1000«
a
o
.2
d: 800~ ‘ I‘.
d) r I.
E . ‘. ~
0 \’ ‘
o 600~\V . .,,,..
.c \.
g Q. a Q a
400 I I 1 1 I I 1 1 I T T f 1 1 1 1 1
N N N N (‘0 ('0 W (‘0 ID ‘0 to
isgsiegs駧§i§33§§§8
: :1 "'
l sawesewasawesawasewe
, Month-Year
L Honduras Nicaragua - - - -El Salvador l

 

 

Sources of basic data: CORECA, except for Honduras’ prices in 2004-2006 (sourced from SIMPAH).

71

Figure 4.11. Monthly Wholesale Prices (nominal) of Black Beans in Guatemala and
Costa Rica, 2002-2006

 

 

 

 

 

 

 

 

 

 

l 1200- — ,-,,-z--_-___-_____ -_z--

a '0

E ‘V.

a 900+ at“...

.g ‘jw

t-

a.

2

3’, 600

2

o

.i:

3

300 1 I f f 1 1 1 r 1 1 1 1 1 1 I I I 1

. gassaaaaiaeaeeaagaes
g sewasasssewaeewesewe
l Month-Year
l I Guatemala - - - - Costa Rica I

 

 

Source of basic data: CORECA

During the period, monthly wholesale prices of small red beans ranged from
$411-$978 per mt in Honduras, $456-$l,l23 per mt in Nicaragua, and $485-$1,155 per
mt in El Salvador. Prices among CA countries were generally highest from the third
quarter of 2004 to the third quarter of the following year (2005). However, in 2006, small
red bean prices among CA countries were more or less stable.

On the other hand, black bean prices in Guatemala ranged from $451-$972 per
mt, compared to $799-$1,151 per mt in Costa Rica. In general, wholesale prices in
Guatemala were lowest during the years 2003 to 2004 and highest in last quarter of 2005.
While Costa Rica’s prices were the least volatile among CA countries, on average, it
registered the highest average bean price in the region (i.e. not considering difference in

market class).

72

4.5.1 .1 Seasonal in'

Seasonality in production affects the domestic competitiveness of CA beans \vith
respect to imports. Seasonality gives rise to problems vvhich are aggravated by limited or
lack of storage facilities and high storage costs among smallholder producers (Martinez.
2003). In turn. these problems limit the flexibility of smallholder producers to market
their crop throughout the whole year. making them less competitive.

Over the period 2002 to 2006. prices of CA beans reflected a pronounced
seasonality (Figures 4.12 and 4.13). These trends persist since smallholders usually sell
their surpluses in the first few months following the harvest season (WFP ODAN), which
varies by country in the region. Typically, the largest share of the bean crop is produced
during the posrrera season in Honduras (i.e. November to December); the (Iptmit’ in
Nicaragua (i.e. February to April); the postreru in El Salvador (i.e. November to
December); the primera in Guatemala (i.e. August to September); and the posh-era in
Costa Rica (i.e. January to April) (Martinez 2003).

Generally, for small red beans, prices were highest during the last quarter of the
year, while for black beans, prices were generally highest during the latter part of the

second quarter and a few months following the primary harvest season.

73

Figure 4.12. Average Monthly Wholesale Prices (nominal) of Small Red Beans in El
Salvador, Honduras, and Nicaragua 2002-2006

 

 

 

 

 

 

 

1000 ~— *********** * l
3':
E
a
(0
El 800-
a:
.2
h
0.
.2
g 600 ~ T
'o
.r:
3:
400 3 w r r 1 v I ' ‘ ’ r
E 8 9 o. to g 3 ‘3 g .8 g g
3 :5 N < 2 5 —" U) E O E E
E, 5 2 g m ‘5 a) 0
ed > 0
fl L1, 8' O o m
(I) Z 0
Month
r-* .
L - - - - El Salvador Honduras —— Nicaragua l

 

 

 

 

 

Sources of basic data: CORECA, except for Honduras’ prices in 2004-2006 (sourced from SIMPAH).

Figure 4.13. Average Monthly Wholesale Prices (nominal) of Black Beans in Costa
Rica and Guatemala, 2002-2006

 

 

 

 

 

 

 

 

 

1100 . - — —--~——--——— .-__-_-._ .--_________.

a a ' . - ' ' ~ ~ ~ ~ . ‘ ........

m .I n O ’- -

El txxi~ ~ - ~2 , vv ,z.. e-

O

.2

L.

O.

2

w 700- ,-z.z +2-.

0"

.2

O

.2

3:

500 I I r I T I I 1 I I 1
Z‘ .c E > a) 2. u ._ h L- I—
m 5 8 o- g .5. 2, ‘3 s s s s
2 E P ‘< -4 g’ e 9 e e
m D E a.) 0 CD a:
0) Z 0
Month
" " ' ' Costa Rica Guatemala

 

 

L _

Source of basic data: CORECA

74

4.5. l .2 Marketing Margins

Marketing margins (i.e. an index of price spread from farm gate to retail level)
reflect the market performance of a particular subsector. This index can be used to
measure pricing efficiency in marketing a product, given that it reflects both costs and
profits at each level of the marketing chain. Margins may also be positively influenced by
the degree of concentration and the level of marketing costs in the industry (Armah
2007), as well as factors that determine the level of competitiveness of the bean subsector
(e. g. infrastructure, such as storage and processing facilities, and road conditions).

Using available secondary data for beans, price spreads from farm gate to
wholesale level, and wholesale to retail level were estimated. In 2006, for small red
beans, higher margins were generally observed at the retail level than at the wholesale
level throughout the region. In contrast, results for black beans varied by country (i.e. in
Costa Rica, higher margins were registered at the wholesale level, while in Guatemala
margins were slightly higher at the retail level) (Table 4.4). The relatively low margins
for CA beans mirror the low perishability of beans.

Table 4.4. Marketing Margins for Small Red and Black Beans, CA, 2006

 

 

 

 

Coun try / Market Farm Gate Wholesale Level Retail Level Total
Class Price ($/kg) Price ($/kg) Margin Price ($/kg) Margin Margin

Small Red Beans

El Salvador 0.74 0.78 5% 1.10 29% 35%
Honduras 0.58 0.63 8% n.a. n.a. n.a.
Nicaragua 0.50 0.63 20% 0.82 24% 44%
Black Beans

Costa Rica 0.59 1.00 41% 1.06 5% 46%
Guatemala 0.63 0.77 19% 0.97 20% 39%

 

n.a. — not available

Source of basic data: CORECA, except for Honduras’ farm gate and wholesale prices, which were sourced
from a key informant based on a farm survey and SIMPAH, respectively.

75

4.5.1.3 Competitiveness Relative to US Imports

The price competitiveness of CA beans with respect to imports from the US -- a
major trading partner of CA -- was evaluated. Over the five-year period (2002-2006),
c.i.f. prices (cost, insurance, and freight) of US bean imports were compared with
wholesale prices of beans in selected CA countries (Figure 4.14 and 4.15). According to
Martinez (2003), while black beans produced in CA are close substitutes for beans
imported from the US, no close substitute exist for small red beans. However, since local
supply could not meet existing local demand, CA countries still import small red beans
(Martinez 2003).

Figure 4.14. Annual Wholesale Prices (nominal) of Small Red Beans in Honduras
and Nicaragua, 2002-2006

 

 

 

 

 

 

 

800 l —
‘é‘
a 600 ~
0)
a
m I
.2 '
E 400 ’0
2 o
to
3 3'
g 200 ‘* ' v ' - . " . “3’7-
' ‘ a 5 ~ ’
0 I W i
2002 2003 2004 2005 2006
Year
- - - - US (c.i.f.) Honduras Nicaragua

 

 

 

 

 

 

Note: US’ c.i.f. prices quoted at Honduras; Wholesale prices quoted at Tegucigalpa and San Pedro Sula,
Honduras; and Managua, Nicaragua

Sources of basic data: CORECA for Honduras (2002-2003) and Nicaragua’s wholesale prices

SIMPAH for 2004 to 2006 wholesale prices of Honduras
UN Comtrade Database for c.i.f. prices of US imports

76

Figure 4.15. Annual Wholesale Prices (nominal) of Black Beans in Guatemala, 2002-

 

 

 

 

 

 

 

 

 

 

 

2006
900 1"_‘T” +e—e—u w—fi

1'5"

E

‘63

a 700 ~

4:

.2

h

(L

2

5

2 500 a

o

n

3

300 . 1 r I
2002 2003 2004 2005 2006

. Year
1 L - - - - US (c.i.f.) Guatemala
L___ '_ Q

 

 

 

Note: US’ c.i.f. prices quoted at Guatemala; Wholesale price quoted at Guatemala City, Guatemala.

Sources of basic data: CORECA for Guatemala’s wholesale price
SIECA SEC for c.i.f. prices of US imports

Results show that without tariffs“, US imports were generally more price
competitive than local production for both small red and black beans. Trends on import
prices also reveal that c.i.f. prices of small red beans were highly unstable (CV=82%),
while import prices of black beans were less variable (CV=14%).

On average, during the period (2002-2006), domestic wholesale prices of small
red beans were 45 percent higher than US import prices -- although during the last two
consecutive years (2005-2006), small red beans produced in Honduras were more

competitive than US imports. Alternatively, wholesale prices of black beans produced

 

4‘ Before 2006, CA countries charged a 20 to 40 percent tariff on bean imports from outside the region.

77

locally (i.e. Guatemala) were 27 percent higher than US imports, implying price non-
competitiveness of black beans produced in CA.
4.5.2 International Trade Rules Affecting the CA Bean Subsector’s Competitiveness

Typically, international trade agreements seek to reduce barriers to trade in order
to achieve a liberalized trading system (i.e. conversion of non-tariff barriers to tariffs,
elimination of tariff over a time period) among countries. However, since a trade
agreement increases access to member countries’ markets, sectors that export their
products support these agreements, but sectors that face competition from imports
normally are opposed to them (Smith, Sumner, Rosson 2002).

The two major trade agreements, which regulate trade in CA and generally affect
the agriculture sector, are the World Trade Organization (WTO) and the CAFTA-DR.
This section describes these two trade agreements and provides an overview of import
regulations/policies of the US, CA’s main bean export market.

4.5.2.1 m“

Created on January 1995, the WTO superseded the General Agreement on Tariffs
and Trade (GATT). The WTO is mandated to deal “with the rules of trade at a global
level” (WTO). It is also a forum for settling trade disputes and the body which enforces
the WTO agreements.

WTO agreements, which directly impact international and regional trading in
agricultural commodities among CA countries, include: (1) the Agreement on Agriculture
(AoA), which details rules and commitments on market access, domestic support, and
export subsidies; and (2) the Sanitary and Phytosanitary Measures Agreement (SPS),

which specifies food safety, and animal and plant health standards (WTO).

 

‘5 All of CA countries are members of WTO.

78

The AoA also establishes agricultural tariff commitments and their gradual
elimination among member countries over a six-year period (1995-2000) for developed
countries and over 10 years (1995-2004) for developing countries. On the other hand,
SPS measures allow countries to use different standards and different methods for
inspecting products (WTO). Hence, the respective governments of countries planning to
export to other WTO-member countries must assist their manufacturers and exporters to
keep abreast of the latest standards in their prospective markets (WTO).

4.5.2.2 CAFTA-DR

The CAFTA-DR is a regional trading agreement between CA countries (i.e. Costa
Rica, El Salvador, Guatemala, Honduras, and Nicaragua), Dominican Republic (DR), and
the US. Upon ratification, the trade agreement immediately removed tariffs on more than
80 percent of US exports (i.e. consumer and industrial products) to CA countries and the
DR (USTR). It also consolidates and expands the “preferential market access that CA
countries have enjoyed in US markets through the Caribbean Basin Initiative46 (CB1)
program” (Jaramillo and Lederman 2006, 1). While ratified in the US in 2005, it took
effect in CA countries as follows: El Salvador on March 1, 2006; Honduras on April 1,
2006; Nicaragua on April 1, 2006; and Guatemala on June 1, 2006. Costa Rica is the sole
signatory, which has not yet implemented the free trade agreement.

CAFTA-DR also attempts to “assure free interregional trade [among member
countries], institute a common external tariff, and coordinate external [trade]
negotiations” among CA member countries (Martinez 2003, 95). It is implemented and

regulated in CA by the Central American Regional Integration Office (SIECA), which

 

46 Eighty percent of CAFTA-DR imports already enter the US duty free under the CBI (USTR). For
instance, CA beans enter the US market duty-free through this program.

79

also establishes common trading procedures among CA countries. However, each CA
member country also has its own specific regulations for importing and exporting, which
sometimes create confusion and result in additional costs to importers and exporters47
(Gonzales-Velasquez et al. 2000, as cited by Martinez 2003).

Provisions of CAFTA-DR specify the gradual elimination of tariffs on basic
grains, such as rice, beans, and corn. As such, a criticism of the trade agreement is its
potential negative impact on smallholder producers of CA countries, who can not
compete with agricultural imports. For instance, before CAFTA-DR, the levied tariffs on
beans -- a highly protected subsector -- ranged from 20 to 40 percent (Martinez 2003). As
of January 2008, all CA countries levied a 30 percent tariff on small red beans, while the
tariff level on black beans vary by country, ranging from 15 percent (Honduras) to 30
percent (Costa Rica, El Salvador, Costa Rica) (SIECA Database). The removal of tariffs
on beans may potentially disadvantage bean producers -- a majority of whom are
smallholders. Thus, implications of CAFTA-DR and its success critically depend on “the
ability of the CA countries to pursue a complimentary policy agenda” via enabling
policies, which will facilitate trade (e.g. infrastructure, market information) (Jaramillo
and Lederman 2006, 2).

4.5.2.3 US Import Regulations

 

This section identifies major import regulations of the US, the main export market
for CA beans. Although agricultural imports of the US are normally subjected to low

import duties/tariffs, the US imposes non-tariff barriers in the form of strict standards and

 

‘7 For more information on government and commercial websites detailing country specific agricultural
export procedures. visit the following websites: Costa Rica: http://www.cnp.go.cr/index.php; El Salvador:
http://www.elsa1vadortrade.com.sv/?cat=3; Guatemala: http://portal.maga.gob.gt/porta1/page/portal/uc_upie
/agronegocios; Honduras: http://www.hondurassiexporta.hn/export_pre_.php?pagp_id=67&orden_ id=13;
Nicaragua: http://www.cetrex.com.ni/.

80

regulations on quality and grade, and “restrictions necessary to protect human, animal,
and plant health” (USDA FAS 1999). General policies affecting agricultural and food
imports mostly focus on food safety standards and labeling requirements for imported
food. For instance, compliance with the provisions of the Federal Food, Drug, and
Cosmetic (FD&C) Act (1938) and Fair Packaging and Labeling Act (1966) generally
“require that the food product be safe, clean and wholesome, and its labeling48 be honest
and informative” (USDA FAS 1999). The FD&C Act also embodies provisions on
“standards of identity and quality...for a variety of products...[to] give consumers some
guarantee of the kind and major ingredients in these products” (USDA FAS 1999).

In addition to these policies, government agencies49 guarantee “safety and
wholesomeness of US food products... through pre-market clearances, mandatory
production practices, inspections, and random, ongoing sampling” (USDA FAS 1999).
This also implies that food safety standards implemented domestically also apply to
imported food. For beans, US quality standards are developed by the Federal Grain
Inspection Service50 (FGIS). Also, a separate US standard applies for processed beans“.
4.6 The CA Bean Subsector and Fair Trade

The CA bean subsector faces innumerable challenges with the advent of CAFTA-
DR. The availability of cheap imports from the US threatens the region’s domestic bean

subsector. Since many smallholder producers depend on bean production as a source of

income and food for home consumption, it is crucial for CA countries’ governments to

 

"‘8 For detailed labeling requirements on imported agricultural and food products, refer to http://www.fas
.usdagov/itp/ofsts/us.html.

49 For focal agencies involved in implementing and regulating policies on agricultural and food imports,
refer to http://www.fas.usda.gov/itp/ofsts/us.html.

50 US Standards for beans are available at http://archivegipsa.nsdflov/reference-library/standards/Bean
-Standards.pdf (i.e. amount of brokens, moisture content, etc.).

5' US Standards for canned dried beans, canned pork and beans, and canned baked beans are available at
http://www.ams.usda.gov/standards/BEANBAKDPDF.

 

81

implement policies which make bean production more competitive and thereby
complement CAFTA-DR. However, in the short run, CA countries will find it difficult to
implement complementary policies required to increase productivity such as investments
to strengthen market infrastructure (e.g. roads, market information), provide greater
access to credit, strengthen research capacity, and expand access to extension services.

Another major challenge facing smallholder bean producers in the region is their
exclusion from local markets, due to the increasing dominance of supermarkets as buyers.
Supermarkets normally have stringent quality and quantity standards that most small
producers can not meet, due to limited access to productivity- and quality-enhancing
technologies. Thus, pursuing a strategy that would enable smallholder producers to seize
opportunities and minimize threats brought about by globalization, such as marketing fair
trade beans, may potentially help the region’s smallholder bean producers.

Developing a market in the US for fair trade beans has the potential to increase
farm incomes of smallholder bean producers of the region, mainly through expanding
market access and capacity building (e.g. networking, training). First and foremost, since
fair trade facilitates direct and long term relationship between smallholder producers and
buyers from developed countries, it provides smallholders direct access to target markets
via a shortened marketing chain. Thus, the route for marketing fair trade beans to US
consumers would be shorter (i.e. involves fewer agents) than the typical way of

marketing conventional beans of CA origin in the US (Figure 4.16).

82

 

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83

Secondly, fair trade may also provide incentives for producers to improve on bean quality
(e.g. content of foreign matter, humidity, amount of brokens) and add value to their
products by paying producers a fair pricesz, awarding them social and organic premiums,
and providing them with pre-financing.

