Rural Development-Exploring the concept of Fair trade
This personal view post is an aim to explore the concept of Fair trade, and how it can be used as a comparative advantage in a community to boost its market.
What is fair trade?
According to the Fair Trade International, Fair trade can be understood as:
“… An alternative approach to conventional trade and is based on a partnership between producers and consumers. Fair trade offers producers a better deal and improved terms of trade…Fair trade offers consumers a powerful way to reduce poverty through their everyday shopping.”
Although helpful, this definition may result in misconceptions of what really is Fair Trade.
First of all, Fair trade is not a brand and should not be seen as one. It is a result of a movement that relies on complex networks that fight an unfair trade system and dismantles the debt mechanism that has its impacts in the way trade works. It is a way to push markets to behave competitively, if we take in to account that cheap commodities result from political mechanisms of debt and that the real competition occurs between governments to favor big corporations or jobs for its impoverished people.
Also, Fair Trade does not mean being organic. Fair trade is concerned about obtaining a product’s fair price and not a product that is a result from pesticide-free crops. In fact, an organic product might have been a result of crops where human rights are not respected. The two types of certifications might coincide in the same product or not.
So, in few words we can say that Fair trade is about being competitively fair.
Fair trade is a comparative advantage for a community
As a way to develop my idea, I must first define the concept of comparative advantage. The concept as its roots in David Ricardo’s theory that each country in as the capacity to produce a product better than other countries due to its marginal and opportunity cost
If we consider the actual market and the increased concerned by society about the environment and human rights worldwide, communities who are capable to implement cooperatives or associations of small producers and that are able to produce export goods that fit in these concerns have a comparative advantage.
A comparative advantage depends on where you stand. From the perspective of a small farm producer’s community, I believe that the high demand for certified products in our actual supermarkets can make their production more profitable. This new consuming passion can protect communities from their countries policies of producing a single export crop for the conventional markets. For example, if the price of conventional cocoa goes down, those who produce fair trade certified cocoa will be playing in a different market where the high demand will make the price more stable.
Boosting the Fair trade market
When boosting the fair trade market we need to think about two main groups: consumers and producers.
Awareness is the main tool to work with them. From the consumers’ perspective it is true that those more likely to buy Fair trade products are people concerned about environment and human rights. Movements that make people aware in importer countries should be taken place with the use of stronger campaigns. It is necessary to keep our citizens pushing big retailers to sell more fair trade products or raise their product’s standards.
However, dramatic changes afoot will require a sales tax reduction on fair trade products as a way to contradict somehow the unfair agricultural subsidies practiced by Europe, USA, Canada and Australia.
From the producers’ perspective, it is necessary to convince the value of fair trading through demonstrating the real difference between fair and conventional trade and that this alternative benefits them. Also, these communities should establish their own fair trade principles apart from those established by Fair Trade organizations.
They also should incorporate organic production methods. This would make them reach the organic market and promote their products as healthier.
To Conclude, Fair trade is still a market where much must be developed and where its message of trust should be kept.
If you want to check more information about this topic:
Fair trade International- http://www.fairtrade.net/
Faire trade federation- http://www.fairtradefederation.org/
Negligence Risk Management… ENRON & Arthur Andersen
When we talk about the importance of Risk Management, one of the most famous cases in history in the sector of accounting and auditing, that must not ignore, is what happened with the well-known Enron Corporation and the prestigious Firm Arthur Andersen LLP, and their tragic ends in 2002. What I describe below is not the failure of a project, is the collapse of two companies that made a negligent risk management process, which transformed against them, creating a situation never seen before in the industry.
For this we have to take a trip back in time to the beginning of this century, mention the actors present in this story, and remember what were the factors that have led so precipitous drop, professionals of this segment will never forget the business, which in turn led to a risk management framework much more rigorous.
The Protagonists
The firm Arthur Andersen was one of the five largest firms that provide accounting services, audit and tax issues on the early years of this century, they had operations around the world, and was headquartered in Chicago, USA. In the opinion who write this post who had experience in the aforementioned sector, this company from outside enjoys a fantastic prestige among its stakeholders. The Firm’s philosophy is based on high standards of Quality and Risk Management where every step is done with strong care and also attached to a scheme of work used globally, this basically means that all actions are performed had a previous scheme for execution.
