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Social enterprises encompass organizations, which deploy commercial strategies to enhance the maximization of environmental and humanity improvements. Their focus is not principally on maximization of returns on investments to the company external shareholders.
Social enterprises are structured to assume models for non-profits making, for profits making, or a blend of these two models. However, according to Social Enterprise Alliance, the primary goal of social enterprise is to “use the methods and disciplines of business and the power of the marketplace to advance their social, environmental, and human justice agendas” (2).
Social enterprises take the forms of cooperatives, microfinance, and charity organizations, among others. In this paper, the model of social enterprises is analyzed in the context of the Fair Trade US organization. The organization’s head office is situated in the 1500 Broadways, Suite 400, Oakland in CA 94612 in the United States.
The social challenge resolved by the organization
The goal of Fair Trade USA is to ensure that farmers receive adequate harvest prices, which can allow them to conduct sustainable agriculture. Fair trade USA aims at resolving the social challenges of poverty among farmers in developing nations.
Even though the organization focuses on making higher profits to deliver optimal benefits to the farmers, it is considered as a non-profit making organization since the profits generated are not meant for increasing returns on investments to the shareholders. Conventionally, buyers willfully part with more cash when buying fair-trade goods as they presuppose that the extra monies are channeled towards alleviating poverty levels across the world.
Fair Trade USA states that the organization conducts audits coupled with certification of transactions executed between international suppliers and the domestic organizations “to guarantee that the farmers and workers producing Fair Trade Certified goods are paid fair prices and wages, work in safe conditions, protect the environment, and receive community development funds to empower and improve their communities” (1).
This assertion implies that the organization seeks to solve social-economic problems of the suppliers of products fitting the definition of ‘fair trade products.’
In the continued effort to resolve the social-economic problems faced by the producers of fair trade products in developing nations, Fair Trade USA conducts educational forums for buyers and introduces products’ value addition organizations and retailers within the fair trade products markets to the systems of fair trade.
It also ensures that farming communities have access to tools resources and training programs that are critical in enabling them to thrive in the global business platforms. In this effort, the organization ensures improvement of the social-economic status of the poor farmers so that sustainable agriculture becomes a reality.
The realization of this noble goal is perhaps well depicted by the $22 million paid in the form of premiums to community developments during the years 2011 and the $225 million extra income that has been generated to farmers since the initiation of the Fair Trade USA (Fair Trade USA 1).
The Institute for Agricultural Trade Policy (IATP) founded Fair Trade USA in the year 1998. The organization states its mission as enabling “sustainable development and community empowerment by cultivating a more equitable global trade model that benefits the farmers, workers, consumers, industry, and the earth” (Fair Trade USA 2).
The organization conducts audits of transactions executed amongst companies located in the US, which offer products certified as ‘fair trade products’. Through the enhancement of sustainable agriculture, the organization enhances protection of the world’s ecosystems.
The main challenge addressed by the organization entails coming up with ways of assisting farmers across the globe to ensure sustainability of families and foster economic aspects of the same.
In a bid to ensure the achievement of these noble concerns of the Fair Trade USA, FLO-CERT executes inspections yearly in the effort to ensure “strict social-economic development criteria are being meet using increased fair trade revenues, in addition to sustainable farm management, environmental stewardship, and democratic decision making” (Valkila and Haaparanta 259).
The organization deals with products such as coffee, textiles, and cocoa among others. Through Fair trade USA, cooperatives and small-scale farmers coupled with myriads of businesses are joined to explore various relationships and development opportunities in a joint manner.
The main aim here is to enhance growth of the fair trade global markets. By 2010, the organization had the capacity to offer benefits to the workers coupled with farmers in excess of 1.2 million from in excess of 70 nations located in the Caribbean, Africa, Latin America, and Asia (Fair Trade USA 1).
The Fair Trade USA social enterprise resolves the problem of poverty among the farmers in a myriad of ways. One of these ways is seeking to “alleviate poverty in ways that are economically, socially, and environmentally sustainable” (Fair Trade USA 2).
