A producer’s ability to pay workers a living wage is intrinsically linked to the relationship between supply and demand. Wages are a variable cost that can be more easily affected by market dynamics. Traditional procurement practices that maximize short-term profits, such as short-term contracting, pose a challenge for long-term commitments to close the living wage gap. Sustainable procurement practices are an essential component in closing the living wage gap. Individual companies can adopt sustainable procurement commitments and influence other stakeholders towards long-term change.
Towards living wages in the Malawian tea industry
The Malawi Tea 2020 program brought together key players to revitalize the Malawian tea industry, running for five years from 2015. One of the program’s objectives included workers earning a living wage. To this end, the Program gathered insights into how supply chain actors could contribute to closing the living wage gap. Oxfam and IDH, in partnership with Accenture Development Partners, used these insights and engaged with buyers to developed a model for sustainable procurement.
A new model for sustainable procurement
The model is the first of its kind in the tea industry and provides insights into the role of commercial relationships and sustainable procurement in closing the living wage gap. It facilitates the tea contracting process to link buyer tea pricing to worker remuneration without falling foul of competition law, which forbids competitors to discuss prices.
Buyers enter data on the quality and amount of tea they wish to purchase. The model provides insights into the price that needs to be paid to create enough value to potentially narrow the living wage gap by an agreed percentage.
Putting the model into practice
All members of the Malawi Tea 2020 program recognized the need for a tool that provides insights into sustainable procurement practices. However, the implementation and design of the model was a cause for debate for both buyers and producers.
It was decided that buyers in the Malawi Tea Program would use the sustainable procurement model, but that the passing-down of any value to workers would be negotiated within individual buyer–producer relationships.
Closing the living wage gap
Oxfam–IDH buyer assessments were conducted at the end of the season in 2019 and 2020, based on data disclosed to the Ethical Tea Partnership. In 2020, coalition buyers reported a 9.7% increase of volume bought from Malawi. Since the start of the Malawi Tea 2020 program, coalition buyers bought 66% more volume from Malawi. Some buyers were also focusing on higher value teas and rewarding higher quality. Buyers generally expected to continue their commitment to Malawi after the program closed.
The Malawi Tea 2020 program has seen strengthened relationships and more sustainable procurement based on the model. In some cases, long-term relations were brokered between buyers and producers, which enabled improved product quality and investments in product diversification.
In the five years of the program, the living wage gap has been closed by 33%. The program’s sustainable procurement workstream has led to the acknowledgement that any work towards closing the living wage gap would need to involve a contribution through buying practices in conjunction with wage bargaining on the ground. Sustainable procurement practices will be essential to facilitate this.