ENRON Corporation – The Company
The fastest growing energy company in the 90s in the United States, a fantastic example of fast-growing in the US, the key to its exponential growth process is the birth of the company, a merge of Houston Natural Gas and InterNorth in 1985, both companies were located in Houston Texas. The operations of the company were significant and with high levels of profitability, enabling it to quickly enter a golden circle among the largest U.S. energy companies, so they decide to enter the world of the stock market which eventually their shares reaches record figures of US. $90.56, if we take into account the companies for that specific time, but what would follow would be one of the biggest collapses of American Energy Company to remember the date.
How did we get here?
For those not familiar with the world of large audit and accounting firms, it is essential to understand the functioning of these entities, I would initially indicate that the information described below is based on previous experiences I have had as a professional in this business sector, also some of these details may not be accurate considering the limitations of time where we were and the time in which these events occurred.
Arthur Andersen was a professional services company where basically the primary service is provides assistance to companies in the audit development processes as independent reviewers, in order to express an opinion on the financial statements of the company. This can be seen like a rigorous examination, of the accounts of Financial Statements of the organization and its subsidiaries in accordance with accounting regulations present to date, specifically those known U.S. GAAP – United States – General Accepted Accounting Principles, these standards form the backbone of management risk of companies engaged in this business.
The revisions of the financial statements of Enron at the beginning of the business relationship does not show anything wrong, in fact, its shows that the company obtained significant gains year after year without irregularities, they were a rocket at that time, and this was transformed into a steady improvement in the price of the shares in the US Stock Exchange. The result was that within no more than 10 years the company had grown around the world, the results were so strong that every day more people invest money in the shares of the company; of course they had the support of prestigious firm, a perfect business marriage.
During 2001, the price of Enron shares began to decline significantly, for instance at the end loss its entire value, which in turn began to hear rumors of the legality of the financial statements of the company. Meanwhile the Security Exchange Commission (SEC) regulator of U.S. public companies began to establish a special interest in this company, and through rigorous reviews, found widespread irregularities in the financial statements of the company, these had “not been seen” by the Firm, however after a while they saw how some of the top partners of the defunct Firm breached their own review protocol of the financial statements, also violated its internal ethics codes, the key element of the risk management of these businesses.
The Consequences
Once the fraud was found it, the irreversible consequences hits both entities with strong force, ENRON had to adhere to Chapter 7 of the law of the U.S. Federal Reserve, that means the company declare into Bankruptcy, and seeks the protection of the American Government. They shows fake numbers of its operations in the financial statements, taking advantage of their results in their times more buoyant, achieving high profits of the investment products that were sell to American citizens through the sale of shares.
Arthur Andersen immediately had a devastating effect. Without precedent they loss the prestige achieved it by 90 years of operations around the world. In fact some of the most important partners of the firm were prosecuted and sentenced to prison for committing a federal crime (complicity scam). The company was forced to close its doors and thousands of people lost their jobs, some in other countries to date was unknown dimension of the events unfolding in the United States.
The Takeaways
Both companies plummeted, affecting thousands of American investors and employees, why? The answer is in the corporate risk management, they just forgot it!
The desire to grow by ENRON and become a world class company, lead them to take actions that were clearly against their principles as a company.
For the case of Arthur Andersen things became much worse, they underestimate the violation of the rules they did, the regulatory processes, and all this years of hard work were send it to hell. The loss all their prestige gained by all those many years of work.
This story is a world reference when we talk about risk management, some of you will know it, for others it will be a new story, In my opinion is worth telling when we talk about Risk Management.
Thanks for reading…
The physics of rural development: linking climate change to the agricultural sector
According to Newton´s third law of motion “every action on one object is accompanied by a reaction on another, of equal magnitude but opposite direction”.
But I will not speak of physics …
Drawing a parallelism to the environment, ecosystems, production systems and sustainable development of populations it is possible to find the following:
The action
Throughout the centuries, and especially since the era of industrialization, humans have atrociously increased their productive activities rising emission of greenhouse gases, accompanied by a demographic bonus never seen before and incremental pattern of consumerism. This, without neglecting other important factors, has produced today the undeniable existence of climate change.
