Social Entrepreneurs @ Work - Patrick Struebi (Fairtrasa)

Patrick is a serial social entrepreneur. He was born and raised in Switzerland where he started his business career with Deloitte & Touch, an international consulting and auditing firm. After 7 years, he was hired by Glencore, one of the world’s largest commodity groups, where he held a senior position and sat on the boards of various affiliated companies. During this time, Patrick witnessed the implications of big business on local communities. After 5 years, Patrick realized that his work was making the rich richer and the poor poorer. In an effort to reverse this process, he left his job and, in 2005, pioneered Fairtrasa’s sustainable business model in Mexico. In the same year, he launched Soluna, Argentina’s first fairtrade wine. In the succeeding years, he improved the collaboration with small-scale farmers beyond the traditional Fairtrade scheme, resulting in Fairtrasa’s unique 3-tier farmer development model. 

From the beginning Patrick’s idea was to create a scaleable business model that would lift farmers out of poverty in a sustainable way. After Mexico and Argentina, he replicated Fairtrasa to other developing countries in Latin America. This was followed by the establishment of sales offices in Europe and the US to give small-scale farmers greater access to international markets. Patrick is determined to spread his social business model, by connecting marginalized small-scale farmers around the world with conscientious consumers through high-quality and healthy organic produce. Patrick received the Ashoka Fellowship, the Schwab Social Entrepreneur of the Year Award, the Yale World Fellows Award, and the Endeavor High Impact Entrepreneur Award.

If you describe yourself to someone who doesn’t know you and what you do, what’s the term you use?
I’m a born entrepreneur, and also a social entrepreneur. But I only found out about “the social” later. The drive that I have was always social, giving back something to people. I’m known for being a very fast thinker with a lot of creativity, a lot of ideas. But I didn’t even know the term “social entrepreneur” existed, back then. 

How did it come about that you got interested in fair trade in the first place?
I was born and raised in Zürich. I started my professional career as a business consultant and auditor with Deloitte. Later, I got hired by my former client, Glencore, as a project director for large Mergers & Acquisitions. I was flying around the world, lived in airplanes and hotels, and looked after multi-million dollar projects. It was fantastic, I loved it! I was on the board of three mines in Peru and visited these companies on a regular basis where I spent a lot of time with the miners. I saw how difficult it was for them to make a living. Following a reorganisation, many of those miners lost their job. This had a profound impact on me as I realised that, with my work, I was making the rich richer and the poor poorer. I realized that with this reorganisation relatively little money is saved, which then flows back to the head office where most of the shareholders are multi-millionaires. For the miners on the other hand, it will be very difficult to find a new job. And I’m supporting that system? My epiphany was so strong that I decided to leave the job and sell everything. I wanted to live with no assets. I had the feeling that I had to reconsider what to do with my life. I decided to go to Mexico for a sabbatical where I did all the things I had never had time for: a handicraft course, studying philosophy and literature and how to play the violin. But after 3 months, I got sort of bored. And I thought I might as well see if I can do something for the benefit of the local people. And that’s when fairtrasa was born. Fairtrasa stands for fair trade South America. 

Was it a natural step? Or an idea that just popped into your head?
No, I wasn’t serious! I said to myself, this is my sabbatical project. I would not have thought that this would become what I would do for the rest of my life. I knew already at the beginning that I wanted to create a system that covers entire Latin America. What I didn’t know at that time was that it would grow way beyond what I imagined at the beginning.

What’s the difference between your work and the work of a fair trade label?
I get asked that a lot. Max Havelaar is a certification scheme. They define standards which ensure that small-scale farmers get a fair deal, that is, a fair price for their products, for which Max Havelaar sets minimum prices. If the market price is above the minimum price, then this higher price needs to be paid to the farmer. However, what I learned through my work was that a better price alone was not enough. At the beginning, I thought fair trade certifications alone will lift farmers out of poverty. But it really is just a certification. I started a project with mangoes where farmers got paid on a daily basis. They took the money, went into the next pub and got drunk. I realised, money alone can do more harm if it’s not structured. Thus, education is very, very important. This led me to develop my own system.

