Fairtrade: Export strategy for SL?

• Exports decline by 5.8% to $ 7.3 b from Jan-Sept 2012
  
  
• Industrial exports decline by 6.9% and agriculture by 8.2%

Exports crashing

Sri Lanka is feeling the heat from the downward trend in the global economy and the withdrawal of GSP+, with overall exports declining by 5.8% to $7.3 billion in the first nine months, the apparel business declining by 9.2% in September, and overall industrial exports crashing at 11.6%.

This is worrying given that Sri Lankan exports have been on the decline in an overall context since the month of January 2012. Whilst one can take solace that the global economic downturn is impacting Sri Lanka’s international trade, the fact of the matter is that if a country’s total exports are less than two per cent of global exports, this impact must be marginal.

Whilst this information calls for reforms on export policy with new markets and new marketing strategies, a new report coming in has revealed that there are many product categories in Sri Lanka that can command a high price based on the principle of dialogue, respect, and greater equity in international trade. This is also termed Fairtrade and I feel there is some merit for us to pursue this agenda based on the good work the private and public sector has already done.

SLDF 2012 and Fairtrade?

Last week whilst watching the Craft Festival of the Sri Lanka Design Festival 2012, the thought of Sri Lanka driving a Fairtrade proposition became clearer given that I saw how artisans from distant Mullaitivu, Jaffna and Mannar were responding to the new designs that were being driven on the new product development side, and from a demand chain perspective the merchandise was attracting a better price globally on the ethos of alleviating poverty, which is essentially the basic fundamentals of the Fairtrade dialogue.

If I am to quote a definition, Fairtrade means better prices for merchandise due to decent working conditions, local sustainability and fair terms of trade for fairness. This will also mean companies having to pay higher prices for goods purchased (which are never lower than the market price), which addresses the injustice of conventional trade which is essential to what Sri Lanka Design is doing in Sri Lanka.

This concept is interesting, given that Fairtrade label sales last year crossed the two billion dollar mark at a growth of 43%, which means that there is a group of consumers who continue their behaviour of purchasing products based on a certain value system. This is exactly what we saw as an outcome of the Sri Lanka Design Festival.

SL is right there

If I am to highlight some work that Sri Lanka has done on this line, a case in point is the apparel industry of Sri Lanka that was born in the 1980s and was just contract manufacturers and some even used to refer to the industry as tailors, but today, with some strategic thinking by the Industry, it has given leadership to the world by making Sri Lanka the fashion apparel of the world for ethically manufactured clothing that promotes decent working conditions, local sustainability, and fair terms of trade for fairness.

This has given teeth to the industry in competing with price-savvy merchandise coming in from Cambodia, China, and Bangladesh. Today this noble industry is targeting five billion dollars in export revenue by making Sri Lanka an apparel hub in Asia for R&D and technology sharing for fast fashion.

Ceylon Tea is slowly but surely taking the same route with the recent award of Sri Lanka being the first ozone friendly certified tea producing nation. From where it was when the plantation industry was nationalised in the 1970s under the baton of the government, the industry broke away from the shackles of the London auction system and today, the Colombo Auctions command the highest values for tea globally with value addition tea at almost 43%.

Ceylon Tea has also taken the high ground with some focused decisions on conforming to global standards on MRL levels and has gone further by developing a new standard for tea that has resulted in Ceylon Tea being the first certified ozone friendly tea globally, which no other tea producer has received. This has also resulted in the industry fighting for decent working conditions, local sustainability, and fair terms of trade for fairness, which means we are on track for a Fairtrade badge soon.

Fairtrade minimum price?

Given the above development, if I may throw more light to this concept of Fairtrade, there is a ethos of minimum price in this structure, which is the lowest price that a buyer can pay for products under this label based on a consultative process that includes the market dynamics of supply and demand at a moment in time.

However, a point to note is that currently only certain product ranges can go under this umbrella but the system is open for consultation on any new categories provided that its values can be adhered to, which is interesting.

The current product portfolio includes bananas, fruit and vegetables, tea, juices, nuts/oil seed, honey, cut flowers, ornamental plants, and spices, to name a few, but as I mentioned many others can take this proposition if the business model can be shaped to the procedures.

Maybe the Divulapitiya weavers who were showcased at the 2012 Sri Lanka Design Festival can be test marketed on this concept and rolled out globally so that the best practice can then be linked to other product sectors in the Sri Lankan export basket.

Fairtrade premium?

