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HANDCRAFT VALUE CHAIN ANALYSIS Paul Chandler

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HANDCRAFT VALUE CHAIN ANALYSIS Paul Chandler. Terms of reference.

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terms of reference
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 reference3
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
Presentation structure
  • EU crafts market potential
  • Value Chain Analysis
  • Producer impact
  • Recommendations
  • Discussion
eu crafts market size
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
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
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
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
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
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
crafts value chain

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
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
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
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
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 pricing16
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
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 governance18
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
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
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
producer livelihood impact

H

S

N

P

F

Producer livelihood impact

Sustainable livelihoods model

Financial

Physical

Human

Social

Natural

producer livelihood impact22
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 impact23
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 impact24
Producer livelihood impact

HUMAN:

  • Training programmes
  • Empowerment
  • Confidence

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

producer livelihood impact25
Producer livelihood impact

SOCIAL:

  • Formation of producer groups
  • Reduced isolation

BUT: also creates new obligations

producer livelihood impact26
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 impact27
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
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
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
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
slide31

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