Founder, Fair Trade USA
Fair Trade Entrepreneur
No two ways about it: Paul Rice was an improbable candidate for an MBA when he arrived at Berkeley-Haas in 1994.
But Rice had a clear purpose. He had seen Nicaraguan coffee growers reap a ten-fold increase in the prices for their beans by selling them under a fledgling Fair Trade logo to European buyers. If he could build a Fair Trade movement in the United States, American consumers could become a huge force in reducing poverty around the world.
"It was an epiphany," he says today. "I went from being a devout anti-capitalist to realizing that the market is probably the most powerful force we have for liberating poor farmers."
First, though, he had to know about American business. "After eleven years in Nicaragua, I felt like Rip Van Winkle, waking up after being asleep for 20 years," he says. "I needed the MBA to get acculturated."
It worked. By his second year at Berkeley-Haas, Rice had a detailed business plan – written in Jon Freeman's entrepreneurship class and sharpened by input from classmates and the faculty. By 1998, he had raised start-up money and was up and running.
Today, Fair Trade USA is one the most successful and fastest-growing social enterprises in the nation. It certified around $1.5 billion worth of imported products last year – and not just coffee. The Fair Trade Certified logo now adorns cocoa, tea, flowers, fruits, honey, herbs, spices, sugar, and wine. It even appears on body- care products and clothing. Over 750 companies in North America, including Walmart, Starbucks, and Whole Foods, now sell Fair Trade Certified products.
Though Fair Trade USA remains a nonprofit organization, it is in many ways a classic entrepreneurial success. It has built a powerful consumer brand, recognized today by 38% of U.S. consumers. It is financially self-sustaining, covering all its operational costs from fees for certifying products and the supply chains behind them.
It is also constantly evolving and innovating.
"The cutting-edge in business today is figuring out how to wed sustainability with profitability," Rice says. "What you're seeing now is a global shift in which companies are more concerned about the strength and reputation of their global supply chain. If their reputation is at risk, their business is at risk. Our companies are paying farmers more, because it's in their interest to do so."
Back in 1994, few people were using the term "social entrepreneur." But Haas provided Rice with strong encouragement in that direction. The school already had programs in corporate responsibility, ethics, and nonprofit leadership. It was also brimming with entrepreneurial energy, with students eager to start companies and swap ideas. Rice found it a stimulating, collegial environment that helped him develop a viable business model for his Fair Trade cause.
Today, Rice draws three big lessons from his experiences thus far. The first is that investing in fairness and sustainability can be good for the bottom line. The dramatic growth of the Fair Trade market suggests that growing numbers of consumers place value on knowing their food has been produced by people who earned fair prices, protected the environment and worked in safe conditions. Increasingly, corporations are paying attention to this trend.
"If you want to create social and environmental impact, you have to find ways to help companies evolve their business models so that they are creating "shared value," including capturing financial value for themselves," he says. "This is beyond corporate responsibility. Were going to the heart of business itself. Ultimately, we seek to help business be more successful by being more sustainable."
A second lesson is the importance of financial independence for non-profit organizations to be successful. Even while he was mapping out his venture at Berkeley, Rice says, he envisioned that Fair Trade USA would generate its own revenue by charging companies a fee for its certification services. Fair Trade USA also raises money from philanthropic sources, which it primarily uses for farm-level capacity-building projects, as well as seed capital to investigate new areas of activity. But having a strong earned revenue stream gives the organization much greater freedom to pursue new opportunities and strategies without the many constraints that often accompany donated funds.
The third lesson, he says, is to keep innovating. "When I launched this organization 15 years ago, I had to reinvent the European Fair Trade model and adapt it to very different market conditions here in the U.S. Our unique approach helped us build the market and have a meaningful impact on farmers around the world. But President Bill Clinton challenged us recently, telling us that Fair Trade was infinitely expandable," Rice says. "And we realized that to take our impact to scale and lift millions more farmers out of poverty, Fair Trade must continue to evolve. Indeed, we must challenge our most cherished assumptions; we must have the courage to change all that we've built; we must develop creative new models that generate value not just for farmers and workers, but also for companies and consumers. Ultimately, to be a successful changemaker out in the world, one must also take change within."