Fair Trade and Textiles: A comparative analysis of marketing alternatives

The case of CoopNatural in Brazil

João Fontes Centre for International Cooperation

vrije Universiteit amsterdam August 2007

|| SUMMARY ||

1

Peace, development and environmental protection are interdependent and indivisible.

Principle 25 of Rio Declaration, 1992

i

2

Acknowledgements

The author wishes to thank William Critchley, Nicolien van der Grijp, Marjan van Herwijnen

and Michiel van Drunen for their invaluable supervision and support. In addition, many thanks

to those who have been fundamental during this research: Maysa Gadelha (CoopNatural) and

Luciana Rabay (Braziliant); Verónica Pérez and Alex Assanvo (FLO); Ada Garcia, Antje Kachel

and Rocio Sanz (FLO-Cert); Edwin Koster (Made-By); Piet den Toom (Kuyichi); Katarina

Kempe and Henrik Lampa (H&M); Nicole Bassett (Patagonia); João Rêgo, Rita de Cássia,

Adriana Santos, Michele, Mariana Manfredi, Rosalina Nunes, Massimo Marocco, Renata Giles

and William Lana (customers of CoopNatural), and all anonymous interviewees at Kalverstraat

and to Corinne Cornelisse for standing there with him. Finally, special thanks to his parents and

to Marieke for her love and unconditional support.

ii

3

Table of Contents

List of tables 1

List of figures 2

Executive summary 3

1. Introduction 4

1.1 Context 4

1.2 Motivation 5

1.3 Goal 5

1.4 Research question 5

1.5 Scope of analysis 6

1.7 Outline of the report 8

2. Methodology 9

2.1 Research phases 9

2.2 Methods and considerations 11

2.2.1 Identification of marketing alternatives 11

2.2.2 Interviews 14

2.2.2.1 CoopNatural 14

2.2.2.2 Fair trade companies and organisations 14

2.2.2.3 Stores 14

2.2.2.4 Customers 15

2.2.3 Data processing and analysis 15

2.2.3.1 Processing data 16

2.2.3.2 Analysing data 17

3. Linkages between environment, poverty and trade 19

3.1 Poverty and Environment 19

3.2 Trade and Environment 22

3.3 Trade and Poverty 23

3.4 Impact of free trade on developing countries 24

3.5 Fair Trade and Organic: alternatives for developing countries? 26

3.5.1 Organic 27

3.5.1.1 Business as usual 27

3.5.1.2 What is Organic and how it addresses these issues 27

3.5.1.3 Market trends 28 3.5.2 Fair Trade

28

iii

4

3.5.2.1 Business as usual 28

3.5.2.2 What is Fair Trade and how it addresses these issues 29

3.5.2.3 Comparison with Organic Agriculture 31

3.5.2.4 Market trends 32

3.5.3 Cross-cutting issues 32

4. CoopNatural 35

4.1 Socio-economic regional data 35

4.2 The cooperative 36

4.2.1 Operations 36

4.2.2 Organisation 37

4.2.3 A history of challenges 38

4.2.4 The strategy of the cooperative 38

5. Stakeholders’ perceptions about fair trade 40

5.1 CoopNatural 40

5.2 Stores 41

5.3 Fair trade organisations and companies 42

5.4 Consumers 45

6. Requirements and costs imposed by marketing alternatives 51

6.1 Requirements 51

6.2 Remarks on critical requirements 54

6.3 CoopNatural's evaluation on requirements 57

6.4 Costs 59

6.5 Complementary criteria: Increase in Sales and Time 60

6.6 Facts Tables for Multi Criteria Analysis 61

7. Multi Criteria Analysis (MCA) 63

7.1 Weighting 63

7.2 Ranking 64

7.3 Sensitivity analysis 65

7.4 Summary of MCA and Interpretation 68

8. Conclusions 69

9. Recommendations 71

References 74

Abbreviations and acronyms 79

Glossary of terms 80

Annexes 82

iv

1

Executive summary

Fair trade emerged in response to the discrepancies in trade relations and the impact of free trade

on developing countries. In essence it states that working conditions in those countries should be

fair and trade should not compromise the environment. Fair trade can open new markets for

companies and organisations in southern countries, as in the case of the cooperative

CoopNatural, analysed in this research.

CoopNatural is based in Brazil and operates in the textile sector using naturally coloured organic

cotton. The cooperative covers the whole production chain of the textiles, from the production

of organic cotton to sewing and marketing. It intends to go fair as it believes that such

competitive advantage will help it withstand the pressure from global competitors, and allow

further investments in social and environmental aspects within its group. However, finding its

way in the fair trade market is by no means a simple task since each marketing alternative has

particular requirements, transaction costs and strategic implications. Therefore, the main

objective of this research is to find the best fair trade marketing alternative for CoopNatural,

taking into account economic, social and environmental impacts.

Four marketing alternatives were analysed: 1) obtaining the international fair trade label of FLO;

2) obtaining the Dutch fair textile label of Made-By; 3) becoming a supplier of Kuyichi, a well

established fair trade brand; and 4) becoming a supplier of H&M, a corporate social responsible

retailer. Economic, social and environmental impacts were considered, as well as costs and

potential increase in sales volume. Different stakeholders have also been consulted. Multi criteria

analysis (MCA) was performed to compare these alternatives. The results of MCA showed FLO

as the best alternative for the cooperative, followed close by Kuyichi. FLO was more

advantageous with regard to social and environmental aspects, while Kuyichi was more

economically beneficial. Made-By and H&M were less economically beneficial than the first two

alternatives due to geographical constraints that resulted in high logistics and adaptation costs.

The author advises CoopNatural to apply for the certificate of FLO, although Kuyichi has

proven to be more economically beneficial. By joining FLO CoopNatural will gain access to new

markets, and maximize social and environmental benefits. Nonetheless the cooperative might not

be able to afford it. Going fair will also demand considerable effort to adapt to environmental

requirements, especially regarding water use. Having these obstacles in mind, this case illustrates

how fair trade can either help or mobilise initiatives such as CoopNatural achieving their goals.

2

1. Introduction

1.1 Context

This research took place at Centre for International Cooperation (CIS), in the Netherlands, under

supervision of William Critchley. Nicolien van der Grijp and Marjan van Herwijnen were 1st and

2nd IVM supervisors respectively.

The framework of this investigation is the relationship between environment, poverty and trade.

It analyses fair trade and how this market based mechanism can help a cooperative in a

developing country playing an active role in world trade and, at the same, reduce poverty and

avoid environmental degradation.

The concept of fair trade emerged in 1985 in reaction to the unfair conditions of international

trade faced by developing countries. Although fair trade is not a niche market by definition, it is

basically supported by ethical consumers aware of social and environmental issues resulting from

trade and production processes. Fair trade differs from free trade since it internalizes social and

environmental costs. The former is focused on social and environmental conditions under which

a product is produced and traded, while the primary objective of the latter is the maximization of

profit. Fair trade will be discussed in depth in Chapter 3.

The case analysed here is in respect to the cooperative CoopNatural, which is based in north-

eastern Brazil. It operates in the textile sector using naturally coloured organic cotton as raw

material, i.e. the cotton complies with organic standards and it is free of dyeing. The present

members of the cooperative are entrepreneurs, consultants and a farmer involved in the whole

production chain of the textiles, starting from the production of organic cotton to sewing and

marketing. It is currently trading end products (clothes, toys, decoration and accessories) in the

Brazilian market and in a few stores abroad.

CoopNatural was founded in 2000 with the mission "to strengthen the coloured cotton textile

sector, selling products that are socially and ecologically correct by encouraging family-based

agriculture and local artisans" (CoopNatural, 2007). One of its main priorities at the moment is to

start operating in the fair trade market. CoopNatural believes that such competitive advantage

will help it standing the pressure from global competitors and keep on continuously improving

social and environmental aspects within its production chain. CoopNatural will be presented in

details in Chapter 4.

