From Principles to Practices - Part III

In my last blog post about breaking down principles to practices in contracts (From Principles to Practices Part II) with Fair Trade producer groups, I discussed and provided examples of the purpose behind such a contract:

1. To provide clear definitions for common understanding
2. Assign clear and practical areas of responsibility to both the producer and the buyer for each principle. A Fair Trade contract cannot be one sided!
3. Reference the relevant United Nations and ILO Conventions, thereby integrate a Rights-Based Approach into the contract
4. Create a platform for in-depth discourse to develop common understandings that overcome social and cultural barriers between the buyer and the producer

To that blog post, Dr. Sabam Malau, Chairman of the North Sumatera Coffee Forum (NSCF) made a few additional points from his own experience that are particularly important if Fair Trade is to be considered fair to producers. First, he explains the need for an independent third party to verify adherence to the principles. Secondly, he defines a fair price for coffee growers as one that provides the farmers with a viable livelihood. Lastly, he points out the importance of establishing a forum inclusive of the local government while integrating a Rights-Based Approach to programs and policies. With his permission I have posted it here:

Thank you Mr. Mitch Teberg for the explanation above for it is a very good idea of understanding and implementation of the fairness principles. That's very inspirational.

Indeed, yes, both sides (buyers and producers) has its own duties. However, I do believe that a third party must play a key role i.e to match buyers' and producers' interest. The third party can be NGO, person, or government. As long as no conflict of interest they face, they can then contribute significantly to fair trade implementation.

We NSCF-North Sumatera Coffee Forum has been trying to spread the idea of fair trade, such as coffee price at growers level must be high enough that coffee growers can then have enough income for better livelihoods and for maintaining their coffee field sustainably by using GAP/SOP. The coffee growers have right to live good, have right to be treated fairly, have right to live in friendly ecology/environment, have right to prepare good education for their children etc.

NSCF will stimulate coffee stakeholders to form coffee forum in each regencies or subregencies. To do that, NSCF needs external supports (technical and financial) to establish the forums and then train the forum members. For short and simple explanation: such coffee forums will disscuss then with the local government so that the local government will decide policies/program based on people rights. The forums will also make good relationship with buyers. It's a kind of win-win solution for all sides. The producers will produce coffee with highest quality continuously, and buyer will buy coffee with highest price.

I do understand that the tasks of NSCF is not easy. However, NSCF have done something through spreading the idea to decision makers and people near to them as well as to the coffee exporters. Although the results are not yet seen significantly, but at least they already rethink their policies/program. Otherwise, the future of coffee will be questioned and unclear.

Thank you. Kind regards.

Dr. Sabam Malau
Chairman of NSCF-North Sumatera Coffee Forum
http://northsumateracoffeeforum.blogspot.com

I wholeheartedly agree with Dr. Sabam Malau. His first point is quite important - the need for independent verification. An independent third party is essential to ensure both parties adhere to the agreement. A third party such as an NGO, person, or government has several tools at its disposal. Participatory Rural Appraisal (PRA) is a commonly used methodology in the field of Development for conducting assessments and as a basis for project evaluations. The same tools can be modified for a third party evaluation of Fair Trade practices. For example, interviews with key people involved such as management, review of the transactions between the buyer and the producer, a review of the current practices throughout the supply chain, conducting an inquiry directly with producers, and group discussions with various stakeholders. These are just a few of the many tools used in project evaluations that would be applicable here.

In the Helvetas contract, it states: “Verification of compliance to the contract will be conducted by external auditors with an understanding of the local political, social and cultural contexts and extensive knowledgeable of Fair Trade Principles and Practices. To ensure a fair disposition in the audit, both the Producer and the Buyer will be assessed according to the terms of the contract.”  In short, it is not only the producer who is held accountable, but the buyer as well.

His second point on defining a fair price is the cornerstone of Fair Trade. He utilizes a set of criteria to determine fairness. 

