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Whilst the ‘Dairy Milk goes Fairtrade’ story has been around since early this year, it has now become a reality, despite a wider context of financial crises and a stagnation and decline in sales of some certified produce such as Organic.

On Monday the Bournville factory in the West Midlands, churned out its first line of Fairtrade Dairy Milk bars. A first in the world of ‘mainstream’ chocolate. Fairtrade has existed on the ‘fringes’ of most commodity sales (1-20% of all commodity sales in Europe and the US, Fairtrade’s biggest markets), albeit with growing sales, with most Fairtrade cocoa traditionally associated with niche or gourmet chocolate. It has now been propelled firmly into the mainstream. 

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The Fairtrade certification of Dairy Milk is expected to increase UK Fairtrade sales by 25%, after they reached £712.6m last year. Cadbury’s adoption of Fairtrade for its largest brand, Dairy Milk, is the sign of a big commitment. Cadbury’s claims that other varieties such as Fruit & Nut and Wholenut will follow once Fairtrade sources for ingredients such as hazelnuts and raisins are established (The Guardian).

And despite now being a time of financial difficulties for many companies, for Dairy Milk the transition to Fairtrade in the midst of a recession, should not be too finanically taxing. Cocoa is currently trading at $2,000 on the open market — well above the  minimum floor price of $1,750 a tonne for cocoa set by Fairtrade. This will mean no impact on purchase prices in the short term. However, the Fairtrade commitment does means the company is now locked in to paying higher prices than that on the open market if prices fall. Cadbury’s biggest driver for certification is thought to be that of securing supply and guaranteeing the sustainability of supply. This they regard as a necessary investment, rather than a cost.  

Cadbury’s may well be on to something here, as prices for cocoa rise due to shortages in supply, and as they have the added benefit of reduced reputational risk and increased shareholder value. This can only be a positive thing as the recession has severely undermined our faith in big businesses. Undoubtedly the commitment of a brand like Cadbury’s will only encourage others to follow suit and this trend is already emerging. Mars has pledged to buy 100% of its cocoa from sustainable sources by 2020,  working with the Rainforest Alliance. Nestlé, meanwhile, is working with the International and World Cocoa foundations.

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to letAs the recession appears to continue unabated, it becomes clear that in any given situation there will always be winners and losers. And the recession is no exception.

As new building developments stand empty and construction sites remain unfinished it becomes evident that the recession has paused the purchase and development of new residential and commercial space. In the U.S. some states are removing or reducing impact fees – charged by municipalities nationwide to pay for the additional services that come with increased development, such as schools, sewer lines and roads – to try and bolster development in these financial trying times (Boston.com).

Whilst the financial crisis has halted development and expansion for the vast majority, others are using this ‘construction pause’ as an opportunity. Some retailers have been able to benefit from falling land and property prices and the quicker processing of planning applications, to expand their operations into both new land and deserted ex-retail space.

Seemingly unaffected by decreased access to credit, large retailers are snapping up land and new developments. With retailers like Woolworths and Zavvi going bust, new sites are constantly emerging and this pattern is likely to continue as long as the recession does. For example, earlier this month Sainsbury’s announced that it would seek to raise additional capital worth £445m as a direct response to the opportunities currently available to develop new space. This investment will enable Sainsbury’s to open an additional 15% gross space, equating to 2.5m sq ft of additional selling area, over the next two years.

Morrisons also announced in March 2008 that it had identified up to 100 new locations which could accommodate one of its stores and would therefore add a further one million square feet on top of what was initially set out within its ‘Optimisation Plan’ (IDG).

Whilst on the surface this may seem like a simple trend of expansion, for supermarkets in particular, expanding retail space is an important factor in gaining market share and cornering markets, particularly to anticipate increased sales when the recession ends. This spatial expansion has ramifications for the smaller or independent stores who may no longer have the same options in terms of their own expansion into new retail space and may be crowded out by chains of supermarkets that come to dominate the high street.

