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Fight for a living wage

From the January 2020 issue.

Global Coffee Report looks at how the living wage can guide discussions on price and the future sustainability of coffee.

When low international coffee prices are discussed, it is often in comparison to the cost of production. However, there is a higher benchmark that needs to be addressed – the living income of coffee producers or living wage of their workers.

Michelle Bhattacharyya, Co-executive Director of Living Wage On-Up and former Coordinator of the Global Living Wage Coalition, identifies a living wage as the dollar amount a person needs to earn to afford a basic but decent life for themselves and their family, which differs from country to country.

“That’s meeting just enough nutrition, having a house over your head, making sure your kids can go to school, and having basic healthcare – very basic things,” Bhattacharyya tells Global Coffee Report.

"But right now, the incomes for coffee farmers are so low that whenever prices drop, they are suddenly not able to eat as much. You’re going to have a more sustainable business if we make the fluctuations in prices easier for farmers to absorb.”

Bhattacharyya says not being able to achieve a living wage in coffee farming is contributing to many of the challenges the coffee industry is currently facing.

“There’s a lot of things that we look at as major human rights issues. Not earning a living wage is a big motivator for child labour, because families are having trouble feeding their kids, so they send them off to work,” she says. “Then there’s health considerations, like access to water or basic sanitation.

“In coffee specifically, there’s a lot of concern about younger generations not taking up farming after their parents. The question is, if you knew you couldn’t support yourself and your family off of farming, is that a career field you want to go into? If you’re invested in making an industry sustainable – keeping supply chains and production running for commodities like coffee – then you need to think: ‘Are we creating a situation where it’s even possible for people to live a decent life on what they’re earning?’

“Living wages are a matter of human rights and incumbent on everyone, but it’s also one of sustaining business and making sure that it’s able to continue on in a way that helps everybody.”

Bhattacharyya says while many roasters and traders want to pay a living income directly to their producers, being the only company to increase prices could make them uncompetitive in the marketplace. Roadblocks may also exist that limit the ability to take joint action.

“One of the major issues is you can’t expect farmers to pay their workers a living wage or have a living income for themselves and their family, unless you increase what you’re paying for their product,” Bhattacharyya says.

“If coffee companies do this collectively, it will likely mean increasing prices to the consumer and then you’re really wading into antitrust issues. So everyone gets really nervous and says, ‘we can’t have any discussions on price, because we don’t want to violate any laws’.”

The antitrust issue
Antitrust laws exist to regulate the conduct of businesses to promote competition for the benefit of consumers. This can include banning competing businesses from collectively agreeing to charge higher prices for their products, called price fixing or price setting.

In 2016, Inara Scott of the College of Business at Oregon State University, published ‘Antitrust and Socially Responsible Collaboration: A Chilling Combination?’ in the American Business Law Journal. The paper describes how antitrust laws in the United States can unintentionally prevent businesses from making sustainable business decisions.

“Antitrust law in the US has a couple categories of behaviour or agreement that are considered ‘per se’ violations, which are blanket prohibited. If the courts see this kind of activity, they won’t inquire into the facts or motive behind it,” Scott tells GCR. “Price fixing is one of the clearest of those categories of behaviour. If the goal is to create some kind of agreement resulting in higher prices, courts will not pause before finding that the behaviour violates antitrust.”

These laws can result in companies declining to take part in collaborations with other businesses that would not outright break antitrust laws.

“There are certain types of collaborations that don’t violate antitrust law, but because of the potential for violation, particularly in areas where the outcome is unclear, generally, businesses will generally avoid engaging in that type of behaviour,” Scott says.

One example Scott gives of socially responsible collaboration being discouraged by antitrust is the Designated Supplier Program of the Worker Rights Consortium, an attempt to create mandatory standards that avoid having athletic goods made in sweatshops. After the Department of Justice raised concerns with the Designated Supplier Program over potential antitrust violations, the Worker Rights Consortium had to reform the program from a set of mandatory standards to voluntary conditions.

“There’s certainly examples of antitrust cases sending a message, that has been received by businesses, that this kind of behaviour can’t be engaged in,” Scott says.

“Courts need to instead consider not just short-term but long-term price impacts to the consumer and on supply. There is room for them to look at the status of the market, how it functions, and failures of the market before making assumptions about whether a collaboration benefits or hurts the consumer.”

While roasters and traders may face hurdles setting higher prices among themselves, Scott says independent standard setting organisations or fair trade certifications can provide avenues for socially responsible collaboration.

“Those certifications can lead to higher prices for growers but aren’t tied directly to higher prices being paid by consumers,” she says. “Antitrust laws can put coffee growers and buyers in a difficult position and there are limited ways to react but signing up to voluntary certifications can be one of the best.”

