“The Global Business of Forced Labour”: Another Attack on Commodities

Summary: “The Global Business of Forced Labour” is a report written by Professor GenevieveLeBaron, at the University of Sheffield in the United Kingdom. The report is focused on the tea and cocoa industries of India and Ghana and provides extensive documentation of labor abuses in both industries. Dr. LeBaron reports that certification schemes are no guarantee of ethical sourcing practices.

The descriptions of labor abuses are undoubtedly accurate, and anyone with pragmatic experience in commodity industries knows that certification schemes are easily subverted. However, Dr. LeBaron confuses concomitant behavior with causation, she asserts that abuses are systemic rather than episodic, and she ignores the role of commodity industries as engines of economic development and improved living standards. While this report is focused on tea and cocoa, additional reports are likely, and cotton will surely be targeted.

“The Global Business of Forced Labour”: Another Attack on Commodity Industries

Wages paid to unskilled workers in agricultural industries are almost always lower than national average wages paid to all workers in any country. This is a fundamental reason why people move to cities. When governments intervene to set minimum wages and working conditions that are not matched by the value added in the work done by unskilled workers, the predictable result is that businesses evade, circumvent or ignore the minimum requirements, or they go bankrupt.

By the very nature of commodity industries, the value added by workers in agricultural value chains is often below the levels of productivity in service industries or industrial value chains. Agricultural value chains are characterized by large volumes and small margins, that is why they are called “commodities.” Small margins in agricultural industries create practical ceilings on wages and benefits that can be paid to workers. Consequently, there is always downward pressure on wages and benefits in such industries as real prices for commodities decline over time.

The Report

“The Global Business of Forced Labour” is a report written by Professor GenevieveLeBaron, at the University of Sheffield in the United Kingdom. The study was funded by the UK Economic and Social Research Council, a public body funded by the UK government. The report was published in 2018.

http://globalbusinessofforcedlabour.ac.uk

The report is essentially a 60-page attack on globalization, commodity industries and sustainability certification programs. This report focused on the cocoa industry in Ghana and the tea industry in India, but cotton could very well have been the subject of the study, and the results of a study involving cotton would probably not be much different than the results for cocoa and tea.

Dr. LeBaron and her research team conducted in-depth interviews with 120 workers. They surveyed over 1,000 tea and cocoa workers, and they interviewed over 100 business and government leaders.The cocoa industry of Ghana and the tea industry of India were chosen for study because the two countries share a colonial history with Great Britain and because British consumers purchase tea and cocoa.

Dr. LeBaron found that there is a “coherent pattern” of exploitation of farm workers in the tea and cocoa supply chains. She asserts that employers use forced labor to lower the costs of production by under-paying wages and under-providing mandated services for employees. Approximately half of all workers in the tea industry do not have access to potable water, and about one-fourth do not have access to toilets. Workers are sometimes charged for electricity and other services that they do not receive.

Employers also generate revenue by lending to workers at usurious interest rates, leading to situations of debt bondage. Between half and three-fifths of workers in the tea and cocoa industries have gone into debt or have no savings.

Employers also demand that employees perform unpaid work unrelated to the jobs for which they were hired, and about one-fourth of cocoa workers report having performed work for which they were not paid.

Further, workers have difficulty exiting exploitative employment situations because of the relative isolation of cocoa and tea farms.

In both industries, violence, threats, abuse and sexual violence can sometimes accompany economic exploitation.

Dr. LeBaron asserts, without providing evidence, that tea and chocolate companies are “highly profitable,” but wages paid to tea and cocoa workers in Ghana and India are less than one-third of the poverty line in each country as estimated by The World Bank. She implies that profits accrue to tea and coffee companies from systematic labor exploitation.

The report also found that ethical certification schemes, such as Fairtrade, Rainforest Alliance, Ethical Trade Partnership, Trustea, UTZ and KuapaKokoo are largely ineffective in combating labor abuses. Many producers do not know how the certification systems work, or employers routinely evade standards by complying with requirements for short periods each year during visits by certifiers, and then reverting to exploitative practices when the certifiers leave.

