amp LIVING WAGES the most important conversation in Fair Trade today Introduction DEFINITIONS Background WHY this working group It s a scary journey with lots of potholes ID: 917807
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Slide1
FAIR PRICES, FAIR WAGES
& LIVING WAGES:
the most important conversation
in Fair Trade today…
Slide2Introduction
- DEFINITIONS
- Background : WHY this working group
- It
’
s a scary journey with lots of ‘potholes’…Living Wage Calculators - DAWS & SA8000 : Frans Papma- other (unsuitable) Living Wage Calculators : Verena AlbertMitigating the IMPACT of Living Wages : Rain MorganBeyond this working group…Conclusion
Slide3DEFINITIONS
A
FAIR PRICE is one that has been negotiated through dialogue and transparent price setting, which includes: an analysis of production and trade costs, a
fair wage
and provides a fair profit.
A FAIR WAGE represents an equitable, negotiated share of the value chain of the product and presumes the payment of a least a living wage.A LIVING WAGE is the remuneration received for standard working hours (without overtime), which is sufficient to meet the basic needs of an individual and his/her dependents, and allow for some savings and/or discretionary expenditure. Elements of a decent standard of living include food, water, housing, education, health care, transport, clothing and other essential needs, including provision for discretionary expenditure.Fair Price
Fair Wage
Living Wage
Slide4WHY this Working Group?
Why have this conversation at all?
To arrive at a FAIR PRICE, we need to define a FAIR WAGE, and to define a FAIR WAGE, we need to define a LIVING WAGE…and this is where the problem lies.
Consumers and customers EXPECT transparency and accountability – and they EXPECT that Fair Traders are paying at least a
Living Wage
.
Slide5Living Wages
as a fundamental principle in fair trading is not NEW – people have been talking about it for more than 20 years…
Fair Trade is
ONE
voice in the
GLOBAL conversation: Academics, Formal Business, BIG business, small business, governments, the alternative economic bodies (sharing economy, impact investors, bio-based economy, etc).… not if we expect to be taken seriously as ‘the’ voice of Fair Trade.The trend in the conversations of the conscience economists is towards more transparency, more accountability : a direct line in real numbers between the producers and the consumers – “wage rich prices”; “true cost pricing”The GOOD
news: it is creating MOMENTUM
and broad based awareness… The BAD news is that we cannot afford NOT
to join the conversation.
Slide6The ‘Elephant in the Room’…
In ALL the discussions with members, interviews and workshops,
ONE factor prevailed: EVERYONE fears the implications of implementing Living Wages.
“Fear is the enemy of the process, and the challenge is going to be to manage the fears and work it into the process…”
The
FOCUS of the fear is MONEY and TRADE : all the ultimate demons of fair trading are here – some of the most difficult conversations between producers and buyers lie ahead…
Slide7Producers fear they will have to bear the brunt
of the increases in wages, – while agencies up the chain assume token shares of the burden and make bigger profits in the process.
Not all the business producers do, is Fair Trade business…
(for most producers it is only PART of their business) The conventional market is getting more competitive, more cut-throat, more ruthless. Will some producers be forced into two-tier wage systems - one for Fair Trade and one for conventional trade?
Buyers fear an increase in prices
in an already hyper-competitive market and a sluggish economy…Buyers fear the press, and social media (who are looking for proof that fair trade – as most consumers understand it – is not ‘fair’).Buyers fear criticism of their peers and their customers : everyone wants real numbers, real transparency, evidence of real impact and PROOF of fairness.
Most producers have no idea how big the
GAP
is – and they’re almost too afraid to find out…
Producers fear
WORKERS
will – once they know what the living wage is – demand immediate increases… (also
labour
unrest, disruption in production
etc
)
Slide8#1 PRIORITY = GUARDING WFTO’S FAIR TRADING REPUTATION
(we are WFTO – we are
the guardians…)
The biggest mistake WFTO can make, is to do nothing : our critics, fair trading peers and competitors are watching with interest…
WARNING
: POTHOLES!If we cannot PROVE we’re paying Living Wages, we cannot claim to be paying Fair Wages and Fair Prices…Danger is: making promises we cannot possibly keep.
We need a
well communicated, credible, clearly defined strategy on a realistic time-line
: no one expects results tomorrow – but if in 5 years from now, we are still talking…
Slide92015
2016
2017
2019
2018
2020
ALL MEMBERS
COMPLIANT
Pilot with 15 members:
3 per Region
4 year IMPLEMENTATION period
ASSESSMENT POINT – are we on course?
FPFW Pilot
Working Group
FPFW IMPLEMENTATION
Working Grou
p
Beyond this working group…
Identify members & liaise with support agencies.
Test the Living Wage Calculators : DAWS or SA8000 and a custom Fair Price Calculator.
Construct a BASIC gap analysis and bridging plan (including strategies to mitigate impact of Living Wages).
Report findings to WFTO Board and advise if 4 year implementation is appropriate.
FPFW WATCH SQUAD: Monitor activity of & engage broader Fair Trade community ;
liaise with Working Groups & advise board…
Slide10Living Wages calculation systems:
N
ote: Its
important to distinguish between
Living Wage
calculators and Price calculators !Calculate the Living Wage:Method: calculate the daily cost of food for an adult, and multiply with a number to cover non-food costs and family size.Use a food basket, with at least 2300 Kcal per day.