3

1.2 Motivation

Going fair, however, is a complex process. What makes it particularly difficult is the wide range

of marketing alternatives within the fair trade market. Since CoopNatural operates in the textile

sector, it can for instance apply for an international fair trade label, or a national one. It can also

become a supplier of an established fair trade brand, or it can supply a “fair trade–like” retailer.

Each marketing alternative has particular requirements, transaction costs and strategic

implications such as market share.

Besides this, since fair trade is not regulated by law, anyone can take the initiative to set up a new

fair trade scheme, create a new label or add something in the package of a product in a way that it

looks like fair trade. This also means a risk if looking from the perspective of the consumers who

may loose track of the concept, no longer knowing what to buy or whom to trust.

Therefore CoopNatural inevitably came up with the pertinent question: What is the best fair

trade marketing alternative for us? In view of the complexity level of this problem, the

cooperative has asked for advice.

1.3 Goal

The aim of this research is to look for the best alternative for CoopNatural, meaning which

marketing alternative better suits the cooperative and not the other way around. The importance

of this approach is that organisations in developing countries are usually confronted with rules

and schemes coming from developed countries which not always suit them or answer their needs.

The final goal of this investigation is to analyse a set of marketing alternatives and their respective

economic, social and environmental impacts, in order to provide CoopNatural with strategic

advice on fair trade. In addition, the methodology developed during this research can form a

model to be used as a basis for similar case studies.

1.4 Research question

The main question to be answered is “What is the best fair trade marketing alternative for the

cooperative CoopNatural, taking into account environmental, social and economic impacts?” In

order to do so, a few sub-questions will have to be answered regarding the requirements of

marketing alternatives, as well as their strategic, economic, environmental and social impacts.

4

Requirements:

1. Which marketing alternatives exist and what are their requirements?

Strategic:

2. How can fair trade help CoopNatural achieving its goals?

3. What will have to be adjusted in the business processes of CoopNatural to comply with the

requirements of each marketing alternative?

4. Can CoopNatural adapt its business processes to the requirements of each alternative and, if

so, how much effort will it cost?

Economics:

5. What will be the financial cost for CoopNatural to comply with the requirements?

6. What will be the financial benefits after compliance in comparison to the current state of the

cooperative?

Environment:

7. What will be the environmental gains after compliance?

Social:

8. What will be the social gains after compliance?

1.5 Scope of analysis

In order to answer the main research question, four marketing alternatives have been selected: 1)

applying for international certification at FLO; 2) introducing own brand in the external market

with the certificate of Made-By; 3) becoming a supplier of a well established fair trade brand like

Kuyichi; and 4) why not also consider becoming a supplier of a corporate social responsible

retailer such as H&M. Their pluses and minuses will be compared with the current marketing

strategy currently in place at CoopNatural, i.e. trading its products indirectly via stores in Brazil

and abroad.

Taking a t-shirt as an example, Figure 1 below illustrates how the labels of the products produced

by CoopNatural would look like in each case. More details on marketing alternatives and why

these four alternatives have been chosen follow in section 2.2.1

5

Figure 1: T-shirts to be produced by CoopNatural in each case

Made in Brazil

Alternative 1: FLO

Made in Brazil

Alternative 4: H&M

Made in Brazil

Alternative 3: Kuyichi

Made in Brazil

Alternative 2: Made-By

6

4. CoopNatural

This chapter is dedicated to CoopNatural. It starts with a brief introduction to the socio-

economic context of Brazil and region where CoopNatural is based. Then it provides detailed

information about the cooperative itself.

4.1 Socio-economic regional data

Brazil is a country with big differences between the poor and the rich, north and south. One

might get confused when looking at numbers of the Brazilian economy and its social indicators.

It is indeed a country characterized by inequality. Table 5 provides a short comparison between

Brazil and The Netherlands in terms of the indicators Human Development Indicator (HDI),

Gini and Gross Domestic Product (GDP).

Table 5: Comparison between Brazil and the Netherlands

HDI in 2006

(source: UNDP,2007)

Gini in 2006

(source: UNDP, 2007)

Total GDP in 2005

in millions of US dollars

(source: World Bank, 2007)

The Netherlands 10 30,9 624

Brazil 69 58,0 796

Brazil is divided in five regions: Northeast, northwest, mid-west, southeast and south. The

cooperative is located in the north-eastern state of Paraíba (see in Figure 5). Although both mid-

west and northwest regions have a lower share in terms of national GDP than northeast (13.8%),

poverty is at most concentrated in northeast. It is also in the northeast where the Brazilian semi-

arid is situated, a region characterized by scarcity of water. The biggest and richest cities in the

country are located in the south and southeast.

The state of Paraíba is divided itself in sub-regions that basically vary regarding economic activity,

land use and water availability. Campina Grande has an area of 620 km², 368 thousand

inhabitants and it is situated in the semi-arid (Almeida, 2005).

The levels of poverty, unemployment and illiteracy in Paraíba are high. 52% of the population

earns under half of the minimum wage and 71% of the rural population is under the poverty line.

10% of the population is unemployed and 20% is illiterate. Industry has a share of 46% of the

7

GDP in Campina Grande and cotton is the second export product (IPEA, 2007; IBGE, 2007;

Desenvolvimento, 2007). Other socio-economic indicators of the region are available in

AnnexV.

Figure 5: Map of Brazil

4.2 The cooperative

This section explains how CoopNatural is operating and how it is organised. Furthermore it

provides a summary of the history of the cooperative, as well as the strategy of development and

market positioning that has been adopted, and the challenges it faces.

4.2.1 Operations

CoopNatural produces clothes, toys, decoration and accessories made with organic cotton grown

in the region (CoopNatural, 2007). It sells its products indirectly and most of its clients are stores

in Brazil. However as the quality of its products is high enough to satisfy international standards,

CoopNatural is exporting since its foundation. At the moment the products are being sold via

direct and indirect channels abroad, mainly in Australia, England, Italy, Portugal and the USA.

Paraíba

8

4.2.2 Organisation

At the moment CoopNatural consists of 31 members: 22 entrepreneurs, 8 consultants and 1

farmer. All together are responsible for about 1300 direct and indirect jobs. The organisation of

CoopNatural is shown in Figure 6. The basis of the production chain consists of one private

farmer (40 hectares) and one group of small farmers that together supply the cotton (20 hectares

in total). As illustrated, the production chain goes beyond the boundaries of the cooperative

itself, including non-members third parties such as groups of artisans.

1 - Production of cotton

1 - Production of cotton Fazenda Santo Antonio Arribaçã (NGO)

1 member, 35 jobs non-member, 20 families

2 – Processing of cotton Campal non-member, 40 jobs

3 - Threading

Textil Ervest 1 member, 60 jobs

“MALHARIA”

4 – Flat weaving 5 – Hosiery mesh Pirapama Unitextil

non-member, # jobs

non-member, 38 jobs

6 – Design, modelling cut,

7 - Other manufacturers sales, marketing and administration 8 - Sewing

Entre Fios (decoration) Facção Ramyl 1 member, 40 jobs 2 members, 10 jobs

Eva Calçados (shoes and bags) Facção Edwirgens 2 members, 35 jobs 1 member, 15 jobs

Mix (kids fashion) Facção Terral 1 member, 10 jobs 1 member, 20 jobs

Facção Sempre Viva 1 member, 10 jobs

CoopNatural Facção Leidjane

9 - Others central office 1 member, 5 jobs

Groups of Artisans Facção Mano a Mano non-members, 281 jobs 1 member, 15 jobs

Ki Bordados (embroidery) Facção Formato X 1 member, 5 jobs 1 member, 5 jobs

Seicom Serigrafia (silk screen) Cosmos Jeans 1 member, 3 jobs 2 members, 10 jobs

2 members, 11 jobs

10 - Stores

Dona Terra 2 members, 5 jobs

others non-member, # jobs

Figure 6: Production chain of CoopNatural

9

A special point to be emphasised is the inclusion of NGO Arribaçã in the production chain.

