Chapter 9
A Better Model of Capitalism—United States
You know, there's a poverty statistic that sears my brain: 2 billion people on this planet live on $2 a day. I've lived in the global south long enough to know that even on a diet of rice, beans, and tortillas three times a day, $2 is not enough to eat. So in the pale of things, the 1.4 million families representing 8 million people that Fair Trade serves in the global south is just a start. It's a good start, but it's just a start. The model that we are using will need to go from 1 million farmers to 100 million, which is the aspiration. And then from 100 million to 1 billion. Scale for me looks like that. And the day that I discover that Fair Trade can't do that is the day that I leave to be a part of the next great innovation. I'm still here because I still believe that the core principles of this model are scalable and are capable of attaining that billion people mark in the future.
—Paul Rice
PAUL RICE WAS BROUGHT UP BY “WONDER WOMAN”: A SINGLE mother who was raised on a farm in the Depression and orphaned by age twelve. She knew what it was to go to bed without supper—and though Paul thankfully did not, he grew up with stories about life on the farm and what it meant to work hard and still not be able to put food on the table. He always felt his connection to hard-working farming folk. As a kid and a young adult, he had this sense of outrage and indignation at poverty, at hunger, at injustice, at this very notion of people going without in a world of plenty.
He started to question the root causes of hunger and poverty and puzzled over why hunger exists in countries that are net exporters of food. Was it because of unfair land distribution, lack of access to capital, or other things that needed to be in place in order to produce enough food to decrease poverty, or something else? And so, in that mind space—a university student's activist indignation about the powers that be and compassion for the downtrodden—he decided that he had to go and do something about it.
Simultaneously, Nicaragua was in the midst of a revolution, and by taking land from the rich and giving it to the poor, it seemed to Paul to be addressing some of the structural root causes of poverty. It all matched Paul's sentiments, so in the summer of 1983 he bought a one-way ticket to Nicaragua and went off to join the revolution. His goal was to work alongside impoverished farmers in the developing world, get some field experience, stay for a couple of years, and then figure out what to do with the rest of his life. He ended up staying for eleven years.
What Can't Be Done, Must Be Done
Paul's first seven years were, by his account, spent in a series of failed programs. And those programs were very much characteristic of the dominant model of poverty alleviation that the international aid community had implemented since World War II. Very top-down, driven by well-intentioned people sitting in offices in Washington, London, and Paris and sending millions of aid dollars to the global south. More often than not as Paul worked on those projects, he felt that what they were creating was dependency on aid. They did not help people in the villages develop their own capacity to solve their own problems.
Much of this failure, Paul observed, was rooted in the singular focus of most aid programs on production. These programs tried to teach farmers how to double their yields on a given acre of land by using agrochemicals and hybrid seeds. Yet even when farmers succeeded in producing more on their land, the production costs of chemical-intensive agriculture were often so high that farmers went into debt as a result. In the end, Paul came to believe that raising families out of poverty didn't just depend on how much corn or coffee the farmers were taught to produce. It was about the price they sold those harvests for at the end of the season. The farmers were no better off because they lacked direct access to the market and were forced to sell their harvests to local middlemen at extremely low prices. By ignoring the marketplace, the development projects Paul worked on ultimately failed to help farmers lift themselves out of poverty.
As Paul started to think more about production and pricing dilemmas, he heard about groups in Europe calling themselves “Fair Traders” who were interested in promoting economic and environmental sustainable development along with poverty alleviation not through aid but through more equitable trade. The notion was that if you paid farmers a better price for their hard work and their harvest, they could elevate their standards of living through their own efforts rather than through international charity.
Taking a page from the organic certification movement, Paul found a European buyer who was willing to pay more than ten times the current Nicaraguan price per kilo for quality coffee. Because there was no cash to pay the farmers for the first shipment, each had to be convinced to deliver ten sacks of coffee on consignment, so that they could fill and ship a container-load of coffee. After months of traveling around the countryside, meeting with farmers he had known and worked with for many years, Paul was only able to recruit twenty-four brave souls to take this leap of faith. It usually took these one- and two-acre farm families an entire year to produce an average of 2,000 pounds of coffee (a ton). At the going rate of ten cents a pound, they would have earned just $200 for an entire year's work. Not even a dollar a day.
But because Paul had united them in this singular effort, they were, together, able to fill a container of coffee to ship overseas. Three months later, Paul called a meeting in a schoolhouse in Santo Domingo, and everyone—the farmers, their wives, the kids, the grandmas, and even their dogs—came to see what he had done with their coffee. Paul had a tackle box full of cash; they had netted $1 per pound. Instead of the $200 they could have hoped to earn for the year, they were now being paid $2,000 on average. It was more money than most of these people had ever seen in their lives. Overnight, Paul became a legend and his nickname became “Pablo un dollar.”
By the second year, 350 families signed up, and by the third year there were 3,000, all in the Segovias region of northern Nicaragua. Thanks to Paul, the families now milled their coffee as a group and then exported it direct, jumping over three different levels of middlemen and capturing that value for themselves. This was the start of the first Fair Trade certified cooperative in Nicaragua—Prodecoop—in 1990.
