applying fair trade principles to a manufacturing supply chain - gero leson … version... ·...

Applying Fair Trade Principles

To A Manufacturing

Supply Chain

Gero Leson

Director of Special Operations

Dr. Bronner’s Magic Soaps

WFTO Conference Rio de Janeiro

May 2013

Company Background

• Dr. Bronner’s is U.S. best selling

brand of natural soaps.

• Founded 1948 by Emanuel Bronner,

German Jewish soap maker family.

Came to U.S. in 1927, parents killed

in holocaust.

• Emanuel develops world peace plan,

preaches unity across religious and national

boundaries.

• Prints philosophy on his soap labels

• Versatility and uniqueness makes soap

popular in the 60s counterculture.

Social Responsibility –

Traditionally a High Priority

• Good wages, profit sharing, bonuses and free health care

for Dr. Bronner’s staff – benefits unusual for the U.S.

• Maximum salary capped at 5 to 1 ratio

• One third of pre-tax profits spent on “traditional” charity

• Supported orphanages in Haiti and China,

• Donated 1000 acres to boys & girl-scouts for

campground for disadvantaged children

The Next Generation - 2000+

Grandsons David and Mike and Mom Trudy decided to

apply company vision to its own supply chain

Most raw materials come

from developing countries

� decided to extent idea

of social responsibility to

people & environment in

Dr. Bronner’s supply

chain.

Our Products:

Soaps, Lotions, Balms, Hair Care

Raw Materials

& Value Chains

• Natural Soaps are made by “cooking” fats and oil with sodium

or potassium hydroxide

• Dr. Bronner’s uses select plant-based oil because soap

properties vary with fatty acid spectrum of fatty oils oil:

- Coconut oil creates lather

- Palm oil makes bar soap hard and durable

- Olive oil gives a smooth feel to the skin

• Essential oils added as fragrance: peppermint, lavender,

eucalyptus, tea tree...

• Fatty & essential oils are ~ 90% of Dr. Bronner’s raw materials.

Annual consumption: ~2,500 MT (5.5 million lbs)

Dr. Bronner’s

Value Chain

Coconut Palm

NaOH

Oil Palm Olive Tree Peppermint Leaves

Oil Mill / Distillation

Soap Making Finished Product

Shipping

Blending/

Packaging

`

Nuts / Fruits

Building a Value Chain from

“Clean” Raw Materials• 2003: Switched to “certified organic” raw materials,

concerned about workers’ exposure to pesticides.

• Realized that supply chains were still opaque and

organic ≠ socially responsible.

• We wanted to know:

• “Who makes our oils and how”?

• How can we become involved in developing producer communities

• 2005 began shifting all key ingredients to certified Fair Trade

& organic sources.

• Rationale: 3rd party verification to meaningful, transparent and

retail consumer recognized standards, i.e. organic and FT

Our Path to Fair Trade Certification• In 2005, no FLO-certified suppliers for “our” raw

materials, not even standards

• Evaluated other emerging fair trade standards. Selected

IMO’s Fair for Life

• Standards comparable with FLO – except

– No world wide minimum prices and FT premium

– Allows for contract production – but requires support of

farmer’s organizations

– Responsibility for entire chain may rest with private sector

company

– Notably, this includes value added processing (e.g. coconut or

palm oil production), i.e. focus not just on producers

– U.S. brand is audited for domestic practices and commitment.

Path to A Fair Trade Supply Chain

Two types of Fair Trade sources:

1. Our own projects, through five sister companies.

Responsible for entire chain, always involving processing.

Invested > $ 4 million

2. Purchase from other committed FT and organic projects –

fair pricing, terms, support on certification and technical

issues

• All projects were initiated and are operated by mission-driven

private sector companies

“Our” Fair Trade Supply Projects

Dr. Bronner’s & Its Fair Trade

Companies Today

• Organic / fair trade smallholder projects now supply 90+% of all agricultural raw materials.

• All major ingredients FFL certified, several minor essential oils are not

• Virtually all our finished products are FFL certified – with a FT content of 90+%, far above the FFL minimum of 50%.