• Improving livelihoods
• Maintaining sustainable farming practices
• Live well
• Fair Treatment
• Live in a safe, unpolluted environment
• Children receive good education
• Etc

In establishing Ten Principles of Fair Trade, the World Fair Trade Organization also defines the payment of a Fair Price:

Principle Four: Payment of a Fair Price 

A fair price is one that has been mutually agreed by all through dialogue and participation, which provides fair pay to the producers and can also be sustained by the market. Where Fair Trade pricing structures exist, these are used as a minimum. Fair pay means provision of socially acceptable remuneration (in the local context) considered by producers themselves to be fair and which takes into account the principle of equal pay for equal work by women and men. Fair Trade marketing and importing organizations support capacity building as required to producers, to enable them to set a fair price.

© WFTO

Both approaches center on the participation of producers which integrates the cost of living and production. 

Another approach is termed as a "Living Wage" and is often upheld as a standard for Fair Trade. Notably, a "Living Wage" does not contrast with the WFTO or NSCF definitions. 

© Bennett cartoon from the Christian Science Monitor

What is a "Living Wage"? 

Firstly, it is not a minimum wage. Frequently a minimum wage is lower than a "Living Wage" and keeps families trapped in poverty. Another important distinction is that a minimum wage is set by legislative bodies whereas a "Living Wage" is set by the producers themselves. 

By definition a "Living Wage" is designed to provide a minimum estimate of the cost of living for low wage families. The estimate does not reflect a middle class standard of living. The living wage is calculated as a wage sufficient to provide food for an adequate diet and the remaining basic needs for the worker household with an additional 10% added on for discretionary income. For this reason the average number of wage earning adults per household in the target community is included in the calculation.

The "Living Wage" is a calculation reflecting the basic needs of a family and integrates a means for a family to get out of poverty in a particular context. By this, I mean it is flexible enough to be applied in rural or urban settings, as well as in various cultural or political settings. For example, in rural communities the cost of day-to-day living is generally less expensive. This calculation allows for variations by involving the poor in calculating their own day-to-day costs. 

Secondly, in some countries there is a limit to the number of children a family can have, most notably is China's One-Child Policy. In other communities where no such legal restrictions exist, socio-cultural and religions norms and pressures may influence the number of children in a family. For example, in some cultures it may be a common practice to have six or seven children while in other cultures there may be fewer children per family, which may be due to external influences such as effective family planning and awareness campaigns. 

A third influencing factor is also influenced by socio-cultural norms. In some Asian countries it is common to have three generations residing in the same household. However, that is quite a broad generalization. For a calculation to be accurate, the producers need to be involved in answering particular questions. For example, "Amongst the producers is it common to have three generations residing in the household?" "Has a recent event such as a natural disaster or economic recession forced families to move in together?" For these reasons the producers themselves are essential for the calculation to be accurate. 

Discussing the Value Chain and a Living Wage at the
Helvetas Workshop in Hanoi, Vietnam, May, 2011.

I have reviewed a few variations of this calculation and integrated my findings into the Helvetas contract as follows:

 Living Wage Calculation:

[(Average cost of basic needs per HH for 1 month)
+ 10% Savings]

----------------------------------------------------------------------------

Average no. of adult wage earners per HH

Note: Individual “basic needs” include food, water, clothing, daily use items, communication and transportation costs, cost of schooling, average medical costs, etc. Household monthly expenses include rent and household utilities, maintenance costs, etc.

We had participants in the Helvetas Workshop practice with this and strongly suggested they repeat this exercise with the craftswomen and men as a means to ensure they are providing a fair and living wage.

During our travels in SE Asia from December, 2010 to May, 2011, Chou and I followed up on producers and the wages they earned. Often times, the wages were above the minimum wage, but not yet to a "Living Wage" standard. In most cases their pay covered all their costs, but there was little or no room for much beyond that. This does not suggest that Fair Trade has failed producers. When I inquired as to the reasons for not achieving a "Living Wage" standard with management of the local Fair Trade Organizations, I would frequently hear the same problems: Sales were not high enough for the FTO to be able to pay a higher wage at this time. Keep in mind that most Fair Trade producer groups are heavily dependent on export. It is important to note here that although recovery from the 2007-08 Global Recession is occurring in many Western nations, that does not mean that Fair Trade sales have returned to pre-recession levels. 

