Banking the Unbanked

The importance of financial access for rural communities in developing countries

Most of us dislike the idea of being isolated. Isolation may be the result of a form of segregation and we all aim at taking exemption to any form of racial, social and economic segregation. Yet, financial institutions have contributed to a form of economic isolation that does not seem to bewilder us. To start with an example, if today the financial systems in our countries stopped operating altogether, and we could not access our basic financial services because banks had closed their doors and ATMs stubbornly refused to cough up cash, one can just imagine how lost most of us would be. Well, according to some estimates, as many as 3 billion people experience this on a daily basis, and most of them live in the poorest areas of the world. The world’s poorest lack access to those basic financial services that most of us, living in the so-called developed world, take for granted. Those without collateral are rejected from financial access as they are judged to be uncreditworthy. Additionally, producers who operate in highly volatile sectors such as agriculture, especially the small-scale ones, are seldom given credit either. The links between hunger and poverty, agriculture and the need for improved and equitable access to credit and finance are stronger than one would think.

The microfinance revolution
In recent years, the supply of financial services to the poor in developing countries has improved. Such improvement has to be mainly ascribed to the development of microfinance. Ever since the United Nations organized International Year of Microcredit 2005, and Muhammad Yunus and the Grameen Bank were jointly awarded the Nobel Peace Prize in 2006 for “their efforts to create economic and social development from below” through microcredit loans in Bangladesh, the success of microfinance has become irrefutable.

Financial access matters for poverty and hunger alleviation
Access to basic financial services is an effective tool for poverty and hunger alleviation. The number of public and private commercial banks, savings banks, agricultural and development banks, credit unions, cooperatives, commercial and non-commercial institutions that supply financial services inspired by microfinance principles have contributed to the creation of innovative products that are increasingly giving the poor a chance to lift themselves out of poverty by building up their assets and increasing their earnings. Moreover, it has been noticed that the attainability of the Millennium Development Goals (MDGs) can be strongly impacted through improved access to finance for the world’s poorest. MDGs refer to the availability of a supply of loans and other basic financial services (savings, insurance and payment services) which would enable poorer people to accumulate assets, use accumulated savings and/or borrow credit to invest in income-generating assets, thus reducing their economic vulnerability (e.g. in case of crisis).

Agricultural (lack of) finance
Agriculture renders employment and subsistence for a substantial part of the population in developing countries. In Africa, agriculture employs approximately 60 to 70 percent of the labour force. In spite of the growth in financial services described above, many people, most of them living in rural areas and engaged in small-scale production, still lack access to finance. Less than 20 percent of the population in many countries of Sub-Saharan Africa (SSA) have an account at a financial institution (see: figure 1). Broader access to credit would allow smallholder farmers to purchase agricultural inputs and equipment, and livestock that would make the farmers more productive and increase their agricultural added value. Increasing agricultural productivity would ingenerate a rise in output, which in turn increases the incomes of the households, thus decreasing food prices, and thereby alleviating hunger. Hence, many development economists believe that the future development of SSA, for example, relies on the creation of economic conditions for growth, not only in the industrial sector, but especially in rural areas. Yet, if access to financial services for farmers is a key factor for agricultural development, fostering productivity and food availability, why do so many smallholder farmers still lack it? What has deterred financial institutions to reach wide segments of rural population in developing countries?


Barriers to broader financial access
For producers in many areas of the world, the distance to the nearest branch of a bank can be kilometres away. Such distances can be explained by financial institutions being primarily urban-based, by sprawled and sparse population, and by the infrastructural isolation of rural areas in many developing countries. Distance from credit can also be just metaphorical. Many farmers lack suitable collateral as a result of a weak legal and regulatory framework and the poorly defined property and land-use rights in their countries. Furthermore, rural agriculture activities and incomes are seasonal and vulnerable to natural disasters, and financial institutions seem to be unable to diversify the high risk stemming from agricultural activity. Production cycles are longer and many institutions do not have suitable financial instruments to meet the financial demands of farmers.

