Understanding a Living Wage and Living Income in the Fairtrade System

living wage

Debates are heating up all across Canada as various provinces increase minimum wages. How much is a fair wage in rural Manitoba? What’s the cost of decent housing in downtown Montreal? How many part-time jobs and side hustles do you need to make a living income in British Columbia?

Now transpose these questions to a coffee farm in rural Ethiopia, a banana plantation in the Dominican Republic, or a garment factory in urban Bangladesh. These are questions we at Fairtrade International have been asking for a long time. Now we’re starting to find answers. 

Connecting Income and Sustainability

Fairtrade has sustainable livelihoods as its ultimate goal, to be achieved through trade on equitable terms. Income and sustainability are closely related. 

In order to enjoy sustainable livelihoods, small-scale farmers and workers need to earn enough income for a decent standard of living, so they can send their children to school, eat nutritiously throughout the year, afford decent housing, save for unexpected setbacks, retain future generations in farming, and allow elders to retire with dignity. 

Fairtrade is built on long-term trading relationships that share the benefits of trade more equally. This means companies like our partners here in Canada establish long-term commitments and relationships with the producers they source from. 

For over 25 years, we at Fairtrade have set minimum prices to cover the costs of sustainable production and provide farmers with a safety net against price drops in world markets. However, as we continue to monitor the impacts of the system, we’ve learned that more is needed to lift smallholders and workers out of poverty. Therefore, we are now fully revisiting the pricing models to include bigger margins that allow small-scale farmers and workers to make a decent livelihood. But just how big should these margins be? This is where it gets technical, but also very powerful. Ethical Bean

A Living Income and Living Wage

We differentiate “living income” and “living wage” to account for the very different realities of small farmers and workers. Think of living income as a decent revenue level for a freelance contractor and living wage as a decent monthly salary for an employee.

  • A living income is sufficient income generated by a farming household so every member of that household can afford a decent standard of living.
  • A living wage is sufficient wages for a worker and his or her family to afford a decent standard of living.
  • A decent standard of living includes food, water, housing, education, healthcare, transportation, clothing, and other essential needs, including provision for unexpected events.

So What’s a Living Wage for Workers?

While our standards have always required Fairtrade-certified plantations and factories to pay their workers at least the legal minimum wage and make their way toward a living wage, we had no clear data as to what this living wage was. 

In 2013, we fully revamped our approach to workers’ rights to make our call for freedom of association even stronger and build the pathway to living wages. We knew that a major barrier to higher wages is the absence of collective bargaining. Trade unions are a vital force that helps ensure prosperity is shared. Yet companies often treat trade unions as adversaries rather than partners. 

We also knew that to start the journey toward a living wage we needed to be able to quantify it. What should factory and plantation workers be paid? And to answer this we needed to know the cost of decent standards of living in very specific places. What does decent housing cost in Dhaka, Bangladesh? What does a basket of nutritious food cost for a family in Piura, Peru? So we built, with other certification bodies, the Global Living Wage Coalition and pioneered the use of the Anker methodology, which is now recognized as the best system for measuring living wages across the world. 

We have now completed 13 living wage benchmark studies starting with the countries where the highest amount of workers are employed in Fairtrade farms and factories. We learned very interesting things along the way and confirmed many of our field observations. We learned, for example, that a living wage in the Dominican Republic is more than double the national minimum wage level. That a living wage is more than triple the minimum wage in Bangladesh. Now that we have hard numbers, all publicly available, we can start working with actors in various supply chains toward paying all workers a living wage. 

Starting with bananas, we made a commitment to ensure all workers on Fairtrade-certified banana farms will be paid a living wage by 2020. Similarly, with our newly introduced Fairtrade Textile Standard, we have a well-defined timeline by which Fairtrade companies need to pay the full living wage to garment workers.

What About a Living Income for Small Farmers?

As the most studied and researched ethical certification system, Fairtrade has a lot of insights on the impacts of prices paid to co-ops, and even to individual farmers. But we wanted to learn more about the household incomes and day-to-day financial demands of the workers and farmers who work with us.

In 2017, we embarked on a journey to understand living income for farmers growing coffee, the most iconic Fairtrade crop. We worked with social enterprise True Price to conduct an assessment of coffee farmer incomes in seven countries: Rwanda, Tanzania, Uganda, Kenya, India, Indonesia, and Vietnam. 

