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| January 3rd 2008 |
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| The growth of fairtrade wine |
by Richard Woodard
The first Fairtrade wines only appeared in the United Kingdom in 2004, but the sector is growing fast, reports Richard Woodard. The same development is now taking place in Germany and the Netherlands as well, but how much do consumers actually care about the category?
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Although considered by many to be the most dynamic and receptive wine market in the world, England’s reputation has still suffered in recent years amid retail consolidation and deflationary pricing pressure. But in one wine segment at least, Britain continues to lead the way: officially accredited Fairtrade wines. The first country to sell Fairtrade wine in 2004, the UK accounted for 75% of global sales in 2006, generating estimated retail revenues of more than £5.5m ($11.16m/€7.93m).
So what exactly is a Fairtrade wine? Simply put, it’s one whose sale guarantees a good deal for its producer and grape growers. To get official Fairtrade accreditation, a wine needs to receive a Fairtrade mark from the Fairtrade Labelling Organisation in Bonn (FLO), which sets minimum grape prices (in euros per kilo) for each country, giving growers enough cash to make their business sustainable, with a Fairtrade premium on top. These prices are set annually to reflect changes in the market and include additional premiums for organic grapes. The revenues from the Fairtrade premium, managed by a locally elected committee, go back into community projects. These are often educational and health programmes, or projects to improve the local infrastructure. Wine is a relatively late addition to the Fairtrade family, which includes products from fruit to coffee and chocolate. The first standards for wine grape production were only introduced in 2003, initially covering South Africa before moving on to include Chile and Argentina.
But the world is quickly catching on to the idea, with a number of European markets now stocking wines that guarantee a better deal for grape growers in the developing world. Verónica Pérez, communications officer with the FLO, notes that Scandinavian countries are showing particular interest – with Sweden’s Systembolaget monopoly introducing Fairtrade wines last year. “Despite relatively low sales volumes in 2006, these markets are growing fast and we expect that the sales volumes of Fairtrade wine there will continue to increase in the coming years,” says Pérez. The UK market was the first to recognize the benefits of the concept. Organisations like Traidcraft were already selling fairly traded wines (as distinct from official Fairtrade wines) in the mid-1990s. The Co-operative Group, an ethical multiple retailer, introduced its first fairly traded wine range in 2001. That helped to create momentum for the sector, according to Emma Sundt, business development officer for Fairtrade UK. “A lot of it is done with the work that people like Traidcraft were doing at an early stage,” she says. “That helped to establish the Fairtrade mark as recognised and trusted. The ball was rolling before we formally started working with it.”
While Faitrade may be a laudable concept, a wine still needs a supermarket listing if it’s to achieve significant volumes in the UK. So building Fairtrade wine sales |
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has been like building any wine brand: beginning with everyday, value-priced wines and gradually adding higher price-points. The Co-op’s early listings focused on the high-volume £3.99 and £4.99 price points, as category buyer Maria Gallup recalls. “The wine market is extremely competitive and we felt that to build customer loyalty, we needed first to get people to buy into Fairtrade wine – and doing this at affordable pricing seemed the best approach.”
It’s an approach that’s worked. Co-op Fairtrade wine volumes have leapt to about 270,000 cases in 2006, three times their sales of 2004. Sales in 2007 are growing less quickly, but are still set to top 300,000 cases. From an initial three-product listing, the number of stock keeping units in the range is now 14, including two new reserve lines at £5.99. Others are following suit. Sainsbury’s has pledged to grow Fairtrade sales (not just wine) 145% to £130m in 2007, rising to £200m in 2008, helped by an increase in the number of wine lines from seven to 12. Similarly, Tesco’s recent revamp of its wine list has seen its number of Fairtrade wines double from four to eight, taking in four new Fairhills products from Argentina. “Consumer feedback and demand is always considered and this was an integral part of the recent category review,” says Graham Nash, Tesco’s product development manager for South Africa.
Asda is in the throes of adding a fifth Fairtrade wine to a range that already includes products from the Stellar Organic farm in South Africa. Of the major retailers, only Morrisons appears lukewarm about the Fairtrade concept. The chain has only two Fairtrade wines from Chile and says sales are slow, “which shows there is little demand currently”.
There are subtle distinctions in the philosophy behind these listings. The Co-op wears its ‘ethical retailer’ heart on its sleeve, so it makes no bones about the reasons for promoting Fairtrade: “The reason we are involved with the wines and their associated projects is because of our principles,” says Gallup. “Simply because it’s the right thing to do.” As such, the Co-op matches the Fairtrade premium, doubling the amount of money poured into local community projects. But Michelle Smith, senior wine buyer for Italy, South Africa, organics and Fairtrade at Sainsbury’s, is wary of making a special case for Fairtrade. “The whole basis of Fairtrade is that it’s meant to be a commercial model,” she argues. “It’s meant to be commercial and all commercial decisions will be applied.” As such, Smith believes it’s crucial to get Fairtrade wines right at first listing – nobody wants to discontinue one of these products. But she does admit that Fairtrade lines might get a little extra leeway not afforded to other products. “There’s extra responsibility from our side. We would maybe offer some |
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extra expertise in terms of advice.”
