Fairness and transparency
Strengthening the position of more vulnerable actors in the food supply chain
The principle of fairness is one of the guiding principles of organic agriculture. It stipulates that “organic agriculture should build on relationships that ensure fairness with regard to the common environment and life opportunities”.
In the supply chain, the supplier generally holds the bargaining power. Due to its length fairness is difficult to coordinate and guarantee across the entire chain. Producers are vulnerable actors in this chain, with weaker negotiation powers and lower profit margins.
In our vision, IFOAM Organics Europe states how to achieve fairness and transparency along the supply chain:
- Farmers and workers are paid fairly: value and power are equally distributed across the system;
- New business models and communications foster trust between all actors;
- The environmental, social and public health costs and benefits of farming are reflected in payments to farmers and in the cost of food and external costs are taken into account.
To achieve this, we work on issues such as unfair trading practices, true cost accounting and market transparency.
The legislative framework for unfair trading practices (UTPs) is a directive and not a regulation. This means that Member States can go beyond the provisions laid down in the Directive when transposing it into national legislation. Member States must transpose the Directive into national law by 1 May 2021 and apply it 6 months later (by 1 November 2021).
IFOAM Organics Europe is monitoring the process of transposition and advocating to go beyond the provisions of the directive, such as the banned number of unfair trading practices.
Since 2008, the issue of unfair trading practices has been on the European political agenda. In April 2018, the Commission published a legislative proposal on unfair trading practices. After intense months of negotiations between the European institutions and parallel advocacy activities from civil society and other stakeholders, the directive on unfair trading practices in business-to-business relationships in the agricultural and food supply chain was published in the Official Journal in April 2019. The first recital of this directive highlights that “significant imbalances in bargaining power between suppliers and buyers of agricultural and food products are a common occurrence. Those imbalances in bargaining power are likely to lead to unfair trading practices when larger and more powerful trading partners seek to impose certain practices or contractual arrangements which are to their advantage in relation to a sales transaction”. Unfair trading practices include those practices that “grossly deviate from good commercial conduct, be contrary to good faith and fair dealing and be unilaterally imposed by one trading partner on the other; impose an unjustified and disproportionate transfer of economic risk from one trading partner to another; or impose a significant imbalance of rights and obligations on one trading partner”.
Together with other civil society organisations, IFOAM Organics Europe published a transposition guide to this directive. This gives an overview of the scope of this directive (page 5), banned unfair trading practices (pages 4-5), and reporting and enforcement mechanisms foreseen by the directive (page 7).
Currently, there is a lack of data on prices of several food commodities, especially prices towards the end of the supply chain at processors’ and retailers’ level. Producers also tend to have less (access to) knowledge about the market, leading to information asymmetries between producers and actors further along the supply chain. Information asymmetries and a lack of market transparency can lead to inefficient markets where those that have access to market-related data have more powers than those that do not.
The new legislation on market transparency, Commission Implementing Regulation 2019/1746, was published at the end of 2019 to provide an answer to these inequalities. Its provisions will enter into force as of 1 January 2021.
The Commission has worked on a fairer legislative proposal for market transparency covering the meat, eggs, dairy, fruit and vegetables, arable crops, sugar, and olive oil sectors. This regulation stipulates that data for organic products will also be collected separately, something that IFOAM Organics Europe had long advocated for. Indeed, it is necessary to have a better and more holistic view of the prices of organic products through the supply chain.
We are also advocating for more market transparency in terms of costs, not only prices, tying into the topic of true cost accounting above.
Certain agricultural practices have devastating consequences on the environment. For instance, pesticide use results in water pollution, and negatively affects the health of people, animals and insects (among others). Given that nature cannot provide the bill for these harmful environmental consequences, it is more financially advantageous to harm the environment, people and animals than it is to preserve natural resources and strive for a socially just food system. These are so called ‘external costs’ that are currently not taken into account in the cost of food production in many agricultural practices.
IFOAM Organics Europe advocates for the internalisation of externalities (including them in the ‘true cost’ of the product). This way, the price of conventional products would likely be closer to the price of organic products. As organic producers use more environmentally beneficial practices, organic products already consider external costs.
A study by IFOAM Organics International found that “consumers pay three times or even four times for seemingly cheap food. In some countries citizens ‘subsidize’ unsustainable agriculture e.g. through government schemes that promote synthetic fertilizers. Then, they also pay the price of the product, and in addition they finance, through tax payments, the mitigation of the negative impacts of production (e.g. for purifying drinking water) and finally bear the health costs of non-commutable diseases”.
In the study we commissioned “Taxation as a tool towards true cost accounting” we identify whether measures like increased taxation of synthetic pesticides or reduced taxation of organic products could be feasible and better reflect the true cost of food. The study found that “indirect taxes on plant protection products tend to have a higher chance of being implemented and thus having the intended impact compared to indirect taxes on food”. Another interesting finding of this study is that cultivating a hectare of conventional potatoes in Germany costs 1.298 EUR of water pollution (the 1298 euros are needed to clean the water), while cultivating a hectare of organic potatoes in Germany costs 0.4 euros in terms of water pollution.
Bio Suisse introduced a code of fair trade relations in the supply chain in Switzerland to enhance trade relations between organic market partners in Suisse supply chains. The fairness strategy includes a code of conduct, roundtable discussions on fairness between market partners and a fairness survey to evaluate the current level of fairness in trade relations. Read more about how our member Bio Suisse is putting fairness in practice.
Would you like to get inspired on how other players are making Fair play – Fair pay a reality? Check out the initiatives on euorganic2030.bio.