1. Key facts on the initiative “Towards Living Wages in the banana sector” of the German Retailers Working Group
1.1 What is this initiative about?

Farmers in global supply chains should be able to generate living wages and incomes (see Chapter 2.1). In order to achieve this goal, the German Retailers Working Group joined forces in 2019. By signing a joint voluntary commitment, representatives of the German retail sector have committed to actively engage in the development and implementation of responsible business practices in their global supply chains and to gradually work towards fair remuneration along global agricultural supply chains of their own brands.

The group members ALDI Nord, ALDI South Group, dm-drogerie markt, Kaufland, and REWE Group agreed on a first pilot project on living wages and decent work in the Ecuadorian banana sector, which is to be extended to other reference countries in the coming years. This first joint project serves as a pilot to understand, test and adjust viable approaches to promote living wages in banana supply chains and other commodities. It shall serve as a blueprint to adopt and expand good practices in further sourcing countries beyond Ecuador.

1.2 Who are the members of the Working Group?

The following German retailers (hereinafter named “the Retailers”) are part of this initiative: ALDI Nord, ALDI SOUTH, Kaufland, REWE Group, dm-drogerie markt.

The initiative is coordinated by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH. GIZ is a service provider mandated by the German government in the field of international cooperation for sustainable development and international education work. More information here.

The initiative seeks to partner with relevant stakeholders, first and foremost banana producers and suppliers but also standard setting organizations and NGOs, to develop a common vision and practical solutions for mainstreaming living wages in the banana sector.

1.3 What is the role of Lidl in this initiative?

In 2020, Lidl, together with ALDI Nord, ALDI SOUTH, Kaufland, REWE Group, dm-drogerie markt had signed the joint commitment to gradually promote living wages and incomes in the supply chains of their own-brand products. Lidl was also involved in the planning and first implementation of this joint banana initiative of the Working Group.

In May 2022, Lidl decided to pursue an individual approach together with Fairtrade, outside the working group, to implement living wages in the banana sector. Since then, Lidl is no longer a member of the German Retailers Working Group. The Working Group will maintain a regular exchange with Lidl as a project partner to share good practices and lessons learnt.

1.4 Why is this initiative committed to promote living income and living wages?

In 2019 around 632 million people still lived in extreme poverty (below USD 1.90 per day). Workers in agricultural supply chains around the world continue to earn less than a living wage, which means that many are unable to cover the costs of essential needs for their families, such as decent housing, food, education for their children, and others. Recognizing the role global trade and value chains play in this context, ALDI Nord, ALDI South Group, dm-drogerie markt, Kaufland and REWE Group joined forces in the German Retailers Working Group on Living Income and Wages in a commitment to work collaboratively with you, our suppliers and producers, to improve the wages and incomes of agricultural workers. We recognize the significant potential of living income and living wages for eradicating poverty, for supporting decent work, for ending child and forced labor and for promoting the agricultural industry as an attractive employment sector for future generations. The working group is coordinated by the German development cooperation, GIZ.

1.5 How is this initiative going to promote living wages in the banana sector?

The joint project of the German Retailers Working Group aims to promote living wages and decent working conditions in a holistic manner, establishing enabling conditions at production, supply chain, sector and policy level. The holistic approach aims for the following four strategic objectives (see below). 

In order to reach these objectives, the Working Group agreed upon a joint roadmap that includes the following key pillars for implementation:

  1. Launch and roll-out of Living Wage Banana in German market
  • This process is of particular relevance for suppliers and producers since it will be directly linked to sourcing agreements with the Retailers. The Retailers seek close collaboration with suppliers and producers on how to define, implement and verify LW Bananas, and welcome any feedback and recommendations. Chapter 4 summaries first ideas on how characteristics and criteria of LW Bananas could look like.  
  1. Implement structural measures to promote living wages and decent working conditions in the Retailers’ global banana supply chains, such as promoting strong worker representatives together with all the actors along the supply chain, setting up dialogue structures between supply chain actors and increasing consumer awareness.
  • These measures will not be directly linked to sourcing agreements between retailers, suppliers and producers. Comments and involvement of suppliers and producers will be welcomed in the near future.

More detailed information on objectives, milestones and envisioned activities can be accessed in the Project Roadmap (English | Spanish).

1.6 Why is this initiative committed to a joint approach by all participating retailers?

One banana producer usually sells to multiple buyers. A harmonized approach mainly reduces complexity, effort and costs for producers as they do not receive different requirements from their supply chain partners and duplications in verification activities can be reduced. Intermediaries can also benefit from increased efficiency if their retailer customers agree on common framework conditions for implementing living wages.

In addition, it has become apparent in the past that an industry wide engagement might be needed to overcome relevant obstacles such as the first mover disadvantage. The joint vision and forces of the participating retailers for raising the bar towards living wages can accelerate action and maximize impact.

Instead of pursuing individual solutions, the focus of the Working Group is therefore on pre-competitive collaboration on a joint approach. The Working Group members ALDI North, ALDI SOUTH, Kaufland, REWE Group and dm-drogerie markt pursue this joint approach, as this is considered the most effective and sustainable way to anchor living wages in the sector.

2. The Living Wage Concept
2.1 What is a living wage?

The concept of a living wage is based on the needs for an adequate standard of living and takes into account the cost of living for workers and their families – in contrast to minimum wages, which are usually set politically.

As a fundamental human right, living wages are an integral part of key international agreements such as the Universal Declaration of Human Rights, the UN Guiding Principles on Business and Human Rights, and the OECD Guidelines for Multinational Enterprises.

