Ep. 09 - What Fair Trade Can Teach Us About The Trade War

Justin Dillon: Welcome to the responsible supply chain show where we explore the world of responsible sourcing and resilient supply chains. I'm your host, Justin Dillon. And in each episode, we'll dive into real stories from some of the world's best business, government, and thought leaders protecting people, planet, and profits. Let's get Okay. This week, we have a good one.

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You're so lucky. Aren't you you're so lucky to have me in your life. This week, we've got Paul Rice, the founder of Fair Trade USA. Paul is a demigod in the world of responsible sourcing. I would dare to say an OG original gangster.

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He just came out with a book. I can't believe it's his first book. Somebody like this, somebody this bright, you think would have like written a ton of books. But he's just came out with a new book. He's on a big book tour, Every Purchase Matters, and we were fortunate enough to get to interview Paul.

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Strangely enough, I don't know if you've noticed, but every purchase does matter this week because everyone is thinking about how tariffs will affect their purchases as consumers. I heard there's like a run on iPhones right now. Yeah. This reminds me of like a run on toilet paper back in the day during the pandemic. But more specifically, businesses are trying to figure this out as if we can when everything is changing.

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Paul and I discuss, we actually get into talking about tariffs a bit in this episode. Think, I don't know, I think you're gonna be surprised about where we land on this. It's not where you think. You probably think like, oh, they're gonna talk about like saving the world. No, no.

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We get real, you know, spreadsheets, numbers, things like that. Have something to I'm a little late to the game about learning, well, just learning about the effects of anxiety. Okay? In my life. I'm about I'm late to learning about the effects of anxiety on things like performance, innovation, and just, you know, overall enjoyment of lies.

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I've just always thought that anxiety was just required baggage if you wanna do hard things, and I like doing hard things. So, I don't know, I guess I was today years old when I learned that some forms of anxiety can be connected to unfinished tasks and unmet goals. Meaning that the things that we're upset about and concerned about can sometimes, not all the time, not all the time, but can sometimes be connected to just things we haven't gotten done. And the anxiety around tariffs this week are real. They are real.

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But they also reveal something that many of us kinda already know. We really don't know where our supply chains connect to, and that is anxiety inducing. We have no idea how vulnerable they are. So some of the anxiety that businesses are experiencing, some, not all, I wanna be clear, but some of it can be prevented. The entire point of this podcast is to honestly, intellectually, honestly debate and discuss the business case for transparent, responsible, and values aligned supply chain.

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So why keep talking about it? Why not just get into it? Here's discussion with founder of Fair Trade USA and now author of Every Purchase Matters, Paul Rice. Paul, good to see you. I haven't seen you in so long.

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How are you?

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Paul Rice: I'm great. I'm great. My book just dropped, so I'm Yeah. I'm on fire this week.

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Justin Dillon: Yeah. How's the stamina? You're probably running from podcast to podcast right now.

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Paul Rice: Yeah. But I'm having fun because I get to talk about my favorite subject.

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Justin Dillon: Well, you're my favorite person to talk to about this subject because you are just the OG. Your book just came out, we're gonna talk about that. Every purchase matters. But I kinda got reintroduced to Fair Trade. It's something that touches my life.

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It's so normal. You know something's working when it becomes boring and normal, like it's just worked into. So we're gonna talk about how you got to boring.

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Paul Rice: I don't wanna be boring, or do I want boring?

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Justin Dillon: You're not boring. But like, it becomes, when it's special and new, it's like it has a chance of dying. Fair trade did not die. It got into the normal, boring category of like everyday lives.

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Paul Rice: Yeah, bro. Was a time when I was called the rebel in the boardroom.

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Justin Dillon: Okay. So that's when you were excite I mean, you are exciting now. That's when I was edgy.

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Paul Rice: I wanna be edgy again. You you are edgy.

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Justin Dillon: Come on. It's that's we're gonna we're gonna try to help help get to that. That is that is a great flex. Thanks for bringing that in. But the bigger flex, I think, is the fair trade the fair trade label, call it a brand label, whatever it is, it lives in the world as the third most recognized sustainability label behind organic and non GMO.

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In my heart, it's number one. But but, I mean, that is a I mean, it is hard to get a brand, something recognizable at all, especially today. So maybe you can share with everyone who I would say most people know about Fair Trade, but they might not know exactly what it is. So maybe you can just explain to this audience what does it mean as a company to be Fair Trade certified.