• Exception: balms since FT content <50% due to insufficient FT jojoba and bees wax supplies


Companies Today

• First fair trade & organic retail coconut oil in the U.S. from our Serendipol project in Sri Lanka

• Supply palm and coconut oil to committed companies in the EU (GEPA, CTM, Rapunzel)


Companies Today

• Dr. Bronner’s still family-held, no external shareholders to respond to.

• No dividends paid, i.e. freedom to chose what issues to support.

• Projected turnover 2013: ~$ 60 million – (~ $10 million in 2002). Grows by 20% p.a., good profitability.

• 100+ staff in SoCal – 500+ staff at sister companies in international fair trade projects: production, admin & field staff

Corporate Activism &

Fair Trade Promotion

• “Viral marketing” – no paid advertising – word of mouth and reputation

• Corporate activism: Fights for meaningful organic and fair trade standards in cosmetics

• Support GMO-labeling campaigns

• Promote Fair Trade through Retail Events and support of Fair World Project

•

WFTO Principles –

For The Entire Supply Chain

• 1. Create opportunities for disadvantaged producers,

workers and communities

• 3. FT Practices: long-term respectful relationships.

• 4. Payment of fair price:

• 7. Good working conditions

• 8. Capacity building – individuals and community

Dr. Bronner’s projects operate according to WFTO principles

– include the entire supply chain

Sri Lanka Project in a Nutshell

• In 2007, Dr. Bronner’s sister company Serendipol built its own

factory. Now employs 220 people, local villagers & professionals

• Converted 600 family-owned coconut (5000) to organic

production and fair trade principles.

• Processes about 20 million coconuts / year, produces ~ 2,000 MT

of coconut oil/year. Currently undergoing expansion

• Fair prices for nuts, help improve farm fertility, ensure fair labor

conditions on farms and in factory, extensive community

development through fair trade premium

• Project has made major economic impact in host community.

• Supplies Dr. Bronner’s and 4 other EU and US companies

committed to fair trade.

• Shelling machines

• Container loading

Capacity and Expansion

• Current output: 1800 MT of “virgin coconut oil”

per year

• Strong demand by Dr. Bronner’s and 3rd parties

• Current expansion in all sections to 2,500

MT/year

• Value added processing of coconut seed cake,

potentially coconut water

Palm Oil from Ghana

• Palm fruits purchased from 500 organic small farmers –

5 – 10 acres (2-4 ha) per plot.

• Training, soil fertility improvement, replanting with

better yielding oil palm hybrids

• Oil mill employs 200+ people from the village, mostly

unskilled women. Largest employer in town of 20,000

• Good working conditions, better pay, free hot lunch,

health insurance, participatory management

• Fair Trade projects in water supply, health care and

sanitation serve as catalyst for community development

• Better of farms

Capacity and Expansion

• Current output of crude palm oil: 320 MT/year

• Growing demand by Dr.Bronner’s and 3rd

parties

• Modify to improve efficiency and output to

600 MT/year

• Leave manual processing element as is

• Need to improve quality control by controlling

product flow – add 3rd shift during peak

season

Key Issues &Challenges

WFTO Principles

• Buying from smallholders – Fair Trading Practices

• Help farmers improve soil fertility and farm productivity

– reduce sensitivity to global climate change

• Education, staff development, reverse rural exodus

• Job creation – man vs. machine

• Value added use of by-products

• Community development through fair trade projects.

• Challenges: Management & controls, cost and

economies of scale

Prices and Payment

• Mills buy from individual farmers – work closely with their

associations on pricing and logistics.

• Minimum price guarantees profitability. Based on thorough

evaluation of ALL cost of production plus profit.

• Never invoked as market prices have escalated since 2007

• Pricing: market + 10% organic premium, transportation & all

cost of certification

• Prompt payment - no prefinancing since no inputs – interest

free loans on compost, seedlings

• 10% Fair Trade Premium goes into fund for community

projects


WFTO Principles









economies of scale

Fertility Matters

• All our projects started with low yields.

