Download Mainstreaming Fair Trade: A Discussion through the Lipton Tea Case

Mainstreaming Fair Trade: A Discussion
through the Lipton Tea Case
Sylvaine Poret
••
Social and environmental externalities of production, such as pollution or overexploitation of natural resources, and other market failures, like competitive disadvantages of some small producers, are issues wellknown by many citizens living in the northern hemisphere. And the latter want to integrate these concerns
in their daily acts. Indeed, a demand for sustainable products and services has appeared in developed
countries for several decades. Thus, on the one hand, some consumers living in developed countries want
to buy certain types of products which have sustainable attributes either embodied in the good or in the
processes and methods used to produce and trade it. On the other hand, there are some producers, notably
in developing countries, who would like the opportunity to produce and market in developed countries
products with this kind of attributes. These different desires can create an incentive for more sustainable
methods of production and trade. Fair trade is a good illustration of this view, since fair trade products link
ethically minded consumers in the northern hemisphere with small producers in the southern hemisphere.
Manufacturers and retailers are the link between producers and consumers. Therefore, they can supply
products with sustainable attributes. This induces two related analyses in terms of strategic choices for
suppliers in the framework of the theory of industrial organization. First, in order to gain market power or
to avoid head-on competition, firms already well established in the market can choose among other competitive strategies product vertical or horizontal differentiation. The supplied product distinguishes itself from
others by its quality or some specific characteristics or attributes. This might also allow the manufacturer
to sell his product at a higher price or to create a niche market. Sustainable products are thus attracting
interest for business. Second, sustainable goods have attributes that consumers cannot evaluate even in use.
For example, consumers cannot inspect particular produce items and determine whether they were grown
organically or whether they are the result of biotechnology. This type of product is called credence good.
When a firm wants to promote a credence good, it has to offer a warranty. Certification systems involve
specified standards, verification procedures, certification, and very often labels. Labels are visible means to
signal to consumers on the products that they have met a standard required.
This global context has created the proliferation of voluntary sustainability standards and labels, developed
by business and suppliers in northern countries. More generally, four major agro-food related movements
have emerged in the fields of sustainable development: organic agriculture, integrated agriculture, fair trade,
and ethical trade. In a market research study conducted by Nielsen (2007) in July 2007 in Great Britain,
33% of survey respondents answered that they actively tried to buy fair trade products, whereas 21% actively tried to buy ethically produced or grown products, 57% tried to buy local products and 17% tried to
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buy organic products. Murdoch et al. (2000) note that fair trade and organic certifications represent the
most important of third-party systems and generate new fields of power in agro-food chains.
Fair trade has experienced rapid growth over the past twenty years, both in terms of the quantity and range
of products sold. This is due to the fact that fair trade goes mainstream through its certified channel in
mainstream manufacturers and retailers (Raynolds, 2009). For instance, Starbucks, Sara Lee, Nestlé, and
McDonald’s have in recent years all began selling fair trade certified coffee, the flagship product of this approach. This fair trade development with a mainstreaming-as-product certification provokes a debate within
the fair trade movement, due to an opposite point of view between some militants of fair trade organizations
and the leading fair trade certifier, FLO (Fairtrade Labelling Organizations).
The fair trade concept is usually defined as an alternative approach to the traditional trade (Renard, 2003;
Moore, 2004). It defines itself as “a trading partnership, based on dialogue, transparency and respect, which
seeks greater equity in international trade. It contributes to sustainable development by offering better trading conditions to, and securing the rights of, marginalized producers and workers - especially in the South.
Fair trade organizations (backed by consumers) are engaged actively in supporting producers, awareness raising and in campaigning for changes in the rules and practice of conventional international trade” (source:
FINE website, 2003). Fair trade has been integrated in the sustainable development movement since 1990
and, according to Lecomte (2003): this has allowed a large diffusion of the problem of unfair trade relations
in the public opinion. Generally, the purpose of fair trade approach is triple: ( i) to help producers from the
South to improve their living conditions, (ii) to increase consumers’ awareness of unfair trade conditions
for small farmers, and (iii) to transform international trade relations. This last aim can be viewed as the will
to change the mainstream market relations.
In May 2007, Unilever, the world’s largest tea company, announced plans to source its entire tea supply
sustainably. It is clearly a mainstreaming strategy where all tea would be sustainable. To our knowledge,
Unilever is the first multinational company whose objective is to convert a leading brand, Lipton, with its
entire product line, in all over the world, to sustainability. After having examined different possible forms of
routes, alliances and existing certification schemes, in particular Fairtrade (FLO) and UTZ certified, Unilever approached the international NGO Rainforest Alliance whose aim is to conserve biodiversity and ensure
sustainable livelihoods by transforming land-use practices, business practices and consumer behavior. The
first certified tea was available in August 2007 to restaurants and the catering trade in Europe.
The aim of this chapter is to describe and comment how Unilever has implemented a CSR mainstream strategy with one of its leading brand, Lipton, in association with a NGO, the Rainforest Alliance. Given the
product, tea, its production sites, and the issues raised by its production and trade, the natural certification
about which one is thinking for the Lipton tea is fair trade. That is why we will present the Lipton-Rainforest Alliance case in the light of the fair trade concept, all the more so the question of mainstream companies
and fair trade practises is relevant and weighty.1
The chapter proceeds as follows. We start our analysis by introducing the fair trade concept and outlining
one of the main debates taking place about its challenges, mainstreaming fair trade. This is followed by a
presentation of the tea market and the partners committed in the studied case, Unilever with Lipton tea and
the Rainforest Alliance. Then, we describe the alliance between the international company and the NGO
1. Lower case letter, fair trade, refers to the global movement and Fairtrade (one word, Capital F) refers to the standards associated with
Fairtrade Labelling Organizations International (FLO-I) certification.
