Can Equitrade REALLY "end poverty..."?

I have recently discovered a new trading concept called "EQUITRADE" which claims that it can "end poverty..." According to information published on its website ( www.equitrade.org ), it claims that:“ Equitrade facilitates added value international trade to end poverty in poor nations and aims to end poverty through sustainable commercial international trade.” It further claims that "Equitably traded product creates a more equitable share of the value for the poor nation", by adding-value to local commodities in the country of origin, instead of exporting raw agricultural commodities to be processed in the industrialized countries.Please see www.equitrade.org for details.Unfortunately, there is no quantitative data to support the poverty eradication rhetoric preached by the Equitrade model. I have written to Equitrade to obtain quantitative data, figures and facts to demonstrate how the wealth generated though local value addition is shared equitably, “more widely” and “fairly” among the different local actors within the supply chain ( i.e cocoa farmers, plantation laborers, factory workers, etc.), thus allowing to effectively and accurately measure the impact of this model on "ending poverty".Unfortunately (but not surprisingly), Mr. Terry Horne ( Chairman of Equitrade and of Malagasy (the first Equitrade chocolate company in Madagascar) has failed to provide quantitative data, figures and facts to support his poverty eradication rhetoric.Please find below a copy of the letter addressed to Mr. Terry Horne on this and other important issues and questions relating to the Equitrade model and his response. I welcome your comments and reflections. Thank you.

COPY OF LETTER ADDRESSED TO EQUITRADE AND RESPONSE BY MR TERRY HORNE, CHAIRMAN OF EQUITRADE AND OF MALAGASY.---------- Original Message ----------------------------------From: AryaDate: Fri, 18 Aug 2006 13:51:47 +0200 (CEST)>TO: EQUITRADE> Langthwaite House>Lancaster>LA2 9EB>United Kingdom>

To whom this may concern,

I have recently discovered and read about the "equitrade" trading system. I agree in principle that the solution to reducing poverty in so-called developing nations is to add-value locally to primary commodities. However, I would like to get more information on this initiative as I could not find any information relating to the following important issues:>> 1) Equitable distribution of wealth generated through local value-addition>> According to information published on your website, you claim that: "Equitably traded product creates a more equitable share of the value for the poor nation".>> However, could you provide quantitative data to demonstrate how the wealth generated through local value addition is shared among the different local actors throughout the local supply chain ( i.e. farmers, laborers, factory workers, etc.) Furthermore, how is the price paid to local farmers for their commodities determined (ex: cocoa in Madagascar) and what percentage does the price paid to farmers for their commodities represent vis-a-vis the final retail price of the final product sold to consumers? What is the average monthly wage paid to factory workers in your chocolate factory in Madagascar?>> 2) Martket access>> How does Equitrade overcome the insurmontable trade barriers ( i.e. escalating tariffs, import tariffs, quotas, etc. ) erected in industrialized countries such as the EU against value-added products originating from developing nations?>> 3) Local tax revenue>> In your model, ( with the madagascar chocolate example), 11% of the revenue generated from local-value addition would be allocated to tax revenue for the government with the stated objective to: "Pay local taxes in a due and timely manner, so that education and health needs can be funded by local government.">> How can you guarantee that this amount will in fact be dedicated to "education and health" and other social development projects by the recipient government? What mechanisms have you put in place to make sure that the tax revenue generated from your project will indeed benefit the local population and serve the development needs of the country as a whole?>> I thank you for shedding some light into these interrogations and I look forward to hearing back from you in the near future.>> Best regards,>> Arya Tajdin.>

Copy of response from Terry Horne, Chairman of Equitrade:

Dear Arya Tajdin,

Thank you for your interest in Equitrade and your interesting and useful questions.Not all your questions are new and many we have needed to ask ourselves. Some we have answered already for other organizations.I will take your questions in the order they appear in your letter:1. Distribution of Wealth(a) Share between farmers and labourersWe encourage the formation of co-operatives, governed by the rules of the International Cooperative Movement. Cooperative surpluses are shared between farmers and labourers, according to these rules.(b) The price paid for commodities e.g. fermented cocoa beans in MadagascarThe price is determined by local market conditions and, since Malagasy have the opportunity to add value locally, Malagasy can afford to pay more than the export agents. This is turn enables growers to bargain for a better price from the exporters, since they have an alternative outlet.Last year, beans typically traded at around £400 a ton (a premium over average world commodity prices-perhaps because of our promotion of Malagasy chocolate and Madagascar products generally?).Fairtrade buyers (mainly from France) paid around £500 a ton-a premium of around 20-30%.At the moment, we are paying the farmers about £600 a ton which is better than the bestfair-trade price available in Madagascar.(If market conditions so dictated, Malagasy might be able to pay up to £800 a ton (double the world commodity price for similar beans) and still create sufficient added value in the Malagasy chocolate factory to support its inward investment in market and product development. This would again increase the bargaining power and price for other growers and pickers on the island and could positively affect the world price of beans, especially Criollo beans).(c) The percentage of the final consumer priceAs a percentage of what?Equitrade cannot control the end prices paid by consumers- that is determined by retailers.When Malagasy Mora Mora chocolate sells at a premium in gourmet London West End shops like Fortnum and Masson, that makes the percentage paid in Madagascar seem smaller, but when Sainsbury retails a 100gram bar for £1.27, or Booths wish to do a promotion of 2 bars for £2, that makes the local percentage seem higher. What Malagasy people need, is not percentages, it’s money. And that amount of money stays the same, whatever the retailer does.The money received is about 10 times more than the money previously received for unprocessed beans. The percentage that that money represents of the UK consumer price, depends on the promotional policies of the UK retailers.Equitrade cannot (and do not wish to) control the pricing policies of retailers. That is the retailer’s business and the retailer’s expertise.(d) The average monthly wages paid to factory workers in MadagascarAgain these are determined by local market conditions. Any different arrangement would make Equitrade an unsustainable solution to poverty.Having said that, Malagasy factory workers earn about 5 times more than pickers and growers. On the other hand, the living costs of factory workers are higher. Unlike their rural cousins, they need to rent housing and pay for utilities, electricity, local taxes etc. Their rural cousins often have no utilities and often their taxes are not collected.[Incidentally, Arya, teams of investigative journalists from the Guardian newspapers group have visited the growers and the pickers, the plantations and the factory, and have written lengthy (and positive) evaluations of the quality of Malagasy and the economic impact of Equitrade. Perhaps, you can trace their reports on their websites (www.societyguardian.co.uk and www.observer.co.uk/food-monthly)]2. Market AccessHow does Equitrade overcome insurmountable trade barriers?Equitrade does not overcome insurmountable trade barriers.By definition, if the barriers are really insurmountable, Equitrade cannot surmount them.In the case of Malagasy chocolate, marketing techniques were used to create consumer demand and an economic case for entry to the European market. EU officials were very helpful- they too have targets to meet for percentages of trade from developing countries and many local government authorities have set targets for the availability of Fairly Traded or Ethically Traded goods in the towns and cities for which they are responsible.For example, our local town, Garstang, was the first Fair Trade Town in the world, and Preston, our nearest large city, has just become the 50th Fair Trade City in Europe. [Incidentally, Arya, the limitation on the spread of Ethical status to EU towns and cities is availability of supply!].In the case of dairy products, the barriers remain unsurmounted, for the moment. Madagascar does not collect sufficient tax to provide the veterinary control infrastructure required to meet EU standards. (Eventually, Equitrade will help with that, because factory processors are easier to tax than rural pickers .You cannot pick up a factory and disappear with it into the forest!).Equitrade is based on Noetic Applied Thinking (see www.noeticassociates.co.uk) and ways have been found through the barriers that could not be surmounted.For example, the populations in the rural areas- especially in the coastal forest- were found to be decalcified. Cows were imported from New Zealand and ways found to keep them cool. Cheese and yoghurt are made from the milk. Cheese and yoghurt can be traded for commodities which can be processed and exported to the EU. In this way, hard currency is still earned for Madagascar and the bones of the Malagasy children are healthier on the higher calcium diet.3. Local Tax RevenueCan Equitrade guarantee that tax will be spent on education and healthNo, Equitrade cannot guarantee that tax will be spent on education and health.What we can say is that no taxes collected equals no pay for teachers and doctors.When there is tax revenue, the people in developing countries want it to be spent on health and education, not on arms and palaces, for example. The task is to help government to be more responsive to the wishes of their people.Noetic analysis indicates that political change is more likely to follow economic change and that economic change is more likely to be led by technological change. Hence, Equitrade emphasizes the use technology and knowledge transfer, especially marketing knowledge, to enable the economic retention of higher added value in developing countries. Political changes driven by government’s desire or need, to please or appease, the people, will follow (as Noetic thinking predicted they would in Eastern Europe, and today predicts that they will do in China).In the case of Madagascar, workers in food factories helped to organize the rural vote for a democratic President. As the time now approaches for the President to seek re-election, the President is able to demonstrate to the people the progress that has been made in the areas of jobs, health and education.Finally………………,I am sure that our responses are not all that you hoped or expected.However, we do hope that you will continue to help us think about the important issues which your useful questions have raised. You ask questions that are already in our minds and surely, in the minds of others.May we print your letter and our reply (and perhaps your subsequent responses!) on our website?Thank you.Terry HorneChairman, The Equitrade Foundation

