FAIR PRICES, FAIR WAGES - PowerPoint Presentation

Slide1

FAIR PRICES, FAIR WAGES

& 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’…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

DEFINITIONS

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

WHY 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

.

Living 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.

The ‘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…

Producers 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

)

#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…

2015

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…

Living 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.

Calculate 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

Convert 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

Living 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

Wage 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

Global 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.

Mitigating 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…

WORKERS

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.

L

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.

WFTO 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.