Prices and Profit Margins for South African Fairtrade Wine along the Supply Chain Robin Back University of Central Florida Karl Storchmann New York University & INSEEC Business School Liu Xinyang New York University
History 1988: Fairtrade Label launched by Dutch development agency “Solidaridad” for Coffee from Mexico and Nicaragua under the “Max Havelaar Fair Trade Label“ Initiative was replicated in several countries throughout Europe –mainly Coffee, Tea, Cocoa-Products, Bananas Fairtrade labeling Organizations (FLO) International was established in Bonn/Germany to establish worldwide standards and certification 2003: 1st Wine to achieve Fairtrade Certification was South Africa‘s Thandi Wines 2008 First Fairtrade wine in the U.S.
Estimated UK retail sales by value (£ million) *these products represent the cocoa part of all products containing cocoa, the honey part of all products containing sugar. **These figures cover all Fairtrade commodities not covered by other catgeories. These include vegetables, dried fruit, pulses, rice, quinoa, sesame seeds, nuts and oils, sportsballs and spices.
Instruments Minimum Price guaranteed minimum prices (buyer pays to the producer) Premium paid on top of the agreed FT price for investment in social, environmental or economic development projects Premium and Minimum Price are fixed by FLO For SA Wines the premium equals 50 Cent per bottle Issue because higher standards also imply higher cost higher prices do not mean higher wages
Application Producer organizations (small farmer org., commercial farms or other companies) and traders have to apply for Certification. The whole Supply Chain has to be “Fairtrade“ Examination by a regional FLO-Cert inspector. The inspector‘s report is considered by the certification committee
Fairtrade and South African Wines 2011: 43,2% of SA Wine Production exported “Wine Export”: largest single agricultural export (56% to UK, Netherlands, Germany) until 2009 (15%), 3rd largest in 2011 (10,8%) (only exceeded by citrus fruits and Maize). 2011: SA Wine Industry contributes up to 3,9% of the international wine production 2012: 17 SA Fairtrade certified wine grape producer organizations, 24 (before 39) SA companies involved in Fairtrade wine trading Stellar Organics left Fairtrade in : 17 million bottles Fairtrade Wine sold worldwide 2/3 from South African Farms ( bottles) – 1/3 from Argentina and Chile (Lebanon and Brazil one producer each)
Cost and Benefits for South African Wine Producers Example: Thandi Wines (different fees for each producer) Cost for application (yearly): 500 Euros Cost of accreditation (yearly): 2600 Euros Cost in case of audit failure (yearly): 1200 Euros Administration: someone with a full time job being responsible for the amounts of paperwork Premiums: bottles á 50 Cent a bottle: $ going directly to the workers
Benefits: Market Access to higher priced Fairtrade Markets (???) Pre Financing of up to 60% for producers Minimum prices reflect production costs, (not quality, expert rankings) Quantities are not guaranteed, no “income guarantee” Benefits, if Fairtrade Wines generate more income than selling the Wine without the Fairtrade Label: there has to be a Premium on South African Fairtrade Wines compared to South African Wines (similar quality) without Fairtrade Certification.
Fairview La Capra by Fairview Spice RouteHamilton Russell Southern RightEssay by MAN Vintners MAN Family Wines Tormentoso by MAN VintnersNeil Ellis Stark-CondéSincerely by Neil Ellis HelderbergBoekenhoutskloof FairvalleyPorcupine Ridge Six Hats Wines in Sample
Supply Chain Import Price Producer Wholesale Price Wholesaler Retail Price RetailerConsumer
Fairview La Capra by Fairview Spice RouteHamilton Russell Southern RightEssay by MAN Vintners MAN Family Wines Tormentoso by MAN VintnersNeil Ellis Stark-CondéSincerely by Neil Ellis HelderbergBoekenhoutskloof FairvalleyPorcupine Ridge Six Hats Wines in Sample
Propensity Score Matching