It was once thought that a company could be either profitable or sustainable, but not both. But as Paul Rice, CEO of Fair Trade USA, explains, the future of business is quite the opposite. With the rise of conscious capitalism and conscious consumerism, businesses will thrive by serving all stakeholders, including the environment and those at the very beginning of the supply chain.
In this episode of Rule Breaker Investing, Motley Fool co-founder David Gardner discusses the future of business with Rice.
A full transcript follows the video.
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This video was recorded on Nov. 21, 2018.
David Gardner: What does the future of business look like? Might it be a world of more thoughtful consumers, more wholesome suppliers? Will tomorrow be better than today? Well, my guest this week, Paul Rice, the founder of Fair Trade USA, is one of those optimists who will convey to you not merely hope, but I think will give you confidence that things will get better through what he's already seeing and what he's been doing in this world now for the last 20 years, and probably the next 20 and counting. Get ready to make a new friend, Paul Rice, on this week's Rule Breaker Investing.
In the face of a continued stock market sell-off -- which is something we've gotten used to here at The Motley Fool over the last 25 years and counting of our business, and if you're an investor who's even been around for 10 years, you know that the market can be quite bad sometimes -- I haven't had a lot of fun checking my stocks for the last few weeks. But as I said, I'm used to that. If you're not already, I hope you will get used to it. Those of us who make a lifetime commitment to investing need to realize that one year in three, we don't have a great year. The good news is, the other two years out of three, the math really works for us here, do tend to give us good years. Overall, I don't think there's any other place I want my money than the U.S. stock market over the long-term.
Anyway, in the face of some of those near-term losses, and the sadness of seeing a few 52-week lows pop up when we were used to seeing 52-week highs, I'm really happy to introduce to you Paul Rice, the founder of Fair Trade USA. I'll do a little introduction as I welcome him on, so I won't say anything more about him for now. I'll just say, I'm so glad you found us this week, and I hope you find this conversation with Paul as enlightening, as promising, and as fun as I did.
Paul Rice is founder, president, and CEO of Fair Trade USA, the internationally acclaimed social enterprise and leading certifier of Fair Trade products in North America. He launched the award-winning nonprofit organization in 1998 -- I'm marking this as 20 years that we're having Paul on Rule Breaker Investing -- after spending 11 years organizing farmers in the highlands of Nicaragua. 20 years later, Fair Trade has grown into a widely known and increasingly mainstream consumer trend that's rapidly approaching an inflection point. In 2016, consumer recognition of the Fair Trade certified label reached 67%, and U.S. retail sales and Fair Trade products grew to an estimated $6 billion. Paul and his team have enlisted the supportive over 1,300 companies, including market leaders and some pretty good Motley Fool stock picks like Starbucks (SBUX 2.03%), PepsiCo, Whole Foods, Costco, Walmart (WMT 0.96%), to name a few.
Paul, welcome to Rule Breaker Investing!
Paul Rice: Thank you, David! It's a pleasure to be here!
Gardner: I'm really so delighted! I got to hear you speak in person at the Conscious Capitalism Summit in October of this year, just a month or so ago. And I thought, "I sure hope Paul will join me on Rule Breaker Investing so I can have him share his story with all of our Motley Fool listeners." I want to start by asking you, Paul -- in a sense, I want to ask you, what kind of life have you led that would lead to Fair Trade? Before I ask where the idea came from, where did the man who had the idea come from?
Rice: [laughs] I grew up listening to stories from my mama talking about life on the farm. That's where it began. Even though I wasn't a farm boy myself, I grew up hearing those stories. My mom's family came out of Oklahoma. They lost their farm during the Great Depression. I just grew up with a keen sense of how hard it is to be a farmer, to make ends meet and to be successful. I've always felt a deep sympathy for the folks who grow our food.
Right out of college, at the tender age of 22, I decided that I wanted to go off and work with farmers and see if I could help small family farmers on a journey out of poverty. I went to Nicaragua. I thought I would stay for a year or two, I ended up staying for 11 years. That was my life, working way out in the hinterlands. Blue jeans, cowboy boots, and a dirt bike riding up into villages and helping farmers organize co-ops. What I learned early on was that if you only have one acre of land, you're locked into a cycle of poverty. But if you stand shoulder-to-shoulder with your neighbors and create economies of scale, and add value, and process your harvest, and sell a more value-added product, you can actually create a new story for yourself as a small farmer around the world. That was inspiring to me. That's why I ended up staying so long.
Gardner: When I saw you talking at the Conscious Capitalism Summit in October, Paul, Whole Foods CEO John Mackey, a friend of yours, friend of mine, introduced you as one of the most interesting man in the world, which I certainly agree with. He also had some fun with you. He was describing you back in the day, maybe when he first met you, did he say the word Marxist or something like that? [laughs]
Rice: He's always giving me grief for having chosen Nicaragua as the place I wanted to go. Frankly, I just wanted to be in a place where my time and effort would make a difference. Nicaragua is one of the poorest countries in the hemisphere. If ever there were a place that needed our support, that's it. So, I went, thinking I would stay for a year or two, and I fell in love with the place. I fell in love with the people, I fell in love with my wife. I got married, married a local gal, had a kid there. I became Pablo.
