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					BUYING MATTERS
Consultation: Sourcing fairly from developing countries




                        February 2006


               www.responsible-purchasing.org
Introduction                                                   Purchasing and poverty: are they linked?
Purchasers are operating in an increasingly competitive        Millions of people in developing countries depend on
                                                                                                                              The Business Case for Responsible Purchasing
and challenging environment. Yet some recent trends in         international buyers for their livelihoods. Many companies
purchasing practice may inadvertently be threatening to        recognise the responsibility this gives them, and have
undermine the very stability and efficiency of suppliers’      taken steps to stop exploitative practices in their supply     i. Sustainable businesses need good long-term
businesses on which purchasers depend.                         chains. Some companies now have codes of practice for          suppliers
                                                               their suppliers.                                               A successful supply base is the foundation of a
Purchasing can have a huge impact on suppliers,
especially in developing countries. 1.2 billion people         Too often, though, their own purchasing can actually           successful company. Purchasers’ ability to deliver for
worldwide live on less than US$1 a day and most are            undermine their attempts to meet these standards, with         their company depends on the continued viability
dependent on agriculture for their survival. Others work       disastrous consequences for the poorest producers.             and efficiency of their suppliers. However some
in the manufacturing sector. The opportunity to sell to                                                                       purchasing practices may in fact be jeopardising
                                                               By contrast, if companies take specific steps to purchase in   those foundations by undermining suppliers’
international buyers is a lifeline for millions of people.
                                                               a responsible way, working conditions could be improved,       efficiency and capacity to provide for workers’
The need to secure a reliable supply of products at the        workers’ rights respected, small farmers’ rights to a          welfare. This can result in high worker turnover and
right quality, time and price without creating hidden          livelihood could be realised and environmental damage          lower productivity, which in turn can lead to poor
internal costs is a key driver for better purchasing.          and costs could be reduced.                                    quality products, delayed delivery and additional
Meanwhile reputational risk and the importance of                                                                             costs for the company itself. It also puts at risk the
                                                               Increasing concentration in the supply chain can weaken
not undermining the long-term business operating                                                                              long-term supply of quality products from the same
                                                               the negotiating power of the poorest suppliers. Nowhere
environment have prompted some purchasing companies                                                                           source in the future.
                                                               is this more critical than at the purchasing desk. The
to review their buying practices.
                                                               highly competitive nature of purchasing puts pressure          ii. Unfair sourcing increases reputational risk
But how can purchasers improve their buying, in ways           on both the buyer and the supplier, and it is frequently
that deliver for their businesses and for suppliers            farmers and workers who suffer most.                           Consumers are increasingly concerned about
overseas? Is such a win-win possible? Is it justified to                                                                      who has made their products and how they were
                                                               The pressures on buyers                                        produced. Even in shrinking markets, the Fair Trade
expect companies to buy responsibly?
                                                               Current purchasing practice includes three elements that       sector has grown by 40% per year in the UK and
This report seeks to answer these questions. It looks at the   can inadvertently work against product quality, suppliers’     20% per year in 18 other European countries.
realities of the buying desk and asks what ‘responsible        incomes and good labour practices:
purchasing’ might be. By drawing on four case studies                                                                         There is significant reputational risk to being
                                                                • The need to produce quickly.                                associated with a supplier with a poor human rights
– bananas, coffee, cotton & garments and tea – it
suggests ways in which companies could assess their own         • Flexibility to customer or business demand including        record. Customers are unlikely to differentiate
purchasing and make improvements. It also recognises              meeting peak seasonal orders.                               between the purchaser and the supplier – so
that companies cannot be expected to do everything, and                                                                       influential purchasers, such as Nike, may be held
                                                                • The continual search for lower prices and better deals.     accountable for the standards of their suppliers.
considers the role that governments could play.
                                                               The pressures on suppliers                                         ‘The Nike product has become synonymous
There are no quick answers to these questions, which
                                                               In responding to these pressures, buyers tend to pass risks          with slave wages, forced overtime and
is why this report is a consultation document. It is part
                                                               back to their suppliers. Buyer-driven supply chains impose                       arbitrary abuse.’
of a project being run by four European Fair Trade
                                                               their own private standards on suppliers. Speed and                           Phil Knight, CEO, Nike
organisations – Traidcraft (UK), Ideas (Spain), CTM
                                                               flexibility can make it impossible for suppliers to plan:
Altromercato (Italy) and Oxfam Wereldwinkels (Belgium)
– to raise debate on this crucial area and develop              • Few suppliers receive a deposit at the time of
guidance for businesses on how to buy responsibly.                ordering, and payment can be long after the retailer
                                                                  receives the goods. Other purchases may be made on
                                                                  ‘sale or return’ terms.
  Sourcing from a developing country?                           • Many suppliers, especially in the food industry, have
                                                                  no written contract with their purchaser and have to
  We would welcome your comments and
                                                                  rely on verbal agreements.
  advice on these draft guidelines.
                                                               Suppliers have to be flexible enough to cope with orders
                                                               being changed, cancelled, increased or decreased and
                                                               delivery dates being altered – sometimes at the last
                                                               minute.