• Good maintenance (weeding, pruning) plus

organic matter expect to raise yields by

~30-50% over 5 years.

• Soil fertility increases profit margins for farmers –

improves resistance to drought conditions due to

global climate change

• All projects support soil fertility – as part of our

organic commitment


WFTO Principles









economies of scale

Certification, ICS and Opportunities

• Smallholder projects require internal control

systems for organic AND FT certification

• Involves the employment of trained

agricultural professional – field officers

• Projects facilitate the return of educated

agricultural practitioners from city to

countryside – overcome the cultural divide

and contribute to community development

Hands-on Cooperation

• Participation of foreign mechanics, farmers, oil

mills facilitates training and development of

staff – globalization on a person-to-person

basis.


WFTO Principles





• Job creation and staff development – man vs. machine




economies of scale


WFTO Principles






• Value added use of by-products – More sustainability



economies of scale

Fair Trade Premium & Projects

• Customers (Dr.Bronner’s and 3rd parties) pay 10%

fair trade premium on price of fruits and labor.

• Generates some $ 50 – 200 K /year depending on

project size.

• Used for community development projects

selected by a committee involving all

stakeholders.

• So far 500 projects – small and large: health care,

education, water supply, soil fertility

• Compost plant


WFTO Principles






• Value added use of by-products – More sustainability



economies of scale

WFTO Principles – For The Entire

Chain

• 1. Create opportunities for disadvantaged producers,

workers and communities

• 3. FT Practices: long-term respectful relationships. pricing &

payment terms to farmers / Regular and fair business

between Dr. Bronner’s companies and foreign buyers.

• 4. Payment of fair price: always profitable – premiums

(organic, quality of products)

• 7. Good working conditions (safety, respect, personal

development)

• 8. Capacity building – individuals and community

Commercial Fair Trade Projects –

An Opportunity

• Demand-driven commercial fair trade projects can

promote rural development as part of a trade relationship.

• A committed FT company offers demand, management

skills, technological and agricultural know-how, financing –

all key to sustainability

Fair Trade:

Good Management With A Strong Focus On

Community Involvement and

Empowerment?

What’s In It for Us ?• Dr. Bronner’s has spent some $ 4 million to set up our own projects

and pays significant premiums over “just organic” raw materials.

• Our fair supply chains give Emanuel Bronner’s vision of cooperation

between people and planet a modern content.

• The value in fair trade outweighs the cost – philosophically AND

economically:

� Control your product quality,

� Know your suppliers & support development of their communities,

enjoy the interaction.

� Well positioned and respected as a pioneering and credible brand in

an emgering field: organic and fair trade body care. Our growth and

profitability speak for themselves.

� We are inspiring other companies in the Natural Products Industry to

“Go Fair Trade”

THANK YOU

Oil Palm

Farmers

Basic Tenets of Organic and Fair

Trade Agriculture Projects

• Organic:

– no use of synthetic fertilizers, herbicides and

pesticides

– Improve soil fertility through natural means

• Fair Trade:

– Fair prices to farmers paid – prompt payment

– Fair wages and working conditions in field and factory,

no child labor

– Customers pay Fair Trade Premium to finance

community development projects

– Empowerment – of farmers and other stakeholders

So What Again is

Organic and Fair Trade?

• Farmers and workers can earn a living, are treated as partners, and

have potential for personal growth.

• By attracting educated, motivated technical and managerial staff, FT

supports rural life as an alternative to moving to the City

• Formation of farmers groups and associations supports

empowerment

• Organic farming and recycling of nutrients improve soil productivity

and yield and makes small-scale farming more profitable. Eliminates

exposure to pesticides / herbicides.

• Fair Trade premium train communities to execute projects.

Extracurricular projects promote business development.

Dr. Bronner’s Philosophy –in Two Lines

“We are brothers & sisters of the same ever-loving

father, and we must

work together to take

care of each other and

the earth.”

applying fair trade principles to a manufacturing supply chain - gero leson … version... ·...

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