This study, one of the most comprehensive on farmer earnings ever undertaken, revealed that coffee farmer households, on average, earned about 50 percent of their income from coffee production. While this percentage varied greatly by origin, the data shows that coffee farmers rely on a variety revenue streams, from selling other cash crops, like beans and maize, to earning wages working off the farm.

Of the coffee farmer households sampled, on average, those in India, Indonesia, and Vietnam earn a living income. However, according to the study, only Indonesian farmers currently earn a living household income from coffee production alone. Twenty-five percent of Indian farmers, almost 50 percent of Indonesian and Vietnamese farmers, and 100 percent of Kenyan farmers do not currently earn a living income. 

  • While some Kenyan coffee farmers are making a profit on their farms, on average Kenyan farmers produce coffee at a loss.
  •  We know that farmers who can’t provide a decent livelihood for their families are unable to reinvest in their farms. Therefore they cannot uphold adequate productivity levels, and their yields decline. As a consequence, these farmers get trapped in a vicious circle of poverty.

Paths to a Living Wage and Living Income

DiscoveryWhile the coffee industry aims to be a sustainability leader, the fact is that many of the 17.7 million small-scale coffee farmers around the world continue to struggle to make ends meet and support their families.

In order to invert the poverty trap and make significant progress toward living income for smallholders, we need to take a holistic approach. Higher farm revenues can be obtained through sustainable pricing, increased sales on Fairtrade terms, increased farm yields from sustainable agriculture, and added value. Costs can be reduced by improving efficiencies at farms and co-ops. Advocates can push for change and demand that governments and companies support farmers and workers by creating environments where farmers can expect to earn living incomes.

A combination of these paths, tailored to the particularities of each commodity and region, will enable us to improve farmer and worker income.

Right now, Fairtrade International is working with CLAC (the network of Latin American and Caribbean Fairtrade producer organizations) to study coffee farmer incomes in Latin America. As we gather more reliable data and further grasp the impact of every cent, we will be better equipped to bring transparency and take collective action toward a living income for all the farmers, workers, and families producing the goods we eat, wear, and use every day. We have a long way to go.

How Do We Reach a Living Income for Farmers?

Wages and income have remained largely static in agriculture in the Global South over the past decades. At the same time, the salaries of Canadian executives continue to rise. 

In 2016, Canada’s 100 highest paid CEOs made $10.4 million on average—a historic high. That’s 209 times the average wage in Canada and almost 1,200 times the average annual income of Vietnamese coffee farmers, who were the highest earners among those studied in our research with True Price.

Many CEOs on this list work in the food and apparel sectors, where at the other end of the wage chain, farmers and workers who grow coffee, cocoa, cotton, bananas, and more struggle to earn enough to cover the costs of living. To make sure farmers earn living incomes, we need to do the following:

Ensure Sustainable Pricing

We need to make certain that the prices paid for Fairtrade goods at their sources are sufficient to cover living wages and living incomes.

Grow Fairtrade Sales

We need to increase the volume of Fairtrade products sold on Fairtrade terms to enable significant revenue.

Improve Sustainable Yields

We need to work with producers so they can reach adequate and sustainable productivity levels, so their farms can be resilient in the face of climate change.

Support Efficient Farm Management Practices

We need to encourage farmers to calculate their production costs and make informed decisions that improve the profitability of their farms and strengthen their bargaining positions with industry partners.

Boost the Efficiency of Small Producer Organizations

For small producer organizations to generate value for their members and be recognized as reliable business partners, we need to encourage resiliency, internal coherence, and efficient business performance.

Use the Fairtrade Premium Strategically

We need to work alongside producers to use Premium funds as an instrument for achieving organizational sustainability and to fund producer-led initiatives geared toward increased farm profitability and sustainable livelihoods for farmer and worker families.

Push for Change

We need to show governments, policy makers, and companies that fair and effective market systems can deliver living incomes. 

Author: Julie Francoeur is Executive Director of Fairtrade Canada.

Photo: © Sean Hawkey

Originally published in Fair Trade Magazine - Summer/Fall 2018 Edition