Mainstreaming Fair Trade : A Discussion through the Lipton Tea Case • 191
in terms of strategic decisions, operational decisions and communication. Finally, we conclude by some
remarks and opened questions.
The Fair Trade
Due to its birth and evolution, two different systems coexist in the fair trade movement: the integrated or
organization channel and the certified or product channel (Hira and Ferries, 2006; Poret, 2007). There are
some tensions between the actors of these two lines.
The Two Main Channels
Fair trade, initially named alternative trade, started in the late 1960s in Europe as a grassroots movement.
The aim was to alleviate poverty in the South by building direct, sustainable relationships with disadvantaged producers and providing fair access to markets in the North, using a strategy of “trade, not aid”.
Several Non-Governmental Organizations (NGO) created a parallel retail network with specialty stores
managed as cooperatives and staffed by volunteers.2 Thus, the historic system is fair trading networks, which
sell food products and handcraft through specific distribution channels. This original channel is based
on direct importing and retailing. Many fair trade organizations have been brought together under the
World Fair Trade Organization (WFTO, formerly the International Fair Trade Association) with about 330
members from 70 countries. In 2004, at the World Social Forum in Mumbai, India, the FTO Mark was
launched. It is an organization label that identifies and gives global recognition to fair trade organizations.
The latter are “mission-driven” organisations whose core activity is fair trade. This means that standards are
being met regarding working conditions, wages, child labour and the environment. These standards are
verified by self-assessment, mutual reviews and external verification. This integrated channel system has limited expansion, with sales currently valued at about US$ 193 million per year (Raynolds and Long, 2007).
In 1988, a Mexican cooperative of coffee producers, who requested help in marketing their products in
Europe, and a collaborator of a Dutch NGO, conceived the idea of a fair trade certification (Renard, 2003).
Products bought, traded and sold respecting fair conditions would qualify for a label that would differentiate
them from ordinary products on store shelves. Thus was born the “Max Havelaar” label in the Netherlands,
the first fair trade certification label.3 In the late 1980s, similar non-profit fair trade organizations began
labelling fair trade products to facilitate their entry into conventional markets in other countries (Raynolds,
2000). Indeed, this product certification system allows any company to get involved in fair trade, even if this
approach concerns a small part of its activity. In 1997, the creation of the Fairtrade Labelling Organizations
(FLO) put many of these labelling initiatives under one umbrella. FLO is now responsible for setting international Fairtrade standards for certifying production, trade and labelling of a number of products. Thus,
the second strand of fair trade is the certified channel with the main certification system FLO. It allows for
mass consumption through mainstream distribution channels. Many fair trade certified products can be
found on the shelves of supermarkets in Europe, North America, and Japan. Fairtrade certified products
sales were up to 2.3 billions euros in 2007 with a number of certified producer organizations around 630
and are growing at 42% per year (source: website of FLO-I, http://www.fairtrade.net).4
2. Examples include Oxfam and Twin Trading (Great Britain), Stichting Ideele Import (the Netherlands) or Artisans du Monde (France).
3. Fairtrade label is called Transfair in Germany, Canada, and Japan, Fairtrade in Great Britain, and Max Havelaar in the Netherlands
and France.
4. The FLO-I follows the requirements of ISO65, the leading, internationally recognized quality norm for bodies operating a product
certification scheme.
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Figure 1: fair trade channels (source: Ballet and Carimentrand, 2007)
The Fairtrade Certification
At the Contrary of the other certification schemes, which focus strictly on conditions at the point of production, Fairtrade certification is unique since its criteria cover both trade and production conditions (Raynolds, 2000). In a practical way, fair trade movement attempts to eliminate the middlemen in the agro-food
chain and guarantee a higher price to small producers. More precisely, small scale farmers/producers can
only be certified Fairtrade if they are organized into cooperatives, associations or other organizational entities which are democratically controlled and contribute to the social and economic development of its
members. They must adopt environmentally sustainable agricultural practices and production of quality.
Trading standards stipulate that importers have to pay producers a price that covers the costs of sustainable
production and living, and a premium that small producers can invest in development. As importers can
pay a part of the production in advance when the producers ask for it, the latter can purchase the necessary
raw materials to complete an order without falling into debt. Finally, traders must establish long-term working relationships and contracts with producers.
The main focus of fair trade is on agriculture and handicraft products, but only agricultural products more
or less transformed can be labelled: coffee, cocoa, tea, honey, sugar, rice, bananas, fruit juices, etc, but also
flowers and sport balls. Product specific standards for each good that determine minimum quality, price,
and processing requirements that have to be complied with, are determined and reviewed by FLO-Cert. For
instance, Fairtrade coffee producers are guaranteed to earn at least US$1.21 per pound plus a premium of
US$0.05. If the coffee spot price is higher than the minimum price, importers pay a premium of US$0.05
per pound more. Certified organic coffee gets a further premium of US$0.15 per pound. In 2002, the difference between the Fairtrade price and the New York “C” price for Arabica coffees was equal on average to
nearly US$0.72 per pound (Giovannucci, 2003).
Mainstreaming Fair Trade : A Discussion through the Lipton Tea Case • 193
More and more consumers are aware of the concept of fair trade and surveys show that they are willing to
pay a higher price for a product that meets fair trade criteria. In Germany, about 37% of the population is
willing to pay a higher price for coffee if the benefits are guaranteed to be distributed to the producers in
developing countries. In addition, 40% of Germans believe fair trade is a good idea and 11% already buy
TransFair labelled tea or coffee, although their respective market shares are no more than respectively 2%
and 1% (EFTA, 2001). To avoid the declarative effect, Loureiro and Lotade (2005) use contingent valuation techniques to estimate consumer willingness to pay for the fair trade attribute. The authors find that
85% of consumers are willing to pay a positive premium for fair trade coffee, with the average consumer
willing to pay 21.64 cents per pound more for fair trade coffee than for conventional coffee. The fair trade
coffee consumption grew 79% between 2000 and 2001 in the United States and is continuing to rise. Furthermore, 30% of the coffee labelled as fair trade is also organic coffee (Raynolds, 2002).