The recession serves to amplify strengths and weaknesses – almost a process of natural selection – as the strongest and largest (in terms of size and financial strength) are better able to hold their position and even better it, whilst the smaller and weaker retailers are likely to struggle, at best maintaining their position, at worst, folding. To reiterate then, there are always winners and losers but closely monitoring this trend and what it may mean for suppliers and producers, particularly in the developing world, may reveal a great deal about supply chain dynamics and the impact these dynamics have on producers, either positive or negative. This could ultimately help better inform policy.

Despite many experts arguing (and hoping) that the developing world would be sheltered from the economic crisis, it appears that the answer to the question ‘will the recession impact developing countries?’ is yes. And not only yes, but that the impact has been more severe than we might have expected.

2009 will be worse in terms of the severity of the impact than 2008 as the recession really begins to take hold, and much of the economic growth to date and the associated development gains will be undone throughout this period of global financial turmoil. A depressing story has begun to emerge. By the end of 2009, developing countries are expected to lose incomes worth at least $750 billion. In sub-Saharan Africa, the figure is over $50 billion. The consequences of this fall in income will be increases in unemployment, poverty and hunger. The ODI estimates that an extra 50 million people will be trapped in absolute poverty, with the number expected to rise to 90 million. As previously mentioned, hunger is going to increase significantly and is already on the rise, with 100 million more expected to go hungry because of the recession – having risen for the first time in 20 years.

There are a number of key ‘transmission belts’ which transmit the impacts of the recession to the developing world. These are explored further below:

1) Trade

The value of trade has been falling in some countries. Japan recently reported that it exported 50% less in February than it did a year ago. Falling trade is argued to be a result of a combination of falling demand for goods and a credit squeeze (npr). The ODI found that tightening credit conditions were happening for domestic bank lending in Cambodia, Ghana and Zambia.

Indonesian exports of electronic products experienced a fall of 25% (in value terms) in January 2009 compared to the previous year. Similarly the value of garment export in Cambodia has dropped from a monthly average of $250 million in 2008 to $100 million in January 2009 (ODI). This has inevitably led to decreases in employment, for example, Cambodia laid-off 15,000 construction workers in mid-2008 and 51,000 were laid off in the garment industry. Kenya, which is highly reliant on the labour-intensive horticultural industry, saw 1200 jobs lost this year and a 35% decrease in exports of flowers. Uganda, a traditional commodity exporter, has faced significant declines in the value of its exports, because of falling prices for coffee, flowers and cotton and declining demand since November 2008. The recession has been particularly damaging for countries highly reliant on one or very few commodities that have experienced falling commodity prices.

2) Remittances

The World Bank revised its estimates of remittances downwards, after remittances reached $305 billion in 2008, to $290 billion in 2009, the first decrease in a decade.

In all countries studied, remittances had decreased, but Africa is thought to have seen the most significant decline.  In Kenya, for example, remittances were down by 27% in January 2009 compared to January 2008, following a volatile year. In Bangladesh emigration fell by 38.8% between February 2008 and February 2009, jeopardising future remittances.

3) Private financial flows

Private financial flows have been affected by the downturn. In particular portfolio investment flows fell significantly in 2008, with some signs of significant shifts from inflows to net outflows. For example, in Bangladesh and Kenya, studied by the ODI, experienced net outflows of portfolio investment flows worth $48 million in July-December 2008 (for Bangladesh) and $48 million in June 2oo8 and $12 million in October 2008 (in Kenya).

Net private capital inflows to developing countries fell to $707 billion in 2008, a sharp drop from a peak of $1.2 trillion in 2007. International capital flows are projected to fall further in 2009, to $363 billion (World Bank). In Indonesia, there has been a massive sell-off of government bonds and in Kenya and Nigeria there has been a significant drop in portfolio equity flows, consistent with the sharp fall of their stock markets (ODI).

The World Bank noted this trend in South Asia. It estimates flows to South Asia fell by 29% in 2008, among the sharpest declines posted among developing regions.  Credit conditions for bank lending has been tightening in Cambodia, Ghana and Zambia. Foreign Direct Investment has been less severely affected, but this has varied by country.

