Fair trade company Cafe Direct looks for ethically-minded shareholders

This article by Andrew Bibby, in a slightly different form, was first published in the Observer, 2004

The largest 'alternative' share issue yet will be launched tomorrow [Feb 2nd 2004] when Café Direct, the fair trade venture, begins a search for sympathetic investors with, between them, £5m to spare.

Café Direct's share issue follows a string of similar appeals, sometimes called ethical public offerings (EPOs), which have helped a range of co-operative and ethically-minded businesses in recent years. These include £4.2m raised by the Ethical Property Co and £4m by fair trade distributor Traidcraft, both in 2002. Café Direct is banking on the public interest in ethically-minded investments not yet being fully exhausted.

According to Café Direct's managing director Penny Newman, the share issue will not only help her own company develop but will also give a boost to the whole fair trade concept. She enthuses over the task ahead: "There's so much to do. We've been growing amazingly, over 20% for each of the past three years, but still only 1% of the world's coffee is bought under fair trade rules. We want to build our brands, get them out to more people," she says. With its coffee, tea and drinking chocolate already carried in most of the major supermarkets, a new target for Café Direct will be the so-called out-of-home market, including the coffee and tea drunk in offices and workplaces.

Café Direct was founded in 1991 jointly by Oxfam and three fair trade ventures, Traidcraft, Equal Exchange and Twin Trading, and the business has grown to the point where turnover is now over £13m a year. Coffee, tea and cocoa is sourced from 33 producer co-ops in Latin America, Africa and Sri Lanka who together provide a living for about 270,000 individual producers and their families. With world coffee prices in particular almost at an all-time low, Café Direct's commitment to fair trade typically means producers get twice or three times standard world commodity prices.

Café Direct also undertakes to build a long-term relationship with its suppliers. However, with the current share issue the company is now taking a further step, to involve both its customers and its producers directly in the running of the business. In an innovative restructuring, the four founding organisations are reducing their shareholding to 39%, with 5% of the shares being passed to producer groups, who will have the right to elect two of the Café Direct's directors. Investors will hold the remaining 56% of the shares, with a further director being chosen from the new 'Friends of Café Direct' grouping, being set up to represent investors and consumers. "It's a stakeholder approach. We want to take consumers and producers with us. They're going to be shaping our way forward," Penny Newman says.

Whilst this is definitely not one of those quasi-share issue where money is really being sought on a donation basis, would-be shareholders will still need to be aware that the company is not being run just to maximise the share dividend payments. Penny Newman says that the company will be aiming to produce both financial and social benefits. However, there is some welcome news for taxpayers. Café Direct anticipates that its share issue will qualify under the rules for the government's Enterprise Investment Scheme (EIS), which means that, provided shares are held for three years, 20% tax relief should be available. In other words, a £1000 investment should actually only cost £800.

Whether this actually represents a real saving, of course, depends on the subsequent value of the shares, and in particular whether the shares can find buyers. Café Direct is trying to overcome the difficulty which has faced some ethical share issues, in putting in place an arrangement to bring buyers and sellers together. This is being done on a 'matched bargain' based by Bristol-based Triodos Bank, as part of its recently launched Ethical Exchange (Ethex) initiative. Triodos will propose a suitable price for the share sale and will try to match registered sellers with any registered buyers.

Café Direct has set the minimum investment at £300 which it hopes will attract a broad range of supporters, and its share issue is being publicised on several million of its coffee and tea products now going into the shops. Institutional investors with money from ethical unit trusts to invest will almost certainly be looking closely at the issue as well (two fund managers invested in the latest Ethical Property Co share issue), though Café Direct has capped the largest individual shareholding at 15%.

For Penny Newman, the share issue is primarily a means to an end. She talks of the satisfaction of being able to show a Peruvian coffee producer on his first visit to London the end result of his labour on the supermarket shelves. "Our way of trading benefits everyone," she says.

To register for a Café Direct prospectus phone [UK] 0845 600 9662

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