COPY OF MY RESPONSE TO MR. TERRY HORNE'S ABOVE RESPONSE

Dear Mr. Terry Horne,

Thank you for your response to my inquiry dated 18 August with reference to Equitrade. I have gone through your answers to each one of my specific questions, but unfortunately you did not provide answers to the following formulated specific questions:1) Equitable distribution of wealth generated through local value-additionPreviously formulated question:According to information published on your website, you claim that: "Equitably traded product creates a more equitable share of the value for the poor nation". However, could you provide quantitative data to demonstrate how the wealth generated through local value addition is shared among the different local actors throughout the local supply chain ( i.e. farmers, laborers, factory workers, etc.)Your answer1. Distribution of Wealth(a) Share between farmers and labourersWe encourage the formation of co-operatives, governed by the rules of the International Cooperative Movement. Cooperative surpluses are shared between farmers and labourers, according to these rules.There is no available information on your above-stated claim in your model (i.e. what mechanisms have you put in place to encourage the formation of co-operatives? Furthermore, are these cooperatives encouraged to take part in value-addition activities ( if so, what support do you or your model provide to enable cooperatives to process & market processed commodities?) or is their role simply to supply Equitrade companies such as Malagasy with non-processed primary commodities?With reference to my initial question:According to quantitative information published on your website, you claim that under Equitrade ( with the Malagasy chocolate example/model), 51% of the value of the product is retained in the country of origin, out of which 11% of the revenue generated is paid in taxes to the government and the remaining 40% is retained and distributed within the local supply chain.QUESTION? Local value-addition wealth distributional breakdownCan you provide quantitative data to demonstrate how the 40% wealth generated through local value addition is distributed among the different local actors within the local supply chain: (i.e farmers, pickers, etc., transporters, factory workers, etc.)?Previous question: How is the price paid to local farmers for their commodities determined (ex: cocoa in Madagascar)AnswerThe price paid for commodities e.g. fermented cocoa beans in MadagascarThe price is determined by local market conditions and, since Malagasy have the opportunity to add value locally, Malagasy can afford to pay more than the export agents. This is turn enables growers to bargain for a better price from the exporters, since they have an alternative outlet.:Since prices of primary commodities “dumped” (i.e. sold at prices below and unrelated to the cost of production) on the world market are distorted by global agricultural subsidies (+300 billion/year), using “local market conditions” ( which are simply a reflection of world market commodity prices) to set prices of local commodities seems an inappropriate and an ineffective approach to “end poverty…” since ruinously low world commodity prices are at the root cause of poverty in rural economies around the world.Agricultural subsidies leading to structural over-supply are at the root cause of declining agricultural commodity prices on the world market, with disastrous economic and social consequences for small holder farmers living off agriculture and for the countries producing and relying heavily on the export revenue from these commodities. Furthermore, declining world prices lead to further increases in production to make up for the loss in income resulting from lower prices, which in turn leads to further over-supply and further price declines. This is a vicious cycle.Example: Ghana (2nd largest producer of cocoa in the world)In response to declining prices of cocoa on the world market, Ghana increased its production from 320,000 MT to 450,000 MT between 1996 and 2000. This led to an excess supply of cocoa on the world market, with a resulting further 40% decline in the price of cocoa during the same period.