Increasing poverty?

September 01, 2005

Traidcraft’s Fiona Gooch calls on companies and governments to ensure the benefits of international trade are felt all the way through the supply chain.

International trade should be a positive force for good and help lift thousands of people out of poverty, by improving their skills, income and confidence and therefore reducing their vulnerability. But the current reality is not a pretty picture.

The spate of mergers and acquisitions in Western countries mean power is now concentrated in fewer and fewer hands. In the UK, three-quarters of all food is sold through just four companies. Meanwhile in developing countries trade liberalisation has led to the collapse of local industry, with many developing countries reducing protection for workers in an effort to attract foreign business. As a result there’s been a fundamental shift in who gains from international trade: most of the benefits go direct to companies at the top of the supply chain often at the expense of those at the bottom.

Squeezing supply chains

Powerful companies are in a position to squeeze prices, shift risk, make unfair demands and lobby government. In contrast, suppliers, workers and producers have none of that influence. The UK’s own competition commission found a climate of “apprehension” among supermarket suppliers. Risks and costs are passed down the supply chain to those who are most vulnerable. Increasingly suppliers are being forced to hire vulnerable people on poor terms and conditions, often using temporary contracts in an effort to reduce their costs. The result is low wages and precarious employment for those producing products and low purchase prices for companies buying the products for re-sale in the UK. In this context, supply-chain voluntary codes of conduct, which have little impact on the trading activities of UK companies, may even increase the squeeze suppliers are facing. UK companies need to turn the spotlight on their own behaviour and change harmful purchasing practices.

In general, the difference between the price of products leaving developing countries and the developed country consumer price is widening steadily. For example, the world price for coffee has fallen by 70% in the last 20 years without a similar fall in the retail price. A coffee farmer gets just 4% of the price of a kilo of processed beans and the producing country retains only 10% of the retail value. There are 2.5 billion people in the world depending on agriculture for their livelihoods. But the actual farmers are finding it increasingly difficult to make ends meet despite the fact that food is a profitable sector.

Call for action

We need action by governments and companies.

The UK government should:

– change and enforce current competition rules to consider the social and environmental impact of market dominance

– amend UK company law to include new directors duties of care to not violate human rights.

Companies should:

– address the social impacts of their purchasing practices. Invest in long-term relationships with suppliers and pay them sufficient to cover the costs of production

– respect workers rights to join trade unions and bargain collectively.

Traidcraft is part of a campaign to change UK company law. We’re also working with UK purchasers to improve purchasing practices, ensure sustainable supply and that trade is negotiated in a way that people involved in producing a product are valued accordingly. We will be producing guidance in 2006 on improve purchasing practices. Our aim is to highlight the problems caused by current trends in purchasing practices and help lead a process of change that means the benefits of international trade are felt all along the supply chain, not just at the ‘top’. (

Corporate Citizenship Briefing, issue no: 83 – September, 2005

Fiona is Private Sector Policy Adviser at the Traidcraft policy unit and a member of Traidcraft’s social accounts team. She is an advisory board member to Just Pensions and is a member of the CORE coalition steering group.