This leads to the answer to your Fair Trade question. I ended up starting to feel that top-down aid as an approach to poverty just wasn't very effective. I saw lots of well-intentioned aid dollars go to projects that ultimately didn't work very well, certainly didn't help farmers learn how to navigate the market. So much of international aid focuses on teaching farmers how to boost their yields, how to grow more corn on an acre of land, as it were, and not really helping them figure out how to market, how to add value, how to be successful business people.
In 1990, after seven years there, I heard about Fair Trade and ended up starting the first Fair Trade coffee co-op in Nicaragua. I ran it for four years. It was an amazing journey. We ended up creating an engine of economic growth that was owned by the farmers, that took some of the world's best coffee and processed it and exported it direct, jumping over the middleman, going direct to international buyers, and bringing back over $1 a pound to our farmers at a time when the local market price was $0.10 a pound. We're talking about a 10X increase in income for these farmers simply by connecting them more directly to the market and helping them grow higher-quality product. For me, that was transformational, and it led me to believe that market linkage and Fair Trade and things like it are probably the most sustainable, scalable way that we can help the poor on a journey out of poverty, and at the same time, create value for business and for consumers.
Gardner: We're definitely going to get to that. When I first heard about Fair Trade, I'll share what I thought of that in a sec. You're going to disabuse the old me of that, as you did when I heard you speak a month ago. It's really persuasive to me. Let me just say, Paul, when I first heard about Fair Trade, it was maybe 15 years ago. I was going to Starbucks. And I hear, I could buy coffee from Starbucks, or I could buy Fair Trade coffee, which -- I'm going to make up -- was a buck more. And I knew that I'm paying more because it's going to go to the farmer that made that coffee. But the undergrad -- please note, not even master's or PhD -- undergrad econ double major in me was thinking, "That can't work. You can't sustainably pay people more than the value of what the market says that they're doing. Supply and demand, these powerful forces, it can't possibly work." At the time, I was just thinking, "I don't really see how that could work."
But, to start half-answering the question for you -- I know you already know the whole answer -- you were saying when I first heard you a month ago, when foreign aid comes in, it can come in one of three ways to the poor people of the world: through their government, which often doesn't ever reach them. There are a lot of corrupt governments. That's not a great answer. That's No. 1. No. 2, you just said it, it could go NGOs or others, often well-meaning, on the ground. But they might not be making the best decisions. And, it's kind of a paternalistic way, because they're making the calls for who gets the money and how. And then, you said, the third person is the farmer, the craftsman directly. Then, my eyes opened. I started seeing, ah, this is what Paul's been doing so successfully for 20 years now.
We have been overpaying people. We have been breaking supply and demand a little bit. But they're getting the money directly, and it's much more helpful. And really, I feel better about it. It's more organic. It feels good to me as a consumer.
Rice: That's right, that's exactly right. The international coffee supply chain, just to take that one commodity because it's illustrative, it's so heavily intermediated. There are so many middlemen in the chain. As farmers here in the United States discovered 100 years ago, when they started grain co-ops in the Midwest, you've got Sunkist oranges down in Florida, and Ocean Spray cranberries up in New England -- all of these are farmer-owned co-ops. What farmers have discovered is that if you get organized and form associative businesses that create economies of scale, you have the resources and the volume to process your harvest, and not sell raw commodity in the local market, but rather to sell a value-added product, and ideally sell it direct to national or international markets.
That more direct trade model is, I think, the wave of the future, not only from the farmer perspective, but also because companies, from Whole Foods to Walmart and everyone in between, are increasingly looking for supply chain transparency, and a more direct connection back to the original producers. I think there's a huge opportunity on both sides of the global market for a more transparent, traceable, and direct connection.
Gardner: Paul, let's get into the model a little bit here. Let's get a little wonky. What exactly is the Fair Trade model? How does it work? Let's pretend I'm the proverbial alien just showing up on the planet and hearing about this for the first time from the man who got it started.
Rice: And you are a bit of an alien, as we know, David, so it's actually a good analogy.
Gardner: [laughs] It's easy!
Rice: [laughs] The headline is, Fair Trade is all about high-quality products that improve lives and protect the environment. That's the headline. That's what Fair Trade seeks to do. It seeks to bring high-quality products to market that improve people's lives and protect the environment. Now, how does it work? There's a Fair Trade standard, an actual code of over 300 compliance criteria that address labor issues, social issues, and environmental stewardship. You know the organic standard. To get organic-certified, a farmer has to comply with that long list of criteria. Fair Trade is the same way. To get Fair Trade-certified, a farm or a factory -- because parenthetically, we're now certifying manufactured goods, as well -- has to meet that standard. Then, they get independently audited every year. If they pass the audit, then they get certified, their products are certified. That makes them eligible to sell to any Fair Trade buyer in the world.