Brazil is a country where small farmers often have to fight for land, usually owned by just a few

people. In short, the government has been working on granting pieces of private unproductive

areas to groups of small farmers who do not own anything else. However, after the definition of

property rights these groups struggle to find the means to produce and to become active in the

economy. NGO Arribaçã works on creating new economic opportunities for this group in the

region of Campina Grande, where CoopNatural is based. The cooperative has recently made an

agreement with Arribaçã to include a group of 20 families that have got 20 hectares all together

to supply the cooperative with organic cotton. The families are now following what Arribaçã calls

“eco-agriculture”, where they grow organic cotton together with maize and beans for own

subsistence.

4.2.3 A history of challenges

CoopNatural was founded in 2000 with the mission "to strengthen the coloured cotton textile

sector, selling products that are socially and ecologically correct by encouraging family-based

agriculture and local artisans" (CoopNatural, 2007). Despite its persistent growing business, the

challenges CoopNatural faces have always been and remain big. In fact it was founded as a local

initiative to respond to the pressure of global competitors. The textile sector in Brazil is

dominated by well established national brands. Besides that, the share of global competitors in

the local market is growing every year.

4.2.4 The strategy of the cooperative

Positioning its end products in the external market is the alternative found by CoopNatural to

ensure the revenue needed to keep the cooperative running and to promote sustainable

development. Therefore, CoopNatural identified the need to add value to its products to form

the basis for a competitive advantage.

Phase 1: Organic naturally coloured cotton

From the very beginning the cooperative got involved in the development of organic naturally

coloured cotton, which was an innovative initiative of EMBRAPA (Brazilian Agricultural

Research Corporation). EMBRAPA started growing the first variation BR 200 Brown in 2000.

BRS Green was introduced in 2003, and both BRS Ruby and BRS Sapphire in 2005. These

10

varieties are based on crossing and do not come down to any genetic modification. This kind of

cotton not only reduces production costs, but also the emission of chemicals since it does not

require any use of dying (EMBRAPA, 2007). There are just a few producers in the world

growing naturally coloured cotton at the moment, but the cotton grown by the supplier-member

of CoopNatural is ahead with complying with the international standards for quality. More

information about Naturally Coloured Cotton can be found in Annex IV.

Phase 2: Organic certification and fair trade

Keeping in mind the need to add more value to the end product, the cooperative decided after

the development of organic naturally coloured cotton to apply for the organic certification and

then to carry out fair trade. In the last two years CoopNatural has worked to comply with the

requirements of IBD, which is the certificating body for organic producers in Brazil, recognized

by IFOAM. The expectation is that this process is going to be concluded by mid 2007, when

CoopNatural will be producing its garments with a minimum of 80% of organic naturally

coloured cotton.

11

7. Multi Criteria Analysis (MCA)

In order to answer the question “What is the best marketing alternative for CoopNatural”, Multi Criteria

Analysis (MCA) was performed with the support of Definite (see section 2.2.3.2) to compare

marketing alternatives. The basis of MCA was the Facts Tables presented in previous section.

This chapter presents the results extracted from Definite and analyses them.

7.1 Weighting

CoopNatural has attributed the following weights to the criteria in the Facts Table:

Table 16: Weights Level 1: Level 2: Level 3:

Economic = 35%

Social = 35%

Environmental = 20%

Time = 10%

within Economic:

Effort = 30%

Benefits = 20%

Costs = 50%

within Benefits:

Increase in sales = 80%

Other economic benefits = 20%

within Costs:

Fees and auditing = 50%

Other investments = 50%

within Social:

Effort = 30%

Benefits = 70%

within Environmental:

Effort = 30%

Benefits = 70%

CoopNatural considered Economic and Social impacts as the most important ones. This level of

importance was translated in terms of weights in the decision making process. Hence Economic

and Social impacts were attributed with a weight of 35% each, while Environmental impacts and

the Time factor (i.e. how long the processed will take) weighted 20% and 10% respectively.

Within the group of Economic impacts, the most important point for the cooperative was to

avoid costs. Economic Costs have been attributed with weight of 50%, while Economic Benefits

(i.e. the added value to the cooperative) weighted only 20%. Within Economic Benefits, increase

12

in sales was the most relevant aspect (weight = 80%). Within Social and Environmental impacts,

CoopNatural was more focused on Benefits from complying with requirements (i.e. the added

value to the cooperative by complying with requirements) than on Effort demanded to comply

with them.

7.2 Ranking

The ranking of alternatives provided by Definite was shown in Figure 16:

Figure 16: Ranking of alternatives

FLO scored slightly above Kuyichi, followed by H&M and Made-By. As illustrated in Figure 17,

Kuyichi scored higher in Economic and Time, while FLO lead in Social and Environmental.

0,58

13

Figure 17: Ranking of alternatives per group of criteria

7.3 Sensitivity analysis

Weight uncertainty

- Check #1: What if weights attributed to Economic Effort and Benefits (see Table 16) switched,

having Benefits higher than Effort, in line with weights attributed to Social and Environmental

criteria?

Answer: The rank would not change as illustrated in Figure 18.

Figure 18: Sensitivity analysis on Level 2 weights

14

Score uncertainty

- Check #2: What if scores attributed to ‘increase in sales’, ‘fees and auditing’ and ‘other

investments’ are wrong?

Answer: Considering possible variation in 30% for ‘increase in sales’ and ‘other investments’, and

10% for ‘fees and auditing’, the rank would not change either.

Reversal points

- Check #3: Under which condition would Kuyichi rank first?

Answer: The weighs would have to change at least to the levels pointed in Figure 19. Basically

Time would have be slightly more important, and the other criteria a little less relevant.

Figure 19: Reversal point between Kuyichi and FLO

- Check #4: Under which condition would ‘Made-By rank first?

Answer: It is not possible. Even with considerable changes, Made-By would rank as high as FLO,

but at that level Kuyichi would rank first, as in Figure 20.

15

Figure 20: Reversal point between Made-By and FLO

- Check #5: Under which condition would H&M rank first?

Answer: There is no possible reversal point for H&M and FLO. This is because H&M scores

lower than FLO in all aspects.

Figure 21 presents the ranking once again, now considering reversal points as well. FLO ranks

first and this position could be taken by Kuyichi if weights were changed at least to level

indicated in Figure 19.

Figure 21: Ranking of alternatives with reversal points

16

7.4 Summary of MCA and Interpretation

Multi criteria analysis (MCA) has been carried out to compare fair trade marketing alternatives

that have been pre-selected for the case of CoopNatural: FLO, Kuyichi, Made-By and H&M.

The analysis was based on environmental, social and economic impacts that would result from

logistic and financial requirements imposed by each alternative, as well as a potential increase in

sales and the time it would take in the transition process. Impacts were represented in terms of

costs to comply with requirements (i.e. fees plus adaptation costs), effort to comply and benefit

from complying. Hence the most appropriate alternative would be the one that, at the same time,

is more beneficial, less expensive and demands less effort than the other ones.

The start point was the list of requirements and fees imposed by each alternative. Costs to adapt,

effort to comply and benefits from complying with requirements have been estimated by

CoopNatural itself. Afterwards total costs, total benefits and total effort have been for each

group of criteria (i.e. economic, social and environmental) of each alternative. CoopNatural has

also defined priorities in terms of weights to be considered in the decision making process.

Economic and Social impacts were considered as the most important aspects, followed by

Environmental impacts and Time of process.

Data was uploaded in Definite to perform the MCA, taking into account all these considerations.

