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Anatomy of a Bargain – The true cost of products (Part II)

Fairtrade logoIt’s been far too long since part one of this article, so here finally is the promised continuation. In the first part, I discussed the role of quality in the evaluation of the cost of products. This second article will focus on the less transparent and often forgotten factors that constitute the true cost of a product, namely social and environmental aspects.

Since my posts tend to be a little long for some reader’s attention span, I decided to start with a short summary of my key points.

Factors that influence the real cost of a product (and sometimes turn a perceived bargain into a rather expensive item)

NOTE: I’m using the term cost (in an economic sense) throughout this analysis to differentiate from price, which is the amount consumers pay for a given product.

1. Quality
(These aspects are described in depth in part one of this article)

– High quality has its price.
– Lack of transparency makes it hard for consumers to judge quality of a product without testing / trying it. High prices are usually regarded as indicators of high quality. This assumption often doesn’t hold true.
What can you do?
Find reliable, trustworthy sources and form a relationship with them. Expertise is a valuable asset of independent or specialized stores that supermarkets cannot supply.
– Cheap, low quality products are usually more expensive in the long run.

2. Social factors

– Many products are only affordable because they were produced under labour conditions that wouldn’t be acceptable in the the western world. If you purchase these products (which include a large portion of clothing / shoes) you are directly supporting these practices.
– Child labour is a big problem and slave labour does still exist.
– Purchasing fairtrade products puts money in the right hands – the producers’ hands.

3. Environmental factors

– Environmentally considerate practices have a direct impact on cost. Low prices are often based on unsustainable farming practices that artificially increase yields for a short period of time. Organic and biodynamic farming practices are based on a harmony with the land and sustainability. The higher price of these products is due to lower (i.e. more natural) yields and potentially greater losses (lack of chemical pesticides).
– Locally produced products might be more expensive due to higher labour expenses, but the true cost (considering transport, etc.) is usually much lower.
– Cheap products with a usually very short life mostly end in landfills. Buying higher quality products that last longer will reduce the waste we produce.

Social Factors

One of the biggest expenses in making a product (be it manufacturing hardware or producing food) is labour. This has led to the waves of outsourcing this part of a business to low-cost countries like China, India or some African countries. While this is a personal decision whether you support this behaviour or not, it has led to some practices that are socially not acceptable. Most people are now aware of sweatshops and child labour in Asia, but unfortunately this knowledge has not caused many people to change their consumption behaviour. The equation is quite easy: Cheap products MUST be produced by cheap labour and that often means socially not acceptable labour conditions.
While many people understand this, most tend to turn a blind eye to these issues due to the implications it has on our daily life. If we avoid these cheap mass-produced items, we have to purchase more expensive ones where we know that the labour conditions were better. More expensive products usually means less products and most people don’t want to sacrifice the variety or choice we have grown accustomed to.
Fairtrade products are becoming more and more an alternative due to the increasing variety of wares made under fair trade agreements. We have always stocked fairtrade tea and know where our and your money goes. In the context of tea (and many other food products), fairtrade certified producers not only pay their workers higher wages, they usually also improve living standards (by supplying free housing, medical care, etc) and care for education. The result is not only a product that makes you feel better socially, but often a better product because the producers really care about their product. Our recent additions in Assam tea, for example, were produced on tea estates that offer a large part of their employees free housing, medicare and education.
If you think that slavery is a thing of the past, you better face the facts: slave labour is still existing in many parts of the world and chances are, you’re consuming products made with slave labour (if you are eating chocolate, that is). A fairly high percentage of cocoa produced at the Ivory coast is harvested by child and slave labour. But chocolate isn’t the only item that is associated with slavery, clothing is often produced under rather dubious conditions, too. We as consumers can initiate changes to that, but the costs are cleverly hidden in cheap prices which we have come to expect.

Environmental factors

This last (up until very recently very hidden) factor in assessing the real cost of a product is getting more and more press in recent months, making it more difficult for consumers to ignore the issue. But many people still don’t connect the dots: crop yields have increased drastically in the last few decades, but this comes at a tremendous cost. Of course, higher yields mean lower prices in the short term – that’s what we have experienced in the last 20 years or so. But if we extract more from our land than what can be replenished, the long-term outlook is rather bleak. News from India show that the agricultural use of the land has been intensified to such an extent that the water-table (which has usually been relatively stable over long periods of time) is lowered by multiple metres(!) per year. This necessitates deeper and deeper wells which have reached a level at which the energy required to pump water is more expensive than the price the crops would yield, forcing many farmers out of business and into poverty.

