Risk and Cost-Benefit Analysis of Fairtrade Coffee

1084 words (4 pages) Business Assignment

11th Jun 2020 Business Assignment Reference this

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The coffee shops in Australia nowadays are experiencing a highly competitive environment with a steady stream of new entries and several incumbents with sustainable market shares in the industry (Vuong, 2018, p.19). Considering the transformation of supply channels for the café chain, Copacabana Cuppas, Barry Manilow should think about the benefits for stakeholders in terms of shareholders, suppliers, and consumers.

Firstly, working with Fairtrade improves the brand image since it is a programme which elevates the social status of women in developing countries (Fairtrade Australia New Zealand, 2016). In Africa, women are called for directly participating in the process of production, with the help of understanding the appropriate growing and handling methods (Nabwiiso, 2019). The proportion of female farmers in Mexico soars 33% in a nearly 20-year period, and most of them closely engage in decision-making and governance (Lyon et al., 2017). These improvements bring the women in developing countries opportunities of gaining education, social recognition, policy-making power and so on. Gender equality, a worthwhile goal for today’s world, can be a business highlight to attract customers to pay the price premium for the Fairtrade coffee.  Thus, from the shareholder’s point of view, the transformation not only earns the public reputation but can also promote the turnover for Barry’s café chain.

However, the Fairtrade does not work well on improving the incomes of the original producers (Wydick, 2014). As suppliers in the Fairtrade, even though the Fairtrade premium creates a better business environment for them, they do not have “price advantage” comparing to the organic farmers due to the much higher cost (Jena et al., 2017). In Minoo’s research, some farmers quit from the Fairtrade since their net income is not enough to reduce poverty, and especially in an unstable economic environment, farmers prefer cash transactions rather than a Fairtrade process (Minoo, 2017). Face-to-face negotiation can provide both parties with more bargaining power, help to make a fair contract to both sides and lessen the unnecessary costs for farmers as possible. For example, the owners can provide different prices for the beans with different qualities, which may stimulate the poor farmers to focus more on the qualities rather than the quantities. Hence, the Fairtrade cannot well support Barry’s wish to help improve poverty.

Moreover, the Fairtrade does not strictly control and supervise the quality of collected coffee beans, which may affect the satisfaction of consumers (Wydick, 2014). What customers initially expect is to help the original supplier while keeping the taste experience changed not much, since they may spend more on a cup of Fairtrade coffee. By looking at the whole industry in Australia, major companies only own less than 10% of the market shares, and the remaining 90% of the market is shared by a host of small boutique coffee shops (Vuong, 2018, p.21). The consumers are easy to change to other substitute options when the brand cannot satisfy their flavours. What’s more, in 2018, the revenue of the whole industry is 3.8 billion dollars, but the revenue for the Fairtrade coffee is less than 8% of it (Vuong, 2018, p.3; Fairtrade Australia New Zealand, 2018). I speculate that the Fairtrade coffee may be an unpopular good among the consumers. Therefore, transforming to Fairtrade coffee seems like not a wise and safe move since it cannot ensure the increasing or even stable loyal customer group in a long-run competitive environment.

To conclude, in my opinion, choosing 100% Fairtrade coffee is taking more risk rather than earning benefits. Since in such a competitive industry, improving public image can only be a short-term strategy attracting customers in the market. Fairtrade coffee nowadays does not bring many incomes to the poor as the people expected. Besides, transforming the supply chain may cause a series of opportunity costs, such as the loss of previous loyalty customers due to the reduced coffee quality and the loss of previous long-term coffee partners. As the reasons stated above, I suggest that remaining in the current status and providing a better in-store experience for consumers are more important for Barry’s Café chain to stabilize its market share with steady growth.

References

  • Fairtrade Australia New Zealand. (2016). What Fairtrade does. Retrieved from http://www.fairtrade.com.au/What-is-Fairtrade/What-Fairtrade-does
  • Fairtrade Australia New Zealand. (2018). Fairtrade ANZ’s 2017-2018 Annual Report. Retrieved from http://fairtrade.com.au/Media-Centre/News/November-2018/Fairtrade-Annual-Report
  • Jena, P.R., Stellmacher, T. & Grote, U. (2017). Can coffee certification schemes increase incomes of smallholder farmers? Evidence from Jinotega, Nicaragua. Environment, Development and Sustainability, 19(1), 45-66. doi: https://doi-org.ezproxy1.library.usyd.edu.au/10.1007/s10668-015-9732-0
  • Lyon, S., Mutersbaugh, T. & Worthen, H. (2017). The triple burden: the impact of time poverty on women’s participation in coffee producer organizational governance in Mexico. Agriculture and Human Values, 34(2), 317-331. doi: https://doi-org.ezproxy1.library.usyd.edu.au/10.1007/s10460-016-9716-1
  • Minoo, A. (2017). Why do farmers not choose fair trade cooperatives?: A consideration based on the livelihood strategy of coffee farmers in lao PDR. Human Organization, 76(2), 131-140. Retrieved from http://ezproxy.library.usyd.edu.au/login?url=https://search-proquest-com.ezproxy1.library.usyd.edu.au/docview/1940121161?accountid=14757
  • Nabwiiso, S. (2019, April 17). Use women groups to promote coffee production. East African   Business Week. Retrieved from https://global-factiva-com.ezproxy1.library.usyd.edu.au/redir/default.aspx?P=sa&an=AFRIBUK020190417ef4h00001&cat=a&ep=ASE
  • Vuong, B. (2018, November). ISIBWorld Industry Report OD5381. Coffee Shops in Australia. Retrieved from IBISWorld database.
  • Wydick, B. (2014). 10 Reasons Fair-Trade Coffee Doesn’t Work. Retrieved from https://www.huffpost.com/entry/10-reasons-fair-trade-coffee-doesnt-work_b_5651663?guccounter=1

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