The cost of living crisis: How do you make a living when costs skyrocket but wages stay the same?
With no end in sight to the cost of living crisis, workers need a living wage more than ever. Today, we shine a spotlight on the challenges facing workers, ways Fairtrade supports them through the crisis, and gaps other players in global trade need to fill.
On a banana plantation in the Dominican Republic, two men are discussing their monthly pay packet. Like workers all over the world, José and Ramón* are feeling the pinch of a cost of living crisis which has seen inflation eat into their wages.
But it could be a lot worse. While the Dominican Republic saw 9 percent inflation during 2022, José received an extra US$700, and Ramón US$600, because they are employed on a Fairtrade certified banana plantation. The additional money – roughly the equivalent of two months’ wages a year – was paid through the Fairtrade Premium, an extra sum earned by producers who sell on Fairtrade terms.
Banana workers on Fairtrade plantations can opt to take up to half of the Premium as cash to support their incomes – a life-line for employees who work in one of the poorest paid sectors.
“The Fairtrade Premium reduces the pressure on disposable incomes,” explains Wilbert Flinterman, Senior Advisor Workers’ Rights and Trade Union Relations at Fairtrade International. “Fairtrade Standards say banana workers must receive at least 30 percent of the Premium in cash, which can go up to 50 percent if they want. That makes a real difference, especially in places where workers earn quite a bit below the living wage.”
Fairtrade says a living wage means workers earn enough to afford a decent standard of living for their household – including a nutritious diet, clean water, decent housing, education, healthcare and other essentials – plus a little extra for savings and emergencies so they can plan for the future.
Wages fail to keep up with inflation
The post-pandemic global cost of living crisis took everyone by surprise – including us. Data collected by Fairtrade revealed that the cost of growing and exporting bananas has risen significantly since 2021, with fertilisers up by 70 percent, fuel up by 39 percent, and pallets and plastic packaging up by more than 20 percent. Add in the need to increase wages – which account for around half of the costs of a box of bananas – and both workers and producers face an uncertain future.
Rising inflation makes it hard for workers to live off their wages. At the absolute minimum, wages should be keeping pace with inflation – but in many sectors they are not. Maintaining the real value of wages is integral to the living wage requirement in the Fairtrade Hired Labour Standard, because without that we cannot make progress. Compensating workers for inflation should be at the forefront of everybody’s mind when thinking about living wages.”
Although costs of living have gone up considerably in the Dominican Republic, Fairtrade workers in other sectors and countries face even bigger challenges. In Argentina, where nine Fairtrade wine growers employ around 1200 workers between them, a central bank poll forecasts inflation to hit 110 percent this year and poverty has been pushed up to nearly 40 percent. “It’s extremely challenging to protect workers in those contexts,” says Flinterman.
It’s a similar story in Sri Lanka, where around 10,000 workers are employed on Fairtrade certified tea plantations. Inflation in the country has been running at 73 percent from 2021 until present, severely undermining workers’ wages. But, cautions Flinterman, not everything can be blamed on the global economic downturn. “The owners of the businesses that employ the workers can’t always use the argument that if they pay workers more to keep up with local costs of living, their business model becomes unviable,” he says. “The work of the Anker Research Institute reveals that although the living wage in Sri Lanka went up 60 percent between end of 2021 and 2022, the cost of paying a living wage actually fell when measured in US dollars because of local currency depreciation. Sometimes companies doing business in dollars benefit from shifting currency exchange rates during times of inflation. That way paying their costs of production in local currency, including wages, becomes more affordable.”
To monitor and potentially lessen the impact of the cost of living crisis for workers, Fairtrade has recently strengthened standard requirements according to which companies must demonstrate that they have adjusted wages to inflation. Flinterman explains, “If we allow the purchasing power of workers to decrease, the gap between their current wages and living wages will increase. Therefore we are quite demanding and expect certified companies to address this as a first step towards living wages.”
Fairtrade Premium gives disposable incomes a boost
To positively impact workers’ lives beyond providing extra cash, the Fairtrade Premium can also be used to subsidise food and other products in farm shops, build and operate schools and health centres, offer scholarships and free school supplies, provide transport, and interest-free loans – all of which would otherwise come out of workers’ wages.