However from latitude 60th N to latitude 0, from northern border to southern border, from urban to rural populations, from professions to professions, from families with more purchasing power to low-income families, from women to men … climate change is resented differently.
According to the Intergovernmental Panel on Climate Change (IPCC), agriculture was one of the first sectors widely recognized to be heavily affected by climate change.
Having seen the action (anthropogenic emssions). What is / will be the expected reaction?
In the environment itself
There are many changes that can be expected. Just to mention a few that are directly related to the agricultural sector:
- floods and droughts
- Changes in weather patterns and rain seasons
- soil degradation and contamination
- water pollution and scarcity
- loss of biodiversity
Overall, they mean the degradation of ecosystems, the increased vulnerability of agricultural land and loss of resilience of the environment.
Higher and more pronounced vulnerability
In relation to the vulnerability of countries compared to the foreseen economic losses in terms of GDP is possible to observe (figure 1) that are precisely the developing countries, many of which depend heavily on agriculture as the main economic engine and means of survival, the most vulnerable and susceptible to economic crises and food security constraints.
The map shows the forecast for 2030, which is even more delicate because not only is predicted that developing countries continue in a similar situation, but it is foreseen that their vulnerability is increased. Also, according to the Climate Vulnerability Monitor on Agriculture from DARA “Climate change is a major risk for food Insecurity, since a number of the world’s food-insecure regions are expected to experience the MOST severe climate shocks” (Lobell et al., 2008).
Welfare disturbance
The figures speak for themselves. The irrational increase in capital losses due to the effects felt in the agricultural sector will be a major problem. Yet not monetary terms the more worrisome, but the social effects of it.
To name a few:
- Job losses
- Families or entire communities who lose their assets when loosing their land or the possibility of its use
- Mass migration to urban areas
- Hunger
- Extreme poverty
- Increased Mortality
It is then that is possible to make the following statements about the agricultural sector:
- is one of the most important sectors for human life in terms of providing food security and thus life
- is the most affected both intrinsically and extrinsically by climate change and its effects
- is the one that will be largely affected in the most vulnerable countries, while increasing simultaneously that same vulnerability
- is one of the sectors most dependent on the resilience of ecosystems
Reality is that the effects already being felt. Human behavior and climate change (action) on the environment and specifically the agricultural sector (object) is accompanied by environmental, economic and social nature reactions which will impact in the development of societies.
Equal magnitude but opposite direction?
I think not. The magnitude will be even greater for the losses involved and the direction is also the same, the environment and humans.
It is impossible to change the laws of physics, but in the field of climate change, agriculture and human development not everything is said.
What is needed to break the vicious circle?
Hallandsås tunnel project – a failed project?
It sounds like a class room example of what could go wrong when starting a project: 19 years delay, total cost amounting to ten times the initial budget, an ecological disaster due to chemicals used, killing cows and leaving fish dead as well as complaining workers with numbness in arms and legs due to poisoning…well, turns out, it’s not just an example.
Hallandsås is an area in Southern Sweden. Nowadays, trains have to travel over a quite steep and curvy ridge, slowing down the amount of trains being able to pass on the single-tracked railway line. The Swedish government decided that something had to be done about this problem. Constructing a 8.7 km long railway tunnel through the Hallandsås ridge would considerably shorten travel time, as well as allow more trains to pass per hour (24 instead in 4) as a double-tracked railway line would be put in place. This means that trains would not have to wait if there was already another train coming from the other side. Not only will it be connecting major cities such as Malmö and Gothenburg, but the tunnel was actually part of a European wide plan, eliminating bottlenecks within the European railway system, which had been slowing down transportation. Transportation via rail is much more environmentally friendly than via road, and so the EU had decided to improve its railway system in order to reduce emissions. The Hallandsås ridge was one of the biggest bottlenecks still within the EU.
