Step 2 Assess risk

STEP 2 - Objectives:

2.1. Make your supply chains traceable.

2.2. Identify the main areas for adverse wage and income impacts of your business activities and supply chain relationships.

2.3. Measure the living wage and living income levels and visualise the gaps with current wages and incomes in your supply chains.

2.1 Map your supply chains

The first step in assessing your supply chain risk is to map your business operations and those of all links in your supply chain. It is important to gather information on raw materials to the point of origin. In this process, you develop an understanding of the various tiers in your supply chain.

Your procurement department should be able to provide the information on supply chain traceability. If there are gaps in your supply chain knowledge, conduct supply assessments to gather information from your direct suppliers to discover your indirect suppliers.

Traceability is critical to assessing risks in your supply chains. There are various emerging technologies that can facilitate traceability and improve transparency.

Examples of tools to map your supply chain

Fairfood Trace

Blockchain based platform enabling food companies to discover their product chains and share trustworthy stories.

SIM Solutions

SIM is a technology partner that delivers software and experts to create insights and visibility in supply chains.

Blockchain technology: transparency in the agri-food sector

The use of blockchain technology has been tested by frontrunners and is now making its way to large companies such as Walmart or Carrefour. Multiple agritech companies are proposing to use blockchain technology to increase transparency along food chains.

2.2 Identify adverse impact

Complex supply chains made up of multiple tiers of direct and indirect suppliers can make it difficult to identify and remediate poverty and labour rights risks.

Incidence of poverty and risk of adverse labour rights

Begin by analysing the labour rights context and the incidence of poverty in your supply chain. Review the implementation and effectiveness of international labour rights agreements on national legislation and policies. The legal analysis provides the basis for gathering practical insights into the application labour rights on the ground. Similarly, investigate the poverty profile in the specific country/area.

Copyright GIZ

Risk of low wages and low incomes

After developing and understanding of the labour rights and poverty landscape around your supply chains, the next step is to conduct an in-depth assessment on the identified risk areas. It is crucial to identify stakeholders affected and potentially affected by company operations and supply chain partners. This requires an in-depth fact-finding review of company operations and stakeholders, and evaluating company performance against human rights (labour) standards.

2.3 Measure wage and income gaps

Identifying wage and income gaps is key in understanding the depth and extent of low wages and insufficient income in your supply chains. These requires a few key steps.

  • Collect verified information about salaries paid to workers in your company and your suppliers, and estimate the income earned by farmers.
  • Identify existing living wage and living income benchmarks relevant to your context.
  • Benchmark against other wage and income indicators to create a complete picture of the situation and visualise the wage and/or income gaps in your specific supply chains.

The concept of living wage refers specifically to hired workers (e.g. factory workers, farm labourers, etc.), whereas living income refers to income earners (e.g. self-employed farmers). The end goal of living wages and living income is the same: achieving a decent standard of living for families. The Anker Methodology is a well-respected approach, that can be used for estimating a living wage or living income, as the cost of living for a family is the same regardless of how income is earned. However, estimating current wages is a very different activity than calculating actual incomes.

  • Living wage
  • Living income
A living wage is the remuneration received for a standard workweek by a worker in a particular place sufficient to afford a decent standard of living for the worker and her or his family. Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events. (Definition by Global Living Wage Coalition)

Visualise the gap between living wage and current wages in your supply chain in 4 steps:

1. Determine the living wage estimates that apply to the area of your supply chains

The living wage is specific to an area or region. There are a few leading international organisations developing living wage estimates, using different methodologies. When evaluating wages, it is crucial to have reliable benchmarks. The ALIGN consortium endorses the widely acknowledged Anker methodology.

2. Assess the wage levels currently paid in your supply chains

Begin by disclosing and listing the salary scales of all employees, including all workers in the supply chain (lowest and highest salaries to first tier). Gathering wage data in a structured and systematic manner will be key to assessing living wage gaps. For this exercise you can use the Salary Matrix, originally developed by IDH and Rainforest Alliance. The Matrix allows suppliers to assess how the salaries (plus the in-kind benefits) they provide to their workers compare to living wage benchmarks.

3. Collect data on other wage indicators

Gathering additional data on wage levels will allow for comparison with the current wages. Some commonly used indicators include legal minimum wages, prevailing wages, collectively bargained wages, and poverty levels.

4. Visualise the gap

Generate a clear and easily understandable graphic that shows if and where wages fall short.

Wage ladders are an increasingly popular way to visualise the wage gap. A wage ladder compares wage levels amongst each other alongside other economic indicators for a country or region. To build a wage ladder all the indicators should be comparable to the living wage estimate and expressed in the comparable terms (e.g. per day or per month, before or after taxes, including or excluding in-kind benefits). 

A living income is the net income required for a household in a particular place to afford a decent standard of living for all members of that household. Elements of a decent standard of living include: food, water, housing, education, healthcare, transport, clothing, and other essential needs including provision for unexpected events. (Definition by Living Income Community of Practice)

Visualise the gap between living income and current income in your supply chain in 4 steps:

1. Find out what income a farmer needs to sustain his or her family in the specific context

A living income benchmark is the calculation of the cost of a decent standard of living in a particular place. It is crucial to have reliable benchmarks to compare with the actual income of farmers.

2. Assess the income that the farmers earn in your supply chains

When considering income, as opposed to wages, it is important to recognise that the income that a family earns can come from multiple sources. Actual income refers to the total net household income. Independent earners often employ diversified income strategies to make ends meet. Income can be generated from various agricultural and livestock activities, and other off-farm income. Hence, the living income analysis goes beyond the income that a farmer earns from their primary activity to include all income sources of the farming household. The actual household income can be calculated through a number of methods. The Living Income Community of Practice guides users through several methodologies for Measuring Actual Incomes.

3. Gather data on other income indicators that will allow for comparison with actual incomes

This is particularly important in the absence of an accurate living income estimate. The World Bank poverty lines and/or the national poverty lines, as well as the national minimum wage are globally understood indicators. Please note that the methods to calculate poverty lines are based on expenditures for survival, and do not represent the cost of a decent standard of living.

4. Visualise the gap

Generate a clear and easily understandable graphic that shows if and where actual household income falls short.

With a living income estimate, it is possible to evaluate the actual income of a farm households. An income ladder is a useful tool for visualising the gap between a living income estimate and other wage and economic indicators. In an income ladder you can visualise how different economic indicators in your identified supply chains and context compare amongst each other. You can use for example living income estimates, actual household income, legal minimum wage and/or poverty lines.

Ready for the next step?