The result provided by Definite (Figure 16) showed that FLO had the highest overall score

(0.58), followed very close by Kuyichi (0.55). Overall scores of H&M and Made-BY were 0.46

and 0.44 respectively. It also showed that Kuyichi will lead this ranking in case the time factor

becomes a bit more important to CoopNatural while and the others become slightly less relevant

(Figure 21).

Looking at each component of the overall score (Figure 17), Definite showed that FLO was

more advantageous with regard to social and environmental aspects, while Kuyichi was more

economically beneficial and the transition process of Kuyichi takes less time than FLO’s. Made-

By and H&M were not economically beneficial in comparison to the first two alternatives due to

geographical constraints that resulted in high logistics costs. H&M scored nearly as much as FLO

in the social aspect, and virtually the same as Kuyichi and Made-By in the environmental criteria.

17

8. Conclusions

In response to the research question “What is the best fair trade marketing alternative for CoopNatural”,

considering environmental, social and economic impacts, as well as effort to comply with

requirements, benefits from complying and time spent in transition process, the author’s

conclusion is that FLO is the most advantageous option for the cooperative, although Kuyichi is

the most economic beneficial alternative. The Fairtrade certificate of FLO will open new markets

for the cooperative. Besides this, the conditions of FLO are the most social and environmental

beneficial. Yet the order of the financial investment to obtain the certificate of FLO is higher

than the investment needed to become a supplier of Kuyichi: € 30 thousand and € 26 thousand

respectively. Hence going for FLO or Kuyichi will basically depend on whether the cooperative

can afford one or the other. This criterion was not included in the formal analysis.

Made-By and H&M were not economically beneficial in comparison to the first two alternatives

due to geographical constraints that resulted in high logistics costs. Nonetheless, H&M scored

nearly as much as FLO in the social aspect, and virtually the same as Kuyichi and Made-By in the

environmental criteria. Finally, becoming a Made-By affiliate would require an extra effort for

CoopNatural to expand the current sales channels due to the geographic scope of Made-By.

Fair trade can help CoopNatural by opening up submarkets where the cooperative is not trading

yet. The actual demand from end consumers in the external market for FLO certified textiles, or

the demand from Made-By affiliates like Kuyichi for social responsible garments indicate a

market potential that justifies the interest of CoopNatural in becoming recognized as a fair trader.

Although the cooperative has already got good practices in place, they are not visible for the fair

trade market. Hence the need for such fair trade certificate granting credibility to the products of

the cooperative. In the case of CoopNatural, fair trade can not only mean gaining a competitive

advantage, but it can also add social and environmental value. By going fair the cooperative will

have a better control of environmental issues, especially usage of water, and it will focus even

more on small farmers, who will become a fundamental element in the production chain.

Obtaining the certificate of FLO will have a higher impact on the group of farmers supplying

CoopNatural than on the trade companies within its production chain, in terms of benefits from

complying with requirements as well as effort to comply and costs.

Nonetheless, there are several tariff and non-tariff obstacles in fair trade that may form a barrier

for CoopNatural entering in these markets. Trade, environment and poverty are intrinsic

18

connected and fair trade can play a positive role breaking negative linkages among these

elements. However, in reality it is not clear whether the cooperative can afford the initial

investments with fees and adaptation. The estimation made in this research was based on the

exclusion of some components within the current production chain. This results in a main social

impact, especially to the group of artisans, and it also requires adjustments in business processes,

since the fair trade-certified products of CoopNatural will involve less people.

Regarding social and environmental adjustments, the main challenges are concerning the group

of small farmers and water management. FLO requires that at least 50% of the cotton must be

produced by small farmers, but most of the cotton used by CoopNatural nowadays is produced

be a non-small farmer, i.e. a farmer with hired labour. It also requires increasing participation of

small farmers in the administration and internal control of their association. The difficulty here is

the fact the most of them are illiterate. FLO also calls for efficient irrigation systems and care

with ground water, although not as a minimum requirement for certification. It will demand

much effort from the cooperative to implement these measures. Still concerning FLO, its

requirements for small farmers will have a higher impact on CoopNatural than those for traders,

both in terms of costs, benefit and effort to comply. About organic cotton, Made-By is the only

scheme where it means a competitive advantage. However, in practice its affiliates are purchasing

white organic cotton to dye it afterwards, which to a certain extent withdraws the environmental

benefits of the naturally coloured organic cotton grown by CoopNatural.

Having said this, the current trend of fair trade textile is bipolar and it is only appropriate for

farmers of seed cotton and retailers. Current schemes and marketing alternatives were not

designed for cooperatives like CoopNatural or equivalent small enterprises in the South covering

the whole production chain. Retailers are taking the most benefit out of the fair trade market,

which somehow contradicts the original concept of fair trade.

Finally, concerning the state of art of fair trade, lack of knowledge and a certain level of

confusion were identified at consumer’s side. The ever increasing isolated initiatives on fair trade

adding up to other concepts of sustainable trade, such as organic, ethical trade and corporate

social responsibility may be confusing for consumers. However, even more critical than a

possible misunderstanding, lack of information about fair trade was found among consumers in

The Netherlands, the country where the concept of fair trade emerged. It was also identified that

lack of knowledge about fair trade results in lack of involvement and low consumption.

19

9. Recommendations

I. Regarding the main research question:

a) To CoopNatural:

Apply for the certificate of FLO in case budget is available and a project manager is in

place;

Evaluate the possibility of certifying the whole production chain with special concern to

the groups of artisans due to their high economic vulnerability;

Search funds to finance the transition to fair trade, i.e. to cover fees and adaptation costs;

Carry out study on sustainability of the business on middle and long terms. Special

attention to availability of water and the impacts on community and ecosystems resulting

from water being used with irrigation;

Promote the concept of comércio justo (fair trade) together with FLO Brazil and stores in

order to build consumers’ awareness in Brazil and benefit from the potential of national

market;

Consider combining FLO and Kuyichi at a later stage in order to diversify the portfolio

of the cooperative as much as possible. Spilling eventual exceeding white organic cotton

over to Kuyichi should be taken as an option.

b) To fair trade organisations and ethical companies:

Adapt current schemes according to the profile of initiatives in the South like

CoopNatural in order to:

- Invert current market shares of retailers and Southern traders;

- Facilitate their access to fair trade markets. Special points of attention:

o The multitude of standards and the difficulty to understand them;

o High costs of adaptation, certification and inspections;

o Possible inadequacy with local reality.

Improve communication with consumers

- Organise public campaigns to increase level of awareness;

- Effectively communicate in cases of non-compliance with rules to avoid consumers

loosing credibility on fair trade.

20

Cooperate as to:

- Avoid double certification costs for organic and fair trade;

- Lobby for top-down governmental policies in favour of fair trade;

- Set up shared funds for Southern producers and traders willing to enter in fair trade

markets;

- Communicate with consumers efficiently. The ever increasing number of isolated

initiatives may cause more confusion than elucidation.

Develop and strengthen local partnerships that can help:

- Reducing risk of fraud. Yet special care is needed to avoid having this partners adding to

the problem instead;

- Reducing inspection costs;

- Communicating with local governments, entrepreneurs and consumers.

Develop South-South trade relations to:

- Create new fair trade markets;

- Minimize CO2 emissions.

Care for the environment

- Address environmental issues to ensure sustainability in mid and long terms, like FLO is

doing. Nonetheless this concern should not be translated in barriers for developing

countries at first stage. Requiring traders in the North to compensate CO2 emissions, for

instance, can be a fair option.

Specific recommendations:

- To FLO: Require farmers with hired labour to hire all employees and make explicit in

the list of requirements that no kind of disciplinary practice is allowed.

- To Made-By: Consider setting up offices in developing countries.

- To Kuyichi: Consider stopping dyeing organic cotton. Use naturally coloured organic

cotton instead. As last alternative, use eco-friendly dyeing.