According to the internationally acknowledged definition of the Global Living Wage Coalition a living wage means the basic cost of living for a family is attainable by the adult wage earners each month. A Living Wage is paid when a worker receives remuneration that is sufficient to afford a decent standard of living for the worker and her or his family in their location and time. Elements of a decent standard of living include food, water, housing, education, health care, transportation, clothing, and other essential needs including provision for unexpected events.

2.2 What is the difference between a living wage and a living income?

Both, Living Wage and Living Income are derived from the idea of achieving a decent standard of living as defined above. Thereby, Living Income applies the concept of a Living Wage to smallholder farming households. In developed countries self-employed are protected through government safety nets but such nets do not exist in developing countries. The concept of Living Income closes this gap as it addresses self-employed, in particular smallholder farmer in developing countries. A Living Wage applies to an individual worker whereas a Living Income applies to one household. Moreover, a Living Wage is a monthly renumeration whereas a Living Income refers to a yearly renumeration for a farming household gained from all their income sources.

2.3 How is a living wage calculated?

The living wage is calculated by first establishing the cost for the basic but decent life in a specific region, inclusive of food, housing, education, healthcare, transportation, clothing and other essential needs for a family including unexpected events. The exact costs reflect local items and prices. The total costs for a family are then divided by the typical number of working adults to reflect other wage earners contribution to the family earnings. This value indicates the necessary take home pay for one wage earner, or the net living wage, in a specific region for a single month. Finally, this net living wage is adjusted to consider taxes and deductions.

The Working Group follows the Anker Methodology to estimate living wage benchmarks that are internationally comparable and locally specific. The Anker Methodology is widely accepted by the international community and has been endorsed by the Global Living Wage Coalition (GLWC). The methodology has catalyzed global action on living wage and has been used to estimate living wage in rural, urban, and peri-urban areas around the world. Living wage benchmarks are available on the GLWC website, including estimates for relevant banana producing countries such as Ecuador, Colombia, and Costa Rica.  

2.4 What is a living wage gap?

A living wage gap is the monetary difference between a living wage benchmark and the actual net remuneration received by a worker. An internationally acknowledged tool to assess actual remuneration and wage gaps is the IDH Salary Matrix (see Chapter 6.1.3).

 

 

 

2.5 Is there a difference between a living wage and the "salario digno" in Ecuador?

The “salario digno” is the living wage concept as defined by the Ecuadorian labor law. According to Article 328 of the Ecuadorian Constitution, the “salario digno” must be adequate to cover one's own needs as well as the basic needs of the family. This understanding is very similar to the living wage definition endorsed by the GLWC and the Anker Methodology (see Chapter 2.3).

The Ecuadorian state determines the fixed minimum amount that a worker shall receive monthly as payment for his or her work or service for a public or private entity. In addition to the normal and regular pay, the Labor Code stipulates that workers receive additional mandatory social benefits. The Labor Code states that workers are also entitled to the payment of a thirteenth and fourteenth salary. The thirteenth salary is equal to one-twelfth of the remuneration received during a calendar year. The fourteenth salary is additional basic remuneration. These allowances may also be paid monthly.

The difference between the living wage concept endorsed by the GLWC and the “salario digno” in Ecuador lies in the calculation method. Please find in Chapter 2.3 an explanation of how a living wage is calculated using the Anker methodology. In comparison, Article 8 of the Organic Code of Production, Trade and Investment states that the “salario digno” must equal the cost of a family's basic basket of goods divided by the number of recipients in the household. The cost of the basic basket and the number of recipients in the household are determined annually by the National Institute of Statistics and Census (INEC) and serve as the basis for determining the living wage set by the Ministry of Labor (MDT). The MDT set the value of the living wage for 2021 at $445.41 net. Adding the 13th and 14th salary plus reserve fund minus the social security contribution an employee with a permanent contract working more than one year should have received $462.19 net in 2021.

In comparison, the 2021 benchmark report of the GLWC indicates a net monthly living wage of $462 for workers in rural banana producing areas at the Southern coast region of Ecuador. Thus by law, every worker in Ecuador that holds a formal contract and has been employed more than one year should have received a living wage in 2021.

3. Scope, launch & roll-out of LW Bananas
3.1 What banana volumes are covered under the scope of this initiative?

The designated project scope encompasses each member’s Cavendish banana portfolio sold to the German market, covering all respective product lines excluding explicitly branded bananas. In the case of the retail member dm-drogerie markt – as a retailer without fresh bananas in its range – the scope includes processed Cavendish bananas in own-brand products, such as juices or fruit purees. For the long run, members also welcome a close collaboration with banana brand manufacturers and the inclusion of branded bananas into the scope of engagement in order promote living wages for all workers in all their banana supply chains around the world.

3.2 How does the timeline look like for launch and roll-out of LW Bananas?

Retailers are committed to launch and roll-out LW Bananas according to the following time-bound milestones:

4. Definition of a LW Banana
4.1 What is a LW Banana?

What it is:

This initiative works towards the roll-out of LW Bananas that are produced in compliance with paying a living wage to banana workers. The Retailers acknowledge that ensuring living wages is only possible if responsibility is shared between all relevant supply chain actors.

Hence, a LW Banana may either come from a farm that received a LW differential paid by the Retailers (see Chapter 6.2.1) to reduce or close a prevailing wage gap, or from a farm where it has been verified that a living wage is already paid to all banana workers (see Chapter 6.1.6 on the added value of verification).  

For more information on the characteristics of a LW Banana please consult Chapter 4.2. Chapter 7 provides an overview of the specific requirements for LW Bananas that shall be anchored in sourcing agreements between Retailers and their business partners.

What it is not:

The Retailers’ objective to purchase LW Bananas does not mean that Retailers aim to end supply relationships with farms that are not yet paying a living wage to their workers. Instead, those farms with a prevailing gap shall receive support to increase workers’ wages towards a living wage.