From Good Intentions to Positive Change
The cultural and political significance of the cooperative was extraordinary. These small farmers grew coffee not because it was a business but because their granddaddies and great-granddaddies had grown coffee. Their very identity was steeped in coffee production. And that's all they could imagine for themselves, ever. Now they were learning to wear multiple hats in order to control costs and increase their profits. They learned to mill, truck, and export. Eventually, they learned to be bankers as well, because along with their success, they needed to set up village banks to manage the new money coming into the communities. To reduce dependence on expensive and environmentally destructive chemicals they set up an organic training and certification program for their members. The communities started building schools. They started drilling wells to bring in clean drinking water for the first time. All the things that the villagers had passively waited for government or charities to do, they were now doing for themselves. The invisible dividend that surrounded all this growth was the pride and dignity they gained by doing it for themselves, with no one's handout subsidizing that journey. As Paul came to realize,
Empowerment is an overused term. It's a cliché. And yet it's as tangible and real and noticeable as talking to a farmer and having that farmer look you in the eye instead of looking at the ground, hat in hand, when he talks to you as a foreigner.
Two years after Prodecoop was formed, its success influenced the creation of another nearby cooperative, Aldea Global (Asociación Aldea Global Jinotega). It was founded by twenty-two indigenous farmers in the mountainous region of northern Nicaragua to promote sustainable agricultural practices that would help protect their environment and improve their quality of life.
The impact of FairTrade doesn't just refer to the possibility for a family to earn more from their harvest, but rather through the organization, they become the protagonist in their own development. FairTrade offers us the opportunities with which we can positively influence the construction of a more equitable society.
—Rufino Herrera Puello, Asociación Aldea Global Jinotega
Today, with 1,200 members, the association focuses on the growth of the cooperative by promoting efficient commercialization, solidarity, and alternative credit services, while maintaining a commitment to the environment. It has also made gender equity a priority. Earning Fair Trade certification from Fairtrade Labelling Organizations International in 2004 has helped achieve those goals. In addition, it was awarded the “2007 Global Vision Award: Community Outreach” by Travel + Leisure Magazine. In the same year, the cooperative was awarded the “Best Associative Company” of the year by the Association of Producers and Exporters of Nicaragua. Aldea Global is illustrative of the growth of cooperatives throughout the country and the far-reaching impact of the Fair Trade movement on thousands of farmers, their families, their villages, and their future.
Paul found this journey of market-based empowerment and sustainable development so transformational that he was inspired to stay in Nicaragua and grow the coffee business he started. But ultimately, his success was what inspired him to come back to the United States:
After four years of running Prodecoop and seeing this dramatic transformation in literally hundreds of villages and thousands of families all over northern Nicaragua, I realized how transformational it was. This is a better model for sustainable development and community empowerment than anything I had ever worked on before or anything the major agencies are working on. Europe was leading the way, and America was hardly dipping its toe in the water. To be sure, there were a few small fair trade businesses capturing a few million dollars of business a year, but that was out of an $18 billion coffee market which 30 million farmers around the world supply. They hardly made a dent. I asked myself, why isn't anyone in the U.S. stepping up and replicating, or translating or reinventing the European experience so that it's relevant for the U.S.?
After eleven years in Nicaragua, having gone through the war, built a successful $5 million coffee co-op with 3,000 families, married a Nicaraguan woman, and fathered a son, Paul had no reason or intention to ever come back to the United States. Nicaragua was home. But to go on this journey in Latin America, witness the impact on people's lives, and then realize that the largest consuming nation in the world was untapped, unaware of this Fair Trade model for change, seemed to leave him no choice: “I didn't want to come back. I had to come back and see if I could take this amazing thing that was going on in Europe and plant the seeds in the U.S.”
Paul's mission was clear: how could he help farmers become part of a different structure that could reassert itself in the global economy in an empowered way that helps feed the family and develop the community? To him that was what fair trade was all about. To achieve it, he determined that the underlying core principles were organization, entrepreneurship, and the marketing of this value proposition to the consumer. For Paul, it's not just about technical assistance, training, and boosting quality and yields. Nor is it just about access to capital. The third leg of the stool is access to markets, and that means an educated consumer. If you don't have all three elements, sustainable development will remain elusive.
From Microlending to Market Linkage
Accordingly, Paul is convinced that market linkage is the next big thing to hit the development world and the innovative contribution that Fair Trade USA is bringing to the table. As microfinance reenergized and reordered the development world twenty years ago, building market linkages that connect and grow demand for sustainable products will be the next emergent conventional wisdom. It will have ripple effects for farmers and consumers as well as for the business community. Increasingly, it is also having ripple effects in the activist community, which Paul feels the Fair Trade movement is still a part of.