Fair Trade Debate
In spite of its success, fair trade coffee, the flagship product of the concept, accounts for only 0.34% of the
total coffee production, and coffee farmers’ groups sell no more than 20% of their production to Fairtrade
importers (Renard, 2005). This indicates that the development of fair trade is constrained on the supply
side by a lack of the market opportunities.5 Introduction of fair trade products in big retail chains is one way
to alleviate this constraint by increasing the consumers’ awareness and availability. This is the subject of an
internal debate to fair trade organizations between integrated channel advocates and those who promote the
product channel. For the latter, large scale distribution is the way to develop fair trade in terms of knowledge
and quantity (Poret and Chambolle, 2007). However, for other organizations, given their market dominance, large retailers impose unfair conditions and have bad practises in relation with suppliers and workers.
Also, such organizations avoid large retailers run by multinationals, which are seen as “part of the problem
that fair trade is trying to fight against”. It seems that there is an antagonism between two objectives of
fair trade approach. On one hand, helping excluded and disadvantaged producers to access international
markets in fair conditions is a practical aim. On another hand, changing international trade relations is an
ideological aspiration (Poret, 2007). It seems to appear a conflict between markets and principles.
In spite of this internal controversy, fair trade products have become incontrovertible in the shelves of supermarkets, as well as in its growing presence in workplaces, restaurants, institutions. They account for 56,700
of the 78,900 points of sale for Fairtrade products in 25 European countries (Krier, 2005). This is in a large
part due to the fact that conventional retailers have rapidly offered their own private label fair trade certified
products. Brand manufacturers such as Procter & Gamble, Kraft, and Nestlé have more recently begun to
launch some fair trade coffees. Thus, fair trade products stand out among ordinary products on store shelves
through different forms: “mission-driven” FTO brand products supplied by firms whose activity is exclusively fair trade oriented, with a strong commitment to fair trade values, and with the Fairtrade label (Cafédirect, Alter Eco, Equal Exchange); “quality-driven” firms which sell a large share of their production as
Fairtrade certified, share fair trade alternative ideas and practice with mainstream conventions (Malongo);
retailers’ own label products with a fair trade label (Tesco, Costco, Carrefour, Monoprix); conventional
company’s certified products (Procter & Gamble, Nestlé). The conventional manufacturers and retailers are
“market-driven” buyers (Raynolds, 2009). Thus, the debate moves from the sale in large-scale distribution
to mainstream companies’ involvement in fair trade.
5. A French survey (Alter Eco, 2004) found that 39.1% of the respondents never bought fair trade products because of lack of information
and 36.7% because they are not aware of retail outlets offering fair trade products.
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This debate raises several concerns among some fair trade militants. Firms which offer Fairtrade certified
products pay license fees to FLO-National Initiatives in order to use the Fairtrade label/logo. These fees
represent a revenue source for them and FLO. Because of their large market share, volumes traded and sales
made, large mainstream companies are the largest revenue-raisers. This creates a dangerous dependency
between FLO and these conventional firms. In addition, some mainstream companies have created certification systems in association with NGOs or certification organisations. This proliferation of different certification systems and logos (Fairtrade, Bio-équitable, Rainforest Alliance) generates a risk of confusion for
consumers and of credibility loss for firms. Moreover, this abundance creates a competition between labels.
In this case, the risk is that “the bad label drives out the good one”, that is, the certification system with less
stringent and less costly standards becomes the leader on the market and the benchmark.
According to fair trade organizations, these phenomena induce the capture of fair trade by mainstream
conventional companies and a risk of “identity loss” for fair trade in ideas and practices. These original organizations criticize multinational companies for using fair trade as a niche market in a greenwashing strategy.
The Market and the Actors
In this section, before presenting the Unilever approach, we will present the international tea market and
the actors of the alliance: the multinational company Unilever and the NGO Rainforest Alliance.
The Tea Market
Tea is a popular beverage around the world. Production and consumption are steadily increasing. In 2004,
total production of tea in the world amounted to almost 3.2 million tonnes, with more than 2.4 million
hectares of land. The main tea leaves-producing countries are India, China, Sri Lanka, Kenya, Indonesia,
and Turkey. Tea grows in tropical and subtropical countries and several developing countries are highly
dependent on tea for their export earnings (Oldenziel and Otten, 2006).
Figure 2: Tea supply chain
Mainstreaming Fair Trade : A Discussion through the Lipton Tea Case • 195
A large range of actors are involved in the tea supply chain (see Figure 2). The tea value chain is characterized
by strong vertical integration, and the market is highly concentrated at several levels of the chain; 85 % of
world production is sold by multinationals. This explains the substantial hold the major tea companies have
on the entire production process, from tea shrub to tea bag. The major players in world tea production are
the following:
– Kenyan Tea Development Agency Limited KTDA Ltd is the biggest producer of tea leaf in Kenya and
the second largest exporter in the world;
– Tata Tea is the India’s biggest plantation company with a large market share in Asia;
– Williamson Magor (India) owns large estates in India, but also in Africa;
– J.Thomas is the largest tea brokerage in the world;
– Unilever (UK/The Netherlands);
– James Finlay (UK) is a manufacturer of tea producing in Kenya, Bangladesh and Sri Lanka, packaging
and sales company.
In the production chain, the value addition only occurs at later stages. Blending and packaging are the
most lucrative activities of the tea trade.6 They are mostly done by established tea companies in buyer
countries, such as Unilever, Tata Tea, Hillsdown Holding, Sara Lee International, Teekanne, Twinings, and
Ostfriesche Teegesellschaft. Therefore, large value added steps do not accrue to the tea producing countries.