Right now, we're working in 70 countries, mostly in Africa, Asia, and Latin America. Our focus has been on those poor countries that produce our bananas, our cocoa, or coffee, our tea, our rice, these big commodities that we purchase as a country and that come from some of the poorest countries in the world. The philosophy is, if we can help them become more sustainable and responsible growers, and if we as a market can pay them a little bit more for doing that, that helps them on a journey out of poverty that doesn't make them dependent on foreign aid. One of the early slogans of Fair Trade was "Trade, not aid." That's kind of the ethos of our movement.
We have now 1,300 partner companies here in the United States that are working with us and buying Fair Trade products. Those companies cross all kinds of product categories, from coffee and tea to chocolate and fresh produce. Now we're in fish and manufactured goods. We're working with Walmart, Whole Foods, Kroger, Costco, Safeway, we're working with Starbucks, PepsiCo, Ben and Jerry's, Honest Tea, and on and on, in all these product categories.
Here's a core element of Fair Trade: each one of these companies agrees to pay a little bit more back to the farmer for complying with the Fair Trade standard. This is a fundamental departure from the codes of conduct that many companies have implemented in the last 20 years in an effort to manage reputational risk. There's child labor out there, there's slavery out there, factories collapse, workers get crushed. There are bad practices in the global supply chain. Companies, I think in good faith for the most part, have said, "Let's implement a code of conduct to and ask our suppliers, the farms and factories that we source from, to meet that code of conduct in order to stay part of our business." But here's the rub: most companies say to their suppliers, "Comply with our code of conduct. Whatever costs associated with that are your problem." They ask them to perform at a high social and environmental level, but then they beat up on them on price. That's just fundamentally a prescription for failure.
Gardner: Bad friction, yeah.
Rice: And for double books and cheating and scamming. We've all heard the stories. Here's what's different about Fair Trade: the standard is a high standard for responsibility and sustainability, but we sweeten the pot by asking Walmart or Whole Foods or whoever to pay a little bit more for those bananas or that coffee so that the farmer feels like it's a strong value proposition for her. I think that's what's driving the success of our model. We're moving away from the zero-sum mentality of the past and saying, the market will bear a 1-2% markup on coffee or bananas or tea in order to ensure that the farmers can put food on the table, keep their kids in school, invest in quality and meet these high standards.
Gardner: Paul, can you paint the picture a little bit? You've seen it, Nicaragua and no doubt other places since then. What does it look like from the farmers and the craftsmen when they get, if it's fair to say, overpaid, or generously supported by their buyers? How do their lives transform?
Rice: Just a clarification, I wouldn't say they're overpaid. These premiums that they're getting are, again, typically 1-3% over what they would normally get.
Gardner: That doesn't sound like much. I agree. Wow!
Rice: It's not much. It's certainly not much of a markup for the buyers up here and for consumers. What it means, though, for those families, is an extraordinary opportunity to improve their lives and to invest in their communities. My 11 years in Nicaragua, four years of those were leading a fair trade co-op, so I got to live this firsthand. For me, it's very personal. I still stay in touch with many of the families that I started working with in the late 80s and early 90s. The difference is incredible in their lives. We're talking about farmers who only have one or two acres of land. They're third or fourth-generation coffee farmers, but they're locked in a cycle of poverty. Then they join a co-op, they plug into Fair Trade, they work their asses off to produce high-quality product and meet this high bar of sustainability, and they end up getting a little more money back.
That money then gets plowed into their families, their education, their housing. In Nicaragua, we were digging wells and bringing clean drinking water into our villages for the first time thanks to this Fair Trade premium. We created a scholarship fund that helped kids stay in school and go on to high school and onto college, again, thanks to the Fair Trade fund. We also invested on the productive side. Many of our farmers ended up investing in training and infrastructure to improve the quality so that it truly is a fair trade, if you will. For us as consumers, we want Fair Trade to be not just something that helps farmers, but also that tastes great, and that we as consumers feel like "Oh, wow! That's amazing coffee!" And, bonus, it helps farmers.
For me, it is that journey of progress and the journey of hope, David. The secret sauce in Fair Trade is that you or I as consumers we get to help the farmers by buying these products. But we don't get to tell them how to spend the money. They decide that themselves. Unlike government or well-intentioned international charities who say, "We're going to drop a school into your community!" "We're going to dig a well for you!" Or whatever. Instead, the farmers get this money every year, and then they have to meet and debate and decide democratically, "Are we going to prioritize clean water this year? Are we going to prioritize education?" And that process of debating and deciding is, in and of itself -- at the heart of Fair Trade, it's what we call empowerment. It's helping people learn how to be stewards of their own community development.