As fair trade requires smallholders to be democratically organized into
associations or cooperatives, it would allow smallholder bean producers to add value by
jointly grading, sorting, and packaging their products to maintain consistent quality. Also,
capacity building of the organization (i.e. the ability to network and seek new
opportunities from previous linkages) is a strong advantage of fair trade, as experienced
by small producers marketing fair trade coffee (Murray, Raynolds, and Taylor 2003).
Capacity building is also enhanced through the social premium awarded to associations,
which they can invest in trainings and skills building of smallholder bean producers.
Thus, fair trade offers bright prospects to help smallholder bean producers improve their
competitiveness and thereby capitalize on the opportunities presented by globalization.
4.7 Chapter Summary

Beans are the second most important basic grain in CA -- a major staple among
the CA population and a main source of income for smallholder producers. Beans are a
semi-subsistence crop, grown in hillside areas (80% of planted area). Also, typical bean
farms are fragmented and dispersed, which makes it difficult for producers to market
their beans.

The dominant bean market classes grown in the region are small red and black

beans. Small red beans are primarily produced in El Salvador, Honduras, and Nicaragua,

 

52 A fair price must produce both an adequate remuneration for the amount and type of work performed
(Tarabella and Santoprete 2000). It must cover at least the cost of production for beans. For an analysis of
small red bean prices in the US, using the case of Honduras as exporter, refer to Appendix G.

84

while black beans are mainly grown in Guatemala and Costa Rica. This production
pattern reflects differences in consumer preferences among countries in the region.
Furthermore, growth in production and harvested area for beans in the region was
sluggish, averaging one percent and two percent per annum (2001-2005), respectively.

Bean marketing channels are similar across countries in the region. Since most
bean producers are semi-subsistence producers, they keep some of their production for
home consumption and sell the rest at rural markets, or to traditional, or non-traditional
intermediaries. Non-traditional intermediaries follow rigid quality standards and supply
the needs of the increasingly consolidated processing and retail sectors. In recent years,
supermarkets have also become increasingly important in the retail sector as buyers and
suppliers of the agrifood industry.

Over the period (2001-2005), imports averaged 13 percent of the region’s total
bean supply, with Costa Rica and El Salvador accounting for most of the region’s bean
imports. On the other hand, Nicaragua accounted for more than one-half of CA’s exports,
followed by Honduras. Although during the period, the region’s bean imports outstripped
exports, in recent years, bean exports to the US have been increasing. Exports are
facilitated by US-based importers with representatives in CA who procure beans for
them. These importers generally distribute beans to ethnic grocery stores and some US
supermarkets in cities with a high concentration of Hispanic population. A major driver
of this growing demand for CA beans is the rise of ethnic food restaurants and Hispanics
of CA descent living in the US. However, exports of beans are constrained by strict
quality standards in US markets and the inability of CA bean suppliers to meet other

demand requirements of US buyers (i.e. quantity). Although there is still unmet demand

85

in this niche market, smallholder bean producers’ participation is limited or lacking in the
supply chain.

The domestic competitiveness of CA beans was assessed using an analysis of
price trends and an evaluation of their price competitiveness with US imports. Results
show that there is a pronounced seasonality present in CA bean production, which can be
tied to factors that lessen competitiveness of the bean subsector (e.g. lack of storage
facilities, high storage costs). Furthermore, marketing margins from farm gate to retail
level for small red and black beans ranged from 35 percent (El Salvador) to 46 percent
(Costa Rica) in 2006. These two factors (seasonality and marketing margin) reflect the
level of competitiveness of the CA bean subsector.

In general, CA beans were not price competitive with US imports over the period
2002 to 2006. Domestic prices for small red beans were 45 percent higher than the prices
of beans imported from the US, while local black bean prices were higher by 27 percent.
However, in the last two years (2005-2006), CA small red beans (particularly Honduras)
appeared to be price competitive with US imports, thereby showing prospects for the
subsector.

With the advent of CAFTA-DR and other liberalization policies, as well as the
impacts of globalization trends, the CA bean subsector faces innumerable challenges.
CAFTA-DR poses a threat to local bean producers, who may not be able to compete with
US imports. The increasing importance of supermarkets as buyers also threatens to
exclude smallholder bean producers from local markets. Hence, exploring a niche market
in developed countries may present an opportunity for small producers to raise their farm

incomes and generally improve the competitiveness of the region’s bean subsector.

86

Specifically, developing a market for fair trade beans in the US offers great prospects and
benefits for the region’s smallholder bean producers, primarily through providing access
to a new market (via a differentiated bean product) and capacity building among the

region’s smallholder bean producers.

87

CHAPTER 5
DEMAND TRENDS IN THE US DRY BEAN SUBSECTOR

This chapter characterizes US demand trends for dry beans, specifically per capita
disappearance”, and import demand for beans of Central American (CA) origin. It also
documents general consumption patterns for cooked dry beans54 among US consumers
based on past studies. Furthermore, an analysis of the driving forces, which determine
current and future demand for dry beans, are presented to help assess potential market for
new bean products, particularly fair trade beans in the US.
5.1 Demand Trends

Approximately 70 percent of US dry bean production is consumed domestically,
while the rest is exported (Punjabi 2005). Most of the dry beans produced in the US are
sold to processors, except for pinto beans for which only 10 percent of production is
processed. Industry sources estimate that around 70 percent of the bean supply is
consumed in processed/canned form, while 30 percent are bought as bagged beans
(Punjabi 2005). For processed beans, “most are sold as canned beans, while the rest are
processed as dry bean soup, chili, and other products” (Punjabi 2005, 30).

While a majority of US consumers buy their beans in supermarkets, bean sales at
restaurants are an increasingly important marketing channel55 (Punjabi 2005). Various
bean products are sold in supermarkets, including branded canned beans, bagged beans,

soup mixes, chili, baked beans, organic bean products, and supermarkets’ own-label

 

5’ Per capita disappearance corresponds to the net available domestic supply for consumption (i.e. it reflects
domestic production, net trade, and change in stocks).

54 Dry beans include species of common beans (e.g. pinto, small reds, black beans, navy) and other species
including lima, garbanzo, mung, adzuki beans. In this chapter, beans refer to dry beans.

55 “Both supermarket sales and restaurant use of dry edible beans has increased in the past decade” (Punjabi
2005, 27).

88

brands. On the other hand, restaurant sales mostly feature beans as an ingredient in
burritos, soups, dips, and tacos.
5.1.1 Annual Per Capita Disappearance

Over the period 2002 to 2006, total dry beans available for consumption averaged
2.89 kilograms per person per annum“. The market classes that accounted for the bulk of
consumption were pinto beans (46%), followed by navy (12%), red kidney (8%), and
black (8%) beans (Figure 5.1).

Figure 5.1. Share on Average Dry Bean Per Capita Disappearance by Market Class,
US, 2002-2006

 

   
  

Lima
Small red 2%

3°/o —\
Garbanzo
4% Pinto
Great Northern 46%
5% ’

Red kidney
8%

 

Navy A — 2 89 /
12% _.-,Ve_ra§:‘__'_k.g.sl’e153"__ .

 

1

Source of basic data: USDA ERS

Although per capita disappearance for all beans decreased by one percent per
annum (2002-2006) due to a declining supply of pinto, great northern, and lima beans;

consumption of other bean market classes has increased. Small red bean consumption

 

5" Interpretation of data on per capita disappearance should be taken with caution since these data include
“spoilage/waste accumulated through the marketing system and in the home,[hence], the data typically
overstate actual consumption” (Lucier et al. 2000, 28).

89

registered the highest increase (29%), followed by garbanzo (19%), black beans (5%),
navy beans (4%), and red kidney beans (3%) (Table 5.1).

Table 5.1. Dry Bean Per Capita Disappearance by Market Class, US, 2002-2006

 

Market Class (kgs/person)

 

 

 

Year Pinto Navy Kliliidey Black Ngrrtfiaetm 81:31 Garbanzo Lima
2002 1.47 0.41 0.22 0.21 0.16 0.04 0.13 0.07
2003 1.38 0.39 0.27 0.21 0.19 0.08 0.08 0.07
2004 1.25 0.25 0.22 0.24 0.15 0.07 0.11 0.06
2005 1.16 0.33 0.28 0.22 0.13 0.11 0.13 0.06
2006 1.21 0.41 0.23 0.25 0.14 0.09 0.20 0.05
Average (kgs/capita) 1.29 0.36 0.24 0.23 0.16 0.08 0.13 0.06
SD 0.13 0.07 0.03 0.02 0.02 0.03 0.04 0.01
CV 10% 19% 11% 8% 15% 33% 34% 12%
Annual Growth Rate -5% 4% 3% 5% -3% 29% 19% -7%

 

Source of basic data: USDA ERS

5.1.2 Import Demand

Historically, US dry bean imports have been low -— averaging about four to six
percent of domestic consumption over the past 20 years (USDA ERS). Currently, bean
imports average about 10 percent of dry bean consumption, although this varies by bean
market class.57 (USDA ERS).

Over the period 2002 to 2006, total US bean imports averaged 103,681 mt. Close
to a one-half of these imports were mung (14%), black (14%), garbanzo (9%), kidney

(8%), and chickpeas, cowpeas, and lima beans -- each with a one percent share (Figure

5.2).

 

’7 For instance, a high of 20 percent for black beans while 12 percent for garbanzo beans (USDA ERS).

90

Figure 5.2. Average Volume of Imports by Market Class, US, 2002-2006

 

All Lima Cowpeas
1% 1% Chickpeas
. g p = .,: L‘VuAll Kidney
':‘§"3:’:’ \ 8%

        
  
 

All Other
52% ‘

Mung/urd beans
14%

Average = 103, 681 mt ,

 

 

 

Note: All other include navy, black, great northern, pinto, small red, other white, and miscellaneous beans.

Source of basic data: USDA ERS

Although most US bean imports come from Canada, China, and Mexico, imports
from CA countries have been growing. On average, imports from CA have increased by
21 percent (CV=28%) per year since 200158, due to a strong demand among consumers
of CA origin for beans produced in their home country, as well as the rise in ethnic food
restaurants in the US.

Over the period 2001 to 2005, CA countries accounted for approximately five
percent of total US bean imports, which grew at an annual rate of 28 percent59 (Table

5.2).

 

’8 Detailed dry bean imports of the US from CA are shown in Appendix H.
59 As reported in Chapter 4, almost all beans produced in CA are of two market classes -- small reds and
black beans. Hence, US bean imports from CA were clearly misclassifled at the US port of entry.

91

Table 5.2. Imports from CA as a Share of Total US Dry Bean Imports by Market
Class, 2001-2005

 

 

 

Market Class 2001 2002 2003 2004 2005 Average
Black 1.7% 0.1% 1.6% 1.1% 1.8% 1.3%
Dark red kidney 48.9% 30.2% 22.5% 24.9% 22.8% 29.9%
Light red kidney 42.9% 41.4% 59.3% 41.5% 53.0% 47.6%
Other lima 6.3% 0.2% 0.0% 0.0% 0.0% 1.3%
Cowpeas 0.0% 0.0% 2.3% 0.0% 0.0% 0.5%
Mung/urd beans 2.1% 3.2% 3.9% 4.5% 6.5% 4.0%
All other' 1.5% 1.5% 2.5% 1.6% 3.6% 2.1%
Total2 3.30% 3.08% 5.76% 4.52% 6.84% 4.70%

 

IAll other include small red, navy or pea, cranberry, pinto, other red kidney, etc.
2Percentage share of total dry bean imports of the US from CA to total dry bean imports of the US.

Sources of basic data: USITC Interactive Tariff and Trade DataWeb for imports from CA
USDA ERS for total US dry bean imports

Table 5.3 details US bean imports from CA by market class during the period
2001 to 2005. According to these data, on average, imports of kidney beans (i.e. light red,
dark red, and other kidney) constituted the bulk (62%) of the total US imports from the
CA region. Trends in imports of beans from CA also indicate that demand for small red,
black, kidney, and mung beans from the region has been growing in the US. However, as
reported in Chapter 4, almost all beans produced in CA are of two market classes -- small
reds and black beans. Thus, it is clear that market classes of US bean imports from CA
were incorrectly identified at the port of entry. For example, it is likely that light red

kidney and dark red kidney are actually small red beans.

92

Table 5.3. US Dry Bean Imports (mt) from CA, 2001-2005

 

 

market 2001 2002 2003 2004 2005 Ave. so CV ”“2"
Class GR
[giggled 859.2 1,361.4 2,119.9 1,617.8 2,262.2 1,644.1 571.2 35% 33%
park I“ 1,067.0 976.2 757.7 922.4 1,170.5 978.8 155.4 16% 4%
kidney

Other 0 o
kidney 207.8 170.2 430.8 304.7 479.9 318.7 135.2 42% 41 /o
Mung o o
bean 268.8 458.4 539.6 622.9 873.1 552.6 222.1 40% 36%
Small red 534.9 551.5 340.3 223.0 957.1 521.3 279.6 54% 65%
Pinto 130.0 115.0 143.8 125.6 123.2 127.5 10.6 8% 0%
Black 190.2 19.2 144.8 102.5 156.3 122.6 65.8 54% 147%
2,111“. 397.0 274.2 513.4 340.1 965.5 498.0 275.7 55% 52%

 

Total 3,655.0 3,926.0 4,990.3 4,259.0 6,987.9 4,763.6 1,340.1 28% 21%

 

TA11 other include navy or pea, cowpea, cranberry, other white, other lima, etc.
2For the average annual growth rate (GR), the formula used is (Year 2 — Year l)/Y ear 1)*100%.
Note: Summarized based on Appendix H.

Source of basic data: USITC Interactive Tariff and Trade DataWeb

5.2 Dry Bean Consumption Patterns

A limited number of studies have analyzed US dry bean consumption patterns.
Consumption estimates are usually based on the per capita disappearance data compiled
by USDA ERS, which reflects trends in domestic availability of bean market classes.
These data indicate that dry bean consumption increased in the 19908 (3.41
kgs/person/year, from 2.91 kgs/person/year in the 19808), but declined during the 20008
(3 kgs/person/year) -- a reduction of 12 percent from the previous decade.

On the other hand, household level consumption survey done by the USDA
Agricultural Research Service (ARS) in 1994 to 1996 revealed that “nearly 14 percent of
Americans consumed at least one food containing cooked dry beans” on any given day
(Lucier, Lin, Allshouse, and Kantor 2000, 27). These survey data was also used by Lucier

et al. (2000) to determine factors affecting cooked dry bean consumption in the US,

93

which include several socio-demographic factors such as location, region, urbanization,
ethnicity, age and gender, and income (Appendix I). Results of Lucier et al.’s (2000)
analysis are detailed in this section.
5.2.1 Location: At Home vs. Away from Home Consumption

Cooked dry beans were mostly (77%) consumed “at home” (i.e. prepared at
home) or “obtained at retail stores” with the exception of refried pintos, which are mostly
eaten away from home (71%) (Lucier et al. 2000). However, a growing segment of the
cooked dry bean market eats “away from home” (i.e. restaurants, fast food chains,
schools). For instance, dry beans eaten at restaurants accounted for 11 percent of the total
cooked bean market, while fast food chains (6. g. Taco Bell, KFC, Chipotle) accounted for
nine percent (Figure 5.3).

Figure 5.3. Average Share on Cooked Dry Bean Consumption by Market Class and
Location, US, 1994-1996

 

 

 

     

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100% «~ 7 i i —
90% ’ .
80% l “.4
70% ‘ l 1 ., . \v.
60% - :- . s.
. ' 'S q,“ \ ~
50% ’ 2...,” w. . ,
40% “_ ~33 ‘- 93
30% — » 3 ‘8
20% 4 v; " ‘
10% ~ “'3 . ' "
.7 a
0% 1 r 1 fl . 1
All Dry All Limas Navy All Kidney Black Refried Other
Beans Pinto Pinto
D Home aiFast food Cl Other restaurant School I Others

 

 

 

Source: Lucier et al. (2000)

94

An interesting finding by Lucier et al. (2000) suggests that the majority of cooked
black beans consumed away from home were eaten at restaurants (16%) other than fast
foods and at schools. This finding “reflects the dual nature of black beans as both an
upscale [and] trendy bean, [as well as] a basic food” (Lucier et al. 2000).

5.2.2 Regional

Consumption of cooked dry beans was concentrated in the South (39%) and the
West (38%) (Figure 5.4). Consumers in the South dominated consumption of cooked
black beans (5 5%), all limas (43%), and navy beans (34%). On the other hand, consumers
from the West primarily consumed cooked pinto beans (45%), as well as refried pintos
(43%). This trend was mainly attributed to concentration of the Hispanic population in
cities of these regions (i.e. California, Florida, and Texas).

Figure 5.4. Average Share on Cooked Dry Bean Consumption by Market Class and
Region, US, 1994-1996

 

    

 

 

 

 

 

1 00% .

90% <

80%

70% .

60% « ' 3,; g.
9’9’9’9‘9 6"q’9': r 9 9 9 1
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1 0% _.. . ,, .. L j . " ' .. _ 9.9.9.9.

All Dry All Limas Navy All Kidney Black Refried Other Pinto
Beans Pinto
Ill Northeast I Midwest vs South 1: West

 

 

Source of basic data: Lucier et al. (2000)

95

Although 43 percent of the US population resided in the Midwest and Northeast,
these regions accounted for only 13 percent and 11 percent of the total cooked dry bean
market, respectively. Despite this, the Midwest was the main market of cooked kidney
beans (29%), while consumers in the Northeast were the second largest consumer of
cooked black beans (17%).

