Chocolate - the fair factor

BY ROB STOCK

Chocolate makers Cadbury and Whittaker's have been accused of "fairwashing" by a rival alleging the price of their "fair trade" chocolate depends on them selling a lot of non-fair trade bars.

Andrew Davidson of chocolate producer Scarborough Fair, which says it was the first to offer fair trade chocolate in New Zealand, says the big two are subsidising the price of their fair trade certified chocolate with profits from their non-fair trade products, which undermines the concept of fair trade.

Last week Cadbury began to move new fair trade versions of its Dairy Milk bars into supermarkets, following Whittaker's conversion of its Creamy Milk bars to fair trade earlier this year.

But Cadbury and Whittaker's prices are undercutting Scarborough Fair's bars and Davidson claims they are using the profits from non-fair trade business to do it.

"If you are paying more of a premium for the sugar and the cocoa, then you would have thought that would be reflected in the price. If it isn't, then it means they are cross-subsidising, using profits from their non-fair trade business as far as I'm concerned."

That was deceiving buyers trying to do the right thing and buy fair trade, said Davidson, who also questions the commitment to fair trade of Cadbury and Whittaker's.

"It's good to see the fair trade profile raised, but we would question why they won't go fair trade across their whole range as we have. Is it a real business ethos, or a marketing ploy?"

All Scarborough Fair products had fair trade certification, Davidson said.

The fair trade system offers cocoa farmers a guaranteed price for their beans of at least $US1600 ($2270) a tonne, and a premium of $US150/tonne on market prices above that level, according to the Fairtrade Foundation.

The cocoa price is about $US3276/tonne, after hitting a nominal 30-year high in December on the weak US dollar, strong demand and concerns about supplies in the Ivory Coast.

At current levels, the fair trade premium on cocoa costs chocolate makers an extra US15c/kg for the raw material.

New Zealand is late to the fair trade chocolate party, and it has been an uncomfortable issue for chocolate producers here because they often buy their cocoa from middle men.

Even if they source it from relatively advanced markets such as Ghana, they can't say for certain some element, however small, was not produced by slaves or child labourers.

Cadbury spokesman Daniel Ellis admitted there was subsidisation, but insisted it did not damage the fair trade claim.

"From a corporate point of view we are subsidising, which is part of our commitment to going fair trade and making it more mainstream for the consumer and building the awareness of the fair trade label."

Ellis said fair trade was more than a marketing tool for the company.

"We are definitely committed to fair trade. In the UK and Ireland we had our first bars on shelf late last year. It is part of Cadbury's global commitment to improving the livelihoods of the farmers which make the core ingredients in the products."

Ellis said Cadbury hoped to get Fair Trade Dairy Milk Easter eggs to shelf in 2011. This year, Scarborough Fair provided the only option for ethical buyers.

That had not changed since Cadbury was taken over by US food business Kraft, which is not seen as having a similar commitment.

Phillip Poole, marketing manager for Whittaker's, Cadbury's main rival in the "big block" supermarket niche, also said the company's fair trade claim was genuine: "We have got more than 20 varieties in our 250 gram block range [all of which are priced the same], and they all have different costs, and among them fair trade is not the most expensive. That's the macadamia nut bar."

But though Scarborough Fair might be angered, Fair Trade New Zealand's Steve Knapp said the two firm's chocolate bars contained fair trade cocoa and sugar and that was what the fair trade rules required.

"There is a cost associated with going fair trade, but what they have decided is to keep the price the same for the consumer," Knapp said.

"You can look at that two ways – as Andrew puts it, that they are subsidising, or that they are taking a hit [on profits] to get better benefits to producers.

"I think these companies are making a genuine commitment to fair trade."

Knapp said Scarborough Fair were the pioneers of Fair Trade chocolate in New Zealand, but Cadbury's move took the initiative to a new market.

WHAT YOU PAY TO BE FAIR

Bars: Price/Price per 100g

Cadbury's 200g Dairy Milk $2.70/$1.40

Whittaker's 250g Creamy Milk $3.49/$1.40

Scarborough Fair Sinless 180gr $3.99/$2.22

Green & Blacks 100gr $2.99/$2.99

Easter eggs:

Scarborough Fair 125gr egg $4.99/$3.99

Cadbury's Dairy Milk egg (Not Fair Trade) $2.99/$4.60

Source: Countdown, New Lynn, Auckland.

FAIR OR FLOP?

Is fair trade really a good thing?

Fair trade is intended to ease the poverty of Third World farmers by ensuring they receive a minimum price for their produce.

It's a noble cause, but does it work?

Opinion among economists is, naturally, divided.

The arguments run like this: The reason for low prices on agricultural commodities is overproduction – too much coffee, for example, means low prices for coffee farmers and poverty for farm workers. The fair trade movement, by offering minimum prices for coffee, encourages coffee production and makes the problem worse.

And where fair trade is used to demand a premium price from western consumers, only a fraction of this premium reaches the farmer.

Tim Harford makes some of these points in his book The Undercover Economist.

"... the numerous brands of fair trade coffee are likely to improve the income of a few producers without causing a great deal of harm. But they cannot fix the basic problem: too much coffee is being produced. At the slightest hint that coffee farming will become an attractive profession, it will always be swamped with desperate people who have no alternative."

In another chapter he writes: "The truth is that fair trade coffee wholesalers could pay two, three or sometimes four times the market price for coffee in the developing world without adding anything noticeable to the production cost of a cappuccino, because coffee beans make up such a small proportion of that cost."

An influential paper by Brink Lindsay of the Cato Institute described fair trade as a "well-meaning dead end".

However, there is widespread consensus that the producers within a fair trade system are better off than they would otherwise be – prices are not only higher, but more stable.

The market power of major commodity buyers has also been fingered as a cause of weak prices justifying the fair trade response.

- © Fairfax NZ News