A LW Banana does not necessarily mean that there is no living wage gap on the farm where it has been produced. A LW Banana may come from a farm that still shows a living wage gap even if this farm participated in the project. This is because banana producers usually supply to multiple buyers and markets, meaning that a commitment from all relevant buyers is essential to fully close prevailing living wage gaps. The Retailers will 

take responsibility for the volumes of LW Bananas they purchase from their supply chain partners. This means that a prevailing wage gap will be reduced proportionally by means of the LW differential paid by the Retailer, depending on the share of volumes purchased by the respective Retailer in relation to a farm’s total production (see Chapter 6.2.5)

LW Bananas shall not be an additional product line on the Retailers’ shelves. Instead, Retailers aim to integrate LW criteria throughout their existing banana portfolio. LW Bananas shall become standard for bananas sold by participating retailers on the German market, following a roadmap to steadily increase volumes, reaching at least 50% of total banana volumes* by 2025 (see Chapter 3.2 for details).


*The referenced total volumes exclude explicitly labelled bananas.

4.2 What could characteristics of a LW Banana look like?

Retailers aim to agree on an implementation framework for LW Bananas to reduce complexities and additional burdens for suppliers and producers and to scale impact through bundled efforts.

In order to account for the specific context and needs of a farm, different elements are suggested based on the current status of wages paid (see blue box). More detailed considerations on how to implement those elements are outlined in Chapter 6.  

4.3 What is the retailers' contribution to LW Bananas?

Key objective of this initiative is to support producers to reach and maintain the payment of living wages for banana workers and to promote decent working conditions:

Farms with a prevailing wage gap shall not be excluded from retailers’ sourcing portfolios. Instead, retailers are committed to directly support and remunerate producers working towards closing the gap by paying a LW differential (see Chapter 6.2 for details).

Farms without a prevailing wage gap shall be strengthened and supported to increase transparency on wage and working standards and to use this information in price negotiations with buyers. This shall support producers to sustain high wage and working standards over the long run, also in unstable times. The Retailers are open to discuss the need for additional support for farms that are already paying a living wage to their workers.  

Retailers recognize that the payment of living wages is only one essential piece of decent working conditions. Therefore, another objective of this initiative is to analyze other work-related social risks of workers and to develop solutions to prevent and reduce them (see milestones 6 and 7 of the Roadmap).

For additional commitments of the Retailers in the context of promoting Living Wage Bananas please consult Chapter 7.1.

5. Benefits from a LW Banana
5.1 I am a producer: How do I benefit from selling LW Bananas?

Among others benefits for producers could entail:

  • Producers with a prevailing living wage gap could receive a price premium to pay workers higher wages.
  • Producers that are participating in this initiative could benefit from preferential and long-term sourcing agreements. 
  • Producers can voice their opinions and take active part in a transformation of banana supply chains built on fair and inclusive business relationships.
  • Producers could increase their knowledge & capacities to comply with upcoming criteria of sustainability certifications related to living wages and decent work.
  • Producers could increase knowledge about their work force and wage structure to inform their Human Resource Management.
  • Producers could profit from a more content work force, which could result in higher labor productivity.
  • Producers could profit from reputational gains. 
  • Producers could profit from knowledge shared and networks build during the collaboration between actors.
  • Harmonization of LW criteria among Retailers allows for efficiency gains and reduces burden of handling differing requirements. The Working Group is in close exchange with other European retailers to seek further alignment.
5.2 I am a banana supplier (exporter or importer): How do I benefit from selling LW Bananas?

Among others benefits for suppliers could entail:

  • Suppliers that are sourcing LW Bananas for the Retailers could benefit from improved performance ranking in Retailers’ supplier evaluation.  
  • Suppliers could increase knowledge on working conditions of banana producers.
  • Suppliers could profit from reputational gains.
  • Suppliers can voice their opinions and take active part in a transformation of banana supply chains built on fair and inclusive business relationships.
  • Harmonization of LW criteria among Retailers allows for efficiency gains and reduces burden of handling differing requirements. 

6. First considerations on how LW Bananas could be implemented in practice

In the blue box below the four key elements that shall define version 1.0 of Living Wage bananas are summarized. Adjustments and changes might be needed based on lessons learnt and feedback provided by suppliers, producers and other experts along the way. In the following subchapters, first considerations are shared on how these four elements of LW Bananas could be implemented in practice.  

6.1 Ensuring verified, continuous transparency on wage levels
6.1.1 Why is the analysis of wages a relevant first step to work towards living wages?

The project aims at transforming the banana sector towards living wages through various instruments such as responsible purchasing practices, strong and active workers’ representations, transparency on wages and working conditions and a deepened producer and supplier dialogue. Therefore, a comprehensive overview of the wage situation is indispensable. The project especially aims at reaching farms with an existing wage gap. Most importantly, a prevailing wage gap on a farm will never lead to an exclusion of this farm from the Retailer’s sourcing portfolio. Instead, the project wants to enable these farms to close the gaps by paying additional living wage premiums. Those producers that are already paying a living wage to their workers shall be supported to maintain these high social standards, also in unstable times such as the current pandemic. In both cases, assessing, validating, and monitoring wage levels of banana workers is essential in order to:  

  • Calculate and pay price premiums to close gaps
  • Support producers in developing wage improvement plans, in calculating costs and required price mark-ups
  • Support suppliers in internalizing costs related to living wage payments
  • Assess and monitor impact of living wage payments on wage levels and decent working conditions
  • Create transparency for consumers to increase demand for sustainably produced bananas to justify possible price increases
6.1.2 I am a banana producer: How do I benefit from participating in the wage analysis?

