Living wage

Our ambition is that workers have the power to improve their own livelihoods and negotiate their wages and terms of work. A living wage is a wage that covers the basic needs of workers and their families, including food, clothing, shelter, healthcare, education, transport to work and a little extra for unforeseen circumstances.

Workers at the Fairtrade certified Agrotes SAS banana farm in Urabá, Colombia.
Workers at the Fairtrade certified Agrotes SAS banana farm in Urabá, Colombia.
© Fairtrade / Funnelweb Media

Workers at farms, factories and plantations are among the most vulnerable people in global trade. Without access to land or unable to make a living from it, they often have few options for a sustainable livelihood. These workers often lack formal contracts, freedom of association, basic health and safety assurances, and adequate wages, among other challenges.

For tea workers in India, for instance, the legacy of colonialism means that plantation workers often live on site in employer-provided housing, going back generations for some families. Already low wages may be further reduced by deductions for housing, insurance or other expenses, leaving workers trapped in poverty with no opportunity to save or move towards a better future.

Because the situation of hired labourers is different from that of farmers, we have a separate set of standards for these producer organizations.

The Fairtrade Standard for Hired Labour is based on International Labour Organization conventions and recommendations and has explicit requirements that wages should increase over time to reach a living wage. Increases should be provided regularly and based on incremental steps and a timeline negotiated between employers and elected worker representatives, but no less than the rate of inflation to avoid a decline in real wages. Workers should be able to earn this during a normal working week without having to work overtime.

But here’s why we are going above and beyond these standards. First, in many countries there is no agreed living wage for agricultural workers. Second, large-scale producers may themselves be struggling with low profit margins that leave them unable to afford to pay a living wage right away. So while it’s tempting to simply require higher wages, if plantations can’t stay in business then workers lose their jobs and end up in a worse situation.

How Fairtrade works towards living wages

Our approach is that each stage of the supply chain should contribute to a living wage for plantation workers. Together we can contribute to Sustainable Development Goal 8 of decent work for all women and men, and equal pay for work of equal value.

We’re focusing particularly on banana plantations through 2020, but workers in other sectors are also benefitting from what we are learning there – and vice versa.

We are still testing different mechanisms, but some possibilities are: Plantations would commit to a higher base wage. Buyers may pay a higher Fairtrade Minimum Price or Premium. Workers could choose to pay out more of their Premium as cash payments. And consumers could pay a few additional cents that get passed directly to workers.

Here’s what we’re moving forward on:

  • Setting living wage benchmarks: We work with other certification schemes through the Global Living Wage Coalition to establish independently validated country- and region-specific living wage benchmarks. From there we determine the gap between actual wages and the benchmark. See how a living wage is calculated in the box below, and a list of the 20+ available benchmarks can be found at the Global Living Wage Coalition website.

  • Strong standards: In addition to the wage requirements in the overall Fairtrade Standard for Hired Labour, product-specific standards include additional requirements. For instance, the Fairtrade Standard for Fresh Fruit for hired labour organizations, which is applicable to banana plantations, includes a modest base wage requirement that took effect January 2019. We are conducting an additional review of the Standard for Hired Labour specifically to explore setting an origin-specific Fairtrade base wage level for banana plantations to ensure that plantations in each origin make a meaningful contribution to a living wage.

  • Strategic use of the Fairtrade Premium: Workers at Fairtrade certified banana plantations can choose to receive up to 20 percent of their Premium – which they democratically control – as cash to help meet their daily needs. When the majority of workers are migrants, that increases to 50 percent. We are exploring making a higher ceiling for cash disbursement of Premium allowable across the board, in order to boost workers’ incomes more quickly.

  • Targeted projects: Along with committed partners, we develop projects to test mechanisms to increase wages. For example, Wagagai young plant producer and its German Fairtrade buyer developed a new model to voluntarily pay a few cents more per poinsettia cutting which goes directly into a bonus fund for the plantation workers. Thanks to these learnings, we can work with more partners to roll out successful projects in other countries and sectors.

  • Promoting collective bargaining: In various countries Fairtrade is working with partners from the labour movement to promote workers organizing and bargaining collectively for better wages. Fairtrade believes that a living wage should ultimately be negotiated between workers and employers based on sustainable fair trade.

  • Reducing gender pay gaps: Women working in agriculture are overrepresented in low-paying jobs. Fairtrade believes that wage improvement also means reducing the gender pay gap for women by giving them access to education, a safe workplace, child care and advancement into better paying jobs.

  • Advocacy: We work with other organizations to highlight the need for more action, especially by governments to regulate fairer wages for workers into their own laws.

Progress toward living wages

Here are some examples of the impact so far:

  • A base wage requirement added to the Fairtrade Standard for Flowers and Plants in 2017 led to a 30 percent increase in wages at one plantation in Tanzania. Read more.
  • We are also see impacts in banana origins such as Colombia, where workers’ lives have been significantly improved through the investment of Fairtrade Premium in projects related to housing and health care.

Fairtrade is proud to play a role in this progress, including bringing stakeholders together, increasing workers’ awareness of their rights, and developing mechanisms and partnerships that bring about real change for workers.

Choosing Fairtrade means supporting workers’ rights to a decent income, and putting more money directly in the hands of workers themselves.

How do we determine a living wage?

The Global Living Wage Coalition brings together some of the key players in sustainable agriculture certification – including Fairtrade – and international experts Richard and Martha Anker to agree on a common definition of a living wage and develop independently validated living wage benchmarks. Anyone can use these benchmarks to measure the gap between actual wages and a living wage.

The Anker methodology for benchmarking estimates actual expenses of workers’ families based on three ‘baskets’ of costs: nutritious food, decent housing, and other essential needs. A small amount is added for emergencies to reach the estimated household expense. This expense is then divided by the average number of full-time-equivalent workers in a typical household in the area, to arrive at the net living wage. Any deductions or taxes are added in order to calculate the necessary gross wage.

This process involves consultation with local stakeholders, including trade unions and employer organizations when present. The local stakeholders visit workers’ homes and markets to collect food and housing costs. Workers provide information on preferences and living conditions, while employers supply information on in-kind benefits, bonuses and other compensation. Stakeholders have the chance to provide feedback and suggestions to the preliminary estimates before the benchmark is finalized.

The goal is to obtain a credible, legitimate living wage estimate, regardless of whether or not local employers feel they can currently pay this wage.

Read more about the methodology. In line with the objectives of the Global Living Wage Coalition, the methodology manual by Martha and Richard Anker has been made available online free of charge to share this important body of knowledge with trade unions, employers and NGOs.

Technical tools for living wage dialogue

National and international trade union organisations working with Fairtrade have confirmed that living wage benchmarks are useful tools to support collective bargaining. Instead of taking a much lower legal minimum wage as a starting point for negotiations, trade unions can now point at a living wage benchmark as a reference. This can add an important perspective for union wage demands.

The ability of trade unions to negotiate a living wage for workers doesn’t just depend on the willingness of employers to pay a fair share to workers. Employers also rely on a mix of yields and labour productivity, sales volumes and price to cover costs associated with a living wage. Fairtrade has developed a tool to to calculate the wage gap and the cost per box of banana of paying higher wages. By using Fairtrade’s cost management tool all elements of labour costs can be considered, including taxes, deductions and some benefits. That way producers and their customers can determine whether the Fairtrade Minimum Price is already sufficient to cover the costs of a living wage or whether an additional charge is needed to bridge the gap.