Creating a Market for Fair Trade
Sunil Shrestha knows all about inventory and cash flow from his years operating Dairy Queen and IHOP franchises. But nothing in his entrepreneurial career prepared him for his current challenges.
What do you do when a South African supplier can’t deliver on time because the only woman who knows how to make its intricately beaded baskets has died? What is a reasonable price to pay poor Indonesians who are weaving bags out of recycled garbage? And where, in the nation’s capital, can one find milk produced in an environmentally friendly manner?
“If we can make this sustainable, we can help the artisans,” Shrestha said of his current business, a showcase for goods made by poor farmers and handicraft producers from around the world. “If this goes into a loss, we can’t help anyone.”
Pangea Artisan Market & Cafe represents a pioneering effort by the entrepreneur and his partners at the International Finance Corp., the private-sector arm of the World Bank Group, to enlist Americans in the campaign against global poverty.
The newly opened venture, which looks more like a high-end boutique than a development program, is on the ground floor of IFC’s Washington headquarters on Pennsylvania Avenue, not far from the White House.
Pangea is a departure for IFC, long the target of activist critics who say it favors the interests of big corporations over those of the poor, and an advance in the growing fair-trade movement, which is finding more acceptance among American customers.
To earn a space at Pangea, its 50-plus suppliers have agreed to act ethically, providing their workers fair wages and working conditions as well as promising not to use child labor or harm the environment. But they also have to deliver their products on time and within budget.
“This isn’t about charity,” said Harold Rosen, the driving force behind Pangea and director of IFC’s Grassroots Business Initiative. “We want to show that business can work for poor people.”
Pangea, from the Greek word for “all lands,” might more loosely be translated in this case as “retail with a conscience.”
Along one wall are shelves stocked with silk handbags and scarves produced by nonprofit group Hagar, which supports a shelter for abused women in Cambodia. The colorful woven baskets were produced by Gone Rural, a group of more than 750 artisans in Swaziland that supports HIV and AIDS patients. A stamped metal saxophone was crafted from recycled oil drums by a Haitian artist.
At the counter, shoppers can pick up a latte brewed with fair-trade coffee imported by Green Mountain Coffee Roasters Inc. or a smoothie whipped up from a ginger-coconut mixture produced in Indonesia. Fair-trade cocoa grown in Ghana was used to make the Divine brand chocolate bars.
Products carry tags that can be swiped at an interactive kiosk, giving shoppers short videos about the producers. Half of the producers have received some form of help such as loans and technical assistance from IFC.
The organization has been criticized by anti-globalization critics who view it as a U.S. tool to promote big infrastructure projects such as dams that benefit multinational companies yet may do little to help poor farmers, crafts workers and other needy residents.
But Rosen said few people knew about his division, which has 600 people working on projects to help small and medium-sized businesses.
Last year, the organization said it devoted a significant portion of its $1.95 billion in operating income to support the Grassroots Business Initiative.
“I wanted people to know that not everything we do is the target of the demonstrators,” he said.
Pangea already has a fan in Barbara Tesner, who dropped by on her way home from her job at George Washington University. She said she was impressed by the quality of the goods and pleasantly surprised to discover the shop’s social mission.
“I’m trying to look for things that have a broader impact,” she said. “I’m an ex-hippie.”
Not everyone views IFC’s kinder, gentler image -- and the fair-trade philosophy behind it -- positively.
William Easterly, a former World Bank economist who teaches at New York University, called the fair-trade movement a “brilliant marketing ploy” that had shown limited success in reducing poverty. He said a far better way to help poor African farmers would be to remove the barriers that prevent them from exporting their sugar and cotton to the U.S. and Europe.
“All the aid agencies are falling victim to the same kind of politically correct, so-called socially responsible thinking,” Easterly said. “The question is: Who decides what is socially responsible?”
For their part, supporters say the fair-trade movement is a proven tool for helping the poorest of the poor get their goods into a global market tilted toward the biggest companies and countries. And it is attracting more attention from customers concerned about the exploitation of impoverished workers and the environment.
For example, fair-trade products are the fastest-growing segment of the $22-billion U.S. coffee market. Shoppers bought nearly $500 million of fair-trade ground coffee and beans last year, compared with less than $50 million in 2000, according to TransFair USA, an Oakland-based nonprofit that certifies fair-trade food products such as coffee, tea and herbs. The biggest sellers are Starbucks Corp. of Seattle and Green Mountain of Waterbury, Vt.
Fair-trade group Ten Thousand Villages just opened a store in the South Lake Avenue shopping district of Pasadena, its first in California.
The name of the organization, which was started in 1946 by the Mennonite Central Committee in Pennsylvania, was inspired by the words of Indian leader Mohandas K. Gandhi that his country could “not be found in the few cities but in the 700,000 villages.”
Priya Haji, co-founder and chief executive of World of Good, a Berkeley-based fair-trade distributor, said some groups had questioned IFC’s motives for entering this arena. But she said she welcomed the competition, particularly if it helped expand the market for such goods beyond a handful of stores, church bazaars and the Internet.
By the end of the year, Haji said, the World of Good brand would have placed half a million fair-trade products in kiosks in 1,100 stores, including campus retailers, independent bookstores and Whole Foods Market Inc. locations. As customer demand increases, she said, it will put pressure on mainstream retailers to carry such goods.
“Now, you have Wal-Mart selling organic milk,” she said.
But launching poor artisans into the global marketplace has proved challenging. Most of the producers are women, many of whom live in remote areas and work at home. Their sponsors often are volunteers whose primary purpose is to provide a social service, such as supporting an HIV-AIDS clinic.
Joshua Morris, a consultant working with IFC, said small artisan organizations were being forced to pay more attention to the bottom line or risk losing their development aid.
His group, Emerging Markets Consulting, has set up a fair-trade network linking five artisan groups in Cambodia. Morris’ organization, working from its base in the country’s capital, Phnom Penh, provides technical and marketing assistance, including advice on redesigning products to suit Western tastes or bodies.
At Pangea, Sunil Shrestha and his brother Deepak lease the space and manage the shop; IFC provides the educational materials and helps find suppliers. The Shresthas, who had immigrated from Nepal, got involved in the project after seeing a request for bids on IFC’s website. They still have their fast-food franchises and a software development company.
Coming from a poor country, the Shresthas understand the desperate conditions facing their suppliers. And there are many more vying for Pangea’s shelf space, judging from the brothers’ crowded e-mail boxes and the samples piling up in their small office.
The Shresthas, who hope to break even by year-end, have discovered that even customers with a social conscience expect their goods to be priced competitively. Most of Pangea’s products sell for less than $100.
If Pangea hits its goal of $1 million in sales this first year, the Shresthas hope to expand their fair-trade business across the United States.
“We’re especially interested in San Francisco and L.A.,” said Deepak Shrestha, who hopes to be selling on the Web soon. “People there are even more conscious of this fair-trade, ethical-trade sort of thing.”