- To H&M: If not purchasing organic textile from Brazil due to concern with textile miles,

consider compensating emissions of importing textile from other countries.

21

II. Regarding the methodology developed in this research:

Self-image of company in MCA

It is recommended to include factor “self-image of the company” as criterion in the Multi

Criteria Analysis, which has been overlooked during the development of this research. As

shown in Figure 1, trading own brand and producing for another company are two different

contexts for CoopNatural with regards to how the rest of world would see it. In the cases of

Kuyichi and H&M, the cooperative is literally “out of the picture”.

Bottle necks identified in this research

Time management is a critical factor. Since this research involves many stakeholders with

different agenda, the researcher can loose control of the flow, facing time constraints later on.

It is difficult to estimate how long time will take for obtaining data, or even to talk to the

right person in each organisation, let alone scheduling interviews with them. Therefore it is

strongly advised to take the following measures in advance, preferably during preparation

phase before the research starts:

- Define the minimum number of alternatives to be investigated;

- Contact companies and organisation related to these alternatives that have been pre-

selected to: 1) confirm assumptions made; 2) get an impression of whether they are

willing to collaborate with the research; 3) find out who are the contact people within

these organisations to be interviewed and in case of questions;

- Make appointments for interviews with all stakeholders.

22

References

Agro Fair, www.agrofair.nl/pages/view.php?page_id=10 , June 25th 2007

Almeida, A.P., 2005, “Perfil sócio-econômico de Campina Grande”, FIEP, Campina Grande

Barbier, E.B., 1999, “Development, poverty and environment”. In: Bergh, J.C.J.M. van den,

Handbook of environmental and resource economics, Edgar Elgar, Cheltenham

Beers, C. van, 2006, “International trade, the environment and sustainable development”, Delft

University of Technology, Delft

Brazilian Ministry of Development, Industry and International Trade (Desenvolvimento),

www.desenvolvimento.gov.br/sitio/secex/depPlaDesComExterior/indEstatisticas/balCom_uni

Federacao.php , June 25th 2007

BBC, “Ethanol dominating energy summit”, April 16th 2007, available at

news.bbc.co.uk/2/hi/business/6560197.stm

Carneiro, F.G. & Arbache, J.S., 2003, “Assessing the impacts of trade on poverty and inequality”,

World Bank, Washington, DC

Cunningham, W.P., Cunningham, M.A. & Saigo, B.W., 2006, “Environmental science: a global

concern”, McGraw-Hill, New York

CoopNatural, www.naturalfashion.com.br , March 26th 2007

EMBRAPA, www.cnpa.embrapa.br/produtos/algodao , June 26th 2007

EPOPA, www.grolink.se/epopa , June 04th 2007

23

Fair Trade Original, www.fairtrade.nl , June 04th 2007

Fairtrade Labelling Organisations International (FLO), www.fairtrade.net , May 28th 2007

Fernández, C.R., 2006, “Ética y ciencia en los estudios de comercio y pobreza. Impacto en los países en

desarrollo”, Entelequia, Málaga

FLO-Cert, www.flo-cert.net , May 28th 2007

Fridell, G., 2003, “Fair trade and international moral economy: within and against the market”,

York University, York

Grijp, N. van der & Brander, L., 2004, “Multi-sector and sector specific schemes”. In: M.

Campins Eritja (ed.), Sustainability labelling and certification, Marcial Pons, Madrid

H&M,

www.hm.com/nl/corporateresponsibility/environment/rawmaterialsandfibres__envworkarticle3

.nhtml , June 11th 2007

Haynes, I., 2005, “Can organic cotton be fair? Impacts of the ‘fair’ criteria on the trade of Indian

organic cotton”, Université de Liège, Liège

Herwijnen, M. van & Jansen, R., 2004, “Software support for multicritria decision-making”. In:

Giupponi C., Jakeman T., & Kasserberg D. (eds.), Sustainable management of water resources:

an integrated approach, Edward Elgar, Cheltenham

Hines, C., 2003, “Time to replace globalization”, Massachusetts Institute of Technology,

Massachusetts

IBD, www.ibd.com.br/Certificacao_Default.aspx?categoria=ECOSOC&ling=PORTU , June

04th 2007

24

IBGE, www.ibge.gov.br , June 25th 2007

International Federation of Organic Agriculture Movements (IFOAM), www.ifoam.org , June 25th 2007

International Institute for Sustainable Development (IISD), 2005, “Environment and trade:

A handbook”, IISD, Manitoba

Institute for Applied Economic Research (IPEA), www.ipea.gov.br , June 25th 2007

Kahn, J.R., 2005, "The economic approach to environmental natural resources", South-Western,

Ohio

Kuyichi, www.kuyichi.com , May 28th 2007

Made-By, www.made-by.nl , May 28th 2007

M-Braze, www.m-brazebasics.com , June 04th 2007

Nepstad, D.C., Stickler, C.M., & Almeida, O.T., 2006, “Globalization of the Amazon soy and

beef industries opportunities for conservation”, Woods Hole Research Center, Falmouth

New Scientist, “Fashion industry needs to cotton on to green”, December 9th 2006

Observer, “Stores go to war as fairtrade booms”, February 25th 2007, available at

environment.guardian.co.uk/ethicalliving/story/0,,2020890,00.html

Organic Trade Association, www.ota.com , June 25th 2007

25

OXFAM, 2002, “Rigged rules and double standards: trade, globalisation, and the fight against

poverty”, available at

www.oxfam.org.uk/what_we_do/issues/trade/downloads/trade_report.pdf

OXFAM, 2004, “Finding the moral fiber”, available at

www.oxfam.org.uk/what_we_do/issues/trade/downloads/bp69_cotton.pdf

Page, S. & Slater, R., 2003, “Small producer participation in global food systems: policy opportunities

and constraints”, Overseas Development Institute, London

Patagonia, www.patagonia.com/web/eu/patagonia.go?assetid=2047 , June 04th 2007

Ravallion, M., 2004, “Looking beyond averages in the trade and poverty debate”, World Bank,

Washington DC

Raynolds, L.T., 2000, “Re-embedding global agriculture: the international organic and fair trade

movements”, Colorado State University, Colorado

Rodrik, D., 2002, “Globalization for whom?”, Harvard Magazine, Harvard

Roozen, N. & Hoff, F. van der, 2002, "Fair trade. Het verhaal achter Max Havelaar-koffie,

Oke-bananen en Kuyichi jeans", van Gennep, Amsterdam

Teddy Bear Films, www.teddybearfilms.com/chinablue , July 11th 2007

The Economist, “How green is your wardrobe?”, December 2nd 2006

The Guardian, “Cottoning on to a good thing”, April 13th 2007, available at

www.guardian.co.uk/environment/2007/apr/13/fairtrade.organics

26

United Nations Conference on Trade and Development (UNCTAD), 2006, “Trade and

environment review”, United Nations, Geneva

United Nations Development Programme (UNDP), http://hdr.undp.org/hdr2006/statistics

, June 25th 2007

United Nations Environment Programme (UNEP), 1992, “Rio Declaration”, Rio de Janeiro

Winters, L.A., McCulloch, N. & McKay, A., 2002, “Trade liberalisation and poverty: The

empirical evidence”, University of Nottingham, Nottingham

World Bank, http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf ,

June 25th 2007

27

Abbreviation and acronyms

CIS: Centrum voor Internationale Samenwerking (Centre for International Cooperation), at Vrije

Universiteit, in Amsterdam, The Netherlands

CODEX: Codex Alimentarius Commission

CSR: Corporate social responsibility

FLO: Fairtrade Labelling Organisations International

EMBRAPA: Empresa Brasileira de Pesquisa Agrária (Brazilian Agricultural Research Corporation)

GDP: Gross Domestic Product

GMO: Genetic modified organisms

HDI: Human Development Indicator

IBD: Instituto Biodinâmico (Biodynamic Institute)

IFOAM: International Federation of Organic Agriculture Movements

IVM: Instituut voor Milieuvraagstukken (Institute for Environmental Studies) at Vrije Universiteit, in

Amsterdam

SA8000: Social Accountability Standard SA 8000

28

Glossary of terms

CODEX: Codex Alimentarius Commission, established by Food and Agricultural Organisation

and World Health Organisation of United Nations.

