HANDCRAFT VALUE CHAIN ANALYSIS

1
HANDCRAFT VALUE CHAIN ANALYSIS Paul Chandler
2
Terms of reference

• To develop an analysis of supply chain for
  handcrafts to improve the standards and
  procedures of FT so that producers added value
  and market access are significantly increased
  make recommendations to inform setting of quality
  standards and system

3
Terms of reference

• Focus on baskets and jewellery
• Traidcraft Market Access Centre
• Interviews with
• 13 Southern FTOs
• 7 Northern FTOs
• 4 UK mainstream buyers
• 2 consultants and steering group

4
Presentation structure

• EU crafts market potential
• Value Chain Analysis
• Producer impact
• Recommendations
• Discussion

5
EU Crafts market size

• Gifts and decorative articles
• 12.7 billion (2003) 38 imports
• Germany, UK, Italy, France 75
• China dominant source of imports
• Sales through independent shops, department
  stores and mail order

6
EU Crafts market formal barriers

• Few tariff barriers for handcrafts
• Increasingly strict HS regulation
• Hazardous substances (esp if food contact)
  infestation skin allergies recyclable
  packaging labelling requirements etc.

7
EU Crafts market consumer demand

• Growing interest in interior decoration homes
  more central to well-being and self image
  one-off items, to personalise homes
• But functional rather than purely decorative
• Concern for environment/ethics
• Downward price pressure

8
EU Crafts market commercial buyers concerns

• Cheap products high volumes
• Consistent (good) quality standardisation
• New designs design-led product development
• Short lead times on-time delivery agile
  customer service

9
EU Crafts market Fair Trade handcrafts

• Handmade products can be unique selling point
• But will struggle to compete with cheaper
  machine-made products unless quality and design
  superior
• EU FT market 100 million (0.75 of total)
  static, ethical consumer only

10
EU Crafts market Conclusions

• A sizeable potential market
• Mainstream opportunities in more up-market niche
  areas
• But price/quality and service levels will be
  crucial and need to improve

11
Crafts Value Chain

• Short straightforward mainstream and fair trade
  similar
• Mainstream may use agents to link importer and
  exporter (3-15 commission, never own product)

12
Crafts Value Chain NFTOs

• Fair Trade additional services
• FT advocacy advance payments capacity building
  market information capital investment forgiving
  and loyal customers
• But not growing/innovating some lack
  professionalism loyal to existing suppliers only

13
Crafts Value Chain mainstream

• Are also values-led mainstream actors many deal
  with SFTOs
• But care values-led players are not typical of
  the mainstream
• tough price negotiations inflexible slow
  payers not regular orders frequent staff
  changes dont try to understand producers
  situations

14
Crafts Value Chain key issues - sourcing

• Raw material sourcing environmental and ethical
  sourcing of growing concern
• Pricing issues between SFTOs/producers
• how is labour valued? local living wage?
• overheads and free raw materials?
• opportunity cost / contribution?

15
Crafts Value Chain key issues - pricing

• Northern buyers not aware of what producers get
  from SFTOs likely to become more important
• SFTO gross margins vary greatly
• FT prices received by SFTOs are generally better
  than mainstream though some good mainstream
  payers too

16
Crafts Value Chain key issues - pricing

• Mainstream mark-ups from 500 to 3,000 (highly
  branded)
• FT mark-ups are often lower at 300-500 (but
  does this devalue perceived value?)
• Levels of mark-up in Europe not seen as concern
  by most SFTOs.

17
Crafts Value Chain key issues - governance

• FT pro-poor bias means lower supplier competence
  theory suggests this will lead to more
  intervention from buyers.
• Pressures to be market-led.
• High dependency on NFTOs insufficient
  diversification few examples of FT supplier
  graduation.

18
Crafts Value Chain key issues - governance

• FT price negotiations fairly standard and
  well-managed
• Some SFTOs want more market information from
  NFTOs
• Lack of critical feedback from NTOs impedes
  development

19
Crafts Value Chain key issues - environment

• Inefficiencies in infrastructures
• NFTOs/SFTOs insufficiently specialised?
• Lack of investment and technological innovation
  in FT (fears it will reduce labour inputs?
  small is beautiful focus?)
• Exchange rate vulnerability dollar fluctuations

20
Crafts Value Chain key issuesfailure to
mainstream

• NFTO lack of vision/skills?
• NFTO lack of capital?
• Lack of FT label (but costs/benefits, standards?)
• SFTO/producers lack of technological investment
• SFTO lack of scale/productivity quality design
  lead times

21
Producer livelihood impact

• Sustainable livelihoods model
• Financial
• Physical
• Human
• Social
• Natural

22
Producer livelihood impact

• FINANCIAL
• level of income increases
• regularity and security of income
• SFTO savings schemes for producers
• BUT contract workers/seasonal labour issues

23
Producer livelihood impact

• PHYSICAL
• Income used to acquire assets
• Better access to infrastructure e.g. electricity,
  education, health (via premiums)
• BUT Limited capital investment in productive
  capacity

24
Producer livelihood impact

• HUMAN
• Training programmes
• Empowerment
• Confidence
• BUT heath and safety of processes
  social/family tensions more education to be done

25
Producer livelihood impact

• SOCIAL
• Formation of producer groups
• Reduced isolation
• BUT also creates new obligations

26
Producer livelihood impact

• NATURAL
• Environmental issues considered in fair trade
  chains
• BUT in reality this is relatively low on the
  movements agenda

27
Producer livelihood impact

• A generally positive picture but based on
  SFTO/NFTO inputs, not direct producer research
• Many FT producers still near poverty line
• Diverse experience across products and countries

28
Recommendations market access

• Improve sales and marketing of existing work
• Develop strategy to mainstream handcrafts
  establish a success story in handcrafts
• Establish and invest in market led supply chains
• Ensure the right product is created for producers
• Ensure FT verifiable supply chains top to bottom
• Promotion FT and ethical purchasing
• Develop FT standards and (possibly) label
• Review and scale up

29
Recommendations social quality

• SFTOs need to improve producer capacity and
  understanding of FT
• Reduce dependency - local markets small
  businesses as well as manufacture
• Develop stronger groups and networks
• Address risk regular employment, currency
  protection
• Southern advocacy for SME friendly environment
  and individual access to affordable services

30
Discussion

• Do findings/descriptions ring true?
• Relationships SFTOs/producers costing and
  pricing models
• Reaction to recommendations
• Specialisation
• Investment needed to mainstream
• Issues in enabling environment

31
TRAIDCRAFT fighting poverty through trade