There is also an interesting rule on Fairtrade that can actually be attractive to Sri Lankan exporters. It’s called Fairtrade Premium. What this means is that one agrees to pay money on top of the minimum price point that has to be directed to such causes of social, environmental, or economic developments of the community which produces the merchandise.

This is a ideal fit for the ethically manufactured handloom industry of Sri Lanka where a pilot project is currently in progress in Maruthumune and being rolled out to other key towns in the north and east of Sri Lanka, under the ‘Peace Collection’ brand. May be the ‘Ethical Eco Label’ in the apparel industry can be modelled and launched globally so that any organisation’s merchandise that is staged at SLDF can find a global market on this badge.

How Fairtrade works

Once a producer meets the requirements as stipulated under the Fairtrade certification, one can agree to a licence agreement as per the Fairtrade mark. Any product that comes under this umbrella can use the two concepts of ‘Fairtrade Minimum Price’ and ‘Fairtrade Premium Price’.

I would argue that Sri Lanka should test this concept given the looming double dip economic scenario and our export basket being skewed to the US and EU, apart from the other strategies that are being pursued by the export community of Sri Lanka such as perusing business under the Indo-Lanka FTA as well as APTA.

Demand for Fairtrade?

Apart from the 43% increase in sales under the Fairtrade label and its flexibility of branching out to specific positioning like ‘Garments without Guilt’ or Ozone Friendly Tea’ that Sri Lanka is already pursuing, we also see a trend in the modern trade that commands almost 60 per cent of share of wallet globally where priority space is allowed for products under this banner.

Separately we have seen many promotional opportunities that are afforded to Fairtrade label products in the traditional media of TV, radio, and press, and in the recent past the viral social media platforms have also joined the fray, which is encouraging given the penetration of these new methods of communication that are being diffused at a very strong pace.

I guess the time is right to test this opportunity that is hip in the global market place. It is all the more attractive given that the Fairtrade business model is people-centred trade that effectively reduces poverty and also improves the standard of life in the developing world.

Fairtrade and climate change

We also see that Fairtrade is continuously addressing the key issues of the world and changing its business model, which keeps the brand consumer-oriented. The latest is the inclusion of reducing energy consumption by the use of renewable energy, which Sri Lanka as a policy has agreed to be 10% of energy in the long term that adds to the argument to pursue this strategy.

Even though the Sri Lankan economy has experienced accelerated growth from a 20 billion dollar economy in the 1990s to be a 59 billion rupee economy and with some arguing that Sri Lanka’s economy should have been 100 billion dollars by now, the fact is that Sri Lanka’s development has been retarded due to the war. But one can also make the insinuation that due to the development not being so rapid, the pollution levels are reflective at a low ebb and in the UN report on climate change, we register a MtC02 emission of a low 11.5, which is the lowest in the region.

Hence it is fair to say that against the backdrop of economic engines in the Asian region like China, India, and Pakistan, Sri Lanka will emerge as a ‘less polluted country’. It is a positioning opportunity that is fast emerging for our beautiful little country in the backdrop of the apparel industry saying ‘the first Ethical Sourcing destination’ and the tea industry being painted as ‘the first Ozone Friendly Tea Nation of the world’.

Due to the strong product features like the beaches, wildlife, 2,500 year heritage, and family-oriented culture, maybe a typical positioning can be ‘Treasures of Sri Lanka’ which can be seen in the ethical way. This can be built into the Fairtrade principles of decent working conditions, local sustainability, and fair terms of trade for fairness.

Next steps for Sri Lanka

I guess the next steps for Sri Lanka can be the following:

Study the value chains of the export basket of Sri Lankan products and identify which items can best fit the Fairtrade business agenda.

Analyse if the Fairtrade label will add value to these identified product categories, not only from an export value perspective but from an economic and social agenda. Maybe some products from the ‘Divi Neguma’ one million economic units drive can fall under this mandate; the logic being that Fairtrade is all about poverty alleviation.

Maybe some quick win products can be targeted so that we understand the practical challenges when implementing the business model of Fairtrade. Thereafter it can be rolled out.

Once the test phase is completed it can be incorporated to the overall national game plan of achieving 20 billion dollars by 2020, with apparel, tea, and tourism already on route.

(The author is a Board Director of Sri Lanka Design Festival and a Director for the Government of Sri Lanka on the areas of Industrial Development, Export Trade, and Business Policy. The thoughts are strictly his personal thoughts and not the views of the organisations he serves in Sri Lanka or globally.)