Economic policy and social protection provision responses

Economic and social protection policy responses have been extremely varied across countries in the developing world, with some adopting a business as usual approach and others being more-proactive (ODI). For example, Cambodia is implementing growth accelerating policies whereas Indonesia is implementing fiscal stimuli. Kenya, on the other hand, has done relatively little.

In terms of social protections, some countries are struggling to implement anything that even meets existing commitments such as Kenya and Uganda, whilst others are attempting to extend coverage of social protection provision to respond to the crisis (Bangladesh, Ghana and Cambodia).

During the recession it will be important to continue monitoring the impacts and the effectiveness of policy approaches, and building on any lessons learnt. This may enable developing countries and the developed world to better support the most vulnerable and avoid the further undoing of past progress.


The International Fund for Animal Welfare (Ifaw) has commissioned a report by Economists at Large assessing the value world wide of whale watching to support their position of an outright ban on whale hunting at the current International Whaling Commission meeting.  The report estimates that whale watching generates $2.1 billion per year.

The director of Ifaw, Patrick Ramage, is quoted by the BBC as saying “Whale watching is clearly more environmentally sustainable and economically beneficial than hunting and whales are worth far more alive than dead.”

Mr Ramage is setting up the economic argument as an “either or” but various people (such as the Icelandic whaling commissioner) have suggested that you can have some of both.  We’re back to economics 1.1 as shown in the diagram below.  The curved line shows the marginal rate of substitution between eating whales and watching whales, and the straight budget line shows the relative price of the two goods.  The “optimal” point is (theoretically) where the gradient of the lines are equal.  At this combination the maximum value is extracted.

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This piece of basic under-graduate economics probably gets us not very far to the answer of “how much hunting, how much watching?” but it does go some way to debunking the argument that if one good is more valuable than another you should only produce the first good.  People corporately probably want a bit of both.

And what of the recession? How does this affect the logic of maintaining whale populations as tourist attractions?  Again considering the properties of the two goods in the model above may be useful. Consuming whale watching is by its nature lumpy. To go whale watching I need to travel to the country in question, probably as part of a larger holiday and I will probably do various other touristy things while I’m there.  When money gets tight it is difficult for me to cut the cost of the combined single good of “holiday to a place where I can go whale watching.” As such I’m likely not to go at all, or to go to some place cheaper without whales.  My demand for whale watching is reduced by 100%.

The problem is that whales can only be watched whole and in their natural environment. However if I shoot the whale, cut it up and put in tins it becomes a lot more transportable and less lumpy (economically speaking, I’ve never eaten whale so can’t comment on its texture). If say I would usually consume ten cans of whale meat in a year and money gets tight, presuming whale meat to have a cheaper substitute, I can chose to consume only eight tins this year. My demand for this product has only reduced by 20%.

As with so many good and markets considered by Sustainable Slump the consumption is defined by the properties of the goods themselves but also there substitutes. Is whale watching a luxury good? Probably. Is global travel going to get more expensive in the future? Probably.  Will whale watching still be worth $2.1 billion if the recession continues? Possibly not.

Crocodile skin, particularly wild crocodile, is prized in the fashion world for its glossy, beautiful appearance and has transcended the often fickle styles and trends of the fashion world, epitomising ‘classic’ and ‘timeless’ fashion. Picture Kate Moss carrying the same crocodile clutch her mother carried back in the sixties. Crocodilians specimens are also traded as meat and hunting trophies.WalletCrocodile-4Crocodilians include all alligators, caimans, crocodiles, gavials and other members of the order Crocodylia. Crocodilians are protected under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), which is an international agreement (to which states adhere voluntarily) between governments to ‘ensure that international trade in wild animals and plants does not threaten their survival’.

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The species covered by CITES are listed under three appendixes. Appendix I includes species threatened with extinction. Trade in specimens of these species is permitted only in exceptional circumstances. Appendix II includes species not necessarily threatened with extinction, but in which trade must be controlled in order to avoid utilization incompatible with their survival.