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Paul Rice: Yeah, yeah, that's a great place to start, bro, because we have found, you know, a lot of people have heard of Fair Trade and Fair Trade Certified, but not everyone knows how it works. So, as you know, I started Fair Trade USA twenty six years ago. I just handed over the reins a couple of months ago. I didn't know that. I was at the helm until the December.

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And it's a nonprofit. And our mission is to lift families out of poverty and to protect the environment. And we do that by engaging the business community and creating a service around fair trade certification. So fair trade is definitely like a philosophy and it's a movement, but it's also a rigorous 200 checklist of labor, social and environmental criteria. And so just as organics has, you know, a standard and criteria that need to be met for a farm to get certified organic, similarly, farms and factories that want to get Fair Trade certified demonstrate every year that they're adhering to the standard.

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They get audited every year. And when they pass their audit, they're allowed to wear the the Fair Trade certified label on their product. And one of the things that makes Fair Trade unique is that on this side, our market partners, everyone from Whole Foods to Walmart, agrees to pay more money. So Fair Trade is actually the only standard out there that guarantees a price premium back to the farmers and workers, which they manage, right? So when Whole Foods buys fair trade bananas through Dole, Whole Foods doesn't get to decide how the premium is spent.

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Dole doesn't get to decide how the premium is spent. It's the workers on that banana farm that meet and discuss their needs, prioritize their needs, and then deploy that fair trade premium every year to the projects that they're choosing, health, education, housing, whatever it is. So that's kind of the way fair trade certification works. And, you know, ultimately, from a supply chain manager perspective, fair trade is one way to both strengthen the supply chain through greater transparency and through a transfer of value back to the original or primary producer. But then it's also a way to tell a story to the consumer, which I recommend, you know, companies are looking for things that allow them to talk about sustainable sourcing in a way that creates value for the firm.

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Justin Dillon: Maybe tell me a little bit more about those banana producers who are fair trade, produce. Tell me about their lives. What's different for them?

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Paul Rice: Let me tell you a quick story. You know, I visited a rose farm in Ecuador not long ago, and they sell Fair roses to Whole Foods. So if you walk into Whole Foods, Mother's Day is coming up. If you go into Whole Foods to get a dozen roses, you'll see the fair trade label. The roses are exquisite, they're amazing.

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The Ecuadorian rose farm is 90% female workforce, and most roses are grown in greenhouses, right? And, and that's to protect them from the elements and also from bugs. But even in greenhouses, they have to spray the roses to keep bugs from damaging the petals. So historically, they had men wearing protective equipment spraying the roses, and then women would go in pretty much right afterwards to do the daily pruning and picking. And so they were of course exposed to toxic chemicals.

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The incidence of birth defects and cancer in the Ecuadorian rose industry is 10 times the national average. So one of the things that fair trade knew it had to do was implement a rose module added on to the agricultural standard that had a very particular approach to the issue of toxicity and exposure to chemicals in the rose industry. Basically, have three things a long list of chemicals that are not allowed. The most toxic chemicals are not allowed at all secondly, mandatory worker training so that the women actually know that getting exposed to agrochemicals is harmful and then number three, we have a lockdown protocol. Depending on what was sprayed on any given day, they have to literally lock the doors of the greenhouse for anywhere from eight to twenty four hours to allow it to reside.

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So when we visited the farm, we were talking with these amazing workers. Johanna Quinteros is one that comes to mind. And she was talking about feeling safe now going to work because her farm got Fair Trade certified two years earlier. And, you know, we're taking care of them. And I was blown away by the story.

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And then she launched immediately into you want to hear how we spent the fair trade premium. And I was like, well, yeah, of course, of course I do. Free trade premium, by the way, is only 1p US per stem. Right? So for you and me, it's it's it's a negligible markup.

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But for them, it meant hundreds of thousands of dollars a year in premiums going back to the thousand workers on this farm. So what they did last year was they built a wash house, they built a laundromat, because the work week in Ecuador is five and a half days. So basically, Sunday was their day to do laundry. None of the workers could afford their own washing machine. So they do laundry in the river, right ankle deep in ice cold river water washing clothes by hand.