Supply chain management has potential
It is recognized that one of the main sources of credit for smallholders are other business actors along the supply chain such as input suppliers, local traders, processors, and exporters/wholesalers. For example, financial institutions tend to approve agribusiness’ non-conventional documents of wealth as collateral, such as harvested crops for warehouse receipt financing. Hence, the private sector can play a central role in filling part of the gap of unavailable credit to farmers.

Innovative approaches to finance for rural communities
Root Capital is a non-profit social investment fund that goes beyond traditional methods of collateral, in order to broaden financial access for rural communities. It works with future sales contracts from companies like Starbucks, Whole Foods, and Marks & Spencer as a form of collateral. Another interesting initiative is the Alliance for a Green Revolution in Africa (AGRA). AGRA partnered with Stanbic Bank Uganda and Kilimo Trust, and announced US$25 million in loans to linked Ugandan smallholder farmers and agribusinesses associated to the following food crops: maize, sunflower, barley, rice, sorghum, beans and soybeans. Accordingly, in absence of (and waiting for) structural intervention of public and financial institutions in developing countries, more food and beverage companies could and should support all those initiatives that develop new products and systems which mitigate and manage risk, thus fostering broader access to finance to farmers at better terms. Such attention may improve the creditworthiness of farmers and unprotected businesses in the agricultural sector, increase availability of collateral, and reduce transaction costs for remote rural areas.

As Muhammad Yunus affirmed, expanding poor people's access to financial services is not charity. “This is business: business with a social objective, which is to help people get out of poverty.” Since it is business, shouldn’t business actors care too?

Senait Zere
As a Project assistant Fairness Issues Analysis for the Research department at Fairfood, I carried out research on the links between access to finance, hunger and poverty, and sustainability in agriculture and food and beverage production.

To learn more about expanding poor people's access to (rural) financial services visit: Consultative Group to Assist the Poor (CGAP), Microfinance Gateway, Rural Finance Learning Centre (RFLC).
Documentary suggestion: Banking the Unbanked

Fairfood Talks: Fairfood’s lobby, explained in four steps

Fairfood International is a non-profit campaign and lobby organisation. We are often asked how we organise our lobby trajectories towards food and beverage brand owners. The answer to this question is simple; Fairfood has standardized its advocacy trajectories in four steps. The end result of all trajectories should be the same: the company we target will increase the level of sustainability of its brand products. Read on for more details on what those four steps entail.

Keep it simple in four steps
Fairfood lobbies towards brand owners. Brand owners are companies that market food products under their own brand regardless of geography (i.e. where they market their products). Fairfood talks to retailers which own a line of home brand products, like Euroshopper (Ahold) or Fairglobe (Lidl), and similarly companies like Nestlé (say, about the Kit Kat bar) and Chiquita (concerning bananas). With a relatively small team of lobbyists, Fairfood is able to approach many companies worldwide. The trick of being successful on such a large scale is ‘to keep it simple,’ making sure the lobby is clear for everyone involved.

Here are the four steps into which Fairfood has standardized its lobby trajectories:

Step 1 – Introduction and explanation of Fairfood’s approach
Fairfood International recognizes transparency and accountability within its lobby work as core values. Therefore, a lobby trajectory with a brand owner always starts with a thorough introduction of who we are and how we work. This way, the brand owner will know what to expect from Fairfood. We also explain Fairfood’s expectations of the brand owner which is to increase the level of sustainability of his products. If the brand owner is willing to do so but has no idea how, Fairfood will guide and consult the company to get in touch with the right people, organizations or companies that can help with implementing changes for greater sustainability.

Currently, Fairfood has approached over 1,350 international headquarters of brand owners in this first step. The focus is on the international headquarters, as that is where decisions are made. It is of no use convincing Nestlé Belgium to make their products more sustainable, when decisions concerning this issue are made in Switzerland, Nestlé’s headquarters.

The range of the brand owners is extensive. We are active in 66 countries, from the United States to Japan to Swaziland to Iceland.

