The Impact of Procurement on Poverty

By Juan Andres Santelices

7th October 2008

Responsible procurement

• Procurement practices that combine commercial considerations with social, labour and environmental performance.

Corporate Social Responsibility (CSR)

• A private sector policy where the company chooses to address its environmental social and economic impacts. (www.csr.gov.uk)

Sustainable Procurement

• A process whereby organisations meet their needs for goods, services, works and utilities in a way that achieves value for money on a whole-life basis in terms of generating benefits, not only to the organisation, but also to society and the economy, whilst minimising damage to the environment.

Unfair World

• According to UNICEF 30,000 children die each day due to poverty, this means 10.9 million a year!

• 1 billion children in the world are in poverty.

• Nearly a billion people entered the 21st century unable to read a book or sign their name.

• Rural areas account for three in every four people living on less than US$1 a day.

Unfair World

• The total wealth of the top 8.3 million people around the world “rose 8.2 percent to $30.8 trillion in 2004, giving them control of nearly a quarter of the world’s financial assets.”

• 51 percent of the world’s one hundred wealthiest bodies are corporations.

• In 2005, the wealthiest 20% of the world accounted for 76.6% of total private consumption. The poorest fifth just 1.5%

Unfair World

Standards, Certifications

• In the UK and the rest of Europe around 70% recognise the FAIRTRADE Mark. (one of the world’s leading ethical consumer labels).

• The Forest Stewardship Council (FSC) label, broadly speaking, exists to address sustainability by promoting environmentally appropriate, socially beneficial and economically viable management of the world’s forests.

• Marine Stewardship Council (MSC) fishery certification program and seafood eco-label recognise and reward sustainable fishing.

• Plan Vivo is a system for planning managing and monitoring the supply of verifiable emission reductions from community-based sustainable land-use projects in developing countries.

Consumer Awareness

15

Awareness

0%

10%

20%

30%

40%

50%

60%

70%

80%

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Year

Reco

gn

itio

n o

f th

e M

ark

(%

)

Recognition of the FAIRTRADE Mark 1999 - 2008

Recognition = % of people who recognize the Fairtrade symbol

Source: MORI /TNS Omnibus studies

NB. 2008 figures remain confidential.

Highlights

• Sales value of almost half a billion pounds for Fairtrade products in the UK in 2007.

• 22 consumer countries across the Fairtrade Labelling Organisation .

• Sales of Fairtrade products reached 2,381 million euros.

• A 47% increase on the year before.• From 150 different products in 2003 to 3,500

products in 2007.

Highlights

• More than 100 million ha forest worldwide were certified to FSC standards in April 2008, distributed over 79 countries.

• FSC certified forests represent the equivalent of 7% of the world’s productive forests.

• FSC is the fastest growing forest certification system in the world (UN FAO, 2007)

• With over 7'500 certificates, the number of companies along the forest product supply chain committing to FSC certification peaked at 40% in 2007.

• Plan Vivo has sold more than 500,000 t CO2e, and is one of the earliest voluntary emission reduction systems (1997).

Impact for the Producers and their families

• According to Gerado Camacho, a Coocafé member, ‘The Fairtrade price allows us to survive as coffee farmers. It covers our costs of production, lets us send our kids to school, buy clothes and keep a roof over our heads.’

• Arturo Gomez, member of the Costa Rican banana group Coopetrabasur noted: ‘Before I was someone that took a box and loaded it onto a train. That was my only responsibility. I was just a farmer, who was an intermediary. In this new system I have become an international business man.’

Impact for Producer Organisations

• The reputation of Ugandan coffee suffered following liberalisation of the coffee industry. The Gumutindo Co-operative, supported by Fairtrade and in particular its relationship with Cafédirect, has invested in agricultural training, organic conversion and improved processing methods to raise the quality of its coffee. Buyers are now knocking on the cooperative’s door and farmers are queuing up to join the organisation.

• Farmers always note the increased access to knowledge and information, as well as credit, as among the key benefits.

• Very often producer groups have as a result been able to diversify successfully into growing other crops. Coocafe, for example, also grow macadamia nuts.

Impact for Producer Organisations

• Farmers have become organised and then been able to move higher up the supply chain. In many cases, such as El Guabo in Ecuador, the smallholders organisation is now exporting directly.

• They are using the knowledge and finance to build their businesses and invest in diversification or adding value. For example, the Thien Hoang Organic Tea Club in Vietnam is planning to build a factory to process their tea.

Examples of the Impact in poor communities

Community forest in El Peten, Guatemala

• Community forest management is a strategy that leads to more integrated local development and helps to combat poverty.

• Forest management activities have produced additional sources of employment.

