Blogs on blogging

A few weeks ago, I kicked off this blog with some statistics on blogging. As it turns out, that wasn’t a totally original idea.

In July, the Wall Street Journal celebrated the 10^th anniversary of blogging with a commemorative article, available at http://online.wsj.com/article/SB118436667045766268.html. The author claims that “The daily reading of virtually everyone under 40 -- and a fair few folk over that age -- now includes a blog or two, and this reflects as much the quality of today's bloggers as it does a techno-psychological revolution among readers of news and opinion.” My daily experiences judges that number to be high and that assessment of the quality of blogging generous, but this clearly is an important trend.

Innovation consulting firm Innosight picked up on that article as representative of disruptive innovation in media. This author refers interestingly to the emergence of the somewhat paradoxical title “Professional blogger,” which is an increasingly important component of major news outlets like ESPN. This article is available here.

Finally, this blog has a technical report on the state of blogging, with charts similar to my initial post. Anyone interested in that sort of analysis may find this interesting.

Hear a penguin

You can hear a penguin on the phone by calling the New England Aquarium at 617-973-5200 and selecting option 6. It is hilarious.

You can also see a live webcam of the penguins at NEAQ online.

Effect of lengthening Daylight Savings Time

The United States extended Daylight Savings Time by 1 month this year.

Based on an analysis of data from an extension of Daylight Savings Time occurred in parts of Australia around the 2000 Sydney Olympics, researchers at the University of California Energy institute found that an extension of DST may not save energy.




Although the distribution of energy usage shifted, spiking earlier in the morning, the total usage was more or less unchanged.

Given that the new energy policy only applies to the U.S., there is the potential for a larger pseudo-experiment on the energy impact of DST. We can compare changes in energy usage in the U.S. against that in other countries where the normal schedule was unchanged or against past usage in the U.S., using a regression to control for other factors. The results could have interesting implications for future energy policy.

Unfair Trade

Abstract:

Global sales of Fair Trade Certified products increased 41% last year, and prospects for future growth are positive. While Fair Trade contracts get farmers a premium price compared to the worldwide market, coffee growers could do better by improving the quality of their product instead of pursuing Fair Trade.

While Fair Trade coffee is generally imported at a significant premium compared to the average market price for coffee and offers greater stability in pricing, it costs less than the premium coffee beans used in other blends at Starbucks. Therefore, the 1.4 million producers who we claim are benefiting from fair trade may do better by producing higher quality products and selling them at the market rate.

Corporate social responsibility advocates who argue that premium outlets like Starbucks should increase their commitment to Fair Trade should consider the potential negative impact of cannibalizing the premium purchases of those organizations. As long as a company supports responsible agriculture on its own, it may create greater value by paying premiums for quality rather than certification.

What is the difference between Fair Trade coffee and normal coffee?

Fair Trade certification of producers, importers, and retailers is performed at the regional level by third-party “certifiers.” In the U.S., the only certifier is called Transfair. Guidelines for certification are set by Fairtrade Labeling Organizations International (FLO). Requirements include:

Price floor:

Fair Trade provides a price floor of $1.21 per pound for producers:

The impact of this price floor is much more extreme when the market price is low. In October 2001 (the most extreme case), the spread between Fair Trade and New York prices was $0.76, or 167% of the market value. In recent years, the market price has been close to the Fair Trade price. When the market price is above the Fair Trade price, the price floor is nonbinding and has no effect on the price of the coffee.

Social premiums:

In addition to the price floor, Fair Trade also requires a $0.10 / lb premium (since July 2006; $0.05 previously) which is used “by cooperatives for social and economic investments at the community and cooperative level” (2006 FLO annual report). This premium is charged to the buyer above the purchase price, even when the price floor is non-binding. That is, when the market price is above the price floor, the Fair Trade price is the market price plus the Fair Trade premium.

Green-washing: Starbucks’ Fair Trade investment

Distributors pay a little extra for the Fair Trade coffee, and they pass that cost along to the consumer. The difference between the Fair Trade price and the market price is represented by the green line in the graph below.

As you can see, the difference (from a consumer’s perspective) between buying fair trade coffee and free-market coffee has decreased in recent years because of a strong coffee market.

The chart below compares Starbucks’ actual 2006 expenditure on coffee beans to two fictional scenarios—one in which all of the coffee was purchased at the NYBOT average market price (left bar) and another in which all of the coffee was bought at the Fair Trade price. This analysis is based on market rates and data from Starbucks’ 2006 CSR annual report. As you can see, the difference is quite small. The additional cost of purchasing entirely Fair Trade coffee would have been $38 million, only 12% more than market.

While a 12% premium for Fair Trade would have been a substantial cost, Starbucks voluntarily chose to pay an even higher premium—for quality. The bar on the right represents actual 2006 spending on coffee beans at Starbucks: $100 million (32%) more than the market price of the beans. Thus, Starbucks producers were better off selling to Starbucks than they would have been under Fair Trade.