At the global level, four companies dominate the tea trade: Unilever, Van Rees (trader/blender, supplying
many packers), James Finlay, and Tetley/Stansand (UK), part of Tata Tea. The concentration is such that
the top three companies have a 60% share of the market in the United Kingdom, 67% in Germany and
66% in Italy (Stamp, 2001). Since an important part of the global production of tea is traded at auctions,
their market power is a major determinant at tea auctions.7 With their buying policy, these firms strongly
influence both price movements and the demand for certain qualities of tea.
Due to a substantial diversity in the quality, tea prices show great variations. But tea industry has been
suffering for many decades from a persisted oversupply situation and falling prices. The real price of tea
has fallen by at least 15% since 1980 (Oldenziel and Otten, 2006). This product has become a commodity.
Oversupply is maintained by governments of producing countries who subsidise tea farmers. In addition,
these last years, the weakness of the US dollar against local currencies and the significant reduction of
inflation rates in tea producing countries have reduced the income in local currencies in these countries.
All these factors contribute to the farmers’ revenues decrease (Oldenziel and Otten, 2006). This situation
would not change much in the future. According to the FAO (Food and Agricultural Organization of the
United Nations), the expansion of tea production could substantially exceed the growth in consumption in
the coming ten years.8
Unilever
Unilever, an Anglo-Dutch company, was formed in 1930 by the merger between British soap maker Lever
Brothers and Dutch margarine producer Margarine Union. It has become a leading manufacturer and marketer of consumer packaged goods brands in foods, beverages, cleaning agents, and personal care products.
Nowadays, Unilever is one of the world largest consumer goods companies. It employed 174,000 people
in around 100 countries worldwide and had a turnover of €40.5 billions in 2008. Unilever is a company
6. In Europe, 30 to 50% of the consumer price of tea goes towards blending, packing, packaging materials and promotion (Stamp, 2001).
7. Nowadays, the main auction centres are in India (Kolkata and Kochi), Sri Lanka (Colombo) and Kenya (Mombasa).
8. Source : FAO, May 14th 2008, http://www.fao.org/newsroom/en/news/2008/1000836/index.html
196 • Sylvaine Poret
with complex and diverse supply chains, and an increasing presence in the developing country markets.
It is to note that 65% of Unilever’s raw materials are agricultural crops, growing in developing countries.
Unilever is the world’s largest tea company, and Lipton is the world’s favourite tea brand. Unilever acquired
the worldwide Lipton tea business in 1972. Lipton is the global market leader in both leaf and ready-todrink tea, with a global market share nearly three times larger than its nearest rival (source: Unilever website
http://www.unilever.com).
Unilever has attracted a variety of criticisms from political, environmental and human rights activists. For
example, it has been criticised by Greenpeace for causing deforestation, for testing products on animals by
People for the Ethical Treatment of Animals, and for making use of child labour. Unilever was targeted in
2008 by Greenpeace UK, which criticized the company for buying palm oil from suppliers that were damaging Indonesian rainforests. Unilever was accused of killing off the last remaining orangutans on the planet
but also of derailing international efforts to tackle climate change. A recent expose of appalling working
conditions (secure employment, a living wage, health and retirement benefits, and the right to join a trade
union with a collective bargaining relationship to their real employer) in Unilever tea factories in Pakistan
raises doubts about Lipton brand.
Unilever did not stay inactive under this outside pressure and CSR is playing an increasing role in its
operation. Unilever’s CSR reporting is oriented towards three main issues: the social impact of Unilever’s
products, principally on people’s health through nutrition and hygiene; the steps Unilever takes to minimize its environmental footprint and secure sustainable supplies of key raw materials; the role of corporate
operations in creating wealth and how this benefits stakeholders and local communities. Unilever has been
working on sustainability at its own estates since 1998. At this moment, it established the Sustainable
Agriculture Program to ensure continued access to critical agriculture raw material, with the idea of sustainability in the supply chain. Piloting started with five key crops (spinach, peas, tomatoes, black tea and
palm oil) and led to Good Agriculture Guidelines being issued for those crops. The indicators used in the
guidelines encompass environmental, social and human capital, value chain, and local economy measures.
Unilever, as a founding member of the Roundtable on Sustainable Palm Oil, created in 2002, responded by
publicizing its plan to obtain its palm oil from sources that are certified as sustainable. In 2005, Unilever
set out to understand how its brands impact on people and the environment in the areas where they are
sourced, produced, distributed, and used. In one of the sustainable development reviews (issued March
2009), Unilever explains the company’s Brand Imprint program. Its aim is to redefine brand value in order
to include an understanding of the impact of brands such as Lipton, Axe and others on socio-economic
development and sustainability. Brand Imprint is an inquiry process designed to bring CSR more fully into
core business strategy for consumer-facing brands, by a holistically approach. This approach provides a
structured process for brand teams to understand and assess how sustainability issues impact, and how they
are impacted by their products. Unilever’s executive team has selected Lipton as one of four flagship brands
(along with Dove, Lifebuoy, and Flora) and the first one to use this process.
Rainforest Alliance
The Rainforest Alliance is an independent New-York based NGO with a staff of 220 employees working
with individuals, communities and companies whose livelihoods depend on the land to reduce environmental impacts, and increase social and economic benefits. Rainforest Alliance certification involves a holistic approach, treating environment, ethics and economics equally. One aim of the certification program
is to enable growers to obtain higher prices for their tea, raising their incomes and enabling them to achieve
a better quality of life and standard of living on a sustainable basis. Rainforest Alliance Certified farms are
Mainstreaming Fair Trade : A Discussion through the Lipton Tea Case • 197
required to meet comprehensive social and environmental criteria. More precisely, the standards comprise
four levels.9 The following ten principles represent the general basis, the first level:
1. Social and environmental management system;
2. Ecosystem conservation;
3. Wildlife protection;
4.Water conservation;
5.Fair treatment and good working conditions for workers;
6. Occupational health and safety;
7. Community relations;
8. Integrated crop management;
9. Soil management and conservation;
10. Integrated waste management.
The second level gives details of standards for all crops and locations. Third, specific criteria for each crop are
listed. The fourth level allows the adaptation of standards to produce specificity and country characteristics
and laws.
