STEP 3 – Objectives:
3.1 Develop a company commitment and/or policy to living wages/income.
3.2 Create long-term relationships with your suppliers and collaborate to implement a living wage/income strategy.
3.3 Select and implement actions to gradually close the gap between current and living wages/incomes in your supply chains.
ADOPT A COMPANY COMMITMENT AND POLICY
Adopting a policy that commits your company to achieve living wages and living incomes in your supply chains will contribute to:
- Building future proof and resilient supply chains
- Responding to market demands for social and environmental sustainability
- Protecting human rights throughout the supply chain
- Creating legislation such as ILO Conventions
- Achieving international and national human rights goals such as the UN Guiding Principles on Business and Human Rights and the Sustainable Development Goals
The company commitment and/policy can include objectives regarding:
- A description of the issue regarding wages and/or income in the sector(s) your company operates
- Principles guiding your supply chain (ethics, long term relationships, value distribution, collaboration, certification schemes, etc.)
- Commitment to paying living wages/income
- Approach to work towards living wages/income (working with producers, suppliers, etc.)
Commitment to respecting labour rights, freedom of association or working hours
DEFINE A ROADMAP
Define a roadmap that establishes an action plan with specific deadlines and specific targets, moving from targets to improve transparency in the supply chain towards targets to close the income/wage gap. Targets should be ambitious yet realistic and follow a gradual approach from short term to long term.
- Targets for procurement/internal buyers
- Reference to living income/wage strategy or commitment
- Targets for farmers or suppliers
- Influence the economic viability of the producers
Establishing collaborative, direct and long-term relationships helps to build transparency and trust with suppliers while reducing commercial risks, for both the supplier and buyer. With long-term relationships, suppliers will be more open to partnering to implement a living wage/income strategy as a long-term investment.
- Share your company targets and policy or commitment to achieve living income and/or wages
- Set up supply chain meetings with representatives from the different stakeholders
- Bring third party facilitators if necessary
PRIORITISE suppliers with whom you wish to engage in a living wage/income strategy
- Short or least complex supply chains
- Suppliers with whom you have a long-term relationship
- Suppliers open to social dialogue for wage negotiations with workers
- Suppliers that have producer tracking in place
CO-DESIGN STRATEGIES with suppliers
- Jointly identify good practices and issues with suppliers
- Design specific actions with suppliers
- Engage suppliers to act as learning partners in this process in order to test possible interventions
- Be open to hearing about experienced suppliers’ solutions on strategies
To be operational, your roadmap, company policy or commitment will need to translate targets into actionable interventions. Choose and implement the type of interventions that best applies to your specific situation. These can be complementary and target various levels: industry, landscape or different tiers of your supply.
REDESIGN PURCHASING PRACTICES
Reviewing purchasing agreements
Investing in the relationship with your suppliers provides an incentive for suppliers and farmers to invest in living wages/income, with a greater chance of positive impact. The following changes to the purchasing agreements have shown to increase the loyalty of farmers/suppliers, improve product quality and volumes, increasing small farmers and trader income, and better wages for workers:
- Simplifying the supply chain wherever possible
- Establishing longer-term contracts or sourcing agreements
- Buying directly from producers and commit to purchase their full output if possible
- Committing to minimum volumes and price guarantees
- Review and adjust product specifications
- Review and adjust ordering patterns
- Add favourable language related to social dialogue, collective bargaining and freedom of association in standards, codes and contractual agreements
Assessing pricing and increasing transparency
Price volatility and low prices are among the major barriers for farmers to earn a living income and for producers/suppliers to pay a living wage to their workers. This hampers their ability to make investments. Your company may consider:
- Providing market information systems: Supporting suppliers and farmers to have access to market information systems regarding prices, market sales, weather and pest risks can help them to make more informed decisions.
- Calculating prices: You can access your company data as well as complementary sources to obtain data that will help you assess the costs of sustainable production. Your company may want to look into calculating:
- Living income price: farm gate prices that enable farmers to make a living income and fair. The following methodologies can help your company with prices calculations.
- True prices: Calculation of the true price includes environmental and social costs for the product. The social cost is mostly related to the living wage gap i.e. employee earnings below the living wage. The following examples can help your company understand the price calculations.
- Supplier pre-contracting at agreed prices. Outgrower schemes or contract farming guarantee farmers or suppliers access to buyers at pre-agreed prices. Your company is then guaranteed a reliable supply at the desired quality.
Using certification schemes and premiums
Certification schemes and premiums can help your company to start addressing living wages and living incomes within existing frameworks.
- Certification schemes. Request information from the standards system your company uses regarding the ways their standard impacts farmer income. It will help improve the traceability of your supply chain.
- Incentives for meeting specifications. Price incentives can be established through a direct and transparent trading relationship, where the criteria for the price increase and the expectations of both buyer and supplier are detailed and agreed.