Step 2 – Sustainability dialogue through an account manager
During the second step, an account manager from Fairfood will be in touch with the brand owner. The account manager is the personal link between Fairfood International and the company. During the dialogue with the account manager, the brand owner is given the opportunity to explain the steps which have already been taken to improve the level of sustainability of its brand products. Fairfood is also very interested in the (near) future plans concerning sustainability and possible dilemmas the brand owner is facing. Together with the account manager, the brand owner can define a timeline regarding how and when to resolve such issues. If needed, Fairfood will try to assist the company by offering access to its associated partners and experts. This is an extensive network of NGOs, universities and individual experts. It is the brand owner’s responsibility to find the right solution for a problem and make the necessary changes to increase the level of sustainability of its brand products.

The second step of this lobby trajectory should enable the brand owner to make a sustainability claim on its products. If for some reason the dialogue between Fairfood and the company stagnates here, the account manager informs the company that Fairfood will proceed with its lobby and initiate the third step.

Step 3 – Dialogue at management level
When the negotiations with the account manager do not result in a sustainability claim, the account manager will inform Fairfood management about the results of the first two steps. At that moment, our management will decide what the following steps will be. Fairfood may decide to plan and use campaigning and communication tools to encourage the brand owner to increase the level of sustainability of its products. Since we subscribe to transparency and reliability as a matter of course, our account manager will always inform the brand owner about this decision.

Step 4 – (Possible) usage of campaigning and communication tools
When all prior steps do not result in the brand owner making sufficient and/or credible specifications concerning the level of sustainability of its products, or it fails to come up with an ambitious and realistic plan on how to increase the level of said sustainability, Fairfood might decide to start using campaigning and communication tools to further persuade the brand owner. Depending on the situation, Fairfood could also decide to share these experiences with our partner network and ask them to join forces.

End result: sustainable
The only way for the brand owner to stop the lobby trajectory at this phase is by publicly making a sustainability claim to us about its brand product(s). Alternatively, the brand owner may come up with a plan acceptable to our account manager regarding how to establish a valid sustainability claim in the near future. In some cases, the increased level of sustainability of the brand products is achieved very rapidly, in others, it takes more time. However, the end result of all lobby trajectories should be the same: the brand owner has increased the level of sustainability of all its brand products to such an extent that they can be considered sufficiently sustainable.

More sustainable food production benefits people, planet and profits. To resolve poverty and hunger, the production and trade of food and beverage products will need to become more sustainable. Companies should take responsibility for their products. The impact of brand owners on sustainability is crucial; any increase in the sustainability of their products starts with their decision to implement this goal. That is why brand owners are the focus of Fairfood’s lobbying activities.

Han Valk
As the manager of the Lobby Department of Fairfood International, Han is responsible for developing new plans to realize campaign and lobby goals. Contact Han or follow him on Twitter, where he keeps you up-to-date on his activities.

Fairfood Matters: Fairfood’s Solution of the Month I – “Nature & More Initiative”

Solution of the Month
With the current proliferation of sustainability initiatives, it becomes relevant to initiate a platform in which to discuss the relevance of each initiative towards agro-food and beverage product sustainability. Similarly, we must consider their contribution to global developmental issues like hunger and poverty alleviation. Fairfood’s Solution of the Month directly complements its organizational mission by providing a platform in which the contributions of sustainability initiatives towards trade and other developmental issues can be discussed.

Every month a certification label or sustainability initiative is selected by Fairfood’s Solution Analysis project (for more information refer to “Solutions to Sustainability”). A representative of the selected initiative organization is invited to deliver a presentation and engage in discussion with Fairfood covering three areas including:

(1) The profile and progress of their initiative
(2) The relevance of their initiative to brand product sustainability
(3) The impact or contribution of their initiative to crucial developmental issues such as hunger, poverty, and climate change.

For the launch of the Solution of the Month, Fairfood’s Solution Analysis project selected the Nature & More initiative from EOSTA. Volkert Engelsman, CEO of EOSTA, was invited to Fairfood International last November to present and discuss aspects of this initiative.

Interesting discussions – interesting outcomes:
“Meet the grower” tool
Nature & More was developed by Dutch fruit and vegetable distributor EOSTA. Its “meet the grower” initiative is used by EOSTA to ensure that all products they distribute meet consumer expectations on organic and fair trade issues associated with fruit and vegetable production. Each product has a unique personal stamp or code which consumers use to verify the commitments of the grower towards social, ecological and quality practices, directly from the grower’s story on the Nature & More website. One fundamental premise EOSTA applies is expressed by Volkert who stated, “Why commodify your products if you have a unique story to tell?” So far, the initiative has information on approximately 32 fruit and vegetable growers in about 24 product groups.