All crocodilian species have been included in CITES Appendix I or II in response to the decline in some wild populations as a result of unregulated international trade. A number of more common crocodilian species are included in Appendix II because they are so difficult to distinguish from more endangered species. As a result of CITES the majority of Crocodile leather comes from farmed and ranched (removing eggs form the wild to breed in captivity) sources. Whilst this is thought to have led to a turn-around in crocodlian populations after numbers plummeted in the 1960’s due to high levels of trade, it has also been argued that through removing traded crocodiles from their natural habitat and decreasing the need to hunt the wild crocodile, the economic incentive for conserving the wild crocodile and its habitat is reduced, or removed, alltogether.

James MacGregor argues that demand for wild harvested crocodilians is important in incentivising conservation. He concludes that: ‘in the crocodilian skin industry, or any industry founded on wild resources, is unwise to turn its back on the wild supply; wild crocodilian skins retain some advantages in today’s market—wild classic skins remain at the vanguard of the strategy of luxury brands.’

For several reasons one could argue that the recession might not impact demand for crocodile skin. This could be justified on the basis that:

  • Croc leather has a diverse and growing portfolio of markets and market segments and a continuing allure among customers.
  • Croc leather products are sold to wealthiest, well-established brands have no fear from crisis (as it exists today) owing to liquidity and relatively small cost. However this does account for small portion of the market. Think Beckham with her collection of $US2  million worth of Crocodile leather Hermes Birkin bags.
  • Accessories and ‘classic, timeless’ fashion pieces are increasingly being favoured, including exotic skin goods. The transfer of budget from other products to these could favour sales of croc products.

Despite these sensible assumptions, interviews with experts have revealed that the recession is undoubtedly taking its toll on the demand for wild crocodile skin – some tanneries, for example, have reported ‘no designer orders’ in the Q1 of 2009 and an significant increase in the downgrading and outright rejection of lower quality crocodile skin. Some industry participants are trying to postpone sales of wild skins to see if market conditions improve. For others, crocodile leather goods remain the ‘fastest-growing product line’ notably in the case of Hermes (who owns its own crocodile farms) claiming that “we cannot face demand. We have massive over-demand. We are limited by our ability to train new craftsmen.”

Co-existence in many countries of dangerous crocodiles and poor people has been made possible through provision of strong economic incentives to harvest sustainably. Indeed, many of the wild crocodile skins are produced under the strictest of regimes using sustainable use. Here, often poor hunters and communities are given opportunities to realise the benefits from these species who are often despised for the danger they present to human life. The changes brought about by the recession add fear that a collapse in orders owing to belt-tightening by the world’s elites will reduce their value in situ and reduce the incentives for co-existence. Closely monitoring the impacts of the recession will be key to ensuring conservation and livelihoods are not adversely affected.

I recently posted a piece, admittedly riddled mainly with questions, about how the recession would impact wildlife trade, land use, conservation and the balance between legal and illegal trade. Although a relatively small case-study in the global scheme of things, Argyll in Scotland, has demonstrated just what could happen as the economic going gets tough:

One unexpected consequence of the recession is that the needs for cheap meat and money-making are combining to bring DIY wildlife crime gangs to Scotland to poach Roe, Red, Fallow and Sika deer. There is already a lively black market for cuts of meat from these animals (Strathclyde Police).

Other anecdotal trends do suggests that this rise in poaching is not necessarily confined to Argyll and may be having more serious effects in terms of undermining sustainability, elsewhere. The Born Free Foundation has argued that ‘rising food prices, another rash of crop failures, wide-ranging impacts of the global recession, will lead to a rise in the ‘bushmeat’ trade in Kenya’. This is thought to be detrimental to conservation because a portion of the bush meat contains endangered species. A survey in 2004 revealed that 40% of meat being sold as beef or goat in certain Nairobi butcheries was either wholly or partially bushmeat – it would be useful to update this research and understand the extent to which the recession is impacting illegal wildlife trade.

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Source: Wildlife Works Ltd

Whilst on the surface it may seem that trade in illegal bushmeat is only damaging to the wildlife it affects, Born Free’s Senior Wildlife Consultant argues that “this is not just about saving individual animals, important as that is.  It is about preserving functioning eco-systems that bring benefits to every person on the planet.  The ecosystem services provided by Africa’s forests and savannahs include rainfall, carbon storage and stabilizing the global climate, so we all have an interest in preventing a few profiteers from destroying these globally important ecosystems for personal gain.”

