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North Country Fair Trade, Year End Report for 2006
One of the principles of the Fair Trade movement is transparency in business. In that spirit, we are forwarding this report of developments in our business to customers and supporters and to our production partners. It is an evaluation of progress achieved and challenges encountered during the past year. An unspoken principle in the majority of business operations is to keep sensitive information confidential, particularly regarding financial operations of the business. This is our effort to measure up to the Fair Trade principles of disclosure of information.
NCFT has been operating for 3 years as a wholesale distributor of blank t-shirts and tote bags which are manufactured by two fair trade
producers – one in Nicaragua, the other in Mexico. Our commitment is to support an industrial model of fair trade production and distribution in the apparel industry. The first year of operation (2004) was a test of the market on a small scale to determine whether this is a viable business idea. 2005 and 2006 were years of growth in sales, but also in losses, as we learned the business and established a foundation for expansion. NCFT has also played a significant role in establishing a new business in Piedras Negras: providing financing, product development and business development assistance. We are currently evaluating future expansion steps that will balance the growth of a customer base with the increasing capacity of our two production partners.
First a summary of financial operations of North Country Fair Trade. NCFT achieved sales of $65,000 in 2006 from 131 customers of approximately 13,000 t-shirts and 2,500 tote bags. The average order size for t-shirts was 100 pieces. Sales increased 71% over 2005. NCFT lost $14,500 during the year, primarily because we subsidzed production costs of the start-up business Maquiladora Dignidad y Justicia. (The cost for each t-shirt was higher than our sales price.) Obviously, this is not a practice that we can afford to continue. The operating expenses of NCFT are low -- $17,500 for 2006. 25% of that expense is the cost of shipping the product to our customers. There is currently no labor expense, because labor is donated.
NCFT expanded its product lines in 2006 to offer organic cotton t-shirts and organic canvas tote bags. Previously, organic shirts were not available to us because of the limited supply of organic fabric. We began offering women’s cut t-shirts. NCFT also began offering t-shirts under two labels: Fair Trade Zone – produced by the Nueva Vida Cooperative in Nicaragua, and Justicia! – produced by Maquilad Dignidad y Justicia, in Piedras Negras, Mexico. This is partly a response to production delays at Nueva Vida and partly to support the development of Dignidad y Justicia. The plan for the future is to diversify production at Dignidad y Justicia, moving to other products to reduce the overlap in production lines. These steps have required substantially more investment in inventory by NCFT. We began the year with $50,000 invested in inventory. We closed the year with $80,000 invested in inventory.
Our supplier in Nicaragua, the Nueva Vida cooperative, expanded production dramatically in 2006. Their primary customers are Maggie’s Organics, the Presbyterian Hunger Project and Catholic Relief Services. NCFT is a Nueva Vida distributor of small orders to customers that cannot order directly from Nicaragua. Their growth has been a positive development for the cooperative which we applaud; and has led to profits for the cooperative, higher wages and more employment in Nicaragua. However, it has had negative effects on our ability to provide efficient customer service. Nueva Vida’s priority has been to fill large orders of 25,000 pieces or more. Their rapid growth in sales outpaced their production capacity and has resulted in long delays in delivery of orders to us. We typically order 5-7,000 t-shirts per shipment with a turn around of 4-5 months in 2006 after placing an order. This results in a high percentage of out-of-stock in some sizes or colors. We anticipate that expanded capacity at Nueva Vida and the introduction of another sewing line to produce smaller orders like ours will resolve this situation.
Maquiladora Dignidad y Justicia (MDJ) completed its first full year in production last year. By the end of the year, workers began receiving wages equal to 3 times the wages of corporate manufacturing plants in the area. This is a dramatic achievement and a primary goal of the project. NCFT, which is their only customer, purchased approximately 9,500 tote bags and 8,000 t-shirts from MDJ in 2006. Production efficiently improved dramatically during the course of the year. (We rejected their first order of 2006 because of poor quality standards). In 2007, MDJ has the capacity to produce 30-35,000 units, even without expanding the workforce, if there is sufficient market demand. They are poised to begin serious production and expansion of their project. However, the 3 year start-up process for MDJ has been an arduous experience for all three partners in the project: NCFT, Comite Fronterizo de Obrer@s (CFO, a Mexican non-profit) and members of the workshop. The project enjoyed financial support from the Inter American Foundation, but not all challenges are financial. We continue to strive to develop a structure that allows for particiaption in decision making (another Fair Trade principle) while minimizing internal conflict. Fortunately, at least we at NCFT know from previous experience, that starting up businesses requires a substantial investment of blood, sweat and tears, in addition to the investment of more money than one ever anticipates. We persist. In fact we are developing plans to expand the network of workshops in Mexico.
NCFT and Comite Fronterizo de Obrer@s are engaging in the first steps to open
another workshop on the model of Dignidad y Justicia. Sarah Lee, owner of the Hanes brand, closed a large factory in Monclova last year, laying off 2000 sewers. Former workers at the plant are seeking assistance from the CFO to establish a worker owned shop in that city. This is a potential expansion site. However, this expansion depends upon securing financial partners and expanding our customer base to support another project.
We expect 2007 to be a year of growth and ongoing challenges. We appreciate the support of our customers and other partners in this endeavor. We will continue to offer our current lines of product and expect to expand the organic options. We are seeking to expand our blank t-shirt distribution through a growing network of development partners including religious networks and small t-shirt companies with a commitment to ethical production standards, both in environmental sustainability and labor justice. NCFT will introduce a line of retail t-shirts to be distributed through Fair Trade stores and organizations. In new product development, we will introduce sweatshirts and perhaps an oxford style shirts, with Dignidad y Justicia as the supplier. We are seeking contract sewing jobs for Dignidad y Justicia with established Fair Trade clothing businesses. And NCFT purchased a sample roll of denim to begin work on our first samples of Fair Trade blue jeans! These new product lines point us toward an additional marketing network of environmental, sweat-free, Fair Trade retailers, many of whom are in early stages of development.
Ambitious development plans require additional financial support. We are approaching the limits of our personal financial resources and must secure alternative sources of financing. Up to this point NCFT has been financed primarily through the standby sources for small business owners – personal credit card financing and a home equity line of credit. These are not adequate sources for continued growth. We will seek foundation funds to support the expansion of new workshops in Mexico. NCFT will expand its efforts to recruit socially resposible investors to fund equipment purchases for production facilities and inventory expansion. And we are taking the first steps to initiate a financing entity to serve the specific needs of Fair Trade businesses.
Given the reality of NCFT’s finacial result in 2006, is our vision for the future unrealistic? Perhaps. But entrepreneurs and social activists have never succeeded by being cautious or timid. We have great faith in the mission of the developing Fair Trade movement, and the strength, commitment, and persistence of our partners – which includes all of you.
CONTACT US: North Country Fair Trade, 1385 Goodrich Ave., Saint Paul, MN 55104
651-336-1698 or 612-730-4453 northcountryfairtrade@comcast.net