Audits measure the degree of the farm’s conformity to environmental and social practices indicated in the
standard criteria. The Rainforest Alliance sustainable agriculture program oversees the certification of farms
that produce tropical crops, including coffee, bananas, cocoa, oranges, cut flowers, ferns, and recently tea
as a result of the alliance with Lipton. Once a minimum of 30 % of the raw material in the final product is
produced by a certified producer, the brand is allowed to display the Rainforest Alliance label on packaging
and advertising, depicted by a green frog.10 The flagship product of Rainforest Alliance is bananas and the
first cooperation with an international company is the partnership with Kraft on coffee certification started in 2003. Combined sales of Rainforest Alliance certified coffee, bananas and cocoa were estimated at
US$1.2 billion in 2007. This compares with global Fairtrade sales of all products of around US$3.6 billion
in 2007 (Ellis and Keane, 2008).
Rainforest Alliance sustainable agriculture certification, like the certification scheme UTZ Certified and
Organic, does not offer producers a minimum or guaranteed price; therefore leaving them vulnerable to
the market price variations. In the coffee market, the Rainforest Alliance label allows producers to obtain
price premiums of up to 15%. In 2005, a report by Ethical Corporation Magazine compared Fairtrade
and Rainforest Alliance certification programs, and it concluded coffee producers under the latter scheme
received 21% less for their crop than under Fairtrade. This explains why the Rainforest Alliance’s sustainable agriculture certification has been called “Fairtrade Lite” by some critics. However, in its defence, the
Rainforest Alliance is not a fair trade certifier per se, even if its principles are very close to fair trade ones.
The Unilever – Rainforest Alliance Alliance
In relation to the debate present in the fair trade movement about multinational companies, Unilever has
chosen a mainstream strategy. Indeed, the company aims to have all Lipton Yellow Label and PG Tips tea
bags sold in Western Europe certified as sustainable by 2010, and all Lipton tea bags sold globally certified
by 2015. In order to achieve this objective, Unilever has chosen a partnership with a non-profit organiza9. Source: http://www.rainforest-alliance.org
10. Fairtrade certification requires a minimum of 50% of the raw material in the final product in order to obtain the label.
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tion, the NGO Rainforest Alliance, that is, a cross-sector alliance. To our knowledge, it was the first time a
multinational company incorporated a sustainability approach into its core business strategy with a crosssector alliance. To present this choice, we use the Crifo-Ponssard’s view about the CSR instrumentation by
the firm on internal leverages: strategic decisions at several levels, operational decisions and communication
(Crifo and Ponssard, 2008).
A Cross-Sector Alliance
In order to help firms adopt CSR practices, different self-regulation instruments have appeared, including
codes of conduct, best practices, social and environmental performance standards and limits, social and
environmental management systems, instruments for certification and labelling, sustainable reporting and
monitoring, and transparency guidelines (European Commission, 2001). These different mechanisms can
be adopted individually or collectively through firms’ cooperation or through cooperation with other actors:
public-private and hybrid partnerships (NGOs, trade unions). This last kind of partnership is called crosssector alliance. In order to set up its CSR project, Unilever has several possible routes: extending its existing
programme in its own-estate in Kericho (Kenya), developing a new plan, or working with a third party.
Unilever has decided to create a partnership with a NGO, the Rainforest Alliance. For example Starbucks
has chosen a different option. Starbucks has developed an internal certification program unique to Starbucks, the Coffee and Farmer Equity Practices (CAFÉ) program, in order to ensure the gourmet quality and
traceability of coffee via detailed documentation of origins and producer practises, but there are no social or
environmental requirements (Raynolds, 2009).
In all of the recent reviews of the CSR literature, NGOs appear as potentially significant stakeholders. At the
same time, in practice, over the past two decades, one can note an increasing number of alliances between
corporations and NGOs in the context of CSR and sustainable development approaches. According to Gereffi et al. (2001), NGOs are the strongest and most legitimate certifiers, because they are able to coordinate
bodies which set and oversee compliance. This kind of partnership implies different steps of construction:
first, the establishment of standards; second, the development of regulatory frameworks; and, third, the
creation of evaluation mechanisms with external enforcement. Building an effective relationship between
entities with different forms, resources, and interests is not completely obvious. The initial conditions of a
good company-NGO partnership mentioned in the cooperative alliance literature are a self assessment in
the initiation stage, a careful consideration of partner choice, clear areas of competence for each partner,
resources sharing, good communication between partners at each level of the hierarchy, inclination to learning and teaching, evaluation of progresses and results (Googins and Rochlin, 2000; Arya and Salk, 2006;
Jamali and Keshishian, 2009). Samii et al. (2004) identify several success factors of a cross-sector alliance:
resource dependency, that is, the necessity of the partnership, commitment symmetry in terms of time and
resources, common goal symmetry, intensive communication, alignment of cooperation learning capability,
and converting working cultures through a mindset change in both the company and the NGO. According
to Arya and Salk (2006), a company-NGO partnership represents good opportunities for learning in the
novice field of CSR and finally, it can be a tool to more closely connect CSR and economic performance. A
successful collaboration can create a spillover and more efficiently allocate resources for the common good
(Jamali and Keshishian, 2009).