Sustainability Flower
Volkert illustrated how the sustainability efforts of growers can be known via the recently launched sustainability flower. This flower is a web-based navigation tool that captures the vision that the farmers share with Nature & More on producing quality food in a socially responsible and ecologically sustainable way. The centre of the flower depicts the individual producer’s efforts in three spheres of social responsibility: Justice, freedom and solidarity. Each of these spheres have Key Performance Indicators (KPIs) used to measure the growers commitments.

The leaves of the flower represent environmental footprints such as energy, water, air, soil, etc., and for each leaf (or environmental aspect), the grower’s commitment is explained. Through the flower, consumers are informed about the sustainability aspects of each product, which empowers the consumer to make informed purchase decisions.

Climate Neutral Certification
To maintain their crop yields, farmers depend increasingly on expensive chemical fertilizer. Fertilizer use exhausts farmlands and contributes to more Green House Gas emissions. In 2008, in close association with Soil & More and TÜV Nord, Nature & More growers started supplying certified climate neutral fruits and vegetables.

Nature & More’s Climate Neutral principle is based on a large scale production of compost through unwanted waste as well as animal and plant bi-products that would have been otherwise dumped into the environment. This essentially helps to avoid methane emissions and as a result, facilitates carbon credit earning. Nature & More’s process of carbon credit generation, is done based on the United Nations Framework Convention on Climate Change (UNFCC) guidelines and verified by an independent third party accredited by the UNFCC.

Cooperation with Fairfood International
The solution of the month platform was seen as the first step in cooperation between Fairfood and Nature & More. One area of common ground between the two organizations is an interest in ensuring that food and beverage brand products meet social and ecological sustainability expectations while also providing some benefits for vulnerable groups in agro-food production and trade chains. In addition, some aspects of sustainability expressed in Nature & More’s sustainability flower are also as expressed in Fairfood’s Sustainability Agenda.

Next Solution of the Month
On the 25th of February, Fairfood welcomes Nathalie Steins, the Manager (Netherlands) of the Marine Stewardship Council (MSC) as our guest. The MSC product label is a common feature on fish/seafood products in supermarkets in 65 countries around the world. Stay tuned!

Iris Dicke – Project Assistant Solution Analysis
Iris identifies and analyzes various certification labels and schemes. She is currently handling the coordination of the ‘solution of the month’ program at Fairfood.

Fairfood Talks: BioFach 2010

Engaged to be married? – The fair trade movement discussed at BioFach 2010

Last week, 2500 exhibitors and brand owners from all over the world presented their organic products at BioFach in Nürnberg. For twenty years, this B-to-B exhibition has been the meeting point for organic business and stakeholders who discuss developments and trends in more than 130 accompanying events including conferences and lectures. This year, the organizers of BioFach put an emphasis on "Organic + Fair" production. Udo Funke, one of these organizers, suggests that this is a perfect combination because a growing number of consumers are concerned with how the products that end up in their shopping basket are produced. But this "perfect combination" is presently not running too smoothly as implied through a closer look at the products and the discussion.

The organic umbrella organization International Federation of Organic Agriculture Movements (IFOAM) states in it's guidelines that companies should abstain from marketing their ‘organic’ engagement when social standards such as human rights are at stake. Nonetheless, organic labelling and socially sustainable production are still at separate ends of the spectrum. Similarly, fair trade certification does not imply that products are organic, as fair, ethical, and/or social certification schemes do not necessarily make their producers comply with organic standards. For example, the leading Fair Trade Labelling Organization (FLO) does advise their producers to go organic, but argues that technical, organisational and financial hurdles would be too high for its mainly small-scale producers.

The second reason 'organic' and 'fair' have not been able to tie the knot just yet is due to the unconsolidated and competitive landscape within “fair” certification schemes. This debate became visible during the panel discussion entitled “One fair idea, competing standards – Is harmonization possible?” Here, criticism of the fair trade labelling landscape as it currently exists was voiced by the certifiers themselves, as well as by producers, consumers and civil society organisations.

