The issue of living wages evokes strong emotions. Most people agree that decent work should be remunerated with wages that provide a decent livelihood. Advocates for a living wage in the UK have made strong progress there with nearly 9,000 employers paying a real living wage. Extending that same effort throughout global supply chains – in bananas for example – is a more complex challenge. Here’s how we move forward.
At first glance, paying a living wage to workers in supply chains sounds straightforward: just pay producers and suppliers enough to ensure that they can pay their workers a living wage. But there are complicating factors: exchange rates, inflation, working conditions, sourcing practices, the effects of a changing climate, the impact of global supply and demand, and competitive practices that put pressure one of the few variables in pricing: labour costs.
Take for example, the banana supply chain. Bananas are a gateway product for grocery shoppers. The fruit beckons shoppers with the promise of low prices in hopes that they stick around and fill their trollies. Those prices, however, have a heavy impact on the people and the environment where bananas are farmed. And because of the complicating factors mentioned above, raising prices alone may not mean that workers get better wages.
There is no simple fix for achieving living wages for all workers. Few actors in the supply chain can control more than a few of the factors that influence wage levels. Large-scale change calls for a systemic approach. Fortunately, IDH has created a Living Wage Roadmap with the tools that committed companies and retailers need to calculate a living wage for producers and develop a plan to implement it.
This week, IDH brought the top UK retailers together to explore how we can make progress on living wages in a pre-competitive space. We have been working with many of them since April this year, and several shared with us their experience on understanding wages in their supply chains. We heard, for example, about the importance of having credible wage data to drive action. Retailers expressed their understanding that good procurement and trading practices are important to give producers the confidence to make changes to their own systems and operation to pay living wages. It is now important to keep focusing on the big picture of improving wages, regardless of the starting point.
Stepping up to a living wage level requires a systemic approach that tackles everything from productivity and working conditions, to purchasing practices and sometimes even the regulatory environment. Since producers sell their bananas to multiple buyers, we need a living wage commitment from a coalition of retailers, and collaboration with suppliers and producers, to raise wages for all workers. There is a great example in the work underway with IDH and Dutch supermarkets.
In 2019, 15 supermarket chains and other stakeholders in the Netherlands worked with IDH to launch the Banana Retail Commitment with a goal of reducing the living wage gap for banana workers by 75% in five years. The first step of this transformation was developing a baseline to understand the gap between what workers earned and a living wage.
A total of 117 farms across five countries, representing 42% of the retailers’ total banana volume, submitted wage data via the IDH Salary Matrix. This data allowed us to establish an average wage gap of 9%. Retailers in the Netherlands now have a goal to work toward and aim to reduce the wage gap by at least 10% each year.
Once benchmarks are defined, the goals for achieving a living wage become much clearer. Take the recent example of Tesco as a case in point.
Working with the IDH Roadmap, they developed an understanding of the living wage gaps in their banana supply chains. With that information, they have been able to make a quite bold commitments on the factors that they can control – their own purchasing practices.
- As of January 2022, Tesco commits to paying the living wage gap to banana producers (equivalent to the volumes we source).
- Tesco shall ensure that producers have in place a timebound commitment to pay all workers a living wage.
- We will reward suppliers who continue to make progress on closing living wage gaps with higher volumes as part of a balanced scorecard.
- Our ambition is that from January 2024, we will only source from banana producers who pay a living wage to all workers no matter the volumes sourced by Tesco.
In the announcement, Tesco acknowledges that their forward-thinking purchasing practices will have limited impact unless other retailers sourcing bananas from the same producers also play their part. That’s why we’re working with several top UK retailers to look at their banana supply chains, understand the living wage gap, and work together to close it.
Living Wages Benefit Workers, Business
In the past, labour costs were seen as just another cost to control and minimize. But in an era with increasingly fragile supply chains battered by the effects of climate change, smart businesses are wise to invest in their most valuable resource: their workers. Paying a living wage provides a decent standard of living, but it also can reduce turnover, lead to better productivity, and improve commitment and morale. It’s the right thing to do and the business-savvy thing to do!
We have a Living Wage Roadmap, now we need you to join the journey.
Contact us to find out how to begin.
Global Director Agri-commodities, IDH
Senior Partnerships Manager – UK