In the study, Dr. LeBaron counsels that labor exploitation is not the result of a few “bad actors” in violation of laws. Rather, she asserts that labor exploitation is embedded in the structure of commodity value chains. She says that forced labor is driven by the low prices received by producers relative to the “high profits” earned by brands and retailers, as well as by the “irresponsible purchasing practices” of the same brands and retailers.

The study concludes that government, industry and workers’ organizations should collaborate to create stronger regulatory initiatives that
1) ensure living wages,
2) create worker-driven corporate social responsibility (CSR) programs,
3) provide stronger enforcement of labor standards, and
4) redistribute value along the supply chain.

Implications for Cotton

The findings in the report are almost surely true: wages and benefits paid to unskilled workers in agriculture are low relative to wages paid in service and industrial value chains because productivity is low. If a sister report were compiled to gauge the degree of labor exploitation in cotton producing countries, the results would likely be similar to the findings in this report on the tea and cocoa industries.

The report references the International Labor Organization (ILO) to assert that as of 2016, there were at least 16 million people living in situations of forced labor in the private economy of the world. This is meant to represent an impressively large number. However, world employment is estimated at 3.3 billion, meaning that people living in situations of forced labor account for about 0.5% of world employment.

The study asserts that the tea sector in India provides employment for about 2 million people and is India’s largest private employer. (To put the tea industry in perspective, the cotton industry of India consists of about 7 million households, and when family labor, hired labor and employment in transportation and ginning are considered, the agricultural portion of the India cotton value chain employs about 50 million.)

The study repeatedly confuses revenue with profit and asserts repeatedly that “profits” in the tea industry are high or that “profits” are achieved through systematic exploitation of labor. However, there is no data in the report on industry profits, and the authors have no way of knowing whether tea and cocoa producers, brands and retailers are profitable or not.

A Cure Worse Than the Disease

The problem with the report by Dr. LeBaron is not that the findings are incorrect. Rather, the problem is that her recommendations to alleviate labor exploitation are utopian and could never be implemented.

It would be impossible to “ensure living wages” over the long run if worker productivity is less than the minimum-wage target. Employers will eventually go bankrupt. The creation of worker-led corporate social responsibility programs, and stronger enforcement of labor standards might be modestly helpful, but no matter how many programs you have or how vigorously standards are enforced, wages cannot stay above the value of tea or cocoa produced by workers for long.

Finally, the recommendation to “redistribute value along the supply chain” would result in Soviet-style economic distortions that would quickly result in industry collapse.Both Ghana and India have histories of flirting with Soviet-style command and control economies in the years immediately following independence, and the results were decades of economic stagnation.

Even if the recommendations could be implemented, the results would be more harmful to workers than labor exploitation itself.

The fundamental reason that wages and benefits paid in the cocoa and tea industries are less than mandated minimum levels is because deflated prices of tea and cocoa have fallen over the decades since1960, while productivity per worker has probably not changed at all. Tea and cocoa are harvested by hand, and workers can only account for a fixed number of kilograms on any given day. Therefore, if the prices of tea and cocoa are falling, and workers cannot compensate by harvesting more product each day, then wages per day or per kilogram harvested must also fall.

annualprices

In constant 2010 dollars, the value of a kilogram of tea has fallen from between $4 and $6 in the early 1960s, to about $2 today (World Bank Commodity Price Data (The Pink Sheet). Cocoa prices in 2010 dollars have fallen from between $2 and $4 per kg in the 1970s to about $2 today. (Cocoa prices rose sharply in the late 1970s because of an international buffer stock administered by the International Cocoa Organization (ICO). The buffer stock was initially successful in boosting international prices but then was undermined by non-participating producers. The buffer stock authority ended in 1989.)

As told in the report on page 16, India’s tea industry fell into crisis in the 1990s because of lower prices caused by the growth of new tea industries in other regions which reduced Indian exports. As a result of the crisis, Indian tea production declined, plantations closed, and living standards among tea workers fell.

Dr. LeBaron attributes these difficulties to the “pressures of economic globalization.” In this context, the term “globalization” seems to be used as a pejorative, without reference to the economic gains made by workers in other tea-producing countries.