Next to the Dutch initiative*, our German initiative is one of the two biggest banana initiatives ever conducted by a joint collaboration of retailers and can have a great leverage effect.

Filling out the salary matrix holds the possibility of benefits for producers:

  • Receiving a living wage premium: if a wage gap is found on a farm, this farm could receive living wage premiums by the retailers from 2022 onwards to close this gap.
  • Producers can help to design the project for positive impact and bring in their perspective:
    • The producers’ feedback on the activities is very valuable for the Retailers and will play an important role in the further development and design of the project.
    • Where a living wage already exists, this project will work towards ensuring that there will not be any disadvantage for those producers in the future, in case this may have been the case, caused for instance by higher labour costs. In addition, the Retailers are open to discuss the possibility of rewards for farms that already pay a living wage to their workers.
    • Dialogue structures, where it is assured that all parties can express their opinion and ideas, will be initialized.
  • Become familiar with the IDH Salary Matrix (see Chapter 6.1.3) and get ahead of new Rainforest Alliance criteria on living wage: The Salary Matrix is a tool that is used by Rainforest Alliance for wage gap analyses, and which is a core requirement for complying with the Rainforest Alliance standard from July 2021 onwards (Core Requirement 5.4.1**), with exception for Ecuador. The project works in closecollaboration with Rainforest Alliance to pilot the new requirements and strengthen farm capacities to comply with them.
  • Get market advantage in light of the already existing and upcoming due diligence laws in Europe: due diligence legislation in Europe is on the rise. This means the requirement of decent wages and proof for it will receive more importance.

*The German and Dutch initiative are in permanent exchange and aiming at alignment but are NOT the same initiative. The Dutch banana initiative is coordinated by IDH. Find more information on the Dutch commitment here: Banana Retail Commitment - IDH - the sustainable trade initiative (idhsustainabletrade.com)

**For the complete standards, see: 2020-Sustainable-Agriculture-Standard_Farm-Requirements_Rainforest-Alliance.pdf

6.1.3 How are wages analyzed? What is the Salary Matrix tool?

The tool used for the analysis of wages and potential wage gaps is the digital IDH Salary Matrix. The Salary Matrix is a practical tool to help you evaluate how the total remuneration received by your employees (including wages, bonuses, cash and in-kind benefits) compares to the relevant living wage benchmarks for your region. The tool supports supply chain efforts on wage transparency and shared responsibility for addressing living wage gaps.

More than hundred banana producers around the world have already tested the IDH Salary Matrix. We are also using it because consistent and aligned living wage gap analysis is crucial to the effectiveness and credibility of strategies to close gaps and achieve decent standards of living for workers.

Some sustainability certifications already ask producers to assess workers’ wages and potential wage gaps by using the Salary Matrix tool. The Working Group welcomes any efforts taken by the standard setting organizations to work towards an aligned methodology to analyze wages and wage gaps. This uniformity will ensure clarity and reduce complexities and inefficiencies for producers.

Producers and suppliers that are not already familiar with the digital Salary Matrix, can find training videos, guidance documents and support at the IDH website. We highly recommend reviewing these resources, as they will make filling in the Salary Matrix easier.

For more detailed information on the Salary Matrix tool, please consult: IDH Salary Matrix for living wage - IDH - the sustainable trade initiative (idhsustainabletrade.com)

6.1.4 How is the retailers' position on the Exception Policy of Rainforest Alliance regarding the use of the Salary Matrix in Ecuador?

Background: The Rainforest Alliance has authorized the Exception Policy on the Living Wage Matrix in Ecuador, since it considers that the requirements of the Ecuadorian Legislation and the procedures to comply with the Living Wage exceed the requirements indicated in RA’s Sustainable Agriculture Standard for farms and Chain Supply, therefore: Certificate Holders in EC, who must comply with the provisions of the country’s legislation, do not have to apply the Annex S8 Wage Matrix. The Certificate Holders have the obligation to provide the Certification Entities with access to all the information that allows verifying compliance with the legal requirements related to the Living Wage, as well as their supporting evidence of compliance delivered by the competent government entities.

German Retailers Working Group position: The German Retailers Working Group agreed on accepting the Exception Policy of the Rainforest Alliance regarding the use of the Salary Matrix in Ecuador. This is, first of all, to omit a double burden for Rainforest Alliance certified producers in Ecuador: Starting from 2023 onwards, to comply with the sourcing criteria of the German Retailers banana producers only have to fill out the wage data analysis of the government and do NOT have to fill in the Salary Matrix additionally. This also takes into account that the wage data entered into the wage monitoring tool by the Ecuadorian government is more detailed than the data entered into the Salary Matrix. With this decision the Working Group also acknowledges the work and efforts of the Ecuadorian government to secure a decent wage.

6.1.5 In Ecuador, the payment of 'salary dignio' is obligatory by law. Why do I still need to do this analysis?

We recognize that the suppliers and producers have been at the forefront of living wage efforts in the banana sector. With our commitment we want to strengthen these efforts and try to accelerate the progress jointly.

Although, the wage level in Ecuador is relatively high and current evidence indicates that – if existing – the gaps between the prevailing wages and the living wage benchmark are small, detailed information on the wage situation of workers in our banana supply chains of German retailers are not yet available.

To obtain a comprehensive overview of the wage situation, we aim at analysing wage gaps for as many of our Ecuadorian supplier as possible, followed by an extended analysis of wage gaps in other relevant sourcing countries to cover all our banana supply chains. 

Next to the Dutch initiative*, our German initiative is one of the two biggest banana initiatives ever conducted by a joint collaboration of retailers and can have a great leverage effect. The wage gap analysis is an essential step to find ways of and solutions for improving the wage situation of millions of farm workers worldwide. We would be more than glad for you to become part of it.