“Structural over supply in the commodity market lies at the heart of global poverty and instability.” ( Brandt Report, 1980)Setting prices of local commodities based on actual local cost of production (using –non-exploitative labor practices) seems – in my humble opinion - like a more appropriate and consistent approach to attain your ambitious stated aim “to end poverty through sustainable commercial international trade.Also, can you please provide quantitative data relating to the actual cost of production for small-scale cocoa farmers in Madagascar?Also, what percentage of the cocoa currently processed by Malagasy is respectively grown by small-scale cocoa growers and by private cocoa plantations?Question: what percentage does the price paid to farmers for their commodities represent vis-a-vis the final retail price of the final product sold to consumers?Answer:The percentage of the final consumer priceAs a percentage of what?Equitrade cannot control the end prices paid by consumers- that is determined by retailers.When Malagasy Mora Mora chocolate sells at a premium in gourmet London West End shops like Fortnum and Masson, that makes the percentage paid in Madagascar seem smaller, but when Sainsbury retails a 100gram bar for £1.27, or Booths wish to do a promotion of 2 bars for £2, that makes the local percentage seem higher. What Malagasy people need, is not percentages, it’s money. And that amount of money stays the same, whatever the retailer does. The money received is about 10 times more than the money previously received for unprocessed beans. The percentage that that money represents of the UK consumer price, depends on the promotional policies of the UK retailers. Equitrade cannot (and do not wish to) control the pricing policies of retailers. That is the retailer’s business and the retailer’s expertise.Let me rephrase this question:What is the percentage cost of the price paid to farmers for their cocoa vis-à-vis the export price (FOB Madagascar) of the chocolate produced and marketed by Malagasy?Question: What is the average monthly wage paid to factory workers in your chocolate factory in Madagascar?Answer:(d) The average monthly wages paid to factory workers in MadagascarAgain these are determined by local market conditions. Any different arrangement would make Equitrade an unsustainable solution to poverty.Having said that, Malagasy factory workers earn about 5 times more than pickers and growers. On the other hand, the living costs of factory workers are higher. Unlike their rural cousins, they need to rent housing and pay for utilities, electricity, local taxes etc. Their rural cousins often have no utilities and often their taxes are not collected.Question 2:Can you provide quantitative data (i.e. actual average monthly salary paid to Malagasy factory workers, farm/plantation laborers, and other local laborers working within the supply chain.)[Incidentally, Arya, teams of investigative journalists from the Guardian newspapers group have visited the growers and the pickers, the plantations and the factory, and have written lengthy (and positive) evaluations of the quality of Malagasy and the economic impact of Equitrade. Perhaps, you can trace their reports on their websites (www.societyguardian.co.uk and www.observer.co.uk/food-monthly)]I read with great interest all the articles written on the Equitrade model (with Malagasy taken as a reference) in both the sources quoted above. Unfortunately, I did not find any quantitative data to support the “poverty eradication” rhetoric that your model preaches… Hopefully you can support these claims with supportive quantitative data.Final words…lthough I agree in principle that the solution to breaking the vicious cycle of poverty in sub-Saharan Africa - and in other non-industrialized countries heavily dependent on producing & exporting non-processed agricultural commodities - is to process their commodities locally so as to break free from the dictate of the world market and from the vicious trap cycle of trade distorting global agricultural subsidies, which result in continuously declining prices of commodities on the world, thus further marginalizing and impoverishing small-scale farmers throughout the so-called “Third World”.However, what I question in Equitrade is the EQUITABLE DISTRIBUTION of the wealth generated from local value-addition among the poor local economic actors throughout the supply chain (i.e. farmers, laborers, factory workers,etc.) Local value addition without distributional justice in the wealth created will NOT “end poverty” contrary to claims made by Equitrade. Hopefully, you will provide quantitative data – with quantitative figures and facts – to support these claims and demonstrate the real economic benefits that Equitrade brings to those it claims to help – the millions of poor who are daily exploited, marginalized and excluded from the fruits of global trade.I look forward to hearing back from you in the near future.p.s. You are welcome to publish my inquiries and your responses on your website or on any other media. Thank you for informing me and providing the reference of the source if you chose to do so. Thank you.Truthfully,Arya.

