Memorandum submitted by ActionAid
INTRODUCTION
1. ActionAid UK is part of ActionAid International.
ActionAid was founded as a British charity in 1972 with a mission
to eradicate global poverty. It had 88 supporters. Over the last
three decades we have expanded to more than 300,000 supporters
in Europe and offices in more than 40 countries. In 2003 we became
ActionAid International and moved our global headquarters from
the UK to South Africa. Today 90% of our 1,800 staff are from
developing countries, our chief executive is Nepalese and our
international directors come from Brazil, India, Kenya, Italy,
the US and UK.
2. ActionAid UK welcomes this opportunity
to submit evidence to the IDC enquiry on Fair Trade and Development.
We recognise the part that fair trade can play in improving the
lives of workers and farmers in developing countries. Many thousands
of people have benefited from fair trade schemes. However, although
fair trade is a rapidly growing market, it is still a tiny part
of the whole, with sales of fair trade products accounting for
less than one tenth of 1% of retail sales of food and drinks in
the UK.[46]
Through our research, campaigning and advocacy work in the UK
and in developing countries we are acutely aware of the inequalities
that too often characterise trading relationships between North
and South.
3. Fair trade offers a model of how buyers
in the North can deal fairly with suppliers in the South, while
still allowing businesses to make a profit and consumers to be
offered goods at affordable prices. The growth of the fair trade
market over the last few years indicates that UK consumers are
keen to purchase goods that have been produced without exploitation.
According to a recent poll, 65% of UK shoppers bought a fair trade
product in 2006. However, ActionAid is concerned that producers
and workers—the majority of them often women—in developing
countries supplying the mainstream UK market continue to endure
widespread violations of their basic rights. This submission considers
the actions of various key actors in the supply chain, and how
they might all be encouraged to deal more fairly with suppliers
in developing countries.
What is the role of supermarkets, retailers and
businesses in supporting ethical and fair trade production?
4. UK supermarkets sell many billions of
pounds worth of goods sourced in developing countries, including
fresh fruit and vegetables, clothing, cut flowers, wine, tea,
coffee, cocoa, meat, poultry, nuts, toys, electronic equipment
and homeware products such as rugs and cushions. These products
contribute an important part of export earnings for a number of
developing countries. Tesco alone buys 3% of Sri Lanka's entire
clothing exports.[47]
Overall, developing countries earn nearly £3 billion a year
from exporting goods that are sold through UK supermarkets, or
around £8 million every day.[48]
5. While accurate figures are not readily
available, the number of people in developing countries that work
on farms, in factories and as homeworkers producing for UK supermarkets
is likely to run into tens of millions. In the fresh fruit and
vegetable sector alone, the livelihoods of over three million
people in developing countries depend directly on producing for
UK supermarkets.
6. The potential to improve people's lives
through improving the terms of supermarkets' trade with Southern
producers and securing worker's basic rights is enormous. Unfortunately,
there is growing evidence that current approaches, based on encouraging
voluntary action by supermarkets, are not having the desired effect.
7. A recent assessment of the impact of
nine years of efforts to improve labour standards through the
Ethical Trading Initiative shows some of the difficulties of relying
on voluntary efforts to improve standards on the part of supermarkets.[49]
They found that the efforts of supermarkets involved in the ETI
had had limited effects on the ground. A key problem is that,
while one part of the company may be involved in genuine attempts
to improve standards, too often buying practices are not following
suit. Routine buying practices, such as insisting on lower prices,
shorter lead times, sudden, unilateral and retrospective changes
to orders, delaying payments, not writing terms of business and
forcing suppliers to meet the costs of ever more stringent quality
standards, can and do undermine attempts to improve ethical standards
in supply chains.
8. Evidence for this was provided by the
latest information released from the current competition commission
enquiry into supermarkets. Following the 2000 Competition Commission
inquiry, a voluntary code was drawn up to encourage supermarkets
to improve their buying practices. In 2003, the Office of Fair
Trading review of the impact of the Supermarkets Code on UK suppliers
found, "widespread belief amongst suppliers that the Code
is not working effectively," with most respondents stating
that, "the Code has failed to bring about any changes
in the supermarkets' behaviour."