Slide11Calculate food costs for 1 adult
:Find food
basketFind
Kcal per gram for every food
item
Find the price per kilo of every food itemFill that in in the formAdjusted automatically for 2300 Kcal per dayNow we have the daily cost of food for 1 adult
Slide12Convert this to the need of an average family (family size and non-food items
)
Find
Minimum Wage
The table compares Minimum Wage and Living Wage
Calculate the price of your products with LW included. SAI
DAWS
Find average family size
example: 4
Find country classification
Low Income (4,3)
Middle Income (5,0)
Find ratio food/non-food costs
example: 45% / 55%
Now we
have LW
Slide13Living wage calculators we considered but
rejected…
Asia Floor Wage Alliance:
Central demand: call
for a Living Wage
led to “Asia Floor Wage calculation” for garment workers across Asia. Based on cost of food basket → benchmark based on common purchasing powerPros: Benchmarks are agreed in consultation with workers + wages are very high and therefore beneficial for the workersCons: Wage
levels of AFW
very high and exceed existing wages many times over →
often not feasible!AFW calculation
cannot be simply applied to other regions e.g. Africa
Slide14Wage Ladder:
“JO-IN project”
invented “Wages Ladder tool” → shows actual wages against any number of benchmarks (e.g. poverty line, minimum
wage), usually
found within
companies.→ Allows comparison of wages + demonstrates wage trends over time, BUT: not a tool to calculate appropriate Living WagesFair Wage calculator:Its an online costing and pricing tool → comparison of wages or piece rates with existing benchmarks (Minimum Wage, Poverty Lines etc.).Good World Solutions adopted “Minimum Wage + 10%” as a benchmark for a Living
Wage
→ Calculation tool only gives information about the proportion of
the payment to existing benchmarks, BUT: no information/calculation about a Living Wage
→ “Minimum Wage + 10%” as Living Wage
is not appropriate as it is too low
Slide15Global Living Wage (
WageIndicator):
WageIndicator introduced a concept of a globally comparable living
wage.
The
Living Wage calculation includes: cost of food + housing + transportation; 20 % margin → bases on data from WageIndicator “Cost of Living Surveys”. → LW calculations base (more or less) on the same data as SA8000 and DAWS, BUT: as the tool is quite new it is important to evaluate firstApproach from Fairtrade
International, SAI, RA, UTZ etc.:
Living wage working group: goal
→ work on the methodology, promotion and implementation of a living wage for workers. Implementation of 4 pilots – focus on agricultural products.
The Living Wage calculation includes: cost of food +
rent/housing + other expenses + margin → family
size and number of full-time workers needs to be considered→ Great
for large agriculture BUT: less appropriate for rural handicraft, and small,
peri-urban groups.
Slide16Mitigating the IMPACT of Living Wages…
# 1 FEAR
is that implementing Living Wages at
producer
level will have a catastrophic effect on the selling price and make products unviable in the market.
The only solution is a
‘whole chain’
approach over a number of years – if the chain is a Fair Trade chain, it should not be too hard… If the chain is a conventional market chain, the ‘value propositions’ for the agencies will have to be real and very clear.
It might be time to start thinking of ‘profit’ – not in terms of ‘margins’
- but in terms of earnings, value created, benefits to people, planet and global prosperity…
Slide17Slide18Slide19Slide20WORKERS
PRODUCER
ORGANISATIONS
AGENTS
TRANSPORT & TAXES (NON-NEGOTIABLES)IMPORTERRETAILERCONSUMERCURRENT SCENARIOWAGES HALF OF LW
RETAIL PRICE
YEAR 1
20%
ALL (EXCEPT TAXES AND TRANSPORT) SACRIFICE 0,5% MARGIN : ONLY RETAIL LOSES 1c ON $6,17 – REAL EARNINGS FOR EVERYONE ELSE STAYS SAME. EXTRA COMES FROM INCREASED EFFICIENCIES.
+1%
YEAR 2
17%
ALL AGENCIES ‘SACRIFICE’ 3c PER YEAR : IN REAL TERMS ONLY MARGIN IS SACRIFICED – EARNING STAY THE SAME.
+2%
YEAR 3
14%
+2%
YEAR 4
12,5%
+2%
YEAR 5
9%
+2%
OVERALL IMPACT
LW ACHIEVED: WAGES DOUBLED!
MOST
MARGIN SACRIFICED BUT REAL EARNINGS
INCREASEDNO LOSS OF REVENUE – ONLY MARGIN
REAL ‘LOSS’ =
1c on $6,17
in YEAR 1LESS THAN
10%
I
NCREASE IN 5
YEARS.
Slide21L
iving Wages were achieved in 5 years… and that’s not all:
Consumer paid less than 10% more – it wasn’t a ‘blind’ increase: they knew why – and campaigns built awareness and goodwill.
SPIN-OFF ADVANTAGES: Increased awareness of
WFTO
label – differentiator in market; momentum of campaigns increased sales; negotiations and collaborative efforts strengthened relationships.Take your ‘bottom line’ to the board – not your margins – and include the ‘people profits’… Be open, be honest and involve all the ‘agencies’ : it’s an on-going, circular conversation, not a once off, ‘up and down’ conversation.
Responsibility of the Workers and Producer
Organisations
:ALL need to commit to maintaining and improving efficiencies – waste at producer level ‘costs’ up the chain.ACTIVELY participate in campaigns and social media : awareness raising needs to happen at all levels and all the time – a groundswell of conversations are needed.
Slide22WFTO HAS TO BE
SEEN
TO ENGAGE FAIR PRICES, FAIR WAGES AND LIVING WAGES
IN A MEANINGFUL WAY:
W
e have no choice – our Fair Trading credentials are on the line…We don’t have to be perfect IMMEDIATELY – but we have to have a PUBLIC plan – a carefully considered strategy to achieve what we’ve promised: Without Living Wages, we cannot claim we’re paying
Fair Prices and Fair Wages.