Today’s agriculture industry has extensive influence and therefore a responsibility for wide ranging issues including human rights and the destruction of biodiversity.With the concentration of power lying with a small number of multi national corporations, David Logan and Oliver Balch examine the developments that have been made, and look further into the supply chains in the cocoa, tea and coffee industries.
This article features in Sustainable Development International magazine, www.sustdev.org
uestions to answer?
Nearly two million farm workers, mainly immigrants, are working in the US on sub-minimum wages and in “dehumanising conditions” according to a recent report entitled ‘Like Machines in the Fields’ by the antipoverty campaigners, Oxfam. The report, published in March 2004, lays the blame squarely at the feet of big brand companies.
At the launch of the report, Mary Robinson, former UN High Commissioner for Human Rights, accused the US retailer Yum Brands of “profiting by exploitation” and called on it to “assume (its) fair share of responsibility”. She could have chosen any one of a number of global food or beverage multinationals.
Charges of exploitation are not new to world agriculture, which can trace its internationalization back to the early days of European trading. One need look no further than the East India Company. Established in 1600 as a commercial venture by European merchants, it grew to assume quasi-government powers and even its own army.
The power of today’s agriculture industry may not be as overtly sanctioned, but its global consolidation among a small number of large corporate players presents serious concerns. Just five companies now buy more than half of world coffee production, for example. This concentration of power means that decisions made in a UK or US boardroom have ramifications for millions of farmers both at home and abroad, as well as for ecosystems supporting the crops they produce.
Robinson’s comments raise a critical question about the influence of large companies and the “share” of responsibility that they should bear. How far are food retailers able to influence issues such as labour standards or biodiversity destruction, for example? To what degree can producers reduce human rights abuse and improve farmers’ livelihoods?
Large scale production
Where large agricultural companies own and control the means of production through plantations or factories, there should be few obstacles to managing the social and environmental impacts of their operations where there is the will to do so. The expectations of consumers and other activist groups for such producers are rightfully high – and increasingly vocal.
Among multinational companies of this type, Chiquita Brands International has positioned itself as a strong advocate of corporate responsibility over recent years. The banana producer, which owns and operates more than 100 plantations in Central and South America, adopted an environmental compliance programme back as early as 1992. The US company has now implemented a series of sustainable land-use criteria developed by the conservation group Rainforest Alliance in all its Latin American farms. It is also working with its independent growers to achieve the same standards.
In terms of its social commitments, Chiquita is not atypical in boasting a range of philanthropic and community development programmes in and around the areas where it operates.
Where Chiquita particularly distinguishes itself, however, is in its implementation of the Social Accountability 8000 labour and human rights standard across its plantation network. Earlier this year, the company announced that its operations in Colombia, Costa Rica and Panama had successfully achieved full compliance status with the scheme. The verified farms, which collectively employ more than 12,000 people (over half the company’s employees), are the first operations in the region to meet the labour requirements.
These improvements in environmental and social performance feed directly into the company’s bottom line – the real driver for listed companies such as Chiquita. In its most recent Corporate Responsibility report, for example, the banana producer cites a US$8 million annual saving through its reduced use of agrichemicals and its new practice of pallet recycling. Between 2001 and 2003, the company also saw a reduction of more than two-thirds (70%) in days lost due to strike action. The message from Chiquita is clear: responsibility and profitability have much in common.
British American Tobacco (BAT) is another major producer in the agricultural sector that has sought to improve standards within its immediate sphere of influence. Operating 87 factories in 66 countries, the UK-based company produces some 660 million kilos of tobacco leaf per year. The management challenges associated with the task of ensuring that every leaf is cultivated in a responsible and sustainable manner are self-evident.
BAT’s approach to concerns expressed by conservationists over its use of wood in the tobacco curing process indicates the creative thinking that it is adopting to resolve the many challenges inherent to responsible agricultural production. In the first instance, the tobacco firm encourages the use of alternative energy supplies where these are available. In some markets, it has taken the further step of constructing fuel-efficient curing barns. In regions where wood remains the main energy source, BAT promotes forestation programmes, which are usually established alongside tobacco fields as an environmentally sustainable coppice crop.
The company has introduced a range of similarly innovative schemes to eliminate child labour in its operations, to develop occupational health standards, to reduce accident rates to zero and so on. The investment of time and resources in these schemes should not be underestimated. Yet, as the owner-manager of its production units, BAT’s stakeholders should – and do – expect no less of management than due consideration of all the company’s risks and opportunities. In this respect, social environmental issues are no different to other core business functions.
Smaller-scale production
Where Mary Robinson’s question gets harder to answer, however, is when a company – albeit a large multinational – occupies a less dominant position within the agricultural supply chain.
Different production requirements mean that small-scale farmers, often in the developing world, continue to play a significant role in producing the crops that go into today’s food and beverage markets. This creates difficulties for consistency in social and environmental management. Intermediary groups, such as local purchasers or processors, exacerbate these challenges by separating retailers and traders even further from the original producer.
Cocoa
Cocoa is a case in point. In West Africa, approximately three million farmers earn their living directly from the crop, 90% of which is exported to Europe. In Cote d’Ivoire alone, the production of cocoa sustains an estimated 700,000 farmers, accounting for 40% of total export earnings.
When Cote d’Ivoire found itself the subject of international scrutiny in 2000 following public reports of child labour, questions about the chocolate industry’s remit of responsibility suddenly became very prescient.The majority of the large chocolate and confectionery companies sourcing from the region accepted that they had a role to play in the issue, despite having little or no primary control over how the cocoa crop was produced.
