1. Define the terms capital structure, cost of capital, and working capital. Focus on how they are different from each other and impact both profitability and risk.
2. Determine Grounds Keeperâs capital structure and working capital.
3. If Grounds Keeper has a required rate of return on its long-term debt of 9% (before taxes) and a required rate of return on its common stock, a tax rate of 40%, what is its weighted average cost of capital (WACC) for 2012? How could Grounds Keeper lower its WACC? (HINT: you will need to look at the balance sheet to determine the weight of debt to equity.
4. What are the advantages to Grounds Keeper in using money market instruments as financing? How does this related to financing net working capital?
Grounds Keeper
Consolidated Balance Sheets
(Dollars in thousands)
2012
2011
Assets
Current assets:
Cash and cash equivalents
78,240
44,395
Receivables
399,891
340,062
Inventories
844,737
736,677
Total current assets
1,322,868
1,121,133
Fixed assets, net
1,244,384
889,613
Other long-term assets
1,048,537
1,187,141
Total assets
3,615,789
3,197,887
Liabilities and Stockholdersâ Equity
Current liabilities:
Accounts payable
309,222
319,465
Accruals
201,017
145,240
Notes payable
9,748
6,669
Total current liabilities
519987
471374
Long-term debt
834574
814298
Total liabilities
1,354,561
1,285,672
Stockholdersâ equity:
Common stock, $0.10 par value:
15,268
15,447
Additional paid-in capital
1,464,560
1,499,616
Retained earnings
781400
397152
Total stockholdersâ equity
2,261,228
1,912,215
Total liabilities and stockholdersâ equity
3,615,789
3,197,887
Grounds Keeper
Consolidated Statements of Operations
(Dollars in thousands except per share data)
2012
2011
Net sales
3,889,426
2,642,390
Cost of sales
2,589,799
1,746,274
Gross profit
1,299,627
896,116
Selling and operating expenses
481,493
348,696
General and administrative expenses
219,010
187,016
Operating income
599,124
360,404
Interest expense
22,983
57,657
Income before income taxes
576,141
302,747
Income tax expense
212,641
101,699
Net Income
363,500
201,048
Basic income per share:
Average shares outstanding
154,933,948
146,214,860
Earnings per common share
2.35
1.38
Below is the provided information/scenario.
Grounds Keeper is considering adding fair trade coffee to their line of products. Other larger coffee companies are now including it, at consumersâ insistence. At a recent strategic management meeting, the companyâs officers identified the following points:
Fair trade coffee may attract new customers.
Fair trade coffee would allow Grounds Keeper to demonstrate its social responsibility.
Fair trade coffee would require more paperwork to meet certification and contract requirements.
The higher cost of Fair Trade Coffee would require a higher price or a reduced profit margin.
If coffee prices worldwide continue to increase, consumers may be reluctant to pay extra for Fair Trade Coffee.
Current suppliers of coffee to Grounds Keeper might be in competition with Fair Trade Coffee cooperatives.
One officer present asked the following question: Should we as a company have a good reason to try to influence actions in other parts of the world? Donât we have governments to do that?
Fair Trade Coffee
What is fair trade certification?
Much like organic certification, fair trade certification lets you know about the origin of a product. Fair trade certified products come from all over the world, but share a common history. Farmers who grow fair trade products receive a fair price, and their communities and the environment benefit as well.
Fair trade certified coffee directly supports a better life for farming families in the developing world through fair prices, community development and environmental stewardship. Fair trade farmers market their own harvests through direct, long-term contracts with international buyers, learning how to manage their businesses and compete in the global marketplace. Receiving a fair price for their harvest allows these farmers to invest in their families' health care and education, reinvest in quality and protect the environment. This empowerment model lifts farming families from poverty through trade, not aid, creating a more equitable and sustainable model of international trade that benefits producers, consumers, industry and the Earth. The Fair for Life label is backed by IMO, one of the third-party certifiers of fair trade products for the U.S. market.
The Fair for Life label guarantees:
Fair price: Family farmers receive fair prices for their harvest, and premiums specifically earmarked for community development projects; even higher premiums are given for certified organic products. Farmer organizations are also eligible for pre-harvest credit.
Environmental sustainability: Harmful agrochemicals and GMOs are strictly prohibited in favor of environmentally sustainable farming methods that protect farmers' health and preserve valuable ecosystems for future generations. Fair trade farmers protect the land and wildlife habitat by intercropping plant species to improve soil fertility and protect against erosion. Stringent environmental management programs, including water conservation, proper waste disposal and prohibitions on planting in protected areas further encourage environmental stewardship.