From the perspectives of social corporate responsibility, Fair Trade USA puts efforts to ensure that the buyers gain information on whether the products they consume are produced in socially responsible way.
This goal is accomplished through certification of labels of the products such that they act as indicators of quality mark for sustainability coupled with responsible product outsourcing.
The term responsibility implies fair wages to the laborers engaged in the production of the products, fair conditions of the employees, presence of democracy and transparency in the organization involved in production, manufacturing, and retailing of the products, direct trade, provisions of room for community development, and environmental sustainability.
How the organization generates revenue
More than 450 million pounds of coffee considered as fair trade certified was traded in the US markets between the year 2005 and 2010 (Griffiths 68). These sales give about 440 million US dollars in the form of fair trade premium to farmers situated in the developing world (Griffiths 69).
These monies were scheduled for reinvestments in education, development of communities, projects meant to increase productivity, and in environmental protection projects. In 2006, sales for fair trade certified products were about US$449. In later years, the sales volume has been increasing by about 45 percent (Valkila and Haaparanta 257).
By 2010, “data confirmed that mainstream consumers were increasing commitment to Fair Trade Certified products with a 24% sales increase in grocery stores” (Mendoza and Bastiaensen 39). The main strategy for generating revenue for the organization is charging consumers more on fair trade products with the aim of helping the poor in developing nations, from where the products are sourced.
This aspect implies that Fair Trade USA does not rely on donation or charitable contribution to fund its goals and mission. Rather, it depends on overcharging consumers to make high profits. These proceeds are then channeled to the communities in need.
Several studies have developed several criticisms on the operations of the Fair Trade organizations in an effort to attain its missions and goals. For instance, Griffiths (68) cites a case of a café located in the UK, which passed less than 1% of the total amounts charged extra to consumers to the cooperatives exporting the products (68).
In Finland, Valkila and Haaparanta (258) argue that even though consumers accepted an extra charge for products labeled ‘fair trade’, only 11.5 % of the total amount collected got into the hands of the exporters. Furthermore, Mendoza and Bastiaensen claim, “In the UK only 1.6% to 18% of the extra charged for one product line reached the farmer” (38).
These studies suggest that Fair Trade organizations have major failure in terms of monitoring the amount charged on consumers by the retailers and ensuring that such amount reaches the targets population.
Additionally, in some situations, the retailers do not offer non-fair trade products and the fair trade products together, thus making it practically impossible to determine precisely the exact amount of extra charge levied from customers to help the poor. In this extent, Fair Trade USA lacks mechanisms of checking whether its missions and goals are achieved precisely.
In the quest to maximize earned income channeled to the poor in the effort to raise their socio-economic wellbeing, as suggested in the Fair Trade USA’s mission, the organization can make it compulsory for retailers and other organizations to provide detailed information on the amount of sales made on fair trade products.
As a trade-off to this approach, the organization can choose to license retailers if they are willing to stock fair trade products. Unfortunately, although the second alternative may provide the Fair Trade USA with means of maintaining check for the organizations’ commitment to send all extra income levied from fair trade products, it limits the freedom of choice of the consumers.
Hence, extra charge on fair trade products ceases from being levied from customers on willingness basis to compulsions. Hence, when the consumers enter such stores, they have no choice. They can consume either fair trade products or non-fair products at any one specific store.
Competitive landscape of the organization
Competitive advantage refers to the advantages that an organization has in the endeavor to achieve its mission and aims. Fair trade USA ensures the provision of support to various potential enterprise owners coupled with producers.
This assistance is provided to potential or existing partners and the enterprise owners in the form of grants, linkages for markets, facilitation of ardent communication to place the products, and technical assistance including supply and logistics management.
According Fair Trade USA, through the organization, producers acquire direct access to consumers since the organization does business with partners to establish existing Fair Trade supplies from producing entities coupled with organizing places of origin trips.