P   Buying Matters                                                                                                                 Consultation: Sourcing fairly from developing countries   P
Cases studies: bananas, cotton & garments, coffee and tea
These case studies demonstrate how purchasing
in different supply chains can affect people in the
                                                            Bananas                                                                 Cotton & Garments                                      Coffee
developing world. They have been selected because           Supply chain characteristics: Short, direct supply chain                Supply chain characteristics: Long, difficult-to-      Supply chain characteristics: Long, difficult-to-trace supply chain.
they pose different challenges to the European buyer.       dominated by characteristics of handling a perishable                   trace supply chain.                                    Prices for actual coffee beans affected by futures trading in
While sourcing is different in each one, there are          product.                                                                Production context: Key sector for several             coffee.
generic principles that can help build a picture of what                                                                            developing countries’ economies. Provides
                                                            Production context: Many producer countries rely                                                                               Production context: Grown in more than 70 tropical countries,
‘responsible purchasing’ should be. There are, of course,                                                                           employment for millions of farmers in Africa
                                                            heavily on bananas for income. Approximately 80% of                                                                            providing employment for around 25 million small farmers, who
other factors in international trade with which both                                                                                alone. But most are unable to make a living
                                                            world exports are produced on large input intensive                                                                            often have few commercial alternatives.
suppliers and purchasers struggle.                                                                                                  due to oversupply, subsidies and dumping by
                                                            plantations in Latin America, West Africa and the
                                                                                                                                    developed countries.                                   Sector characteristics: Production is in oversupply. Mainly
Economic factors                                            Philippines. Less than 10% of world exports are
                                                                                                                                    Garments exports made up more than 50% total           consumed in developed countries. In 2000 the ten largest
 • Oversupply on the world market leading to low and        produced on small family farms and harvested by hand.
                                                                                                                                    export earnings for Cambodia, Bangladesh,              roasters processed 63% of the world’s coffee.
   unstable prices
                                                            Sector characteristics: A huge market – bananas are                     Dominican Republic and Sri Lanka in 2001. Cut-         Impact on developing countries: Prices have fallen to 30 year
 • Buying power concentrated in the hands of trading        the world’s most popular fruit. Five companies control                  make-trim stage of garment production is labour        lows. The farmers’ share of the retail value has reduced due to
   companies, retailers and brands                          86% of world trade. Some companies are vertically                       intensive. Supply base is mobile as investors          the increasing buying power of the roasters.
                                                            integrated. Role of supermarkets has increased
Social and environmental implications of supply                                                                                     (mainly from Asia) move to new low wage
                                                            significantly – for many producers, supermarkets have                                                                          Responsible purchasing practices can make a difference:
chain abuses                                                                                                                        economies with competitive locations.
                                                            become the only outlet.                                                                                                          - One roasting company is exploring the Rainforest Alliance
 • Unstable relationships between workers, producers                                                                                Sector characteristics: Globally € 800 billion spent         certification scheme. Another has launched a Fair Trade
   and purchasers                                           Impact on developing countries: Prices paid to workers,                 on clothes in 2000, of which one third were                  brand.
                                                            farmers and suppliers can vary enormously depending                     bought in Western Europeii. At the end of 1990s
 • Increasing poverty of small farmers
                                                            on the region and form of production.                                   70% of clothing sales in Western Europe were             - Roasters have joined the multi-stakeholder Common Code
 • Lack of freedom of association and right to collective                                                                                                                                        for the Coffee Community initiative which has produced a
                                                            Responsible purchasing practices can make a difference:                 through multiple retailers. Agents play a key role
   bargaining                                                                                                                                                                                    Common Code for the industryv
                                                            There are examples of companies paying toward the                       in sourcing garments for retailers and brands.
 • Poor employment conditions: excessive hours of work      cost of meeting social and environmental certification                  Impact on developing countries: Cotton farmers
   and irregular employment                                 of banana suppliers. This is done in recognition of the                 in West and Central Africa are struggling to