Many times I had discussions with the management of local FTOs on ways to expand markets, diversify products and value-add to their product line. If you are reading this blog and would like more ideas in this area, read about development of local and national markets in the February, 2011 blog posts: Franchising Fair Trade and Defining Competitive in Local Markets. For an inspirational approach to localizing Fair Trade for coffee farmers, check out the January, 2011 blog post: To Make Coffee Sustainable and April, 2011 post: Coffee Part III: Empowering Communities through Action.

www.helvetas.biz

For the Helvetas contract, the Annex it stipulates the payment of a  Fair Price and mainstreams gender: 

• Producer sets minimum wages according to a “Living Wage” calculation in the local context. 
• Producer guarantees equal pay for equal work by women and men. 
• Producer ensures women and men have equal access to skills training and capacity building to increase income generating opportunities.

However, Helvetas didn't want the "Living Wage" standard to be an impeding factor, but an established goal that could realistically be attained. For those cases where providing a Living Wage is not attainable upon contracting, the contract specifies:  

"Where a Producer is not in compliance with the practices detailed in the Annex, Helvetas will work with the Producer to jointly create a progressive Action Plan which will include identifying areas for improvement, further research, and training in order to enable the Producer to modify current practices in a reasonable time-frame. An Action Plan will be created within 60 days of contracting and agreed upon adjustments will be integrated into Producer Development Strategies to ensure compliance within 1 to 3 years from the date of contract." 

Buyers working with producers to create an Action Plan provides a platform for in-depth discourse to develop common understandings that overcome social and cultural barriers. Defining a "Living Wage" is just one of many common understandings that need to be developed between buyers and producers in Fair Trade.

Again, I would like to add a special thanks to Helvetas Vietnam (www.helvetas.org.vn) for permitting me to write of our work together to make the world a better place. Recognition also goes to my partner and greatest supporter, Chou. We are currently residing in Ho Chi Minh City, Vietnam, where I will continue to keep up this blog delving into relevant issues as I write about our Journey for Fair Trade.

 

Feel free to add your comments, thoughts or ideas below or catch me on facebook.

Mitch Teberg, MA

From Principles to Practices - Part II

Contracting with producers on their business practices is especially important in Fair Trade. In my experience, local producer groups generally do not have a high level of knowledge on how to operate an ethical business, so typically they base business practices on what their experience has been in the local context. This definition seldom focuses on fairness, sustainability or preservation, but on maximizing profit at any expense. When we begin to reflect on this concept of "business," it is not hard to find out where it originates and how it filtered down to local communities. 

Frankly stated, it is a brand of capitalism run amok which is extremely destructive to the community and environment it operates in. The far right Neo-Conservatives and their cohorts, the poorly informed, FOX News-manipulated Tea Party movement in the United States call it Free Market Capitalism; academics and economists around the world label it neo-liberal economics; Libertarians claim it as their own; and anyone with an iota of concern for the future call it exploitative, abusive, careless, excessive, destructive and unhealthy in so many ways. 

Unfortunately for the world's poor, institutions like the World Trade Organization, World Bank and IMF embrace neo-liberal economics. As for the Asian Development Bank, don't be fooled; it lines up directly with the unholy trinity despite its attempt to seem more "Asian". Regardless of the institutional efforts to whitewash the truth, people in "developing countries" see and learn from their practices of favoritism, elitism, and blatant corruption. People not only see, but directly experience the ongoing disregard for human rights, labour rights, indigenous rights, and land rights in the name of economic development where "sacrifices have to be made for the greater good." Oddly enough, they are never the sacrifices of a nations elite or ruling powers. And not to leave out the careless destruction of the environment in various "development" projects. There are countless publications on the catastrophic impacts of these institutions. One highly recommended for those interested in an introductory publication is Unholy Trinity: The IMF, World Bank and WTO by Richard Peet.  A paperback copy is available.

If you want an in-depth examination of the flawed economic theory of neo-liberalism and the lasting impacts it has when forced upon national economies, I highly recommend Naomi Klein's scathing, Shock Doctrine: The Rise of Disaster Capitalism. Simply repeating their mantra of Deregulation, Privatization and Free Trade without examining the social and environmental impacts has made it clear that neo-liberalism is not based in reality. Considering the influence that this model of capitalism has on defining Business as Usual, it is not hard to understand a local adaptation of the same practices. As a result, concepts such as respect for human rights, social responsibility and environmental sustainability are seldom heard locally. 