And that, as you can imagine, creates this whole ripple effect. Often, we're working in societies that don't have a strong democratic tradition. What Fair Trade does is, it creates democratic process at the community level. We get people talking to each other. It's kind of like the PTA equivalent here, or Block Watch. We have some models for that in the U.S. But for a country like Nicaragua, Ethiopia, any country where there's not a strong democratic tradition, to create a platform where farmers can come together and talk about their priorities, their development priorities, health, education, water, and so on, it's truly remarkable. It creates a much more vibrant and engaged community that then is able to negotiate with government, able to negotiate with the powers that be, and really become authors and architects of their own future. It's incredibly inspiring to me.
And it's all made possible thanks to you and me and these daily choices that we make, voting with our dollars for a better world, choosing a Fair Trade cup of coffee or T-shirt or banana. That's what's so extraordinary about it, realizing that Fair Trade isn't just about empowering farmers, it's about empowering you and me. You and I can make a huge difference in the world with something as simple as a cup of coffee.
Gardner: That's a nice shift in the conversation and, in fact, where I wanted to head next. Let me just say briefly, here at The Motley Fool, we've always told people that how you and I spend our dollars and invest our dollars truly does shape the future of the world. If we buy from this vendor, not that one, this one does better, that one does worse, in relative terms. When we invest our dollars as investors, and we put that capital into a company, sure enough, that company with a higher share price can raise more money or do more things. If we shun a bad company with not investing in their shares, sure enough, they're not going to do so well, usually. I think principle and history will bear those things out.
You introduced a phrase at the Conscious Capitalism Summit that I think is very persuasive. It's one of those things where I kind of had already always agreed with it, but I didn't have the phrase for it, Paul. That's where we're headed to conscious consumerism. You described a wave that we can already see, but it's about to get bigger. What do you mean by conscious consumerism?
Rice: It's not a new concept. It's been around for a while. I think what is new is that it is rapidly becoming more the norm than the exception. Conscious consumerism, at the highest level, is simply choosing products that are more consistent with our values. That's a broad definition. We see consumers increasingly concerned about things like the environment, but they don't know what to do. They're concerned about global poverty, but they don't know what to do. They're concerned about health and wellness. And there, there's probably a more immediate set of products and companies to engage in order to meet that. Suffice to say, conscious consumerism is the act of buying products that are consistent with our social and environmental values, as well as consistent with the functional attributes of the product itself.
That spans the health and wellness category. It includes shoppers of organic products. It includes purchasing products that are more environmentally sustainable, or more socially responsible. The phenomenon of conscious consumerism, depending on whose research you believe, it's now a part of anywhere from 20-50% of American consumers' behavior. Not all the time. For most of us, it's still on an occasional basis that we're choosing an organic product or choosing a Fair Trade product. But what's really interesting, and suggests that this is a macro-trend, is the growth, the growth of the category, the growth of these products themselves, which are clearly responding to consumer demand, or tapping into it.
Millennials, as you might guess, and Gen Z consumers as well, both index super high in this regard, in terms of their expectations of companies, social and environmental practices, and their expectations around the products that they consume. I have a 19 year old daughter, so I'm constantly reminded of this phenomenon. Her generation really goes out of their way to look for products that are socially responsible, that are consistent with their values.
That's how we think about conscious consumerism. Regardless of where you land on how big or deep it is today, if we look at the last 10, 20 years, the trajectory of growth, it's easy to imagine where we'll be 10, 20 years from now. Executives all over the U.S. economy in the products that we work in, what I hear them say is, they're gearing up for a day in the not-too-distant future when conscious consumerism is the new normal, and table stakes for companies that want to survive, certainly in the CPG space.
Gardner: It makes a lot of sense to me. In a way, it's kind of like buying the brand that you know and love. I think all of us can relate to that over the course of our adult lives, selecting certain brands. But this involves more rigor and more intention than a lot of us grew up with. What's interesting to me, Paul, when you talk about millennials, or Generation Z -- and I have to admit, I'm not even sure, is there a difference? Are we past millennials now? Generation Z is next?
Gardner: And then we're out of letters, so there will be no more generations that have letters.
Rice: [laughs] Right.
Gardner: Unless we're going to go AA. So, for millennials and Gen Z, it's persuasive it's persuasive to me that it will only be increasingly important. That's exciting.
I'm interested in hearing how you think about this. One other trend I'm sometimes hearing is that millennials and Generation Z are opting out of the idea of the stock market, they're starting to favor socialism over capitalism. In some ways, this has been true of every youthful generation, probably. We go back, and there's that idealism before you've ever paid taxes to anybody. There's a dynamic where, of course, there's a lot of hope and idealism and youth. I don't know whether we're actually seeing more than that right now. What is your take on that new generation and socialism vs. capitalism?
