HANDCRAFT VALUE CHAIN ANALYSIS Paul Chandler

1. HANDCRAFT VALUE CHAIN ANALYSIS Paul Chandler

2. Terms of reference “To develop an analysis of supply chain for handcrafts … to improve the standards and procedures of FT so that producers’ added value and market access are significantly increased … make recommendations to inform setting of quality standards and system”

3. Terms of reference • Focus on baskets and jewellery • Traidcraft Market Access Centre • Interviews with • 13 Southern FTOs • 7 Northern FTOs • 4 UK mainstream buyers • 2 consultants and steering group

4. Presentation structure • EU crafts market potential • Value Chain Analysis • Producer impact • Recommendations • Discussion

5. EU Crafts market: size • Gifts and decorative articles: • €12.7 billion (2003); 38% imports • Germany, UK, Italy, France =75% • China dominant source of imports • Sales through independent shops, department stores and mail order

6. EU Crafts market: formal barriers • Few tariff barriers for handcrafts • Increasingly strict H&S regulation: • Hazardous substances (esp if food contact); infestation; skin allergies; recyclable packaging; labelling requirements etc.

7. EU Crafts market: consumer demand • Growing interest in interior decoration; homes more central to well-being and self image; one-off items, to personalise homes • But: functional rather than purely decorative • Concern for environment/ethics • Downward price pressure

8. EU Crafts market: commercial buyers’ concerns • Cheap products; high volumes • Consistent (good) quality; standardisation • New designs; design-led product development • Short lead times; on-time delivery; agile customer service

9. EU Crafts market: Fair Trade handcrafts • Handmade products can be unique selling point • But: will struggle to compete with cheaper machine-made products unless quality and design superior • EU FT market €100 million (0.75% of total) – static, ethical consumer only

10. EU Crafts market: Conclusions • A sizeable potential market • Mainstream opportunities in more up-market niche areas • But price/quality and service levels will be crucial – and need to improve

11. Producers Exporter Importer/ wholesaler Retailer Consumer Producer Group/ SME Crafts Value Chain • Short; straightforward; mainstream and fair trade similar • Mainstream may use agents to link importer and exporter (3-15% commission, never own product)

12. Crafts Value Chain: NFTOs • Fair Trade additional services: • FT advocacy; advance payments; capacity building; market information; capital investment; forgiving and loyal customers • But: not growing/innovating; some lack professionalism; loyal to existing suppliers only

13. Crafts Value Chain: mainstream • Are also values-led mainstream actors: many deal with SFTOs • But care: values-led players are not typical of the mainstream: • tough price negotiations; inflexible; slow payers; not regular orders; frequent staff changes; don’t try to understand producers’ situations

14. Crafts Value Chain: key issues - sourcing • Raw material sourcing – environmental and ethical sourcing of growing concern • Pricing issues between SFTOs/producers: • how is labour valued?; local living wage? • overheads and “free” raw materials? • opportunity cost / contribution?

15. Crafts Value Chain: key issues - pricing • Northern buyers not aware of what producers get from SFTOs: likely to become more important • SFTO gross margins vary greatly • FT prices received by SFTOs are generally better than mainstream; though some good mainstream payers too

16. Crafts Value Chain: key issues - pricing • Mainstream mark-ups from 500% to 3,000% (highly branded) • FT mark-ups are often lower at 300-500% (but does this devalue perceived value?) • Levels of mark-up in Europe not seen as concern by most SFTOs.

17. Crafts Value Chain: key issues - governance • FT pro-poor bias means lower supplier competence; theory suggests this will lead to more intervention from buyers. • Pressures to be market-led. • High dependency on NFTOs; insufficient diversification; few examples of FT supplier “graduation”.

18. Crafts Value Chain: key issues - governance • FT price negotiations fairly standard and well-managed • Some SFTOs want more market information from NFTOs • Lack of critical feedback from NTOs impedes development

19. Crafts Value Chain: key issues - environment • Inefficiencies in infrastructures • NFTOs/SFTOs insufficiently specialised? • Lack of investment and technological innovation in FT – (fears it will reduce labour inputs?; small is beautiful focus?) • Exchange rate vulnerability – dollar fluctuations

20. Crafts Value Chain: key issues–failure to mainstream • NFTO lack of vision/skills? • NFTO lack of capital? • Lack of FT label (but costs/benefits, standards?) • SFTO/producers lack of technological investment • SFTO lack of scale/productivity; quality; design; lead times

21. H S N P F Producer livelihood impact Sustainable livelihoods model Financial Physical Human Social Natural

22. Producer livelihood impact FINANCIAL: • level of income increases; • regularity and security of income; • SFTO savings schemes for producers BUT: contract workers/seasonal labour issues

23. Producer livelihood impact PHYSICAL: • Income used to acquire assets • Better access to infrastructure e.g. electricity, education, health (via premiums) BUT: Limited capital investment in productive capacity

24. Producer livelihood impact HUMAN: • Training programmes • Empowerment • Confidence BUT: heath and safety of processes; social/family tensions; more education to be done

25. Producer livelihood impact SOCIAL: • Formation of producer groups • Reduced isolation BUT: also creates new obligations

26. Producer livelihood impact NATURAL: • Environmental issues considered in fair trade chains BUT: in reality this is relatively low on the movement’s agenda

27. Producer livelihood impact • A generally positive picture – but based on SFTO/NFTO inputs, not direct producer research • Many FT producers still near poverty line • Diverse experience across products and countries

28. Recommendations: market access • Improve sales and marketing of existing work • Develop strategy to mainstream handcrafts; establish a success story in handcrafts • Establish and invest in market led supply chains • Ensure the right product is created for producers • Ensure FT verifiable supply chains top to bottom • Promotion FT and ethical purchasing • Develop FT standards and (possibly) label • Review and scale up

29. Recommendations: social quality • SFTOs need to improve producer capacity and understanding of FT • Reduce dependency - local markets; small businesses as well as manufacture • Develop stronger groups and networks • Address risk: regular employment, currency protection • Southern advocacy for SME friendly environment and individual access to affordable services

30. Discussion • Do findings/descriptions ring true? • Relationships SFTOs/producers; costing and pricing models • Reaction to recommendations: • Specialisation • Investment needed to mainstream • Issues in enabling environment

31. TRAIDCRAFT fighting poverty through trade