Even at market rates, coffee is divided into five classes, and a Premium Grade coffee generally carries a $0.25 premium, which (at recent rates) makes it more lucrative than Fair Trade.

It seems that many producers are aware of the limited value of Fair Trade, because only 20% of the products that could be sold under Fair Trade contracts actually are sold that way.

Conclusions

1. Producers can do better than Fair Trade
   

Currently, only 20% of the products that could be sold under Fair Trade contracts actually are sold that way. The limiting factor is Fair Trade certified distribution outlets, so growers will face the question of whether to embrace Fair Trade as the avenues become available. Rather than relying on a Fair Trade premiums to artificially increase revenues, growers should consider increasing the quality of their product in order to achieve premium prices in the futures market. The $1.42 per pound that Starbucks payed for premium quality coffee is much greater than either the $1.08 / lb market price or the $1.21 Fair Trade price. If I were a small producer of coffee beans, as 70% of producers are, I think I would want to shoot for the high premium that comes with higher quality instead of the more modest premium of Fair Trade.

2. Starbucks can do better than Fair Trade
   

While many CSR fans would like to see Starbucks increase its commitment to Fair Trade from the 6% of purchases that it currently represents, this may not be the path to higher revenues for farmers. By selling under a premium contract instead of a Fair Trade contract, coffee producers could earn more money.

While Starbucks’ 6% investment in Fair Trade is modest in itself, it is much higher than the 0.01% global penetration of Fair Trade products (according to the Fair Trade Federation). Starbucks currently only markets one Fair Trade product in the U.S., the Café Estima Blend™, which is currently out of stock on the company’s website. The $10.45 price point is middle of the road for Starbucks models, further evidence that the quality-premium exceeds the Fairtrade-premium.

While Fair Trade offers farmers other social benefits in addition to the price floor, Starbucks replicates many of these values in its own C.A.F.E. purchasing system. As long as the company maintains these standards, I see little reason for it to specifically target increased Fair Trade purchasing as a CSR objective.

More generally, I note that trendy movements are not always the most socially responsible solutions. Compare Fair Trade with the ongoing organic fad, the benefits of which are largely misunderstood by consumers, and we can see that Fair Trade products are best served with a few grains of salt.

I have a blog

The first few friends that I warned about this plan were surprised. They asked:

Who will read it?
When will you have time?
What will you say?

I hope to address those questions in this first post.


Who will read it?

As a practical matter, it is quite likely that nobody will read my blog. If somebody were to visit this page, I expect that he would be:

1. A friend on a first visit, likely at my request (70%)
2. A friend with nothing better to do or trying to procrastinate (20%)
3. An unhappy surfer who happened to Google something that I talk about (5%)
4. One of the avid devotees that I hope to inspire, but this may be wishful thinking (5%)

Theoretically, there is a great audience for this sort of thing.



This chart from a 2004 Pew Internet Survey shows that 27% of internet users, or over 32 million people, read blogs in 2004. I suspect that number would only have gone up by today.

Of course, some people will never understand. The same survey reported that 62% of internet users don’t even know what a blog is.

Lacking a clear picture of who will visit this page, I could group myself with the 52% of bloggers (6 million American adults) who claim to blog mostly for themselves, according to a 2006 study.

But one might wonder why those people publish their ideas in a public forum at all, so I am going to claim to write for an audience of my peers, even though I don’t know quite who they are yet.


When will you have time?

I promise you this: if I am writing something for this blog, I “should” be doing at least 10 other things instead. However, I think I might like doing this, so maybe I’ll do it anyway.

Lot’s of other bloggers have better things to do too, and they manage somehow.


Note that compared to the average internet user, bloggers are more likely to have attributes associated with a busy life.

And hey, if it doesn’t work out, so be it. 51% of bloggers have been blogging for less than a year, so I’m in pretty good company.

(These stats are from the 2006 Pew Internet Survey).


What will you say?

"Now that I have no shame, I will proclaim it.
Given the chance, I will go where the people are,
Tell everybody; if you shut me here,
I will move the very woods and rocks to pity.
The air of Heaven will hear, and any god,
If there is any god in Heaven, will hear me."

In this speech from Ovid’s Metamorphoses, Philomela, princess of Athens, has just been raped by Tereus, and these threatening words prompt her assailant to cut out her tongue as well. Left with no other means of communication, Philomela weaves the scene into a tapestry.

This vignette is often read as a statement of the irrepressible nature of language. The thesis is that try as one might to suppress a thought, it will come out, and it will find an audience. When something interests me, I hope simply to record my thoughts on it here so that they do not go to waste. If they are provocative enough, somebody may read them one day.