Going bananas
Coffee is not the first industry to face this living wage dilemma or the antitrust barrier. Bhattacharyya says others have made progress by taking the conversation in a different direction.

“Similarly to coffee, [the World Banana Forum] was finding that banana farmers were turning away from the industry, saying ‘this is just not a productive career where we can we can live anymore’,” Bhattacharyya says. “They started really talking about how they were going to cover a sustainable cost of production, that will support the industry long term, and ensure people were paid a living wage.”

The World Banana Forum conducted a value chain study, which looked how much of the value a banana is sold for instore is distributed to each player in the supply chain – the retailer, brand, distributor, and farmer. The figure the farmer receives was then compared to the living wages of various producing countries, which the Global Living Wage Coalition determined using the Ankler methodology.

This entails economists, usually from local universities, going into an area and determining the costs of a nutritious diet, rent, and decent housing, other essential items such as clothing and sanitary products, healthcare, childcare, transportation, and taxes. Then, a five per cent margin is added to cover unexpected events, such as funerals or fire.

This figure can differ between regions. For instance, the Global Living Wage Coalition determined that in Minas Gerais South, Brazil, a living wage is R$1629 (US$442) per month, whereas in northwest Nicaragua it is C$8048 (US$264) per month.

“I think everyone was a little bit shocked at the gap between a living wage and what people actually earn,” Bhattacharyya says. “We had companies that were telling their producers to pay living wages to their workers, but the value chain distribution showed that it’s not possible on the amount of money they’re earning.

“The value chain study meant the banana industry could leap from discussing pricing to talking about the sustainable cost of production and how to cover it. Retailers and buyers have been much more comfortable with having that conversation because in no way is it price setting. It’s just asking: ‘are you able to cover this, so that producers can earn a living income and pay their workers a living wage?’ But one of the biggest barriers is that the producer doesn’t have the power to argue for this themselves. That power lives with the buyer.”

Engaging the customer
In order to address the living wage issue, Bhattacharyya says the industry needs to educate and engage the consumer.

“Generally, customers are willing to pay more for a product if they can afford to, and if they know it will allow someone to have a basic level of decency in their livelihood,’ she says. “But they often don’t know anything about where their coffee comes from or how much those farmers are really making. They have the idea that if it’s a certified product, or from a reputable coffeehouse, that everyone is being paid what they need to be paid. That’s not necessarily the case right now.”

Since coffee possesses a quality differential and customers are already used to paying varying prices, Bhattacharyya says it’s an ideal industry to present the importance of achieving a living wage with consumers.

“With products like bananas, customers don’t usually know one from the next. In terms of quality, they seem the same. The argument from retailers and buyers is that if they raise their price to make sure paying a living wage is possible, they can’t do it without everyone else doing it too, otherwise customers will just go somewhere cheaper,” she says.

“Whereas coffee already has a large variation in pricing due to the quality of the coffee that you’re buying and the location you’re buying it from. It’s a little bit easier for a lot of players to come together and assess with their individual suppliers if a living wage is achievable on current prices, and if not, communicate to the consumer why they need to be raised.”

Living wage at home...
Before roasters and retailers discuss living wages with customers or suppliers, Bhattacharyya says it’s important they have their own house in order.

“The first line of conversation with customers in the coffee industry is often baristas. In the US, most of those baristas aren’t earning a living wage themselves. How do you expect someone who is struggling with the same thing in their own daily life to really talk about and advocate for why paying a living wage to other people is important?” she asks.

“It’s important people in the roaster/retail end of the supply chain ensure their own employees are paid a living wage. Then, when they work with their producers or throughout the supply chain, they come from a sense of understanding and are able to make the case about why this is valuable.”

Outside of bettering the lives of individual workers, achieving a living wage has been shown to improve conditions for the community and even profitability of businesses.

“There’s a lot of data that shows when you pay living wages, you have higher productivity, lower turnover, and less turnover costs. Your recruitment is also much better as you get better candidates because you’re a more appealing employer,” Bhattacharyya says.

“One company I worked with in the fast-casual food industry almost doubled the wages of all their workers and actually saw their profits increase, because their workers talked to their consumers about how much it meant to them.”

...And abroad
In order to achieve a living wage across the supply chain, Bhattacharyya says an industry-wide commitment is needed to conduct a value chain study to determine how much money goes to each industry sector and then take action to close the gaps.

“Companies don’t ever have to agree on or talk about what prices should be. It’s just a matter of all looking at the cost of production and living wages, and how those are covered in their prices,” she says.

“People aren’t aware of what it really means to not earn a living wage and the sacrifices people have to make or the conditions that they’re sort of forced to live in. When different players in the value chain can see the contributions they make to the situation, it becomes easier for everyone to sign on and say ‘this is not going to work long-term’.”

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