*The German and Dutch initiative are in permanent exchange and aiming at alignment but are NOT the same initiative. The Dutch banana initiative is coordinated by IDH. Find more information on the Dutch commitment here: Banana Retail Commitment - IDH - the sustainable trade initiative (idhsustainabletrade.com)

6.1.6 Why is it important to verify wage gap information?

Living wage projects, led by diverse groups of partners and stakeholders, are taking place all over the world. As focus on this important topic has continued to grow, so too has the need for uniformity around how living wage gaps are calculated. Consistent and aligned living wage gap analysis is crucial to the effectiveness and credibility of strategies to close gaps and achieve decent standards of living for workers. For buyers or traders that have supply chain partners all around the globe, alignment around both the living wage concept and how living wage gaps are measured is fundamental to building trust and the capacity to scale up. For producers and manufacturers that are asked to calculate the living wage gap at their production level, uniformity will ensure clarity and reduce inefficiencies.

6.2 Living wage gap analysis
6.2.1 The Ecuadorian wage gap report states that the project relates to Ecuador’s “Salario Digno” policy. Which living wage reference value was used for this analysis?

The Anker Methodology with the relevant benchmark – in this case – for Ecuador was used as the living wage reference value for the wage gap report. All IDH-recognised benchmarks are taken into account as part of the living wage banana project. The project relates to Ecuador’s “Salario Digno” policy in that the wage gap analysis was intended to determine whether plantations comply with the statutory regulations.  In particular, this means the following:

“Salario Digno” refers to the concept of a living wage as defined in Ecuadorian employment law. According to Article 328 of the Ecuadorian Constitution, this must be enough to cover both a worker’s own needs plus the basic needs of their family. This understanding is similar to the definition of a living wage supported by the GLWC and the Anker Methodology.

The Ecuadorian government sets the minimum amount that an employee must receive as monthly remuneration for their work or service for a public or private entity. Workers are also entitled to social security benefits and receive a 13th and 14th month salary.

The difference between the concept of a living wage defined by the Global Living Wage Coalition (GLWC) and Ecuador’s “Salario Digno” lies in the calculation method. The Ministry of Labour set the net value of the living wage for 2021 at USD 445.41. Including the 13th and 14th month salary and minus the social security contributions for a worker with a permanent employment contract, they should have been paid a net income of USD 462.19 in 2021.

In comparison, the GLWC’s 2021 Benchmark Report shows a net monthly living wage of USD 462 for workers in rural banana cultivation areas on Ecuador’s southern coast.

In Ecuador’s case, the Anker benchmark and locally defined “Salario Digno” are therefore very close. Data from the salary matrix provided by producers initially suggests that in most cases wages are at least as high as the Anker benchmark and “Salario Digno”. As emphasised in the report, it is essential to verify this data in order to be able to make reliable statements.

6.2.2 What approach does the project adopt? After all, the report initially shows that employers are paying the minimum wage. How can this be categorised?

The project approach is independent of national policies such as “Salario Digno”. For Ecuador and all other relevant benchmark countries, it envisages that, among other things, possible wage gaps will be identified (milestone 3 on the road map). The Anker living wage benchmarks or another IDH-recognised benchmark are always used as the benchmark for this identification and compared with actual wage levels, determined using the IDH salary matrix. Wherever possible, those benchmarks are used that are publicly available on the Global Living Wage Coalition website. These benchmarks are then applied and compared with actual wages.

The project does not focus on the Ecuadorian minimum wage but on the so-called “Salario Digno”. It aims to find out how any wage gaps can be effectively closed. Ecuador is in a special position as it is the only country in the region to guarantee a “Salario Digno” in its constitution. Nevertheless, the analysis has shown that there are farms that do not pay all their workers the “Salario Digno”.

To obtain a comprehensive overview of the wage situation, one of the project objectives is to analyse the wage gaps of Ecuadorian producers and find out why these gaps persist. This analysis is followed by a detailed examination of wage differentials in other relevant procurement countries in order to gradually cover all the banana supply chains of retailers operating within the working group.

As highlighted in the report, the results of the wage gap analysis require further verification. After all, the results are based on statements made by producers while completing the IDH salary matrix. For the published report, data from random farms was validated but not verified. Currently (as of May 2023), the working group is planning further measures to verify wage data and improve data quality.

6.2.3 What does wage data “validation” mean in the Ecuadorian wage gap report?

As described in the report, commissioned experts performed plausibility checks on all the salary matrices received in order to identify any errors that may have occurred when completing them (e.g. ratio between the specified production area and the number of workers) and perform plausibility reviews. Based in part on the results of these initial checks, random remote checks were carried out (data validation). These remote checks included a virtual interview between the expert and the responsible user of the salary matrix at farm level. This involved comparing the salary matrix data with documentation from the farm’s payroll and time recording systems. This remote validation procedure was chosen because on-site verification could not be performed due to restrictions imposed by pandemic-related hygiene regulations, among other things. The risk associated with this remote validation is, for example, that on-site interviews cannot be conducted with workers themselves and that unpaid work or excessive overtime may not be uncovered, which would shed a different light on the analysis results. In future, therefore, on-site verification of wage data will be one of the project’s key objectives.

6.2.4 The report states that “large-scale verification of wage data in the field” has not been possible to date. Is there a plan to verify the data? If so, are there already plans to involve trade unions in this?