                                                            value they place on improved supplier performance and                                                                          Tea
 • Discrimination and sexual harassment against workers                                                                             survive. Majority of garment workers are women
                                                            reduction of reputational risk.                                         who rarely receive a living wage.                      Supply chain characteristics: Medium length, traceable supply
 • Lack of consultation over risks to employment and
                                                                                                                                                                                           chain.
   contracts                                                                                                                          “Buyers pressure factories to deliver quality
                                                                                                                                      products with ever shorter lead times. Most          Production context: China, India, Kenya, and Sri Lanka are major
 • Poor health and safety protection                                                                                                                                                       exporters – each produce more than 10% of the world’s tea.
                                                                                                                                    factories just don’t have the tools and expertise
                                                            The ‘Banana Split’ - how much of €1.50 retail value of loose                                                                   Tea plucking is labour intensive. In India tea is the second largest
 • Deforestation, decrease in biodiversity and                                                                                         to manage this effectively so they put the
                                                            Ecuadorian bananas stay with each chain actor to cover                                                                         employer, directly employing more than 1.2 million permanent
   impoverishment of soils                                                                                                            squeeze on the workers. It is the only margin
                                                            costs and margini.                                                                                                             workers.
                                                                                                                                                  they have to play with.”
 • Hazardous use of pesticides
                                                                                                                                             Rosey Hurst, Director of Impactt,             Sector characteristics: Oversupply – global demand growing at
 • Pollution of watercourses                                                                              Plantation                              Supply chain consultancyiii
                                                                                                          workers € 0.02
                                                                                                                                                                                           1% per year and supply at about 2%. Seven vertically integrated
                                                                                                                                    Responsible purchasing practices can make a            companies control 85% of tea production through their own
                                                                                                          Plantation
                                                                                                          owners € 0.15             difference:                                            factories and estates. In the UK, a key tea market, just over 90%
                                                                                                                                                                                           of retail tea sales by value goes through supermarkets.
                                                                                                                                    Twelve international brands are participating in
                                                                                                                                    a multi-stakeholder forum focused on the end           Impact on developing countries: The consumer price has
                                                                                                                                    of the Multi-Fibre Arrangement (MFA) and are           dropped by one fifth since 2002 to €1.92 in 2005 while prices to
                                                                                                           International
                                                                                                         trading company € 0.46     developing a plan to review purchasing practices.      suppliers have decreased by a greater proportion.
                                                                                                      (includes € 0.06 EU tariff)
                                                                                                                                         “Buying practices need to be reviewed,            Responsible purchasing practices can make a difference:
                                                                                              Ripener/Distributer € 0.26               collaboratively, to ensure that a fair price is     In recognition of the importance of the suppliers’ viability some
                                                                Retailer € 0.61
                                                                                                                                     paid for sourced products and to minimise the         tea blenders pay a premium or operate a minimum tea price to
                                                                                                                                      detrimental impact on suppliers, specifically        ensure tea supplies to their specificationvi.
                                                                                                                                          from unrealistic delivery schedules.”
                                                                                                                                      Bangladesh national MFA Forum conference
                                                                                                                                                        action pointiv