5.2.3 Urbanization

Although “bean consumption is proportionately stronger in rural areas,” (Lucier
et al. 2000, 31), consumers residing in suburban areas accounted for the greatest share
(42%) in the total consumption of cooked dry beans during the survey period (1994-
1996) (Figure 5.5). They were followed by consumers in the metropolitan/urban areas
(32%), and lastly by rural consumers (27%). Furthermore, it is interesting to note that
most of the cooked black (42%) and navy (39%) beans were consumed in
metropolitan/urban areas.
Figure 5.5. Average Share on Cooked Dry Bean Consumption by Urbanization, US,

1994-1996
A _, _. a ,_,;n, +v _:—J,

 

    

Rural

 

  

i
Suburban

 

 

Metropolitan

 

 

0 10 20 30 40 50
Percent

 

 

Fa PopuIa—tion IAII Dry Beag

 

1
l
l
l

i 7 —l
Source of basic data: Lucier et al. (2000)

 

 

96

5.2.4 Race/Ethnicity

The US Census Bureau data projects that the Hispanic population will increase by
34 percent during the period 2000 to 2010 (from 36 million to 48 million), compared to
an estimated 10 percent increase in the total US population. It is assumed by many that
the rapid increase in the Hispanic population stimulated the growth in demand for dry
beans in the US, although they only represent 13 percent of total US population (based on
the 2000 census).

Although the Hispanic population constituted only 11 percent of the respondents
during the period of the ARS survey, this market segment accounted for 33 percent of the
cooked dry bean market (Lucier et al. 2000). Hispanics originating from Mexico
consumed the most cooked dry beans (21% of the total volume of cooked dry beans in
the US), approximately four times the proportion of their population (5% of total US
population) (Lucier et al. 2000).

Consumption of cooked dry beans by market class differed by ethnicity. Non-
Hispanic, white consumers consumed most of the refried pintos (74% of total cooked
refried pintos), black beans (71% of total cooked black beans), and kidney beans (69% of
total cooked kidney beans). In contrast, Hispanics mainly consumed pinto beans (48% of
total cooked pintos). However, Hispanics were a significant market for dry beans of all
market classes, except cowpeas and garbanzo beans (Lucier et al. 2000). Hispanics of
Mexican origin were the most important consumers of cooked pinto and lima beans
(Lucier et al. 2000), while Hispanics of CA and Caribbean origin preferred black and

small red beans (Lucier et al. 2000; Zamora 2005).

97

Ethnicity also affects preferences of US consumers for dry beans from a specific
country of origin (i.e. other than the US). For instance, a study by Zamora (2005)
revealed that approximately 69 percent of the total volume of dry beans consumed by
consumers of CA origin come from their home country, specifically small red beans
(80% of their total small red bean consumption) (Table 5.4).

Table 5.4. Average Dry Bean Consumption by Country of Origin of US Consumers

 

 

 

 

of CA Descent, US, 2004
Market CA US Total
Class volume share volume share Volume
(kgs/person/yr) (kgs/person/yr) (kgs/person/Lr)
Small Red 16.81 79.5% 4.33 20.5% 21.14
Black 4.50 42.5% 6.08 57.5% 10.58
Red Silk 7.81 100.0% 0 0% 7.81
Others 0.27 9.7% 2.51 90.3% 2.78
Total 29.39 69.5% 12.92 30.5% 42.31

 

Source of basic data: Zamora (2005)

5.2.5 Gender and Age

The consumption of cooked dry beans differed by age and gender (Lucier et al.
2000). A majority (61%) of cooked dry beans were consumed by the male population,
with males in the age bracket 20 to 59 years old consuming the greatest volume (41% of
total cooked dry bean volume). This is largely attributed to their greater caloric needs
than females (Lucier et a1. 2000).
5.2.6 Income

Consumers’ level of income is inversely related to the consumption of dry beans
(Lucier et a1. 2000). Consumers in the lowest income bracket (i.e. with income less than
130% of the poverty level) consumed 27 percent of the total volume of cooked dry beans,
although they constituted only 19 percent of the total population (Figure 5.6). This

implies that low-income consumers perceive beans as a cheap source of protein. This

98

trend may also be influenced by the fact that the incidence of poverty is highest among
consumers of Hispanic descent -- the major consumers of dry beans (Lucier et a1. 2000).

In contrast, high income consumers (i.e. with income above 300% of the poverty
level), which equaled 49 percent of the population, accounted for 37 percent of the total
consumption of cooked dry beans. Although in general, high income consumers’ cooked
dry bean consumption was the least in terms of proportion (i.e. ratio of cooked dry beans’
market share to the proportion of population), their consumption of black beans was the
highest in terms of market share and proportion. Likewise, garbanzo beans, which are a
popular ingredient in salad beans, were mostly consumed by high end consumers in the
West (Lucier et a1. 2000).

Figure 5.6. Average Share on Cooked Dry Bean Consumption by Income as 21
Percentage of Poverty Level, US, 1994-1996

 

 

300 % & above .a

 

nae-299% _‘

 

   

131 -185% ' 15

 

28

Household Income as % of
Poverty Level

0-130% -

 

 

 

 

0 20 4O 60
Percent

 

[a Population I All Dry Beans]

 

 

 

 

Source of basic data: Lucier et al. (2000)

99

5.3 Major Demand Drivers

Identifying the major drivers, which affect the demand for dry beans, provides a
quick assessment of the unmet consumer needs in the dry bean subsector. According to
an industry study by Knudson and Peterson (2005), there are five major demand drivers,
which affect the agrifood system. These demand drivers -- convenience, value, ethnicity,
wellness, and indulgence -- aid in assessing the marketability of an existing product, as
well as the potentials of new ones.

Using this approach, Knudson and Peterson (2005) assessed market opportunities
for dry beans. Their study suggests that the greatest opportunity to increase dry bean
product sales is to focus on meeting the wellness and ethnicity components -- wellness, in
terms of offering low sodium but good tasting soups, as well as improvement in product
labeling (e. g. stressing the health benefits of dry beans in bagged and canned products);
and ethnicity by capitalizing on the rising Hispanic market. This section evaluates the
additional potentials for increasing sales by offering a new dry bean product, specifically
fair trade beans in the US market using the major demand drivers identified by Knudson
and Peterson (2005).

5.3.1 Convenience

Knudson and Peterson (2005, 23) define convenience as “anything that makes life
easier for the consumer”, including ready-to-eat or partially prepared foods. Convenience
also reflects ease of buying (availability) and ease of product preparation (time and
steps/processes required). This demand driver is becoming increasingly important in
today’s marketplace, due to the time constraints of households brought about by a

declining household size and rising participation of women in the labor force (Knudson

100

and Peterson 2005). Most US households which have income of $75,000 or more are
willing to sacrifice money to save time -- implying that they are willing to pay a premium
for conveniently prepared food products (Knudson and Peterson 2005).

Dry beans are considered an inconvenient food product in terms of ease of
preparation and time required to prepare them. This puts dry beans at a slight
disadvantage, especially bagged beans, since not everyone knows how to prepare them
and it takes a relatively long time to cook them. However, beans as an ingredient in soups
and chilis have an attribute of convenience (e.g. microwaveable soups) (Knudson and
Peterson 2005). Also, including recipes and instructions for preparation with the bean
product (bagged or canned) can mitigate the inconvenience feature of dry beans. Options
to combine the convenience appeal with other demand drivers such as wellness, offers
opportunities to expand to other dry bean products (Knudson and Peterson 2005).

5.3.2 Value

Value reflects the ability of a product to meet consumers’ needs at a low price
“coupled with a basic level of performance” (Knudson and Peterson 2005, 25). This
demand driver is especially important for price-sensitive consumers, such as those
belonging to the low-income bracket.

1n the case of dry beans, which are considered as a commodity/undifferentiated
product, price is of utmost importance for consumers (Knudson and Peterson 2005).
However, a study of the buying behavior of US consumers of CA origin revealed that
they are willing to pay a premium of 25 to 50 percent for beans from their home country
(Figure 5.7). This implies that although dry beans are relatively inexpensive products and

that most consumers do not differentiate among dry bean products; some consumers still

101

look for the quality attributes that they desire in dry beans and are willing to pay more for
these attributes. Since the major goal of this study is to market fair trade beans grown by
CA producers, selling this product to US consumers would require them to be willing to
pay a premium for the quality attributes embedded in the product (e. g. fair trade,
organic). Hence, the ability of fair trade beans to appeal to value as a demand driver is
very limited.

Figure 5.7. Average Retail Price of Dry Beans by Market Class and Country of

 

 

 

 

 

 

 

 

 

 

Origin, US, 2004
’ T 7 — ‘ — j
1
red silk ‘
- I16

«a

E
0 ll red i
g sma 1
a l
E l
1
black l
i

0 6 1.8
Price (US$IIb)
U Central American Origin I US l
7

 

 

Source of basic data: Zamora (2005)

5.3.3 Ethnicity

Ethnicity is another major driver affecting the demand for dry beans. Ethnic
diversity and “globalization of tastes” greatly contribute to the increasing demand for
ethnic foods such as dry beans in developed countries (Knudson and Peterson 2005;
Punjabi 2005). For instance, the growing ethnic diversity, specifically of Hispanics in the

US, is assumed to be a major driver of the US’ dry bean demand (Lucier et al. 2000).

102

Currently, there is an increasing trend among ethnic consumers to purchase beans
imported from their country of origin (e.g. beans of CA origin), as mentioned in the
previous sections of this chapter.

Increasing affluence also contributes to the globalization of US consumers’ tastes.
As affluent consumers travel and eat specialty foods abroad, awareness and interest on
these types of food increases. Hence, consumers in developed countries, increasingly
demand ethnic foods. For instance, there has been a growing interest among US
consumers in Mexican and CA cuisines, which mostly use “pinto, black and other
colored beans” (Punjabi 2005, 19). The rising acceptance of gourmet restaurants and fast
food chains featuring cooked dry beans attest to this trend.
5.3.4 Wellness

The wellness factor corresponds to increasing health consciousness among
consumers, their food safety concerns (Knudson and Peterson 2005; Punjabi 2005), and
the growth of aging population in developed countries (Knudson and Peterson 2005). As
dry beans are an important part of a healthy diet recommended in the Dietary Guidelines
for Americans“, they easily satisfy the wellness demand driver. Aside from this, beans
are also rich in “dietary fiber [which] has numerous proven health benefits, such as
reducing the risk of heart disease and some cancers, [as well as] promoting regularity and
helping with weight maintenance” (Beans for Health).

Market trends showing the importance of wellness as a demand driver are

exhibited in the growth of the organic market, which is driven more by the desire of

 

(’0 The Dietary Guidelines for Americans recommends US consumers to consume “at least three cups of
beans per week... for a 2000 calorie diet and may vary depending on higher or lower calorie levels” (Beans
for Health).

103

consumers to eat safe foods“, than environmental concerns (Mintel, as cited by Knudson
and Peterson 2005). Also, in today’s marketplace, there is a proliferation of food products
with “food minus” (e. g. low fat, low sugar, low sodium, low cholesterol) and “food plus”
(e. g. all natural, organic, added fiber) claims, which reflects changing consumer attitudes
toward healthy food (Knudson and Peterson 2005). If fair trade beans include organic
attributes, which implies non-use of synthetic chemicals in farming; this may further
strengthen their appeal to wellness as a demand driver.
5.3.5 Indulgence

Indulgence as a demand driver reflects the ability of a product to appeal to values
held by consumers (Knudson and Peterson 2005). A major driving force of indulgence is
affluence. Affluence promotes consumption of upscale and trendy products. Also,
“affluent, less price conscious consumers look for products that satisfy more than their
[basic] needs” (Knudson and Peterson 2005, 23). In this case, consumers -- especially
affluent ones -- want to consume foods, which enhance their lifestyle, values, and beliefs
(Knudson and Peterson 2005, 23). For instance, the rising consumption of ethical foods
(e. g. fair trade, organic, animal-safe) in the US reflects consumers heightened awareness
of and concern on their environment and the social conditions of the people who produce
their food.

Dry beans can be positioned in the market to appeal to consumers’ “indulgences”,
if they are positioned as a gourmet or trendy product (Knudson and Peterson 2005; Sam’s
Club’s Sr. Vice President of Marketing, Research and Insights, pers. comm. June 29,

2007; Global Exchange’s Buyer and Project Manager, pers. comm. September 4, 2007).

 

6' Also discussed in Chapter 3.2.2.

104

For example, Knudson and Peterson (2005) argue that companies can incorporate
indulgence and convenience, as part of the product attributes of beans in soups.

In terms of fair trade beans, they have the greatest potential to appeal to
indulgence as a demand driver, which enhances consumers’ lifestyle, belief, and values
(i.e. for a socially-conscious/ethical consumer). Market development for fair trade beans
could also explore combining the indulgence and wellness demand drivers to broaden
their appeal in the market. However, the greatest market potential lies in combining the
three demand drivers -- convenience, indulgence, and wellness.

5.4 Chapter Summary

Trends in US demand for dry beans suggest that although there is a gradual
decline in per capita consumption of all dry beans (i.e. total of all market classes), per
capita consumption has increased for some market classes (e.g. small red, black, and
garbanzo beans), implying their greater market acceptance in the US. This trend is likely
attributed to the growing Hispanic population in the US, particularly people of Mexican
and CA origins and the globalization of tastes of US consumers. Rising import demand
for dry beans of CA origin also suggest this trend.

Although few studies have analyzed the dry bean consumption habits of US
consumers, data from ARS (1994-1996), as analyzed by Lucier et al. (2000), indicate that
while a majority of cooked dry beans were consumed at home, close to one-quarter of
total cooked dry beans were consumed at restaurants and fast foods. Consumption of
cooked dry beans was highest in the West and the South, where a majority of Hispanics

are concentrated.

105

Bean preference of US consumers also varied by market class. Non-Hispanic,
white consumers preferred black, refried pintos, kidney, and garbanzo beans, while
Hispanics of Mexican descent had a strong preference for pinto and lima beans. On the
other hand, Hispanics of CA or Caribbean origin, had a strong preference for black and
small red beans.

Among all income groups, low income consumers’ cooked dry bean consumption
was highest in proportion (i.e. market share over population). However, when
disaggregated by market class, the high income group was the major consumer of black
and garbanzo beans. This reflects the appeal of black beans to the upscale and trendy
market.

Five major drivers of demand identified by Knudson and Peterson (2005) --
convenience, value, ethnicity, wellness, and indulgence -- influence the agrifood system.
Using the major demand drivers, Knudson and Peterson (2005) evaluated market
opportunities for existing and potential dry bean products, which suggested that the
greatest potential for expanding dry bean consumption in the US lies in appealing to the
wellness and ethnicity components. However, for fair trade beans, which are targeted at
the ethical consumers, the greatest market opportunity lies in combining the convenience,

indulgence, and wellness demand drivers.

106

CHAPTER 6
THE POTENTIAL OF ‘FAIR TRADE’ BEANS FROM CENTRAL AMERICA
IN THE US MARKET

This chapter, which analyzes the potential of marketing fair trade beans in the US,
focuses on evaluating the general characteristics of target markets (based on a store
survey and key informants), the types of beans they currently sell, their interest in fair
trade beans, their general product preferences and requirements, and their general
comments and suggestions for marketing fair trade beans. Based on these information, as
well as the industry trends that were presented in Chapters Three to Five, key constraints
to and opportunities for marketing fair trade beans in the US are identified. Finally,
strategic market recommendations are proposed, based on the results of this analysis.
6.1 Target Markets for Fair Trade Beans

A target market is defined as “a group of potential customers the seller thinks are
most likely to want [their] product and at whom the seller directs the marketing program”
(Schaffner et al. 1998, 475). The identified target markets for fair trade beans are
considered at two levels: (I) the target buyers (i.e. the natural product industry62 agents or
supply chain agents catering to the needs of the ethical consumers); and (2) the ethical
(socially-conscious) consumers in the US. This study assesses the target buyers’
preferences and product specifications through a rapid market survey of agents of the
natural products’ channel (i.e. health food stores and cooperatives, a natural product
supermarket, a natural product distributor, and ATOs/worldshops), as well as an agent of
the conventional supply chain (warehouse club store), which is a major retailer of fair

trade products.

 

62 “The natural products industry is the intersection of natural, organic, and specialty food and beverage,
sustainable (e.g. fair trade) products, and vitamins and supplements” (SPlNS).

107

6.2 Results of the Survey on Health Food Stores and Cooperatives

Health food stores and cooperatives are natural product retailers/outlets, which
“have annual retail sales [of] less than US$ 2 million” (Mintel 2006). In 2005, sales from
these outlets amounted to US$ 9.2 billion or 36 percent of the total sales of natural
product retailers (Mintel 2006).
6.2.1 General Characteristics of Survey Respondents

Of the total population of the 1,086 health food stores and cooperatives listed in
the Organic Consumers Association’s (OCA) directory (http://organicconsumers.org
/state/greenbiz.cfm?all=NaturalFood), a random sample of 217 retail outlets were
selected and sent an e-mail/mail survey. Of this total, 58 respondents (27%) returned the
survey“. Almost all of the survey respondents (88%) were owners and/or managers of
the retail outlets, which implies that most were the major decision-makers in the store in
terms of new product introductions (Table 6.1). Most of the retail outlets were located in
the Midwest (33%) and the West (31%), while the South and the Northeast regions
accounted for 22 percent and 14 percent of the total respondents, respectively. The
majority of the retail outlets were cooperatively owned (53%), followed by corporation
(29%), sole proprietorship (10%), partnership, and others -- each with a three percent

share.

 

(’3 A one-page follow-up survey was sent to the 159 non-respondents to determine if the businesses
managed by these individuals were similar to or different from the businesses managed by the initial
respondents. Analysis of the information provided by the respondents to the follow-up survey (54
respondents, 34 percent) confirmed that their business operations were similar to those managed by the
initial respondents: (l) 46 percent of the stores were definitely interested but failed to return the initial
survey, 43 percent expressed possible interest, and l 1 percent had no interest in selling fair trade beans; (2)
close to 100 percent of the non-respondents were aware of fair trade; (3) 93 percent sold fair trade products;
and (4) 94 percent sold dry beans. Also, using the Wilcoxon-Mann-Whitney test (a nonparametric test for
independence of means), it was revealed that there was no significant difference between the respondents’
interest to sell fair trade beans for the initial and follow-up surveys. These results indicate that the initial
survey respondents were representative of the population of health food stores and cooperatives.

