Supermarkets take cut of Fairtrade cash for poor farmers

By Robert Winnet

July 11, 2003 -- CropChoice news -- Times of London, 06/29/03: Some of Britain's biggest supermarkets have been accused of exploiting customers' goodwill by overcharging for Fairtrade products.

The items will always be more expensive than their ordinary equivalents because the Fairtrade scheme, which has boomed in Britain in recent years, is designed to ensure that the farmers who produce them are paid more.

But an analysis of the pricing structure shows that only a part of the considerable premiums being charged by supermarkets is being fed back to producers. The bulk of the price hike is being pocketed by the stores in profits.

John McCabe, a retail pricing expert with the consultants Connector Global who has studied the Fairtrade market, said: "The supermarkets know that people do not go for the cheapest product when buying Fairtrade because they think the extra money is helping someone in the developing world.

"What they will be surprised to learn is that the lion's share of the extra money appears in many cases to be going to the supermarkets."

The price of Fairtrade products can be double that of the ordinary equivalents, leaving room for generous profits.

For example, under the scheme, supermarkets pay 24p extra to farmers for every kilogram of bananas on which they place a Fairtrade logo. But last week stores including Sainsbury's, Tesco and Asda were charging a mark-up on Fairtrade bananas of between 59p and 89p. This means that Sainsbury's - the most expensive - is making up to 65p extra on top of its normal profit.

"Much of the premium over and above the fixed price they must pay the farmers appears to be going straight into their profits," said McCabe.

"It is a good scheme and it is helping the farmers but it is helping certain supermarkets a whole lot more."

Waitrose appears to be the only major supermarket not to make extra profits from Fairtrade items. Its prices are higher for such products but only to reflect the extra money paid to farmers.

Sainsbury's, in contrast, charges Pounds 2.49 for 8oz of Fairtrade coffee - 60p more than its regular premium coffee. Of the extra charged, only about 21p is thought to be paid to farmers.

Sainsbury's and other stores are understood to be making similar gains on Fairtrade tea, chocolate and exotic fruits.

The Fairtrade scheme began as a small-scale operation, selling branded items in independent health food shops and through local churches. It now "licenses" supermarkets to use its name providing they agree to pay fixed premiums to the farmers. It does not, however, have control over the final price of the product - a loophole the supermarkets are exploiting.

Sainsbury's already sells 1m Fairtrade bananas a week, while Tesco, which only joined the scheme earlier this year, sells more than 500,000.

Bananas are the bestselling "food line" in Britain and have recently been the subject of a fierce price war between supermarkets. Wal-Mart, the American company that owns the Asda chain, has been criticised by the prime minister of St Vincent and the Grenadines for driving down wholesale banana prices and bankrupting farmers.

Yesterday, the supermarkets declined to comment on their profit margins but pointed out that the scheme was still benefiting Third World farmers.

A spokesman for Tesco, which made more than Pounds 1billion profit last year, said: "We are one of the biggest supporters of Fairtrade and the scheme has led to big improvements in education and health facilities in the Windward Islands."

The supermarket chain will announce an 11p cut in the price per kilogram of Fairtrade bananas from today.