It’s easy to talk a good game on conditions in the supply chain, but how can you ensure it works in practice? Katie Kilgallen finds out how Marks & Spencer ensures fair trade really is fair

It was conceived prior to the retailer’s Plan A programme, entered into with no clear strategy and described by one national newspaper at the time as “an unusual partnership” but, three years on, both Marks & Spencer and charity The Shell Foundation believe their decision to join forces has resulted in the development of a highly scalable business model for fair-trade supply chains.

Through the partnership, M&S has developed two new sustainable supply chains – one sourcing fair-trade cotton from more than 1,500 Indian farmers and the other sourcing bouquets of wild flowers harvested by workers from poor communities in South Africa – that have provided the retailer with two of its most popular product lines of recent years.

From the outset, the goal for both parties was to unlock markets in the West for smaller, third-world producers, while providing new, innovative and commercial products for retailers to offer customers. In answer to this challenge, the pair constructed a supply-chain model that uses an “ethical agent” on the ground, a local business that essentially operates as an intermediary. They have also established a set of best-practice guidelines for relationships between NGOs and retailers (see box).

The Shell Foundation director Kurt Hoffman describes the partnership’s achievements as “an ideal manifestation of The Shell Foundation’s commitment to catalysing sustainable and scalable solutions to poverty and environmental problems”. The Foundation was set up by The Shell Group in 2000 as an independent charity committed to finding solutions to global social and environmental problems. According to Hoffman, central to the Foundation’s ethos is the belief that market-based solutions offer the best opportunities to tackle these issues. “We try to draw on business thinking and skills,” he explains.

The Foundation decided the best way to test this belief was to approach the challenge of developing sustainable, transparent fair-trade supply chains from the demand side, by tying up with retailers wanting ethical products. Alison Wharters, business director of Trading UP – a programme that connects retailers with developing-world producers and small businesses – at The Shell Foundation, has led the project for the past two years.

She says: “The philosophy was: ‘How can we find a business solution to poverty?’ so we thought: ‘Why don’t we start partnering with the market?’ We could see this as a potential solution.” After approaching several retailers, the charity found M&S to be a willing partner that was prepared to commit the time and resources necessary.

Marks & Spencer head of CSR Mike Barry outlines the reasons behind the high street giant’s decision to collaborate with The Shell Foundation. “The key thing we wanted to do was explore how we could use our supply chains. Not just manage them well, but promote trade and create sustainable livelihoods to see if we could action a real, positive difference. It’s very easy to focus on good compliance, but we had an ambition to go beyond that,” he says.

The pair may have had principles and aims in common in a broad sense but, when they set out in 2005, they had no firm ideas about how they would achieve them. The collaboration was a discovery process initially. Barry explains: “In the beginning, we wanted to explore different options. We’ve learnt an awful lot together. We weren’t absolutely clear where we’d end up.”

The idea of an ethical agent working as an intermediary emerged when it became clear that the amount of work involved in establishing good relationships with small suppliers was prohibitive to retailers such as M&S achieving the scale they needed. Hoffman says: “Retailers are used to dealing with big wholesalers on a very competitive cost basis – they let wholesalers do all the hard work.”

Establishing relationships with small-scale suppliers in developing countries is a complex, time-consuming process, where retailers must learn to talk all the way down the supply chain. Hoffman says that, even with the Foundation’s help, there aren’t the resources to facilitate this on a large scale. “We don’t have the resources to do it with tens of hundreds of retailers and thousands of suppliers. If you want to go to scale, we believe you need an intermediary – a business whose business it is to open up the supply chain and make money on the value added to retailers and suppliers,” he says. The Shell Foundation shifted its focus and investment from individual producers/suppliers to supporting these intermediaries and setting them up as viable businesses.

Essentially, ethical agents are designed to take the pain out of the process, explains Wharters. “You need to have someone very close to the market, a bridge, people who understand both worlds – it’s all very practical stuff,” she says. “They are set up as for-profit companies, but with very strong social and environmental bottom lines as well – we call it triple bottom line.”