The Hallandsås tunnel was a project given by the Swedish government to the Swedish National Railway Authority (Banverket). Work on the tunnel began in 1992 and was supposed to finish in 1996. The contracting company at this time was Kraftbyggarna. Soon after they started boring with an open-tunnel boring machine, it became obvious that this would not work. Hallandsås rock is extremely muddy. This had been studied before the start of the project. They resumed work using a “Hallborr” which is supposed to advance 100 m in one week. After only 13 meters, the machine was stuck. Skanska became the new contracting company and continued by blasting its way through the ridge. However, there was a lot of water and so to stop the leakage, Skanska used “Rhoca Gil” a chemical sealant containing acrylamide and N-metylolacrylamide, produced by Rhone-Poulenc in order to water tighten the tunnel.
But unfortunately, the story didn’t end here.
Farmers near the construction site started complaining about their cattle becoming paralyzed and fish were found floating dead in the nearby lakes and rivers. The groundwater had become poisoned. Immediately, the Swedish government warned the inhabitants of the region, telling them to not drink the water from their wells. After testing, a total of 29 private wells were found to be poisoned. Luckily, no people died of poisoning, but 370 animals had to be slaughtered and a total of 330 000 kg of milk had to be thrown away.
What had gone so terribly wrong? It seems that Skanska did not take any specific precautions when using Rhoca Gil, even though it was known that the bedrock was extremely muddy and the previous testing of another 80 sealants had proved to be unable to withhold the large amount of water. Of course, trials followed suit, where the Swedish government and Skanska had to pay compensation. Skanska tried to sue Rhone-Poulenc, claiming that they had not been straightforward with their product. However, this was denied by the Swedish court, showing that misuse could not be attributed to Rhone-Poulenc.
The analysis of this project is an example of disaster. The argument that nobody expected the rock to be so weak is faulty, as in-depth studies were done showing that the area is extremely wet and the rock mostly mud. Clearly there was bad communication between Skanska and Rhone-Poulenc, as well as within Skanska itself, as wrong construction methods were being employed, leading to improvisations and having huge environmental consequences.
In 2015 the project will be completed and nobody can deny the companies that success. However, in terms of project management, it should be deemed a complete and utter disaster.
Risk and Opportunity Management for Corporate Social Responsibility
Recently, we have been discussing the theory and importance of Risk Management in project planning and management. In order to manage risks in a project, there are several tools used to plan for all possible negative impacts on a project. Project managers fill out several charts, analyzing the likelihood, severity, impacts, warning signs for each possible risk. They construct a specific budget for necessary preventative measures and possible contingency plans required to mitigate these risks.
In Risk Management, some big questions have to be answered: whats the likelihood of this risk happening? And how much (money, time, resources, etc) is it going to cost me?
One interesting topic discussed was the recent emergence of opportunity management as a core strategy to help design a project. The conversation got me to thinking about the utility of managing your opportunities. Incorporating opportunity management in projects, specifically, in the analysis of Corporate Responsibility projects, could have a large positive impact in helping to change popular opinion surrounding the topic.
Often, Corporate Social Responsibility (CSR) is viewed by companies as an expense. CSR projects are added costs that must be undertaken in order to gain reputation in the market and/or in order allow a company to maintain “business as usual” practices.
The CSR sector is working to shift away from being thought of as “philanthropy”. CSR professionals are trying to make social and environmental responsibility part of the company’s main goals and core functions.
So, what if the idea of CSR being a “necessary expense” could be turned into a belief that CSR can, and does, bring added benefit to a company’s bottom line? (and even more benefit if a company is considering its “triple bottom line“)
This is where opportunity management comes in. It answers the big question: what opportunities and benefits (time, money, reputation, environmental protection) can I gain from this project?
Some companies are already thinking in terms of opportunity and benefits when creating and institutionalizing their Corporate Responsibility. Take Starbucks as an example, who has pledged to support fair trade coffee farmers and has been working on ways to decrease waste in their production lines and stores. Now, many customers see Starbucks as a company that is socially responsible and has better business practices. They are not perfect , but they have been able to improve their corporate practices and benefit from these effort.
Another really great example I read recently was by Libri, a Hungarian specialty book retailer looking to penetrate the book market in Romania. The company had several obstacles to face:
The language barrier – typically, book retailers stay within native language markets or distribute in other markets in their native language
The low book sales in Romania – only 17% of Romanian citizens bought books in 2006, compared to 54% in the US and 82% in Hungary
Strong competition – their main competitor already had 71 stores throughout the country
History – The two countries have a long history of border disputes over Transylvania.