• In 2004 alone, these activities provided more than 22,000 days work and wages amounting to over US$170,000.

• Working conditions are improving.• At the collective level, the income has enabled the

communities to increase their working capital. • Community members are paid an average of US$ 6.20,

which is almost double the day’s wage paid to agricultural workers in the region.

Fairtrade Bananas in the Windward Islands

• The impact of Fairtrade is demonstrated by the example of the Windward Islands. Four nation states whose economies were extremely dependent on selling bananas in the UK. Just a few years back, the farmers and nations looked disaster in the face. In the 1980s, there were 11,000 banana farmers in one island, Dominica. By the end of the 1990s, there were less than 700.

• Today, 3,600 farmers are in certified groups, representing 90% of all banana farmers in the Windwards Islands and nearly all their bananas are sold as Fairtrade.

• It does therefore give an interesting insight into the potential of Fairtrade, if scaled up to have a deeply significant impact on whole economies.

Malawi and Mali

• In Malawi, the Kasinthula sugar cooperative, used their first Fairtrade premium to bring clean drinking water to a village for the first time. Previously villagers had had to walk some distance to take water from the river.

• Women cotton farmers in the Dougoroukoroni cooperative in Mali decided to spend their first Fairtrade premium payment on building a small two-room schoolhouse. But it was overflowing as children desperate for an education crowded into the tiny rooms. So the members, feeling empowered through their engagement in Fairtrade, negotiated with the local government to ensure that they too lived up to their responsibilities. The result – the village now has a school large enough for approximately 160 pupils funded jointly by the local government and the cooperative.

Bolivia, Brazil and Peru, the Brazil nut gathers

• Premium has been used for:– Members health insurance– Pay fees to send kids to

secondary schools and further education.

– Capacity training in business development.

– Co-financing the setting up of a business centre for the 6 cooperatives in the 3 countries

– Co-finance the setting up of Internet and communication centre for a village with more than 2,000 families. Before they needed to travel over 2 hours to get access to internet and telephony.

Bolivia, Brazil and Peru, the Brazil nut gathers

• Business has generated income to:– Increase the daily wages of each member.

– Investment in own processing plants.

– Business capacity and market access knowledge.

– Visits to clients in Europe and United Stated.

– Create working capital in their organisations.

– Access to cheaper credits from ethical financial institutions.

Impact on business

• Some significant commitments by major retailers to Fairtrade: – In 2003, in a groundbreaking move, the Co-op

switched all its own-label coffee and block chocolate to Fairtrade. They have since switched all their own-label tea and sugar to Fairtrade.

– In March 2006, Marks & Spencer switched all of its coffee and tea to Fairtrade, enabling over 30 new producer organisations to enter into Fairtrade and making significant changes to volumes, values and positioning of Fairtrade.

Impact on business

• More significant commitments by major retailers to Fairtrade– Sainsbury’s announced in December 2006 its

commitment to switch all of its bananas to Fairtrade. This move more than doubled the volume of Fairtrade bananas bought by Britain’s shoppers and generates an estimated £4m a year in Fairtrade premiums for the growers and their communities. Waitrose immediately followed suit also switching all their bananas to Fairtrade.

– Sainsbury’s has since switched all their own-label tea and sugar to Fairtrade.

Impacts in business and governments

• Majority of companies are looking to their supply chains and seeking to improve standards.

• Impact in governments policies worldwide.• Public have pressed governments to ensure

world trade rules are reformed in such a way that tackling poverty and promoting sustainable development are their heart.

Conclusions

• Buying from communities and small holders rather than from corporations, will provide a more equal distribution of wealth.

• The supply chains for buying ethically timber, food and carbon are available now.

• Supporting and getting to know our suppliers will have a great impact for buyers and producers.

Conclusions

• Consumers can also support the development of new supply chains by demanding new products.

• Buyers should get more involved in developing fair supply chains

Conclusions

• That 3.1 billion people still earn 2.5 dollars a day or less is a big scandal, and there are ways to solve it. Ethical and Fair Trade are one way to reduce poverty and injustice.

Conclusions

• Also 67% of the consumers in the UK believe that Fairtrade is the best way to reduce poverty.

• This is the time to commit with better policies in public and private procurement.

• The poor can’t wait any longer and it is time to change our attitude to purchase, and to be responsible for those billions that are waiting to improve their livelihoods and be part of fair world.

• Your decisions have a major impact, do not forget it!

Finally

• I would like to thank:– Harriet Lamb (Fair

Trade Foundation)– Duncan Mcqueen (IIED)– Willie McGhee (Plan

Vivo Foundation)– John Forster.– All of you.– And a especial mention

to all those producers, gathers and communities around the world that have contribute to my life all over the years.