Insight: The Fair Trade Gap

Differentiated teas are strong and steady stalwarts in tea retail. Labeling tea sustainable, organic, eco-friendly, bird safe and rainforest friendly elicits positive consumer response that justifies higher prices and generates brand loyalty and sales.

The impact of Fair Trade certification for tea is less clear.

WTN150803_StateofSustainabilityInitiativet 2014Globally Fair Trade certified sales topped $466 million in 2014 but only a fraction of that sum is from tea which traded for an estimated $6.6 billion. While the production of standard-compliant tea continues to climb globally, averaging 33% per year during the period 2009-2012, Fair Trade certified sales lag at 2% of total volume, according to a report on the State of Sustainability Initiatives: Standards and the Green Economy.

Standard-compliant tea production, adjusted for multiple certifications, totaled 577,000 metric tons in 2012 but only 174,000 metric tons was sold as certified tea. Only 6% of total Fairtrade production was sold as Fairtrade tea on the international market in 2012, according to the International Institute for Environment and Development (IIED).

The first Fairtrade Certified (FLO) tea was harvested in 1993. The following year Clipper Tea introduced the first Fairtrade Certified tea for sale in the United Kingdom. Tea adhering to voluntary sustainability standard (Fairtrade International, IFOAM (International Federation of Organic Movements), Rainforest Alliance, Ethical Tea Partnership and UTZ Certified) had together certified 12% of global tea production and 9% of global exports by 2012.

WTN150803_TeaReport_StateofSustainabilityInitiative 2014_text“Approximately one-third of production is actually sold compliant with voluntary sustainability standards on the international market (or 4% of global tea production and 9% of exports),” reads the report. Unlike most certified products, “the Fairtrade market has been defined by supply-led growth. While per-annum growth in production over the past several years has been 18%, actual sales growth has hovered around 2%. The mismatch between supply and demand is such that only 6% of total Fairtrade production was sold as Fairtrade tea on the international market in 2012.”

There are several reasons for the big gap between production and sales. The expense of certification means that most Fair Trade tea is cultivated for export. Domestic markets that consume 56% of the tea produced and show little interest in Fair Trade certified tea.

Enhance your understanding of tea and the business of tea over just one weekend! World Tea On the Road fall conferences are open to anyone who wants to grow their tea know-how! Learn more now.

A second reason is that much of the tea is grown by smallholders with no interest in meeting certification mandates that increase cost and in some instances forbid common agricultural practices (such as employing children). The price paid for tea must cover the costs of production and offer a premium of $0.50 to $1 a kilo, depending on the processing method, but volume is insufficient to warrant the expense. Ultimately certifying tea to achieve a “fair trade” premium makes little sense when the grower and family members are the only labor involved.

Another aspect is the competitive relationship between certifying bodies. Growth in organic certifications has slowed while more broadly defined “sustainability” certifications such as UTZ Certified and Rainforest Alliance are registering astronomical growth.

LOGO_rainforest_allianceRainforest Alliance tea certifications grew 61% from 2008-2012. UTZ Certified tea grew by 58% compared to Fairtrade which grew 18% and organic certified tea which grew by 6% during the same period.

Tea market leaders all dabble in organic and Fair Trade but certify most of their tea lands under the Rainforest Alliance sustainability program. As of 2015 14% of the world’s tea was Rainforest Alliance certified, according to the Rainforest Alliance.

In 2007 Unilever (Lipton/PGTips), which controls about 12% of the global market, was the first big player to commit to voluntary sustainability standards for tea. Unilever promises to source all its tea under Rainforest rules by 2020. Tata Global Beverages, the world’s second largest tea company, will certify 100% of its Tetley brand by 2016. Unilever, Tata and Twinings sell 85% of the world’s tea. They are the largest of seven conventional tea suppliers that control 90% of the Western tea market.

Transnationals own and operate most of the steps along tea’s supply chain from harvest to distribution, according to Fair Trade Canada. “Fair Trade has been providing an alternative for the past decade,” according to Fair Trade Canada, an approach that appeals to smaller producers. Teas certified by Fair Trade America include Clipper Teas, Organic India, Wild Harvest Organic, Pukka Herbs, Trader Joe’s and Tega.

Fairtrade USA certifies a longer list including: Art of Tea, China Mist, Choice Organic Tea, Argo Tea, David Rio, DAVIDsTEA, Harney & Sons, Honest Tea, ITO EN, Numi Tea, Rishi Tea, STASH, The Republic of Tea, Tea Forte, Third Street Chai, Zhena’s Gypsy Tea.

But Rainforest Alliance lists 30 tea manufacturers on its Shop the Frog website including Lipton, Lyons, Republic of Tea, Teatulia, Teekanne, Tetley, Yogi, Yorkshire, Typhoo, The Tao of Tea, Twinings.

Rainforest Alliance reported 190% growth in certified production volumes between 2010 and 2012 and 365% growth in certified land area coverage.

The rapid pace of conversion of traditional cultivation to sustainable practices is due solely to the willingness of multinationals such as Unilever to step on the accelerator. They did not cite their reasons for choosing Rainforest Alliance over Fair Trade certified (some of their specialty teas hold both certifications). Other tea suppliers rely principally on Fair Trade, notably Coca-Cola (Honest Tea) and Finlays which advertises itself as the largest trader of Fairtrade tea in the world.
“While it is clear that Rainforest Alliance will continue to strengthen its leadership position in the supply of sustainable tea globally as Unilever and Tata continue to roll out their programs, growth opportunities remain for other initiatives as well, such as UTZ Certified, ETP and Fairtrade. As a result, we expect total annual market growth to continue at over 20% per annum for the coming several years,” according to the IIED report.