The increasing NGOs presence gives them a power to influence private sector behavior, both negatively, via
negative public attention and advocacy work, and positively. Strategic alliances give the non-profit sector
an opportunity to positively influence corporations by establishing productive partnerships. NGOs motivations for such collaboration with the private sector are, among others, the rise of the societal problems, the
Mainstreaming Fair Trade : A Discussion through the Lipton Tea Case • 199
difficulty to obtain fundings, the increase in their notoriety, and a better knowledge of the business sector
(Jamali and Keshishian, 2009). At the same time, as we have already explained for fair trade, this sharpens
the competition between NGOs for companies’ funding. There is a risk that business-NGO partnership
might lead to ‘NGO capture’ in the same way as the regulatory capture (Laffont and Tirole 1991; Arya and
Salk, 2006). NGOs face the challenge of maintaining independence and avoiding becoming manipulated.
The main factors that protect them from being capture by business are: evaluation mechanisms with external audit, relations with other business partners in order not to be financially dependent.
Brand Options
In practice, a multinational company has several options to drive a sustainability program on a mainstream
scale through a brand. Here, we mention four possible options. First, a firm can buy out an existing firm,
which distinguishes itself through a long-term commitment to social responsibility. Unilever chose this
strategy by buying out Ben and Jerry’s, a manufacturer of super premium ice cream, frozen yogurt and ice
cream novelties, in 2000. According to the company’s website, the company mission statement includes
three parts: economic, product, and social, with the aim of “being a global company and at the same time
being a progressive business that is connected to people and communities.”
The second option could be the extension of the product range in the context of a well-established brand.
Kraft has been working with the Rainforest Alliance since 2003 in order to create among others in France a
new coffee of the brand Jacques Vabre – “un café pour agir”. Under the terms of the agreement, Kraft funds
a technical assistance and training to improve living and working conditions on coffee farms, purchases
significant and increasing quantities of certified sustainable coffee to blend into its mainstream European
brands and stimulates consumer demand in Western European and U.S. markets through the introduction
of 100% certified products under existing trademarks. The product “un café pour agir” was a commercial
failure in France. Nowadays, Kraft sells one of the six products of the brand Jacques Vabre Rainforest Alliance certified, without particular name.
Thirdly, the creation of a new brand, identified as sustainable, is an alternative for an international company
to implement a CSR approach. In 2006, Danone created Stonyfield Europe, and marketed a new brand
of organic yogurts in France: “Les deux vaches”. Stonyfield Farm, the U.S. partner which holds 20% of
Stonyfield Europe, gives 10% of its profits to environmental causes. The European market for organic dairy
products is growing, but it still has a fairly discreet presence. With Stonyfield Europe, Danone hoped to
capitalize on the success and unique expertise of Stonyfield Farm to speed up its development. This is an
example of private sector alliances whose underlying motives are market positioning, business performance,
and bottom line growth.
Finally, a firm can decide to convert an exciting leading brand. This is the choice of Unilever with a leading brand Lipton. Another example is Nestlé with its brand Nespresso. In 2003, the worldwide leader in
highest-quality premium portioned coffee worked with the Rainforest Alliance to improve the performance
in terms of quality and sustainability, by developing its own standards: the Nespresso AAA Sustainable
Quality Coffee Programme. Nespresso aims to source 80% of its coffee through its unique AAA Sustainable
Quality Program and Rainforest Alliance certified farms in 2013. The Rainforest Alliance logo, the green
frog, does not appear on the packaging and is not used in communications.
200 • Sylvaine Poret
Market Strategic Decisions
The initial situation as revealed by Unilever was the following: first, it was necessary to secure its source of
supply by a long-term partnership. Indeed, a significant proportion of the crops are bought on the world
commodity markets, where there is little control over their source and how they are grown. The overproduction of tea leaves and the quality fall have led to the tea price drop. When prices are low, farmers need
to cut costs to survive, which in turn risks environmental protection and labour conditions, but also some
high-grade tea producers may disappear. For Unilever, the inflow on the market of low quality and inexpensive tea from China and Vietnam potentially decreases the return on investments realized in higher grade
tea production in Kenya. As Unilever owns some plantations which produce only a small part of its total
requirements (10%), it needs to convert a lot of small producers to its approach.
The second objective for Unilever was to rebuild Lipton’s market share and to recover the additional supply
cost through sales growth. In a context of low rise of the consumption in its markets, Lipton has had to
reach the market shares by generating a surplus value on its products through differentiation. The important
point for Unilever is to not increase the product final price as well as paying a premium to tea farmers. The
challenge is then to preserve the margin.
Finally, Unilever hopes to obtain the first mover gain on the tea market since none of the other main tea
brands initiate the same kind of approach. In addition, as previously noted, the Unilever Company comes
in for criticisms from activists and environmental experts who charge it with working conditions and environmental problems. CSR activist protests and boycotts against firms can lead to huge costs for the latter;
see the cases of Dow Chemical, Levi Strauss, Nike, and Shell Oil. It is necessary for an international company such as Unilever to maintain its reputation as a firm delivering “products that help people feel good,
look good and get more out of life”.
Why Rainforest Alliance
Due to these objectives, an alliance with a third party certification might be the best solution for Lipton in order
to establish an auditing and certification infrastructure in producing countries. Then, Unilever needed to find
a credible certification partner and it examined existing certification schemes. Several organizations have been
studied by Lipton to make credible their approach: FLO (Fairtrade), Utz Certified and Rainforest Alliance. Unilever chose the Rainforest Alliance based on their common approach, which are the Rainforest Alliance’s ability
to work on an international scale and with both large scale plantations and small farmers, and its market-based
premium for farmers and its ability to help move an entire industry. These arguments behind the Unilever’s
choice are interesting to detail and comment because they highlight some motives in the Unilever approach.
The Rainforest Alliance standards are very close to the internal Unilever sustainable agriculture standards.