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So they built a laundromat, which and the owner provided the land, the workers built the building, installed the machines and hired a couple of people to, you know, be there all day. So you can take your clothes in at the beginning of your shift in the morning, and they'll be washed, dried and folded. And when you when you in your shift, swing by and you pick up your your, you know, your clean clothes. And, you know, it just underscored for me, is something that we take for granted, which is just being having access, either at home or at the local corner to a way to wash clothes so that we don't have to stand in ankle deep in river water. What Johanna said to me was Fair Trade gave us our Sundays back.

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Fair Trade gave us our Sundays back. She has two kids. Imagine being able to spend Sunday with your kids, with your family instead of in the river washing clothes by hand. So for me, I mean, these stories are the best way for me to describe the powerful impact that a fair trade purchase can make in the lives of farmers all around the world.

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Justin Dillon: Well, yeah, that's that's beautiful. Everyone's thinking about supply chains today, Paul. Everyone. Not in the way that you and I think about them.

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Paul Rice: Yeah.

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Justin Dillon: So how do you think the Trump administration's policies on tariffs is gonna impact fair trade. I mean, everyone is pivoting and thinking about their supply chain in different ways. I'd love to get your take on, can this kind of sky is falling trade war, can there be any benefit to fair trade? Can there be a reset where there's an acceleration, and hopefully not a walk back around fair trade and supply chains?

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Paul Rice: Yeah, of course, absolutely. So, first of all, you know, as the story that I just told revealed, fair trade in terms of the impact for farmers and workers is about better wages, safer working conditions, respect, and this fair trade premium that allows amazing development outcomes. And that benefits not just the farmer and the worker, it also benefits all the actors in the supply chain. We hear this from brands and retailers that we work with all the time, who say the workers on the farm are so much happier because of the fair trade standard that they're not leaving. Right?

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So, you know, I was talking with the CEO of Nature Suite, a leading tomato company, last week. He said that their worker retention is eight times the national average in Mexico. Normally workers at the end of the season, they go home and they may not come back for the next season. His workers are coming back eight times more than in the industry average, which means his recruiting costs for new workers go down, his training costs for new workers go down, and his productivity goes up because his workforce is a more seasoned and experienced workforce. So there's value in fair trade, again, not just for the worker, farm worker, but in his case for his brand.

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And he sells to everyone, including Walmart. And I talked to Walmart about this program. And Walmart said, we love fair trade tomatoes because it means our suppliers are more stable and reliable and loyal. And so, you know, if ever the importance of supply chain came into sharp focus, it was during COVID. And what I see over the last twenty six years of doing this is a real shift in how companies are thinking about the supply chain, and the importance that they're attaching to supply chain reliability and security.

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And fair trade and other expressions of responsible sourcing are addressing that value proposition. So when people ask me, what's the business case for fair trade? I say, it's one of two things or both. One, it's a brand differentiator that allows you to tell a great story to your customers. But two, it's a way to drive sustainability, to drive transparency and reliability into the supply chain.

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And so, you know, there's real value on both sides. Now, incomes Trump and Trump's tariffs, which are counterproductive. And I've been on the phone for the last couple of weeks talking with people all around the world, growers that we work with in Mexico, brands that we work with here, retailers. And, you know, it's clear to me that tariffs are going to hurt American consumers who are already reeling from a couple of years of inflation. Tariffs are going to drive the cost of our food up.

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It's going to hurt American business because there are retaliatory tariffs. You know, I've talked to brands that export products made here in The US to other countries, and they're now facing retaliatory tariffs. So it's going to hurt them. And it hurts sustainability. Tariffs definitely hurt sustainability because, you know, a lot of producers around the world are being told by their buyers here in The US, we can absorb some of the tariff, but not all of it.

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So you're going to have to figure out how to incorporate some of that extra cost into your ledger. And so what's gonna get cut? Well, you know, sustainability is quite possibly, you know, an area where developing world farmers and workers are going to be, you know, looking to cut costs. Again, I talked to a vegetable grower, a bell pepper grower in Mexico, who recently said they were planning to invest in solar panels over their plant to reduce energy costs, but also to transition to carbon neutral and be more climate friendly in their production. That project's on hold now because of the threat of tariffs.

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Justin Dillon: Me if this equation works from what you just said. Are you saying that fair trade can reduce immigration?

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Paul Rice: Oh, 100%.

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Justin Dillon: Without It's just not a I wouldn't have got don't think I would have got there. But like, that's just such a flip, right? Mean, it's not even a, it's a policy. It's that fair trade somehow works in an America First policy agenda.

