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Free-trade labeled goods extremely profitable for some supermarkets

The following is an excerpt from an article that appeared June 9, 2004 in the The Wall Street Journal.

What Price Virtue?
At Some Retailers, 'Fair Trade' Carries A Very High Cost
Stores Charge Big Markups On Goods Intended to Help Farmers in Poor Countries
Bananas at $2.74 a Bunch
June 8, 2004
Page A1

At a Whole Foods Market in suburban Boston, the coffee aisle recently was lined with leaflets promising to donate 5% of sales to growers. Labels proclaimed that beans were "purchased in accordance with international fair trade standards." Pamphlets asked: "Is your coffee fair to farmers?"

The materials reflect a growing international campaign to pay struggling farmers in poor countries more than market rate for commodities like coffee, bananas and chocolate. The extra cash has helped thousands of farmers fund education, health-care and training projects, among other things.

But as "fair trade" catches on in the U.S., Europe's experience shows that the biggest winners aren't always the farmers -- but can be retailers that sometimes charge huge markups on fair-trade goods while promoting themselves as good corporate citizens. They can get away with it because consumers usually are given little or no information about how much of a product's price goes to farmers. In the case of Whole Foods, the 5% promise doesn't refer to the retail price, as shoppers might assume, but a different amount the company pays its coffee unit. (See related article.)

Paying More

Sainsbury's, a British supermarket chain owned by J Sainsbury PLC, has sold fair-trade bananas at more than quadruple the price of conventional bananas -- and more than 16 times what growers receive. Tesco PLC, another chain, recently tacked on $3.46 per pound for fair-trade coffee while the grower gets about 44 cents above the world market price.

"Supermarkets are taking advantage of the label to make more profit because they know that consumers are willing to pay a bit more because it's fair trade," says Emily Dardaine, fruit-product manager at Fairtrade Labelling Organizations International, or FLO, a Germany-based federation of fair-trade groups.

Both British chains say they aren't exploiting fair-trade products to their own advantage. In some cases, after being asked about their margins, retailers cut their prices.

Last year, global sales of fair-trade goods -- everything from nuts to wine -- surpassed $700 million. Strong sales in Europe have caught the attention of U.S. companies, including Starbucks Corp., Procter & Gamble Co. and Dunkin' Donuts, which have all begun offering fair-trade coffee.

This article is available to Wall Street Journal subscribers. Because this is a subscription based article I cannot post the full text here.

Copyright Rhett Butler 2003