Can you explain to me what a small-scale farmer is, and how your model is supporting them? 
Key for us is the direct support of the farmers and the core of what we do is a three tier development. There are millions of small-scale farmers that own land between 0.5 and 4 hectares. They live in the middle of nowhere, detached from markets, and their local markets sometimes do not even give a return high enough to cover harvesting costs. As a consequence they are trapped in a vicious cycle. But not all small scale farmers are the same. They are at different developmental stages.

• 1st level: The farmers on the first level we call rural-poor. They are subsistence farmers. Many of them don’t even have the money to buy seeds or plant a value crop. 
  
• 2nd level: The semi-developed farmers, on the second level, already have a product but they don’t have access to technical know-how and have to sell to middle-men at very low prices. They live in remote places and are reliant upon one single buyer at whatever price. They lack opportunities and alternatives. 
  
• 3rd level: Finally there are the more developed farmers, on the third level. They achieve better yields and some of them can even export because they meet the standards of international markets. And they can be fair trade certified. 

As Max Havelaar is a demanding certification system, only level 3 farmers may comply with such elevated standards. Consequently, level 1 and level 2 farmers do not fulfil the conditions to get certified. This means, that the fairtrade system really only supports the rich amongst the poor. It is not a system that helps a farmer from the first or second level. To address the needs of 1st and 2nd level farmers, we therefore established a tailored development model that takes small-scale farmers from 1st and 2nd to the 3rd level. Our system is based on technical support, which increased fruit quality and yields. Sometimes 1st level farmers come to us, saying they would want to develop their land but don’t have money to do so. In joint ventures we help them develop their land into very professional plantations. And in return, we get a financial return on the fruits of their land.

After establishing this model, how did you develop the fairtrasa group further?
I needed to reinvent my company all the time. When I started fairtrasa, all I wanted to do was to help farmers. I began in Mexico. And then we opened an office in Argentina, then Peru, Chile, Columbia, and Turkey. We started importing in Holland and Germany. Back then, only the supply side of fairtrasa existed. Our margin was very small and after 2009 and the financial crisis the margin became so small that I was risking to lose everything.  I had to reconsider my business model three years ago. And so we cut out the middle man and established our own import company. Now we can sustain our business. Our importers here in Europe know what the European market wants. And we in turn go and plant it ourselves with the farmers in the countries we are active in. This is where our incredible impact stems from: we have created a vertically integrated business. And fairtrasa is now big enough to help a lot of farmers, very quickly. We are creating such a big value because we have a network which directly links farmers to the market. If new countries want to start working with us, we can include them immediately. Currently five countries want to apply to become part of fairtrasa. But we do our due diligence because we want to make sure that they share our mission. 

Are you generating revenue? And if yes, how?
We have a margin on the 3rd level, but 1st and 2nd level work is developmental work, which we cross-subsidise. That’s why it’s a social business. And that’s the innovation we have won awards for. The 2nd level farmers we can start to certify, generally in cooperatives. We analyse the international market price and the costs for the farmers and calculate how much more we can pay them for their fruits than other buyers and still remain profitable. By giving the farmers direct access to international markets we could increase their incomes up to 10fold. We buy their fruits, provide the logistics, pool them locally, pack them, and export them. For that service the local office gets a service fee. And then the local offices sell the fruits to the import company in Holland, England, or Germany, which in turn sell them to the market. I wanted fairtrasa to be a for-profit organisation, not a non-profit. I knew I had to sell the fruits with a margin. If I have to compete with the prices Dolé, Chiquita, or Stilmontes offer, I know the calculation only works if there’s somebody in the value chain who is willing to pay a premium. And that somebody is the end consumer buying fair trade products at the local retailer.

Do you identity yourself with being a social entrepreneur?
I identify myself as a social entrepreneur because we turned a non-profit activity into a for-profit activity. We created businesses where nobody else has created businesses. Nobody worked for the farmers we work for, or helped them. And the innovation in social entrepreneurship is finding a structure that allows you to help people that you can’t help otherwise. Our 1st and 2nd level work is a non-profit activity and we turn a non-profit activity into a for-profit activity. Usually this is the playground of foundations. But a foundation can’t help here, because they don’t have a market. And a market player can’t work with 1st and 2nd level farmers either because they are usually not yet ready to be certified. And that’s where we come in. Why can we do it? Because we use market force to lift farmers out of poverty. And we don’t give presents. But we give farmers opportunities. Because what they need is opportunities. And they want opportunities. And they will be the best, given the chance. 

