With no end to the cost of living crisis in sight, workers need a living wage more than ever. This International Workers' Day, we shine a spotlight on the challenges workers face, how fair trade can support them through the crisis, and the gaps that other actors in global trade need to fill.
Two men discuss their monthly wages on a banana plantation in the Dominican Republic. Like workers around the world, José and Ramón are facing a cost-of-living crisis as inflation eats away at their wages.
But it could be worse: The Dominican Republic saw 9% inflation in 2022, yet José and Ramón received more than $600 USD for their employment on a Fairtrade-certified banana farm. The extra money (roughly the equivalent of two months’ wages per year) was paid through the Fairtrade Premium, an extra amount earned by producers who sell under Fairtrade terms.
Banana workers on Fairtrade plantations can choose to receive up to half of their premiums as cash to support their income - a lifeline for employees in one of the lowest paid sectors.
"The Fairtrade premium relieves pressure on disposable income," explains Wilbert Flinterman, senior adviser for workers' rights and trade union relations at Fairtrade International. "Fairtrade standards stipulate that banana workers must receive at least 30 percent of the premium in cash, and can take up to 50 percent if they wish. This makes a huge difference, especially in places where workers earn well below the living wage."
Fairtrade says that a "living wage means that workers earn enough to cover a decent standard of living for their household, including nutritious food, clean water, adequate housing, education, health care and other necessities," plus a little extra for savings for planning purposes and emergencies.
Wages are not keeping up with inflation
The global cost of living crisis following the pandemic has taken everyone by surprise, including us. According to data collected by Fairtrade International, the costs of growing and exporting bananas have risen significantly since 2021, with fertilizer rising by 70 percent, fuel by 39 percent, and pallets and plastic packaging by more than 20 percent. Add to that the need to raise wages, which account for about half the cost of a box of bananas, and workers and producers alike face an uncertain future.
Rising inflation makes it difficult for workers to survive on wages alone. An absolute minimum wage requires wages to keep pace with inflation, which in many sectors this is not the case. Maintaining the real value of wages is essential to the Living Wage requirement in the Fairtrade Employment Labour Standards, as there can be no progress without it. Compensating workers against inflation should be everyone's top priority when thinking about a living wage.
While the cost of living has risen significantly in the Dominican Republic, fair trade workers in other sectors and countries face even greater challenges. In Argentina, nine fair trade wine producers employ about 1,200 workers, and a central bank poll predicts inflation will hit 110 percent this year, pushing poverty to nearly 40 percent. "It's very difficult to protect workers in those conditions," Flinterman says.
It's a similar story in Sri Lanka, where about 10,000 workers are employed on Fairtrade certified tea plantations. The country's inflation rate has remained at 73% from 2021 to the present, severely eroding workers' wages. But not everything can be blamed on the global economic downturn, Flinterman warns. "Managers of companies that employ workers can't always use the argument that their business model would be unviable if they paid workers more to maintain the local cost of living," he says. According to the Anchor Institute Initiative survey, the living wage in Sri Lanka rose 60% between the end of 2021 and 2022, but the depreciation of the local currency actually reduced the cost of paying the living wage, when measured in US dollars. Companies that operate in dollars may benefit from changing exchange rates during inflation. That makes it more affordable to pay production costs, including wages, in local currency.
To monitor and potentially mitigate the impact of the cost of living crisis on workers, Fairtrade International recently tightened its criteria requirements, requiring companies to prove they are adjusting wages for inflation. Flinterman explains: "If we allow workers' purchasing power to decline, the gap between their current wage and the Living Wage will widen. So we're very demanding and we expect certified companies to take this as a first step towards a Living Wage."
Fairtrade premiums boost disposable income
To positively impact workers' lives beyond just providing extra cash, Fairtrade Premiums can also be used to subsidize food and other products at farmers' markets, build and operate schools and health centers, provide scholarships and free school supplies, provide transportation, and offer interest-free loans – all of which would otherwise be funded from workers' wages.
According to a recent Fairtrade report, in-kind benefits generated through Fairtrade premiums in Ghana equate to an average of $75 per worker per month. 66% of workers said they used the savings they gained simply to survive, paying for necessities like food and household bills. "The price of everything has doubled... there are some items we can't afford any more," said one worker interviewed for the report.
The same study suggests that in Colombia, another major source of Fairtrade bananas, the increased premium is worth more than $88 per worker per month. That's a significant contribution, considering Colombia's living wage standard is $433 per month. "The premium makes it easier for us as banana workers, because we don't have the economic capacity to pay certain expenses," Osnayder Mercado Sandoval Suarez, an employee at a Fairtrade certified farm, told the researchers.
Despite the important role of the Fairtrade premium in supplementing wages, Flinterman argues that the need for a living wage for workers is more pressing than ever. "Farm, factory and plantation workers are among the most vulnerable people in global trade," he says. "They often lack formal contracts, union representation and basic health and safety protections, and that's before we even get to the issue of low wages. Of course, the Fairtrade premium is a great addition to disposable income, especially in the banana sector, but it must never be used as an excuse not to pay them a decent wage."
Living wage standards can support collective bargaining
Trade unions in collective bargaining relationships with fair trade farms can benefit from a living wage standard that is adjusted annually to account for inflation. The agriculture sector benchmark, developed by Anchor Institute in collaboration with Fairtrade and the Global Living Wage Coalition, helps determine the gap between actual wages and what is needed for a living wage in any country or region. Employers and trade unions can use union proposals as a reference for negotiations, rather than comparing them with the minimum wage.
To begin the negotiation process, unions must organize workers within a company. Once a required minimum level of support is reached, companies have a legal obligation to negotiate. Fairtrade certification makes this process easier by requiring certified companies to allow unions into their workplaces, sign freedom of association protocols, and post right to unionize guarantees in their workplaces. "If necessary, we follow up with companies to remind them of their commitments and ensure they are aware of their obligations regarding union rights," Flinterman says. "Sending that signal can help lower the barriers for unions to reach more workers."
While the post-pandemic economic downturn only serves to highlight the urgent need to introduce living wages in various sectors, there is some good news: in Ecuador and Colombia, banana workers' wages are hovering around the living wage level, and in Colombia's Urabá region, home to the country's largest collection of fair trade plantations, collectively bargained wages are reportedly even better.
In Ghana, Fairtrade banana farms also have constructive relationships with two national unions and use living wage standards in their negotiation processes. In Ethiopia, the absolute minimum wage required by Fairtrade for floriculture workers has been adjusted to the end of 2022 to reflect the increase in the international poverty line. But with inflation in Ethiopia running at around 35%, the adjustment will soon begin to lose momentum.
Nearly a decade ago, we advocated for "prices that reflect the real costs of production" without undermining the very workers whose rights Fairtrade supports, for example by reducing job security. Fairtrade remains the only major system for ethical trading that requires buyers to pay a minimum price for certified products, based on an assessment of production costs and dialogue with producers and traders.
Despite progress, it is clear that much more needs to be done before we can claim that all workers on fair trade plantations and factories truly earn a living wage. "The global cost of living crisis is negatively impacting both producers and consumers, making the road to a living wage even longer," says Flinterman. "While progress has been made in some countries and in some sectors, high inflation in others means that the real value of wages has actually regressed. Many industries, including flower, tea and textile production, can only survive on purchasing practices based on keeping costs and wages low. Some retailers are pushing for producers to be paid a living wage, but they also complain that they cannot afford to pay their customers any more. It is right that we try to protect workers in our global supply chains from exploitative wages, and we are not going to back down. But ultimately someone has to pay the cost and show that they are serious about business and human rights principles."
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