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Paul Rice: It does in so far as, you know, at the heart of fair trade is helping families in Latin America and around the world achieve a decent living, which allows them to stay home. As you know, before I was I started Fair Trade USA, I lived in Nicaragua and worked with farmers way up in the mountains for eleven years. And I know people who hit the road for The US, they were people living in desperate poverty, they were fleeing poverty. And so it's just logical that if we can help through fair trade and things like it, get more money back to communities in Latin America, it's going to allow people to stay home where they want to stay. No one wants to hit the road.

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So I

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Justin Dillon: don't think most people know this. I don't think most people know this about fair trade that it is like commerce jujitsu, where you are, we think of like, if it's something social good, then it's gotta be economically bad. Or we have just such these and especially today, everything is just incredibly polarized. If it's good, then it's gotta be bad for me. It's just so punk rock to say fair trade will address immigration issues.

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But clearly, you've got the data to prove that.

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Paul Rice: Yeah, yeah, we do. I mean, it's amazing when CEOs of multi billion dollar companies, you know, in Mexico and Latin America say, yeah, actually my labor retention is eight times higher than the industry average, or whatever it is, right? Because what that means, if they're retaining workers on the farm, it means those workers are not immigrating. So yeah, there's actually really good data on this. Don't really tout fair trade as the solution to illegal immigration.

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Justin Dillon: You should try, it's a great way to promote

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Paul Rice: a But it actually is a big part of stabilizing community so that people can stay where they grew up and continue living the lifestyle that they're accustomed to.

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Justin Dillon: Yeah, no, it's an important note. So when you started fair trade, was it late late 90s? Yeah, yeah. The world had a very different world looked a lot different. It had a very different relationship with truth.

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And its first cousin, trust. Anything can be challenged today with the right amount of amplification, because communication has been democratized. The louder you are, the more true it sounds, which I don't believe, and I take on that we live in a post truth world, but we live in a truth challenged world, because truth can be challenged at any How does this current climate affect certifications like fair trade, when it seems like truth and trust are kind of negotiable when we both know that they're not. They're quite absolute. This is the world we live in and fair trade is an absolutist brand.

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It a it is a de facto. How does Fair Trade continue to grow in this kind of climate?

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Paul Rice: I think that's a really interesting question, know, in that it kind of underscores why companies need things like Fair Trade certification. Right? So I think the skepticism around companies who claim to be doing good is growing. And the larger the company, the more skeptical the consumer is. When a company says, yeah, just take my word for it, You know, and sadly, Starbucks got itself in a pickle because it, you know, dropped certifications and leaned into its own program with good intent, by the way, with good intent.

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But, you know, now they're dealing with a lawsuit and around, you know, the ethical sourcing claim. I think it just underscores the value of independent third party certification. And so, you know, from my perspective, to your point about truth and trust, it it's a time where I think more companies will come to the certifiers like us. My sense is that, you know, the need for some kind of validation and verification of corporate claims around supply chain practices is only going to grow.

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Justin Dillon: You know, we are living in a war of words right now. A clearly concentrated campaign on, woke, ESG, DEI, which I believe, to some degree, is a reaction to the virtue signaling that we've seen, that marketing teams can't help get ahold of terms that might give their market share a little bit greater, and so they just couldn't help themselves. And a lot of companies virtue signal. And I think a lot of what we're seeing with companies walking, quote unquote, walking back their goals is they were just signals and they were just marketing. And it seems like there's a differentiation between the veneer of doing good and the practice of it.

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When I was joking about the boringness of, when you're doing something over and over and over, it just becomes standard operating procedure, and it just becomes who you are. Take a Ben and Jerry's, take a Patagonia. It becomes embedded in the value of the product. So the veneer and the virtue signal on one side, and you've got just this embeddedness on the other, it seems like fair trade has just been a part of embedding itself into the practices of a company. This is just who we are and how we do it, and the economics just play out.

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Is that true?

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Paul Rice: Yeah, it is. You know, I think there are still big questions for companies looking to bring a more responsible, ethical, sustainable approach to supply chain, to sourcing. By the way, have you seen my book yet?

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Justin Dillon: It's beautiful.

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Paul Rice: It is beautiful. Thanks, man. Three years in the making, Every Purchase Matters. Is this your first book? Is this your first book?