P   Buying Matters                                                                                                                                                                                         Consultation: Sourcing fairly from developing countries   P
What does sourcing responsibly mean?                                                                                                      What could buyers do?
Perspectives on responsible purchasing in                       What do suppliers and workers say?                                        Six steps to more responsible sourcing                          Step 5. Collect data and set benchmarks which
international supply chains                                                                                                               It is not easy for purchasers to ensure that they have a fair   can encourage steady improvement in purchasing
Purchasers operate in the constantly changing                                                        What do purchasers say?              and positive impact on people overseas who supply their         performance. Social audits of suppliers can be unhelpful if
environment of supply and demand, and are usually one                                                                                     products. There are no quick fix solutions or easy answers.     companies are tempted to withdraw from a supplier who
                                                                  long-term, stable and progressive
part of a longer supply chain. They can help or hinder                                                                                    However, purchasers as ‘purse holders’ do have some             fails to comply with changes requested. They can drive
                                                                            relationships
the achievement of social and environmental standards                                                                                     power and the opportunity to support or undermine               dishonesty as suppliers may be tempted to provide the
                                                                                                        not knowingly trading
in the supply chain but they are not solely responsible.                                                                                  good working conditions at production sites.                    ‘right’ answers rather than risk being dropped.
                                                                                                unsustainably with our suppliers, as
Their importance, though, is beyond question. Through                                          their continued success is vital to our                                                                    Feedback from suppliers – without the fear of retribution
                                                                                                                                          The purpose of this consultation is to help buyers and
extensive consultation we have gathered together                                                     business and our ability to                                                                          – about the impact of purchasing and supply management
                                                                                                                                          governments engage with the process and to foster
different perspectives on what is meant by responsible                                                       offer quality                                                                                would provide useful information to companies and help
                                                                    direct relationships between                                          constructive and coherent debate. Change will not
purchasing. See opposite for a sample.                                                                                                                                                                    buyers improve. Collecting information that highlights
                                                                  the decision maker (initiating the                                      happen overnight but progress is possible.
This suggests that responsible purchasing should enable                order) and the supplier                                                                                                            ‘supplier distress’ might indicate particularly damaging
                                                                                                                                          This report proposes a number of steps for buyers and
positive change at the supplier level so that all parts of                                            straightforward answers                                                                             buying practices.
                                                                                                  by the supplier to queries about
                                                                                                                                          companies to consider, through which they could improve
the supply chain benefit. It requires a trusting, direct                                                                                                                                                  Step 6. Assess and reward buyers’ and suppliers’
                                                                                                  production ability and capacity         their own purchasing practices and make a difference to
and honest relationship where both parties are able to                                                                                                                                                    performance on responsible purchasing.
                                                                                                                                          the lives of workers, farmers and their families.
negotiate and share risks equally, and a purchaser who
                                                                clear, honest communication (e.g. on
is committed to support human rights within the supply                                                                                    Step 1. Understand existing legislation The first
                                                                 terms and conditions) and feedback
base.                                                                                                                                     step should be for purchasers to ensure that their                Case study: Milk and Marks & Spencer (M&S)ix
                                                                                                   the impact of purchasing               sourcing is in line with national laws and international
                                                                                             should be positive to all involved in        agreements (such as the fundamental International                 Despite being paid a good price for milk, Marks and
                                                                                              the supply chain. It should result in                                                                         Spencers’ farmers told them they needed consistent
  Case study: Making changes to Gap Inc’s sourcing        vii                                                                             Labour Organisation (ILO) conventions and international
                                                                                                commercial success all the way
                                                                                                                                          environmental protocols). This is not easy, which is why          payments to allow them to plan and budget for the
  Gap Inc has been taking a number of steps                                                           through the chain.
                                                                    timely communication (late                                            various voluntary initiatives have been established. These        future. The market price for milk fluctuates. Working
  to address its impact on workers in response to public                                                                                                                                                    with their dairy farmers and milk suppliers a ‘long
                                                                decisions put undue pressure on the                                       emphasise progress towards better conditions rather than
  pressure. The company examined its overall supply                                                                                                                                                         term stable pricing model’ was developed which
                                                                              supplier)                                                   ensuring superficial tick-box compliance.
  chain and learnt that some of its purchasing decisions                                                                                                                                                    took into account the fluctuating cost of production
                                                                                                           finding a price
  were not only affecting working conditions but also                                              which both buyer and seller are                                                                          by using published benchmarks on, for example,
  causing problems with quality, on-time delivery and                                                        happy with
                                                                                                                                            Fundamental ILO Conventionsviii
                                                                                                                                                                                                            feed price. The pricing model also incorporated
  cost. Internal research also showed that whilst buyers                    decent wages                                                      • Freedom of association
                                                                                                                                                                                                            a premium to reward farmers for meeting M&S
  are not always aware of the impact of their decisions,          and payments: a price that covers
                                                                                                                                              • Abolition of forced labour                                  hygiene and non-gm feed standards. M&S’ suppliers
  they do not want to be having a negative impact.                  the cost of production with a
                                                                            profit margin
                                                                                                                                                                                                            now get a stable price for 6 months at a time.
                                                                                                                                              • Equality
  Further steps being considered include:                                                                      paying                                                                                       Supplier feedback has been positive: they are now
     • training for staff                                                                               rates which meet local                • Elimination of Child Labour                                 able to plan more effectively for the future which in
                                                                                                               minima                                                                                       turn is good for M&S’ business.
     • involving suppliers earlier, improving adherence
                                                                       payment according to
       to a production calendar and redesigning                  agreed terms and conditions – and                                        Step 2. Establish a senior management champion to
       production processes                                             preferably promptly                                               review purchasing practices and develop a business case.
     • incentivising suppliers to improve standards                                                                                       Step 3. Develop company policies Develop a clear and
                                                                                                 to deliver a value for money product
     • encouraging feedback from suppliers (using an                                                                                      agreed set of policies including a commitment to the
                                                                                                            to my customers
       external party)                                                                                                                    promotion of human rights in the supply chain and on key
                                                                               respect
                                                                                                                                          aspects of the treatment of suppliers e.g. a commitment
     • building up a business case for change and                      of international labour
                                                                                                                                          to written agreements, exchanging information on
                                                                                rights
       engaging the CEO.                                                                                                                  market trends, visiting production sites.
                                                                                                         obtaining products
  In particular Gap have stressed that reviewing their                                        and services at the best value for money    Step 4. Train buyers to understand the impact of their
  purchasing practices will favour and not hinder                                              considering integrity and ethical issues
                                                                                                                                          purchasing decisions including how they might be
  creativity and success.                                                                                                                 supporting or undermining better conditions at the sites
                                                                           sharing of risks
                                                                                                                                          of production.