Unilever’s Sustainable Agriculture Initiative for Tea aims to establish sustainability indicators, appropriate
measures and standards to support four principles: produce crops that meet existing and future needs;
minimize adverse effects; optimize the use of renewable resources; and enable local communities to protect
and enhance their well-being and environment.11
Furthermore, in the past, the Rainforest Alliance has been cooperating with multinational companies:
Chiquita with bananas, Kraft and Nestlé for coffee. The NGO used to work with CEOs and their executive
11. The initiative uses ten sustainability indicators: soil fertility, soil loss, nutrients, pest management, biodiversity, product value, energy,
water, social capital and local economy.
Mainstreaming Fair Trade : A Discussion through the Lipton Tea Case • 201
teams, operating leaders, human resource professionals, and managers at all levels of business. As a result
of, the Rainforest Alliance has a comprehensive approach of the multinational firm’s global objective, that
is, for Unilever “People, Planet AND Profit”. FLO also used to work with multinational companies, but
at a national level, through FLO-National Initiatives: for instance, the McDonald’s coffee brand Aroma is
licensed by Max Havelaar Switzerland, the FLO-Swiss Initiative.
The NGO has developed standards and indicators measurable on both large estates and small farms. In
spite of its unawareness of tea market, this was an argument in favor of the Rainforest Alliance compared
with Fairtrade system. The Fairtrade labelled tea represented only 5,413 metric tons in 2007 against 62,219
metric tons for the coffee. Since coffee is mainly grown by very small producers (less than 1 hectare) while
tea is largely grown on plantations (average size of cultivation is equal to 250 hectares) owned by private
individuals who hire workers, the low production of Fairtrade tea can be explained by the fact that Fairtrade
aim is to work with the smallest.
For Unilever, it was very important to make the commitments more visible to consumers, that is, to put in
place a product labelling system. One of the ways to show that a product complies with a specific standard
is to label it. Some codes or standards do not use a label at all. Nevertheless, most choose to carry a Business
to Business (B2B) or a Business to Consumer (B2C) label. Utz Certified (previously known Utz Kapeh),
the largest certification program in Africa, certifying 13 % of the Kenyan coffee, aims to implement the
worldwide standard for socially and environmentally responsible coffee production and sourcing. Its criteria
use the GlobalGAP requirements. It stresses the importance of traceability in the supply chain. Of all three
schemes, Utz Certified is the most market-driven program. The new logo, a consumer label, can be used
only when the whole chain of custody is 90% Utz certified. It seems that for Unilever the Utz Certified
proposition was not clear enough about the final consumer communication.
The Rainforest Alliance certification does not include a requirement for a minimum price to be paid to the
producer as it is required under the Fairtrade scheme. Michiel Leijnse, Global Brand Development Manager at Lipton disputes the Fairtrade fixed price approach which could give rise to more overproduction
in the market, egged on by its artificially high price. Many observers, such as Potts (2007) and Booth and
Whetstone (2007), argue that given attractive conditions offered to farmers on the fair trade channel, the
latter can expand their production to take advantage of the Fairtrade system and spot markets. This may
induce an increase in global aggregate production and then a reduced spot market price. Then, only some
farmers can benefit of the concept and the guaranteed minimum price, perhaps at the expense of other
small farmers. In a theoretical treatment of this issue, Chambolle and Poret (2009) qualify this argument.
We show that small farmers not directly involved in Fairtrade certification may also benefit from it by a
snowball effect, that is, the mainstream market price can increase due to the Fairtrade parallel channel and
its guaranteed minimum price. This snowball effect comes from the introduction of an additional variety on
the distributors’ shelves, which increases consumers’ demand, from a premium that consumers are willing
to pay for fair trade goods, or from the disintermediation process.
Finally, due to the fact that the Rainforest Alliance certification is an open standard, a certifier grower can
sell his harvest to Lipton but also to another buyer if he can obtain a better price. Through this opportunity,
Unilever team thinks that it is a way to shift the complete tea supply toward sustainable agriculture and reverse
the negative effect of commoditization of this product. Patrick Cescau, Unilever chief executive, has no doubt
the decision to purchase all Lipton tea from sustainable, ethical sources will transform the global tea industry.12
12. Patrick Cescau left Unilever at the end of 2009 and the CEO is currently Paul Polman.
202 • Sylvaine Poret
In spite of the fact that tea was not in the product portfolio of the Rainforest Alliance, the NGO agreed
to cooperate. Thus, this shows its entry into certifying tea production in addition to its long-established
programs in coffee, cocoa, bananas, sustainable forestry, and tourism. Historically based in Latin America,
by this alliance, the NGO strengthens its presence in Africa. Another reason of the agreement is the common point of view about sustainability and mainstream strategy. Tensie Whelan, the Rainforest Alliance
Executive Director, said in 2007: “We are delighted to be working with a company that understands the
value of putting sustainability at the heart of its business”. Furthermore, the Rainforest Alliance can benefit
of the notoriety and the visibility of the brand Lipton, especially in Europe, where the NGO and its logo
is not well known.
Operational Decisions and Communication
The partnership between Unilever and the Rainforest Alliance is far from simple, because there were specific
and complex processes put into place to manage it for the two partners. The program of conversion has
started with Unilever’s own tea estate in Kericho (Kenya), which was the first to be audited. Since 1998,
this estate has served as a pilot project for the Unilever’s internal Sustainable Agriculture standards. In 2008,
three farms in Kenya were certified; in addition, a single grower was approved in Tanzania. Other tea farms
in Kenya, Tanzania, Malawi, Indonesia, India, Argentina and Sri Lanka will follow, with the potential of
eventually improving the livelihoods of approximately two million people across three continents.
Tea growers pay a fee to be audited and certified. For them, the compliance costs can be relatively high,
from US$500 for a small estate to tens of thousands of dollars for larger farms (Ellis and Keane, 2008).
