Equal Exchange is a successful, growing, for-profit, employee-owned, specialty foods company that has helped to pioneer the “Fair Trade” model that improves the market access, income, and commercial opportunities for small-scale farmers in developing countries. In the traditional coffee supply chain, small-scale farmers sell their crop to a chain of intermediaries who eventually export the coffee. Under this arrangement the individual farmers have almost no control; few economic options; carry out only the very least profitable link in the value chain; and receive just a small amount of the export price – which itself is usually too low to provide more than a poverty-level income.
In contrast to conventional importing practices Equal Exchange deals directly with democratically run farmer cooperatives in Africa, Asia and South America, and buys their coffee, and other crops, at a guaranteed above-market price. In addition, Equal Exchange works with socially responsible financial institutions in the U.K. and U.S. to provide affordable loans to cooperatives that might otherwise lack access to credit. These Fair Trade practices increase the incomes of the economically disadvantaged growers; helps them to invest in their operations; and fosters broad-based, stable economic growth in rural communities. Fair Trade also helps to foster equality and democracy in countries where corruption is often a problem.
Innovation
One of the first Fair Trade food companies in the United States, Equal Exchange was founded in 1986 by Jonathan Rosenthal, Michael Rozyne and Rink Dickinson. Organized as a worker-owned co-op, the company practices the same democratic principles that it promotes among their suppliers. 20 years later these humanitarian and social aspirations have been proven compatible with—and useful to—their successful business model. Initially, Equal Exchange began selling coffee, tea, banana chips, honey and even tuna, but it was their coffee that caught on, while the other products were eventually dropped. This later enabled Equal Exchange to put Fair Trade coffee on the map of the United States grocery market. Consumers responded so positively to this innovation that today over 300 other coffee companies in the U.S. market also offer at least one Fair Trade product. In response to ever-increasing competition, Equal Exchange goes to great lengths to maintain their market leading position. For example, each employee has the opportunity to spend one week visiting a farmer owned cooperative. This helps to form a closer relationship and long term mutually beneficial partnerships between Equal Exchange and the farmer co-ops. Visiting the farmers also creates a higher level of commitment by Equal Exchange employees. Equal Exchange has also successfully expanded their product mix to bring Fair Trade to more farmers and more consumers. Their product line now includes organic tea, hot cocoa mix, baking cocoa powder, chocolate bars and sugar.
Equal Exchange’s mission includes a commitment to deal directly with democratically organized farmer cooperatives that grow the products in a sustainable manner. The founders of Equal Exchange are proud to have demonstrated that American business can generate economic profits while providing high quality, sustainably grown foods using a Fair Trade business model.
Impact
According to North, Equal Exchange imported 3.69 million pounds of Fair Trade coffee in 2004. As a result of the Fair Trade program, the farmers received $1.62 million above the market price for this coffee. This extra payment raises the standard of living of the participating coffee farmers themselves, but also has a positive ripple effect for their neighbors, as conventional local coffee buyers are forced to offer better prices, or lose yet more business to the cooperatives.
The benefits offered by Equal Exchange do not end there. Equal Exchange, together with Shared Interest, Ltd. of the U.K., pioneered a system to provide affordable credit to the farmer co-ops. Traditional financial institutions focus on providing large loans to large firms who can provide the best return at the lowest risk. According to Mr. North, “Beyond that there is this whole range of people and enterprises who don’t have access to credit, but who are nevertheless credit-worthy, and who have productive uses for financing. The farmer cooperatives fall into that category.”
Since 1995 Equal Exchange has operated a credit program in which up to 60% of the minimum Fair Trade contract price is provided to the farmer co-op’s up to ten months before export of the coffee. Equal Exchange guarantees 25% of each loan. The co-ops then use these funds to purchase coffee from their members at harvest time, and to make smaller loans to individual farmers to cover operating costs or emergency needs. And the repayment rate for these loans is remarkable. In ten years only one co-op has defaulted on a loan. With a goal to fulfill 100% of co-ops requests for financing, a commitment to provide affordable credit is one of the central pillars of Equal Exchange’s Fair Trade program.
Inspiration
Equal Exchange was founded by the desire to create an enterprise grounded in fairness, social justice and awareness. In the early 1980’s the American consumer was generally not aware of where their food came from. When Equal Exchange launched their business they hoped that their products could act as a sort of gateway product that would remind consumers that they were part of a globe-straddling food system that had, for better or worse, huge social and environmental consequences. Equal Exchange’s belief was that through their products, marketing and outreach efforts their customers could become increasingly conscious of the poverty that was an entrenched part of the food production system for small farmers around the world. There is evidence that the theory was valid. As the Fair Trade coffee business has grown over the last twenty years, so has the overall Fair Trade market. The original Fair Trade participants are selling more of their products, and more kinds of products, and more companies are joining in the Fair Trade market.
“If Equal Exchange disappeared tomorrow, if Fair Trade unraveled – these farmers would still be better off than before," said Rodney North.
The World Inquiry editorial team edited this profile from the original submission of the interviewer or other source. The views expressed do not necessarily represent Case Western Reserve University, the Weatherhead School of Management or the Center for Business as an Agent of World Benefit. More >>