Biodynamic and organic farming practices are sustainable farming practices. The abdication of chemical fertilizers and pesticides has the effect of using the land only up to its capacity, not beyond it. Natural ways of pest prevention and soil depletion include mixed cultivation and crop rotation which in turn heal and replenish the soil rather than deplete it. Many of our foods have decreased drastically in both, flavour and nutritional value due to prevalent commercial farming practices. Organic foods (which applies to most teas as well) not only taste much better, they actually are better for you. And you’ll need LESS food to gain the same nutritional input.

New Zealand has a strong culture supporting locally produced goods. But in recent years, we have seen more and more kiwi companies become kiwi-made only on paper since the production takes place in China or other low-cost countries. These countries are cheap not only because of cheap labour (see above) but often also due to a lack of environmental regulations. Waste is often just dumped and contaminated water enters rivers directly from the factory. Another contributing factor to the cost of such products is transport from these far-away places. Things that can be and are produced nearby are almost always the better (lower real cost) option.

The culture of cheap products has also created a throw-away culture. Most cheap products are often replaced more cheaply than being repaired. Life-cycles of products have also steadily decreased in the past. I’ve mentioned shoes as an example in my last post, but electronics are possibly an even better example. Complex items like DVD players are so inexpensive today that a repair is almost never economical. The old gear usually just ends up in a landfill with all the other electronic garbage.

Conclusion

One voice that has gotten a lot of attention in recent months on these subjects in relation to food is Raj Patel, author of Stuffed and Starved – Markets, Power and the Hidden Battle for the World Food System (I’ve written about him last year here). He recently conducted an interview for the Reality Report where he summarizes many of my arguments much more eloquently than I am able to. Another (shorter) interview with Raj Patel, targeted more at a mainstream audience, can be found here.
One of the things that set Raj Patel apart from most other analysts who confront us with uncomfortable facts is that he actually offers solutions that ordinary people can implement. He shows that there are feasible ways (which are already implemented in certain places in the world) in which we as individuals can make a difference. One of his prime examples of an organisation that is successful in making a difference is the international peasant movement La Via Campensia.

I could only start to scratch the surface with this analysis, because the whole system extends much deeper into our society (i.e. the effect of subsidies on global poverty, etc.). But while I was writing this article, it became increasingly clear that all the factors that I mentioned are influencing one another and form an intricate network of causality. The true cost of products is usually not represented by the price tag. In the case of no-brand cheap articles, it is generally inversely related to the purchasing price.
Finding out this true cost requires conscious consumers who are willing to do some research and not base their choices on price alone.

The best solution to a problem is usually the most simple one. An easy solution for making real bargains is to simply consume less. This leaves us with more spare money which enables us to free ourselves from the fixation on price. This, in turn, will allow us to invest in better products, that fulfill the criteria discussed in this article.
I am very interested in your opinions on this subject. Share your thoughts, tips, questions in the comments.

I’ll go and brew myself a pot of fairtrade, biodynamic Assam Delight now…
[techtags: fairtrade, fair trade, environment, social responsibility, Raj Patel, sustainability, organic, biodynamic ]

2 Responses to Anatomy of a Bargain – The true cost of products (Part II) »»


Comments

  1. Comment by Summer | 2008/06/16 at 02:12:22

    I’m going to add his book to my list. I find more and more customers are concerned about where their tea comes from. This makes me happy because I don’t get questions about justifying my prices. People understand when I say “local” “organically grown” “wild crafted” or tell them we use teas that come “as close to the estate as possible.”

    I find that many people, while it does move the cost of tea from $.03 per bag to $.30-.90 per cup still feel like their getting a bargain, and one they can feel good about.

  2. Jo
    Comment by Jo | 2008/06/16 at 07:52:34

    Summer,
    you should definitely add Raj’s book to your list. And in the meantime listen to the interviews I linked to (there are many more podcasts with him available, just do a search).
    While a rising awareness in our trade is very welcome, I hope that it will go way beyond what we have come to call specialty items.
    Many people are more easily willing to pay a slightly higher price for these goods which they regard as luxury or feel-good items. But the real problem are everyday goods that are currently often far too cheap in real terms. But we have grown so used to this pricing structure (which, in turn allows us to consume much more than we ever could before) that it will be very painful to change our habits there.


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