COPY OF EMAIL ADDRESSED TO GUARDIAN AND OBSERVER NEWSPAPER RECENTLY WITH REFERENCE TO THEIR ARTICLES OF EQUITRADE. ( Have not heard back from them yet; will post their response as soon as I get it).

September 24, 2006

TO THE GUARDIAN & OBSERVER

I am writing to you with reference to a series of articles published in the Guardian on Equitrade and the Malagasy chocolate model in Madagascar. In an article called “A square deal” written in the Observer by Lucy Siegle on August 21, 2005, Terry Horne of Noetic Associates (also the chairman of Malagasy) is quoted as saying that “ equitrade will eradicate poverty in Madagascar in 10 years.”Andrew Purvis, in his article on Equitrade published in the Observer on August 14, 2005, further writes:“Terry Horne has advised Tiko ( a company owned by president Ravalomanana of Madagascar) on the management of its factories and shared with President Ravalomanana his strategy for ending poverty in Madagascar.”Excerpts of the article on Equitrade/Malagasy titled “Full of beans” by Andrew Purvis“It is one of the poorest countries on earth, but a chocolate production scheme that involves local people, from growing the beans to shipping the finished product to Fortnum & Mason, could make poverty history on one tropical island, discovers Andrew PurvisIf a system new to Britain, called Equitrade, takes root on the Indian Ocean island 250 miles off Africa, its people could shake off the legacy of being among the poorest 10 nations on earth - by making gourmet chocolate. Jaomanoro's daughter, Rasoaricalaina Anistitia, 15, could realise her dream of becoming a doctor instead of helping with the cooking at home; her mother, Volanosy Augustine, could feed her four children better. Young men such as Tsiminday Wenceslas, 21, might finish their education and not feel compelled to work through their teens. 'It's a back-breaking job,' he says, 'helping my father on the plantation. I cut down 750 pods a day and carry them in 50kg sacks, so I have to be fit….Yet these farmers are the lucky ones…Fifty per cent of Madagascar's population earn less than one US dollar per year, scratching a living from the parched red earth or feeding themselves by fishing. In coastal areas especially, Madagascar seems like a palaeolithic time warp, the fishermen returning by dugout canoe to primitive huts of mud and reeds, lit by lanterns and without running water.Even in the capital, Antananarivo - a shadow of its French colonial past, and brought to its knees by frequent power cuts - people go to extraordinary lengths to earn a crust. When we stop at traffic lights, our 4x4 is besieged by children begging and there are other signs of inventiveness - or desperation. On one side, men shuffle through the rain carrying garbage and bales of collapsed cardboard boxes on their shoulders, hoping for a resale. On the other, a young mother stands under an umbrella with her toddler, trying to sell two bananas and a handful of cashews. She is unlikely to make a dollar a day - the minimum required for a city dweller, according to aid workers.All this could be about to change, however - thanks to a British management firm, Noetic Associates, which is advising Madagascar on how to bring its quality foods to the European market. It has helped set up Malagasy, a company that sells and markets finished chocolate bars. under the system known as Equitrade. A distant cousin of Fairtrade, equitable trade (to use its full name) is likely to bring huge financial benefits to the people of Madagascar - simply by dealing in finished, packaged products rather than cash crops like cocoa beans.According to Neil Kelsall, Malagasy's marketing director,With Equitrade, the proportion of revenue remaining in Madagascar would be 51 per cent (87p per bar) - 40 per cent in added value retained by the manufacturer and packager, plus a further 11 per cent paid by them in taxes to the Madagascar government. This would then be reinvested in the country's Equitrade business.'All it would take to end poverty in Madagascar is £750m a year,' Kelsall maintains, 'but there aren't enough cash crops to do that.' Ninety per cent of the cocoa grown on the 6,000-hectare plantation that Malagasy uses in Ambanja goes to the northern hemisphere. 