For example, newer certification schemes for fair, social and ethical production from ECOCERT, the IMO, or the IBD are trying to address the mistakes made within the fair trade movement in the past. These mistakes encompass including organic standards, shifting emphasis towards product quality, or certifying the entire product as opposed to using the fair trade label on products in which the ‘fair’ ingredient is marginal. These actors agreed that progress will be achieved through the mutual recognition of existing solutions, thus working together on the strengths and weaknesses of the fair trade movement. So far, social and fair initiatives have failed to form a common forum or umbrella organization. This criticism was partly aimed at FLO due to its monopolistic position in the field.

In general, participants at BioFach discussed dealing with domestic fair trade movements that focus on regional production; this was acknowledged by all stakeholders as the upcoming trend in the sector. Moreover, producers reminded certifiers of their duty to provide information to the consumer, so not to contribute towards an ‘inflation’ of fair labels. Despite the pitfalls, the majority of stakeholders had a positive outlook on developments in the sector and suggested reviewing the progress in terms of consolidation of fair, ethical and social standards next year, at BioFach 2011.

Janna Busse
Project Leader Lobby - Berlin

Fairfood Talks: Sustainable Entertainment part 3 - Foodprints on Film

More and more documentaries are made about how we produce and consume our food on a global level. Artists are occupied with food these days, explained Director of the Stroom Den Haag , Arno van Roosmalen, to a full Filmhuis theatre at the Foodprint Filmfestival’s kick-off screening. This month, the Filmhuis screened a selection of documentaries including:

The Garden (2008),
FOOD, Inc. (2008), and
The Real Dirt on Farmer John (2005)

We sent some Fairfoodies to check them out.

The Garden (2008)
Scott Hamilton Kennedy, Director/Producer

This Oscar-nominated documentary depicts the struggle for the survival of one 14-acre community garden, planted and harvested by 347 mostly-Latino families living in South Central Los Angeles. This urban garden project, considered the largest in the United States, becomes a focal point of backroom deals, cultural conflict, and grass-roots activism.

Upon receiving their first eviction notice from the City of Los Angeles, the South Central Farmers find themselves caught among secret dealings between the property owner, the Concerned Citizens of South Central LA fighting for a soccer field, and representing a segment of the black community — and a tight-lipped City Councilwoman whose voting constituency does not include the Farmers — all of whom, in their own interests, want the Farmers out.

The film shifts between courtroom, garden, and government grounds, straightforwardly detailing the farmers’ course of action. Suspense rises and picks up near the end when the Farmers are offered five weeks to earn 16.4 million dollars to maintain the land. Joan Baez calls the mayor’s office, Rage singer, Zack de la Roche, beats Spanish words into the garden benefit microphone, Dennis Kucinich makes a campaign visit as presidential candidate. Media coverage grows, until the LA Times publishes their own investigative story; even Fox News’ heads are talking.

Eventually, the landowner lifts the shroud: “It’s not about money, it’s about I don’t like their cause…” The tidy, green rows of corn and lettuce, filmed against California sunshine and palm trees — and ultimately gaining more audience sympathy than the farmers themselves — are mercilessly bulldozed, while protesters rumble with the LA police. Despite the questionable legal proceedings and the impressive citizen and media support, the garden was destroyed. Two years later, the grounds remained empty.

Food, Inc. (2008)
Robert Kenner, Producer/Director
Eric Schlosser, Co-producer

This well-produced documentary illuminates and explores the mass-producing corporate machine that is quietly and steadily gaining control of the United States food supply. Four giant meat companies command 80% of the market, while Monsanto alone has a near-monopoly on seeds. The audience gets insider access to an industrial food system in which one hamburger might contain bits of more than 1,000 different cows, and becomes aware of the fact that one quarter of the products in the average American supermarket contain corn or its derivatives.

Farm animals and crops have been altered by hormones, genetics, pesticides and ethylene gas, to grow bigger and fatter, while farmers have morphed into mechanics, removed from the pastoral life and given the sole purpose of feeding and oiling the machine. Farmers have sacrificed rights, producing at the whim of the companies. Factory workers, often Latino immigrants, are also a dime a dozen — at risk of losing fingernails, being coated with animal guts and feces, and being discovered by immigration patrol.