But imagine just for a moment, if the inverse were true: 

Imagine if the global institutions of the WTO, World Bank, and the IMF did put human rights, social responsibility and environmental sustainability first and foremost above privatization, deregulation, corporate profits and stock market gains. National development of "developing nations" would have to be an inclusive, participatory and democratic affair...  

Now imagine the impact such a model would have on the concept of Business as Usual!

Understanding the influence these institutions have in setting business practices and standards, I would like to examine the importance of contracting with producers, particularly when the aim is to introduce another paradigm altogether. In this contract, we want to address the current imbalances in buyer-producer relations; in other words, to level the playing field. However, it is not just to balance the relationship between buyers and producers, but keep them accountable to one another as well. As I mentioned in the last post, The Basic Question I sought to answer in creating a contract between Helvetas and their producers : 

How to break down principles to practices while maintaining a fair disposition that equalizes the traditional imbalances between producers and buyer? 

www.helvetas.biz

As we know, Fair Trade operates on 10 principles. Helvetas has adopted those same principles:

1.    Creating Opportunities for Economically Disadvantaged Producers

2.    Transparency and Accountability

3.    Trading Practices

4.    Payment of a Fair Price

5.    Child Labour and Forced Labour

6.    Gender Equity and Non Discrimination

7.    Safe Working Conditions

8.    Capacity Building

9.    Promotion of Fair Trade 

10.  Environmental Protection

My focus in the drawing up the contract was as follows:

1. To provide clear definitions for common understanding
2. Assign clear and practical areas of responsibility to both the producer and the buyer for each principle. A Fair Trade contract cannot be one sided!
3. Reference the relevant United Nations and ILO Conventions, thereby integrate a Rights-Based Approach into the contract
4. Create a platform for in-depth discourse to develop common understandings that overcome social and cultural barriers between the buyer and the producer

To provide clear definitions for common understanding
One lesson we had in the Helvetas Workshop was about translation. Admittedly, some things can be lost or misinterpreted and there was a need for discourse to provide clarity. For example, in Vietnamese, the term accountability in contrast to responsibility was a challenge to translate to a common language. Additionally, the term transparency when applied was of concern to the producers. To what extent was transparency to be carried out? There was concern about information being utilized to start a competing enterprise that would endanger the first, so how far does this principle go and where is it applied? It took some explaining and examples to address this in the workshop. However, taking the lessons learned there, I decided to address those in the contract so I inserted simplified definitions that were easier to translate. For example:

Accountability is both responsibility and answerability.

Transparency implies openness, clear communication, and accountability. In practice transparency with workers includes open meetings, clear and inclusive decision making processes; information about product orders and delivery dates; and providing buyer information and end destinations. Transparency with buyers includes financial disclosure statements and audits to gauge if and how workers and local communities benefit from Fair Trade 

Assign clear and practical areas of responsibility 
Balancing responsibilities was done through careful analysis of each principle and viewing it from both the perspective of the producer and of the buyer. One example of balancing responsibilities between the buyer and the producer is in the Promotion of Fair Trade. Typically, it is thought that only the buyer is responsible for this since they are engaged in foreign markets. However, this can no longer be the case if Fair Trade is to be sustainable and truly global:

Promotion of Fair Trade
Responsibility of producer	·         Producer raises awareness of the aim of Fair Trade through their business dealings with contracted suppliers and within their communities. ·         Producer provides buyers with information about itself and the members that make or harvest the products.  ·         Producer advertising and marketing techniques are honest. ·         Producer actively searches to diversify markets through efforts to expand Fair Trade in local, national and regional markets. ·         Producer actively supports and participates in local, national and regional Fair Trade movements, networks and campaigns.
Responsibility of buyer	·         Buyer raises awareness of the aim of Fair Trade and of the need for greater justice in world trade through Fair Trade. ·         Buyer provides customers with information about itself, the products it markets, and the producer organizations or members that make or harvest the products.  ·         Buyer advertising and marketing techniques are honest. ·         Buyer seeks means for Producer to increase access to local, national, regional, and international markets. ·         Buyer actively supports, and when possible participates in local, national and regional Fair Trade movements, networks and campaigns.

Here producers are expected to act as catalysts for change by challenging the concept of Business as Usual in their dealings with suppliers. A simple question has to be asked in an example: How can a producer making bamboo handicrafts claim to be practicing Fair Trade if his supplier is sending children enslaved in debt-bondage into forests to haul out illegally cut bamboo and contributing to deforestation? To be a Fair Trade producer means more than just benefiting from the trade, but passing on the principles with their suppliers and in their communities. 

