The external costs of banana production. a sectoral study. True Price/Trucost study and Max Havelaar Foundation s reaction.

Transcription

1 The external costs of banana production a sectoral study True Price/Trucost study and Max Havelaar Foundation s reaction embargo

2 1. The bill for social and environmental damage Bananas are the world s most exported fresh fruit (US$10bn/year). They are an essential source of income for thousands of rural households in developing countries. However, agrochemicalintensive production along with declining producer prices has given rise to many environmental and social challenges (FAO World Banana Forum, 2016). 1 These challenges are not reflected in the beautiful, yellow bunches of bananas we see on the shelves in shops. The moderate price of most banana s helps as well to entice consumers. Yet precisely this low price suggests that the social and environmental costs related to the production of bananas may have been externalised. Externalities are production costs that have not been factored into the market prices. The buyer does not pay for them (see IMF ). Instead, they are shifted to society, which ultimately pays the bill: directly or through the loss of wealth. Examples may help to make the concept less abstract. Burning fossil fuels to generate electricity creates air pollution. That can result in health problems, medical expenses, loss of income and lower life expectancy. But whoever generates the electricity is unlikely to (completely) compensate the community for these costs. Damage to health is thus an external cost of electricity generation. In the social sphere, for example, it involves the financial and medical consequences of occupational accidents caused by poor protection against hazardous situations at work. If the employer does not bear the brunt of these costs, he is externalising them. The impact of extremely low wages on a family s welfare is also an external social cost. A sustainable banana sector, that s what many organisations and companies are advocating. International Corporate Social Responsibility (ICSR) is high on the social agenda. An understanding of the overall impact of banana production - so, including the external costs and benefits - will help us to take the right steps. To that end the damage that has been caused first needs to be quantified and subsequently monetised (expressed in terms of money), according to established methods of calculation. In this way, the damage that was initially hidden is revealed. It receives a price tag. This leads to transparency and makes it possible to make better-informed decisions in the transition to sustainability. 2. The study on the true price of bananas Commissioned by Fairtrade International, True Price and Trucost conducted the first major study ever on the external social and environmental costs emanating from banana cultivation. They studied these costs in the four most important banana-producing countries: Colombia, the Dominican Republic, Ecuador and Peru. The study had three goals. Map the external sustainability costs. Compare the damage in the banana sector as a whole with that of Fairtrade bananas. Use the acquired information to identify concrete opportunities for further cost reduction and extract the best practices that will achieve these reductions

3 Together with Fairtrade International, the researchers gathered detailed data from 15 Fairtrade plantations and 97 smallholder farmers in the four countries about the agricultural inputs used, labour conditions and environmental impact. Sector averages for the same aspects, to be used as benchmarks, were derived from secondary sources. Local experts helped to verify and validate the results. The study calculated the current and future external costs in the following impact categories. Social Child labour Forced labour Harassment (verbal; physical/sexual violence) Insufficient income Discrimination Occupational health and safety Overtime Insufficient wages and social security Environmental Climate change Air pollution Water pollution Land pollution Land occupation Waste Water depletion True Price and Trucost provide a detailed account of their research methodology and its limitations, such as the comparison of information derived from primary sources to that from secondary ones and the absence of some data. They handled these limitations with the greatest possible diligence. 3. External costs in the banana sector What do the external social and environmental costs look like in the banana sector as a whole? The average external cost caused by the banana sector amounts to US$6.70 per kilo box of bananas. The social damage, which amounts to US$4.00 (60%), is significantly higher than the environmental damage. The most important external costs are the result of insufficient wages and a lack of social security for workers, and an insufficient income for smallholder farmers. A smaller share is caused by verbal or physical violence and by unhealthy or unsafe work conditions. The latter regularly results in accidents, sometimes fatal. The remaining US$ (40%) are external environmental costs. The biggest culprits here are land occupation, water depletion and climate change. Land occupation refers to the value of the ecological services that the original landscape provided prior to the introduction of banana cultivation. The cost of water depletion is deduced from the amount of water used for banana cultivation and the amount available locally. Climate change is a function of energy use, fertilisation and greenhouse gas emissions released by the cultivation of the soil

