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STRATEGY

Leading the Way to Fairer Trade Practices

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When you buy a pound of gourmet coffee for $8 or $9, as little as 40 cents of that maygo to the farmers who grew it. Much is siphoned off by middlemen in the export country,known to Latin American farmers as "coyotes," who offer the lowest possibleprice - leaving some 20 million coffee farmers trapped in poverty. But some are fortunate.They do business directly with Equal Exchange, a fair-trade company in Canton, Mass. Bycutting out the middlemen, these farmers reap as much as 50 cents extra per pound.They're people like Don Miguel Sifontes in El Salvador. "We used to live inhouses made of corn husks," he told Equal Exchange. "Now we have better work,better schools, homes of adobe, and a greater brotherhood of decision makers."

That's fair trade at work. It's a way of doing business that defines supplierwelfare as part of business success. And its premier practitioner in the U.S. is EqualExchange, a gourmet coffee company founded in 1986 with the goal of building a more justsystem of trade between consumers in the north and producers in the south.

The concept of fair trade itself is 15 years old and began in Europe as afaith-based movement, says Rob Everts, codirector of Equal Exchange with Rink Dickinson,one of the founders. A few crafts stores and catalogues in the U.S. also practice fairtrade, but Equal Exchange is the only company with mass distribution, and the only companyoffering a fairly traded commodity like coffee. This uniqueness puts Equal Exchange aloneat the pinnacle of fair trade in the U.S.

"For a long time, Equal Exchange was a very lonely voice in the wilderness,"Everts told Business Ethics. "Virtually no other people were doing fair trade for11 years." In 1991, it became the first U.S. company to officially adopt theTransFair internationally recognized standards of fair trade as guiding principles for itsbusiness. But since 1998, thanks to its example, more than a dozen other coffee importers haveadopted fair trade for a portion of their product lines.

Currently, more than 95% of Equal Exchange's coffees and teas are purchasedusing the following standards:

1. Purchase directly from small farmer cooperatives, owned and controlled by farmersthemselves. In the last four years, Equal Exchange has widened its community of producersfrom 6 to 15 farmer cooperatives.

2. Pay a fair price, including a guaranteed minimum of $1.26 per pound (world price inmid-September was as low as 80 cents per pound).

3. Offer affordable preshipment credit. "When we sign a contract withproducers, we pay up to 60% of the contract six months in advance," explainedmarketing manager Erbin Crowell. "If a hurricane hits, we share the risk."

4. Encourage ecologically sustainable farming practices. Equal Exchange pays a 15cents per pound premium for certified organic and shade-grown coffee, offering anincentive to farm sustainably. All of the company's teas are organically grown, and70% of its coffee is grown in the shade and certified organic. To decaffeinate coffee, Equal Exchange uses the world's most environmentally progressive, chemical-free facility, inGermany.

5. Build long-term partnerships based on trust. When Nicaraguan partners suffered fromHurricane Mitch, for example, Equal Exchange worked with Lutheran World Relief to raiserelief funds.

Equal Exchange is run as a worker-owned cooperative, though it has an unusual hybridlegal form - combining a normal C corporation with a cooperative form - which allows it tobring in outside investors. Employees elect the board, approve important companydecisions, and receive 20% of profits. No one in the company can be paid more thanthree times anyone else.

The company has some 200 outside, nonvoting shareholders - "blue chip sociallyresponsible folk," says capital coordinator Clark Arrington - who have collectivelyinvested more than $1 million. They receive annual dividends averaging 5% (which takepreference over profit payments to workers). "It's our ownership structure atEqual Exchange that enables us to make farmers and consumers our priorities, rather thanprofits," as cofounder Michael Rozyne put it in one company brochure. "Thelimits we set on return to investors help make it possible to transfer financial benefitsto farmers."

For 13 consecutive years, the company has grown steadily, with 1998 sales of $5.7million, up 18% from the year prior. It has been profitable 10 of the last11 years - and when it suffered a small loss in 1998, it still paid shareholders adividend.

Equal Exchange is ideal for an end-of-millennium Business Ethics Award, for it is muchmore than a company with progressive policies. As cofounder Rink Dickinson said incompany literature, "We're setting up a different economic model. That'swhy we're here." And here's hoping it's a model that enters themainstream in the coming century.

Contact: Erbin Crowell, Equal Exchange, 251 Revere St., Canton, MA 02021. Phone781-830-0303, fax 781-830-0282. E-mail ECrowell@equalexchange.com.

Copyright © Business Ethics magazine




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