P    Buying Matters                                                                                                                                                                                              Consultation: Sourcing fairly from developing countries   P
Components and indicators of responsible purchasing
This table groups together some of the main aspects of responsible purchasing, the business case for each
element, the social issues addressed and suggested indicators to help guide buyers. It aims to provide a starting
point for discussion on responsible purchasing in diverse sectors.


 Elements of responsible purchasing                                The business case                                                Social concerns addressed                              Suggested indicators

 1. Good relationships with suppliers                              Stable mutually beneficial supplier relationships are not only   Increasing numbers of workers are on temporary         • Are there transparent criteria for selecting suppliers?
 Aim: Buyers aim for long-term, stable, trusting, and risk         essential to product delivery but can also bring continuous      contracts and investments (e.g. training or            • Percentage of first-tier supplier locations known.
 sharing relationships. Buyers assessed on loyalty between         improvement, efficiency, and new product innovation.             technology) are not made for fear that business
                                                                                                                                                                                           • Percentage of products bought in a fixed-term or ongoing
 them and their suppliers.                                         Frequent supplier turnover costs time and money.                 will stop after the current order. With ongoing
                                                                                                                                                                                             relationship compared with percentage of spot purchases.
                                                                                                                                    and more predictable relationships the local
                                                                                                                                    community will benefit from the ‘multiplier’ effect    • Differential in value purchased per supplier year on year.
                                                                                                                                    of supplier’s investments and reliable jobs created.   • Percentage annual turnover of first-tier suppliers (‘churn’).

 2. Clear, timely communications                                   Poor communication jeopardises the arrival of supplies           Suppliers and farmers are able to plan ahead if        • Percentage of suppliers issued with terms of trade explaining
 Aim: Suppliers know the terms of trade which govern               and product quality.                                             they receive feedback on their products and know         the buyer’s policy on ordering, poor quality products, promotions,
 the relationship, receive clear communications about the          Well-informed suppliers will feel valued by the company          how much they are likely to sell in future months.       and complaints.
 buyer’s expectations and are able to feedback on their            and invest in improving the relationship and product.                                                                   • Is there a complaints mechanism? What percentage of suppliers
 own needs in a two-way relationship.                                                                                                                                                        know about it?
                                                                                                                                                                                           • How many times per year is there two way exchange of information
                                                                                                                                                                                             with suppliers on all aspects of products including social or
                                                                                                                                                                                             environmental improvements at production sites?