108

Health food stores and cooperatives are major players in the natural products’
industry. While all of the surveyed respondents (100%) sold fair trade and natural64 food
products, more than one-half also sold conventional/mainstream food products.

Table 6.1. General Characteristics of Surveyed Health Food Stores and

 

 

Cooperatives, US, 2007
Item Number Percentage
Total Respondents 58 100%
Position of Respondent
Owner 14 24%
Manager 32 55%
Purchasing officer 3 5%
Owner-Manager 5 9%
Others 4 7%
Region
Northeast 8 14%
Midwest 19 33%
West 18 31%
South 13 22%
Ownership
Cooperative 3 l 53%
Sole-proprietorship 6 10%
Partnership 2 3%
Corporation 17 29%
Others 2 3%
Products Offered1
Conventional 32 55%
Fair trade 58 100%
Locally grown S6 97%
Natural 58 100%
Organic 57 98%
Specialty 49 84%

 

rMost respondents have multiple answers.

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

 

6’ Natural products are products which do not contain “artificial preservatives, artificial colors, chemical
additives, artificial flavors, artificial sweeteners, hydrogenated oils, etc.” (SPlNS).

109

6.2.2 Current Beans Sold

Almost all of these retail outlets sold beans of the major market classes: small red
(93%), navy (93%), kidney (98%), pinto (98%), and black beans (100%) (Table 6.2).

Table 6.2. Dry Beans Sold by Market Class and by Form of Product, US, 2007

 

 

 

 

Market Class
Item Small Red Black Kidney Navy Pinto
no. % no. % no. % no. % no. %

Number Of Sellers 54 93% 58 100% 57 98% 54 93% 57 98%
Form

Bulk 36 62% 43 74% 42 72% 39 67% 43 74%

Bagged l l 19% 14 24% 8 14% 9 16% l l 19%

Canned 36 62% 45 78% 44 76% 37 64% 44 76%

No response 1 2% l 2% 2 3% 2 3% 1 2%

Not Applicable' 4 7% 0 0% 1 2% 4 7% 1 2%

 

‘Refers to non-sellers of the bean market class among the 58 respondents.

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

While the form of beans offered varied by market class, about two-thirds of the
retail outlets sold both bulk and canned beans. In contrast, only approximately one-fifth
of the outlets sold bagged beans. It was evident from these data that bagged beans were
not popular in these stores. Also, the retail outlets had a strong preference for organic
bulk and organic canned beans, since almost all of the stores only offered organic bulk
and organic canned beans (Table 6.3). Of the few stores that sold bagged beans, more

than one-half of these stores only sold organic bagged beans.

110

Table 6.3. Beans Sold by Market Class, Type, and Form of Product, US, 2007

 

 

 

 

 

 

 

 

Total Form
Market Class/Type No. of Bulk Bagged Canned
Sellers no. % no. % no. %

Small Red 54

Conventional 0 0% 3 27% 0 0%

Organic 34 94% 7 64% 33 92%

Organic & conventional 2 6% 1 9% 3 8%

Sub-total 36 100% 11 100% 36 100%
Black 58

Conventional 0 0% 5 36% 0 0%

Organic 39 91% 8 57% 41 91%

Organic & conventional 4 9% 7% 4 9%

Sub-total 43 100% 14 100% 45 100%
Kidney 57

Conventional 0 0% 2 25% 0 0%

Organic 40 95% 5 63% 39 89%

Organic & conventional 2 5% 1 13% 4 9%

No response 0 0% 0 0% l 2%

Sub-total 42 100% 8 100% 44 100%
Navy 54

Conventional 0 0% 3 33% 0 0%

Organic 37 95% 5 56% 33 89%

Organic & conventional 2 5% l l 1% 3 8%

No response 0 0% 0 0% l 3%

Sub-total 39 100% 9 100% 37 100%
Pinto 57

Conventional 0 0% 4 36% 0 0%

Organic 39 91% 6 55% 40 91%

Organic & conventional 4 9% l 9% 4 9%

Sub-total 43 100% 1 1 100% 44 100%

 

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

111

6.2.3 Current Bean Suppliers

About 40 percent of the retail stores purchased their beans from United Natural
Foods, Inc. (UNFI), the major natural product distributor in the US (Table 6.4). In all
regions, UNFI was the major supplier of beans. However, other key suppliers were
Nature’s Best (Western Region), Co-op Partners and Eden Foods (Midwest), and
Associated Buyers (Northeast).

Table 6.4. Major Dry Bean Suppliers of Health Food Stores and Cooperatives, US,

 

 

2007
. 1 Northeast Midwest West South Total
Supplier
No. % No. % No. % No. % No. %
UNFl 3 38% 9 47% 6 33% 5 38% 23 40%
Nature's Best 0 0% 0 0% 4 22% 0 0% 4 7%
Eden Foods 0 0% 2 l 1% l 6% 0 0% 3 5%
Associated Buyers 3 38% 0 0% 0 0% 0 0% 3 5%
Co-op Partners 0 0% 3 16% 0 0% 0 0% 3 5%
Falcon Trading 0 0% l 5% l 6% 0 0% 2 3%
GloryBee Foods 0 0% 0 0% 2 l 1% 0 0% 2 3%
Tree of Life, Inc. 0 0% l 5% 0 0% l 8% 2 3%

 

Total Respondents 8 19 18 13 58

 

Note: Columns do not total to 100%. Some respondents gave multiple answers, while others did not answer
the question.

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

6.2.4 Interest in Fair Trade Beans

While slightly less than one-half of the surveyed health food stores and
cooperative -- 38 percent for small red and 41 percent for black beans -- were definitely
interested in selling fair trade beans in their stores, most of the respondents expressed
potential interest (‘maybe’) -- depending on the promotion of the fair trade bean product
(e. g. labels, story behind the product, promotional discounts, awareness campaigns about

the product) (Table 6.5).

112

Table 6.5. Interest in Fair Trade Small Red and Black Beans, US, 2007

 

 

 

 

Interest in Fair Small Red Beans Black Beans
Trade Beans No. Percent No. Percent
Yes 22 38% 24 41%
Maybe 34 59% 32 55%
No 2 3% 1 2%
No response 0 0% 1 2%
Total 58 100% 58 100%

 

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

Interest in selling fair trade beans varied by region (Table 6.6). Close to one-half

of the stores in the Midwest and the West expressed an interest (‘yes’) in selling fair trade

beans. In contrast, most of the respondents in the South (85%) expressed possible interest

(‘maybe’) in marketing fair trade beans. Furthermore, the retailers’ interest in selling fair

trade beans did not vary by market class.

Table 6.6. Interest in Fair Trade Small Red and Black Beans by Market Class and

 

 

 

 

 

 

Region, US, 2007
Interest in Northeast Midwest West South
Fair Trade Total
Beans No. Percent No. Percent No. Percent No. Percent
Small Red
Yes 4 50% 9 47% 8 44% 1 8% 22
Maybe 4 50% 9 47% 10 56% 1 l 85% 34
No 0 0% l 5% 0 0% l 8% 2
Total 8 100% 19 100% 18 100% 13 100% 58
Black
Yes 6 75% 9 47% 8 44% l 8% 24
Maybe 2 25% 10 53% 9 50% ll 85% 32
No 0 0% 0 0% 0 0% l 8% 1
No response 0 0% 0 0% 1 6% 0 0% 1
Total 8 100% 19 100% 18 100% 13 100% 58

 

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

113

6.2.4.1 Form at Fair Trade Beans

About two-thirds of the respondents (64%) reported that their customers would be
most interested (‘yes’) in purchasing bulk fair trade beans“, followed by canned fair
trade beans (45%) (Figure 6.1). In contrast, bagged beans were considered by the
respondents to be the least popular form (17%) among their customers.

However, about one-half of the retail stores expressed possible interest (‘maybe’)
in selling bagged beans (55%). This suggests that it might be possible to expand the
market for bagged beans by improving the product’s attributes (e.g. improved packaging,
reducing the amount of brokens, including instructions for preparation, and providing
recipes).

Figure 6.1. Preferred Form for Fair Trade Beans, US, 2007

 

 

 

 

 

 

0% 20% 40% 60% 80%

Percent of 'Yes' and 'Maybe' Responses on Form Preference
i D Yes I Maybe

 

 

 

 

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

 

(”Most customers of health food stores and cooperatives prefer minimally processed foods. This may imply
that some of them would like to cook food from scratch or ‘get back into the kitchen’.

114

6.2.4.2 Packaging Type for Fair Trade Beans

According to Schaffner et al. (1998, 345), “the package is an integral part of the
consumer product” because it gives an indication of the products’ quality. In this study,
respondents were asked what type of packaging (first and second choice) their customers
would prefer for an unprocessed fair trade bean product. Among the five choices (Figure
6.2), the store owners ranked native cloth bag as their first choice (21%), followed by a
paper window bag (16%), a stand-up re-sealable pouch (14%), and a carton box with
window (10%). Plastic bags, the usual packaging type for conventional bean products,
were least preferred (7%). These results indicate a potential to expand the market for
bagged/packaged bean products by using an unconventional type of packaging to
differentiate the new bean product.

Figure 6.2. Preference for Packaging Type for Fair Trade Beans, US, 20071

 

 

. 7°/

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

a carton

.3‘

g d h

.. stan -u ouc

g P P

x l

g 1 ' %

a paper window bags 9

. 10% ‘
native cloth .4 7. . ..,._.. ~ -- .. . - 121%

l T
‘ I I
1 0% 10% 20% 30%
| Choice of Packaging
L 0 1st choice I 2nd choice j

 

 

 

lPercentages per choice do not add up to 100% due non-response and some stores’ lack of interest in
marketing bagged fair trade beans.

Source: B/C CRSP Survey of Health Food Stores and Co~ops (2007)

115

6.2.4.3 Form [or Canned Fair Trade Beans

Two-thirds of the respondents (66%) thought that their customers would prefer
canned whole fair trade beans, compared to refried fair trade beans (34%) (Figure 6.3).
Preference for canned products is highly influenced by consumers’ desire to eat
convenient foods due to time constraints in most households, as well as declining
household sizes.

Figure 6.3. Preferred Form for Canned Fair Trade Beans, US, 2007

 

 

 

 

 

 

 

 

 

 

i ,-_ -.‘_ __A___
T
Refried .,

E
0
LI.
3
c l
E l

10% .
0 Whole

66%
0% 20% 40% 60% 80%
Percent of 'Yes' and 'Maybe' Responses
El Yes I Maybe
i _ "’1

 

 

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

6.2.4.4 Type 01 Information with the Fair Trade Bean Product

Information placed on food packages (e.g. product labels, health benefits, recipes)
conveys the attributes and benefits of the contained product (Storlie and Brody 2000).
This information may add to convenience (e.g. recipes for ease of preparation) or may
appeal to wellness-related demand drivers (e.g. health benefits, product labels such as

organic).

116

The respondents were asked what type of information their customers would
prefer to be included with a fair trade bean product. Almost all of the respondents (93%)
highlighted the importance of a label, which indicates that the product is fair trade
(Figure 6.4). However, most respondents also recommended including a tag/card with
information about who produced the beans (86%), information on health benefits (72%),
and traditional recipes from CA (58%). A few respondents also mentioned that the bean
product should also include an organic, as well as a country of origin label.

Figure 6.4 Information that Buyers Like Included with the Fair Trade Bean
Product, US, 2007

 

 

lnforrnation on health .
benefits ' --- .

 

 

 

Tag/card with info on - - .
86%
the small farmers -- -. ,

 

 

 

Traditional recipes

from CA — 58/0

 

 

 

Type of Information

 

Label indicating fair 4

‘ ,1 °/
trade 93 ”

 

 

 

 

 

I T

f 0% 25% 50% 75% 1 00%

i Percent "Important" and "Very Important" Responses

 

 

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

 

6.2.4.5 Logo
Respondents were asked what type of logo should be displayed with the fair trade

bean product. Most of the respondents (72%) reported that a fair trade logo alone was

117

acceptable and did not express a preference for a specific fair trade logo66 (Figure 6.5).
However, almost all of the respondents (93%) preferred including both the fair trade and
organic certification labels which implies that customers in these retail outlets
increasingly associate fair trade with organic products.

Figure 6.5. Preferred Type of Logo for Fair Trade Beans, US, 2007

Both fair trade logo 2%

and organic
certification . ' J93%

 

 

 

Logo

Only fair trade logo

 

4L
1 I

0% 25% 50% 75% 100%

Percent of Respondents
El Strongly prefer I Acceptable

 

 

 

 

 

‘Source: B/C CRSP Survey of Health Food Stores and C090; (2007) #
6.2.4.6 Premium
A majority of the respondents who were interested in selling fair trade beans in
their stores were willing to pay a five to ten percent premium for only the fair trade
attribute (50%) and a ten to 20 percent premium for a combination of the fair trade and
organic attributes (63%, on average) (Table 6.7). Also, although the respondents were
willing to pay a similar premium for small red and black beans, respondents were slightly

more willing to pay a higher premium for black beans than for small reds. Since the

 

6" Fair trade logos/labels in the US include: TransFair USA label, lntemational Fair Trade Association’s
(IFAT) FTO Mark, and Fair Trade Federation’s (FTF) logo.

118

majority of the retail stores cater to white, non-Hispanic consumers, this may indicate
that their customers’ prefer black beans.

Table 6.7. Willingness to Pay a Premium for Fair Trade Beans by Market Class, US,

 

 

 

 

 

 

2007
Attribute/Premium Small Red > Black
No. Percent No. Percent
Fair Trade
None 5 9% 3 5%
<5% 2 3% 2 3%
5% l l 19% 10 17%
10% I8 31% 19 33%
15% 4 7% 6 10%
20% 2 3% l 2%
25% 0 0% 0 0%
>25% 0 0% 0 0%
No response 13 22% 14 24%
Not applicable1 3 5% 3 5%
Total 58 100% 58 100%
Fair Trade and Organic
None 3 5% 2 3%
<5% 3 5% 3 5%
5% 4 7% 4 7%
10% 16 28% I6 28%
15% 10 17% 10 17%
20% 10 17% l 1 19%
25% 3 5% 3 5%
>2 5% 2 3% 2 3%
No response 6 10% 6 10%
Not applicable' 1 2% 1 2%
Total 58 100% 58 100%

 

IReflects respondents who were not interested selling fair trade beans in their stores.

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

6.2.4.7 The Potential Fair Trade Bean Consumer
Respondents were asked to characterize the type of consumers who they thought

would be most likely to buy fair trade beans. As this was asked as an open question, some

119

respondents gave multiple answers. Figure 6.6 summarizes the most frequently
mentioned characteristics of potential fair trade bean consumers.

Figure 6.6. Characteristics of Potential Fair Trade Bean Consumers, US, 2007

 

concerned with international issues
1 young adult (generation Y)
female
baby-boomer/middle aged
white

co-op shopper

 

Characteristic

ethical consumer
middle-high income

college educated

 

0% 13% 25% 38%

 

l
L Percent of Respondents

 

Note: Respondents may have multiple answers.
Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

The respondents perceived that potential buyers would most likely be college
educated (31%), middle-to-high income (22%), ethical consumers (i.e. consumes fair
trade and organic, and other ethical products) (19%), frequent co-op shoppers67 (12%),
white (10%), and middle-aged (9%). In addition, respondents also felt that fair trade
beans also have a potential market among the educated, young adults, especially females

who are informed and concerned about international issues.

 

67 Co-op shoppers, as defined by the respondents, were generally white, educated, middle-aged customers,
within the middle to high income brackets.

120

6.3 Results of the Key Informants Interviews

Key informants interviews were conducted with top-level managers of: (1) Whole
Foods Market, Inc., a major natural product retailer; (2) Sam’s Club, a major
conventional warehouse club store which sells fair trade products, specifically fair trade
certified coffee; (3) four ATOs (Alter Eco Americas, Equal Exchange, Inc., Global
Exchange, and SERRV lntemational), which imports, wholesales, and retails fair trade
products; and (4) UNFI, the major natural product distributor in the US. Tables 6.8a-d
summarize the personal interviews.

6.3.1 Natural Supermarket: Whole Foods Market, Inc.

Established in Austin, Texas in 1980, Whole Foods Market, Inc. (WFM) retails
natural products in North America and the United Kingdom. To date, it is the largest
retailer of natural and organic food products with 276 stores (as of September 2007),
organized into 11 geographic regions68 (WFM 2008). Its mission emphasizes “stringent
quality standards and commitment to sustainable agriculture” (WFMa).

Classified as a natural supermarket“, Whole Foods Market’s retail sales in 2005
amounted to US$ 4.7 billion -- approximately 20 percent of the total retail sales of natural
product retailers in the US (Mintel 2006). From 2005 to 2006, the company’s sales were
up by 19 percent, amounting to US$ 5 .6 billion (WF M 2007). Thus, Whole Foods Market

is a significant market player in the natural product industry.

 

68 Each region has its own leadership team and is autonomous (WFM 2007).
69 Natural supermarkets are natural product retailers, which “have annual retail sales of $2 million or more
and collect sales data through scanning” (Mintel 2006).

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6.3.1.1 Fair Trade Products

In March 2007, Whole Foods Market launched the Whole TradeTM Guarantee, a
program which commits the company to source products from suppliers in developing
countries who follow ethical standards (i.e. criteria on quality, environment, better wages
and working conditions, and premium prices for producers). Through the Whole TradeTM
Guarantee program, Whole Foods Market partners with TransF air USA and the
Rainforest Alliance70 to certify the production process, workers’ conditions, and prices
paid to producers in developing countries from whom the company sources their products
(WFMc). The Whole TradeTM Guarantee program assures customers that: (1) suppliers
meet Whole Foods’ high quality standards; (2) producers are paid better prices; (3)
agricultural workers are guaranteed better wages and working conditions; (4) suppliers
follow environmentally sustainable practices; and (5) Whole Foods Market gives a
donation of one percent of sales to the Whole Planet Foundation7| (WFMc).

