Coop narrows wage gaps for workers with the help of procurement practices

Understanding the living wage gap

In any effort to closing living wage gaps, the first step is to find an accurate benchmark. Coop looked to the Full-fledged Anker Methodology for rural Dominican Republic, and then gathered information on workers’ remuneration to determine that the lowest earned income of the workers was roughly USD 198 per month (18% below a living wage according to Coop and Fairtrade).

Covering for the volumes procured

Once they had an accurate measurement of the living wage gap, they calculated that an extra $0.78 USD per box of bananas was needed to effectively close the living wage gap for the workforce of 353 people. Coop committed to covering the living wage gap for the volumes they sourced, which represented when the project started to about 30-35% of the volume produced by these two plantations. Without similar commitments for all the volumes sold by the plantations, the impact of a single retailer is only proportional to the percent of volumes they buy from these producers.

Since Coop was already working with Fairtrade, of the extra $0.78 USD per box, Coop pays $0.28 USD and the remaining $0,50 USD is covered by the payment of Fairtrade premium. For the volumes purchased by Coop, the $0.28 represents 1.3% on the sales price. To avoid passing cost increases onto consumers, Coop deducts these extra funds from their own margins.

Determining how to best distribute funds

With this approach, the additional funds from Coop are deposited directly into a newly created account, which is managed by the plantations’ Fairtrade Premium Committee. This committee is made up of democratically elected workers who oversee the process of investing the Fairtrade Premium and distribute the bonus funds directly to workers. With workers it was agreed that to ensure fairness in the distribution process, the bonus is paid every two months to workers who maintain fewer than four unexcused absences during that time.

Independent verification that the additional value reaches workers is also important for an impactful living wage plan. Therefore, FLOCERT, a social auditing and verification body, helped to verify that the workers received the wage bonus.

Reassuring producers with volume commitments

Improvements in procurement practices are often needed to support producers to pay a living wage to their workers. Without confirmation of a long-term purchasing commitment, it is challenging for producers to increase wages and maintain the increase over the years.

By committing to purchase three containers per week, Coop gave reassurance about their commitment to help increase the wages of the plantations’ workers over the longer term.

Next steps

Now that Coop’s bonus contribution and volume commitments have been established for a few years, Coop and the banana plantations continue to discuss the future on how to ensure a long term stability. Specifically, Coop and Fairtrade are discussing to recalculate the living wage gap by using IDH Salary Matrix from 2023 onwards to align with the broader efforts and calculations on living wages. And continue guaranteeing volumes and prices that take into account the living wage.

At the time Coop and Fairtrade started this work, the Salary Matrix was not available. The Salary Matrix is a free digital tool to measure the difference between a living wage and the current workers earning.  For more information, visit SalaryMatrix.org