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My first book.

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Justin Dillon: Man, you made us wait.

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Paul Rice: Thank you, brother. One of the chapters of my book is entitled Who Pays for Sustainability? And this is a big debate in the responsible sourcing movement, you know, does, does the firm pay for it? Does the consumer pay for it? And I kind of surface all kinds of different perspectives on that debate.

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Know, John Mackie, the co founder of Whole Foods, shares his perspective, he thinks the consumer should pay for it. He thinks that a responsibly sourced product should cost more, a little more, not a lot more, but a little more, and that the consumer should pay for it. And when I said, doesn't that mean that we're doomed to be a niche? He said, Yeah, but you can be a huge niche. But you know, consumer should pay more.

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And the consumer has demonstrated that they're willing to pay more. And in fact, there's some research that suggests that consumers see price as a validation of the validity of the claim. In other words, if a sustainable product is too cheap, consumers doubt the authenticity, right? They expect a sustainable product to cost a little more. But then the other point of view, loud and clear, Tarang Amin, who's the CEO of e.

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F. Beauty, second largest cosmetics company in The US. They're now 85% fair trade. And they, you know, and they are an affordable cosmetics company. You know, it's like think $4 lipstick sold at Target And they're on fire as a company.

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They've reported like 40 consecutive quarters of growth. They've gone fair trade and they didn't charge more for the product. So they kept the price to the consumer the same. They're paying the workers more. So my question in the book to Tarang is how did you do that?

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Like, did you take a margin hit? And he said, no, of course not. Fair trade helped us grow our volume.

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Justin Dillon: As a market.

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Paul Rice: A volume, we were able to smooth fixed costs across a greater volume. So we were able to maintain margins, strengthen the brand, pay workers more money, and still provide an affordable price to the consumer. I believe we're in a fifty year evolution of capitalism. I think capitalism is evolving from a highly extractive and exploitive version of the past where supply chain managers didn't give a shit about third world farmers and workers. Excuse me, excuse me, the expression to a future state where conscious capitalism is the new normal, where supply chain responsibility is the new normal, maybe not everyone's doing it, but it is the new normal.

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What gives me hope is seeing the trajectory, because I've been doing this thing for a long time, the trajectory and the progress that we've made over the last twenty five years. It's unreasonable to think that we won't make similar progress over the next twenty five years.

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Justin Dillon: Of course, and we need to measure these things in years and decades, not quarters and months. It just, it doesn't, and really, twenty five years in the history of capitalism is a very short blip to see that much, yeah, so I couldn't agree more. Are you concerned about consumer indifference in regards to ethics and supply chains? I mean, because I think people need to hear, I think it's easy to say, well, people are cynical, but you say 43% of millennials, I think not you, the data, 43% of millennials say that Fair Trade certified influences their purchasing products. So the data says something very different than the commentary.

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Tell me more.

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Paul Rice: Yeah, the research is clear. American consumers are increasingly reading the label. We want to know if a product is healthy, is it safe? And also we want to know, does it have child labor in it? Does it have slave labor in it?

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Is it destroying the environment? Like, people want to know in increasing numbers, American consumers want to know what's inside the product. They want to know more than just quality and price. And that's a macro trend and all the research points to it. And it's clear to see the progression over time.

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But beyond the consumer research is just the empirical evidence in the market. Like look how many more sustainable products are offered today than five years ago or ten years ago. Look how many more certification labels there are with one sustainability attribute or another available today versus five, ten, twenty years ago. So it's clear that there's a macro shift. Millennials and Gen Z index particularly high in terms of their expectations of corporate behavior.

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They expect companies to not screw up the environment. They expect companies to not support child labor and slave labor. They're willing in higher numbers than their predecessors to punish a company by walking away. If if if something is revealed about bad practices. Now, is that everyone?

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No, that's not everyone. You know, I mean, look, the American working class is hurting. That's why they voted for Trump. You know, people are people are hurting out there. So I'm not saying that 100% of consumers today are thinking about developing world farmers and workers.

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That's not the case. But the trajectory is clear. That's where we're headed. So I think that's part of this as well.

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Justin Dillon: Yeah.

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Paul Rice: Justin, you know, the competitive dynamic around responsible supply chains, and the move by some companies to capture opportunities by being more responsible in the supply chain. And then that creating a dynamic where others want to emulate that over time.

