Small Farmers. Big Change.

By Daniel Fireside, Equal Exchange Capital Coordinator

We here at Equal Exchange think we’re doing some pretty radical things in every way that we run our business. So it’s nice to hear what professionals in the world of high finance are saying about us. The following article was written by a financial advisor from the firm, Natural Investments. It was included in its latest newsletter and was also posted on this blog.

The Rabble Rousers at Equal Exchange

by Malaika Maphalala

Many of you are familiar with Equal Exchange, the Fair Trade company marketing mainly chocolate, coffee, and teas. Over the past year, I’ve enjoyed several conversations with Equal Exchange’s outgoing and ingoing Capital Managers, Alistair Williamson and Daniel Fireside, to learn more about their business. I’ve been deeply impressed by their downright revolutionary business model and philosophy. They are, in fact, economic activists who take pride in their role as visionary rebels. Equal Exchange’s deep commitment to social justice permeates every level of its business: the internal structure, relationships with trade partners, and business financing models.

Internally, Equal Exchange is a for-profit business structured as a democratically-run worker owned co-operative, where every employee has a say in the direction of the business along with a financial stake in its success or failure. After one year at Equal Exchange, employees become worker-owners by purchasing a single share of Class A Common Stock and earning the power to vote under the democratic philosophy of one vote per person (not per share). Management is “open book” so everyone has access to information and can vote knowledgably on major company issues. Worker-owners nominate and elect the company’s nine-member board of directors, and have the right to run for one of six seats reserved for employees. Further, the pay structure has a top to bottom pay ratio of no more than 4 to 1, meaning top paid employees never earn more than 4 times the lowest paid employees. In comparison, the average ratio of American CEO pay to worker pay was 263-to-1 in 2009. As a worker owned co-op, Equal Exchange is part of a much larger, historical movement, and they have grown to become one of the largest, most financially successful worker co-ops in the country. With over 36M in sales this year, the company and its widely recognized brand really bring the alternative business model of the worker-owned cooperative into the public eye.

Virtually all Equal Exchange suppliers are small-scale farmer organizations in Asia, Latin America, Africa, and the US that are also structured as democratically run co-operatives with a commitment to sustainable farming practices. By working directly with farmer co-ops, Equal Exchange eliminates middle men and associated costs, allowing more money to flow directly to producers. In partnerships with socially responsible financers like Root Capital and Shared Interest, the company provides pre-harvest financing to their farmer partners and pays a fair price based on real living wages rather than the fluctuating speculative prices of regular commodities markets where small farmers typically receive the short end of the stick or are cut out entirely by industrial agriculture. Equal Exchange works earnestly to foster a real connection to the people and families with whom they work. To that end, every employee at Equal Exchange is required to spend a week with one their suppliers within the first two years they are employed. I imagine that contributes greatly towards keeping everyone rooted to the real meaning and impact of their work.

Finally, the approach Equal Exchange uses to raise capital and distribute profits also reflects their strong company values. From time to time, Equal Exchange issues preferred stock offerings of Class B shares to outside investors at a fixed price of $27.50. That fixed price eliminates incentive for speculative investing because there will never be any capital gains on Equal Exchange stock. Instead, investors receive an annual dividend targeted at 5%. Although the rate has varied, the company hasn’t missed a dividend in 21 years. Their investors commit to holding shares for at least five years and benefit from both the financial and social returns their investment generates. When it comes to distributing the cooperative’s net profits, 7% is donated to non-profit organizations, and 3% is invested to assist progressive, start-up, co-operative businesses. Of the remaining net profit, at least 60% is re-invested in Equal Exchange, and up to 40% divided equally amongst the employee-owners. If the company is ever sold, their structuring agreements state that net proceeds after repaying investors and creditors must be donated to other alternative trade organizations. This removes any temptation to sell out to a food conglomerate – the common fate for almost all small successful food companies.

As Alistair Williamson, their former Capital Manager, told me, Equal Exchange’s business model is a tool designed to effectively go places that are generally difficult to go. It’s an innovative vehicle especially suited to traverse the road less travelled in business – that challenging terrain of fairness and equality in international trade. Because of this, Equal Exchange is an inspiration and model for others.

Malaika Maphalala is a Financial Advisor with Natural Investments LLC, a national investment advisory firm committed to helping motivated investors create portfolios that reflect their own social priorities and concerns, generating healthy returns while cultivating opportunities to make a difference. Natural Investments has been at the forefront of the socially responsible investment world for 25 years, and wrote two of the leading books on the topic, “Investing from the Heart” (1992) and “Investing With Your Values: Making Money and Making a Difference” (2000). They are an independent, SEC registered advisory firm with offices in 8 states. Malaika heads up the Portland, Oregon office and can be reached at 877-424-2140 or malaika@naturalinvesting.com.

If you’d like to learn more about these issues, read our Annual Reports or contact our Capital Coordinator, Daniel Fireside @ Dfireside@equalexchange.coop.