This fast-paced, colorful documentary is organized around interviews with Michael Pollen, author of Omnivore’s Dilemma, and Eric Schlosser, author of Fast Food Nation, who detail the current state of the system, much as they have in their books. The statistics and technicalities they offer are set to music, provocative graphics, colored with scenes from the industry itself, and emphasized with stories of people’s personal encounters with the system — the family that counts every penny and fills themselves with fast food, the playful disgust of the organic farmer, and the mother of a child who died from eating an E. coli infected hamburger, who runs up against the cold, ambivalence of the USDA and FDA regulatory agencies in her lobbying for more honest government oversight.

And how might things change, the film ponders? Promoting a more risqué method, Chairman, President, and CEO of Stoneyfield Farms Gary Hirshberg, once a young idealistic street promoter of organics, asserts that only Goliath can beat Goliath. By building his own (organic) corporate giant, he can bring “organic” to the conversations of corporations, such as Walmart. But today, when Colgate owns Tom’s toothpaste, Pepsi owns Naked Juice, Groupe Danone owns Stoneyfield Farms itself, and federal regulation is lax — how organic is “organic?” The film doesn’t explore that concept — but nonetheless asks viewers to vote three meals a day: for local, fair trade and organic.

The Real Dirt on Farmer John (2005)
Taggart Siegel, Producer/Director
Teri Lang, Producer

The Real Dirt on Farmer John follows the transformation of the American family farm from the 1950s, as seen through the life of John Peterson. In his struggle to keep his family’s farm running and profitable, John’s story mirrors that of so many farmers in the United States. The pressures from massive debts accumulated in the 1980s, housing developments encroaching on good agricultural land, and the loss of the rural community force John to sell most of his land and eventually reevaluate his entire approach toward his land and farming.

After decades of struggle, Farmer John decided to re-open his farm in the early 1990s as an organic biodynamic farm. Since his small plot of land (now only 20 acres) couldn’t compete with industrially produced organic produce from California, John decided to focus on a new niche — CSA.

Community Supported Agriculture (CSA) is a model whereby consumers pay local farmers in advance to grow their produce. Farmers receive much needed money to buy seeds and equipment in advance, and consumers get a box of locally grown organic produce delivered each week. It presents many people whom otherwise would have no access to seasonal, locally grown produce with a direct source of healthy foods.

The film briefly touches on the realities of farm work — the crucial role of seasonal Mexican labor and idealistic youth who will work in exchange for food and accommodation — but it doesn’t explore the world of agricultural labor in-depth. Instead, it focuses on the transitive power of CSAs to reunite people with the source of their food. The trauma of losing rural communities throughout the United States has now led to a vibrant movement to rediscover the local and organic, and to revive rural areas.

Maya Curry, Project Assistant English Website
and
Elise Montano, Project Assistant Solution Analysis General

Fairfood Matters: From Transparency to Accountability

Suggestions for companies looking to make their CSR report something to be proud of!

At the beginning of each year, the communications department of most multinational firms will be busy writing up not only the company’s annual report, but also their Corporate Social Responsibility (CSR) report. One trend identified at the conference of the Global Reporting Initiative (GRI) in 2009, was how CSR reporting would be integrated into the normal annual report. These trends show that CSR is becoming a larger part of core business activities.

With phrases like “CSR is in our DNA” becoming more commonplace, people may be skeptical of how serious businesses take the CSR reporting, more specifically, CSR performance. Fortunately, there are front runners, but their flashy CSR reports often seem green-washed by PR experts. Yet integrated or not, the lay-out, structure and flashy presentation of most CSR reports is not that important; what’s important is the content. Below are a few suggestions for companies looking to make their CSR report something to be proud of.

Go beyond the ‘usual suspect’
CO2 footprints, water reduction ambitions and charitable donations unfortunately remain the focus of most CSR reports. Of course, these initiatives can be acknowledged and applauded, but they are not necessarily where a company can make the most impact. The more significant questions for which to seek answers are, for instance, the social aspects of a bank’s investment policy, whether or not an electronics manufacturer has a position on their iron chain, how a food and beverage brand owner ensures that the working conditions on the plantations from which they source are fair, etc. What’s more, it is relevant to know about the field in which the company is directly operating and where they have the most impact, and thus the most responsibility.