4 Sector averages of external costs and top 3 largest external costs (in US$) per box of bananas of hired labour and small producers

5 4. A comparison with Fairtrade bananas Fairtrade certified producers score considerably better than the sector average. Their social and environmental costs are below the benchmark in all countries. The total of their external costs is on average 45% lower than the sector total, namely US$3.65 versus US$6.70. External costs per Fairtrade (FT) and sector average box of bananas The determinant is on the social side. In the sector as a whole, the social damage is almost four times as high as in the group of Fairtrade producers, namely US$4.00 versus US$1.05. The main reason for the gap is wage levels and social security for workers, and income for smallholder farmers. The differences between countries are also substantial. Social and environmental costs per box of bananas for Fairtrade and sector benchmark hired labour (HL) and small producers (SP)

6 The scores on the environmental side are much less far apart. While the average external costs for Fairtrade are US$2.60, they are US$2.70 for the sector as a whole. The highest are the environmental costs in the Dominican Republic, due to the combination of high water use and low yield. The costs are much lower in Colombia, where a relatively high yield is achieved with less use of agricultural inputs such as fertiliser, pesticides and water. On average, the yields per hectare for Fairtrade lag behind that of the sector, which on several environmental aspects leads to higher external costs per box. However, an important thing to note is that the share of organic producers in the studied Fairtrade group is higher than average in the sector, especially in Ecuador and the Dominican Republic. The table below presents a detailed overview of the values found for the different social and environmental aspects. The bottom row shows the minimum prices that Fairtrade employed in 2015 for organic bananas. This gives an impression of the relationship between the external costs and the Fairtrade minimum price, as the only available reference point. No research was conducted on the prices that were actually paid. External costs per impact (US$ per box of banana) - all countries, hired labour (HL) and small producers (SP)

7 5. Lessons learnt The study states that the banana sector can learn from the Fairtrade system. External costs, particularly the social ones, can be reduced by adopting practices that are already being used in Fairtrade. Everyone stands to benefit from the methods used by the best-performing Fairtrade producers, including other Fairtrade growers. Because the scores within the Fairtrade range per country show variation as well. The study provides detailed technical options for achieving greater water efficiency and higher yields per hectare, for example. In terms of the latter, it is crucial that the right balance is struck between increased productivity and exactly the optimal quantity of inputs (energy, fertilisation and water), so that the environmental costs of land occupation, climate change and water depletion will indeed decrease. A higher yield per hectare will in principle increase the grower s income (unless the larger volumes across the sector backfire on the price). This improvement could be passed on to workers in the form of better wages and labour conditions. 6. The role of the Fairtrade system Exactly which features of the Fairtrade system can explain why Fairtrade producers do better than the sector benchmark? The study did not examine the causal relationships as this was not the objective. It therefore does not provide explanations for the varying performances by producers. The aim of the study is to provide those lagging behind with suggestions for improvement of their cultivation practices, as precisely as possible. Nevertheless, the effective elements of the Fairtrade system can certainly be identified in the results. The standard bears fruit. The Fairtrade standard has two cornerstones, both of which contribute to the result. First, there is a robust production standard. It sets the level that the banana grower must achieve. The standard s requirements seek to strike a balance between feasibility, also for less well-off farmers, and the strongest possible sustainability result. The producers are checked for compliance, at the risk of losing their Fairtrade certification. The certification thus guarantees a particular degree of sustainability in the banana production. But it is not only the producers who are expected to take responsibility. Fairtrade has a standard for traders as well. It requires that traders never pay producers less than the minimum price for bananas, which varies per region. The express purpose is to contribute to the internalisation of social and environmental costs, in the knowledge that the market tends to ignore these costs. Moreover, there is an additional transfer of value in the form of a fixed Fairtrade premium, established at US$1.00 per box of bananas. The premium gives producers financial space to further improve their social, environmental and entrepreneurial practices, according to their own priorities