Illegal hunting and trade of wildlife, removes the economic connection between habitat (or land) and wildlife, undermining economic incentives to conserve habitats and, as a result, environmental sustainability – not just in the specific country concerned, but globally.

 

itq_ice[1]Iceland is a posterchild for economic incentive mechanisms for managing wildlife stocks. Its ITQ system is based on biological criteria, not political ones like many other systems which result from exhaustive bargaining in smoky rooms, billiard halls and corridors in Bruxelles. However, the Icelandic economy has been crippled by the financial crisis and is suffering a serious recession. And in what we worry is the beginning of a global precedent, the country is looking to its natural resources to restore value in its economy, particularly in its waters.

In January, it increased its whaling quota sixfold, and recently it has increased its catch by 32% in the first two months of 2009 over 2008. And while this trend began under the previous government, it has continued under the new government.

The potential quota-busting could be a rational response to underemployment, high demand and future uncertainty. Or it could be the beginning of a mining of the resource base that could have serious implications for the welfare of future fish stocks for Iceland and its main consumer base throughout Europe. There are two dual issues worth highlighting here.

First, there is a worry for the reputation of economics in supporting conservation. Fish is second to timber for value of trade. And there is evidence that ITQs work, at least for some fisheries. Alongside New Zealand’s quota management system and the clam and sea quahog fisheries in the US , Iceland is emblematic of sound economics driving and supporting conservation itq_ice2

Second, for the broader wildlife trade, the failure of the Icelandic QMS could spell the end of any flirtation with economic instruments. Yet, the wildlife trade labours to manage trade for conservation using CITES which uses a system of international regulation which is at best conservation-neutral and at worst a driver of unsustainable use of wildlife, ITQs offered some hope of salvation in light of very few alternatives to management.

Sustainableslump is concerned that conservationists will turn their back on promising economic incentives mechanisms, and that any hope for endangered species will be lost too.

While there is much academic debate about the role of wildlife trade in supporting or encumbering conservation and economic development efforts in developing countries, there is agreement on one issue – that illegal wildlife trade threatens conservation. It undermines nations’ efforts to manage their natural resources sustainably and causes massive economic losses in lost earnings. It damages legal wildlife trade (which can be a useful economic incentive for conservation if properly managed) by threatening the resource on which so many people rely (Traffic.org). It provides few conspicuous incentives for good land management by those living with the natural resources or for those in the supply chain to invest in good management practices.

Illegal wildlife trade is a significant market and although by its very nature is impossible to measure, it is thought its value runs into hundreds of millions of dollars. Significantly, illegally traded products are less likely to contribute to sustainable conservation initiatives on the ground. In the case of wildlife trade, illegal is defined under CITES.

By its very nature, illegal activity is unseen, and there are few robust analytical approaches to help us understand the economic system of illegal trade or the scale of it. Yet, the recession provides an ideal opportunity to understand the drivers of wildlife trade [good and bad] by allowing us to better understand market dynamics by glimpsing change as it happens. We can see what happens to trade and to conservation when for instance, demand for all commodities falls or if demand for luxury handbags in Japan falls (of which crocodile leather is used to make some), or if the costs of captive-breeding and farming crocodiles increase. Might we see illegal trade increase relative to legal trade? Or vice versa? Or more subtle changes? Are illegal and legal trade complementary or substitutes? Do they work in parallel or in opposing ways?

Furthermore, how do these insights translate on the ground: as demand for some commodities fall, what options are there for alternative income sources for communities and under what circumstances might illegal activities become attractive as a viable source of income? How will land use patterns change and how will this affect wildlife habitats? How will the incentives for conservation change?

Sustainableslump is calling for more research right now to help us better understand this illegal trade, the economic and social drivers and how cross-cutting policies might be effective in reducing or eliminating illegal trade and establishing effective market-based incentives for conservation and sustainable wildlife trade.