This example also shows the realistic future of Fair Trade is in the lessening dependence on the traditional trade flow from global south to global north. This can be done through the expansion of Fair Trade into local, national and regional markets; and it is the responsibility of the buyer to support these efforts as well.

Integrate a Rights-Based Approach into the contract  
Integrating the Rights-Based Approach is more than simply referencing the Universal Declaration of Human Rights or the International Labour Organization (The UN specialized agency which seeks the promotion of social justice and internationally recognized human and labour rights). For example, in the section on Gender Equity and Non Discrimination, I included Article 1 of the United Nations Convention on the Elimination of All Forms of Discrimination Against Women, which is the only convention to provide such a clear definition of discrimination!

"‘Discrimination against women’ shall mean any distinction, exclusion or restriction made on the basis of sex which has the effect or purpose of impairing or nullifying the recognition, enjoyment or exercise by women, irrespective of their marital status, on a basis of equality of men and women, of human rights and fundamental freedoms in the political, economic, social, cultural, civil or any other field.” – United Nations Convention on the Elimination of All Forms of Discrimination Against Women, Article 1 

YouthEngage.com 

© Pam Fox

Create a platform to develop common understandings
To utilize this contract as a platform for discourse between the buyer and the producer as a means to overcome social and cultural barriers is very important, especially when assumptions can go unspoken. For example, in the principle addressing issues of Child Labour and Forced Labour there is a lot of room for misunderstandings if not addressed directly.

• Buyer provides the Producer with at least a summary of the UN Convention on the Rights of the Child in the national language, and local language if applicable. 
• Buyer works with Producer to ensure a common understanding of Child Labour versus the passing on of traditional craftsmanship and culture.

Making the provision of information like UN Conventions the responsibility of the buyer is a good way to reflect the buyers vested interest in the social issues of the producers community. Besides, a little research is good for establishing relations with local Rights-Based NGOs and UN Organizations. In past training programs that I have conducted, I went to the in-country offices UNDP, UNICEF and UNIFEM for pamphlets, handouts, copies of conventions, printed resources and posters on relevant issues. These organizations have a budget for printing materials in national and local languages, and more often than not, they are in search of partner organizations which would provide these materials to project beneficiaries at local levels. I have always had positive receptions and received material support when I went to meet officers and in-country directors. After all, we have the same objectives when Fair Trade integrates a Rights-Based Approach. 

Another approach for buyers to support producers is to contact local Rights-Based NGOs or other Fair Trade support organizations if the buyer is conducting business dealings from abroad. Contract them to conduct a training on child rights or women's rights. I have also conducted these training programs, and it can really impact a group in positive ways! However, I must say that if the buyer has never set foot in the country of the producer a visit would be a healthy connection, and stop by the UN offices for materials on the way! For buyers going to the producer and seeing their community firsthand it completely changes your perception of Fair Trade because it is no longer an abstract idea or purpose; Fair Trade becomes up close and personal. 

Fair Trade is real; it is about people and communities! 

YouthEngage.com

I would like to add a special thanks to Helvetas Vietnam (www.helvetas.org.vn) for permitting me to write of our work together to make the world a better place. Recognition also goes to my partner and greatest supporter, Chou. We are currently residing in Ho Chi Minh City, Vietnam where I will continue to keep up this blog delving into relevant issues as I write about our Journey for Fair Trade.

For Fair Trade Organizations, Non-Government Organizations, socially conscious businesses, producers or Fair Trade advocates interested in more information or assistance to create a Fair Trade contract, feel free to contact me directly. I am available for consulting and training, to include Training of Trainers in the fields of:

• Fair Trade; 
• Sustainable Community Development; 
• Human Rights and Child Rights; 
• Women's Rights and Gender

Other areas I conduct training in are Organizational Development, Results-Based Management,  Monitoring and Evaluation, Project Proposal Writing, and Management and Leadership.

Note: Special thanks to Dr. Sabam Malau for his comment and reminder below. The next post will focus on means of verification. Feel free to add your comments, thoughts or ideas below or catch me on facebook.

Mitch Teberg, MA