Rice: I think those terms often get in the way. If I think about the conversations I've had with my 19 year old daughter and her friends, they're not really talking about socialism vs. capitalism. What they're talking about is a society, an economy, and corporate behavior that is compassionate and engaged with social and environmental issues. So, my interpretation is, they're not voting for socialism. They're not hoping for socialism. They're hoping for a more compassionate capitalism, a conscious capitalism. Capitalism that doesn't treat social and environmental issues as externalities, but rather embraces the notion that business has a role to play in fixing the planet and in serving the planet. Business with purpose.
What I love about that is, whether it's my 19 year old daughter or my friend, John Mackey, the founder and CEO of Whole Foods, or Doug McMillan, the CEO of Walmart -- from young consumers to veteran industry leaders, I see a common conversation emerging around the responsibility of business to do good in the world. More importantly, the conversation is not, "How do we screw the planet six days a week then give back philanthropically on Sunday?" That's not the conversation. The conversation is, "How can we bake sustainability and responsibility into our products, into our business, into how we do business?" And to generate new models of business that create shared value, that create value for not only shareholders, but also for stakeholders, for suppliers, for employees, for the supply chain, for the environment, and so on.
Gardner: Love it. So inspiring, and so true. I really love how you phrased that. Paul, let's talk about a half step outside of Fair Trade and your model. I'm thinking about things like microcredit. Whether we're talking about Grameen and Muhammad Yunus, who won a Nobel Peace Prize in part because of his championing of microcredit, or something like the Heifer Project, where it's not exactly credit, it's more that you're helping a farmer be able to buy an animal. A single animal can make a huge difference in the life of a family. How do you view Fair Trade squaring with or against microcredit? Is that a competitor? Does somebody have a better model? Is it all part of a better world?
Rice: It's definitely all part of a better world. Access to capital and access to markets are hand in glove, both essential parts of alleviating poverty in communities around the world. I've been working with farmers now for more than 30 years. Farmers consistently tell me that they actually are looking for three pillars of sustainable economic development. One is access to capital. Another is access to markets. The third one is access to technology, training, and business-savvy, what historically has been called technical assistance in the international development fields. I see the work of microcredit and that whole movement and the credit that's provided to small and medium enterprises as absolutely complementary and essential to the success of Fair Trade and other market-based approaches that seek to connect farmers to the market directly.
I know Muhammad Yunus, he's personally been a big inspiration to me, and helped me think about Fair Trade not as necessarily the ultimate solution for all of the world's poverty, but as a model that can be replicated and that others can emulate and do other things and extend. I think that was the lesson from Grameen. Grameen is a great model, but it helped inspire a much bigger microlending movement, globally speaking, that has had such a huge impact.
I think about Fair Trade USA and our work here in the same light. There's so much work going on now in what increasingly is being called impact sourcing. We've all heard of impact investing, and the notion that through our investments, we can create triple bottom line results, social and environmental as well as financial value. Impact sourcing is the notion that the way companies source their materials, their commodities, can have a positive impact and a value creation for the firm, the farmers, the workers, and the ecosystems on the other end of the supply chain. I see Fair Trade as part of this bigger, broader movement of impact sourcing. I think it all goes very well with the microlending and the technical assistance service providers.
You mentioned Heifer. Pierre Ferrari, the CEO of Heifer, sat on my board for many years. He's been a great inspiration to me, as well. Heifer's claim to fame beyond helping get livestock to farmers has been their training programs, helping farmers learn how to be better business people, helping them learn how to add value, process products, link to the market. Actually, we've collaborated with Heifer, Oxfam, Lutheran World Relief, Catholic Relief Services, all of those agencies that have boots on the ground and that are actively training farmers. We see all of that broader farmer support ecosystem -- of which the consumer is a part -- as being key ingredients in alleviating poverty.
Gardner: Wonderful! I said I wanted to stay a half step away from Fair Trade right now. We just talked about some of the other nonprofit solutions out there, real-world solutions doing great stuff, whether it's Grameen, Heifer, many others. I'm not surprised to hear you're tied to each one of them, with, in many cases, long standing personal relationships. It shows what an outstanding life you've lived thus far, Paul Rice.
Let me stay half a step outside but go in a different direction. On the other side, to the for-profit and commercial world, I'm curious how you view a company like Etsy, which today tips the scales as a multibillion dollar for-profit company. How do you see them fitting into an ecosystem where they're also trying to provide developing world craftsmen with markets and access to markets, as you just mentioned?
Rice: Yes, absolutely. I think Etsy is, in many ways, philosophically very closely connected to Fair Trade. What we're both trying to do is create a more direct connection between consumers and producers around the world, consumers and artisans, and using technology to enable that more direct connection and sustainable livelihoods for those artisans. Fair Trade is doing the same thing. We're doing it, however, through a service to the industry. From the very beginning, we thought, "What's the best way to scale? What's the best way to affect and improve the lives of the most number of farmers and workers possible?" And what we found was that companies, coffee and banana and tea and all kinds of different companies, were really looking for a way to make sure that there was no child labor in their supply chain, to make sure that there was no environmental destruction in their supply chain, to make sure that farmers and their families had a decent living, so that they could continue to produce high-quality products. There's a connection between what farmers get for their harvest and their ability then to reinvest in quality and deliver that quality in a reliable manner.