Fair labor conditions: Workers on fair trade farms enjoy freedom of association, safe working conditions and fair wages. Forced child labor is strictly prohibited.
Direct trade: Importers purchase from fair trade producer groups as directly as possible, eliminating unnecessary middlemen and empowering farmers to develop the business capacity needed to compete in the global marketplace.
Democratic and transparent organizations: Fair trade farmers and farm workers decide how to invest fair trade revenues, and proof of a democratic process is required.
Community development: Fair trade farmers and workers invest fair trade premiums in social and business development projects like scholarship programs, healthcare services and quality improvement training.
Examples of community projects include:
Members of the COSURCA coffee cooperative in Colombia successfully prevented the cultivation of more than 1,600 acres of coca and poppy used to produce illicit drugs.
In the highlands of Guatemala, indigenous Tzutuhil Mayans in the La Voz cooperative are sending local kids to college for the first time.
Near Lake Titicaca, in Peru, the CECOVASA cooperative is assisting members from Quechua and Aymara indigenous groups in improving coffee quality and transitioning to certified organic production.
The CECOCAFEN cooperative in Nicaragua established a reproductive health program providing tests for the virus that causes cervical cancer.
What is IMO "Fair for Life" fair trade certification?
"Fair for Life" is a brand neutral third party certification program for social accountability and fair trade in agricultural, manufacturing and trading operations. The program complements existing fair trade certification systems. Social accountability and fair trade have become important indicators to select business partners in a global market place. The Fair for Life Social & FairTrade Certification Program offers operators of socially responsible projects a solution for objective inspection and certification by a highly qualified external verifier. It combines strict social and fair trade standards with adaptability to local conditions.
Why is fair trade certification needed today?
Throughout the global south, family farmers follow generations of tradition to cultivate food products we enjoy every day. Yet many family farmers in the developing world don't receive a fair price for their crops. These isolated rural communities lack direct market access, often selling their premium crops below the cost of production to local middlemen who misrepresent global prices. This cycle of debt forces many to abandon their land and years of agricultural heritage, destroying the social and cultural fabric of these communities. When farming communities in the developing world suffer, the whole world suffers - forced immigration, inferior-quality products and large-scale farming methods that often compromise the environment.
Who benefits from fair trade certification?
Producers: Beyond receiving a fair, stable price, fair trade also empowers producers to invest in their organizations, improve their communities and protect the environment.
Consumers: Fair trade certification enables consumers to "vote with their dollar" by providing an independent guarantee that products were produced and traded fairly. We all lead busy lives, and we want to do the right thing, but we're busy. What if we could make a positive impact just with the purchases we make every day? And not have to go out of our way to do this? That's the compelling proposition of fair trade.
The Earth: Fair trade certification requires and rewards environmentally sustainable farming practices that protect farmers' health and preserve valuable ecosystems for future generations, and provides the resources and technical assistance needed for organic certification.
1. Define the terms capital structure, cost of capital, and working capital. Focus on how they are different from each other and impact both profitability and risk.
2. Determine Grounds Keeperâs capital structure and working capital.
3. If Grounds Keeper has a required rate of return on its long-term debt of 9% (before taxes) and a required rate of return on its common stock, a tax rate of 40%, what is its weighted average cost of capital (WACC) for 2012? How could Grounds Keeper lower its WACC? (HINT: you will need to look at the balance sheet to determine the weight of debt to equity.
4. What are the advantages to Grounds Keeper in using money market instruments as financing? How does this related to financing net working capital?