A recent Fairtrade report shows that in Ghana, the in-kind benefits generated through Fairtrade Premium equate to an average of USD$75 per worker per month. Sixty-six percent of workers said they used the resulting savings simply to survive, spending it on basics such as food and household bills. As one worker interviewed for the report put it, “All prices have doubled…there are certain items we simply cannot afford any more.”
The same study suggests that in Colombia – another major source of Fairtrade bananas – the Premium uplift is worth more than USD$88 per worker per month. When you consider the living wage benchmark for Colombia is US$433 per month, that’s a significant contribution. Employee Osnaider Mercado Sandoval Suarez, who works on a Fairtrade certified plantation, told researchers: “As a banana worker, we do not have the economic capacity to pay for certain expenses, and so the Premium makes it easier for us.”
Despite the significant role of the Fairtrade Premium in supplementing wages, Flinterman insists that the need for a living wage for workers is more pressing than ever. “Workers on farms, factories and plantations are among the most vulnerable people in global trade,” he says. “They often lack formal contracts, trade union representation and basic health and safety protection – and that’s before you get to the issue of low wages. Of course the Fairtrade Premium is a major plus for disposable incomes – especially in the banana sector – but it must never be used as an excuse not to pay adequate wages.”
Living wage benchmarks can support collective bargaining
Trade unions in a collective bargaining relationship with Fairtrade plantations can benefit from living wage benchmarks that are adjusted every year to take account of inflation. The benchmarks for agricultural sectors, pioneered by the Anker Research Institute in collaboration with Fairtrade and the Global Living Wage Coalition, help determine the gap between actual wages and what’s needed for a living wage in any country or region. Employers and unions can use them as a reference in negotiations, rather than comparing union proposals to minimum wages.
To start a negotiation process, unions must organise the workers in a company. When the required minimum level of support is reached it triggers a legal obligation for the company to bargain. Fairtrade certification can make this process easier, as certified companies must grant unions access to the worksite, sign a Freedom of Association Protocol and post a Right to Unionise Guarantee in the workplace. “If necessary we will follow up with the companies to make sure they are reminded of their commitments and aware of their obligations with respect to trade union rights”, says Flinterman. “Sending that signal can help lower barriers for unions to reach more workers.”
The post-pandemic economic slump has only served to underline the urgent need to introduce living wages across a variety of sectors, and there is some good news: In Ecuador and Colombia wages of banana workers hover around living wage levels. In the Urabá region of Colombia specifically, which hosts the largest cluster of Fairtrade plantations in the country, wages that were achieved through collective bargaining are even better.
Also in Ghana, Fairtrade banana plantations have a constructive relationship with two national trade unions and use living wage benchmarks in their bargaining process. In Ethiopia, the absolute floor wage Fairtrade requires for flower workers was adjusted at the end of 2022 to reflect an increase in the international poverty line. However, with inflation in Ethiopia running at around 35 percent, that adjustment will quickly start to lose traction.
Living wages don’t come for free
Nearly ten years ago, we made the case for ‘wage-rich prices’ which reflect the true cost of production without harming the very workers whose rights Fairtrade supports – for example by making their employment less secure. Fairtrade remains the only major scheme for ethical trade that requires buyers to pay a minimum price on certified products, based on an assessment of the costs of production and a dialogue with producers and traders.
Although there has been progress, it’s clear that a lot still needs to be done until all workers in Fairtrade plantations and factories can genuinely claim to earn a living wage. “The global cost of living crisis has had a negative impact on both producers and consumers, making the road to a living wage that much longer,” says Flinterman. “We’ve made progress in some countries and some sectors, but high inflation in others means that real values of wages are actually moving backwards.”
“Many industries – including those producing flowers, tea and textiles – only remain viable through purchasing practices that are built on keeping costs and wages low. Some retailers are turning the heat up on producers to pay living wages, but they also complain that their customers can’t afford to pay any more. It is right that we try to protect workers in global supply chains from exploitative wages and we won’t let up – but eventually, someone has to foot the bill and show they are serious about business and human rights principles. ”
* names have been changed
Read more about Fairtrade’s impact here.