What we found was this upsurge of interest in the industry for a service that could make that supply chain more transparent, more traceable, and ensure that the price paid up here for a cup of coffee or a banana flowed back all the way down to the farmer in a way that ensured a sustainable livelihood. Very consistent with the philosophy of Etsy. But what we're trying to do, obviously, is impact a much bigger set of companies and consumers and farmers around the world.
Gardner: Thank you. You've definitely helped us start to see the world with new eyes. Marcel Proust was credited with his line, although it turns out he never actually wrote it, the great French writer of the 19th century. But Proust was said to have said, "The only real voyage of discovery consists not in seeking new landscapes but in seeing with new eyes." I feel like that's what you did for me a month ago, and I think you're doing that for our listeners here this week. Thank you for that!
I wanted to move from looking at the world now. Let's navel gaze just a little bit. I'm curious about your organization, Fair Trade USA. You are a not for profit. I assume you have a pretty darn big budget these days, and it's a big 20-year growth story. You're overseeing that. What do the numbers look like of your operation? Describe some about the organization you've been building.
Rice: Thanks for asking, David! Yes, we in fact are turning 20 this year, which is just crazy to me. Its founder, I never thought that I would stay this long. I thought I would start Fair Trade USA and then move back to Nicaragua to keep working with farmers. That's always been my passion. But I have to say, this has been such an incredible journey over the last two decades because each year, it seems like new companies in new product categories are coming to us and saying, "Wow, that Fair Trade thing that you developed for coffee, can you apply that to the [fill in the blank] industry?" Every year, my entrepreneurial energy and that of my team has been engaged to figure out how to continually adapt and evolve the Fair Trade model to make it relevant for everything from coffee and tea to sugar, rice, fresh produce, fish, and now apparel and home goods. That's been a very exciting journey for me, as you can imagine. What we're finding is that our model has relevance across all of these product categories. Changes need to be made, adaptations need to be made.
Here's where we are 20 years in with the numbers. As you pointed out, Fair Trade USA is a 501(c)(3) nonprofit organization. Our role is not to buy and sell Fair Trade products, but rather to certify products. We develop the standard for Fair Trade, then we run the audit and certification of those products around the world, serving 1,300 brands and retailers, serving over a million farmers and workers around the world across all of these different product categories.
We're actually the Mighty Mouse that roared. We're a small organization with a budget of $20 million this year and a staff of about 120 people. Most of us are based here in Oakland, California. We also have teams in India, Costa Rica, Western Africa, and other places around the world where we work. What we've managed to do is create tremendous leverage through our certification service. While we are a small organization, we are able to catalyze this much bigger marketplace, which this year will reach over $7 billion in sales at retail with our Fair-Trade-certified label on it. We own the Fair-Trade-certified label. When you look for coffee, bananas, tea, chocolate, and you see that Fair-Trade-certified label on the package, that's your assurance as a consumer that farmers produced it in a sustainable and responsible way and got a little bit of extra money to invest in their families and their communities.
Consumer behavior lies at part of our model. There's no government regulation forcing companies to do Fair Trade. Really, Fair Trade works for companies only if consumers buy it. Consumer activation is something that we think a lot about and work on. I'm really proud to report that 67% of American consumers now recognize that Fair-Trade-certified label. About 20% of American consumers are now buying Fair Trade products on a regular or occasional basis. That's about 40 million people and growing. We're doing some research now with Harvard University around consumer trends and consumer behavior. One of the things that we're learning is that the conscious consumer is willing to pay a little bit more money, not a lot more money, but a 5% premium on a cup of coffee or another high-quality product that also delivers this feel-good factor around the sustainability and the responsibility of the product. That's something that consumers will bear.
This kind of information is really important, as you might guess, for our retail partners. Retail is so competitive right now. We've seen Kroger, for example, launch a major line of Fair Trade products in the last couple of years. Target, Safeway, Walmart, Sam's Club, Costco, not just Whole Foods, but all these other mainstream retailers are launching and growing their Fair Trade programs. And this, in turn, is allowing us to reach millions of consumers.
I'll just give you one more data point. As I mentioned earlier, the commitment of buyers of brands and retailers is that they will pay a small premium back to the farmer or the worker. That's a requirement of Fair Trade. We audit that. We audit how the farmers or workers use that money so that we're ensured that they're investing it in sustainable community development projects. We track that. We track it on a quarterly basis through our audit system. Here's the punchline: on a cumulative basis, since we started, Fair Trade USA and its partners have generated over $550 million in Fair Trade premiums back to the farmers and the communities that we serve. That's been made possible on a cumulative budget of about $125 million. In other words, what we think of as our social return on investment -- that is, for every dollar that we're investing as an organization, we're spending and growing the Fair Trade market and the Fair Trade movement -- what is the impact that we're able to generate? For every dollar that we spend, how many dollars can we create for farmers and workers? That ratio now is 4:1. Cumulatively, over 20 years, for every dollar we invest in the market, we're able to generate $4 in new wealth for poor families and workers around the world.