Supply chain focus
Most food and beverage companies directly or indirectly source from plantations all over the world. Oranges from South Africa, coffee from Brazil, and cocoa from Ghana present diverse challenges and issues to be tackled which, in essence, calls for different CSR approaches. In order to make a claim on whether their sustainability issues are being tackled, the corporation must be transparent about their supply chain. Without some level of traceability to the production stage, it is impossible for a company to know how their policies influence the livelihoods and environments of farmers. Linking their CSR efforts and reporting to their supply chains gives the reader the correct context in which to value their efforts.

Tax transparency
Most companies take on a ‘triple P’ (People, Planet, Profit) approach towards CSR. However, aside from financial, social, and environmental performance, companies can make good progress if they include their economic responsibilities and impacts in their CSR reporting. For instance, this year Fairfood is anticipating that companies report their tax policy and payments, or simply publish what they pay. Aggressive tax policies and tax avoidance influence the economic impact of a company, both in the developed and developing world. Companies will make progress simply by being open about how they view this economic responsibility and how they plan to incorporate it in the coming year.

Be the best in class; get an A+
Where financial reporting is strictly enforced and comes with rules and regulations, CSR reporting is still not obligatory. It remains a self-declaration by companies in which they can include or exclude whatever information they wish. Fortunately, the framework developed by the GRI is taken as a starting point by many companies which creates a starting point for uniform reporting, crucial to comparing the social performance of companies. However, many companies pick and choose the issues they disclose, only coming to a B or C level on the GRI Index. Full disclosure on all general issues, sector specific issues, and management approaches, which would give the report an A level, is still not the norm. However, even more rare is external validation of the report (in 2009 only 16 companies based their A+ level on external validation).

Let’s hope this year the reports move from a hint of transparency to real accountability.

Aisha Schol
As Project Leader Assurance, Aisha handles the sustainability claims made by Brand Owners.

Fairfood Matters: Some Corny Facts

Maize, or corn as it is called in most of the world, is a type of grass. It originated in Mexico some 7000 years ago and was brought to Europe by Christopher Columbus. It eventually reached all corners of the world and is now cultivated everywhere except Antarctica. Of all of corn’s production, only 20% is destined for human consumption; 66% is used for livestock feed, and 10% for industrial purposes. However, a meager 2% is the type we eat (i.e. corn on the cob), and the other 18% is planted to a variety that is inedible for humans unless it is milled and further processed. Yet, once milled and processed, corn can become practically anything from a breakfast cereal, the thickener in your ice-cream, or the ubiquitous sweetener, high-fructose corn syrup. (See: A World without Corn) But there is more to corn than meets the taste bud. Below we discuss its main producers, their production processes, and the biggest weaknesses in the corn sector.

Where corn is king
So who produces our corn? Over 40% of the total world production of corn comes from the United States. The second producer, China, produces half this amount; runners-up including Brazil, Mexico and Argentina trail by six, three, and two percent, respectively. While corn is a staple food in most developing countries, it is not widely consumed in industrialized nations but used mainly for industrial purposes and animal feed. Methods of production also vary. In the United States, corn production is highly mechanized –characterized by the use of heavy machinery and lots of chemicals. The rest of the world is somewhat divided. There are large operations similar to the ones in the U.S., but also those of subsistence farmers who produce for themselves and their own livestock, and who do not use machinery or other inputs. It is this mechanization, and need to push the crop to yield more and more, that earned corn such a mediocre grade in the sustainability scorecard.

Money matters
In the United States, the massive subsidies that corn receives are making this crop profitable to farmers. An article in The Economist (2006), states that, between 2002 and 2005, corn received 46% of agricultural subsidies in the U.S. The highly subsidized products distort international markets by artificially deflating prices making it impossible for farmers in other countries to compete against such low prices. Furthermore, it is large commercial farms that receive this type of assistance, rather than small family owned farms which the subsidies were once intended to assist.