Further, Dr. LeBaron seems to believe that there would be no impact on tea and cocoa consumption if “living wages” were achieved through the formation of CSR programs, stronger enforcement of labor standards and redistribution of earnings along the value chain. The world economy is highly competitive. Tea must compete with orange juice, coffee, milk, energy drinks, bottled water and soft drinks for market share among consumer purchases. Indian tea must compete with tea grown in Kenya, Vietnam, and elsewhere. Rising wages will result in higher prices for tea, which will inexorably result in reduced consumption. How will that benefit tea workers? Likewise, cocoa must compete against other forms of sweets, and cocoa from Ghana must compete with Cote d’Ivoire and other producers for market share. Rising wages would mean rising prices and lower consumption, which would translate into lower living standards among tea producers.

Conclusion

The report by Dr. LeBaron provides extensive documentation of labor abuses in two commodity industries, and she provides evidence (as if more evidence were needed) that certification schemes are no guarantee of ethical sourcing practices.

The descriptions of labor abuses by Dr. LeBaron are undoubtedly accurate, and anyone with pragmatic experience in commodity industries knows that certification schemes are easily subverted. However, Dr. LeBaron confuses concomitant behavior with causation, she asserts that abuses are systemic rather than episodic, and she ignores the role of commodity industries as engines of economic development and improved living standards. While this report is focused on tea and cocoa, additional reports are likely, and cotton will surely be targeted.

Production of Identity Cottons Rising

Summary: World cotton production is increasingly identified in marketing channels by the program or initiative under which it is produced. Therefore, these programs or initiatives are called identity programs. World production of the four major identity cottons (Better Cotton Initiative (BCI), Cotton made in Africa (CmiA), Organic and Fairtrade) is estimated at 3.4 million tons in 2016/17, 15% of the world total.

Production of Identity Cottons Rising

World cotton production is increasingly dis-aggregated by the marketing program or initiative under which it is produced. There are many programs to collect data, encourage improvements in production practices or assure consumers of responsible production practices; some of the programs are organized by producers in a particular country, some are sponsored by input suppliers, and some are multinational initiatives facilitated by the private sector and governments. Because cotton is increasingly identified in marketing channels by the program under which it was produced, these are called “identity cottons.”

World production of the four major identity cottons (Better Cotton Initiative (BCI), Cotton made in Africa (CmiA), Organic and Fairtrade) is estimated at 3.4 million tons in 2016/17, up from 2.6 million tons in 2015/16 and 2.1 million in 2014/15. The proportion of world cotton production under various identity programs is likely to increase, and BCI has an objective of accounting for 30% of world production by 2020.

(As of July 2018, the most recent data available for BCI was for 2016/17 from the BCI 2017 annual report. For CmiA, the most recent data was for 2017/18, but the data was not dis-aggregated by country. For organic cotton, the most recent data published by the Textile Exchange was for 2015/16, and for Fair Trade the most recent data was for 2013/14 from a 2015 report. The lack of up-to-date statistics undermines market demand for the identity cottons, since merchants, textile producers and retailers are hesitant to enter into long term commitments when basic data on stocks, consumption, production and trade are lacking.)

Identitty_cotton_production

The four identity cotton programs accounted for 8% of world cotton production in 2014/15 (BCI and CmiA together were 7.6% of the total). The identity cottons accounted for about 12% of the world total in 2015/16 and 15% in 2016/17, with BCI and CmiA accounting for almost all.

BCI

By far the more significant of the identity cottons in terms of volume, BCI reports (http://bettercotton.org/harvest-reports/) that production in 2016/17 totaled 3.26 million tons, of which CmiA accounted for 320,000 tons. (By agreement, all cotton produced under CmiA is recognized as meeting BCI criteria.) 2016/17 BCI production net of CmiA was 2.94 million tons on 2.1 million hectares; the average BCI yield was 715 kilograms of lint per hectare, close to the world average for all cotton. 519,000 farmers were counted among BCI producers in 2016/17, meaning that average production was 6 tons per farmer.

production_of_bci

BCI says on its web site that it “aims to transform cotton production worldwide by developing Better Cotton as a sustainable mainstream commodity.” This implies that non-BCI cotton is not sustainable and not mainstream, and it implies that BCI cotton is somehow “better.” It is therefore ironic to note that 32% of cotton labeled as “Better” in 2016/17 came from Brazil, and Brazilian production is perhaps the least sustainable in the world because of heavy pesticide requirements in the Cerrado region.