| Grounds Keeper | ||
| Consolidated Balance Sheets | ||
| (Dollars in thousands) | ||
| 2012 | 2011 | |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | 78,240 | 44,395 |
| Receivables | 399,891 | 340,062 |
| Inventories | 844,737 | 736,677 |
| Total current assets | 1,322,868 | 1,121,133 |
| Fixed assets, net | 1,244,384 | 889,613 |
| Other long-term assets | 1,048,537 | 1,187,141 |
| Total assets | 3,615,789 | 3,197,887 |
| Liabilities and Stockholdersâ Equity | ||
| Current liabilities: | ||
| Accounts payable | 309,222 | 319,465 |
| Accruals | 201,017 | 145,240 |
| Notes payable | 9,748 | 6,669 |
| Total current liabilities | 519987 | 471374 |
| Long-term debt | 834574 | 814298 |
| Total liabilities | 1,354,561 | 1,285,672 |
| Stockholdersâ equity: | ||
| Common stock, $0.10 par value: | 15,268 | 15,447 |
| Additional paid-in capital | 1,464,560 | 1,499,616 |
| Retained earnings | 781400 | 397152 |
| Total stockholdersâ equity | 2,261,228 | 1,912,215 |
| Total liabilities and stockholdersâ equity | 3,615,789 | 3,197,887 |
| Grounds Keeper | |||||
| Consolidated Statements of Operations | |||||
| (Dollars in thousands except per share data) | |||||
| 2011 | ||||
| Net sales | 3,889,426 | 2,642,390 | |||
| Cost of sales | 2,589,799 | 1,746,274 | |||
| Gross profit | 1,299,627 | 896,116 | |||
| Selling and operating expenses | 481,493 | 348,696 | |||
| General and administrative expenses | 219,010 | 187,016 | |||
| Operating income | 599,124 | 360,404 | |||
| Interest expense | 22,983 | 57,657 | |||
| Income before income taxes | 576,141 | 302,747 | |||
| Income tax expense | 212,641 | 101,699 | |||
| Net Income | 363,500 | 201,048 | |||
| Basic income per share: | |||||
| Average shares outstanding | 154,933,948 | 146,214,860 | |||
| Earnings per common share | 2.35 | 1.38 |
Below is the provided information/scenario.
Grounds Keeper is considering adding fair trade coffee to their line of products. Other larger coffee companies are now including it, at consumersâ insistence. At a recent strategic management meeting, the companyâs officers identified the following points:
Fair trade coffee may attract new customers.
Fair trade coffee would allow Grounds Keeper to demonstrate its social responsibility.
Fair trade coffee would require more paperwork to meet certification and contract requirements.
The higher cost of Fair Trade Coffee would require a higher price or a reduced profit margin.
If coffee prices worldwide continue to increase, consumers may be reluctant to pay extra for Fair Trade Coffee.
Current suppliers of coffee to Grounds Keeper might be in competition with Fair Trade Coffee cooperatives.
One officer present asked the following question: Should we as a company have a good reason to try to influence actions in other parts of the world? Donât we have governments to do that?
Fair Trade Coffee
What is fair trade certification?
Much like organic certification, fair trade certification lets you know about the origin of a product. Fair trade certified products come from all over the world, but share a common history. Farmers who grow fair trade products receive a fair price, and their communities and the environment benefit as well.
Fair trade certified coffee directly supports a better life for farming families in the developing world through fair prices, community development and environmental stewardship. Fair trade farmers market their own harvests through direct, long-term contracts with international buyers, learning how to manage their businesses and compete in the global marketplace. Receiving a fair price for their harvest allows these farmers to invest in their families' health care and education, reinvest in quality and protect the environment. This empowerment model lifts farming families from poverty through trade, not aid, creating a more equitable and sustainable model of international trade that benefits producers, consumers, industry and the Earth. The Fair for Life label is backed by IMO, one of the third-party certifiers of fair trade products for the U.S. market.
The Fair for Life label guarantees:
Fair price: Family farmers receive fair prices for their harvest, and premiums specifically earmarked for community development projects; even higher premiums are given for certified organic products. Farmer organizations are also eligible for pre-harvest credit.
Environmental sustainability: Harmful agrochemicals and GMOs are strictly prohibited in favor of environmentally sustainable farming methods that protect farmers' health and preserve valuable ecosystems for future generations. Fair trade farmers protect the land and wildlife habitat by intercropping plant species to improve soil fertility and protect against erosion. Stringent environmental management programs, including water conservation, proper waste disposal and prohibitions on planting in protected areas further encourage environmental stewardship.
Fair labor conditions: Workers on fair trade farms enjoy freedom of association, safe working conditions and fair wages. Forced child labor is strictly prohibited.
Direct trade: Importers purchase from fair trade producer groups as directly as possible, eliminating unnecessary middlemen and empowering farmers to develop the business capacity needed to compete in the global marketplace.
Democratic and transparent organizations: Fair trade farmers and farm workers decide how to invest fair trade revenues, and proof of a democratic process is required.
Community development: Fair trade farmers and workers invest fair trade premiums in social and business development projects like scholarship programs, healthcare services and quality improvement training.
Examples of community projects include:
Members of the COSURCA coffee cooperative in Colombia successfully prevented the cultivation of more than 1,600 acres of coca and poppy used to produce illicit drugs.
