Fair Trade – key factors in times of crisis; impacts of commercial instability; future outlook; certification and other relevant points from the perspective of Leonardo D’Angelo
I believe that just as societies evolved—where, for example, in the field of individual rights we experienced what is commonly known as first-generation rights (civil and political), progressing to a second generation of economic, social, and cultural rights—companies can be considered "micro-societies" that tend to reflect their aspirations through their organizational practices and governance models.
Initially, this governance was heavily focused on ensuring that financial results were accurately reflected in the company's balance sheets—leading to fair returns on shareholder equity. Notable cases such as the giant Enron scandal in the US brought to light the vulnerabilities of this system and the need for new controls—reflected in the Sarbanes-Oxley Act (SOX), which was responsible for enhancing corporate compliance.
In response to this extreme period we are currently experiencing, similar to what occurred in 2002 with SOX, compliance and "fair" practices are being put to the test given companies' need to adapt to a new economic landscape. Thus, incorporating Fair Trade practices into corporate compliance mechanisms and governance represents a natural evolution of the model, aiming to curb negotiating distortions that could primarily harm smaller suppliers within the supply chain and, consequently, society and the economy.
Five key areas of focus for Fair Trade in times of crisis
- Partnership between suppliers and buying companies.
- Focus on balancing negotiation leverage between buyer and supplier, aligned with the "win-win" negotiation concept.
- Broadening the impact horizon beyond the supply chains of the involved companies, also taking into account the societies in which organizations operate.
- Focus on improving people's lives and reducing poverty in local communities where these goods and services are consumed, such as: rural producers, regional schools and universities, and independent contractors.
- Last but not least, adopting ethical practices backed by policies, compliance, processes, and systems that uphold guidelines and values based on best practices.
Impacts on Fair Trade resulting from commercial instability and the Future Outlook
Commercial instability creates pressure to restore results and fosters an environment ripe for misconduct, which tends to expose small suppliers to extreme risks that frequently lead to business failure. Companies seeking quick, easy fixes—or those that already engaged in less than “fair” market practices—will use such measures more intensively to regain their financial equilibrium.
Given the current scenario and the impact of the crisis brought on by COVID-19, the expectation is that many existing Fair Trade practices—especially those that were in early adoption phases or had low adherence—will intensify significantly. In this context, procurement and supply chain management play a pivotal role, serving as a consolidated demand hub and an intermediary between corporate needs and the market.
To implement the necessary changes across mid-sized and large corporations, innovation and the transparency of information provided by cloud-based supplier platforms—always adhering to the best practices established by the LGPD—represent a viable path forward.
A positive change would be the "empowerment" of the buyer with relevant information regarding suppliers, and vice versa; this path can support the market in a kind of "natural selection" of companies that genuinely practice Fair Trade.
In addition to financial data from traditional credit bureaus (SERASA, Boa Vista), this type of platform examines several other dimensions, such as: modern slavery, political campaign donation involvement, and Sustainability certifications—among others.
When new social dimensions are added to this model, backed by a robust supplier management policy, the foundational conditions required to support Fair Trade in mid-sized and large companies are created.
Importance and parameters of the Fair Trade certification seal
Fair Trade certification creates, to a certain extent, a framework or structured model that allows organizations to evaluate and systematically measure the maturity level of each company—from which an action roadmap can be developed toward greater compliance with Fair Trade practices.
In this regard, an essential parameter would be for the company to possess a high level of supplier management maturity, featuring deployed digital platforms (E-procurement, Supplier Lifecycle and Performance Management) that enable the collection of digital data across the market. Additionally, the company needs to maintain open communication channels with local communities and leaders to engage in dialogue and understand socio-economic issues, establishing an agenda of partnership and cooperation.
How can changes in Fair Trade negatively impact the supply chain?
One negative impact would be the possibility of necessary changes becoming contingent upon any form of certification that is not accompanied by the gradual maturation of processes, systems, and personnel required to adopt such a model.
Experience has shown that bureaucratically imposed practices are not sustainable over time and tend to foster "parallel markets" where certification mercenaries and large corporations ultimately profit.
The greatest challenge for Fair Trade in times of crisis is for companies to adopt a mindset that prioritizes people over profits. Everyone includes mission, vision, and values in their corporate messaging, using phrases like “People First” or “Customer Obsession,” yet executive compensation targets and models do not align with this, or scarcely incorporate criteria outside the financial realm.
It may sound idealistic, but there are real-world examples to follow, such as entrepreneur Hamdi Ulukaya—founder of Chobani, one of the world's leading Greek yogurt brands—who drew attention by asserting that CEOs needed a new business playbook, dubbing it the “anti-CEO playbook”.
Through Chobani, an empire was built from an old yogurt plant acquired in New York that was on the verge of closing. Technical training schools were established in the town, alongside a baseball field for the local community, reviving the regional economy and retaining 100% of the employees—even the most senior staff. Chobani's founder does not believe profits and social value creation are mutually exclusive; in his words: “If you are doing right by your employees, by your community, and by your product or service, you will be more profitable, more innovative, you will have more purposeful people working for you, and your community supporting you—this is the new CEO playbook.”