Whole Foods Market is licensed to use the TransFair USA label on Whole
TradeTM Guarantee products, which are certified by TransFair USA, including coffee, tea,
cocoa/chocolate, sugar, rice, and vanilla (Global Commodities Coordinator, pers. comm.
October 12, 2007). In addition, the company sells several Whole TradeTM Guarantee
products certified by the Rainforest Alliance, including jams, juices, pineapple, mango,
and spices. Currently, approximately one percent of the products sold at Whole Foods

bear the Whole TradeTM label (Global Commodities Coordinator, pers. comm. October

 

7° Rainforest Alliance certifies producers of coffee, tea, banana, cocoa, citrus, cut flower and fern, who
have complied with its criteria -- including conservation of biodiversity, sustainable livelihoods, fair
treatment and good working conditions of producers (Rainforest Alliance). For companies who wish to use
the Rainforest Alliance Certified seal of approval on their packaged products, at least 30 percent of the
contents must be Rainforest Alliance certified (TransFair USA 2007, Ethical Corporation 2005).

7' Whole Planet Foundation’s mission is “to create economic partnerships with the poor in those
developing-world communities that supply our stores with products” (WFMc).

127

12, 2007). The key informant also expressed a preference for natural and organic
products.

6.3.1.2 Current Dry Beans Sold

Whole Foods Market sells an assortment of dry bean market classes, ranging from
widely available market classes (e.g. adzuki, black, red, kidney beans) to less common
market classes (e.g. scarlet runner) and heirloom common bean varieties (e.g. eye of the
goat) (WFMb). While this company primarily markets beans in bulk, it also offers some
market classes in cans and laydown bags (WFMb). Whole Foods Market also sells
canned and packaged beans under its own private label (i.e. 365 Organic Everyday
Value).

6.3.1.3 Interest in Fair Trade Beans

As noted previously, Whole Foods Market supports fair trade initiatives through
its Whole TradeTM Guarantee program. During a personal interview, the Global
Commodities Coordinator of Whole Foods Market expressed the opinion that there exists
a potential market for fair trade beans (small red, black, and other less common dry bean
market classes) among its customers and that Whole Foods Market is strongly interested
in marketing fair trade beans.

However, Whole Foods Market would require fair trade bean suppliers to be
certified (Whole TradeTM Guaranteed) by TransFair USA or the Rainforest Alliance. The
key informant noted that if the producer acquires Whole TradeTM certification, Whole
Foods Market would possibly be interested in purchasing an initial requirement of one
container (20 mt), packaged in 25 lb bags, and delivered to Whole Foods Market in

Austin, Texas. The shipment would be examined by Whole Foods Market to ensure that

128

it meets the company’s quality standards. If the product meets the quality requirements
for Whole TradeTM Guarantee, the key informant indicated that the beans would be test
marketed in 1 to 2 regions over a period of approximately 30 to 60 days.

The key informant emphasized that the company prefers bulk beans and that it
would like the suppliers to provide images/pictures and documents, which Whole Foods
Market would use to create all the necessary promotional materials. According to the key
informant, the key to capturing a segment of the ethical market (i.e. convincing potential
buyers to purchase the product) is the story behind the product -- who are the producers
and what production processes do they use. In the case of fair trade beans from CA, the
fact that the product would benefit smallholder producers would be an incentive for
ethical consumers to purchase it.

6.3.2 Conventional Warehouse Club: Sam ’s Club

Sam’s Club is a business segment of Wal-Mart Stores, Inc. (Wal-Mart), which
operates as a warehouse club store”. The first Sam’s Club store opened in Oklahoma in
1983. To date, Sam’s Club operates more than 580 stores and serves approximately 47
million members in the US (Sam’s Club). The warehouse club focuses on providing
“exceptional value on brand-name merchandise at members-only prices for both business
and personal use” (Wal-Mart 2007, 28).

Based on retail industry sales data in 2006, Sam’s Club ranked 6th among retail
industry players and was the second largest warehouse club (after Costco) in the US (F MI

2007). Furthermore, in fiscal year 2007, Sam’s Club accounted for 12 percent of Wal-

 

72 A warehouse club store (also called wholesale club) is a retail store, usually 100,000 square feet or more,
“that sells only to members who pay an annual membership fee, and has a grocery line dedicated to large
sizes and bulk sales” (F MIb).

129

Mart’s net sales (USS 41.7 billion), which were generated both from its club stores and
its online retail format (Wal-Mart 2007).

Although Sam’s Club is a conventional retail store, it also sells natural/ethical
products, including organic, dolphin safe, kosher, locally grown, fair trade certified, and
rainforest alliance certified food products (Senior Vice President of Marketing, Research,
and Insights, pers. comm. June 29, 2007) in order to cater to the changing demands of US

consumers.

6.3.2.1 Fair Trade Products

 

Among its fair trade products, coffee is considered the most important. Sam’s
Club, in partnership with Café Born Dian, sells a private label brand (Member’s MarkTM)
of fair trade certified coffee at all of its outlets. In the near future, Sam’s Club plans to
sell additional fair trade certified products such as tea, cocoa, chocolate, and sugar to
further its goals of providing healthy and environmentally sound products at reasonable
prices (Senior Vice President of Marketing, Research, and Insights, pers. comm. June 29,
2007)

6.3.2.2 Current Dry Beans Sold

 

Currently, Sam’s Club sells several market classes of beans which are only
available through in-store purchase (e.g. pinto, kidney, black, and great northern beans)
(Sam’s Club 2007). These bean products are usually packaged in bulk (6 pack@12 02.;
10 lb, 25 lb, 50 lb, and 100 lb bags). The company also sells an assortment of canned
bean products, including pork and beans, bean soups, and chili, which are offered under
various brands (e. g. Van Camps, Bush’s Best, Hormel) and are also sold in bulk (pack of

8 cans) at the warehouse club store.

 

73 A Brazilian-based coffee exporter/roaster and a fair trade certified licensee.

130

6.3.2.3 Interest in Fair Trade Beans

The key informant expressed possible interest in introducing fair trade beans in
their warehouse club stores. However, in assessing whether or not to offer a new ethical
product, such as fair trade beans, the key informant indicated that Sam’s Club would
consider the following criteria: (1) margin; (2) quality consistency; (3) reliability of
supply; (4) ease of delivering the product to the warehouse club; and (5) other logistics
and supply chain concerns. According to the key informant, with respect to fair trade
beans, key questions that the store would consider in deciding whether or not to offer fair
trade beans include: (1) how much would the product cost; (2) what existing product
would fair trade beans replace on the shelf; and (3) would the revenue from selling fair
trade beans be higher than the income derived from the products that it replaces?

Since no established standard exists for fair trade beans, Sam’s Club would
require a guarantee that the product meets the fair trade criteria”. While the key
informant noted that organic certification is not required, Sam’s Club has a strong
preference for organic fair trade certified products. However, because it is difficult to
obtain a consistent supply of organic products, the key informant indicated that Sam’s
Club would consider purchasing conventional fair trade products.

In addition to fair trade certified and organic labels, the key informant noted that
Sam’s Club would require a tag or card that describes who grew the beans and how the
beans were grown. In terms of offering suppliers a premium for fair trade beans, the key
informant indicated that consumers may not be willing to pay more for fair trade beans
than they are currently paying for conventional beans, since beans are an undifferentiated

commodity. However, by purchasing directly from suppliers in developing countries (e.g.

 

7" Although based on the interview, the key informant preferred a fair trade certified label.

131

fair trade certified coffee), Sam’s Club has been able to offer producers a premium
without increasing the retail price. Furthermore, according to the key informant, fair trade
beans may have a market potential if positioned correctly .in the market, that is, (1)
regionally -- marketing the product where there exists a strong ethnic demand for beans
(e.g. Hispanic markets); (2) partnering with a bean supplier/distributor”; and (3)
targeting the right segment of the market -- for non-Hispanic Americans, offering
upscale, gourmet, higher quality fair trade bean products may have potential. Thus, if a
supply of fair trade beans becomes available, the key informant indicated that Sam’s Club
would be interested in further exploring the possibility of offering fair trade beans in their
warehouse club stores.
6.3.3 A T Os

ATOs are fair trade organizations with fair trade as their main mandate. These
organizations import, wholesale, and/or retail fair trade products in developed countries.
ATOs may be fair trade certified licensees and/or members of fair trade networks (i.e.
IFAT and FTF).

6.3.3.1 Alter Eco Americas

Established in 1998, Alter Eco is a French-based importer and wholesaler of fair
trade products. It is an established fair trade brand name in France, where it sells more
than 130 fair trade products in supermarkets (Chief Operating Officer, pers. comm.
August 3, 2007). In 2005, Alter Eco established a subsidiary in the US and currently
markets fair trade rice, sugar, coffee, tea, quinoa, chocolate, and hearts of palm in the US.

As of fiscal year 2007, Alter Eco Americas generated total sales of US $ 1.3 million

 

75 Either request the distributor to convert a portion of its bean supply to fair trade beans or offer a new
product category -- an upscale/high quality bean product.

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(Alter Eco Americas), while its parent company in France generated US $ 21.4 million in
sales (Hoover’s Inc. 2007).

Alter Eco maintains a rigid monitoring and auditing mechanism -- the Fair Trade
Audit 20076 (FTA200) -- which its cooperative suppliers must follow. Through this
mechanism, as well as Alter Eco’s other reporting tools (e.g. Fair Trade Value
Reporting”), the company maintains and encourages transparency and traceability along
its supply chain. Hence, Alter Eco does not require TransFair USA certification of its
products for which no established FLO standards exist (Chief Operating Officer, pers.
comm. August 3, 2007). While Alter Eco also prefers fair trade products that have
organic certification, if this is not possible (i.e. producers are not yet knowledgeable of
this technology), the company would still accept the product, as long as the producer
establishes a plan for moving towards organic production in three to five years (Chief
Operating Officer, pers. comm. August 3, 2007). Furthermore, for products that are not
certified by TransFair USA or another labeling initiative, Alter Eco determines the ‘fair
price’, based on Fair Trade Value Reporting information submitted by the small producer
cooperatives and verified by Alter Eco through its monitoring system.

(1) Supply information

Alter Eco America’s suppliers are small producer cooperatives and associations in
developing countries”. According to the key informant, the company imports directly

from its suppliers, channels the fair trade products to brokers, and warehouses its imports

 

7° FTA200 uses quantitative analysis “to evaluate the risk factors and global performance of production
centers based on social, economic and environmental criteria” (Alter Eco Americas).

77 “Alter Eco’s Fair Trade Value Reporting is a cost-breakdown of the final product, beginning with the
producer and ending with the consumer and... is applied to all of Alter Eco’s products” (Alter Eco
Americas).

7’ Alter Eco purchases products from small producer suppliers in Bolivia, Peru, Thailand, Ethiopia,
Philippines, India, South Africa, Mexico, and Sri Lanka.

133

at a public warehouse in Oakland, California. Alter Eco guarantees their suppliers a
minimum price, a fair trade premium, and pre-financing. Depending on the request of the
cooperative, the company provides its suppliers an advance equal to 20 to 60 percent of
the expected output value as pre—financing (Chief Operating Officer, pers. comm. August
3, 2007). Conversely, Alter Eco requires these cooperatives and associations to comply
with the minimum standards set for fair trade (e.g. non-use of prohibited chemicals in
farming, democratic organization of the cooperative). Finally, Alter Eco also requires its
potential small producer suppliers to fill out the company’s sourcing form”.

According to the key informant, Alter Eco encourages producers to minimally
process and/or pack their products, whenever possible. Fair trade certified rice, for
instance, is milled and packed in the producing country before it is exported to a
developed country (e.g. France, US). The same is done for fair trade certified sugar and
tea. In contrast, Alter Eco purchases fair trade certified coffee, cashews, cocoa, and dried
fruits in bulk from the producing country and transports them to France for processing
and packaging before distribution to the US and major retail outlets in Europe (Chief
Operating Officer, pers. comm. August 3, 2007).

In France, Alter Eco directly markets its products to supermarkets. However, in
the US, the company channels its products to natural product distributors (e.g. UNFI,
Nature’s Best), who sell the fair trade products to Whole Foods Market and other natural
product retailers (e.g. health food stores and cooperatives). In addition, Alter Eco
maintains an online retail format (http://www.worldpantry.com/cgi-bin/ncommerce

/ExecMacro/altereco/allproducts.d2w/report).

 

7 . . . . . .
9 To access the form, VlSlt http://www.altereco-usacom/main.php?section=altemet&subsectton=ma1n and
click on the “Farmers click here” icon.

134

(2) Interest in fair trade beans

Alter Eco’s Chief Operating Officer (COO) indicated a strong interest in adding
fair trade beans to their fair trade product line. The company sees fair trade beans as a
new opportunity to expand its current fair trade product offerings and explore new
partnerships with the small bean producer associations.

In terms of preference for product form, Alter Eco would be interested in buying
bulk fair trade beans, since it sees the potential markets to be in the food service sector
(e.g. gourmet and specialty restaurants). The key informant advised that the packaged fair
trade bean product should contain: (a) a trusted logo/label indicating that the product is
fair trade; (b) traditional recipes from CA; (c) information on who produced the beans;
and (d) health benefits associated with consuming beans.

Based on Alter Eco’s experience in pioneering the market for fair trade rice in
developed countries, the key informant projected that it would take 1 to 4 years to
establish (train smallholders, obtain export license, etc.) the market for fair trade beans in
the US. If fair trade beans become available, Alter Eco expressed potential interest of an
initial delivery of 1 container (20 mt) to test market the product in targeted regional
markets.

6.3.3.2 Egual Exchange, Inc.

Equal Exchange is an employee-owned cooperative, which imports, processes
(coffee roasting), wholesales, and retails fair trade products. Founded in 1986 with the
goal of paying better prices to smallholder coffee producers in developing countries,
Equal Exchange pioneered the introduction of fair trade in food products in the US

(Equal Exchange[a]). To date, the company focuses on marketing fair trade certified

135

coffee, which accounts for approximately 85 percent of its total sales (Director of
Purchasing and Producer Relations, pers. comm. August 23, 2007). As of fiscal year
2007, the company’s sales totaled US$ 18.4 million (Hoover’s Inc.).

In addition to coffee, Equal Exchange sells fair trade certified tea, baking cocoa,
hot cocoa mix, chocolate, and sugar, as well as other fair trade products which are not
certified by TransF air USA, such as pecans, almonds, and cranberries, which it sources
from producers in the U880.

(1) Supply information

Equal Exchange transacts directly with its major suppliers, who are smallholder
producer cooperatives81 (Director of Purchasing and Producer Relations, pers. comm.
August 23, 2007). The company assists the cooperatives by providing pre-harvest
financing, a guaranteed minimum price, and a social premium (for the fair trade and
organic attributes). In return, the cooperative suppliers must adhere to fair trade quality
standards (e.g. democratically run and transparent association, non-use of prohibited
chemicals in farming and movement towards organic farming in the future).

While Equal Exchange primarily operates as a fair trade coffee roaster and
wholesaler of fair trade products, it also maintains an online retail format (http://shop
.equalexchangecomh and operates a cafe/espresso bar at Seattle, Washington. Its major
buyers are natural product distributors, who distribute Equal Exchange’s fair trade
products to natural retailers, and institutional buyers (e.g. churches/religious

organizations, cafes and restaurants).

 

8° Equal Exchange, as well as other ATOs in the US, has introduced variations into the fair trade model,
including (1) incorporating small producers in developed countries as fair traders and (2) selling fair trade
products in developing countries.

' Equal Exchange partners with 32 small producer associations/organizations in 18 developing countries
(Equal Exchange[b]).

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(2) Interest in fair trade beans

The key informant expressed minimal interest in marketing fair trade beans, since
Equal Exchange only sells TransFair USA certified products from developing countries --
products with established FLO standards. The key informant also commented that their
market research on potential fair trade products has never identified beans as a potential
new product. A possible reason that its market research did not identify beans as a
potential fair trade product is due to a lack of awareness among US consumers regarding
the plight of smallholder bean producers in developing countries. Thus, the key informant
suggested that to increase the marketability of beans as a fair trade product, the product
should include information about who produced the beans and how they were produced.

6.3.3.3 Global Exchange

Global Exchange is a non-profit organization involved in human rights advocacy
and the promotion of global “social, economic, and environmental justice” (Global
Exchange[a]). The organization is also known for its fair trade retail outlets (three retail
outlets in California and Oregon), its online retail format (http://store.gxonlinestore.org/),
and its fair trade coffee and chocolate campaigns.

Global Exchange sells branded fair trade certified coffee, tea, and chocolate (e.g.
Equal Exchange, Thanksgiving Coffee Co., Peace Coffee), which are certified by
TransF air USA. It also sells its own label brand of organic fair trade certified chocolates82
and offers an assortment of non-certified fair trade specialty food products (e.g.
Honduran organic cashews, Women’s Bean Project’s chili mix, jams), which it procures

from US importers or distributors (Buyer and Project Manager, pers. comm. September 4,

 

82 The organization partnered with a chocolate company -- Sjaak’s Organic Chocolates, which is a fair trade
certified licensee.

137

2007). However, the organization focuses on selling non-food fair trade products such as
handicrafts and accessories from developing countries.

(1) Supply information

Since Global Exchange focuses on retailing fair trade products through its three
independent retail stores and its online retail format”, most of its fair trade product
suppliers (mostly crafts) are FTF wholesalers who import crafts from artisans in
developing countries. On the other hand, most of the fair trade food products that it sells
are procured from fair trade certified licensees (e.g. Equal Exchange, Peace Coffee,
Dean’s Beans, Sjaak’s Organic Chocolates), which may also be ATOs.