In the highlands of Guatemala, indigenous Tzutuhil Mayans in the La Voz cooperative are sending local kids to college for the first time.
Near Lake Titicaca, in Peru, the CECOVASA cooperative is assisting members from Quechua and Aymara indigenous groups in improving coffee quality and transitioning to certified organic production.
The CECOCAFEN cooperative in Nicaragua established a reproductive health program providing tests for the virus that causes cervical cancer.
What is IMO "Fair for Life" fair trade certification?
"Fair for Life" is a brand neutral third party certification program for social accountability and fair trade in agricultural, manufacturing and trading operations. The program complements existing fair trade certification systems. Social accountability and fair trade have become important indicators to select business partners in a global market place. The Fair for Life Social & FairTrade Certification Program offers operators of socially responsible projects a solution for objective inspection and certification by a highly qualified external verifier. It combines strict social and fair trade standards with adaptability to local conditions.
Why is fair trade certification needed today?
Throughout the global south, family farmers follow generations of tradition to cultivate food products we enjoy every day. Yet many family farmers in the developing world don't receive a fair price for their crops. These isolated rural communities lack direct market access, often selling their premium crops below the cost of production to local middlemen who misrepresent global prices. This cycle of debt forces many to abandon their land and years of agricultural heritage, destroying the social and cultural fabric of these communities. When farming communities in the developing world suffer, the whole world suffers - forced immigration, inferior-quality products and large-scale farming methods that often compromise the environment.
Who benefits from fair trade certification?
Producers: Beyond receiving a fair, stable price, fair trade also empowers producers to invest in their organizations, improve their communities and protect the environment.
Consumers: Fair trade certification enables consumers to "vote with their dollar" by providing an independent guarantee that products were produced and traded fairly. We all lead busy lives, and we want to do the right thing, but we're busy. What if we could make a positive impact just with the purchases we make every day? And not have to go out of our way to do this? That's the compelling proposition of fair trade.
The Earth: Fair trade certification requires and rewards environmentally sustainable farming practices that protect farmers' health and preserve valuable ecosystems for future generations, and provides the resources and technical assistance needed for organic certification.
Related questions
1. Use the attached balance sheet and income statement to compute the required financial ratios for 2012. Use 360 for the number of days in a year. The computations for 2011 are already done for you.
Current ratio_________________________
Quick ratio__________________________
Inventor turnover____________________
Average Collection Period_____________
Total asset turnover__________________
Net profit margin____________________
Operating profit margin_______________
Times Interest Earned_________________
Debt/Net Worth Ratio_________________
Return on Equity ratio__________________
2. Using the computed financial ratios from question 1, compare Grounds Keeperâs performance from 2011 to 2012. Address what areas the company has improved and what areas it has not
A.)Liquidity
B.) Activity / turnover / efficiency
C.) Profitability
D.) Leverage / use of debt / solvency
3. If you were the CEO of Grounds Keeper, what area(s) would you concentrate on to improve the performance of the company?
4. Define the terms capital structure, cost of capital, and working capital. Focus on how they are different from each other and impact both profitability and risk.
5. Determine Grounds Keeperâs capital structure and working capital.
6. If Grounds Keeper has a required rate of return on its long-term debt of 9% (before taxes) and a required rate of return on its common stock, a tax rate of 40%, what is its weighted average cost of capital (WACC) for 2012? How could Grounds Keeper lower its WACC? (HINT: you will need to look at the balance sheet to determine the weight of debt to equity.
7. What are the advantages to Grounds Keeper in using money market instruments as financing? How does this related to financing net working capital?
8. Explain what Grounds Keeper should consider when deciding whether to issue stocks or bonds? Answer using at least 3 different characteristics comparing and contrasting stocks and bonds.
9. Define money market instruments; list at least one type of security that would be considered a money market instrument. What are the advantages to Grounds Keeper in using money market instruments as financing? What are the disadvantages?