Tesco’s Nash adds that the conventional pricing criteria don’t apply in quite the same way with Fairtrade products. “There is probably a consumer acceptance that the cost will be a bit higher, but our approach in selection is the same as for all categories – the wines still have to represent good value for money,” he says.
Fairtrade in Holland
Long before Britain, Holland was one of the first countries in the world to establish a Fairtrade organisation. In the mid 1980s, farmers in Mexico thanked aid workers from the Netherlands for their direct financial support, but told them they would be better helped by a fair price for their coffee. Subsequently a foundation was established and on 15th November 1988, the first coffee under the Max Havelaar label – from a character in a book about the abuse of the Indonesian workers at Dutch colonial coffee plantations - was introduced. In 1993 coffee was followed by cacao, in 1985 by honey, in 1996 by bananas, in 1998 by tea, in 2000 by orange juice and in 2005 by wine. 85% of the Dutch population is now aware of Max Havelaar and market research shows a constant increase in consumer interest in fair trade products. The first Fairtrade wine, Vinez from Spain, was introduced by importer Lovian at Plus supermarkets in June 2005. Today, numerous multiple grocers - including Jumbo, Deen, Coop, Super de Boer, Plus and Albert Heijn – have Fairtrade wines on their shelves, most with price points around €4,99. The contribution per litre of wine to the Max Havelaar foundation is €0.12. From the introduction in 2005, Fairtrade wines have grown to over 300,000 litres. In neighbouring Belgium, the brand has grown in 12 months to approximately 30,000 litres. The main importer, with a market share of approximately 75%, is Lovian, a division of Baarsma Wine Group specialising in both Fair Trade and Organics. Derrick Neleman, managing director, has high expectations about the potential of fair trade wines in the Nether lands. “The current volumes are just a children’s game compared to what it will be in five years from now,” he says. “If on-trade distributors like Heineken and multiple specialists like Gall&Gall or Mitra pick up on Fairtrade wines, the share will increase dramatically.”
Growth continues from other quarters as well. In Germany, for example, where the product group is new, “interest is expanding rapidly,“ according to Karin Wolter, category manager for wine at the Fairtrade office in Cologne. Peter Riegel, an importer of biological wine was the first in the country to take an interest in Fairtrade, she says, and has been successful in introducing a number of South African wines to supermarkets and other outlets that specialise in biologically grown goods. Prices range from an entry level of €3.99 up to premium lines at over €10. Classical wine shops, however, have been slower to |
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embrace the concept. Soon, though, Peter Mertes will begin with a selection of wines from Argentina. Given that company’s distributional strength with the major chains, the volume of Fairtrade wine sold in Germany should skyrocket beyond the 300,000 bottle base sold in 2006. “Binderer St. Ursula has also begun discussions,” states Wolter, “so the future looks bright.”
The problems of growth
The growth in Fairtrade wine sales – both in the Great Britain and across Europe – looks set to continue over the next few years at least. Smith believes this is part of a general consumer concern to know the provenance of products, to trace their origins and be reassured that competitive prices do not mean exploitation at source. But with that growth come other challenges, not the least of which is supplying the market. Pérez, from the FLO, says supply is still outstripping demand and doesn’t foresee a problem, particularly as more producer organisations are in the process of acquiring Fairtrade accreditation.
Fairtrade UK’s Sundt adds that Fairtrade licensees – in the UK’s case, importers like Ehrmanns and Bottle Green – are constantly looking for new suppliers in South Africa and South America. This is fuelling the growth. Smith from Sainsbury’s has concerns, noting that there are only about 22 Fairtrade wine producers in existence (although Fairtrade claims 30). “In the grand scheme of things, that’s a really, really small number,” she says. “It’s a real challenge for us to buy wines for our customers from such a small base. The range will grow in line with our corporate responsibility commitments, but growth will be limited by that supply base.”
If Pérez from the FLO is right and the number of Fairtrade wines mushroom in the next few years, Smith’s concerns may well be eased. And any increase in the pool from which retail buyers can choose their Fairtrade wines can only help overall quality – and therefore the products’ reputation. Maintaining that balance between sustainability and healthy competition, thus encouraging winemaking excellence and boosting the price to quality ratio, is crucial to the future health of the Fairtrade wine sector.
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