Corn is a thirsty crop
In order to thrive, corn requires large amounts of water. Exactly 900 liters of water are needed to produce one kilogram of maize because the plant must let out water vapor for its leaves to absorb carbon dioxide. When corn production is localized in areas with little rainfall (i.e. U.S. corn belt), irrigation systems are developed. This puts considerable stress on aquifers and other water sources. The state of Nebraska is one example of a location in which over half of U.S. corn irrigation takes place. Nebraska relies on the Ogallala Aquifer – one of the world’s largest. It is the single most important source of water in the High Plains region of the U.S. and provides nearly all the water for residential, industrial, and agricultural use. But the Aquifer’s water is being depleted faster than it can be replenished. Although there are increasing concerns over how this will affect industries and residents in the area, farmers are being driven to increase corn production for ethanol. Annually, this would require an additional 120 billion gallons from Ogallala. This situation is simultaneously occurring in other producing countries. In the North China Plain for example, the annual drop in the water table has increased from 1.5 meters to 3 meters.

Corn production is a dirty business
Both water and air pollution result from corn production. Water pollution occurs during its cultivation, while air pollution during its processing. The high amounts of fertilizers and herbicides used to get high crop yields eventually find their way into water sources. Atrazine, an herbicide used mostly in corn plantations, has been found in quantities that far exceed the allowed limits for health standards. Several studies have also linked Atrazine to sexual abnormalities in frogs and elevated levels of prostate cancer in workers at Atrazine manufacturing plants. Fertilizer runoff from corn plantations near the Mississippi River is blamed for depleting oxygen from a portion of the Gulf of Mexico, now called the “dead zone.”
In terms of corn processing plants, several have been charged with emitting large amounts of pollutants such as carbon monoxide and volatile organic compounds (VOCs). VOCs contribute to smog and are responsible for health problems in humans such as eye irritations, asthma, liver problems, and cancer. In 2005, one of the leading corn processors, Cargill, was ordered by courts improve its nine corn processing plants due to air pollution. ADM has also been charged with air pollution due to its corn milling industry, ranking second in the Toxic 100 companies list published by PERI in 2008.

Earth, wind and water – a disappearing act
Corn production leads to more soil erosion than any other crop in the world. This is mainly due to the physiology of the plant. The deeply penetrating roots cannot stabilize fine soils very well making them prone to wind and water erosion. Also, since groundcover is established quite slowly in the springtime in comparison to other crops, it leaves the ground exposed to the elements of climate. This is easily remedied through intercropping with crops that provide higher ground cover, such as beans or soy. Yet, farmers increasingly abandon these traditional practices to increase profits.

Corn cultivation: Child and forced labor
Corn production has two weaknesses in terms of labor issues: the existence of child and forced labor in its cultivation. Yet, many countries such as Brazil and Argentina have put forth considerable efforts aiming to reduce and eventually eradicate it. Brazil for instance, has reduced child labor by half in the past decade. However, maize production still accounts for one of the highest rates of injury for child workers in Brazil.

There are also recent reports of forced labor occurring in some areas of Brazil. Despite the governments’ efforts to end this practice and rescue the victims, the sheer size of the country makes this an overwhelming task.

In the U.S., current agricultural laws allow children as young as twelve years old to work unlimited hours outside school in commercial agriculture. Children under twelve can also work if they obtain parental permission. Human rights organizations such as Human Rights Watch are continuously lobbying to change these laws.

All is not lost
The good news is that there are some initiatives showing that production does not have to hinder people or planet. Several Better Management Practices such as no-till farming to reduce soil erosion, as well as cover cropping and crop rotation, help minimize the impact of farming on soils. There are also multiple labels that certify corn such as Rainforest Alliance, ProTerra, EcoSocial, and organic labels.

Milena Garita
As a former Project Assistant for the Research Department at Fairfood, I carried out a sector analysis for maize. I investigated its chain of production and looked at its strengths and weaknesses.

To learn more about maize production visit: Cimmyt, The Great Corn Adventure, Poisoning the Well.

Movie recommendations: King Corn, Food, Inc.
Book recommendation: Omnivores Dilemma