Thursday, 14 August 2014

Will consumers in the Rising Powers buy Fair Trade?

image by Stuart Miles/
By Alejandro Guarín and Peter Knorringa

In their recent article in Oxford Development Studies, Vol. 42, No. 2, Alejandro Guarín and Peter Knorringa ask how new middle-class consumers in the Rising Powers will influence ethical consumption patterns and private standards on socially and environmentally responsible production.

Responsible consumption—in other words the demand for products that are good for the environment and for workers, such as fair trade or organic— is booming in Western countries. As global demand shifts to new consumer groups in emerging economies, will these look out for similar social and environmental product labels?

This depends, first of all, on how we define these new middle class consumers. There is no universal definition of the new middle classes, but the income range of 10 to 100 US dollars per day is often used. In developing countries this is a heterogeneous group of people, and it includes many that are relatively poor by Western standards. Many of these so-called middle class consumers are barely not poor, and risk falling back into poverty in times of economic crisis. Nevertheless, examples from countries such as China, India and Brazil show that, even at low income levels, these consumers make sophisticated decisions about how to spend their discretionary income. They’re not just fulfilling basic necessities.

However, it’s not clear that this ability for discretionary spending will translate into responsible consumption. It has frequently been assumed that responsible consumption is a luxury that only wealthy consumers can afford. It makes intuitive sense to think that you must first secure basic needs like food or shelter before worrying about the environment or social justice. But reality is more complicated. First, social and environmental concerns do not belong exclusively to the wealthy; many poor people in developing countries know and care about these issues too. Second, having those concerns is no guarantee that you’ll act on them. There is a big gap between what people say and what they do. The point is, we don’t know enough about the preferences and behaviours of consumers in the developing world. And to assume that they will simply mirror those of Western consumers is simply wrong.

How, then, to study this relationship between income, consumer preferences and their social and environmental implications? Looking at standards can help. Standards refer simply to the rules that govern what is produced in an economy, and how. Usually governments set the standards—for example with regard to health or to pollution—but in many cases companies set their own, voluntary standards. These private standards (such as “Fair trade”) are very important because it is what firms use to differentiate their products from others. Through their purchases, customers play an important part in shaping what standards appear and which are successful. But is this true in rising powers too?

In the article we propose a simple model (illustrated below) to analyse these relationships. On the vertical axis is people’s ability to pay for responsibly consumption, in other words their income. On the horizontal axis is their inclination or desire to consume responsibly, in other words their preferences.

Most of what we know tends to concentrate on relatively wealthy people, that is, around the top part of this diagram. Where purchasing ability meets high demand for social and environmentally responsible products (quadrant III), firms will tend to differentiate their products through private standards. Mandatory public and private standards on minimum product quality apply at lower levels of ethical demand (quadrant II), with less scope for product differentiation based on voluntary private standards.

We know little about what happens in the lower part of the diagram. Generally, no formal standards would be expected if low desire for responsible consumption coincides with low incomes (quadrant I); here informality prevails and seller’s reputation is established by personal interactions. If consumers are concerned about ethical issues but lack the means to afford higher priced, ethically certified products, government regulation may come in to ensure a minimum level of socially responsible firm behaviour.

The new middle classes in Rising Powers are located in the inner circle, moving between these different quadrants. A big question mark represents the need for further research about what roles private and public standards are likely play in the future. We could expect public standards to be more prominent if consumers are very sensitive to price, and voluntary private standards to play a greater role if consumers have a strong desire for responsible consumption as well as the financial means to afford a higher price for ethical products. But, as we have seen, we don’t know enough about the motivations and behaviours of consumers in developing countries to test whether this is the case or not.

In Western countries civil society has been a major force putting pressure on companies to adopt voluntary social and environmental standards. Society’s mobilization has often been needed for governments to set the public standards needed to protect consumers. Can we expect similar movements and organisations by consumers in Rising Powers? Or will there be other drivers of responsible production and consumption? The landscape is varied. Civil society mobilization in China looks very different to what it does in Brazil or in India, and the outcomes are not likely to converge.

Rising incomes among the new middle classes have the potential to stimulate new demands for socially and environmentally responsible consumption. However, there is no reason to assume that these will result in the same kinds of consumption patterns and the same kinds of social and environmental standards that we have seen in the West. How companies, states and consumers will respond to these trends present an exciting and largely unexplored field of research.

The questions addressed above are explored more in detail in Guarín, A. and P. Knorringa (2014), New Middle-Class Consumers in Rising Powers: Responsible Consumption and Private Standards, Oxford Development Studies, Vol. 42, No. 2, pp. 151-171.

No comments:

Post a Comment