Fair trade USA also “offers Co-op Link, a capacity building program that provides training, access to capital and unique solutions to pressing community needs” (Fair Trade USA 3).
In the efforts to create higher selling opportunities within the US markets, the organization invests in the creation of buyer awareness in the quest to create strong relationships between business partners and the producers. The higher the sales volumes, the higher the social benefits delivered to the producers located in the developing nations.
The above strategies of operation of Fair trade USA enable the organization to perform better compared to other corporate organizations seeking to deliver value to people through social corporate responsibility programs. Fair Trade USA is as an organization seeking to alleviate poverty by charging more on products that it is in charge of enhancing their distribution and they are branded clearly.
This aspect implies that while consumers pay for the products, they are aware that the extra charge goes into social reasonability. Compared to other organizations, Fair Trade USA is more competitive since it does not endeavor to generate profits for increasing the returns on investments on its owners.
Organization seeking to increase social wellbeing of the producers should accomplish these dual functions, viz. deliver value to the shareholders and set aside part of the profits for social corporate responsibility tasks. Additionally, compared to other organizations, which are essentially charitable organizations, Fair Trade does not rely on government and other forms of donations, which may be unreliable sources of funds. Fair Trade USA deals with products, which appear in the daily shopping baskets of the consumers
Mission statement and work done by the Fair Trade USA
The work done by Fair Trade USA reflects precisely the mission of the organization. Fair Trade USA’s mission is to alleviate poverty through economically, socially, and environmentally sustainable mechanisms (Fair Trade USA 2).
One of such mechanism, which forms the daily work of the organization, is to create linkages between producers and buyers and offering technical assistance to the producers coupled with investing in the creation of awareness programs such as organizational visits to producers by potential and existing buyers.
This way, the organization is capable of delivering the largest social gains to the producers of the products listed in the list of fair trade products.
This mission is satisfactory, since seeking funds or generating income through charging extra amount of money on products does not require compulsion of the buyer to consume only products branded fair trade products. However, the mission should incorporate aspects of seeking the retailers to subscribe to ethics of honesty and integrity so that all the extra money collected reaches the farmers.
Suggestion to the CEO of Fair Trade USA
Based on the discussions of this paper, there is evidence showing that retailers do not forward part of the proceedings gained from the sale of fair trade products to the exporting organizations. Such scenarios subvert the company’s mission of delivering utmost benefit to the producers of products such as coffee, tea, cocoa, and textiles, among others coupled with their communities.
It is unethical for retailers to fail to remit all the funds collected. Hence, the CEO needs to look for strategies of ensuring that the extra amounts paid by consumers of the fair products are utilized for the correct purpose.
This goal is possible by creating more awareness programs informing such retailers on the need to enhance sustainable agriculture in the sources of products for better and reliable products in the future as the main strategy of helping the retailers remain business in the future. This aspect is important since social enterprise organizations have no legal power to develop policies for enhancing compliance.
A myriad of social enterprises perceive themselves as exploring various social objectives. However, subscription to all the objectives pursued is dependent on the financial capability of an organization. In this regards, it is important for the CEO of the Fair Trade USA to come up with mechanisms of sealing all the loopholes through which funds are lost via unethical acts of retailers.
Fair Trade USA 2011, International Trade Centre. PDF file. Web.
Griffiths, Paul. “Ethical objections to Fair Trade.” Journal of Business Ethics 3.2 (2011): 67-71. Print.
Mendoza, Richard, and James Bastiaensen. “Fair Trade and the Coffee Crisis in the Nicaraguan Segovias.” Small Enterprise Development 14.2 (2012): 36–46. Print.
Social Enterprise Alliance: The Case of Social Enterprise Alliance 2013. Web.
Valkila, Johnston, and Niemi Haaparanta. “Empowering Coffee Traders? The Coffee Value Chain from Nicaraguan Fair Trade Farmers to Finnish Consumers.” Journal of Business Ethics 9.7 (2010): 257-270. Print.