| Grounds Keeper | ||
| Consolidated Balance Sheets | ||
| (Dollars in thousands) | ||
| 2012 | 2011 | |
| Assets | ||
| Current assets: | ||
| Cash and cash equivalents | 78,240 | 44,395 |
| Receivables | 399,891 | 340,062 |
| Inventories | 844,737 | 736,677 |
| Total current assets | 1,322,868 | 1,121,133 |
| Fixed assets, net | 1,244,384 | 889,613 |
| Other long-term assets | 1,048,537 | 1,187,141 |
| Total assets | 3,615,789 | 3,197,887 |
| Liabilities and Stockholdersâ Equity | ||
| Current liabilities: | ||
| Accounts payable | 309,222 | 319,465 |
| Accruals | 201,017 | 145,240 |
| Notes payable | 9,748 | 6,669 |
| Total current liabilities | 519987 | 471374 |
| Long-term debt | 834574 | 814298 |
| Total liabilities | 1,354,561 | 1,285,672 |
| Stockholdersâ equity: | ||
| Common stock, $0.10 par value: | 15,268 | 15,447 |
| Additional paid-in capital | 1,464,560 | 1,499,616 |
| Retained earnings | 781400 | 397152 |
| Total stockholdersâ equity | 2,261,228 | 1,912,215 |
| Total liabilities and stockholdersâ equity | 3,615,789 | 3,197,887 |
| Grounds Keeper | |||||
| Consolidated Statements of Operations | |||||
| (Dollars in thousands except per share data) | |||||
| 2011 | ||||
| Net sales | 3,889,426 | 2,642,390 | |||
| Cost of sales | 2,589,799 | 1,746,274 | |||
| Gross profit | 1,299,627 | 896,116 | |||
| Selling and operating expenses | 481,493 | 348,696 | |||
| General and administrative expenses | 219,010 | 187,016 | |||
| Operating income | 599,124 | 360,404 | |||
| Interest expense | 22,983 | 57,657 | |||
| Income before income taxes | 576,141 | 302,747 | |||
| Income tax expense | 212,641 | 101,699 | |||
| Net Income | 363,500 | 201,048 | |||
| Basic income per share: | |||||
| Average shares outstanding | 154,933,948 | 146,214,860 | |||
| Earnings per common share | 2.35 | 1.38 |
| Current Ratio | Current assets/ Current liabilities |
| Quick Ratio | Current assets â inventory/ Current liabilities |
| Inventory Turnover | Cost of goods sold/ Inventory |
| Receivables Turnover | Sales/ Accounts receivables |
| Average Collection Period | Receivables/ Sales per day |
| Fixed Asset Turnover | Sales/ Fixed assets |
| Total Asset Turnover | Sales/ Total Assets |
| Gross Profit Margin | Revenues - Cost of goods sold/ Sales |
| Operating Profit Margin | Earnings before interest and taxes/ Sales |
| Net Profit Margin | Net income/ Sales |
| Return on Total Assets | Net income/ Total assets |
| Debt/Net Worth Ratio | Total Debt/ Total Equity |
| Times-Interest-Earned | Operating Income/ Interest expense |
| Return on Equity | Net income/ Total equity |
1.) Using the computed financial ratios from question 1, compare Grounds Keeperâs performance from 2011 to 2012. Address what areas the company has improved and what areas it has not
a.) Liquidity
b.) Activity / turnover / efficiency
c.) Profitability
d.) Leverage / use of debt / solvency
2.) If you were the CEO of Grounds Keeper, what area(s) would you concentrate on to improve the performance of the company?
| 2012 | 2011 | |
| Current ratio | 2.54404052 | 2.37843623 |
| Quick ratio | 0.91950568 | 0.81560714 |
| Inventory turnover | 3.0658051 | 2.37047444 |
| Average Collection Period | 37.5274142 | 46.9735877 |
| Total asset turnover | 1.07567837 | 0.82629249 |
| Net profit margin | 0.09345852 | 0.07608566 |
| Operating profit margin | 0.15403918 | 0.13639319 |
| Times Interest Earned | 26.0681373 | 6.25082817 |
| Debt/Net worth Ratio | 0.59903778 | 0.67234699 |
| Return on Equity ratio | 0.16075336 | 0.1051388 |
Below is the provided information/scenario.
Grounds Keeper is considering adding fair trade coffee to their line of products. Other larger coffee companies are now including it, at consumersâ insistence. At a recent strategic management meeting, the companyâs officers identified the following points:
Fair trade coffee may attract new customers.
Fair trade coffee would allow Grounds Keeper to demonstrate its social responsibility.
Fair trade coffee would require more paperwork to meet certification and contract requirements.
The higher cost of Fair Trade Coffee would require a higher price or a reduced profit margin.
If coffee prices worldwide continue to increase, consumers may be reluctant to pay extra for Fair Trade Coffee.
Current suppliers of coffee to Grounds Keeper might be in competition with Fair Trade Coffee cooperatives.