Eko: Organic label granted by of Skal.

Fair Trade: Trade model that internalizes social and environmental costs. It differs from free

trade since the primary objective of the latter is the maximization of profit, while the former

focuses on social and environmental conditions under which a product is produced and traded.

FINE: Informal association of the four main Fair Trade networks (Fairtrade Labelling

Organizations International, International Fair Trade Association, Network of European World

shops and European Fair Trade Association).

Organic agriculture: “Organic agriculture is an ecological production management system that

promotes and enhances biodiversity, biological cycles and soil biological activity. It is based on

minimal use of off-farm inputs and on management practices that restore, maintain and enhance

ecological harmony”. (Organic Trade Association, 2007)

HDI: Human Development Indicator. It measures the average achievements in a country in

three basic dimensions of human development: long and healthy life, as measured by life

expectancy at birth; knowledge, as measured by the adult literacy rate; and the combined primary,

secondary and tertiary gross enrolment ratio.

Gini: “Measures the extent to which the distribution of income (or consumption) among

individuals or households within a country deviates from a perfectly equal distribution. A value of

0 represents perfect equality and a value of 100, perfect inequity” (UNDP, 2007). It was

developed by Corrado Gini.

29

GDP: Gross Domestic Product. It corresponds to the total value of services and goods produced

by a nation.

IBD: Brazilian certification body accredited by IFOAM.

Liberalization: Process enabling financial and investment markets to freely operate worldwide.

Max Havelaar: Dutch fair trade labelling and certifying scheme, operating under FLO.

Producers: Farmers or growers.

Rio Declaration: outcome of United Nations Conference on Environment and Development,

held in Rio de Janeiro in 1992.

SA8000: Social Accountability Standard SA 8000, developed by SAI (Social Accountability

International), based on ILO conventions. It was developed originally manufacturing industry,

but also applied in agriculture since 2000.

Skal: Dutch certification body accredited by IFOAM.

Solidaridad: Dutch developing organisation.

Sustainable development: “A real increase in well-being and standard of life for the average

person than can be maintained over the long-term without degrading the environment or

compromising the ability of future generations to meet their own needs” (Cunningham et al,

2006).

Textile miles: Emissions of Carbon Dioxide (CO2) resulting from fossil fuels based

transportation of textiles, adding up greenhouse gases that cause global warming.

Traders: Sellers, buyers, transformers or manufacturers.

Annexes

2. Methodology

This Chapter explains what has been done in this research and how it was approached. Section

2.1 gives a macro overview of the research phases and section 2.2 provides detailed information

on methods used and considerations made during the whole research.

It is important to emphasize that the focus of this research has been put on CoopNatural and the

stakeholders concerned. The need for this emphasis has been identified in the beginning of this

project since fair trade is as much a new as a wide subject. Its requirements vary per product, and

per trader or certifier, so each case within fair trade has its own peculiarities. For these reasons it

would not make sense to put the cooperative in a passive position, nor to look at one single

marketing alternative even if one is more renowned than another. Therefore this research has

been developed from “core to surroundings”, starting from the needs of the CoopNatural, and

then observing other stakeholders and conceptual linkages.

2.2 Methods and considerations

2.2.1 Identification of marketing alternatives

The objective of this phase was to identify the fair trade marketing alternatives for CoopNatural

to be analysed in this research. As this research has taken place in The Netherlands, alternatives

were looked for within the Dutch market.

Fair trade “as everybody is doing it” means applying for a certificate, something that will be

added in the label or package of the product to show that it is produced under fair trade

conditions. But why is it so? Are there maybe other ways to operate as a fair trader, whether

based on certification or not?

Having these questions at the starting point of the research, it was decided to also consider as

possible alternatives the market for organic and companies with strong Corporate Social

Responsibility (CSR) policies. The reason for this is CoopNatural is already producing organic

and the standards for organic products are progressively including social requirements (details in

section 4.2). Besides this, CSR-companies are imposing strong social and environmental

ii

requirements and they represent an opportunity in the market than could not be ignored. As a

matter of fact Hema, one of the biggest retailers in The Netherlands, is on the top of Dutch

consumers’ minds (see Figure 15).

2.2.3 Data processing and analysis

Multi-criteria analysis and Definite will be method and tool applied in this research to analyse

data. Multi-Criteria Analysis (MCA) is an evaluation method developed to support decision

problems like the main question of this research: “What is the best fair trade marketing

alternative for CoopNatural, taking into account environmental, social and economic impacts”. It

will be applied here to compare fair trade marketing alternatives. It analyses how each option

performs against environmental, social and economic criteria initially defined to cover the goal of

the problem. The analysis itself is performed by using Definite, a computer program. “Definite is

a decision support software package that can weigh up the alternatives and assess the most

reasonable alternative” (van Herwijnen et al, 2000).

2.2.3.1 Processing data

This section forms the basis for Chapter 6. The set of criteria for analysis is first consolidated in a

“Facts Table”, which is the input for MCA. The Facts Table of CoopNatural will be based on

three components:

a) The evaluation of CoopNatural on the requirements of each alternative. The cooperative will

attribute a level of Effort demanded in order to comply with each requirement, the Cost to adapt

to them, and the added value to the cooperative (Benefit) of each requirement once it is met.

This is in line with the objective of this research: which alternatives suits CoopNatural better, and

not the other way around. Levels of Effort and Benefits are indicated in Tables 1 and 2.

Table 1: Efforts to comply with requirements

Effort Meaning

0 No effort. CoopNatural already complies with the requirement

1 Low effort

2 Medium effort

3 High effort

4 Very high effort, nearly impossible to comply

Table 2: Benefits from complying with requirements

iii

Benefit Meaning

0 Irrelevant for the cooperative

1 Good

2 Very good

3 Excellent

b) Costs with certification and auditing fees;

c) Two complementary criteria:

- Potential increase in sales with certification or partnership and

- Duration of transition process (in months), i.e. time spent with getting the certification (in case of

FLO or Made-By) or to sign the partnership (in case of Kuyichi and Made-By).

Sales volume of t-shirts was chosen to establish a common parameter in the calculation of

increase in sales. T-shirts represented about 57% of the total volume traded by CoopNatural in

2006.

One might be tempted to multiply expected sales volume by the price of t-shirt indicated during

interviews to speculate about annual revenue. Yet this has not been done in this research to avoid

an unfounded bias.

Generating Facts Table:

Tables 6-8 were crossed with Tables 9-11, and then added with Tables 12 and 13. The result of

these operations was the Facts Table, which is available in Annex XIX. Finally it was compacted

as shown in Table 15.

2.2.3.2 Analysing data

This section forms the basis for Chapter 7. MCA has been performed in Definite in five phases:

problem definition, standardising, weighting, ranking and sensitivity analysis.

Problem definition

First alternatives, criteria and scores of the Facts Table were uploaded in Definite. Criteria were

classified as costs and benefits.

Standardising

As scores have different units (monetary, time, %, ranges), they must be standardized to a

common dimension unit before the criteria can be combined. (van Herwijnen, 2005). The

iv

method chosen is called Maximum, which scales each score between zero and the maximum

score. The method chosen for the Facts Table of CoopNatural is called Maximum, which scales

each score between zero and the maximum score.

Weighting

It is very important to determine the level of relevance among groups of criteria, and between

criteria within each group. By doing so one tells the software that economic aspects must be

taken as more important than environmental ones, for instance.

Ranking

Based on the weights and standardisation previously specified, it provides the ranking of

alternatives. The one with the highest score is the most suitable for the case.