The long-term outlook for cotton in Brazil, as well as in other South American countries, depends on an ability to manage the boll weevil without resorting to continued increases in insecticide applications. Brazil has not been able to implement an area-wide control program for the boll weevil, as has been done in the United States, and as many as 20 insecticide applications are made each season in Brazil for the boll weevil alone. Despite accounting for just 3% of world cotton area and 7% of world production, about one-third of all pesticides used on cotton in the world are used in Brazil.

Further, another 29% of 2016/17 BCI production was in China from the Xinjiang region in the Far West. This is also problematic because all cotton in Xinjiang is irrigated, and irrigation supplies are limited.

Nevertheless, a very simplistic comparison of yields achieved by BCI farmers in each country with farmers in the same country who are not in BCI seems to indicate that BCI farmers in many countries get higher yields.

yields

In 2016/17, farmers in Brazil, China, India, Pakistan, Tajikistan, Turkey and the USA who participated in BCI had higher yields than farmers who did not participate. The evidence of improvement is not conclusive because BCI farmers in Kazakhstan, Mozambique and South Africa did not get higher yields than their non-BCI counterparts. Further, this simplistic comparison ignores the impacts of farm size, variety selection, irrigated or non-irrigated production, differences in pest pressure, year-to-year variations in yields and other factors, but at least in a majority of countries, BCI farmers did better than their non-BCI counterparts in the most recent season.

In its 2018 Q1 quarterly report, BCI reported that brands and retailers increased their use of BCI cotton by 60% to 736,000 tons in 2017 over 2016 and that uptake increased a further 44% during the first quarter of 2018 compared with quarter 1 in 2017. Therefore, uptake of BCI cotton by brands and retailers accounts for around one-fourth of BCI production, with the other three-fourths still being sold as non-identity cotton. Therefore, after seven years of commercial activities by BCI, the quantity of cotton moving through the marketing channel from farm to retail as BCI cotton now accounts for about 3% of all cotton sold at retail. Increasing this uptake proportion will be the key to the long-term success of BCI.

Cotton Made in Africa

Production under CmiA totaled 320,000 tons in 2016/17 and a record 496,000 tons in 2017/18. Nine countries participated in CmiA in 2017/18: Burkina Faso, Cameroon, Cote d’Ivoire, Ethiopia, Ghana, Tanzania, Uganda, Zambia, and Zimbabwe. Across the nine countries, there were approximately one million African households involved in CmiA, and CmiA accounted for approximately 30% of production in Sub-Saharan Africa. The average yield among CmiA is approximately 300 kilograms of lint per hectare, broadly equal to the yields achieved by non-CmiA farmers in Sub-Saharan Africa.

sub-saharan

Yields achieved by farmers in Sub-Saharan Africa participating in CmiA were higher than yields achieved by other farmers in Sub-Saharan Africa during 2015/16 and 2017/18, but they were lower in 2016/17. The variances in relative yields may be due to inaccuracies in the statistics rather than actual differences in production outcomes. However, if available statistics are accurate, farmers participating in CmiA seem to do at least as well, and usually better, than non-CmiA farmers.

CmiA reports that 780,000 farmers participated in 2016/17, meaning that production per farmer was about 400 kilograms of lint. In 2017/18, the number of participating households rose to more than one million, and production per household was about 480 kilograms of lint.

Uptake of cotton produced within the CmiA program by brands and retailers rose to 80,000 tons in 2017, or one-fourth of the amount produced in 2016/17, and revenue from licensing fees rose to Euro 2 million. As with BCI, an impediment to increased uptake of CmiA cotton by brands and retailers is the lack of statistics on stocks, production, mill use, trade and prices by country.

Certified Organic Production

The most recent data reported by the Textile Exchange (http://textileexchange.org/publications/)is that production of certified organic cotton fell to 108,000 tons of lint on 302,000 hectares in 2015/16, indicating that the average organic yield was 357 kilograms of lint per hectare. As of 2015/16, 263,000 hectares were “in transition.” Assuming that 50,000 hectares of the transition hectares were brought into production in 2016/17 and yields remained unchanged, world production of organic cotton is estimated at about 125,000 tons in 2016/17. There were 220,000 farmers involved in organic cotton production in 2015/16, indicating that production per farmer was about 500 kilograms of lint.