Conventional wisdom in the business community used to be that profitability and sustainability were at odds with each other. To the extent that a company pursued profitability, it couldn't afford to care too much about sustainability. To the extent that companies pursued sustainability, they had to sacrifice profits. Today, companies are discovering that you can accomplish both at the same time. In fact, some would even argue that sustainability increasingly enables long-term growth, profitability, and brand strength. The Fair Trade movement is helping to create a growing sense that you can break that contradiction and create a better model of capitalism; one that could be categorized as enlightened self-interest. It's a model that is sparking a broader debate and creating a phenomenon that transcends the number of companies that venture into the Fair Trade space. As Harry Smith, a gourmet products importer, recently told Paul:
Ever since we started to buy Fair Trade products we noticed our customer base increased and people started to ask for these certified products by name. We now buy over $1 million worth of products each month and we hope this will increase as our consumers realize that they can use their money to make world change with every purchase they make.
As Paul looks back at his earlier years, he reminisces,
I was an anticapitalist in my youth. The twenty-year-old me thought that companies were basically greedy and we needed to pressure and force them to do better. But now, I don't think that confrontational approach works very well in changing corporate behavior. My time in Nicaragua taught me that markets can actually be an incredibly powerful force for lifting farmers out of poverty. I found that by engaging companies and building partnerships with farmers based on common interests, we enabled everyone to win—farmers, companies, and consumers alike.
Paul often advises a reluctant company to start slow and small. If a company is not sure that consumers will pay 5–10 percent more for a fair trade product, it is encouraged to test the idea. The consumer reaction will determine the outcome. It's a less ideological approach—a more pragmatic one based on engagement. It's illustrative of the new breed of activists that Fair Trade is not only a part of but enabling—one that doesn't just rail against the world's injustices but supports powerful, positive alternatives to them. It's a concept that college campuses across the nation are embracing:
So if ever there's an age to be a butt-kicker, it's at age twenty. And twenty-year-olds across the country are embracing fair trade as a powerful, positive alternative. Instead of shutting the university down, they are going to the university dining hall managers and saying “look at this cool fair trade thing, and we'll reward you by supporting what you are doing.” It works and it's inspiring activists to rethink their strategies because they see that they are actually moving the needle. They're getting companies to start down this virtuous path, which slowly but surely is having a measureable impact on lives around the world.
The old model of global capitalism puts supply stability at risk; it creates all kinds of reputational challenges because someone, somewhere is going to discover child labor in the supply chain or tons of pollution spewing out of the factory. The emerging logic is that sustainable supply chains are good for business, so sustainability is moving from the realm of corporate social responsibility and philanthropy into the core business model itself. Fair Trade is becoming an integral part of the sustainable supply chain movement because it brings with it strong environmental standards, strong labor standards, and the added value of independent verification and independent auditing that is similar to the organic certification market. You can't just say you are organic and you can't just say you're a Fair Trade item. You need to be certified by a credible, independent third-party organization.
Many companies, whether they support Fair Trade or not, have seen the growth and success of Fair Trade as proof that sustainable supply chains are good for business. They see that consumers have an appetite for sustainable products and in fact are willing to pay a little more for them. This has sparked a number of different initiatives and a lot of competitors. Fair Trade is definitely a powerful example of what Paul argues is a macrotrend toward ethical sourcing and sustainable consumption, and quite possibly a major shift in global capitalism. Corporations are starting to see that it is in their own interest to implement socially responsible labor practices and environmental sustainability. The new face of capitalism is looking more sustainable and responsible. Of course, there are still powerful voices that say Adam Smith was right, and maintain that there's no value in sustainability from a consumer perspective. The trajectory of Fair Trade would argue the opposite: consumers are buying sustainability and they are buying the emotional attribute of feeling that they are on the right side of history, doing no harm and making a difference.
Paul returned to the United States in 1994 thinking his mission was all about farmer empowerment. And Fair Trade became a potent tool to do just that, because it harnessed the participation and the power of the consumer. In turn, that propelled the cycle of buying that encouraged the farmers to grow better products. He soon realized that it's as much about empowering consumers as it is about empowering farmers and workers. His experience shows him that people in America are not indifferent to the suffering of the world nor to climate change and all the other social and environmental challenges of our time. They are concerned, but they don't know how to help. They are also struggling to put food on their own tables, so many don't have time to think about farmers, they don't have time to write letters to the editor, or sometimes even make time to vote. And many don't think their solitary voice makes a difference. But everyone eats and everyone wears clothes, so why not help people everywhere raise their voices by using every dollar they spend as a vote for a better world?
Paul is convinced that everyone becomes part of a virtuous cycle when they turn an act of consumption into an act of grace and good will. When consumers turn something as simple and mundane as a cup of coffee into a way to reach across continents and lend a helping hand to a farming family so they can keep their kids in school, it's incredibly powerful. And the rapidly growing sales of Fair Trade products in the United States—whether coffee, bananas, flowers, or the materials used to make T-shirts—are bearing witness to the fact that consumers want to make a difference and help others though their shopping decisions. Once people visualize the impact of their buying choices, they want to be a part of the solution, and that's the key to the success of Fair Trade.
It's so easy. Choose this coffee instead of that coffee. Choose this banana instead of that banana, and you can be part of this amazing movement for solving the world's problems. In this case every consumer really can be a changemaker, and that indeed is what it will take.