Potential suppliers must be certified organic, and must meet the fair trade quality
criteria outlined by FTF (Global Exchange[b]). Potential fair trade suppliers, who are
non-members of FTF or non-certified by TransFair USA, are required to fill out the
Global Exchange’s vendor form“. After reviewing this information, Global Exchange
assesses the prospective demand for the fair trade product (i.e. marketability, desirability,
and availability). Since Global Exchange does not have the capacity to interact directly
with small producers (except for those with whom they are already working), the
organization recommends prospective producer groups from developing countries to
identify a wholesaler or distributor in the US who would supply Global Exchange with

the fair trade product (Buyer and Project Manager, pers. comm. September 4, 2007).

 

8’ Global Exchange’s retail outlets do their own buying, which implies that decisions on new fair trade
product introductions and new suppliers are done independently (Buyer and Project Manager, pers. comm.
September 4, 2007).

84For Global Exchange’s potential vendor information visit httpz/Istoregxonlinestore.org/vendorinfo.html.

138

(2) Interest in fair trade beans

Although the key informant expressed the opinion that Global Exchange would
have minimal interest in marketing fair trade beans, the key informant identified several
product characteristics that would make fair trade beans appealing to consumers. The key
informant suggested that a gourmet type fair trade bean product, packaged in an
innovative packaging may have a potential market. In addition, the key informant
stressed the importance of packaging, which can add value to the fair trade bean product.
Similar to other retailers in the natural products’ industry, the key informant noted that
the packaged fair trade bean product should include pictures of the producers and written
information about their story. Finally, the key informant suggested that providing
traditional recipes from CA would also help to market fair trade beans to US consumers.

6.3 .3 .4 SERR V International

SERRV lntemational, a non-profit organization, is one of the pioneers in the
global fair trade movement with its fair trade efforts dating back to 1949. SERRV
imports, wholesales and retails fair trade products (mostly crafts) from its developing
country partners. Also, it is a Fair Trade Certified licensee for cocoa, coffee and tea
(TransFair USAe). As of fiscal year 2007, its fair trade product sales amounted to US$
9.6 million (Hoover’s Inc.).

Although contacted, the key informant declined to be interviewed since SERRV
has limited experience in marketing fair trade food products, other than coffee, tea, and
chocolate. However, the key informant provided a copy of SERRV’S Food Sourcing
Guidelines and Producer Guidelines through e-mail. As outlined in its food sourcing

guidelines, SERRV primarily handles food products which have ‘gift appeal’, since it

139

markets these items as gifts or as part of a gift basket. Hence, SERRV utilizes attractive
packaging as a tool for marketing its fair trade food products. Also, it has a preference for
food products, which cannot be produced or grown in the US. Since SERRV does not
package or process their products, it requires potential suppliers to package the product in
the country of origin before exporting it to the US. The organization also requires
suppliers, who may be cooperative organizations, associations, or non-profit
organizations, to meet its rigid fair trade quality criteria and be certified organic (if
possible).

To date, most of SERRV’s products are handicrafts, which are produced by
artisans in deveIOping countries. However, it also offers its own label brand (EQUO) of
fair trade certified tea and coffee, and other fair trade certified brands (e.g. Just Coffee).
SERRV also sells fair trade certified chocolate and markets several non-TransFair USA
certified specialty food products, including jams from a producer group in Swaziland,
organic cashews from Honduras, and soup mixes from the US. However, suppliers of
these non-certified products must demonstrate that their operations are compatible with
SERRV’s ideals and the fair trade criteria.

6.3.4 Natural Distributor: UNF I

Established in 1978, UNFI is a publicly traded company, which distributes over
40,000 natural products to retail stores throughout the US (UNFI 2007). The company’s
distribution operations are divided into four units -- UNFI Eastern Region, UNFI Western
Region, Albert’s Organics, and Select Nutrition. As of fiscal year 2007, its sales totaled
USS 2.8 billion of which approximately 28 percent were to Whole Foods Market

(Hoover’s Inc.; UNFI 2007).

140

UNFI operates 12 retail stores through its subsidiary, the Natural Retail Group;
and also imports, roasts, and packs nuts, seeds, dried fruits and other products through its
subsidiary -- the Hershey Import Company.

Decisions about marketing new products and sourcing from new suppliers are
made independently by each region. Hence, most new products are introduced at the
regional level with the aid of regional buyers who are employed by the company (UNFI
2007). In most cases, new products are test-marketed in retail stores owned by the
company, prior to being sold nationally (UNFI 2007).

For this study, only the Director of Purchasing of UNFI’s Eastern Region was
interviewed. Thus, the information provided by the key informant may not hold true for
all the other units or regions of UNFI.

UNF I Eastern Region has seven distribution centers, which carry approximately
25,000 natural products (Director of Purchasing, pers. comm. September 25, 2007).
According to the key informant, of its total products, approximately 40 to 50 percent are
organic, while two to three percent are fair trade certified.

6.3.4.1 Fair Trade Products

Currently, UNFI Eastern Region distributes fair trade certified coffee, tea,
chocolate, sugar, rice, and quinoa (i.e. an edible seed from the Andes). UNFI’s major
suppliers of these products are ATOs, including Alter Eco Americas and Equal
Exchange. According to the key informant, in addition to fair trade certified coffee, tea,
and chocolate, fair trade quinoa is faring well at the market. While UNFI distributes

products to natural product retailers, particularly Whole Foods Market and health foods

14l

stores and cooperatives, it also sells fair trade products to conventional supermarkets
(UNF I 2007).

6.3.4.2 Current Dry Beans Sold

UNFI, which purchases dry beans and other grains centrally, is the “largest
purchaser of organically grown bulk products in the natural product industry” (UNFI
2007, 6). UNF I Eastern Region carries an assortment of canned and packed (1 lb and 2 lb
packs) dry bean products, which it sources from branded suppliers such as Bob’s Red
Mill, Eden Foods, and Health Valley (Director of Purchasing, pers. comm. September 25,
2007). In addition, it sources bulk beans from importers and packers of dry beans (e.g.
Multiple Organics).

UNFI Eastern Region distributes dry beans, which are either natural or organic, to
independent health food stores and cooperatives (45%), Whole Foods Market (25%), and
other natural and conventional supermarkets (Director of Purchasing, pers. comm.
September 25, 2007).

6.3.4.3 Interest in Fair Trade Bean

While the key informant expressed possible interest, he did not guarantee that the
UNFI Eastern Region would be interested in distributing fair trade beans. However, if it
were to purchase fair trade beans, UNFI Eastern region prefers organic or natural fair
trade beans. The key informant also commented that UNFI’s customers would prefer
bulk beans, packaged in a 25 lb and 50 lb bags. Since UNFI does not package its
products, suppliers are required to deliver their products ready for distribution. Thus, the
key informant recommended that the producer organizations (CA bean growers) partner

with a dry bean supplier (importer, packer, broker), who would supply UNFI with the fair

142

trade bean product. Detailed guidelines for new products and prospective suppliers are

described in the UNFI Eastern Region’s 2008 Supplier Packet.

6.4 Opportunities and Potential Constraints to Marketing Fair Trade Beans in the
US

This section identifies strategic factors (i.e. opportunities and constraints) which
have potential impact on marketing fair trade beans of CA origin in the US. Also, this
section presents the proposed market recommendations, which were deduced from the
I identified strategic factors.

6.4.1 Opportunities

Trends in demand for ethical products indicate bright prospects for expanding
sales in the US market. For instance, fair trade coffee sales in the US alone constituted 31
percent of the global sales in fair trade certified products. US consumers’ growing
interest for ethical products has been driven largely by their consciousness and concern
about global issues, which include food safety, poverty, and environmental sustainability.
Hence, creating new fair trade products can capitalize on the rising demand for ethical
products among US consumers.

Fair trade beans should also capitalize on the increasing US consumption of black
and small red beans, compared to the declining consumption of other dry bean market
classes. This trend is likely attributed to increasing health consciousness of consumers,
globalization of their tastes (i.e. increasing interest of US consumers for Mexican and CA
cuisines), and growth in the Hispanic population. Also, since the target buyers cater to

ethical consumers -- mostly educated, non-Hispanic, white consumers, belonging to the

143

middle to high income groups -- this study sees the greatest demand for fair trade black
beam“.

This study showed that there is a potential demand for fair trade beans of CA
origin in the US. A niche market exists among natural product retailers interested in
supporting fair trade by widening the fair trade products that they sell. Approximately 40
percent of the health food store and cooperative respondents expressed strong interest in
selling fair trade beans in their stores. Likewise, a leading natural product retailer and an
ATO selling branded fair trade products expressed strong interest in carrying fair trade
beans.

While most of the target buyers (i.e. potentially interested retailers and
distributors) do not immediately require fair trade beans to be certified organic, there is
greater opportunity to market an organic fair trade bean product. This is because a high
proportion of US ethical consumers are concerned about food safety, as it relates to their
health. Further, since beans are considered to be a healthy food (good source of protein
and may lower risks on certain illnesses), their wellness appeal to consumers can be
emphasized. Thus, product attributes should be embedded in the potential fair trade bean
product, in order to take advantage of the main drivers of fair trade bean demand --
wellness, indulgence, and convenience. Results of the study emphasize that the greatest
market potential for fair trade beans lies in combining these three demand drivers (i.e. to

cater to a wider group of ethical consumers). For instance, most ethical consumers have a

 

8’ Discussed in detail in Chapter 5.2.4. Although demand for small red beans is greatest among Hispanics
of CA descent, they may not be willing to buy fair trade small red beans, if their price exceeds that of
conventional small red beans of CA origin. However, it may be possible to stimulate demand for fair trade
small red beans among ethical consumers, as long as the potential product exhibits (1) desirable quality
characteristics (e.g. taste, color, and health benefits), (2) a trendy and gourmet appeal, and (3) inclusion of
recipes using the bean market class.

144

high opportunity cost of time and are increasingly health-conscious. Hence, they might
prefer conveniently packed fair trade beans (e.g. microwaveable soups/chili) with less
sodium or added fiber.
6.4.2 Potential Constraints

The survey respondents and key informants identified potential constraints that
might hinder marketing fair trade beans from CA in the US. The major constraints were
related to supply, demand, and institutional issues.

6.4.2.1 Supply Constraints

 

More than three-quarters (79%) of the total health food stores and cooperative
respondents identified inconsistent quality and an unreliable supply (i.e. timeliness of
delivery and product availability) as major constraints to marketing fair trade beans
(Figure 6.7). Respondents also identified other potential supply constraints, including the
quality reputation of the exporting country, seasonality of production, and suppliers’
ability to meet quality preferences of US consumers (e. g. preference for both organic and
fair trade beans, interest in purchasing less common market classes). Likewise, key
informants noted that the lack of product representation in the US (i.e. a US-based
distributor), low margins on staples, and other logistics and supply chain concerns (ease
of acquiring/delivering the product) would likely hinder the successful marketing of fair
trade beans in US markets.

6.4.2.2 Demand Constraints

The primary demand constraint seen by health food stores and cooperatives were
unfamiliarity of US consumers with fair trade beans, since fair trade beans are a new

product (Figure 6.7). This can be tied to a lack of awareness among US consumers and

145

natural product industry agents, regarding CA small bean producers’ low income and the
threat they face due to the introduction of CAFTA-DR. The potential demand for fair
trade beans may also be constrained by the inability of suppliers to signal product quality,
as well as consumer doubts regarding the credibility of the information included with the
fair trade bean product (i.e. ethical consumers may not believe that the beans are indeed
traded under fair trade terms). Moreover, since beans are considered commodities, the
potentially high price of fair trade beans may also constrain the demand for fair trade
beans -- consumers may not be willing to pay a higher price than what they pay for
organic beans produced in the US or conventional beans offered at a lower price.

Figure 6.7. Constraints to Marketing Fair Trade Beans, US, 2007

 

 

.——___—_—————— ——~fi

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Inconsistent quality 79%
l E Unreliable supply 79%
.5 I
5 i
onsumers no
0 O
familiar with FT beans 59 /o
“
Consumers do not i o
prefer FT beans 53 /°
' 0% 30% 60% 90%

Percent of "Important" and "Ve ry Important" Responses of
Survey Respondents

Source: B/C CRSP Survey of Health Food Stores and Co-ops (2007)

 

 

Some respondents also identified growing competition between the fair trade and

the locavore (also known as localvore or the buy local) movement86 in the US. Thus,

 

8° Most natural product retailers market organic beans which are produced in the US.

146

campaigns by natural product stores to offer locally-produced foods to their customers
may also constrain their commitment to market and promote fair trade beans. These
trends suggest that fair trade beans may face strong competition in the US bean market.

6.4.2.3 Institutional Constraints

Although bean exports from CA enter the US market duty free, the US market
imposes constraints on dry bean imports in the form of strict food safety regulations and
quality standards (e.g. organic, moisture content, and defects, including foreign matter
content, and damaged/split beans). Also, additional standards apply for processed beans
(e.g. canned), which make it even more difficult to export a processed fair trade bean
product. On the supply side, the lack of established fair trade criteria specifically for dry
beans may also delay possible introduction of fair trade beans in the US market.
6.4.3 Market Recommendations

Recommendations to successfully market fair trade beans focus on: (1) the
product, which specifies desired tangible and intangible attributes such as form,
packaging information, and certification/labeling of the product; (2) distribution, which
identifies the appropriate and most strategic marketing channel to use; and (3) promotion,
which details the most strategic promotional activity to use in marketing fair trade beans
to potential markets.

6.4.3.1 11%!

The study identified possible product characteristics that appeal to target buyers.
Based on the results of the study, recommendations are proposed, which reflect the main

drivers of demand -- wellness, convenience, and indulgence.

147

A majority of the respondents contacted (i.e. health food stores and cooperatives,
Whole Foods Market, UNFI, Alter Eco) perceived that their buyers would prefer to
purchase bulk fair trade beans. For UNFI and Alter Eco, which are distributor and
wholesaler-importer, respectively, bulk refers to fair trade beans packed in 25 lb and 50
lb bags. For retailers (i.e. health food stores and cooperatives and Whole Foods Market),
bulk refers to beans sold in bins located in the bulk section of retail stores. Some
respondents87 suggested that processed beans (i.e. canned beans, microwaveable soups,
etc.) marketed as a gourmet type, trendy and convenient bean product would have a
greater appeal to ethical consumers. However, supplying processed fair trade beans is
more complicated than supplying bulk beans (i.e. in terms of standards that must be
followed, partnerships that must be established with a processor/canner). Nevertheless,
marketing processed fair trade bean products should be further explored in the future,
after assessing the demand for bulk fair trade beans (i.e. after test marketing the bulk fair
trade bean product).

Furthermore, most respondents (both survey and key informants) stressed the
importance of packaging the product with information regarding who the producers are
and what production processes they employ. This information will serve to educate
consumers about the plight of small bean producers in CA, thereby appealing to their
indulgences (e.g. the desire to be a better person by helping poor producers while

promoting sustainable practices). Similarly, the respondents highlighted the need to place

 

’7 Global Exchange, SERRV lntemational, Sam’s Club, Equal Exchange, and some health food stores and
cooperatives.

148

a fair trade logo88 on the package and include promotional materials with the product
(e.g. brochures, pamphlets). This logo conveys to potential fair trade bean consumers
that: (1) the suppliers’ have met the fair trade criteria and (2) that purchasing fair trade
beans will directly benefit smallholder producers. Also, many respondents noted that
information that highlights wellness and improves the convenience feature of fair trade
beans are vital to successfully marketing of the product (i.e. health benefits/nutritional
claims and traditional recipes for small red and black beans) and should be included with
the potential product.

The fact that most fair trade products are also certified organic indicates a
growing demand for organic fair trade products. Currently, no beans of CA origin are
marketed in the US as fair trade or organic. Furthermore, several of the target buyers do
not immediately require organic certification for fair trade beans. However, the fair trade
premium can serve as an incentive for CA producers to move towards organic production
in the future. Thus, as soon as possible, bean producers in CA should adopt organic
production practices. This will enable the producers to eventually use both the fair trade
and the organic logos to differentiate their beans and thereby capitalize on US
consumers’ growing demand for both attributes.

6.4.3.2 Distribution

The distribution firnction of marketing focuses on making products available to
consumers at the right time, place, and form with the objective of “maximizing access to

target groups [markets] and minimizing distribution costs” (Meulenberg 1997, 354). This

 

88 Since there are no established standards for fair trade beans, smallholder bean producers interested in
producing and marketing fair trade beans should: first, look for a buyer-partner from a developed country;
and secondly, register and acquire membership from FTF or IFAT in order to use their promotional
materials, which include a fair trade logo.

149

section proposes a strategy for distributing fair trade beans, which is designed to make
the product available to ethical consumers in the US and also shorten the distribution
chain.

The study identified the most promising retailers of fair trade beans as: (1) health
food stores and cooperatives; and (2) a leading natural product supermarket. However,
since fair trade beans are a new product, fair trade bean suppliers should first target health
food stores and cooperatives as potential retailers. This strategy would provide an
opportunity to test market the product in independent stores, which have relatively lenient
standards compared to natural product supermarkets. However, in the long run, suppliers
should target mainstream outlets (e. g. natural product supermarkets), in order to expand
the market and therefore widen fair trade’s impact on the quality of life of smallholders.

First, a distributor must be identified, who will market fair trade beans to
independent natural product retailers nationwide. Based on the findings of this study,
UNFI -- the leading natural product distributor -- appears to be the most promising
distributor of fair trade beans because it: (1) has a wide distribution network in the West,
Northeast, and Midwest regions; and (2) is the main distributor of the independent natural
product retailers surveyed in this study“.

Second, an importer must be identified, who can supply the bean product to a US
distributor. Since fair trade principles are rooted in the empowerment of smallholders, the
producers should partner with an ATO interested in marketing (i.e. importing and
wholesaling) fair trade beans. ATOs, which have fair trade as their core mandate, have

the experience required to assist a new fair trade endeavor by maintaining a direct

 

8° The key informant suggested that UNF I would be willing to market fair trade beans, if their buyers are
willing to sell it.

