Tuesday, May 29, 2007

Unilever goes ethical- read on

"Unilever, the world's largest tea company, is to revolutionise the tea industry by committing to purchase all its tea from sustainable, ethical sources. It has asked the international environmental NGO, Rainforest Alliance, to start by certifying tea farms in Africa.

Lipton, the world's best-selling tea brand, and PG Tips, the UK's No.1 tea, will be the first brands to contain certified tea. The company aims to have all Lipton Yellow Label and PG Tips tea bags sold in Western Europe certified by 2010 and all Lipton tea bags sold globally by 2015.

Based on Rainforest Alliance experience with other crops, it is expected that certified tea will command higher prices than current average prices paid at auction. Unilever estimates that it will be paying farmers around €2 million more for its tea by 2010 and around €5 million more by 2015.

Lipton is the world's best-known and best-selling brand of tea, with sales of nearly €3 billion today. Lipton is the global market leader in both leaf and ready-to-drink tea, with a global market share nearly three times larger than its nearest rival. Available in over 110 countries, Lipton is particularly popular in Europe, North America, the Middle East and parts of Asia."

This is an excerpt from a Unilever press release. Let me now get this thing straight:

1. Unilever owns Lipton and PG Tips tea brands
2. Its sales of Lipton tea alone are $3 billion per year. Lets assume PG tips bring in another $1 billion. Total $4 billion.
3. After 3 years of the ethical branding, farmers will be paid an extra $2 millions
4. If Ethical Branding produces a sales volume increase of 1% per year, Unilever will make around $150 million in the first 3 years.
5. Over this period, the farmers will receive an extra $2 million, which is exactly 1.3% of the net income attributable to the adoption of the Ethical Label.

How ethical is that?


Anonymous said...

The move to "organics" and fair- trade practices by corporations are just a response to increasing awareness and concern by consumers.

Although it is motivated by profit and will not help the farmers that much, it is still a positive development in bringing our food to market.

The challenge is to educate and organize small producers to bargain and position themselves to get a bigger share and gain from this trend.


michiel said...

I work for Lipton, and i would like to give you a different view on this. I think you make the mistake of confusing 'sales' with 'profit'. With most consumer goods, the actual costs of the raw material is a lot less than the consumer price. There are manufacturing costs, packaging costs, labor costs, shipping and warehousing costs, taxes, and of course gross margins for the company (in this case Lipton)as well as distributors and wholesalers. I think it would be fair to look at the 2 M EUR as a percentage of current tea raw material costs. I don't think Lipton would give you that figure, but in interviews the company has made it clear it expects certified tea to command a premium of 10-15%. I would think that for most farmers this would be a welcome premium. That is another way to look at it.

Thanks for letting me chime in.