8 On average, Fairtrade producers appear to have lower external costs than the sector as a whole, especially in the social area. This implies that they spend more to prevent these costs. A link to better trade conditions is indeed very likely. And moreover, directly visible in some effects of the Fairtrade premium. On plantations, workers decide how their premiums will be allocated. In farmer organisations, the members do that. The study found that workers on plantations in Colombia and Ecuador primarily used the premium for education and health care. Per full-time worker US$355 and US$420 a year respectively is spent on these services. Subsequently the families no longer have to pay for these costs out of their own pocket. The premium thus contributes to workers wages through in-kind benefits. With smallholder farmers, US$30 to US$35/FTE went to the workers. The farmers spent the major part of their premium on productivity improvement, namely US$95 to US$225 per ha per year in Ecuador and Colombia respectively. 7. Action points Max Havelaar Netherlands is pleased with the study of True Price/Trucost. The findings underscore the relevance of Fairtrade. They have provided us with three action points More Fairtrade bananas in the supermarkets Currently 18% of all bananas sold in the Netherlands carry the Fairtrade Mark. In view of Fairtrade s high sustainability performances this percentage should still increase considerably. In this way supermarkets can demonstrate that they take ICSR seriously. By increasing the volume of Fairtrade products, they make a substantial contribution towards a more sustainable banana sector. Their suppliers implement Fairtrade s production standard, and the higher returns from trade on Fairtrade conditions gives these growers more space to tackle the remaining external costs energetically Additional measures to close the wages gap Social justice is in Fairtrade s DNA. But there is still a gap between the desired and the actual wages on Fairtrade certified plantations as well. The study illustrates this gap in a graph. Wage gaps for hired workers in plantations (HL) and small producers (SP) (US$/FTE/year), representing the gap between an annual living wage and an annual average wage)

9 With the current market prices, it will not be possible to fully close this gap. An additional contribution from the chain is therefore needed. In the Wage Improvement Project, participants in Fairtrade International are designing measures that aim for greatest possible impact on wages by a small additional contribution from the consumer. As soon as the concepts are completed, we will test their effectiveness in supermarkets that volunteer to participate, in coordination with trade unions in the producing country. The best approach will be incorporated in the banana standard before More focus on productivity improvement The differences between producers in the same country, including those within the Fairtrade group, suggest that the growers with the lowest yield per ha can still make considerable improvements. Fairtrade International is running the Productivity Improvement Project (PIP) with the Latin American producer network CLAC. In this project the farmers use the premium to improve their cultivation methods. To scale up these kinds of projects, Fairtrade will also seek support from the donor community. 8. A roadmap to the SDG s True Price and Trucost conclude their report with the observation that the transition to a banana sector without external social and environmental costs does not need to be an illusion, given the study s findings. Indeed, there are ample opportunities. To make best practices the norm in the sector overall, the efforts for greater transparency and cost reduction need to be continued. One condition is ongoing research and collaboration within the sector, so that knowledge is shared and joint programmes are developed. The effects on the external costs would then need to be closely monitored. The report states that the sector can draw inspiration from Fairtrade, which directly links its mission to achieving several of the Sustainable Development Goals (SDGs). All governments in the world have endorsed these goals, the overarching goal of which is to end poverty in the world. A roadmap can be compiled based on transparency and concrete strategies to reduce external sustainability costs. Total sustainability in 2030 is the final destination. By constructing such a roadmap, the banana sector can, on its turn, become a role model for other agricultural sectors. March 2017, Max Havelaar Foundation Fenny Eshuis This document is based on the following report: A. de Groot Ruiz, V. Fobelets, C. Grosscurt, P. Galgani, R. Lord, R. Hardwicke, M. Tarin, P. Gautham, D. McNeil and S. Aird (2017) The external costs of banana production: A global study. Fairtrade International / True Price / Trucost. 1 FAO (2016). World Banana Forum. 2 IMF (2010). What Are Externalities? 3 Afronding op 5 dollarcent