 3. Sustainable prices and pricing                                 Cost pressures often lead to cutting corners in health and       Prices which cover the cost of production and          • Do you have a mechanism for suppliers and their employees and
 Aim: Prices paid should allow both supplier and buyer to          safety, and the use of exploitative management practices.        include a profit margin are vital to ensure that         sub-contractors to approach if costs are not sustainable?
 benefit from the relationship and should enable those             These practices at the supplier level can impact on product      workers and farmers and their families have              How does this work?
 further along the chain to also benefit from a price which        quality, and pose a reputational risk.                           enough money to cover their basic needs.               • In specific industries where raw material producers are known
 adequately covers their living costs or costs of production.                                                                       Higher margins enable social improvements.               to be vulnerable – what percentage of business is covered by
                                                                                                                                                                                             sustainable minimum pricing model (e.g. an exporting country’s
                                                                                                                                                                                             national minimum price or fair trade)?
                                                                                                                                                                                           • Percentage of supply base with collective bargaining agreement
                                                                                                                                                                                             in place covering wages.

 4. Clear lead-times and payments                                  Short lead-times pose risks to the quality of products, while    Short lead times and fluctuating orders terms          • Is the timing of payments set in written legal contracts?
 Aim: Suppliers should have clear, consistent and transparent      late payments can sometimes place a supplier’s whole             directly impact a supplier’s ability to provide        • Percentage of payments made at or before the time agreed.
 payment terms and a comprehensive order timetable                 business at risk, potentially jeopardising supply.               secure, regular employment and may result in
                                                                                                                                                                                           • Number of days between latest change in requirements and the
 including when final specification details for the order will                                                                      forced overtime.
                                                                                                                                                                                             shipping date.
 be placed and when delivery is expected.                                                                                           Unpredictable ‘off invoice costs’ of doing business
                                                                                                                                                                                           • How often is volume or price changed after placing order?
                                                                                                                                    with powerful companies and long payment terms
                                                                                                                                    can destabilise less highly capitalised producers,     • How much is volume or price changed per order?
                                                                                                                                    resulting in delayed payment.

 5. Respect for human rights in the supply chain                   Suppliers with improving social practices frequently have        The minimum international human rights                 • Percentage of suppliers who know about expected minimum
 Aim: Buyers and suppliers understand and work towards             high productivity, produce better quality, and pose a lower      standards are not met in most globalised supply          labour standards before engaging in business.
 minimum human rights standards. Buyers give preference            reputational risk.                                               chains. Buyers are encouraged to work with             • Are there systems in place to help suppliers to meet minimum
 to suppliers who demonstrate improving social and                                                                                  existing suppliers to improve conditions, rather         standards? Please describe.
 environmental conditions.                                                                                                          than end relationships, which damages workers.
                                                                                                                                                                                           • Percentage of company buyers trained to understand these
 Buyers manage their own practices to enable suppliers to                                                                                                                                    minimum standards and how their practices might impact on
 observe these standards.                                                                                                                                                                    suppliers’ ability to meet them.
                                                                                                                                                                                           • Is improvement of human rights in the supply chain included in
                                                                                                                                                                                             buyers’ job descriptions, incentives and reviews?

 6. Support for small scale producers and homeworkers              Valuable supply chain partners, such as smallholders and         Smallholders and homeworkers contribute vitally        • Is there a policy to acknowledge the role played by smallholders
 Aim: The percentage of products bought from smallholders,         homeworkers often work in labour intensive sectors and           to rural communities but are increasingly invisible      and homeworkers in supply chains?
 homeworkers, democratic co-operatives and disadvantaged           produce supplies to a higher quality standard, frequently        in global supply chains. Their position is becoming    • Are there systems to ensure that major procurement changes to
 areas does not unintentionally change.                            at lower unit costs. (E.g. West African cotton.)                 weaker as supply bases consolidate.                      products produced by smallholders and homeworkers require
                                                                                                                                                                                             management authorisation?
                                                                                                                                                                                           • Does the company have specific tools or mechanisms to help small
                                                                                                                                                                                             suppliers, farmers and homeworkers contribute to
                                                                                                                                                                                             the development of the supply chain? How does this work?