Did you ever encounter failure as a social entrepreneur and how did you learn from it?
I can tell you about my biggest failure. I became an Ashoka fellow in 2007. In 2008 Ashoka travelled from India to visit me in Mexico. They were impressed and asked me to bring my model to India. I thought that if this incredible organisation with all these rock stars is asking me, then I better do it. So I went to India and built an office. But I was running before I could walk. We couldn’t replicate the model. The logistical and infrastructural problems were so big that getting fresh avocados or mangoes out of the country took so long that they would rot on the way. I had to close the company since we couldn’t even generate benefit for the farmers. By now we got much better at seeing where and how we can generate impact, and where not. And we have very strong principles. If someone were to offer me a deal I would make a lot of money with, but it wouldn’t be social, I wouldn’t do it. Because I don’t need to. I did that, when I was at Glencore...  

What is fairtrasa’s (legal) form, why have you chosen it and where do you want the company to go in the future?   
The Swiss legal form is an AG [Aktiengesellschaft, joint-stock company], a for-profit company. We are all structured as for-profits. And we consider ourselves as a social for-profit company. We are a role model for, but not limited to, fair trade. We go beyond. It’s sustainable agriculture and sustainable in all aspects: economic, ecologic and social. We’re the fastest growing company in the industry now with 15 companies and about 70 employees. In the future I want to keep replicating our model as we go open source. We want to have world-wide expansion, go into Asia. We want to inspire more social entrepreneurs in different fields. Our model is generated in such a way that it can work across cultures. Where ever we go, we follow our motto “locals for locals”. Small-scale farmers have a high level of mistrust. If I were to approach them as a Swiss, they wouldn’t believe me. They said to me “Many Europeans and Americans have come and we burnt our fingers. They came to cheat”. If I can send somebody to them that is of their own, who is here today, next week, and next year, we create a base of trust. That is the only way you can do business.

How would you respond to the sceptics, which point to documentaries proving that “fair trade” is often misused and is finally not fair at all?
The fair trade system is in principle a good system. But it has weaknesses. Max Havelaar certifies two groups: to small scale farmers they ensure they are paid a fair price for their products, and for certified plantations they ensure their workers are paid a fair wage. They have the obligation to audit and the system is such that abuses shouldn’t happen. If the media pick something up and highlight it, it’s really, really bad for the industry. And it’s discouraging. I know there are a lot of people in fair trade that do it because it’s fashionable and they see it as an additional business, especially on the sales side. But at the same time looking for flaws in the system is like looking for a needle in the haystack. If someone came to my organisation and were determined to find something, he probably would. In the end it boils down to the ethics of the players along the supply chain. I still think fair trade is a good system. It was the door-opener in to a new way of thinking. It created this awareness. But the big impact for farmers is not achieved with certifications alone.  

What is it that inspires and drives you every day to dedicate your life to fairtrasa?
Take the following story as an example: Our country manager in Peru came to Zürich in February 2014. On the way to this office we walked into a small Migros [a Swiss retail store]. “These are my mangoes!” he cried out after walking in. And there was no doubt about it because they were fair trade, Peruvian, and organic. Fairtrasa is the largest fair trade organic fruit supplier from Latin America. And in the same store we found our limes, and our ginger. He was so happy to find his “babies” in a Migros in Zürich. The motivation for a guy like him is amazing. And for me it is too, because I see that what I do on the ground ends up in a store in Switzerland.  You see, when I was at Glencore, I had a job. Now I have a mission! And what drives me is growing that system, to help as many farmers as possible. Millions! I believe this is my calling. Everybody comes with a mission but few people find it. I’m lucky I found it. And that’s why I want to make it big. I want to generate the biggest impact I can and reach as many farmers as possible. And you know what? I know I can!