And that's pretty extraordinary. I love the work that our peer groups are doing, our peer organizations that are out there. But in the international development field, there aren't too many organizations that have such an incredible leverage and amplified impact on the money that they're spending on international development.
We're proud, but we're also humble, because Fair Trade in the big picture is still small. One last number that I'll share with you, we believe that Fair Trade now is reaching an inflection point based on the rising tide of conscious capitalism, conscious consumerism, impact sourcing. We actually believe that the next few years are going to be a time of extraordinary growth for Fair Trade and the things that we certify. We're projecting triple our current volume, triple our current impact, within the next three years.
Gardner: That's spectacular!
Rice: This year, we'll generate about $80 million in above-market pricing and premiums for farmers. We want to get to $250 million in the next few years. And we think that's possible.
Gardner: That's called punching above your weight class. That's remarkable. It's not just the story of the next three years, because it's what you've been doing for 20. And it reminds me, by the way -- I'm totally bought in to Pablo the farmer. I know it is all real and very genuine and authentic. But I also want to mention that you have an MBA from Cal Berkeley, and you went to Yale as an undergrad. You're coming from a pretty intellectually impressive background. I'm actually very briefly curious about your time at Haas School for business at Cal Berkeley. My son was an undergrad at Berkeley, enjoyed his time there. Did you feel like you needed to get an MBA at that point in your life? And are you glad you did?
Rice: Oh, absolutely! I had been away for 11 years. Straight out of Yale, in the summer of '83, I flew down to Nicaragua and ended up not saying for a year or two, which was my original plan. I stayed for over a decade. So when I came back, I came back with the dream of starting Fair Trade USA. At that point, Fair Trade was big. In Europe. It's been big in Europe for many, many decades. Don't ask me why, but no one had ever started anything like Fair Trade USA here in the U.S. And because I'd been working with Fair Trade farmers in Nicaragua, selling to buyers in Europe, I got a glimpse of the model. I didn't invent the idea of Fair Trade, but I had the dream of bringing it to the U.S., bringing that European model to the U.S., adapting it to a very different market, industry, and consumer base here.
I moved back in 1994 to do that. But honestly, David, I barely spoke English at that point. I'd been way out in the bush for 11 years. My hillbilly Spanish is great, but my English, certainly my business English, wasn't so great. On a more serious note, I knew that I was going to start something like Fair Trade USA that lives in the world of business, I needed to get more tools and learn the language of business, and try to understand how Fair Trade could solve problems for business. I knew how it could solve problems for farmers. I knew how Fair Trade could work for farmers. But I also knew that if I wanted to go from a redistributive mentality to a shared value mentality, and if I wanted to make Fair Trade something that created shareholder value and stakeholder value, I really needed to have more business sense, more business preparation.
I applied to several schools, but Cal Berkeley was the best fit. Mid-90s, internet boom, a lot of entrepreneurial energy at Cal Berkeley; and, at the same time, a strong inclination toward social entrepreneurship. It was a great home for me, '94 to '96 getting the MBA. I wrote the first business plan for Fair Trade USA in my second year entrepreneurship class at Cal Berkeley.
Gardner: Love it!
Rice: Not just the credential, but more importantly, the tools that I got as an MBA, have definitely made me a more effective social entrepreneur, and Cal was a great place to get it.
Gardner: I know they're proud to have you. That's a great story. Alright, just a few stingers to end here, quick questions off the top of my head largely. I'd love to hear anything you have for us, Paul. Of my three closing questions, how about this one? How do you invest personally? We love the stock market at The Motley Fool. We believe in patient, long-term investing directly into stocks. Have you ever bought a stock directly? What do you think about investing?
Rice: [laughs] Man, you can take the boy out of Texas, but you can't take the Texas out of the boy. I was born and raised in Texas, and then I went off to Nicaragua for 11 years. Picking stocks is not my strength. Honestly, as a lifelong nonprofit guy, I don't have a lot of extra money socked away, and what I do, I put it in Bay Area real estate, which has turned out real fine for me.
Gardner: That's awesome! Yeah, it's been a great place to be invested with real estate. Congratulations! Well, Thanksgiving is this week. Paul, how do you celebrate Thanksgiving?
Rice: With my family. I am blessed to have my 94-year-old mama still with us. She lives here in the Bay Area. I have two older sisters and a younger sister. We're all going to be together on Thanksgiving. Both of my kids have come home for Thanksgiving. I'll be surrounded by those that I love and cherish. I feel like I have so much to feel thankful for, not only my family and my life, but in this calling of Fair Trade, and having found something that gives me a sense of purpose and gives me a sense that every day that I come to work, and I can do my part to help make the world better.