150

relationship with smallholder producer associations and helping them to comply with the
fair trade criteria. Based on the findings of this study, Alter Eco is the most promising
importer/wholesaler because it: (1) expressed interest in marketing fair trade beansgo; and
(2) distributes its fair trade products through UNFI.

6.4.3.3 Promotion

Success in selling a fair trade product requires matching the buyers’ needs with
the cluster of benefits that the fair trade product offers (Thompson 1985), which may be
communicated through product promotions. Promotion (i.e. advertising, sales promotion,
public relation, and sales force) directly influences consumer awareness of a product
(Luther 2001), and thereby translate into actual purchases. Hence, to stimulate demand
for fair trade beans, there is a need to increase awareness in the target markets (i.e.
natural product industry agents and the ethical consumers) of the plight of smallholder
bean producers in CA and the quality attributes of their fair trade bean product.

First, a promotional message should be developed that highlights the advantages
of fair trade beans, compared to competing products (e.g. conventional beans, organic
beans). To successfully convey this message to target markets, it must be consistent
across all promotional materials (e. g. brochures, pamphlets, print advertisements, posters,
co-op bulletins) and sales/marketing presentations (Luther 2001).

Second, on-site point of sale” (POS) promotional materials should be developed
and used to promote the product to both the target buyers (i.e. natural product industry

agents) and the ethical consumers. These materials should be designed to encourage

 

90 Through Alter Eco’s rigid monitoring and reporting tools for fair trade (discussed in 6.3.3.1), the
company maintains and encourages transparency and traceability along its supply chain.

9' If used strategically, POS promotion is less expensive than media advertising since the target buyers can
actually see the product and the “selling proposition” (F eig 1999).

151

buyers to think about their need for the fair trade bean product (Feig 1999). POS
promotions might include creative (eye-catching) and persuasive print materials, a
motivating and inviting sales presentation, and a high quality product display. The goal is
to encourage consumers to buy the product and thereby, convince the retailer or
distributor that selling fair trade beans would generate income for their firms.

Finally, strategic partnerships should be developed with key fair trade networks
(e.g. F TF, IFAT), ftos, and fair trade support organizations (e.g. United Students for Fair
Trade, Organic Consumers Association) to solicit their assistance in promoting the new
fair trade product in the US market.

6.5 Synthesis

This study found that there is a potential market for fair trade beans of CA origin
in the US, given that a niche market exists among natural product industry agents.
Offering fair trade beans capitalizes on existing trends and drivers of ethical consumption
among US consumers -- rising health consciousness, growing concerns about global
issues (e.g. food safety, poverty, environmental sustainability), and the globalization of
tastes (i.e. increasing interest in Mexican and CA cuisines).

However, marketing fair trade beans in the US is also beset by potential threats
and challenges. Major challenges include: (1) limited capacity of fair trade bean suppliers
to meet the quality and quantity requirements of target buyers in the US market; (2) lack
of awareness among ethical consumers and natural product industry agents, regarding the
plight of smallholder bean producers in CA; and (3) the potential competition with the

growing locavore movement (i.e. buy local movement).

152

In order to successfully market fair trade beans, it will be necessary to: (1) match
the target buyers’ needs with the cluster of benefits that fair trade beans offer; (2) develop
strategic partnerships with buyers regarding the distribution of fair trade beans in the US
market; (3) increase awareness in the target markets by creating effective POS
promotional materials; and (4) establish alliances with key fair trade networks, ftos, and
fair trade support organizations. These efforts should be geared toward stimulating
demand for fair trade beans in the US, which in the long run will improve the welfare of

smallholder bean producers of the CA region.

153

CHAPTER 7
SUMMARY AND CONCLUSION

Smallholder bean producers in Central America (CA), who depend on bean
production as a main source of income, face innumerable challenges. First, CAFTA-DR
requires CA countries to gradually eliminate import tariffs on sensitive agricultural
products, including beans. This threatens the livelihood of small producers, who will be
unable to compete with the less expensive bean imports. In addition, throughout the
region, supermarkets are becoming dominant buyers of agricultural commodities. This
trend threatens access of small producers to local markets, since smallholders are unable
to meet the stringent quality standards and quantity requirements of supermarkets.

One way to minimize these threats to smallholders is to capitalize on
opportunities that globalization presents, such as catering to the ever-changing and
diverse consumer demand in target markets. This study analyzes the potential for
smallholder producers to pursue niche marketing, a strategy which differentiates a
product that is produced, using a defined process or exceptional characteristic. Fair trade
products are considered a differentiated product that can be traded through more lucrative
channels than commodities that flow through the conventional supply chain. As beans are
not currently marketed as a fair trade product, this study assessed the prospects of
marketing fair trade beans in the US -- specifically the small red and black beans, which
are the dominant market classes produced in CA.

This study employed a modified ROA approach (i.e. market research techniques
and business analysis tools) to assess market opportunities for fair trade beans in the US.

First, a literature review was conducted. In addition, trends in the fair trade industry, the

154

CA bean subsector, and US demand for dry beans were analyzed. Second, a rapid market
appraisal was carried out. Managers of health food stores and cooperatives were surveyed
and key informants employed by major players in the natural products industry were
interviewed. Finally, a modified strategic analysis was performed to identify key
constraints to and opportunities for marketing fair trade beans in the US, and to formulate
marketing recommendations.

7.1 Fair Trade and the US Market

Fair trade is a trading partnership that is based on transparency, equity, and
respect. Governed by several fair trade networks (i.e. FLO, IFAT, and FTF), fair trade is
envisioned as a strategy for alleviating global poverty through equitable trade, especially
by providing producers in developing countries with access to markets in developed
countries. These fair trade networks have established the fair trade standards for products
and organizations, which focus on social justice and environmental sustainability.

Fair trade products have gained acceptance in developed countries’ markets. The
demand for these products is projected to grow the most in the US. Among US
consumers, the demand for fair trade products has been driven by increasing awareness
and concerns about food safety, health, persistent global poverty, and environmental
degradation. For instance, over the past six years, demand for fair trade coffee and tea
rose by 59 and 68 percent, respectively. The introduction of new fair trade food products
and continuous mainstreaming of current fair trade certified products (e.g.
chocolate/cocoa) are expected to further boost demand for fair trade products in US

markets.

155

7.2 The CA Bean Subsector

Beans, the second most important basic grain in CA, are a major staple and a
main source of income for smallholder producers. Beans are typically grown on hillside
farms, which are fragmented and dispersed.

Variations in consumer preferences among countries in the region reflect the
market classes grown in each CA country. Small red beans are primarily produced in
Nicaragua, El Salvador, and Honduras, while black beans are mainly grown in Guatemala
and Costa Rica. The region’s trend production is characterized by sluggish growth,
averaging one percent per annum, while the region’s harvested area increased at an
annual rate of two percent (2001-2005).

Marketing channels for beans are similar across countries in the region. After
harvest, smallholder producers sell their surplus production at rural markets, or to
traditional or non-traditional intermediaries (traders). Non-traditional intermediaries, who
follow rigid quality standards, supply the needs of the increasingly consolidated
processing and retail sectors. Although, beans are still marketed in small stores and
traditional markets, supermarkets are becoming increasingly important sellers, not only
for beans but for the whole food sector.

CA bean imports outstripped exports over the period (2001-2005). Imports
averaged 13 percent of the region’s total bean supply with Costa Rica (44%) and El
Salvador (32%) accounting for most of the region’s bean imports. On the other hand,
Nicaragua accounted for more than one-half of CA’s exports, followed by Honduras
(15%). Although a shortage of beans exists in the region, CA countries still export to

niche markets in developed countries, particularly the US -- the region’s main trading

156

partner. In recent years, bean exports to the US have been rising, which can be attributed
to the rise of ethnic food restaurants and Hispanics of CA descent living in the US.
Although bean exports to the US enter duty free, exports have been constrained by non-
tariff barriers, including sanitary and phytosanitary requirements, and applicable grades
and standards for beans.

Price trends were analyzed to evaluate the competitiveness of domestically
produced beans with US imports. This analysis revealed a pronounced seasonality in
production and a relatively narrow price spread from the farm gate to the retail level for
small red and black beans. Over the period 2002 to 2006, beans imported from the US
were generally less expensive than beans produced domestically. However, small red
beans appeared to be price competitive with US imports during the last two years (2005-
2006).

Given the rapidly changing market environment, it is crucial for countries in CA
to implement policies which will enable smallholder bean producers to adapt to
globalization. However, in the short run, CA countries will find it difficult to implement
complementary policies required to increase productivity, such as making investments to
improve market infrastructure (e.g. roads, market information), expand access to credit,
and strengthen research and extension services.

Thus, developing a market for fair trade beans has the potential to increase the
income of bean producers by providing smallholders direct market access to target

markets, and through capacity building (i.e. networking, training and skills building).

157

7.3 US Demand for Beans

Trends in US demand for dry beans indicate a gradual decline in per capita
consumption for all dry beans. However, when disaggregated by market class, per capita
consumption has increased for some market classes (e.g. small red, black, and garbanzo
beans), implying their greater market acceptance in the US. This trend is likely attributed
to an increase in the Hispanic population, particularly people of Mexican and CA origin,
the globalization of tastes, and increasing health consciousness among US consumers.

A study of the bean consumption habits of US consumers (1994-1996) indicated
that cooked dry bean consumption (by market class) varied by location, region,
urbanization, ethnicity, age and gender, and income. Although cooked dry beans were
mostly consumed at home, dry bean consumption at restaurant and fast food venues has
been increasing. Bean preferences of US consumers also varied by market class. Non-
Hispanic, white consumers preferred black, refried pintos, kidney, and garbanzo beans,
while Hispanics of Mexican descent had a strong preference for pinto and lima beans. On
the other hand, Hispanics of CA or Caribbean origin had a strong preference for black
and small red beans.

Cooked dry bean consumption was highest among low income consumers in
terms of proportion (ratio of market share to population). However, when disaggregated
by market class, high income groups were the major consumers of black beans, which
reflects their appeal to the upscale/trendy market.

Five major drivers influence consumers’ demand in the agrifood system --
convenience, value, ethnicity, wellness, and indulgence. A study that applied this

approach to dry beans, found that the greatest potential for expanding dry bean

158

consumption lies in appealing to the wellness and ethnicity components. However, for
fair trade beans, which are targeted at ethical (i.e. socially-conscious) consumers, the
greatest market opportunity lies in tailoring product attributes to respond to the
indulgence, wellness, and convenience demand drivers.

7.4 The Potential of Fair Trade Beans from CA in the US

This study found that there is a potential niche market for fair trade beans of CA
origin in the US. Natural product industry agents expressed an interest in
purchasing/selling fair trade beans and observed that the availability of fair trade beans
would enable them to expand their fair trade offerings. Approximately 40 percent of the
health food store and cooperative respondents were definitely interested in selling fair
trade beans in their stores. Also, a leading natural product retailer and an ATO expressed
strong interest in carrying the potential bean product.

This study has also identified the target buyers’ preferences, regarding the
attributes of fair trade beans. Most of the respondents (i.e. health food stores and
cooperatives, and other natural product industry agents) perceived that their buyers would
prefer to purchase bulk fair trade beans. Although some respondents suggested that
processed beans (marketed as a gourmet, trendy and convenient bean product) would
have greater appeal to ethical consumers, this option should be pursued in the future, after
the market demand for bulk fair trade beans has been assessed.

Furthermore, this study recommends that information should be included with the
fair trade bean product, which enhances its indulgence, wellness, and convenience
appeals (i.e. to capitalize on the major drivers of demand in the US market). To enhance

the indulgence appeal, the product should display a trusted logo (indicating that the

159

product is fair trade), and include information about the producers who grew the beans.
To enhance the wellness appeal, the product should display information on beans’ health
benefits and nutritional claims. Lastly, to appeal to the convenience driver, the product
should include traditional CA recipes and instructions for preparation.

The target buyers do not immediately require organic certification for the fair
trade bean product. However, as soon as possible, smallholder bean producers should
move towards organic production in order to capitalize on the growing demand for both
initiatives, as well as the rising health consciousness and food safety concerns of US
consumers.

The fair trade bean market may be constrained by several factors, which were
classified in the study as a supply, demand, and institutional constraint. On the supply
side, major constraints include inconsistent quality and unreliable supply (timeliness of
delivery and product availability), as well as the inability of smallholder producers to
meet the preferences of US buyers. On demand side, major constraints include a lack of
awareness among consumers regarding the plight of smallholders in CA, and growing
competition with locally produced organic beans due to the locavore (i.e. buy local)
movement. Institutional constraints include strict US food safety regulations and quality
standards for unprocessed and processed dry beans, and the lack of established fair trade
criteria for beans, which may possibly delay the introduction of fair trade beans in the US
market.

Thus, this study highlights the need to: (1) carefully match the product needs of
target buyers with the potential benefits that fair trade beans offer (i.e. to signal product

quality based on an identifiable product attribute); (2) identify strategic channels for

160

marketing fair trade beans, such as an ATO interested in importing and wholesaling fair
trade beans, a natural product distributor, and/or health food stores and cooperatives; (3)
educate target buyers (e.g. natural product retailers) about the attributes of fair trade
beans through an effective POS display/promotional materials; and (4) develop strategic
partnerships with fair trade networks, ftos, and other fair trade support organizations to
gain the support required to successfully market fair trade beans of CA origin in the US.
7.5 Limitations of the Study and Future Research

First, the response rate for the survey of health food stores and cooperatives was
relatively low (27%). However, a one-page follow-up survey (sent to non-respondents)
revealed that these stores were similar to the stores managed by the initial respondents.

Second, due to inconsistencies in the available secondary data on bean prices in
the CA region, it was not possible to estimate the supply price of fair trade beans
produced in CA and delivered at a US port. Future research should focus on collecting
farm gate prices and data on the costs of cleaning, transporting, and shipping beans from
CA to a US port.

Finally, this study only focused on the demand side of assessing the potentials of
fair trade beans. Future research should focus on evaluating the ability of CA bean
producers’ to meet the target buyers demand requirements specified in this study (i.e.

general quality attributes and quantity requirements).

161

Appendix A. International Fair Trade Association (IFAT) Membership
Requirements

IFAT is one of the global umbrella organizations of the fair trade movement engaged in
certifying and monitoring its member organizations against established IFAT fair trade standards
for ftos.

Currently, the provisions for IF AT membership are under review. Hence, IFAT
has temporarily ceased to accept new applications for provisional membership. For the latest
information about membership applications, please refer to IFAT’s webpage at
http.'//www. ifat. org (IF ATb).

1. Who can apply?

Membership is open to established ftos, fair trade networks/associations, organizations
that support fair trade, and applications from individuals (as associates) in their capacity as
researchers, writers, consultants and specialists in their field who can contribute solid skills,
knowledge and expertise to the other members of the network (IF ATb).

2. Process of application for provisional membership in IFAT

To apply for provisional membership, the interested organization must:

I. fill out an application;

2. sign IFAT’s fair trade standards (Code of Practice); and

3. send an annual report and a sample marketing material.

The interested organization must also present the following: at least two-year documents
on trading history, accompanying accounts and legal standing; a mission statement; and three
references with contact information with at least one reference as an existing IFAT member from
the interested organization’s own country (IFATb). IFAT stresses the importance of choosing
willing referees since this will substantially speed up the process of application.

3. Membership fees as of May 2007

Annual IFAT membership fees are based on two components: membership type92 and a
monitoring fee payable by all members. The following tables detail IFAT membership fees by
membership type and business turnover.

3.] Trading members

 

 

 

 

Turnover (US 5) Annual Membership fee (€)
Under 100,000 €200 + monitoring fee
$100,000 - $1,000,000 €0.002 x turnover + monitoring fee
over $1,000,000 €2,500 + €100 for

every extra million turnover
+ monitoring fee

 

Note: For members in Africa, Latin America and Asia the maximum fee is € 2,500

3 .2 Fair trade networks
Annual Membership fee: €250 + monitoring fee

 

 

92 IFAT membership types: trading members (producer organizations and ATOs). fair trade networks, fair
trade support organizations, and associates

162

3 .3 Fair trade support organizations

 

 

 

 

 

 

Turnover iflUS S) Annual Membership fee (€)
Under $250,000 €750 + monitoring fee
$250,000 and up €1,250 + monitoring fee
3 .4 Associates

Turnover (U S $) Annual Membership fee (€)

Associate organizations with incomes up to $250,000 €750
Associate organizations with incomes of $250,000 and up € 1,250
Individual associates €100
Students and the unwaged €35

 

3.5 Monitoring fees

Monitoring fees are paid annually by all members, except associates. Fees for monitoring

are given below.

 

Turnover (US S)

 

Annual Monitoring fee (€)

< 100,000 25

100,001 - 500,000 50

500,001 — 1,000,000 100

1,000,001 — 4,000,000 350

4,000,001 — 8,000,000 600

8,000,001 — 16,000,000 800

> 16,000,000 1,000

 

Source: lFATb

163

Appendix B. Fair Trade Federation (FTF) Membership Requirements

FTF is a network of fair trade organizations (ftos) in Asia, Africa, and Latin America
based in Washington DC.

1. Who can apply?
FTF awards a renewable annual membership to any producer, importer, wholesaler or
retailer who:

“strives to carry 100% of goods that meet the fair trade principles and practices outlined
by FTF; has been in operation for at least 180 days in their country of incorporation; and
passes the FTF’s screening process based on its principles of fair trade” (FTFc).

FTF also encourages application of non-profits who are not involved in fair trade trading
as fair trade associates. Interested individuals should contact FTF regarding how to be involved.

Unlike IFAT, membership to FTF is not a certification. However, by submitting the
application materials, the interested organization puts forward its business practices for review
and approval by FTF's screening committee on membership (FTFc). The interested organization
seeking membership also “maintainsits right to appeal through established Federation channels”
(FTFc) if denied membership.