9. The suppliers' views were borne out by
the evidence from a survey of suppliers published in the "Emerging
Thinking" of the most recent Competition Commission enquiry
into supermarkets, in January 2007. Over a third of suppliers
reported that their customers—among them the big four supermarkets—were
requesting price reductions just before or after delivery, nearly
a half reported delays in payment, and just under two-thirds reported
that buyers were insisting on them making contributions to marketing
costs.
10. None of these practices are specifically
outlawed by the Supermarkets Code, but all carry a health warning,
in that they should only be done "reasonably" and with
genuine agreement from the supplier concerned. Given that the
survey also found that over half of suppliers felt that they had
little, if any, bargaining power over supermarkets, and that suppliers'
gross margins had declined by 67% over the last five years, there
is certainly reason to suspect that the supermarkets are not abiding
by the spirit of the Code.
11. Suppliers who source overseas share
the same experiences. The costs and risks of these buying practices
are passed down the supply chain to the most vulnerable link—the
workers and farmers in developing countries who produce the goods.
As one South African fruit supplier to Tesco put it "the
only ham in the sandwich is our labour costs. If they squeeze
us, it's the workers who get squeezed".[50]
12. Actions taken by supermarkets to woo
consumers can also have a direct effect on suppliers, in the UK
and elsewhere, as suppliers testify:
Significant promotions on price, such as buy
one get one free offers on bagged apples, crucifies producers,
as you get half the price but you get double the costs[51]
Wal-Mart pressures the factory to cut its price
and the factory responds with longer hours or lower pay, and the
workers have no options.[52]
13. ActionAid's research bears out this
trend. In Central America, banana workers are bearing the brunt
of supermarket's attempts to cut prices. Gilberth Bermudez, the
General Secretary of the banana workers' union, SITRAP, told ActionAid:
The companies frequently argue that they can't
pay even basic wages, because the supermarkets in Europe or Great
Britain or the US don't pay adequate prices for the fruit. This
is an argument they put forward. We, in the unions, don't have
sufficient information to know whether or not this is true. It's
very difficult to challenge or correct this argument, because
the supermarkets don't publish the necessary information.[53]
14. In South Africa, farmers also find themselves
forced to lower costs to meet supermarkets' changing demands.
Speaking on condition of anonymity, one farm owner told us:
A buyer for Tesco picks up the phone as says
x is offering me apples for £1 a carton cheaper; meet him
or I take you out of the programme. Supermarkets like Tesco have
all the power in the world and we have to cut costs as far as
we can. We're really at their mercy.[54]
15. ActionAid saw at first hand what "cutting
costs as far as we can" means in practice in the South African
and Central American fruit industry: workers paid below the minimum
wage, increasing casualisation of the workforce, and poor health
and safety standards. We know that the same is true of workers
in other industries that fulfill the ever expanding needs of supermarkets
for ever cheaper and more varied products. We are concerned that
millions of people around the world are caught in the crossfire
of supermarket price wars. These people need more protection than
is provided by voluntary codes.
How can trade unions help to ensure that the drive
for cheaper produce does not undermine social and environmental
standards in developing countries?
16. Regulating the relationship between
all supermarkets and their suppliers would remove many of the
buying pressures imposed on suppliers and help strengthen the
bargaining power of workers and their representative organizations
to negotiate for better pay and conditions. However, they would
not necessarily benefit automatically from changes in supermarket
buying practices. The promotion of trade unions and worker's rights—such
as freedom of association and the right to collective bargaining—in
developing countries will have a key role to play in ensuring
that improved buying practices are translated into better working
and living.
17. ActionAid's research shows that women
workers are often particularly vulnerable to exploitation, and
are often not unionized. Casual workers, many of them women, are
often the most unable to demand better working conditions and
are the least likely to be union members. It is essential that
trade unions in the UK and overseas make particular efforts to
engage women and casual workers in articulating their problems
and defending their rights.