With potential legislation pending (two US Congressmen proposed, unsuccessfully as it turned out, to introduce ‘Child Labour Free’ labels on cocoa-based products), the cocoa industry made a unilateral commitment to eliminate child labour by 2005. Creating the cross-sector International Cocoa Initiative, the industry carried out a major research programme into labour practices in the West African cocoa industry, followed by specific studies on the issue of labour rights abuse.
Results from the research, published in 2002, showed a less alarming rate of child labour than was initially alleged. The picture was far from rosy, however. The findings highlighted a combination of poor infrastructure, HIV/AIDS and rocketing population growth with low commodity prices and serious problems of environmental degradation. The negative impact on the cocoa industry placed a moral obligation on the large purchasers to act. As importantly, it presented cocoa companies with a compelling and imminent business reason – namely securing the supply of high quality cocoa from the region.
Identifying technical expertise and knowledge transfer as the areas where it could exert most influence and have the highest impact, the International Cocoa Initiative rolled out a series of training schemes designed to improve the sustainability of cocoa production. The scheme covered core business themes such as finance, marketing and environmentally sound pest management.
The example runs counter to the popular image of large companies profiting on the back of oppressive tactics. In reality, as long as supply isn’t outstripping demand, the interests of small producers and purchasers have much in common.
Tea
The international tea trade shares many of the same characteristics of the cocoa industry. While tea lends itself more readily to plantation production, it still boasts a complex and weakly integrated supply chain that sustains a vast number of small-scale producers. Three-fifths of the tea grown in Kenya, for example, is produced by small holders despite it being the largest and most-sophisticated tea-exporting country in the world. Again, the sheer number of independent tea farmers, when coupled with their geographical spread, limits the direct influence that multinational importers can exert on the production process.
In the shape of Co-op‘s 99 tea brand, however, the industry can be credited with the first mainstream grocery product to be marketed in the UK on an ethical trading platform. The Co-op was the first UK retailer to establish a monitoring programme on labour standards that was supported by independent verification.
As with the cocoa industry, tea importers and retailers have made the most progress in tackling social and environmental issues through collaborative effort. Working under the aegis of the Tea Sourcing Partnership (TSP), all the major players in the UK tea industry have committed to driving up standards in five areas: employment, education, health and safety, maternity and housing.
Set up in 1997, the TSP carried out a huge survey of tea plantations covering 12,000 estates, which account for 81% of the tea imported to the UK. TSP sends questionnaires to all its estate managers to ascertain compliance with its commonly agreed base code. External auditors then independently verify the responses.Where estates are found to be in compliance, they are offered the security of guaranteed markets for their tea within the TSP membership.
Initial feedback from the TSP initiative shows several positive trends, with verifiers reporting improvements in core management practices and investment in new technologies, particularly in the area of water management. The net impact is not only better social and environmental conditions, but – importantly – higher and more consistent product quality. It should be noted, however, that the huge resources required to monitor small, independent farms prohibit schemes such as TSP from guaranteeing total compliance in agricultural industries where smallholding is commonplace.
Coffee
Important to recognise also is the increase in short-term costs for producers incurred by improving their social and environmental performance. The issue of financial support and incentive is one that Starbucks is currently seeking to tackle. In March, the coffee retailer announced a US$1 million investment in a loan programme for small farmers. The investment is designed to provide up to 10,000 smallscale producers with access to affordable credit, thereby offering the means to finance production improvements for the future.
The coffee chain also runs a separate scheme specifically aimed at remunerating coffee growers for their efforts to improve product quality and production methods. Through its Coffee and Farmer Equity Practices programme, launched globally in March, Starbucks offers a price premium to producers that comply with its sourcing guidelines.
Developed in conjunction with environmental non-profit organization Conservation International, the guidelines include a set of 27 criteria spanning a range of quality, economic, social and environmental issues. In this respect, the Seattle-based company is mirroring many of the principles established by the fairtrade movement. Both the Starbucks and fairtrade models rely heavily on consumer willingness to pick up the necessary price premium. For the bulk buyers of coffee, such as Proctor and Gamble, Sara Lee, Kraft and Nestlé, their existing business models operate within a highly competitive pricing environment.
One area where these large companies are looking to strip out costs is in their reliance on intermediary groups. In Thailand, for example, Nestlé has opened buying stations in the coffee producing regions to enable it to cut out middlemen and buy directly from farmers. In the financial year 2002- 2003, Nestle paid an average price of Thai Bhat (THB) 38.7 (about $0.97), in contrast to the THB 17 to THB 25 offered by local traders. The potential benefits to the grower of shortened supply chains are manifest.
Signs of promise
Much still needs to be done if the social conditions for millions of small farmers are to be improved and the environmental impacts of agriculture are to be mitigated. The position of large industry lobbies in respect to subsidies is one clear example of where greater responsibility is required.
Yet there is encouraging evidence that the agriculture industry is beginning to engage on the corporate responsibility agenda. Identifying where companies can exert most influence within the agricultural supply chain is a key starting point for the debate.
Because of their proximity to the production process, manufacturers hold the most responsibility and have been most active in the responsibility debate to date. Retailers, under pressure from consumer groups, are also beginning to engage. Large agricultural traders, however, appear slower to react to this emerging agenda.
In markets where traditional compliance standards are difficult to enforce, other innovative incentive measures need to be developed. Shortening supply chains is the most obvious means of ensuring better standards and greater transparency. Where this is already being done, signs of mutual benefit are emerging.
The blood-stained demise of the East India Company, however, serves as a warning for the industry’s big players should they fail to make good these early forays into greater corporate responsibility.
David Logan, Director & Oliver Balch, Managing Editor, The Corporate Citizenship Company, London, UK
COMMENTS