These amounts represent an investment relatively important for very small farmers. For buyers, since the
Rainforest Alliance does not involve great changes in the trade relation relative to Fairtrade, the compliance
costs are relatively low. The buyers are not charged a fee by the Rainforest Alliance, but many of them pay
fees normally borne by the producers.13
One question at the operational level is about the quantity bought to farmers. If producers cannot sell their
production at a better price: does Unilever make warranty to them the purchase all of their production? This
argument can be related to the fact that, although a minimum price and a price premium are guaranteed
in the Fairtrade system, the proportion of the production bought to the cooperatives at the Fairtrade price
is not (Sidwell, 2008). Indeed, a critic of Fairtrade is that small producers of coffee sell in average 20% of
their production to Fairtrade certified importers (Renard, 2005). Once certified by the Rainforest Alliance
scheme: is the farmer assured that all of his production will be bought at the price proposed by the buyer?
This question is important for small growers given the high compliance costs, which can be viewed as sunk
costs. In general, what is better for growers, a warranty on price or on quantity?
Unilever expects that the Rainforest Alliance Certified tea will command prices 10% to 15% higher than
current average prices paid at auction, and estimates that farmers will receive around US$2.69 million
(€2 million) more for their tea by 2010, and around US$6.71 million (€5 million) more by 2015. In
anticipation of cost overrun due to this quality price premium paid to tea growers, the company has made
provisions of €2 million. But, it seems that in spite of price premium paid to growers, and the certification
system through the disintermediation it implies, it is a source of savings. Indeed, the certification increases
the amount of direct transactions between Unilever and farmers. This allows Unilever to carry out less pur13. In the Fairtrade system, importers have to pay a commission of 2% of wholesale price to FLO-National Initiatives.
Mainstreaming Fair Trade : A Discussion through the Lipton Tea Case • 203
chase on spot market. Finally, the certification scheme can boil down to the cut out of some intermediaries,
which might reduce the sourcing cost.14
Fairtrade system represents some indirect advantages for small producers. It encourages the formation of
producers’ cooperatives, which allows to increase their bargaining power towards buyers and transfer greater control of agro-food system to producers (Raynolds, 2006). Moreover, one of the aims of Fairtrade
importers is that producers are enabled to realize the maximal possible number of steps in the production,
conditioning, processing of products, in other words, to move further down the chain. This allows creating
more added-value at the local level (Poret, 2007). Is it an intention of Unilever for small farmers with whom
it works?
In May 2007, Unilever announced its commitment to sourcing all of its tea sustainable. For the managers
marketing tea, the CSR approach with the Brand Imprint tool prompts them to “think about where they
source their ingredients and how they can get value from communicating this to consumers” (Paul Polman, Chief Executive Officer, Unilever website). For this communication to be effective the label must be
meaningful, the application consistent and the underlying certification system accessible. For many products, the proliferation of labels and standards has sparked the competition among initiatives and complicated the choice for producers and consumers. For the latter, the confusion introduced by the abundance of
various ethical labels may destroy their credibility. This argument is mentioned by some French distributors
to justify their reluctance in emphasizing Lipton tea certified by the Rainforest Alliance in their supermarkets. Indeed, in 2008, Carrefour was ready to continue to sell Lipton, but was not pointing out the product.
Monoprix has a strong strategy of fair trade with its own private brand through Fairtrade logo, which made
the retailer a little bit reluctant to offer Lipton tea with another label on their shelves. These reactions can be
explained by the fact that the Rainforest Alliance is relatively unknown in Europe, particularly in France. In
February 2009, Tesco’s response was positive and the British retailer promoted the product.
Conclusion
There are many reasons which justify CSR behaviors in firms’ activities. Some are altruist, others are strategic, and others defensive. Actually, the debate is also about how companies can implement social and
environmental contributions that enable as well tangible business benefits. Thus, the challenge for Unilever
was to “drive sustainability on a mainstream scale in a profitable manner with no impact on price and a
credible way for consumers and Key Opinion Formers”. For that, it was important to find the appropriate
partner and certification scheme. After having studied several certification schemes, Unilever has asked the
Rainforest Alliance, a certifier whose standards require multiple levels of sustainability, to start certifying
its tea owned estates. It certifies farms that meet specific criteria for worker welfare, farm management and
environmental protection.
It is too early to completely evaluate the results of the partnership given the objectives horizon. In 2009,
Lipton sourced only 12% of its tea from Rainforest Alliance certified plantations. At the commercial level, after its introduction in America, Australia, Japan and Western Europe, it seems that the Rainforest
Alliance certified Lipton tea is already a success, expect in France. Lipton tea is perceived to be a better
quality product; Lipton has gained market shares in the out-of-home market, with MacDonald’s, IKEA,
14. Some NGOs are a little critical about the disintermediation, promoted by fair trade, because the intermediaries lose some incomes and
they might provide some services to the producers.
204 • Sylvaine Poret
KLM/Air France (Horlings, 2009). If these good results endure, such important initiative could have a real
effect on the mainstream market. In this case, it will be a response to fair trade organizations who blame
multinationals for greenwashing and using fair trade as a niche market. Besides, this kind of mainstream
initiative can be viewed as a way to transform international trade relations, one of the three main aims of
the fair trade concept.
However, questions can be raised about the pursuit of this approach at a global level. Can a company such
as Unilever extend this mainstream strategy to more transformed and complex products, such as cleansing
and personal care products? An important question is: what will be the response of shareholders, such as
retailers, consumers, and investors, on the long run to this mainstream approach, if it really becomes commonplace? Once all the tea market will be viewed as sustainable, it will be impossible for a company to use
and promote this attribute as a differentiation characteristic. That is why it is important to be the first mover. In addition, it is interesting to make the link with fair trade as a social movement. Indeed, as mentioned
by fair trade militants, fair trade will be succeeded when it will disappear, because all trade transactions will
be realized in fair conditions for all involved actors.
Acknowledgments
A part of this research has benefit from discussion with Florence Coulamy, Sustainable Development Manager for Unilever France.
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