Sensitivity analysis

Results were checked considering any level of uncertainty concerning weights and scores that

have been attributed in the Facts Table. This is done in order to validate the robustness of

results. At this stage it also checks possible reversal points. Reversal points indicate how weights

would have to change in order to have alternatives switching positions in the ranking. It is useful

to quickly evaluate under which conditions an alternative would rank first.

v

6. Requirements and costs imposed by marketing alternatives

This chapter focuses on the requirements and costs imposed by each marketing alternative. In

addition it estimates potential increase in sales and how long time the transition process would

take in each case. These factors formed the basis for the multi criteria analysis in next chapter. It

starts by presenting the requirements and commenting the critical ones. Next it shows

CoopNatural’s evaluation on these requirements in terms of effort to comply with each

requirement, benefit from complying and cost to adapt. The following section summarizes the

costs with fees and auditing. Subsequently, it provides estimations made for increase in sales and

duration of processes. Finally, it presents the Fact Table to be used in the multi criteria analysis.

6.1 Requirements

Each alternative has its own set of requirements to address three groups of issues: Social,

Economic and Environmental. Tables 6-8 compile these requirements and show by which

alternatives they are required. The complete sets of requirements can be found in Annexes X, XI

and XII, stating what CoopNatural will have to do or have in place.

FLO has minimum and progress requirements. At the moment they are elaborating a deadline

catalogue that will specify when progress requirements are supposed to be in place. Since it is not

available yet, only minimum requirements were considered in this research, plus one specific

progress requirement that has to be in place one year after certification. It should be noticed that

FLO has different sets of requirements for small farmers’ organisations (i.e. producers of cotton)

and traders (i.e. sellers, buyers, transformers or manufacturers of cotton within the production

chain).

vi

Table 6: Social requirements

FLO FLO Made-By Kuyichi H&M

1. SOCIAL Small Farmers Trader Trader Supplier Supplier

General 1.1 Fairtrade adds Development Potential X 1.2 Members are Small Producers X 1.3 Democracy, Participation and Transparency X 1.4 Non-Discrimination X X X X X

Standards on Labour Conditions 1.5 Forced Labour and Child Labour X X X X X

1.6 No disciplinary practices X X X X 1.7 Freedom of Association & Collective Bargaining X X X X X

1.8 Conditions of Employment X X X

1.9 Remuneration X X X X

1.10 Working hours X X X X 1.11 Occupational Health and Safety X X X X X 1.12 Factory and housing conditions X X

1.13 Management systems X X

vii

Table 7: Economic requirements

FLO FLO Made-By Kuyichi H&M

2. ECONOMIC Small Farmers Trader Trader Supplier Supplier

General 2.1 Fairtrade Premium X 2.2 Export Ability X

Trade

2.3.Establish business in The Netherlands X

2.4.Establish factory in (Eastern) Europe X

Trade Standards 2.5 Product Sourcing X 2.6 Procure a Long Term and Stable Relationship X 2.7 Pricing and Premium X 2.8 Pre-financing X 2.9 Information rights and obligations X

2.10 Quality X X

2.11 Certification and auditing fees

X X X X

Table 8: Environmental requirements

FLO FLO Made-By Kuyichi H&M

3. ENVIRONMENTAL Small Farmers Trader Trader Supplier Supplier

3.1 Impact Assessment, Planning and Monitoring X 3.2 Control of chemicals X X 3.3 Waste X X 3.4 Fire X 3.5 Genetically Modified Organisms (GMO) X

3.6 Organic cotton X X

viii

6.2 Remarks on critical requirements

This section comments those requirements from Tables 6-8 that are critical for CoopNatural

based on its evaluation to be presented in next section. In brief, FLO covers environmental,

social and economic issues. Regarding H&M and Made-By, the latter is more complex in the

social group due to the managements systems that it requires. They are equivalent in economic

requirements, but H&M has no costs of certification. H&M demands more environment friendly

practices, although Made-By is ahead with organic cotton.

Social requirements

Members are Small Producers (requirement 1.2 in Table 6): At least 50% of the cotton must

be produced by small farmers. The definition of small farmers is based on indicators like total

cultivated area, cotton area, no contracting of permanent workers, number and tasks of

temporal workers, main income from coming from agricultural activity, producer’s

involvement in the farm work, living on or nearby the farm. Since most of the cotton of

CoopNatural nowadays is produced be a non-small farmer, i.e. a farmer with hired labour.

This emphasizes the importance of the new partnership with the group of small farmers

“Arribaçã” (see Organisation in section 4.2.2).

Democracy, Participation and Transparency (requirement 1.3 in Table 6): After one year of

certification: the participation of small farmers within the organisation of producers is

supposed to increase gradually. As most small farmers are either illiterate or low educated, this

will require some effort.

No disciplinary practices (requirement 1.6 in Table 6): No kind of disciplinary practice is

allowed. Surprisingly enough, the requirements of FLO for small farmers does not refer to it.

In any case, punishment or any kind of harassment is absolutely not practiced within

CoopNatural.

Remuneration (requirement 1.9 in Table 6): FLO and Made-By require that liveable wages are

paid. Local independent institutions check whether the local minimum salary defined law is

really enough to cover the basic needs of the employee (=food+school+health+10%). If that

is the case, the salary should be increased to the minimum level indicated by the institution.

H&M talks about minimum wages but does not go beyond the minimum wages by law as the

others do. This requirement will not impact on CoopNatural. All employees are earning at

least minimum wages defined by law which is also above liveable level.

ix

Management systems (requirement 1.13 in Table 6): Policies and systems must be in place to

ensure that the cooperative operates according to the norms (and eventually its suppliers as

well). This requirement will demand much effort from CoopNatural to have these systems in

place. It will need one extra dedicated personnel to be in charge of this.

Social Indicators: the first social impact

Social Indicator in this context is a certificate granted by a third-party auditing company proving

that the certified company complies with a set of social norms. Both FLO and Made-By require

trade companies in the production chain to present a social indicator. So in fact, except for FLO

Small Farmers and H&M, the social requirements in Table 6 are the requirements by a Social

Indicator. Made-By accepts either SA8000 or Fair Wear as social indicator. Among the social

indicators accepted by FLO, SA8000 or Model Code are applicable in the case of CoopNatural.

A copy of SA8000 and Fair Wear are available in Annex XIII. Model Code is included in FLO

requirements in Annex XII.

-Made-By requests a social indicator only to the sewing companies in the production chain.

SA8000 was considered in the calculations because Fair Wear does not operate in Brazil. FLO

requests it to each trading company in the production chain. Model Code was chosen since it is

less expensive than SA8000. Besides this, complying with the social requirements of Model Code

will be nearly as much beneficial for CoopNatural as SA8000 would be. This comparison

between Model Code and SA8000 is explained in Annex XIV.

Complying with this requirement implies in high costs for the cooperative. Although

CoopNatural would not have major difficulties to comply with the requirements, it can not

afford acquiring this certificate for each trade company within its production chain (see Figure 6).

In order to reduce most of these costs, CoopNatural will have to exclude some of its members

and third-parties from this process. This means a major social impact that will have to be

considered. According to the cooperative, operationally speaking it could operate with only 4 out

of 8 sewing companies, and without the Groups of Artisans and Other Manufacturers. This

would lead to a minimum scenario of 11 trade companies, which has been considered for the

calculation of Table 12 (section 6.4).

Economic requirements

Establish business in The Netherlands (requirement 2.3 in Table 7): As Made-By operates only

in The Netherlands (and in some northern European countries in the near future)

x

CoopNatural would have to set up either a distributor or a shop in one of these European

countries. It would demand the maximum level of effort from CoopNatural to implement it.