P   Buying Matters                                                                                                                                                                                             Consultation: Sourcing fairly from developing countries   P
What could governments do to help?
Companies and buyers cannot be held solely responsible         International Labour Organisation                             III More could be done: public policy proposals
for improving the impact of supply chains which                Most countries have signed and ratified the core ILO          being explored
source from developing countries. Governments have             conventions (see p7) but few implement them. Exporting
a significant role to play in shaping the public policy                                                                      Supply management – for sectors in oversupply
                                                               countries could be encouraged to raise awareness of ILO
environment in which businesses operate.                                                                                     With the collapse of commodity prices there is a growing
                                                               core conventions amongst workers and increase resources
                                                                                                                             rationale for the EU to investigate supply management
The respective responsibilities of companies and               for their labour departments.
                                                                                                                             agreements. Supply management agreements could
governments is a huge area of debate. This section             Reporting by companies                                        be developed market by market according to specific
suggests areas in which a stronger government role is          Some EU countries have made reporting on specified            technical or political conditions.
needed. As part of this initiative’s on-going consultation     social issues or key non-financial business issues
we aim to stimulate discussion rather than set out a                                                                         Corporate accountability
                                                               mandatory. This information helps governments, investors
definitive agenda.                                                                                                           At national and EU level there are initiatives to develop
                                                               and others to understand a company’s impact and future
                                                                                                                             regulation which would create a level playing field and
I Existing public policy instruments                           prospects.
                                                                                                                             make companies legally accountable for their impacts on
Competition rules                                              II What governments can do through                            human rights and the environment xiii.
Existing competition policies are designed to deal with        international institutions                                    Access to information
monopolies which damage consumers’ interests. They do          United Nations: human rights conventions                      Proposals are being developed to provide for more
not tackle excessive buyer power which can cause such                                                                        information on corporate affairs. They include statutory
                                                               The Universal Declaration of Human Rights was
                                                                                                           xi

damage to vulnerable producers overseas.                                                                                     access to more information for farmers and workers, and
                                                               developed more than 50 years ago. In 2003 the UN
Governments could extend the remit of competition              human rights subcommittee proposed a text specifying          a widening of the information available to the general
policy by:                                                     human rights norms that businesses should be required         public for example, on the traceability of a product.
                                                               to observexii. It seeks to guarantee rights in six areas:
  • investigating market concentration in particular                                                                         IV Other actions Governments could take
                                                               personal security; workers’ rights (including those
    supply chains
                                                               relating to forced labour, child labour, health and safety,   Use of aid disbursements
  • strengthening co-operation between competition             remuneration, and freedom of association); equal              The EU and its member states could ensure that their aid:
    authorities for action over global markets, perhaps        opportunity; respect for national sovereignty; consumer
                                                                                                                              • does not increase supplies of a commodity without
    eventually establishing a global authority                 protection; and environmental protection. This text and
                                                                                                                                considering the impact on other developing countries
  • being prepared to break up corporations where the          other approaches are currently being reviewed.
                                                                                                                                and the current supply – demand trends
    needs of competition require it                            World Trade Organisation (WTO)
                                                                                                                              • helps improve the bargaining position of workers and
Buyer power                                                    The WTO’s trade rules should be revised to create a better
                                                                                                                                farmers
There is a case for action at an EU level to level the power   balance between developed and developing countries in
                                                               international trade.                                           • assists small-scale producers to access markets for
imbalance caused when a few companies control a large
                                                                                                                                example by participating in official standards-setting
proportion of a product’s market share.                         • Agriculture
                                                                                                                                processes.
Some EU member state governments are already                      - Six African countries have submitted a proposal to
                                                                  the WTO for action on the commodity price crisis           Public Procurement in coherence with public policy
beginning to address the following issues in the
                                                                  referring to the earlier GATT agreement.                   commitments
supermarket sector:
                                                                  - Developed countries should reduce their subsidies on     EU member states could review their procurement of
  • below cost selling                                            their agricultural production.                             products originating in developing countries, in line with
  • predatory pricing                                             - Tariff regimes could be improved. For example,           the suggestions in this consultation document.
                                                                  banana tariffs could vary according to the different
  • unilateral changes in contract terms at short notice
                                                                  social or environmental standards of producers.
    (which can devastate small suppliers)
                                                                • The negotiations on Non Agricultural Market Access
  • ad-hoc discounts requested of suppliers
                                                                  cover products which are of concern to developing
  • removal of product (de-listing) at short notice               countries. Developing countries need to be allowed
                                                                  the domestic policy space to protect key sectors of
  • limiting acquisitions of smaller stores by large
                                                                  their economy including the right to maintain or raise
    supermarket groups
                                                                  tariffs.




