You’re missing the point – it’s about the price ..

Sunday’s news was full of the ‘Primark Scandal’ which has attracted a swift and ferocious response from Primark. Naturally the company feigns ignorance of exploitative labour practices amongst its suppliers and comforts itself with reference to its Code of Practice. Inevitably the denial has transferred the blame to its suppliers. But supplier standards in this case are built around the demands of the customer, and a more significant assessment of the problem would reveal that these suppliers are caught in a system of trade that is built on externalising social and environmental factors in favour of the corporate ‘holy grail’ – profit. Profit for the trader – the middleman, not the producer/supplier that is. This is not an isolated instance and it is symptomatic of the ill effects of the nearly universal emphasis on price, price and price only.

Axing the suppliers who have been caught will only change the actors for exploitation – social and environmental – will surely continue to be used by others to meet the price that Primark and other retailers and traders demand from their suppliers. Only more fundamental change, based on empowering the producers, and allowing them greater control of their destiny, greater contact and interaction with their consumers – and ultimately a fairer price – can offer the kind of genuine change that must be achieved.

The BBC Online article states:

According to Primark, the garments affected accounted for 0.04% of the retailers’ worldwide sourcing. It added that “the sub-contracting involved home working and in some instances children were also found to be working at home”. “We take this lapse in standards very seriously indeed,” said Primark, which is owned by Associated British Foods.

Primark says it will terminate relations with suppliers guilty of certain “transgressions” and those unwilling to make the “necessary changes” to their employment practices when breaches of its code are uncovered. This reaction, whilst apparently satisfying Primark, charities and fairtrade groups, completely misses the point. This retailer made its successful debut and meteoric rise in high street retail by offering consumers, low priced fashion. It made £200m profit last year on sales of more than £1.6bn, from 170 stores.

I am not singling Primark out for this offence for many, major retailers share the same liability – the real cause of the problem lies in their business model. In building their appeal and competitive edge on affordable, low cost fashion, their sourcing policies are based on price. The relentless emphasis on price, when combined with the hundreds of struggling factories in Asia which depend on this business, does necessarily lead to this kind of terrible outcome. Lip service is of course paid to Codes of Ethics. Conduct or whatever is the term that is in vogue at the time, but all thatt comes at a cost. When the slightest price increase could lose him the contract, what can the supplier do? He must survive too? That is not to condone exploitation for any reason, but to try and understand why it happens.

The predictable response to this issue will be a flurry of paperwork and a series of ‘inspections’ designed to satisfy observers and rights groups. The fact is that if Primark or others directly or indirectly guilty of this kind of exploitation, simply paid a fair price for their product, they would achieve genuinely ‘fair trade’. The factories that have been set up across Asia to sew the West’s clothes are struggling. In Sri Lanka, effective legislation ensures that working conditions are good. Those factories are closing their doors though because China, Bangladesh and others are getting the business that was once theirs due to lower prices. Garments that are sold at $60 in the US, are sometimes sourced at $6 from the factory, and that factory is now losing the business to someone who is offering the same product at $4.50.

That is what drives exploitation. In seeking to satisfy the customer’s desire for ever lower prices, some suppliers are externalising social and environmental factors. Hence the massive pollution in parts of China, the exploitative labour practices there and elsewhere.

The Primark issue will blow over and a good PR firm will ensure they come out relatively unscathed. The problem remains though. As producers, we understand better than any Western regulator that our children, our poor need to be cared for. The structure of community and familly that prevails in most of Asia ensures that. However what disrupts that inherent compassion is the entry of customers, and business opportunities that our countries desperately need, linked unfortunately to relentlessly cut throat pricing. When that pricing requires social and environmental issues to be externalised – then some are doing it, not out of a desire to cause hardship but out of a desire to survive. The factory owners are not the demons, the buyers and their predatory pricing policies are.

It’s not only the garment industry that is at fault. Primark and garments are the villain today but scratching the surface in nearly any industry involving raw material sourcing in less developed countries will reveal a similar picture. Fortune Magazine’s February 2008 feature on the chocolate industry shows the parallels.

The industry’s two main trade groups, the Chocolate Manufacturers Association and the National Confectioners Association, say tens of millions of dollars have been spent on building a socially responsible cocoa sector across West Africa. But the Tulane report criticizes the industry for not providing specifics to back up those assertions. And on the ground there is little evidence anyone is paying much attention. “What protocol?” asks Ali Lakiss, the director general of Saf-Cacao, the largest cocoa exporter in Ivory Coast, which controls about 20 percent of the trade. “The farmers don’t get the best price. If the cocoa price is good, then kids go to school. No money, and kids work at home.”

It’s all about the price.

Dilhan

Dilhan is the younger son of Dilmah Tea Founder Merrill J. Fernando. Together with brother Malik, Dilhan has taken on the passionate commitment of his father, for tea, ethics in business and the concept of business as a matter of human service.