Nestlé: fair trade market is fair game

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Related tags: Fair trade

Recent reports that Nestlé, the world's biggest food company, is
considering a move into the fair trade market have been met with
scepticism and disbelief by market observers and rival coffee
makers alike, but as analysts Datamonitor point out, any such move
could have serious implications for the fast-growing ethical coffee
market as a whole.

Nestlé has refused to comment on the rumours, first published in the UK's Independent on Sunday​ newspaper earlier this month, but a move into the ethical coffee market by the multinational would not be out of character: the market for ethical products has grown rapidly in recent years - worth some £1.8 billion in the UK alone last year - and there is no sign of growth slowing in the immediate future.

The giant Swiss group has frequently incurred the wrath of lobby groups concerned about its marketing tactics - selling baby milk to mothers in developing countries being the most high profile and controversial - but it did not become the world's biggest food producer - or the world's biggest direct buyer of coffee - without learning where to take its opportunities - and when not to worry too much about ignoring its opponents sensitivities.

According to Datamonitor, Nestlé's apparent desire to launch its own ethical product is driven by the growing consumer concern about production methods, particularly the plight of coffee growers in the developing world.

"Nestlé has over the years been something of a focus for campaigners against the alleged unethical production methods and policies of multinational corporations, so it may come as something of a surprise to hear that the Swiss company is considering launching an ethical coffee product,"​ the analysts said.

Even more worrying, according to UK press reports, Nestlé's ethical coffee product would not be developed in association with the Fairtrade Foundation, the body which oversees the certification of Fairtrade products. The Swiss group does not believe that that Fairtrade Foundation's approach - paying producers more than the market price for their coffee - is the right one, as it simply encourages them to increase production, resulting in further imbalance between supply and demand and in turn pushing prices down even further.

Nestlé's suggestion - among others - is that companies such as itself need to do more to stimulate demand for coffee in order to reduce the overproduction levels, bolstering the price of coffee, and to promote higher sales of speciality coffee products which require higher quality - and more expensive - beans.

The problem for Nestlé, and for the fair trade market as a whole, according to Datamonitor, is that the Fairtrade Foundation's reputation is one of the principal reasons why the market has been successful, and the fact that one of the world's biggest coffee producers would circumvent the organisation when launching its own ethical brand calls that reputation into question.

Fairtrade goods have to undergo stringent checks to ensure that they conform to the Foundation's standards, and that their sale does indeed benefit producers in the developing world, according to Datamonitor, but the possibility that Nestlé could launch of a brand with none of these checks and balances in place would inevitably reduce consumer confidence in the sector.

How rigorous can the Foundation's checks be if Nestlé can simply side step them, and how could consumers be certain that sales of Nestlé's brand would indeed benefit growers in developing countries? Coffee drinkers would be left with little more than Nestlé's word, and given its track record, that would be unlikely to quell most people's concerns.

But then again, Datamonitor also suggests that part of the rise in popularity of fair trade products is related not to concerns about growers in developing countries but more about the way buying such products makes affluent western consumers feel about themselves.

"Sales of Fairtrade coffee keep growing, and so-called compassionate consumerism is on the march. However, the movement has changed since the media frenzy that surrounded it in the 1980s. Paradoxically, the Fairtrade phenomenon surfs a wave of egocentrism. What has catapulted Fairtrade products into the mainstream are not the altruistic principles of those with whom the idea originated, but the more widespread desire amongst consumers to make themselves feel and look good,"​ the analysts said.

If this assessment is correct, consumers may not worry about looking too closely at where and how Nestlé sources any future ethical coffee product, or indeed how it benefits growers in developing nations - all of which defeats the object of producing an 'ethical' product in the first place, and which spells danger for other producers whose very success depends on the trust consumers place in their products.

Click here​ for details of Datamonitor's related research report, Organic, Natural, Ethical and Vegetarian Consumers​.

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