2. Process of application to FTF

Interested organizations seeking membership to FTF are required to submit an
application form which varies by type (i.e. wholesaler, retailer, retailer working directly with
producers, and producer”).

Organizations seeking membership are also required to pass at least three references with
contact information that are able to confirm the trading practices of the applicant. “An applicant is
best served by recommendations from current members of FTF or other fair trade organizations,
artisans, NGO partners, or contacts who are well versed in the principles of fair trade” (FTFc).

3. Membership Fees

The interested organizations seeking membership are required to submit a non-refundable
S 50 screening fee together with the application form. If admitted, organizations’ membership
dues are assessed based on sales during the most recent accounting period, as given on the table
below.

 

 

Gross Sales (US S) Membership Fee (US S)
up to 74,999 150
75,000 - 124,999 250
125,000 - 199,999 400
200,000 — 399,999 500
400,000 — 999,999 1,000
1 million — 4,999,999 2,000
5 million - 9,999,999 2,500
10 million-29,999,999 3,000
30 million+ 4,000

 

Source: F TFc

 

93 Currently, FTF has temporarily ceased to accept producer applications. Please visit FTF’s webpage for
further information at http://www.fairtradefederation.org/.

164

Appendix C. Producer Certification Fees for Fair Trade Certified Products

FLO develops fair trade product specific and generic standards for producer
organizations and traders. It also maintains the fair trade register (i.e. listing of current certified
producer organizations) and acts as the umbrella organization of 20 national labeling initiatives.

Prior to 2004, for a producer organization to be certified it has to have a buyer from
developed countries that would pay for the certification fees. However, starting in early 2004, a
producer fee system was put in place to support the growth of the fair trade industry. The
producer certification fees are based on the kind of organization (e.g. 1St grade, 2"d grade, or 3rd
grade organizations), number of farm workers or cooperative members, number of fair trade
products to be sold, and whether the producer organization owns a processing facility for their
product (Brinkschneider 2006).

In the same year, FLO-CERT was created to ensure that producers and traders comply
with the fair trade standards by certifying producers and auditing trading relations (FLO 2007).

1. Initial Inspection Fees for Small Farmer Organizations (effective January 2004)

1.1 Initial ins ection ees or I" rade small armer or anization
P g g

1St grades are organizations which are democratically controlled by their members and
have majority of members as small farmers.

 

15’ Grade Organization

 

 

Category Number of Basic Fee Number of Processing Installation Fee
Members"4 (EUR) Workers95 (€)
A <50 1,400 <10 200
B 50- 100 2,000 l 0- 100 400
C 101-250 2,200 >100 600
D 251-500 2,400
E 501-1000 3,000
F >1000 3,400

 

Source: Brinkschneider (2006)

An application fee of € 250 is charged to the interested organization seeking certification.
Per additional product sold under fair trade terms, a fee of € 200 is charged to the 1"t grade
applicant.

1 .2 Initial inspection fees for 2’"1 and 3"! grade small farmer organizations

2nd grades are those organizations with 1St grade organizations as members and are
democratically controlled by their direct members while 3rd grades are organizations legally
formed by their affiliated 2nd grades (FLO-CERT).

For the initial application of the organization, a minimum of 3 to a high of 20 member
organizations are inspected depending on the total number of member organizations. Given below
is the initial fee for a sampled member organization.

 

94 . . . .
Members include all active legal members of the organization.

95 . . . . .
Workers include all permanent, seasonal, and casual workers employed tn the processrng installation.

165

 

2nd / 3rd Grade Organization

 

 

Category Number of Basic Fee Number of Processing Installation Fee
Members"6 (€) Workers97 (€)
A <50 900 <10 200
B 50-100 1,000 10-100 400
C 101-250 1,100 >100 600
D 251-500 1,200
E 501-1000 1,500
F >1000 1,700

 

Source: Brinkschneider (2006)

An initial central structure fee"8 is also charged to the applicant seeking certification
amounting to € 1,500. Additional product fee also applies to the applicant amounting to € 200 per
additional product traded in fair trade terms.

2. Renewal Certification Fee for Small Farmer Organizations

“Fair trade certified producers are inspected at least once a year as part of a three year
certification cycle” (Brinkschneider 2006). The certification performance of the organization for
the last two years greatly dictates whether FLO-CERT will conduct a: (1) full inspection (i.e.
focus on all aspects of the fair trade standards); or (2) surveillance inspection (i.e. focus on major
parts of the fair trade standards).

2.1 Renewal certi rcation ees or I" rade small armer or anization
g g

 

1St Grade Organization

- R 1 P '
Renewal Basrc Fee (€) enewa rocessmg

 

 

 

Category Number of Number of Installation Fee (€)
Members” surveillance Workers '00 full surveillance

full inspection inspection inspection inspection

A <50 1,137.00 875.00 <10 87.50 87.50

B 50-100 1,575.00 962.50 10-100 175.00 175.00

C 101-250 1,750.00 1,050.00 >100 350.00 350.00

D 251-500 1,925.00 1,137.50

E 501-1000 2,362.50 1,487.50

F >1000 2,712.50 1,575.00

 

Additional Product Fee
Full inspection 175.00
Surveillance Inspection 87.50

 

Source: Brinkschneider (2006)

 

96 Members per affiliated member organization.

97 Workers include all permanent, seasonal, and casual workers employed in the processing installation.
98 Fee charged to the umbrella organization of a 2"d or 3rd grade small farmer organization.

99 Members include all active legal members of the organization.

'00 Workers include all permanent, seasonal, and casual workers employed in the processing installation.

I66

2.2 Renewal certification fees of sampled members of 2M and 3"! grade small farmer
organizations

 

2nd/3rd Grade Organization

R l P '
Renewal Basic Fee (€) enewa rocessmg

 

 

 

 

Category Number of Number of Installation Fee (€)
Memberslm full surveillance Workersm full surveillance
inspection inspection inspection inspection

A <50 700.00 700.00 <10 87.50 87.50
B 50-100 700.00 700.00 10-100 175.00 175.00
C 101-250 787.50 700.00 >100 350.00 350.00
D 251-500 875.00 787.50
E 501-1000 1,050.00 875.00
F >1000 1,225.00 962.50
Additional Product Fee Central Structure Fee

Full inspection 175.00 Full inspection 1,137.50
Surveillance Inspection 87.50 Surveillance Inspection 787.50

 

Source: Brinkschneider (2006)

 

101 - - -
Members per affiliated member organization.

102 . . . . .
Workers include all permanent, seasonal, and casual workers employed In the processrng installation.

167

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168

Appendix E. Gross Sales (US $ million) of the Fair Trade Industry, North America,

 

 

 

 

 

2001—2006

INSEESJJégN/ 2001 2002 2003 2004 2005 2006 Average
FTF & IFAT members 48.20 56.20 65.73 75.81 n.a. n.a. 61.49
TransFair USA' 75.00 110.00 208.00 369.00 499.00 730.00 331.83
TransFair Canada: 5.40 0.10 17.46 27.14 46.91 79.75 29.46
8:12:32; JUStO n.a. n.a. 0.22 0.30 n.a. n.a. 0.26
Sub-total 128.60 166.30 291.41 472.25 545.91 809.75 402.37
18:15: SEW/IFAT COffee 14.0 16.3 15.3 113.3 n.a. n.a. 39.72
[S‘SZZEZVEECEZ’EIICS3 n.a. n.a. 0.02 0.04 n.a. n.a. 0.03
Total North America 114.60 150.00 276.10 358.91 545.91 809.75 375.88
Annual Growth Rate 31% 84% 30% 52% 48% 49%

 

rAccounts for Coffee Sales

2Accounts for Cocoa, Coffee, Sugar and Tea for 2001-2004 using l$ US= 0.78 $Can, while for 2005-2006 aside from
the four products mentioned earlier, data includes sports balls, fresh fruit, cereals, and flowers using an exchange rate
of l SUS = 0.998 $Can.

3Coffee, tea, and sugar sales were deducted in order to avoid double-counting since these tend to be items that are
certified by the Fairtrade Labelling Organization’s national labeling initiatives (i.e. Transfair USA, Transfair Canada,
and Comercio Justo).

n.a.- not available

Sources: FTF (2005). TransFair USA (2007), TransFair Canada (2007)

169

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$3 3N 3m 3.». N3 Go m3 N3. $: 23 8s n; 3 8s m? 2.0 23220

$2 $3 .3 .3 23 N? 8a a: $3 .2 Ed :3 8d 2d mg m _ .o 85$

$8 o3. a.” $2 2: m2: 2.: $6 $3. a: com 3 3.». $2. ”3 8s 3525:

$2 :3 2.3 8.8 8.3 2.? 3.3 3.8 $3 m3 $2 of a: N2 M? 3m 9.38.2
>0 3 a: 88 E8 88 Sam 58 >0 5 .§< 88 «com 88 88 58 9.55

:5 gaitaé as 83 3.3::

 

mccnéccm .<U $5550 3 250m .3 mtcaxm 6.3 8.89:— uc @2530 mm 5.239?

170

Appendix G. An Analysis of International Prices for Types (organic and
conventional) of Small Red Beans, Honduras and US, October 2007'03

 

 

 

ltem Unit Cost gzbctiiliiee'r
Conventional Small Red Beans
Wholesale Price, San Pedro Sula, Honduras (Lps) 950.00 Lps/qq 418,871.25
+Transportation to Port of Cortes, Honduras (Lps)l 9.00 Lps/qq 3,968.25
Wholesale Price at Port of Cortes, Honduras (Lps) 422,839.51
-:- Exchange Rate (1 US$ = 18.8951 Lps) 18.90 Lps/S 22,378.26
+Commission (10% of wholesale price-Port of Cortes) ($) 111.89 S/mt 2,237.83
+Handling Fees ($) 17.50 $/mt 350.00
+Storage Fees ($) 24.00 S/mt 480.00
+Customs Broker (S) 3.40 $/mt 68.00
f.o.b. Price at Port of Cortes, Honduras ($) 1,275.70 S/mt 25,514.09
+Ocean Freight to Miami, Florida2 (5;) 119.55 $/mt 2,391.00
+Fuel Surcharge (8) 10.75 S/mt 215.00
+1nspection Fees ($) 17.80 $/mt 356.00
c.f.r. Price at Miami, Florida ($) 1,423.80 S/mt 28,476.09
Per unit c.f.r. price (Miami, Florida) 0.65 $/lb
f.o.b. Price Idaho/Washington (Conventional Small Red
Beans) ($) 846.57 S/mt 16,931.33
Per unit f.o.b. price 0.38 $/lb
Organic Small Red Beans
+Organic Premium (based on price paid by an organic bean
manufacturer) 0.08 $/1b 3,350.99
f.o.b. Price Organic Small Red Beans (S) 1,014.12 $/mt 20,282.32

Per unit f.o.b. price3 0.46 $/lb

 

IIndustry estimate from the Honduran Agricultural Market Institute (IHMA).

2Shipment for a dry good container; freight rate from Seaboard Marine.

3 For fair trade small red beans to be competitive in the US market, it has to be at least competitively priced
with organic small red beans

Note: 1 container = 20 mt; l qq = 45.36 kgs; 1 mt = 2,204.6 lbs; c.f.r. = cost and freight (not including
insurance)

Source of basic data: SIMPAH (2007) for wholesale price in San Pedro Sula. Honduras and exchange rate; Crowley
Liner Services and Seaboard Marine for freight, and other charges; USDA AMS Bean Market News for f.o.b.
prices at Idaho/Washington; Eden Foods. Inc. for f.o.b. price of organic small red bean

 

103

While SIMPAH reported a wholesale price of Lps 950 per qq, a key informant reported that in 2006
producers typically were paid Lps 499 per qq for beans (farm gate price). Thus, it is likely that producers’
participation in a fair trade initiative could supply beans for export at a substantially lower price than Lps
950 per qq.

171

£02330 own; use trek 638885 0.5m: ”8% 223 go monsom

 

 

 

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3.»: 9.3— 84.3 5.2: deZ 5 Sci
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3.2:.— oodoo; om._m\. 2.3.— ood n 3=E¥ tom Ems
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2.3 ood cod cod cod 6 28m .050
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mmdm cod 3.2 cod cod 9 xoflm
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172

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326 5538 .8 tom: 25. a no 255...
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30:2: 626 .38 aooxma

 

 

 

 

 

 

 

£e—N $3 $3. $5 £1. 33— 539.0 3===<

{can 2.32 363.6 3.536 3.5mm... «~62? ccdnafi 3.59.». 38,—.
$2: 3.3 8.; 3.: 8.: Eden 3.: mafia— 38.5.5
cod cod cod cod mm. mm: a 335
cod cod 3.3 cod cod 3 anon—Boo
cod ocd 222: cod cod n no; 85>» 550 .2: .3ch 550

3.: cod cod cod cod 3 com 3:5 3:3—

oo.o cod cod 86 mm; 9 28m 350 «Ea—:5
$3. 5.3. No.2: 3.8: 36 3.5m mode— wmd: 3.3.95
owne— _¢.m cod cod cod 3 3.66— 35. Ewfi
cod cod mw.wm NONE 5.3 _ a .355. BM x30

cod cod cod 2.6m cod o 3:22 550 3;— 580
3: 35m 3.53 and: dew e—fimn 3&3 c—.mm~ 331.5
cod cod cod and cod 0 «E5 350
mm.m om.w on.” $5 cod a 335
cm: 3.3 $15 2.5m 9.62 ed 2QO $50
3.2. 3.3 Eda 3.0m cod 2 .3:Ev_ tom Ems
2.2 code Nwsm 2.? 3.? a 3.66— 31 {no
cod cod mm; cod ocd 3 mom 5 .332
mem 2.0m wo.wm _m._ no.2 0.9 3,65. .050
in; 3.2 36 Exam ~02 3 tom 3:5

cod 3..— wmf ems cod 9 Swan was: 33:53..U
$2 3.2:. 5693 Emmi?” nm.~nc.~ 2.533 amdmfiu Edvafi 3.2-3.5
8.9: ~32: 3.92 3.53 3.2m n mcwom $50

>0 am $3.53. mag 33 we: 33 Sam 832 mas—U .0.—.32 32:80

 

.8353 z 35%?

173

Appendix 1. Dry Bean Consumption Patterns by Market Class, US, 1994-1996

 

 

 

 

 

 

 

 

 

Po ula- All Dr A11 A11 Refried Other
Item tipon Beansy Limas Navy Kidney Black Pinto Pinto
Source/Location
Home 97.6 76.8 96 86.2 80.4 81.9 29.2 80
Away from home 54.8 23.2 4 13.8 19.6 18.1 70.8 20
Fast food 30.8 9 0.4 6.6 5.2 1 44.1 4.6
Other restaurant 17.3 10.9 3.2 5.3 9.4 16.3 16.8 13.4
School 6.7 1.3 0.1 0.4 1.9 0.3 5.4 0.7
Others 12.9 2 0.4 1.5 3.1 0.5 4.5 1.4
Region
Northeast 19.6 10.8 11 23 19.1 16.8 3.9 4.5
Midwest 23.5 12.9 3.3 28.6 28.6 13.8 14.2 5.4
South 34.9 38.8 43.2 34 28.1 54.8 38.7 44.7
West 22 37.6 42.5 14.4 24.2 14.5 43.2 45.4
MSA Status
Metropolitan 32 31.5 33.3 39 27.8 41.5 31.2 30.9
Suburban 46.9 41.7 43.6 37.6 50.8 28.6 38.1 39.7
Rural 21.1 26.8 23.1 23.4 21.4 29.9 30.7 29.4
Race/Ethnic Origin
White. non-Hispanic 72.6 54.1 55.7 58.2 69.2 70.5 73.6 42.7
Black. non-Hispanic 12.5 9.5 12.6 19.3 10.7 4.1 5.4 7.9
Hispanic 10.5 33.2 30 20 18.5 19.8 17.1 47.5
Mexican 4.9 21 26 5.6 4 2.5 8.2 35.8
Puerto Rican 1 3.1 0.7 4 5.8 0.7 0.5 1.3
Other Hispanic 4.6 9.2 3.4 10.4 8.8 16.6 8.3 10.4
Others 4.4 3.2 1.7 2.5 1.6 5.6 3.9 1.9
Asian 2.9 1.8 1.7 2.2 0.6 2.6 2 0.8
Gender and Age
Total Male 48.9 60.8 53.9 57.7 61.4 59.8 58.3 63.4
2 - 5 4.8 2.2 0.9 1.9 1.7 2 2.5 2.7
6 - 11 4.6 2.9 1.2 2.8 2.7 1.5 4.8 2.7
12 - 19 5.8 7.7 4.8 5.6 6.7 3 12.6 7.1
20 - 59 27 41.3 36 36.7 41.6 46.4 37.7 43.5
60 & over 6.8 6.7 11.1 10.7 8.8 6.9 0.7 7.4
Total Female 51.1 39.2 46.1 42.3 38.6 40.2 41.7 36.6
2 - 5 4.6 1.9 1.6 1.7 0.9 1.5 1.7 2.5
6 - 11 4.4 2.4 8.1 1.3 2.3 2.7 3 2.2
12 - 19 5.6 4.6 5.3 6.3 4.6 4.2 10.1 3
20 - 59 27.7 25.1 21.3 23.4 24.4 24.2 26.3 24
60 & over 8.9 5.1 9.8 6.4 6.4 7.6 0.6 4.9
HH Income as a
% ofPoverty
0 - 130 % 19.2 27.5 29.7 25.7 20.9 15.2 18.6 33
131-185% 11.9 14.9 16.7 11.4 15 9.1 12.1 15.9
186 - 299 % 20.3 20.8 24.8 23.4 17.1 18.5 26.8 22.6
300 % & above 48.7 36.9 28.9 39.4 46.9 57.1 42.4 28.5

 

Source: Lucier et al. (2000)

174

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