An area of disappointment for organic cotton advocates has been Sub-Saharan Africa. A report from November 2017 published by the World Trade Organization shows that governments sponsored nine projects involving organic and/or Fairtrade cotton in Sub-Saharan Africa over the last decade. The projects totaled about $27 million.

Production of certified organic cotton in Sub-Saharan Africa totaled 4,542 tons in 2015/16, down from 8,922 tons five seasons earlier. Projects involving organic and/or Fairtrade cotton do not seem to be having discernable positive impacts.

organic_cotton

Fairtrade

The most recent data reported by Fairtrade is for 2014, when about 7,000 tons of lint were produced. (http://www.fairtrade.org.uk/).Fairtrade reports that there were approximately 55,000 farmers growing cotton on 61,000 hectares in 7 countries in 2014. The average yield among Fair Trade cotton farmers is less than 200 kilograms of lint per hectare. A problem common to all the identity cottons is that less than half of the cotton grown by farmers participating in the Fairtrade system was actually sold under Fairtrade terms, the rest being sold as regular cotton under commercial terms.

Conclusions

Cotton made in Africa and BCI are growing, while organic and Fairtrade cotton are shrinking. The major difference is that CmiA and BCI allow the use of modern agricultural technologies (CmiA does not accept biotechnology), while organic and Fairtrade require the use of labor intensive technologies from the early 20th Century. CmiA and BCI are initiatives that help farmers improve by providing training in the use of Best Management Practices, and farmers find such help useful.

Yields achieved by BCI and CmiA farmers seem to be higher than yields achieved by other farmers, indicating that the two programs are having beneficial impacts. However, the chief challenge for both initiatives is to increase the volume of cotton sold in the marketing channel under their respective labels.

DNFI Innovation in Natural Fibres Award 2018

DNFI Innovation in Natural Fibres Award 2018

dnfilogo
Velener Textil Wins 2018 Award

“As close as it gets to no-waste textile manufacturing.”

Velener Textil GmbH, located in Velen, Germany, has won the Discover Natural Fibres Initiative (DNFI) Innovation in Natural Fibres Award for 2018.

The winning process, “WECYCLED® – Real added value for weaving mills and our partners in the textile chain,” was submitted by Mr. Ernst Grimmelt, CEO and Sales Manager Yarns under the category of Innovative processes/procedures.

Waste is inevitable in any industrial process, and up to 30% of yarn used in weaving mills, knitting mills and confection processing remains unused.

Under the WECYCLED® system (www.wecycled.de), Velener Textil collects spent cones from partner mills and separates the unused cotton yarn in special sheltered workshops that meet the highest standards of employee safety and environmental protection. Velener Textil has developed a sophisticated method to recycle the recovered cotton into new yarns that fulfill the requirements for color fastness, strength and other attributes in high-quality consumer products. Commercial applications include the production of bed linen and knitted clothing.

Dalena White, Secretary General of the International Wool Textile Organization (IWTO) commented that the sheltered workshop to ensure employee safety used in the WECYCLED® system is an innovative component of sustainability often overlooked.

Mr. Grimmelt emphasized that WECYCLED® is, “as close as it gets to no-waste textile manufacturing.” He said that the closed-circuit principle of the WECYCLED®system contributes to sustainable textile manufacturing with a traceable process.

Representatives of Velener Textil will be officially recognized for their achievement at the next meeting of DNFI in Chemnitz, Germany on 10 September 2018. They will also be invited to speak at natural fibre industry conferences, including the next IWTO Conference in Venice in April 2019.

About DNFI

The Discover Natural Fibre Initiative (DNFI) was created in January 2010 as an outgrowth of the International Year of Natural Fibres 2009, declared by the United Nations General Assembly. The purposes of DNFI are to advance the interests of all natural fibre industries and to encourage increased use of natural fibres in the world economy. DNFI is a voluntary association of individuals and organizations with interests in promoting natural fibres through collaboration, consultation and cooperation. The Organization (www.dnfi.org) works to further the interests of natural fibres by serving as a platform for information exchange, by providing statistics on fibre production and use, and by working to raise awareness of the benefits of natural fibre industries to the world economy, environment and consumers.