Fair Trade: How Going the Extra Mile with Sustainability Fuels Business

Case Study: Business Profile A medium sized Kenyan flower farm. Key infrastructure comprises 40ha of greenhouses, grading hall, cold storage, housing for a back-up generator, a shower block, a chemical store, medical centre, labour camp, and a machinery shed and office. Employs approximately 2000 workers. Request for corporate finance facility for US$2.5 million over 7 years. Finance needed to increase greenhouse capacity by an extra 10ha.

Typical E&S Issues in Flower Farming Include: Drain on water resources due to large volumes needed. Pollution from waste water and pesticides. Poor labour practices and employee grievances regarding wage levels, working hours, social insurance and additional benefits. Disputes with local communities over resources e.g. water Poor practices on flower farms have attracted: Fines or sanctions from regulatory authorities. Media and NGO campaigns critical of practices across the sector. With the potential for: Lost revenue from market boycotts and disruptions to production. Increased costs associated with managing reputational risk.

What did the bank E&S due diligence find? A company differentiating itself by adopting more responsible practices: Certification to a series of environmental and/or social flower labels. A first mover in Kenya to adopt fair trade certification practices. Going beyond legal compliance, and implementing additional measures to improve employee working conditions and lessen environmental impact. E&S management and reporting systems in place – a rich source of information for the bank’s E&S due diligence but also post disbursement monitoring. Financial benefits emanating from greater access to markets and premium prices.

Benefits to the Bank’s Portfolio Clients with Access to growing markets Access to premium prices and more stable prices Better productivity levels Better employee relations Technologies that better position them for the future e.g. investment in hydroponic cultivation methods to reduce water and fertiliser consumption Development of sales of fair trade flowers in Germany (in 1,000 pieces)

Lessons Learnt E&S due diligence increases understanding of issues that can impact a client’s viability. This is valuable sector knowledge that the Bank can leverage with other clients. Provision of informed advice to other clients on better practices Ability to identify clients better positioned for the future e.g. client’s using more efficient cultivation methods Certification to E&S management standards is a useful non-financial indicators of good business management e.g. Fair Trade labels Better E&S management has benefits Improved productivity, access to markets and premium prices. Better performing businesses in the loan portfolio