LIVING WAGE FOR WORKERS AND LIVING INCOME FOR FARMERS
- Living wage
- Living income
In addition to the calculation of a living wage, explained in Step 2, your company will need to understand the environment in which it operates. Working towards paying living wages is a process and some enabling conditions will need to be in place to achieve this goal. A needs assessment in sourcing areas will help to determine which supply chain interventions will be most impactful to support workers and therefore provide the most return on your company investment. Your company may consider the following steps:
- Understand how your purchasing practices, suppliers’ human resources and pay systems affect suppliers’ abilities to pay workers living wages
- Understand the enabling environment in terms of social dialogue, freedom of association, collective bargaining processes and union representation
- Identify current working condition issues and risks
- Design corresponding solutions that address root causes
- Understand how partners can help implementation and determine potential roles
- Prioritize action based on severity of the need and potential for progress
Create enabling conditions for payment of living wages
In order to encourage a responsible attitude towards wages among their suppliers, your company can support practical actions, such as:
- Improving sourcing strategies and purchasing practices to ensure that suppliers have enough margin to increase wages
- Review your existing code of conduct and policies on wages, and identify opportunities to clarify your position
- In your agreements, specify that suppliers should comply with their country’s legal minimum wage and commit to living wages
- Helping suppliers to improve HR and pay systems
Enable social dialogue, freedom of association & collective bargaining
To help empower workers to voice their needs and negotiate better pay, an enabling environment that supports freedom of association and collective bargaining is key. Your company might need to collaborate with other companies and organizations to bring the desired change at sector or regional level. Your company could engage in partnerships or initiatives that:
- Request that suppliers support social dialogue for wage negotiations by making it a prerequisite of doing business
- Wherever possible, support training of workers on freedom of association, social dialogue, transparent payment systems and collective bargaining agreements
- Support processes for collective bargaining agreements
- Encourage suppliers to establish grievance mechanisms for workers
- Facilitate representation of workers by unions
- Strengthen network of unions for stronger bargaining power
Improve working conditions
Wages are closely linked to working conditions. While working towards living wages can be mid-term to long term process, complementary actions can be taken to improve working conditions in parallel to activities that create the enabling environment toward living wages. Your company may consider exploring the following areas with suppliers:
- Protective equipment
- Capacity building on health and safety measures
- Housing and transport programmes
- Nutrition programmes
- Gender dynamics
To determine which supply chain interventions will be most impactful to support farmer partners and therefore provide the most return on investment, your company will need to conduct a needs assessment in sourcing areas. Your company may consider the following steps:
- Identify current barriers to farmer facing in production that can be helped through a supply chain intervention
- Engage with the exporting companies wherever relevant
- Design corresponding solutions that address root causes
- Understand how partners can help implementation and determine potential role
- Prioritize action based on needs, potential for progress and company’s roadmap
SPECIFIC INTERVENTIONS TO INCREASE FARMER’S INCOMES
It is possible to a degree to raise farmer incomes through selected interventions. Your company will choose interventions based on the needs assessment, identifying the interventions that seem most applicable to address current barriers. The following interventions have shown to increase farmers’ income the most.
Support access to finance
- Promote financial literacy
- Support farmer business schools
- Promote savings-led groups
- Facilitate access to formal financial services
- Provide direct (micro-)credit
- Buy crop/weather insurance
Support access to market
- Ensure transparent price and quality information
- Adjust payment terms and contracts to prevent side selling
- Provide necessary training and services that help farmers meet your company specifications
Provide access to inputs
- Companies provide inputs to the farmers at no cost or at subsidized rates before the planting season. After the harvest, these costs are deducted in proportion to the sale price.
- Companies provide information and training on the appropriate use of inputs.
Strengthen producer collectives
- Trainings on internal management, operations and financial management
- Tailored services based on farmer needs
Provide technical assistance
- Farmers field school
- Farms development plans
- Promote crop diversification
- Promote climate change adaptation practices
- Post-harvest loss prevention
Implement poverty reduction programmes
- Housing program
- Nutrition program
ENGAGE IN INDUSTRY & LANDSCAPE INITIATIVES
Consider either joining, or at least supporting, these initiatives to catalyse change at sectoral level and learn about and share best practices.
Identify an organization or initiative that is addressing issues that frame governance in your priority commodity or in your sector, either at a national or global level.
Your economic sustainability strategy relates to the environmental and social policies of the area you are sourcing from. You may want to consider lending support and financial resources to initiatives that contribute to well-managed landscapes and improved incomes for producers and/or wages for workers in the sourcing areas. These initiatives support a combination of specific actions described above such as technical assistance, access to market, and access to finance, amongst others. These initiatives lead to sustainable intensification and diversification and may increase incomes as well as support collective bargaining, training, and social dialogue to create an enabling environment for living wages.
Do you want to know more about living income and living wages?
- Global Living Wage Coalition
- Living Income Community of Practice
- Living Wage Lab
- Rainforest Alliance
- Fairtrade International
- Ethical Trade Initiative
- Fair Labour Association
- Sustainable Food Lab
- WageIndicator Foundation
- Living Wage Foundation
- True Price
Take action resources
- The Living Income Community of practice & BMZ (2020). Guiding steps towards living income in the supply chain - How to mainstream living income in your company’s activities.
- Farmer Income Lab (2018). What works to increase smallholder farmers’ income? A landscape review
- Farmer Income Lab (2019). Boosting farmer income: further insights from great cases
- Oxfam (2014). Steps towards a living wage in global supply chains
- Ethical Trade Partnership | Base code guidance: living wage Step by step guide on taking action towards living wages
- Ethical Trade Partnership | Living Wages in Global Supply Chains: a new agenda for business To help companies understand the wider wages landscape and their position and leverage within that landscape