In order to obtain even more reliable wage data, short- and long-term measures are planned. The next wage analysis process for salary matrix data from 2022 is currently underway, this time not only for Ecuador but for all the relevant benchmark countries. This process is being undertaken in liaison with the other European retailer initiatives on living wage (see June 2022 agreement). The German working group plans to commission independent auditors for the on-site verification of the salary matrix data from a random sample of the farms involved. Implementation is scheduled to begin in summer 2023, as soon as all the salary matrix data has been received from the producers. This process is in addition to the regular audits by Rainforest Alliance and Fairtrade. Here, too, we are liaising with the other European retailer initiatives in order to be able to cover as many farms as possible through their involvement in this verification process. The process will also be used to prepare a structured analysis of which causes and challenges have contributed to the rather low quality of the wage data.

In addition to this short-term measure, the working group is currently exploring options as to how it can contribute to a long-term improvement in wage data quality and more robust verification mechanisms. Among other things, the working group is in talks with Rainforest Alliance about possible support for a capacity-building programme for producers to help them process wage data and use the salary matrix. This could be an important step towards improving wage data quality in the long term. Fairtrade already offers such a programme for Fairtrade-certified plantations. From the working group’s perspective, it is also essential that the certification bodies ensure that there is appropriate capacity for the relevant auditors to verify salary matrix data. Here too, the working group is in consultation with certification bodies. The working group regards the involvement of trade union representatives in verification processes as an interesting option, which should, however, first be further examined during a small pilot. ALDI Süd has already implemented an initial pilot project and published the findings, as living wage projects always benefit when such findings and best practice are shared. In Ecuador’s case, the situation is difficult: relevant employee representatives hold extremely controversial positions.

6.2.5 According to reports, excessive piecework remuneration and the avoidance of jobs with social security benefits are being used to depress wages. Are these issues captured in the wage gap analysis survey?

The working group is aware that the data collected via the salary matrix may not take account of all the relevant components but is initially based on information provided by producers. There is a hypothesis that there are inaccuracies and errors in the data, which are due to a variety of causes: these range from insufficient capacity for producers to use the salary matrix correctly, through payroll systems that do not adequately reflect working hours and overtime, to the risk that no producer wants to disclose that they are failing to comply with the law and/or constitution.

On-site verifications are therefore regarded as mandatory in order to check the data. Above all, interviews with workers are required. This could be an approach that the relevant trade unions could support in collaboration with the auditors: interviewing employees working on the surveyed farms to verify the data. It is important to aim for an approach that is as scalable as possible and can be applied to the large number of supplying farms.

Finally, we should also mention that the group considers it essential to involve national institutions in order to take the social security system into account, for example. Only national institutions, such as Ministries of Labour, for example, are able to make changes relating to social security and healthcare provision.

6.3 Paying LW differential to reduce wage gaps
6.3.1 What is a LW differential?

A LW differential is a price markup that is paid by the Retailers per banana box on top of the cost price for banana volumes that they purchase as LW Bananas. By paying this LW differential, Retailers aim to contribute to the reduction of prevailing living wage gaps.

6.3.2 How much are retailers going to pay as LW differential?

There will be no universal LW differential, meaning that each Retailer might pay a different price markup. Why: Retailers receive bananas from a variety of farms – some with smaller wage gaps, some with larger ones and others that might not have any gap. The LW differential shall be calculated in a way that considers the individual context and needs of banana farms. Throughout the piloting activities in 2022 mechanisms to calculate the LW differential will be tested with producers, suppliers, retailers and standard setters.

6.3.3 What is a LW premium?

A LW premium is a price markup that a producer receives on top of the CIF/FOB/Farm-gate price for producing and selling LW Bananas. The LW premium shall be used to reduce prevailing living wage gaps.

It is important to note that only if 100% of the total banana volumes that a farm produces are purchased with the LW premium, the prevailing living wage gap of all workers can be covered. See Chapter 6.2.5.

6.3.4 How is the LW premium calculated?

The amount of the LW premium shall be calculated based on validated and/or verified wage gap information and shall consider the producers’ costs for the payment of living wages to his/her workers. All workers on a farm, including those at packaging stations shall be considered.

It is essential to consider the variation in wage levels on a single farm, originating from different tasks, positions, contracts etc. This means that on one farm there might be some workers earning less than a living wage and some workers who are already earning more. At the minimum a LW premium should reflect the costs to lift wages of those workers to a living wage who are earning less than a living wage. The LW premium shall also cover the potential increase in costs for producers such as higher social security contributions resulting from higher wage levels.

One approach that takes into account all aforementioned considerations is the GIZ Living Wage Costing Tool which allows producers to calculate the LW premium (see Chapter 6.2.6). Throughout the piloting activities in 2022 the Living Wage Costing Tool will be with producers, suppliers and retailers. Lessons learnt will be shared.

6.3.5 Will the LW premium enable all workers on a farm to earn at least a living wage?

In most cases farms supply to various buyers that resell again to different retailers. 

The Retailers will take responsibility for the volumes of LW Bananas they purchase from their supply chain partners. This means that the prevailing wage gap of a farm will be reduced proportionally by the LW premium paid, depending on the share of volumes purchased by the respective Retailer in relation to a farm’s total production.

The Retailers lead by example and will publicly share their approach with others to motivate them to follow along. If 100% of the total banana volumes of a farm would be purchased with this LW differential by all relevant buyers, the living wage gap could be closed for all workers.

As long as not 100% of volumes are purchased with a LW premium, the received LW premiums might not be sufficient to close LW gaps for all workers. Fair distribution of these LW premiums among all workers reduces the positive impact on each single worker but still might be essential to avoid social distress. Workers will need to be included in the process to ensure acceptance of the measures.

6.3.6 What is the LW Costing Tool?

The LW Costing Tool is a practical tool to help banana producers calculate the additional costs they will incur to pay a living wage to their workers. The tool is based on recognized Living Wage Benchmarks and producer specific wage data, ideally, the results of the IDH Salary Matrix.