One officer present asked the following question: Should we as a company have a good reason to try to influence actions in other parts of the world? Donât we have governments to do that?
Fair Trade Coffee
What is fair trade certification?
Much like organic certification, fair trade certification lets you know about the origin of a product. Fair trade certified products come from all over the world, but share a common history. Farmers who grow fair trade products receive a fair price, and their communities and the environment benefit as well.
Fair trade certified coffee directly supports a better life for farming families in the developing world through fair prices, community development and environmental stewardship. Fair trade farmers market their own harvests through direct, long-term contracts with international buyers, learning how to manage their businesses and compete in the global marketplace. Receiving a fair price for their harvest allows these farmers to invest in their families' health care and education, reinvest in quality and protect the environment. This empowerment model lifts farming families from poverty through trade, not aid, creating a more equitable and sustainable model of international trade that benefits producers, consumers, industry and the Earth. The Fair for Life label is backed by IMO, one of the third-party certifiers of fair trade products for the U.S. market.
The Fair for Life label guarantees:
Fair price: Family farmers receive fair prices for their harvest, and premiums specifically earmarked for community development projects; even higher premiums are given for certified organic products. Farmer organizations are also eligible for pre-harvest credit.
Environmental sustainability: Harmful agrochemicals and GMOs are strictly prohibited in favor of environmentally sustainable farming methods that protect farmers' health and preserve valuable ecosystems for future generations. Fair trade farmers protect the land and wildlife habitat by intercropping plant species to improve soil fertility and protect against erosion. Stringent environmental management programs, including water conservation, proper waste disposal and prohibitions on planting in protected areas further encourage environmental stewardship.
Fair labor conditions: Workers on fair trade farms enjoy freedom of association, safe working conditions and fair wages. Forced child labor is strictly prohibited.
Direct trade: Importers purchase from fair trade producer groups as directly as possible, eliminating unnecessary middlemen and empowering farmers to develop the business capacity needed to compete in the global marketplace.
Democratic and transparent organizations: Fair trade farmers and farm workers decide how to invest fair trade revenues, and proof of a democratic process is required.
Community development: Fair trade farmers and workers invest fair trade premiums in social and business development projects like scholarship programs, healthcare services and quality improvement training.
Examples of community projects include:
Members of the COSURCA coffee cooperative in Colombia successfully prevented the cultivation of more than 1,600 acres of coca and poppy used to produce illicit drugs.
In the highlands of Guatemala, indigenous Tzutuhil Mayans in the La Voz cooperative are sending local kids to college for the first time.
Near Lake Titicaca, in Peru, the CECOVASA cooperative is assisting members from Quechua and Aymara indigenous groups in improving coffee quality and transitioning to certified organic production.
The CECOCAFEN cooperative in Nicaragua established a reproductive health program providing tests for the virus that causes cervical cancer.
What is IMO "Fair for Life" fair trade certification?
"Fair for Life" is a brand neutral third party certification program for social accountability and fair trade in agricultural, manufacturing and trading operations. The program complements existing fair trade certification systems. Social accountability and fair trade have become important indicators to select business partners in a global market place. The Fair for Life Social & FairTrade Certification Program offers operators of socially responsible projects a solution for objective inspection and certification by a highly qualified external verifier. It combines strict social and fair trade standards with adaptability to local conditions.
Why is fair trade certification needed today?
Throughout the global south, family farmers follow generations of tradition to cultivate food products we enjoy every day. Yet many family farmers in the developing world don't receive a fair price for their crops. These isolated rural communities lack direct market access, often selling their premium crops below the cost of production to local middlemen who misrepresent global prices. This cycle of debt forces many to abandon their land and years of agricultural heritage, destroying the social and cultural fabric of these communities. When farming communities in the developing world suffer, the whole world suffers - forced immigration, inferior-quality products and large-scale farming methods that often compromise the environment.
Who benefits from fair trade certification?
Producers: Beyond receiving a fair, stable price, fair trade also empowers producers to invest in their organizations, improve their communities and protect the environment.
Consumers: Fair trade certification enables consumers to "vote with their dollar" by providing an independent guarantee that products were produced and traded fairly. We all lead busy lives, and we want to do the right thing, but we're busy. What if we could make a positive impact just with the purchases we make every day? And not have to go out of our way to do this? That's the compelling proposition of fair trade.
The Earth: Fair trade certification requires and rewards environmentally sustainable farming practices that protect farmers' health and preserve valuable ecosystems for future generations, and provides the resources and technical assistance needed for organic certification.