Establish factory in (Eastern) Europe (requirement 2.4 in Table 7): Brazil is not any of the

markets that H&M is working with. CoopNatural would have to become a European supplier

of textile. So it would have to set up a sewing factory in Europe (probably in Eastern Europe

to reduce costs). It would also demand maximum effort, and costs would be even higher than

in case of establishing business in The Netherlands required by Made-By.

Pricing and Premium (requirement 2.7 in Table 7): FLO establishes minimum price and

premium paid to seed cotton producers. The current numbers for organic cotton in Brazil are:

price (per kg) = US$ 0.58; premium (per kg) = US$ 0.06. This would not have any negative

impact on CoopNatural as it is currently paying more than minimum values defined by FLO.

Environmental requirements

Control of chemicals (requirement 3.2 in Table 8): FLO specifies norms to control the use of

agrochemicals. H&M refers to control in the rest of the production chain. FLO requirements

are not applicable to CoopNatural because they are already doing organic. H&M’s

requirements for the rest of the production chain will demand some effort from the

cooperative.

Waste (requirement 3.3 in Table 8): H&M goes beyond simple control regarding hazardous

waste. FLO is focused on organic waste. Both are not applicable for CoopNatural as it does

not produce hazardous or organic waste.

Fire (3.4): FLO allows use of fire only in case it is the best option from the ecological point of

view and in case it is not dangerous for people. It is not applicable for CoopNatural.

Genetically Modified Organisms (GMO) (requirement 3.5 in Table 8): FLO does not allow

any use of GMO. It is not applicable for CoopNatural either.

Organic cotton (requirement 3.6 in Table 8): Made-By is the only one that has organic cotton

as requirement, although not as a minimum requirement. It is not compulsory at start point,

but the company would have to show the intention to convert to organic gradually.

xi

6.3 CoopNatural's evaluation on requirements

The evaluation of CoopNatural on requirements follows in Tables 10-12. Notice that yet in case

of Effort=0 the benefit was considered, as to reward previous investments of CoopNatural.

Table 9: CoopNatural’s evaluation on Social requirements

EVALUATION

SOCIAL CRITERIA Effort Cost Benefit

0 - 4 € 0 - ... 0 - 3

General 1.1 Fairtrade adds Development Potential 2 € 190 3 1.2 Members are Small Producers 1 0 1.3 Democracy, Participation and Transparency 2 € 1.900 2 1.4 Non-Discrimination 0 3

Standards on Labour Conditions 1.5 Forced Labour and Child Labour 0 2

1.6 No disciplinary practices 0 2 1.7 Freedom of Association & Collective Bargaining 0 1

1.8 Conditions of Employment 0 1

1.9 Remuneration 0 2

1.10 Working hours 0 2 1.11 Occupational Health and Safety 0 2 1.12 Factory and housing conditions 0 1

1.13 Management systems 3 € 4.560 2

Table 10: CoopNatural’s evaluation on Economic requirements

xii

EVALUATION

ECONOMIC CRITERIA Effort Cost Benefit

General 2.1 Fairtrade Premium 0 3 2.2 Export Ability 0 1

Trade

2.3.Stablish business in The Netherlands 4 € 100.000 1

2.4.Stablish factory in (Eastern) Europe 4 € 115.000 1

Trade Standards 2.5 Product Sourcing 1 € 380 1 2.6 Procure a Long Term and Stable Relationship 1 € 380 1 2.7 Pricing and Premium 0 2 2.8 Pre-financing 0 1 2.9 Information rights and obligations 0 1

2.10 Quality 1 € 3.800 3

xiii

Table 11: CoopNatural’s evaluation on Environmental requirements

EVALUATION

ENVIRONMENTAL CRITERIA Effort Cost Benefit

3.1 Impact Assessment, Planning and Monitoring 3 € 7.600 2 3.2 Control of chemicals

-Farms 0 2 -Rest of production chain 1 € 3.800 2

3.3 Waste 0 2 3.4 Fire 0 1 3.5 Genetically Modified Organisms (GMO) 0 1

3.6 Organic cotton 0 3

6.4 Costs

Table 12 summarizes the total costs of fees. FLO is first divided in two columns to make a clear

distinction between the fees for Farmers and Traders. The figures are based on current fees

charged by fair trade organisations and auditing company.

xiv

Table 12: Cost of certification and auditing

Annex XVII explains how these figures were calculated.

6.5 Complementary criteria: Increase in Sales and Time

Table 13 presents the estimations for increase in sales volume and how long the transition

process would take in each alternative. Annex XVIII explains how these figures were calculated.

The increase in sales referred here are regarding sales of end products. Certifying the farmers

would not increase their revenues since the minimum amount to be paid per ton of cotton plus

the premium, both stipulated by FLO, are below what is currently being paid at CoopNatural.

FLO Farmers

FLO Traders

Made-By Kuyichi H&M

Certification and auditing (2.11) -First application fee € 250 -Initial fee 1st grade € 1.400 -Additional costs € 825 -Extra travel and accommodation costs

€ 0 -First application fee € 800 -Annual trade certification fee € 2.600 € 2.500 -Social indicator: Model Code € 8.800 -Social indicator: SA8000 € 16.720 € 16.720 -Present social indicator € 2.200 -Additional costs € 0 -Travel and accommodation costs € 2.050

€ 2.475 € 16.450 € 19.220 € 16.720 € 0

TOTAL: € 18.925 € 19.220 € 16.720 € 0

FLO Made-By Kuyichi H&M

xv

Table 13: Complementary criteria

FLO Farmers

FLO Traders

Made-By

Kuyichi

H&M

Increase in sales -Expected sales volume (t-shirts per year) 24.700 500000 50.000 300.000

-Expected increase in sales volume 30% 2632% 263% 1579%

Time invested (in months)

4,0 0,5 0,5 0,5 9,0

These data were consolidated to form the Facts Table as explained in Methodology (section

2.2.3.1). The main macro conclusion than can be extracted at this stage is that the set of

requirements for Small Farmers will have a higher impact on CoopNatural than the one for

Traders, both in terms of Benefit as in Cost and Effort, as clearly illustrated in Table 14.

Table 14: Impact of FLO requirements on CoopNatural

FLO Small Farmers FLO Traders

Total Effort 15 0

Total Benefit 34 15

Total Cost

(fees + other investments)

€ 31.925 € 16.450

6.6 Facts Tables for Multi Criteria Analysis

Table 15 is the Facts Tables, the basis of the Multi Criteria Analysis in next chapter. It should be

noticed that data regarding FLO Small Farmers and FLO Traders are now consolidated as FLO.

It summarizes total effort to comply and total benefits from complying with each group of

criteria (i.e. Economic, Social and Environmental). It also totalises costs with fees and auditing,

and other adaptation costs. Finally it includes the estimations made for increase in sales and time.

xvi

Table 15: Facts Table

CRITERIA FLO Made-By Kuyichi H&M

1 Economic 1.1 Effort to comply 2 4 1 4 1.2 Benefits from complying - Increase in sales (%) 30% 2632% 263% 1579% - Other economic benefits 10 1 3 3 1.3 Costs - Fees and auditing (€) 18.925 19.220 16.720 0 - Other investments (€) 10.450 104.560 8.360 118.800 2 Social 2.1 Effort to comply 5 3 3 0 2.2 Benefits from complying 29 16 16 15 3 Environmental 3.1 Effort to comply 5 0 0 1 3.2 Benefits from complying 10 3 3 4 4 Time duration of transition process (in months) 4,5 0,5 0,5 9,0

xvii

Ao meu pai

Não pode ter sido coencidência.

Recebi sinal verde para encarar este desafio

um dia antes de você adoecer.

Lutei pelos meus ideais,

e você bravamente por sua sobrevivência.

Encontramos ao mesmo tempo novos caminhos,

cada qual em uma nova vida!

Esta conquista eu dedico a você, meu pai

sempre tão dificil

e pra sempre tão nosso pai.