P 10   Buying Matters                                                                                                               Consultation: Sourcing fairly from developing countries   P 11
Buying Matters

Purchasers are at the front end of business.                                            Please tell us what you think
The suppliers they source from are crucial to a company’s                               We welcome your feedback on any of the ideas and
success. Get your supply chains working well and you’re                                 suggestions in this report.
on the way to a profitable business. But in today’s
                                                                                        How to feedback:
competitive business environment and increasingly
globalised world, is it possible to source well from a                                  Email your thoughts and comments direct to
developing country? And what does this mean for the                                     responsible-purchasing@traidcraft.org.uk
people who grow or make the products?                                                   Complete and return the enclosed feedback form to:
This report is a contribution to the debate about how to                                Responsible Purchasing Initiative, Traidcraft Exchange
source responsibly. Drawing on case studies from four                                   Unit 306, 16 Baldwin’s Gardens, London EC1N 7RJ
sectors and real-life business examples it examines the                                 Fax: 020 7242 6173
pros and cons of purchasing fairly and sets out possible
                                                                                        Or to one of our partners, whose contact details are below.
guidelines for the way forward.
                                                                                        Or visit our website www.responsible-purchasing.org
As part of an ongoing initiative by four Fair Trade
                                                                                        to download a form to complete. Email this form to
companies we would welcome comments on this report
                                                                                        responsible-purchasing@traidcraft.org.uk or print and
and the ideas within it.
                                                                                        return to the address above.

                                                                                        You need not use this form if you prefer to present your
                                                                                        response in a different format.



References                                                                              Acknowledgements
i.      UK Food Group (2003) ‘Food, Inc’ Based on June 2003 figures
ii.     Euromonitor, cited in C. Pope Murray (2001) Salomon Smith Barney Equity         We have received help from businesses, investors and NGOs in
        Research, ‘Crossing the Pond: European Growth Strategies’
                                                                                        compiling this report. In particular we would like to thank the
iii.    Oxfam. (2004) ‘Trading Away Our Rights: Women in Global supply chains’ p51.
iv.     Action Report from Forum for the Future: Conference on an                                                                                   ˇ   ´
                                                                                        following: Indrajit Chatterjee; Rachel Crossley; Damir Dragicevic;
        Internationally Competitive Textile and Garment Industry in Bangladesh,
        June 2005 http://www.mfaforum.org                                               Rosey Hurst; Tom Lines; Hilary Murdoch; Louise Nichols; Liz Parker;
v.      http://www.sustainable-coffee.net/
                                                                                        Michael Pennant-Jones; Helen Turner and Bill Vorley.
vi.     SAUS Publications (1993) ‘Good Business: case studies in corporate social
        responsibility’
vii.    Ethical Trading Initiative (2005) ‘Bridging the gap between the commercial      Photo credits
        and ethical trade agendas: Pioneering approaches to purchasing practices’
                                                                                        Cover top left: Fairtrade Foundation
        www.ethicaltrade.org
                                                                                        Cover top right & page 2: Sean Sprague, Panos
viii.   http://www.ilo.org
                                                                                        Cover bottom left: Agrocel
ix.     Dairy Industry Newsletter, March 2005
                                                                                        Cover bottom right & page 10: Emmanuel Herman
x.      http://www.hrweb.org/legal/udhr.html
xi.     UN (2003) ‘United Nations Norms on the Responsibilities of Transnational
        Corporations and other business enterprises with Regard to Human
        Rights’http://www.unhchr.ch
xii.    http://www.corporate-responsibility.org




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