So what did Libri do? They put together a CSR project dedicated to focusing on each group of stakeholders: suppliers, employees, and their customers/community. One specific project to note: the D.E.A.R. (drop everything and read) Program, in which employees took 2 hours out of their work week to go and read to children at local public schools.
In the end, through these projects the company was able to penetrate the market. They gained the reputation of being a company that had real and meaningful corporate responsibility.
Now that is true opportunity management.
No money? Doesn’t matter! We have a new social coin! @monedaTEJA
The economic crisis affecting Spain and the rest of the European countries is having a negative impact in the society, in terms of employment, professional growth and quality of life.
Unfortunately quite often the most affected sectors are the health and education ones, because of the government investment reduction and financial cuts. Health and education though, are necessary for the human and economic development of our society.
tejeRedes, the social organization aimed to boost creativity and innovation through communities and social grids, together with Somos Más, is introducing a new economic value, sustainable and in line with some trends we are seeing in the last years: social networks, co-creation, collaboration, etc.
Starting from a shift from an economic point of view to a “knowledge point of view”, tejeRedes & Somos Más are implementing and promoting a new coin and a new way of paying for its workshops and seminars: the monedaTEJA.
In this way these organizations are giving the chance to get knowledge and experience to all those people affected by the crisis too and that would rather prefer to avoid extra expenses.
The value of this new coin is related to the networks generation capacity, furthermore using the social coin is a new way of connecting people, sharing information and communicating.
Let’s have some additional information..
During the last workshop I attended here in Madrid (Circo) I had the chance to choose between different ways of paying for my attendance (despite the chance to pay with euros..).
The possibilities were:
1) Write and publish 1 or 2 posts related to the workshop or to my personal experience within 15 days
2) Publish 10 or 20 different contents on twitter or google+ or facebook within 15 days
3) Spend 1 or 2 hours aimed to create nets and networks between people, in virtual contexts (like skype, video conference, etc) or through proper seminars
The teja coin (monedaTEJA) has a time, social and knowledge value and it is a new social technology aimed to create awareness, to share information and enhance collaboration. 1 single TEJA coin corresponds to 1 hour of shared knowledge, of networking, or to 10 euros.
I personally see monedaTEJA as a first step to get closer to a sustainable development and as an initial “shift” from the economic to a human development approach, where people and their knowledge and experiences are at the center (R. Chambers and A. Sen development theories) and not only the money.
Thank you very much tejeRedes & Somos Más!
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For more information:
monedaTEJA: Twitter @monedaTEJA and website
Human development and economic development, previous post.
Natural Resource Management Session Slogans
Blog post for the subject Environment & Natural Resource Management. We had to create slogans that captured the content of each session….
Session 1 : Introduction to Environment & Natural Resource Management
Habitation, Population, Regeneration: just some of the key principles for environmental preservation
Session 2: Biodiversity and Environmental Impact
Biodiversity: power in numbers
Session 3: Sustainable Management of Natural Resources
(Inspired by Trainspotting)
Choose life. Choose renewable. Choose recyclable. Choose Inexhaustible. Choose sustainable management
Session 4: Social Factors & Natural Resource Management
If poverty proliferates, environmental exhaustion eventuates
Poverty and environmental protection: can you do the dissection?
Session 5: Environmental Pollution
Pollution as a Boomerang: you can try and throw it away but it will come right back at ya’
Pesticides as pollution. Pollution as a pest. Who are the polluters and who are really the environmental pests?
Session 6: Market Tools that Support Sustainable Resource Management
Certification: promoting responsible industries and empowering consumers
Course Summary Slogan
The Future of Natural Resource Management: Policy that Promotes Natural Processes
Certification Schemes in Properly Managing our Environment
One major question I seem to struggle with all the time is how to know whether or not we are making smart choices as consumers.
How do we know whether or not the fish we are eating comes from an over fished lake or river? How do we know if the Ikea table we bought is made from wood sourced from a logging company contributing to deforestation?
To answer this question, lots of organizations have come up with certification schemes to help show customers, with a “seal of approval” label, that products are fair trade, sources responsibly, etc. Unfortunately, not all of these certifications may be as credible as one would hope.