With the help of The Shell Foundation and M&S, the Better Trading Company (BTC) was set up in 2006 in South Africa and is run by African entrepreneurs with the right skill sets, including experience of export markets and an understanding of the needs of UK retailers. It had supplied M&S with more than 1 million bouquets by early this year, created 135 jobs and helped to protect more than 30,000 hectares of biodiversity-rich land. And, in India, the Foundation supports Agrocel, an agricultural services company that supplies M&S with organic, fair-trade cotton from more than 1,500 farmers. Farmers’ incomes have risen 20 per cent on average.

Barry agrees that it quickly became obvious that a well-run organisation with a clear role was needed on the ground to translate between the two parties. He says that, for M&S, the advantages of working in this way were clear. “The first thing is good-quality, innovative products – the flowers have been very, very successful. We’d probably struggle to get the quantities we require without working in this way,” he says.

The core advantage that an ethical agent offers is the ability to communicate effectively with all parties in the supply chain and translate retailers’ needs to their suppliers. “I think the ethical agent can make a real difference in their field,” says Barry. For example, fair-trade cotton is a relatively new product – M&S was the first major UK retailer to sell it in 2006 – and Barry says the ethical agent proved to be a highly effective mediator in helping suppliers that were unused to the demands and needs of large-scale retailers to understand M&S’s quality and availability requirements.

Similarly, having just one simple step between the retailer and the supplier makes the supply chain much more transparent for the retailer. Barry says: “We had a lot of transparency in our supply chain traditionally, but this has helped us take it to another level.”

He adds that M&S now not only has a “well-established supply chain delivering product we need for the future”, but has also “helped create stable producers to supply other retailers”. Those suppliers that have been working through the ethical agent to supply M&S now have the skills to branch out, supply others and seek further opportunities. For example, The Shell Foundation is working with European clothing retailer C&A, which is converting to organic cotton on a large scale and there are a number of other big-name retailers close to following suit.

As Wharters says: “The BTC is set up so it can serve many retailers at once and act as a channel for new products.” And, although its formal partnership with M&S is at an end, The Shell Foundation plans to continue to provide investment, guidance and support to the ethical agents that were set up under the scheme for some time to come, as well as facilitate new ones.

However, despite the scheme’s success, Barry acknowledges that this set-up is not the way forward in every circumstance. He says: “We can’t pretend it’s an answer to everything. We keep on looking for other opportunities. And other people are doing work in their space.” He also advises other retailers wanting to embark on similar relationships that patience is key. “You don’t get success overnight. You’ve got to stick with it and learn,” he adds.

Hoffman agrees and stresses that it is important to recognise that this type of approach does not hold all the answers. He says: “A lot of the interesting things we’ve seen in retail have been to do with niche markets – chocolate, cotton, flowers, etc. That’s very good for those relatively niche products, but the challenge from a development perspective is how we get out of this ethical cul-de-sac. How do you get retailers to appreciate the value of all good-quality food produced ethically?”

He adds that the certification of ethical products is a very hard, rigorous process and a significant obstacle for many. On top of this, there is the fear of what Hoffman describes as a “well-meaning backlash” from consumers over the conflict between food miles and fair trade.

There is much to learn from the work that M&S has done with The Shell Foundation. A standard has been set for a more business-like, sustainable but fair, way of trading with suppliers in developing countries. However, it also remains clear that there are many hurdles to overcome before sustainable fair-trade supply chains become the norm and not just the niche.


Best-practice guidelines for a successful global supply chain partnership

1. GOOD COMMUNICATION and an understanding of each party’s goals, capabilities and limitations

2. ALIGNMENT OF GOALS – this is facilitated by agreeing a set of criteria at the start to measure success

3. RELATIONSHIPS AND OWNERSHIP – senior-level commitment within the commercial division of the retailer is essential to success

4. DEFINING INDIVIDUAL ROLES – each party should know their limits and know when to seek help for areas beyond their expertise

5. DEVELOP SIMPLE AND RELEVANT PROCESSES – all parties must have the appropriate processes in place and the entire supply chain must work together to resolve issues and improve efficiency

6. VIABLE MARGINS – for all those involved in the supply chain. There also needs to be a certain amount of transparency about the margin

7. COMMITMENT AND EXCLUSIVITY – all parties must be agreed on exclusivity terms. The producer needs to be in a position to walk away if they have to take on too much risk

8. MARKETING – a clear strategy should be developed upfront on how the product will be marketed in-store

Source: Shell Foundation – M&S Partnership