GROWING PAINS

UK supermarkets scour the world for the cheapest produce – claiming they must to offer the best prices. Yet consumer and City concerns over Third World exploitation is forcing supermarkets to study ethical trading. But are they simply going th

Consider your average breakfast. Cereal, tea or coffee, and maybe some fruit. When you pay 1.42 for a pound of grapes, no more than 2.5p is shared between the pickers; the 1.75 jar of coffee gives the coffee farmer 30p – for all his labour, input and overheads – and for only three months of the year; and only seven per cent of the cost of a pot of tea is allocated to plantation workers’ wages.

Thirty per cent of the cost of that pot of tea is the supermarket mark-up, as is 53p from the jar of coffee and 47p from the pound of grapes. These figures from Christian Aid highlight an imbalance between supplier and retailer which the charity argues is growing.

The charity’s spokesman Andrew Simms says the imbalance allows supermarkets to scour the world to find the best deal. “When you have the ability to take your business wherever you want, you are in a position to strike a very hard deal,” says Simms. It can also lead to supermarkets dictating the size and type of food produced in Third World countries.

The top supermarkets make profits of between 1m and 2m a day. The top ten UK supermarkets, with 4,621 stores between them, have an annual turnover equal to the income of the poorest 35 Third World countries. Or put another way, it would take an average fruit farm worker in South Africa or pineapple grower in the Dominican Republic 15 centuries to earn the annual 1.2m salary of Tesco’s chief executive, Lord MacLaurin.

Simms argues these figures undermine the supermarkets’ claim that consumers would have to pick up the bill for ethical choices. There is evidence, with the launch of the likes of Cafédirect, that consumers will pay a slight premium if they believe the company is operating ethically. He says the supermarkets could reduce their mark-ups to alter the imbalance even without that premium.

But it is not just a moral issue or a question of companies being charitable. Increasingly, it is a question of good business practice to develop fair trading relationships. The Labour Party has recently entered the fray with a pre-election charter for ethics. In reality it is a broad, unspecific, call for better practice but it provides further evidence that ethical trading is a growing issue.

“The call is not for boycotts but for ethical purchasing which guarantees decent employment and environmental conditions,” said Labour’s shadow minister for overseas development Clare Short, at last month’s launch. “Consumers are becoming aware that they have the power to change things for the better. Business realises that it is not just morally right to introduce ethics into company practice but that it makes good economic sense.”

It is also becoming an issue in the City. With fund managers identifying ethical trading as a growing issue when deciding whether to invest in companies.

“There are 30 main ethical funds,” says a spokeswoman for the Ethical Investment Research Service, “not all try to encourage companies to look at their supply chains. But ethical trading is an area of growing concern because people are more aware of exploitation and have seen the likes of Cafédirect and Traid Craft. They are calling on companies to be more aware of how important ethical trading is to the City fund managers.”

It is a view echoed by a string of other fund managers.

The same breakdown of costs could be made for some of the clothes you wear and many of your household items. The sportswear industry came under fire three years ago when it was revealed that all the big brand sports shoe manufacturers – Adidas, Hi-Tec, Nike, Puma and Reebok – were paying labourers in developing world factories a fraction of the retail price of a pair of shoes.

Christian Aid highlighted the issue in 1995 by showing that 40 factory workers in the Philippines, making a typical pair of 50 sports shoes, would share just over 1 between them.

The globalisation and liberalisation of markets has allowed governments to relinquish some of their responsibilities, particularly with regard to overseas aid, leaving it to the whim of the market. According to Oxfam, official development aid has fallen to its lowest level in the past 25 years, as private capital floods in.

And while private investment opportunities have increased in developing countries, those desperate for investment and foreign currency will bend over backwards to give multinationals a good deal.

Some observers argue that in such an environment, ethical trading makes eminent sense even if it only serves to remove potential negative PR. “Retailers do not want to be accused of ripping people off on, for instance, a tea plantation – it could have adverse repercussions in the UK; so there is a defensive argument for cleaning up their trading relationships with the Third World,” says one aid source. “They need to eliminate the negative potential of being seen as Third World exploiters. And then perhaps go beyond that position. Ethical trading could offer a competitive advantage for the retailers.”

The issue of ethical trading emerged in the late Eighties, driven by revelations about poor working conditions in factories and plantations in the developing world. It has prompted supermarkets to initiate audits of their supply and production lines and all the major chains have made public statements about their commitment to ethical trading.

Last month, Tesco set up a team of ethical advisers to help monitor the goods it sells in its stores. However, this 70-strong team consists of an existing group of technologists whose previous remit was to investigate the farming and production of Tesco products. Their remit has now been extended to investigate both Tesco’s ethical trading policy, which is currently under development, and its implementation. A spokesman from Tesco denies that the fanfare surrounding the announcement of this special team had more to do with clever public relations than an ethical commitment.

“Ethics is a big issue at Tesco. There has to be a realistic code which is practical and enforceable. And this is what this group will be looking at,” says the spokesman.

However, only Sainsbury’s and the Co-op have signed up to participate in a project with the Fair Trade Foundation, a consortium of development agencies, to investigate the mechanics of implementing independent auditing procedures to meet international trading standards.