Here are a few things to look for:
• Compatibility with international frameworks for certification accreditation and standard setting.
Accreditation Service International, for example, is a third party accreditation agency certifying the standards and integrity of other certification schemes.
• Globally applicable principles that balance economic, ecological, and social principles.
This gives the standards a well rounded picture, and gives all stakeholders a balanced scheme taking into consideration everyone’s needs.
• Meaningful and equitable participation of all major stakeholders in governance and standard setting.
This allows all stakeholders to have an equitable voice in standards and approve all decisions made to change these standards in the future.
• Objective and measurable performance indicators that are adapted to the local conditions.
• Transparency in decision making and reporting.
All reports should be made available online, but on the certifying organization’s website, and on the website of the corporation or land owner that has been audited. This includes the full report given by the auditor, not just the certification grade, or seal granted.
• A certification process that is free of conflicts of interest amongst parties involved.
• Reliable assessment of the performance of the management of the natural resource and its “chain of custody”
Ensuring that the resource is not mixed with other non-certified resources before it makes it to its buyer.
• Ease of access and cost-effectiveness for all parties involved in the certification process.
• Voluntary participation.
Not all certification schemes have rigorous standards, nor do they have proper auditing processes. One way to check the integrity of a certification scheme is to see whether or not its stakeholders approve of the scheme.
The Forest Stewardship Council (FSC), for example, has done a good job at making sure that they include all of their stakeholders throughout the process. Stakeholders are a part of the decision-making process and the auditing process. FSC publicly announces expected audit dates one month prior to the actual assessment. This allows stakeholders to offer any information or concerns they may have regarding the company being audited to the auditor. Sometimes, stakeholders are even invited along on the actual audit. This transparency allows the organization to maintain is credibility and rigor in the sector. Here is Greenpeace’s opinion of FSC’s work.
Certification schemes can be a very useful tool in helping to sustainably manage natural resources, but they must be credible, equitable, transparent, and accountable.
We must be wary of the green labels we find on our products. Not all of them may be as credible as we may hope.
Session 5: Make a choice, ensure environmental and social progress through certified products!
Natural Resource Management class: Pressnote
Here’s another pressnote written by us! Based on the same WWF Living Planet report as the previous one.
Who’s to Blame? – A Planet in Desperate Need for Change
World Wildlife Fund (WWF) gave in 2012 out their report “Living Planet” where they analyse the health of our only planet and the impact of human activity. Our planet is facing challenges she has never before encountered. Who, where and what is driving her closer to a collapse?
Julia Senninger and Silje G. Hassel – Madrid 26.01.2013
There are currently 7 billion people living on one planet, the planet we all call home. Everyone live their lives differently, some are happy, some are not, some are rich, some are poor, some are high consumers, some are low, some are free, some are not. How we live our lives may be different, but we are all affecting the state of our home. We are all contributing to depleting our resources, but some more than others.
According to the Living Planet Report, increase in income come hand in hand with urbanization, which leads to increasing ecological footprints. Currently, more than 50% of the world’s population is living in urban areas, a number that is only expected to grow. 70% of the CO2 emission in the world can be sourced back to these areas. A hope however is that good planning and effectiveness can slow the emissions down and assist us in reaching an emissions equilibrium, Research show that there are great differences between cities. Some American cities hava a 30% lower per capita emission, than their country average. This is an example on how efficiency in regards to public transport, waste management and lifestyle can have an impact on our overall issues.
In 2050, 67% of the world
will live in a city.
There are, however, the North-Americans who are contributing most to depleting the world’s resources, despite having a smaller population and a lower consumption increase than many other countries. Europe and Asia is also catching up quickly. To involve Africa and the Asia-Pacific region in this discussion is bordering to insulting. It is true that their emissions have increased drastically, with their rapid population growth, over the last fifty years. Despite this, these regions are currently are the only living in balance with the world’s bio capacity.
With the Living Planet Report in mind, maybe we should all start looking at ourselves. What can we do to reach a balance between resources and consumption? We should stop pointing fingers and start acting. What can we do to get our home back? When are our governments going to start to take responsibility?