!world! BUSINESS CASE: Alta Gracia: Can Fair Trade Work?

Check out a T-shirt or sweatshirt emblazoned with your school’s logo at your campus bookstore, and the odds are very good that it was made by Alta Gracia, the leading supplier of college-logo apparel to American universities. Alta Gracia is owned by Knights Apparel, a company based in Spartanburg, South Carolina, that manufactures apparel in 30 factories around the world. The Alta Gracia factory is located in the Dominican Republic, where 120 employees turn out T-shirts and sweats.

Julian Eales/Alamy

Workers at Alta Gracia consider themselves lucky because the company pays what it considers a “living wage”—sufficient to feed and shelter a family of four—and allows workers to join a union. Seamstress Santa Castillo, for example, earns $500 a month, three times the average monthly pay of $147 earned by apparel workers in the Dominican Republic, where a loaf of bread costs $1.

Workers at the factory have not always been so fortunate. When the factory was owned by another company, BJ&B, which made baseball caps for Nike and Reebok, workers were paid the prevailing wage and were fired if they complained about working conditions or tried to form a union. Eventually, BJ&B moved its operations to lower-wage Bangladesh, where the minimum wage is 15 cents an hour, compared to 85 cents an hour in the Dominican Republic. In contrast, Alta Gracia pays $2.83 an hour.

Joe Bozich started Knights Apparel in 2000; through scores of deals he has made with universities, his company has surpassed Nike as the number-one college supplier. He works closely with the Worker Rights Consortium, a group of 186 universities that press college-logo apparel manufacturers to improve workers’ welfare. The consortium is part of the “Fair Trade Movement,” an organization dedicated to improving the welfare of workers in developing countries, principally by raising wages. In 2011, $6.6 billion of Fair Trade–approved goods were sold globally, up 12% from 2010.

Alta Gracia was conceived by Bozich as a model factory to show that an apparel manufacturer could pay its workers a living wage and still succeed when competitors are paying their workers much less. Its production cost for a T-shirt is $4.80–80 cents, or 20%, higher than if it paid minimum wage. Knights Apparel accepts a lower profit margin so it doesn’t have to ask retailers to pay a higher wholesale price for its merchandise.

Some observers, though, are skeptical because Alta Gracia merchandise is sold alongside products made by Nike and Adidas, at approximately the same premium price these well-known brands command. “It’s a noble effort, but it is an experiment,” says Andrew Jassin, an industry analyst. “There are consumers who really care and will buy this apparel at a premium price, and there are those who say they care, but just want value.”

Kellie McElhaney, a professor of corporate social responsibility at the University of California at Berkeley, is less skeptical: “A lot of college students would much rather pay for a brand that shows workers are treated well.”