Dezmond Reynero
Dongqi Lu
Noah Friedman
Zach Johnson
Case Western Reserve University - Weatherhead School of Management
Michael Goldberg
Megan Buchter
Doug DeGirolamo
Keep this story going! Share below!
The average American adult eats about 2,000 pounds of food each year; however, most people have no idea where their food actually comes from. Although technology has dramatically improved overall productivity, farming is still vulnerable to natural disasters and policy shifts. Thanks to global trade, we can always find decent alternatives with the lowest extra costs. However, small farmers are not that lucky since their livelihood can be destroyed overnight. Also, the small farmers usually have little pricing power and can seldom achieve the selling price they want.
Founded in 1986, Equal Exchange innovated a new model of business, aiming to improve the living standard of the small farmers who sustain the food supply. Equal Exchange gives small farmers significant control over their business and educates consumers about how their purchases (of fairly traded products) could benefit the farmers. In the past three decades, this model has achieved commendable success, and more companies are joining the act of helping small farmers.
Equal Exchange is one of the oldest and largest fair trade food organizations in the United States. It sells multiple types of food products, including coffee, tea, sugar, chocolate, bananas, etc., from Latin America, Africa and Asia. The company offers consumers high-quality, environmentally sustainable products and offers small farmers higher-than-market prices. Additionally, they educate U.S. consumers about the challenges that small farmers are facing and seek to improve the living standards of those farmers through direct, long-term relationships, higher prices, and pre-harvest financing (all of which are rarely offered in conventional trade models). Equal Exchange guarantees higher (above market) prices to all farmers it works with: when a farmer from one part of the world has a bad season, the yield from a farmer from another part of the world will offset the deficit.
Small farms provide over 30% of the global food supply; however, the traditional food supply chain involves many middlemen, mainly big food companies, with significant pricing power and they squeeze the profits that small farmers can earn. Therefore, small farmers can only receive a tiny portion of the money we spend on food. The worst thing is, natural disasters like drought and flood and policy shifts such as tariffs and anti-dumping investigations can vanish the farmers' income in a whole year. Furthermore, the consumers do not buy from farmers directly and therefore cannot understand the difficulties that farmers are facing. To help the small farmers, the three founders of Equal Exchange, Jonathan Rosenthal, Michael Rozyne, and Rink Dickinson, conceived the model of signing long-term contracts with small farmers and offering higher-than-market prices to them. To promote their products, Equal Exchange promises that it only sells high-quality food from small farmer cooperatives; in other words, never from a plantation or an individual farmer. Also, Equal Exchange lets the consumers know how their purchases support the farmers overseas.
Such a model requires a high level of self-regulation in the organization, and therefore Equal Exchange has a unique set of standards and values:
1. The profits of the organization should be as low as possible so that the farmers could receive more money.
2. Worker owners have a voice and a vote in many decisions and each owns a share; outside investors also have a share but have no voice or vote.
3. The organization can never be sold for profit and can only be given to a like-minded organization that shares the same values.
4. Equal Exchange has a 4-1 pay scale, meaning that “the highest salary that a worker-owner can receive cannot exceed four times the lowest."
“Most people work here because of the mission, not because of the salary," says Phyllis Robinson, former Education & Campaign Coordinator. "Nobody is getting rich off of working at Equal Exchange, not even the founders."
The short-term and long-term effects of Equal Exchange's fair trade business model are essentially the same: increased food transparency brought to U.S. consumers and increased equality brought to small farmers.
The way in which Equal Exchange measures its impact is mainly through the retention and growth of its co-op consumer base as well as its partnered farmers. As far as customers, Equal Exchange's impact can be seen through increasing participation in its co-op membership. More members means consumer knowledge on food in the U.S. is increased, thus creating greater impact. The impact the company has on small farmers across the world is best measured by how much these farmers' operations grow in terms of quantity of goods produced, annual profits, and annual sales. According to Phyllis Robinson, previous Producer Relations Coordinator at Equal Exchange, "[Equal Exchange] conducts visits to learn how the farmers are doing and looks to see if they have more ownership when it comes to things like land, equipment, and warehouses." She goes on to state, "The fact that the farmers come back to Equal Exchange and want to continue working with them, goes to show the [company's] impact." The reason these farmers come back is that Equal Exchange provides stability, advanced credit, and a reliable consumer base. Most of all, Equal Exchange is transparent with farmers and does its best to offer them the highest prices possible for their crops.
By creating a system where the highest possible price is paid to farmers and the lowest possible price is asked of U.S. consumers, Equal Exchange essentially makes enough money to remain competitive and stay in business. Robinson stated, "The highest-paid person in the company can only make four times what the lowest-paid employee makes." She also stated that Equal Exchange "makes sure to keep their profit margin as low as possible." As you can see, the business does not necessarily benefit from revenue made.
So how exactly does Equal Exchange benefit from their fair trade business model? When you step back and realize Equal Exchange is a social enterprise, it is easy to see where its benefit is derived: social justice. Every employee who works at Equal Exchange takes on their position knowing they will not be rewarded with the biggest salaries. Instead, they take pride in knowing they are making a difference in the world. All employees who work longer than one year at Equal Exchange have an opportunity to become worker-owners, meaning they actually become part-owner of the company. This operating method helps incentivize each employee because it makes them feel vital and more dedicated to the company's social mission. Overall, Equal Exchange benefits from its business operations by attracting like-minded and passionate employees to form a community centered around a social justice mission of bringing equality to small farmer co-ops in the global south.
Equal Exchange's fair trade model benefits its small farmer co-op trading partners, consumers, and the environment simultaneously by offering an alternative to industrial-scale agribusiness. Equal Exchange, choosing to support small farmer co-ops around the world who sustainably grow their crops, is helping reduce agriculture's reliance on toxic chemical fertilizers, herbicides, and pesticides all while helping farmers and their families gain more control over their economic futures.
Being a worker-owned co-op, Equal Exchange also places priority on education. The company strives to educate U.S. consumers on the food they are eating so that they know who produces it, what is involved in the production process, how their food is produced, where it is produced, and why choosing sustainably sourced food is better than the alternative. The company also makes it a point to educate consumers on the small-scale farmers producing their food as well as the trade issues affecting these farmers.
Overall, Equal Exchange works to benefit disadvantaged small farmer co-ops while sustaining the earth and educating its customers. It is a tall task, but one that Equal Exchange is more than ready to tackle.
Get stories of positive business innovations from around the world delivered right to your inbox.
Phyllis Robinson, Producer Relations Coordinator
Equal Exchange, founded in 1986, is the first, oldest, and largest Fair Trade food company in the United States. The company distributes organic foods produced by farmer cooperatives in Latin America, Africa, and Asia. Headquartered in West Bridgewater, Massachusetts, the company is for-profit and worker-owned.