Demand for Fair Trade products is rising as people become more aware of how their food and other products are made. That makes the Fair Trade market a growing opportunity for small business owners. While companies sell Fair Trade food, clothing and bedding products because they believe in being socially responsible, the goods can also be part of a marketing strategy, says Russell Winer, a marketing professor at New York University's Stern School of Business. Sixty percent of shoppers are willing to pay the higher prices that Fair Trade items tend to have, according to a 2013 study he co-wrote.
This is how it works. Goods — coffee is the best known, but there's also chocolate, sugar, coconut, cotton, tea, flowers, nuts, fruits and vegetables — are certified as Fair Trade by a handful of organizations around the world. They pledge to visit farms and production areas to inspect working and living conditions.
In return for the certification, product manufacturers pay a premium. For coffee, it's 20 cents a pound; for chocolate, $200 per metric ton. This cost is usually passed on to shoppers, who can tell products are certified by labels on packages.
No organization tracks the amount of Fair Trade products sold in the U.S., but Fair Trade USA, which says it certifies 90 percent of the products in the country, estimates the domestic market at $2 billion, just a sliver of U.S. grocery sales. It bases that number on a 2011 estimate by Fairtrade International, a global organization that sets certification standards for Fair Trade products.
At Whole Foods supermarkets, some customers specifically request Fair Trade goods, says Dwight Richmond, a purchasing executive at the chain. Whole Foods has increased its selection of Fair Trade chocolate by 350 percent in the past five years, he says.
PACT clothing, which sells garments made from organic cotton, launched a line of Fair Trade clothes this year. It started selling T-shirts at 70 Whole Foods stores in the Midwest, California and Texas, and sales were so strong that the chain has ordered shirts for more of its U.S. stores, PACT co-owner Jeff Denby says. His San Francisco-based company buys cotton directly from farmers in India and has the clothes manufactured in a factory there.
"We keep getting requests from stores every week but we can't keep up with the demand," says Denby.
While Fair Trade represents a growing opportunity for small businesses, it is still a tiny part of the market for food and clothing. U.S. supermarkets had $620 billion in sales in 2013, according to the Food Marketing Institute, a trade group for the supermarket industry. Shoppers are more likely to find Fair Trade items online or in stores that specialize in organic or natural foods — in the coffee aisle at a Manhattan grocery store, just two out of 130 separate brands and roasts had Fair Trade labels.
The growth in Fair Trade products has also been helped the last few years by the recovering economy. Shoppers aren't as concerned about frugality as they were during the recession, says Winer, the NYU marketing professor.
"In a recession, private labels start to sell better and many products that are trying to get a premium for socially responsible behavior are squeezed a bit," he says. His study says the average premium, or price increase, on Fair Trade products is 17 percent.
Although Erin Meagher pays about 4 percent extra for Fair Trade coconut oil, that hasn't hurt sales of her products, sold under the name Kelapo. They rose 132 percent in 2013 after climbing 258 percent in 2012. Meagher expects another triple-digit gain this year for her Tampa, Florida-based business.
Meagher says she could make more money with oil that isn't Fair Trade, but she believes in being socially responsible.
"We're not going to trade that off for the extra little bitty profits we would make," she says.