Additional costs are displayed as total additional labor costs (one sum) or as an additional cost per box/ kg (based on production volume). The results of the tool shall support producers or suppliers in their price negotiations.

To consider that different farms have diverse abilities and/or preferences when it comes to closing the gap the tool offers different options or scenarios. The scenarios specify how and to what extent the wages will be raised. Example of such scenarios are:

  • Closing LW Gap by increasing wage of all workers below living wage to living wage.
  • Closing the LW Gap by a certain percentage, e.g. 50%.
  • Closing the LW Gap by increasing the wage of all workers below living wage to living wage and an additional wage increase for all workers already above LW.
6.3.7 Which farms can receive a LW premium?

Key objective of initiative is to promote living wages for all workers in the banana sector. Retailers commit to pay the LW differential to those farms with prevailing wage gaps that supply them with LW Bananas. In all countries except for Ecuador (see Chapter 6.1.4) an at least validated Salary Matrix that indicates a prevailing wage gap, submitted by the producer, is a precondition in order to be eligible for the LW premium. In the case of Ecuador validated wage data submitted to the government tool will be sufficient. The Salary Matrix could still be used by Ecuadorian producer on a voluntary basis. Further details on requirements for producers to sell LW Banana are explained in Chapter 7.1.3.

Retailers recognizes efforts and measures put in place by farms that already closed wage gaps. These farms shall be supported to maintain wage levels of workers (see Chapter 4.3).

7. Criteria of LW Bananas for sourcing contracts
7.1.1 I am a retailer: Which criteria apply to me if I want to sell LW Bananas?

The following criteria could become part of sourcing agreements for LW Bananas between Retailers and their suppliers in the 2023 season:

  • Each Retailer commits to pay a LW differential on top of the cost price per banana box as agreed upon with their supplier(s), in accordance with the approach for calculating the LW differential as agreed upon in the working group.
  • Where a supplier is not complying with one of above criteria (see Chapter 7.1.2), the retailer has to reach out to the supplier to jointly discuss underlying reasons and concerns and to explore solutions; in general each Retailer commits to discussing any feedback and potential risks related to the implementation of this LW commitment with their supply chain partners, especially with producers via the producer dialogue.
  • Each Retailer shall continue with its business partnership and the amount sourced from Ecuador at a steady level compared to previous years. This entails aiming at the continuation or increase of sourcing from already established producers including smallholders; each Retailer shall promote long-term supply relationships between its suppliers and targeted producers.
  • Each Retailer shall build its pricing policy for living wage bananas on a comprehensive analysis of price and costing structures along banana supply chains, as well as on identified wage gaps at production level. In line with antitrust law, members of the German Retailers Working Group will solely discuss with each other commercial parameters on an abstract basis respectively with reference to publicly available information and will at no time share or discuss competitively sensitive / strategic data.
  • Each Retailer shall contribute to develop, test and scale approaches that ensure shared responsibility along its own banana supply chains.
  • Each Retailers shall promote the mapping and traceability of banana supply chains: throughout the continuous roll-out of volumes sourced as living wage banana (see Chapter 3) members aim to shift from a mass-balance approach to fully traceable supply chains.
  • Each Retailer aims to raise consumer awareness and demand for sustainably produced bananas by promoting transparency and recognition for efforts put in place especially by producers and suppliers to ensure a sustainable banana production.
  • Each Retailer must report to GIZ on a set of indicators to monitor purchasing volumes of LW Bananas and payments made in LW differentials throughout each season (specific indicators are yet to be agreed upon). GIZ will not disclose the reported information to third parties, in particular not to other members of the German Retailers Working Group. Reporting by GIZ will only take place in aggregated and anonymized form.
7.1.2 I am banana supplier (importer or exporter): Which criteria apply to me if I want to sell LW Bananas?

The following criteria could become part of sourcing agreements for LW Bananas between Retailers and their suppliers in the 2023 season:

  • Suppliers must only source LW Bananas from producers that comply with the criteria under Chapter 7.1.3.
  • Where a producer is not complying with one of those criteria, the supplier has to reach out to the producer to jointly discuss underlying reasons and concerns and to explore solutions. Suppliers shall inform the respective retailer of such cases.
  • Upon mutual consent between producers and suppliers, suppliers shall forward documentation of wage gap analyses to their retail customers. For data protection purposes it is highly recommended to set up a formal mutual agreement between producers, suppliers and retailers sharing this data.
  • Suppliers shall calculate LW differentials per Retailer based on the joint approach agreed upon by the working group (still to be specified).
  • Suppliers shall preferably keep their farm pools for the respective retailers as stable as possible. This is to ensure that farms are supported in their payment for living wages. This will also consider sourcing necessities (such as changes of farms due to quality or harvest issues).
  • Suppliers shall preferably purchase from those producers that are part of the initiative’s activities within and beyond Ecuador. A mass balance approach may be applied, where needed, to use existing logistical structures and to channel resources to close LW gaps.

Further engagement by suppliers in the following areas is considered essential:

  • Further promotion and implementation of responsible purchasing practices between suppliers and their supply chain partners. 
  • Encourage social dialogue and collective bargaining, and support enforcement of existing labor legislation, increasing minimum wages and strong social protection mechanisms.
  • Participation in dialogue formats between suppliers and retailers, coordinated by GIZ, to work towards common understanding of each actors needs and expectations related to promoting decent working conditions.
  • Regular exchange with producers to raise awareness of this initiative, planned measures and to identify a suitable communication to workers to manage expectations.
  • Provision of feedback on how to further improve effectiveness and user-friendliness of tools, such as IDH salary matrix and Living Wage Costing Tool.
7.1.3 I am a banana producer: Which criteria apply to me if I want to sell LW Bananas?