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Justin Dillon: Well, look, responsible sourcing is a category now. That wasn't the case in nineteen ninety nine or ten years ago. Yeah. And it's having micro categories, ethical sourcing, sustainable sourcing, sustainable procurement. Like, are entire teams that are organizing around transparency and ethics in supply chains.

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Most of the people that are listening to this are either interested in or are practicing responsible sourcing. What encouragement can you give them in a moment like this, where the sky's falling with tariffs, inflation, we don't know what's going on, can you offer any sage advice or comfort to people that are, to professionals who are in these positions?

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Paul Rice: The mentality of business leaders in the past was what I call the trade off mentality. I got my MBA in '96, that was certainly the mentality, the predominant mentality in business schools at that time. Either your job is to maximize profits for shareholders or you do this sustainability nonsense, but you can't do both, right? It's one or the other, profit maximization or sustainability. And what we're seeing now is a very different mentality emerging among not only business leaders kind of at the top of companies, but also in supply chain organizations of realizing that sustainability and profitability can actually go together.

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And that a more responsible sourcing approach can actually generate value for the firm that enables long term success, right? We know that supply chain disruptions wreck havoc on the bottom line. So how do you create a more resilient, reliable supply chain, right? Well, build transparency, build traceability, know who your supplier is, make sure that money is flowing back to them. Trickle down economics normally doesn't work.

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You've got to build that supply chain and create that direct connection so that you know that enough money is flowing back to the farm or the factory to be able to stay in business. So there's a real business case for responsible sourcing. You know, hopefully your listeners work at a company where the CEOs are already thinking ahead and realizing that responsible sourcing and profitability and enterprise success can go together. So then if we have that air cover from the top, then it's the hard job of the sourcing people to figure out the how. There's no one solution to that.

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Work with 2,000 plus brands and retailers, and different companies take different approaches to how they capture the value from responsible sourcing. And some do it by telling a great story to the consumer. Others do it by, you know, taking advantage of the loyalty, you know, that they're building with suppliers by treating their suppliers like partners, rather than just expendable, know, suppliers. There are so many different flavors of responsible sourcing. I'm sure that your listeners know far more than I do about all the different ways.

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Right? I in fair trade, what I've just tried to do is create the laboratory let all of the mad scientists come in and cook their own flavor of responsible sourcing in a way that's good for their business. I firmly believe that fair trade and things like it will only be good for people and planet if it's also good for business. So on a path unapologetically, you know, lean into thinking about how responsible sourcing will make money for the firm. That's the way we go to heaven, Enlighten self interest.

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Justin Dillon: There you go. Paul Rice's book, Every Purchase Matters is now out everywhere. Don't get one, get two, give it to a friend. Paul, thank you for coming on. You are a heroic figure in your you belong in the Mount Rushmore of responsible sourcing.

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So thank you so much for coming on. And we're gonna we're gonna we're gonna get as much attention for your book as we can. You.

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Paul Rice: Justin, thank you. Thanks for everything you do, brother.

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Justin Dillon: Thanks, man. Oh, and I love being called brother. I'll take it. Cheers. This is the one thing, the part of the show where we dig deeper into one idea from our interview.

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Paul talked about how capitalism is an idea that is still being formed, and that to really understand where it's going, you have to look at macro trends over time to truly understand. He spoke about getting his MBA in the middle of the 1990s and how at that time MBAs really were built around an extractive mindset. Students were being taught to pull as much as they can out of the world and even from suppliers. And this idea is known as maximizing shareholder value or MSV. Jack Welch, CEO of GE at the time and for up to two decades all the way up in 02/2001 was the absolute standard bearer for maximizing shareholder value.

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That was until 02/2009, where he famously declared that shareholder value is, quote, the dumbest idea in the world. Shareholder value is a result, not a strategy. Your main constituencies are your employees, your customers, and your products. Maximizing shareholder value does not mean you have to close your eyes to the world's challenges and drill baby drill or pick your metaphor. Paul's work has proven that as controversial as it may sound, anti immigration policies and fair trade can actually live together and in some strange way be supportive of each other.

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We just need to commit to learning how each company can, in its own way, buy better. Thank you so much for listening. Please make sure to subscribe so that we can let you know when the next episode comes out, and don't forget to go to Freedom.co, that's co.com, to sign up for more updates.

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