'If we changed all that to equitable trade, poverty would be ended,' says Kelsall.Eequitable trade relies on private companies - and national governments - to distribute 'added value' fairly. It is a capitalist system that lacks transparency but, by maximising the money in the economy, is said to benefit more people than Fairtrade.The idea that Equitrade can end world poverty is an important change in the message coming from the northern hemisphere. Before, it was all about cancelling the debt of poorer countries which, in my view, isn't the right way forward. Now, it is about those poorer countries actually helping themselves, working with private enterprise to end poverty.' says Marcel Ramanandraibe, head of the group,Finally, in another article called “ New Choc on the Block” published in The Guardian Society by John Vidal on May 25, 2005, Vidal writes “According to Neil Kelsall, Malagasy's marketing director, “Equitrade tries to improve the quality of life of the majority of people in a poor country by increasing the money in the economy…We need more companies to add value in poor countries. That way the benefits are shared more widely and more tax can be collected.REFLEXIONS/QUESTIONS?Terry Horne of Noetic Associates and chairman of Malagasy claims in the above quoted article that “ equitrade will eradicate poverty in Madagascar in 10 years.”Neil Kelsall, Malagasy's marketing director, says that “equitrade tries to improve the quality of life of the majority of people in a poor country by increasing the money in the economy….We need more companies to add value in poor countries. That way the benefits are shared more widely and more tax can be collected.Marcel Ramanandraibe, head of the group says that “the idea that Equitrade can end world poverty is an important change in the message coming from the northern hemisphere. Before, it was all about cancelling the debt of poorer countries which, in my view, isn't the right way forward. Now, it is about those poorer countries actually helping themselves, working with private enterprise to end poverty.Furthermore, the Equitrade website ( www.equitrade.org) claims that “ Equitrade facilitates “added value” international trade to end poverty in poor nations” and “aims to end poverty through sustainable commercial international trade.”Unfortunately, there is no quantitative data to support the poverty eradication rhetoric preached by the Equitrade model. I have written to Mr. Terry Horne to obtain quantitative data to demonstrate how the wealth generated though local value addition is shared “more widely” and “fairly” among the different local actors within the supply chain ( i.e farmers, farm laborers, factory workers, etc.), thus allowing to effectively and accurately measure the impact of this model on poverty alleviation.Unfortunately (but not surprisingly), Mr. Terry Horne has failed to provide quantitative data, figures and facts to support his poverty eradication rhetoric. I am also disappointed to read the same poverty eradication rhetoric in your articles on Equitrade without ANY quantitative data, figures and facts to support these claims.I am hereby enclosing a copy of the letter addressed to Mr. Terry Horne on this and other important issues and questions relating to the Equitrade model and his response.Hopefully, you too ( Andrew Purvis) can provide some facts and quantitative figures to support your claims on how Equitrade “could make poverty history on one tropical islands…” and “ is likely to bring huge financial benefits to the people of Madagascar…”I look forward to hearing back from you in the near future.

Truthfully,

Arya Tajdin.

A seeker after Truth...

THE WORLD IS NOW TOO SMALL FOR ANYTHING BUT TRUTH…