The following criteria could become part of sourcing agreements for LW Bananas between banana producers and their buyers for the 2023 season.

Applicable to all producers that want to sell LW Bananas:

  • In all countries except for Ecuador each producer must have submitted a salary matrix with at least 2021 and/or 2022 data to the IDH digital platform.
  • For producers in Ecuador an alternative policy shall apply that allows them to use the tools for reporting workers’ wages as mandated by Ecuadorian labor law (see Chapter 6.1.4). The Salary Matrix could still be used by Ecuadorian producer on a voluntary basis
  • Each producer is required to share the excel and/or pdf version of the submitted salary matrix with their buyer. Producers in Ecuador may send a documentation of data submitted to the Government tool instead. Upon mutual consent, producers shall allow suppliers to forward this data to their retail customers. For data protection purposes it is highly recommended to set up a formal mutual agreement between producers, supplier and retailers sharing this data.
  • Upon request, each producer is required to participate in validation and/or verification processes to verify wage gap data; these processes must be conducted by third party auditors. Each producer is required to grant access to all relevant documentation as demanded by the auditing bodies.
  • Upon request, each producer is required to adjust wage gap analyses based on agreed upon amendments during the auditing processes and to resubmit updated salary matrices to IDH digital platform within due time.

Further engagement by producers in the following areas is considered essential:

  • Encourage social dialogue and collective bargaining as well as strong and active workers representation bodies at farm level.
  • Participation in dialogue formats between producers and retailers, coordinated by GIZ, to work towards common understanding of each actors needs and expectations related to promoting decent working conditions.
  • Feedback and recommendations on how to further improve effectiveness and user-friendliness of tools, such as IDH salary matrix and Living Wage Costing Tool.
  • Possible roles of workers committees in using tools and in verifying data.
  • Raising awareness on potential other social risks of banana workers and how working group could address them.  
8. Cooperation with partners and trade unions
8.1.1 Should the wages paid by suppliers be checked by the respective certification body?

The impact and successful implementation of the measures carried out by the group should essentially be ensured by monitoring and verification mechanisms. The working group is in close liaison with Rainforest Alliance and Fairtrade in order to jointly expand and improve existing mechanisms. From the retailers’ perspective, close liaison with the certification bodies is vital in order to reduce the risk of an increased burden on manufacturers due to differing requirements and standards from different stakeholders. However, the aim is also to identify potential additional mechanisms, e.g. second-party audits, and test new solutions for members’ banana supply chains. ALDI Süd has shared information about its pilot project with Banana Link. ALDI Süd has used this project to successfully work with trade unions, which may well be an option for a future verification process.

8.1.2 How does the working group deal with the assumption that overtime is frequently overlooked during audits by leading certification bodies?

Interviews with workers are essential. In Ecuador, workers on farms supplying German retailers have already been interviewed about the prevailing working conditions as part of a baseline study. This survey was based on the ILO’s 10 Decent Work indicators that also address working hours, among other things. The survey results are not yet publicly available. They are currently being finalised and summarised. However, the results will primarily be used to identify drawbacks and adapt the project accordingly.

In the short term, the working group is cooperating with independent auditors, who, wherever possible, do not work for the certification bodies. The intention is for them to carry out second-party audits for the on-site verification of the salary matrix data, in addition to the regular audits by Fairtrade and Rainforest Alliance. At the same time, the working group is openly communicating with Fairtrade and Rainforest Alliance to jointly progress even more targeted solutions, such as developing even more reliable mechanisms for measuring and verifying wage gaps.

8.1.3

At a European level, the working group liaises closely with other retailer initiatives – in the UK, the Netherlands and Belgium – and works closely with IDH, as the coordinator of these initiatives. This collaboration aims to coordinate the objectives and activities of retailers from European countries in order to increase leverage in the production countries and reduce the additional costs for producers and suppliers. As well as regular coordination meetings, there are also events where learnings are shared with relevant supply chain stakeholders. The project therefore forms part of a global strategy, while implementing measures at a local level.

8.1.4 How does the collaboration with trade unions work in Ecuador?

As planned, a grant agreement was concluded with Banana Link in late 2022, which is currently being implemented. Banana Link is helping SINUTRABE to improve its negotiating skills with regard to decent work and living wages. Banana Link is also helping SINUTRABE to develop its communication expertise. No other formal partnerships are planned for the time being. The working group explicitly emphasises the importance of all trade unions recognised in Ecuador working constructively together. In the best-case scenario, this also includes other trade unions outside of Ecuador in order to learn from other countries such as Colombia, where collective bargaining agreements are already regularly negotiated by a recognised trade union in one of the relevant regions.

8.1.5 Why was employee representation, which is normally trade unions, not involved from the outset in the generally welcome approach to living wage efforts in the Ecuadorian banana industry?

In its road map, the German Retailers Working Group on Living Income and Living Wages highlights the importance of employee representation for the successful implementation of the project and, of course, the verifiable payment of living wages (see milestone 7). It is therefore essential to involve trade unions in the process. However, it is important to consider who you can work with, to what extent and in what form. During the project development phase, the trade union landscape was analysed and SINUTRABE identified as a recognised trade union in the sector.

The working group therefore decided to conclude a grant agreement with Banana Link. This is currently being implemented as planned. Banana Link is helping SINUTRABE to improve its negotiating skills with regard to “good work”, including living wages. Banana Link is also helping SINUTRABE to develop its communication structures in order to transparently present its work to the outside world and thereby achieve greater recognition and broader impact. As already explained several times, there are historical reasons for this: during the project development phase, SINUTRABE was the only trade union recognised by the Ecuadorian government.