How does the international trade system impact
on ethical and fair trade production (for example, the impact
of changes in the EU tariff regime for bananas on small developing
country producers).
18. While a number of companies have made
serious efforts to make their business practices more ethical,
trends in international trade tend to make this more difficult.
First, increased concentration in the downstream stages of almost
every sector—from food retail to mining, finance to electronics—has
reduced the opportunities for smaller suppliers to negotiate with
buyers and get better terms.
19. Second, a marked increase in the number
of workers involved in production for international markets has
reduced the power of individual workers and their organizations,
and led to a corresponding increase in the share of wealth going
to companies compared with workers.
20. Five hundred million people producing
for export markets, mainly in China were added to the global workforce
between 1980 and 2000, without very much increase in the total
amount of capital available.[55]
The resulting reduction in the power of the workforce has been
used by companies to increase their own profits and reduce prices
to consumers. The amount of GDP that goes directly to shareholders
is at its highest in America for 75 years, and in the Euro area
and Japan is at its highest for 25 years.[56]
The price of clothes in the British high street has fallen by
40% over the last 10 years. At the same time, the number of workers
living on less than US$2 a day has continued to increase and,
according to the ILO, now stands at 1.37 billion people worldwide.
21. The fair trade model shows that trade
can work for poor people. But global market forces are heading
in a direction that may well tend to reduce incentives for more
ethical behavior on the part of businesses. In this situation,
the onus is even more on governments to rein in the worst excesses
that markets may cause, and create a globalization that benefits
poor people. Regulating the relationship between buyers in developed
countries and suppliers in developing countries, and supporting
groups in developing countries attempting to protect rights and
improve conditions for workers and farmers, is a crucial step
in helping to end poverty.
22. As well as considering the implications
of the experience of fair trade projects for the further development
of the fair trade sector itself, ActionAid urges the IDC to consider
the wider lessons of fair trade, and in particular how it can
point a way towards better relationships between producers in
developing countries and consumers in the UK and beyond.
RECOMMENDATIONS
— The Supermarkets Code of Practice
to be made statutory.
— The introduction of an independent
supermarkets regulator, with the powers to pro-actively monitor
the market and root out abuses, and a confidential complaints
mechanism for suppliers to report breaches of the Code and other
misconduct.
— The Code's reach to be extended beyond
the supermarkets' direct suppliers in order to ensure secondary
suppliers and primary producers based overseas have an avenue
of redress.
— The Code to be extended to cover
all supermarket suppliers, including suppliers of non-grocery
products such as garments, flowers and toys.
— Supermarkets to make public their
entire supply base, to allow independent monitoring of conditions.
February 2007
46 Figures from Fair Trade Foundation and Office of
National Statistics. Back
47
ActionAid calculation from figures in: Corporate Watch, Tesco
and the Garment Industry in Asia, 2005. Back
48
ActionAid calculation from figures provided by HM Customs and
Excise. Back
49
S Barrientos and S Smith, The ETI code of labour practice: Do
workers really benefit?, Report on the ETI Impact Assessment 2006,
Part 1: Main findings, University of Sussex, Institute of Development
Studies. Back
50
Quoted in Oxfam, "Trading Away our Rights: Women working
in global supply chains", 2004. Back
51
ibid Back
52
Washington Post, 2004, Chinese Workers pay for Wal-Mart's
low prices, 8 February. Back
53
Interview to be published in forthcoming report. Back
54
ActionAid, 2005, Rotten Fruit: Tesco profits as women workers
pay a high price. Back
55
Yilmaz Akyuz, 2006, "From Liberalization to Investment and
Jobs: Lost in Translation", paper prepared for the International
Labour Organisation, Geneva. Back
56
Pam Woodall, 2006, "From T-Shirts to T-bonds", The
Business Economist, Vol 37, No 1. Back
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