The problematic business model: Global Value Chain Managers

© André Penner / Keystone
In addition to inexistent or weak laws, or feeble enforcement of existing laws, the very business models of agricultural traders can also lead to human rights violations of people in producing countries. With traders moving closer towards or even into the production of agricultural commodities themselves more direct links between powerful corporations and weakly organised workers and small-scale producers are created. Because the latter often lack bargaining power and flexibility to negotiate better conditions or to protect themselves against risks, these business relations are often anything but fair. Companies, however, do have a responsibility to respect human rights and not make use of the failure of states in living up to their obligation.
© Fabio Erdos

The way many agricultural traders operate as global value chain managers allows them to exert major influence over large parts of global value chains. This holds true even for the smaller and less dominant players. Commodity traders are moving closer to or into the production of agricultural commodities and thus may exert control over this stage of global value chains. Closer links between influential global companies and weakly organised small-scale farmers and workers with little bargaining power frequently do not result in economic relations that are just. Rather than ensuring a decent livelihood for farmers, this relationship can lead to dependencies and exploitation.

The business model of traders, as opposed to that of small-scale producers, is set up to flexibly react to business risks. Price risks, for example, can be hedged, meaning traders can "protect" themselves against excessive price fluctuations. Most small-scale farmers on the other hand are not able to protect themselves in this way. Instead, they are exposed to price volatilities and the often very low commodity prices on the world market with little to no opportunities to mitigate those risks or bargain for better prices.

In addition to price, small-scale producers also directly bear climate and other production-related risks. In general, the risks facing people working in agricultural production can affect them in a much more existential way than the powerful buyers who are often able to be flexible in their sourcing. Furthermore, a lack of alternative buyers, flexibility, or the resources to add value to their activities can keep farmers and workers trapped in exploitative relationships. Typically, small-scale producers receive the smallest share of value along global value chains and it continues to decline. A 2019 study by Oxfam revealed: “Farmers’ share of the end-consumer price for food has actually decreased by 13% since 1995; supermarkets have captured the major increased share. But the share has also increased slightly for another, little-known but powerful segment of the supply chain: global agribusinesses that specialise in the production, processing, and trade of agricultural commodities.” A lack of reliable market access and transparent market information along with the typically temporary and informal terms of employment of workers weaken the position of small-scale producers and workers further.

Power imbalance undermines producers

The core reason why small-scale producers and workers are not as flexible in minimising risks nor able to bargain for better conditions lies in the stark asymmetry of power, which leaves them in a poor position to defend their interests. Former UN Special Rapporteur on the Right to Food, Olivier de Schutter, confirmed this in the case of contract farming arrangements: “The way prices are determined, the deductions for the provision of inputs, the conditions under which the contract can be terminated and the way in which the quality grading of the produce is assessed are all areas in which contractual clauses may be heavily biased in favour of the buyer.”

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Effective organising by small-scale producers and workers would be one way to combat this power imbalance. However, according to the ILO, the level of organisation in terms of employers’ associations or cooperatives is lowest in the agricultural sector compared to other industries: “[I]t is estimated that less than 10 per cent of the world’s waged agricultural workers are organized and represented in trade unions or rural workers’ organizations.” This is often hampered due to a lack of support and inadequate government policies, widespread anti-union sentiments, the seasonal nature of much agricultural work and the sometimes remote and widely scattered production locations.

Without reliable and transparent market access, sufficient resources and flexibility, and thus a strengthened bargaining position, neither small-scale farmers nor workers are in a position to stand up for their rights, to escape exploitative conditions, or to claim a greater share of the retail price of the end products.

Agricultural traders on the other hand can exploit and abuse their positions of power. Even if this is often done in ways that are permitted by law, many of their actions can typically be considered illegitimate in that they infringe upon the basic human rights of others. Such is the case when prices paid to producers are so low as to not allow for a living income and/or wage.

According to the UN Guiding Principles on Business and Human Rights (UNGP), it is first and foremost the obligation of the state to protect and fulfil the human rights of their populations. However, companies have independent responsibilities. The UNGP state, “The responsibility to respect human rights is a global standard of expected conduct for all business enterprises wherever they operate. It exists independently of States’ abilities and/or willingness to fulfil their own human rights obligations, and does not diminish those obligations. And it exists over and above compliance with national laws and regulations protecting human rights.”

 In other words, commodity traders and other businesses must ensure they respect human rights wherever they operate, regardless of the state’s ability or willingness to do so themselves. 

Thus, companies must not exploit regulations or the lack thereof where this negatively impacts human rights. Unfortunately, this is often not the case.