The standards, set by non-government organisations (NGOs) and local labour groups, include: a minimum number of hours to be worked; an agreement to negotiate with independent worker organisations; and an agreement to honour, or better, any locally agreed minimum wage. But it has no power to enforce its standards. All of the retailers could have committed to this project but only Sainsbury’s and the Co-op have.

Tesco denies that it is less committed to setting ethical standards by not taking part in the Fair Trade Foundation pilot study which will report at the end of the month. “We are working very closely with Christian Aid, and have been since last November. It is through organisations like Christian Aid that we have been able to move forward on this issue,” says the spokesman.

Fair Trade Foundation director Phil Wells says the current supermarket initiatives to audit production processes will only work if the auditing is independent and open to outside scrutiny. Commenting on Tesco’s announcement, Christian Aid’s Simms says: “I would like to know whether this means that Tesco’s existing technologists are simply going to get a bit more training or is it a whole new initiative?”

It is hard to calculate exactly what the supermarkets’ commitment to ethical trading is. Safeway would not go beyond a broad statement of intent: “We are involved in a positive engagement with our suppliers and at the moment are focusing on selected product areas such as produce, toys and clothing in order to monitor current working conditions that are applicable to ethical purchasing practices.”

Sainsbury’s would say no more than it did when announcing its involvement in the Fair Trade Foundation auditing scheme last May. “Ethical trading has always been an integral part of our business practice and we are committed to ensuring that our suppliers have comparable standards to ourselves,” said Sainsbury’s deputy chief executive Dino Adriano ten months ago.

One source believes that there is an “institutional struggle” within supermarkets over ethical trading. “There is a conflict between strongly established middle managers and senior managers. The middle managers want to support ethical trading but senior managers are more concerned about the wider implications.

“They want to know what the impact on the bottom line and share price is. It is difficult for any purely commercial organisation to work out the cost impact on having all product lines checked,” he says.

All of this hard bargaining is done in the name of the consumer – to provide those every-day low prices all year round. But the bottom line is that it is the shareholders who are the winners and as consumers learn what is being done in their name, they are beginning to object.

A recent BBC Modern Times documentary focused on the relationship between Tesco and one of its major suppliers of mangetout in Zimbabwe. Apart from revealing that out of a 99p pack of mangetout, the pickers get less than 1p, it also had the Zimbabwean crop supervisor stating that “Tesco is king”. He was wrong – the consumer is king and in the emerging world of ethical trading, it will be consumers who force the changes.

Simms says he has been getting feedback from consumers who believe “supermarkets are taking the consumer’s name in vain”. “The whole idea that consumers demand their fresh produce to be a certain shape and colour is just not true,” he says.

The chains’ creation of ethical advisory groups could be seen as an attempt to pre-empt any consumer action. So far, there hasn’t been any direct comsumer action, although there are some who argue that there is a subtle shift going on in consumer attitudes as they receive more information.

The collapse of the international coffee agreement in 1989 prompted the launch of Cafédirect in 1991, now one of the front runners in ethical consumerism. A non-profit joint venture involving the co-op Equal Exchange, Oxfam Trading, Traid craft and Twin Trading, Cafédirect buys directly from small co-operatives in Latin and central America and Africa. Significantly it now holds an estimated three per cent of the UK fresh ground coffee market and more than two per cent of the freeze-dried despite very little marketing spend.

Cafédirect marketing director Humphrey Pring believes that cutting out the middlemen, known locally at coyotes or pirañas, is key to the organisation’s success. And that educating consumers will open new ethical markets. Cafédirect guarantees an agreed trade price for the coffee beans – $1.26 a pound for Arabica and $1.06 for Robusta. This guaranteed purchase price means that Cafédirect has on occasions paid its suppliers more than twice the normal market rate. Although it denies distorting the local market.

If the international coffee price rises above this level, as it has at the moment, Cafédirect pays the market price, plus a ten per cent so-called “social premium” which the co-operatives then distribute as they see fit.

Cafédirect also provides pre-finance of up to 60 per cent of the value of any one contract and currently buys from 14 co-operatives. Because the co-operatives still have to deal in the world market (only between a quarter and a half of the trade these co-operatives do is with Cafédirect), Cafédirect also provides regular updates on world coffee prices.

But what does all this largesse mean for the consumer? The recommended retail price for a 227g jar of roast or ground Cafédirect is 2.09. A jar of Kenco costs 1.99. Cafédirect’s 100g freeze-dried product retails at 2.39; Nestlé Gold Blend sells for 2.19.

Own-label products are also central to the ethical debate. With pressure groups pushing for more transparency in the supply and production chain, own-label products cause particular difficulty because they are sourced from so many different places. And because own-label brands provide supermarkets with their competitive edge, they are extraordinarily secretive about the production of own-label foods.

Consumers may accept paying more money for one or two brands, but if retailers insist on maintaining their enormous profit margins and passing on the cost of ethical business practices to the consumer, shopping bills will see significant price hikes.

But if supermarket claims that consumers will have to pay begin to ring hollow, then consumers may start to shop elsewhere – especially if one of the chains takes a more definite ethical stand to distinguish itself from the crowd.

Supermarkets have pushed the idea of consumer power and, particularly, consumer choice. If mobilised, that consumer power may be used against them in the cause of ethical trading.

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