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HANDCRAFT VALUE CHAIN ANALYSIS Paul Chandler

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HANDCRAFT VALUE CHAIN ANALYSIS

Paul Chandler


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”


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


Presentation structure

  • EU crafts market potential

  • Value Chain Analysis

  • Producer impact

  • Recommendations

  • Discussion


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


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.


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


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


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


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


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)


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


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


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?


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


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.


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”.


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


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


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


H

S

N

P

F

Producer livelihood impact

Sustainable livelihoods model

Financial

Physical

Human

Social

Natural


Producer livelihood impact

FINANCIAL:

  • level of income increases;

  • regularity and security of income;

  • SFTO savings schemes for producers

    BUT: contract workers/seasonal labour issues


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


Producer livelihood impact

HUMAN:

  • Training programmes

  • Empowerment

  • Confidence

    BUT: heath and safety of processes; social/family tensions; more education to be done


Producer livelihood impact

SOCIAL:

  • Formation of producer groups

  • Reduced isolation

    BUT: also creates new obligations


Producer livelihood impact

NATURAL:

  • Environmental issues considered in fair trade chains

    BUT: in reality this is relatively low on the movement’s agenda


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


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


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


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


TRAIDCRAFT

fighting poverty through trade


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