India : The tyranny of a few: a supply chain story
Industrial and retail supply chains worldwide suffer from the unfair trading practices of big buyers, which can vary from short-notice volume changes to demanding illegal payments for promotions and placement.
Many large retailers as well as many of their most important suppliers insert appalling conditions into their procurement contracts with farmers and small and medium-sized enterprises (SMEs): the same ones who produce (or co-produce) much of the food and products we use every day.
Such practices were the topic of a recent communication by the European Commission, which put them on the policy agenda for future action.
To the average person, it is shocking and even inconceivable that farmers’ associations and cooperatives have to pay hundreds of thousands of euros for supermarkets to accept their products and place them on shelves or that cosmetic producers have to buy back their stock if it remains unsold after a given date.
Often, when supermarkets offer a product at a discount, the cost is actually paid by the producer, who might not even be aware of this unplanned discount.
Producers today cannot seek legal remedy to redress abuses and unethical practices that stem from purchasing-power imbalances.
Voluntary codes of business conduct are failing to provide the needed protection to small businesses.
This problem occurs when selling and retailing is concentrated in the hands of a few companies that have become too large, or when cross-border buying alliances distort the power balance in a supply chain.
A market with few buyers, against a myriad of producers of the same product, allows the few to impose harsh rules on the many and capture disproportional amounts from the total gains.
Power imbalances lead to inequality in the supply chain, which in turn increases global income inequality.
Struggling business owners usually trickle down the cost to labour or terminate workers’ contracts.
Fair trade and food campaigners have illustrated how oligopsonies are largely responsible for conditions akin to slavery in the pineapple and banana sectors in various countries including Costa Rica, Cameroon or Indonesia, as well as in Thailand’s seafood industry.
The stories of textile factories in Bangladesh and shoemakers in Nicaragua are similar.
Workers must work in precarious jobs in order to buffer market fluctuations. In addition, long working hours are required so that unrealistic production goals can be met.
Creating a legal framework
Of course, power asymmetries between supplier and buyer are not the sole cause of precarious work and poor working conditions.
Moreover, action against unfair trading practices (UTPs) does not guarantee automatic gains for workers and would do little where indirect employment relations and repression of trade unions are systematically used. At the same time, such practices indirectly affect millions of workers in the tradable sector.
The rationale is that if an SME or producer was protected from power asymmetries, workers would enjoy increased bargaining power in light of the better economic situation of their employer, at least on an enterprise level.
Investment in research and development, the upgrading of employees’ skills, innovation, and other aspects of economic development also suffer when producers are deprived of their legitimate return on investment.
National governments will need to create competition rules on procurement and grant producers protection against cartels and unfair price-setting practices.
Consumers have enjoyed protection from similar unfair practices for more than a century. In an ever-increasing globalised production era, national action needs to be urgently followed up by action from global governance institutions.
In fact, comprehensive and robust law enforcement must be put in place directly on multinational enterprises (MNEs) across their global supply chains. Both MNEs and their contractors share the responsibility of not respecting the regulations of the International Labour Organization (ILO) and other global instruments that set universal floors on labour, the environment, and the protection of communities and consumers.
In light of its Communication on Unfair Trading Practices, it is now more timely than ever for the European Commission to take the lead and establish an independent mechanism to prohibit and stop UTPs across the global supply chains that cater to some 500 million European consumers.
The Fair Trade movement and the labour movement have asked the former President of the European Commission, Manuel Barroso to establish anonymous complaints procedures that would lead to dissuasive sanctions against UTPs.
In addition, they asked the Commission to extend the scope of enforcement to the whole chain, from the sourcing of raw materials, to intermediate goods and the assembling of the final products and retailing, so that offenders against suppliers from non-EU countries can be subject to disciplinary procedures.
The EU must play an important role in eliminating unfair trading practices and their repercussions for millions of people in the supply chains.