Gardner: You bet. I'm picturing at least a couple of Fair Trade products, probably, on the table or surrounding you during that Thanksgiving celebration.
Rice: Oh, yeah! Yeah, absolutely! [laughs]
Gardner: Last one, Paul Rice. How about advice to entrepreneurs? We have a lot of them listening. A lot of them are smaller entrepreneurs, just starting. Others, no doubt, are bigger than The Motley Fool. We have a wonderful clientele that loves creating great stuff. Advice for entrepreneurs?
Rice: David, I love that question! I love that question! I meet so many entrepreneurs and business people and MBA students in my travels, in my business meetings, and in my public speaking. And I really feel like the business community right now is going through a transition. Sometimes, for those of us who are impatient for a better world, it feels like a painfully slow transition. But if you take a step back and look at the trajectory of capitalism over the last 50 years, and then you think about where it could be 50 years from now, there's a lot of reason for hope and a lot of reason for belief that we are in the dawning of a whole new chapter in capitalism. A whole new era that some are calling conscious capitalism. An era where the job of business is not just to make profits for shareholders, but also to create value for stakeholders, to create a more environmentally sustainable and socially responsible world.
Consumers are stepping up and supporting the business community in that quest. They're helping business leaders overcome this trade-off mentality that characterizes the last chapter of capitalism, the one that we're evolving out of. This trade-off mentality, this notion that either you can be profitable, or you can be sustainable, but you can't do both. And that if you try to pursue sustainability, if you try to pursue Fair Trade or social responsibility, it's going to come at the expense of your shareholders, and you have no right to do that. So just don't do it. That crusty, old mentality of the past is quickly giving way to the notion that, no, actually, responsibility and sustainability can drive long-term shareholder value, can drive value for stakeholders. And consumers are increasingly expecting that and rewarding companies who meet that.
In answer to your question, my advice to entrepreneurs is, write the chapter. Don't wait for the chapter to happen to you, this new chapter in capitalism, the conscious capitalism chapter. Don't wait for it to happen. Help make it so. Write it yourself. Make it your approach to business, make it your approach. Whether you're starting a new business or in the belly of the beast as it were in some big corporation, help those companies find ways to create shared value, to create social, economic, and environmental value all at the same time.
I absolutely believe that in our lifetime, we're going to see this shift. To the extent that entrepreneurs are out there creating companies with this mentality will accelerate the process. And hopefully we'll not totally screw up the planet before our kids inherit it.
Gardner: That is a world that I vote for, and that is a world that Paul Rice, for the last couple of decades, has been helping to create. I feel a great sense of promise after this conversation with you, Paul. I know millions of Motley Fool members who come to our site and look for a better world and try to invest in that world are going to enjoy this conversation. Thank you very much for your time. Happy Thanksgiving!
Rice: David, thank you so much! It's been a real honor and pleasure to be on the program with you today. I appreciate everything you're doing! I wish you and all the listeners a very Happy Thanksgiving, as well!
Gardner: Thanks again to Paul for being so generous with his time. Some people I would never let occupy a 55-minute interview on this podcast. But Paul, I definitely could have spent another hour with him. I sure hope I'll get that chance sometime in the future. It was a delight to share our conversation with you.
Next week on Rule Breaker Investing, it is, of course, time for our mailbag. It's the final Wednesday of the month. At some point, after you've enjoyed your turkey if you're a U.S. citizen and have celebrated Thanksgiving, maybe you have a quiet Friday while some people are shopping, they call it Black Friday here in the U.S., but you won't have to shop, necessarily, all day Friday. Or, maybe you find a quiet moment on Saturday and think about this podcast, or maybe last week's, when I gave you a five-stock sampler, or the start of this month, where we got started investing with my talented contributors. Think back through our month, and if you have a question, comment, or story to tell, drop us an email, [email protected]. That's always our email address for mailbag. You can also tweet us, Twitter, @RBIPodcast. I look forward to sharing next week with you, the best of what we come across for our mailbag.
I do want to highlight the first podcast kicking off December. It's my annual holiday games list. Longtime listeners know that I, David Gardner, love a few things more than the stock market and business. One of them is games, specifically board games and card games. We'll be going through some of my holiday favorites. If you're looking for an extra gift to put under somebody's tree or to light up someone's holidays, I'll try to deliver that.
And, as part of that podcast, I want to highlight that I have one of the world's great game designers joining me for that conversation -- Richard Garfield, who invented Magic: the Gathering and collectible card games. He has a few new games coming out this time of year. He's one of truly the most innovative, brilliant game designers of our time. I'm really psyched that Richard has said yes, he'll come on to Rule Breaker Investing and talk games with me. That'll kick off the first week of December.
In the meantime, stay Foolish out there!
As always, people on this program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Learn more about Rule Breaker Investing at rbi.fool.com.