Ms Rudloff, what are the benefits of a supply chain law?

The Federal Government is fine-tuning a law that would require companies to ensure human rights – a supply chain law. What are the consequences for the agricultural sector? Dr Bettina Rudloff from SWP discusses linking policy fields with added value.

A coffee plantation in Peru. © Leslie Searles, GIZ
A coffee plantation in Peru. © Leslie Searles, GIZ

Jan Rübel

Jan Rübel is author at Zeitenspiegel Reportagen, a columnist at Yahoo and writes for national newspapers and magazines. He studied History and Middle Eastern Studies.

Has the voluntary self-commitment approach failed?

 

I wouldn’t call it an overall failure: According to a survey, only a fifth of German companies have complied with their voluntary due diligence to ensure human rights standards along the supply chain. But on the other hand, this also means: Some very large companies have complied with them and others have at least given some thought as to how human rights aspects are to be implemented and where the obstacles are.

 

This 20 per cent also shows that there is huge potential and a lot of options, right?

 

Exactly. It is important to looks at these experiences in particular. This makes it possible to make improvements in developing the delivery chains so they become more sustainable.

 

And the 80 per cent?

 

Here, we need to take a close look at the reasons. Companies do not reject them for no reason, there are some implementation difficulties. These experiences must also be included when adjusting supply chain relationships.

 

Particularly the smaller companies are currently arguing that they would be overwhelmed with such a law.

 

This is why it is so important to talk about the implementation to find solutions to the difficulties here and in supply countries: How can they overcome these demands? I think it would be beneficial to have simplified common approaches, branch associations where possible and that already exist as private initiatives, joint inspections or reporting.

 

When we read media reports about the supply chain law, they often talk about decency and fairness. Is it not short-sighted to only take these values into consideration?

 

Ethical reasons are an argument. Internationally, a stronger argument may be incentives in order to achieve sustainability in other countries as well. This includes not only human rights but also has ecological and social aims. But how can they be achieved in these countries that are far away and make their own political decisions? What do we do when, for example, states do not comply with climate agreements? This leverage can help. A supply chain law is applicable at the place of consumption, i.e. here in Germany. Here, it may be more important to find a consensus for sustainability - which is difficult enough - that then allows for measures to be decided in our own political processes. Since it is economically attractive to sell goods here, producers in other countries will join in.

 

Presentation of the 10-point plan for sustainable cocoa: German Development Minister Gerd Mueller with German Agriculture Minister Julia Kloeckner at the International Green Week © Janine Schmitz, GIZ
Presentation of the 10-point plan for sustainable cocoa: German Development Minister Gerd Mueller with German Agriculture Minister Julia Kloeckner at the International Green Week © Janine Schmitz, GIZ

So companies should do what governments cannot?

 

That is one of the criticisms: Companies are being given a public political task such as ensuring human rights. I see this as one voice in a concert of different measures - the company is just one player of many, while the state must remain a more important player that makes rules, here in the consumer country and also in the production country. If these rules are not set or implemented by politically sovereign states, it is a good idea to look for other solutions. A supply chain law would be like a piece of the mosaic that has to be embedded: In good relationships with the supply state, for example, so that it also supports the law.

 

If not, what happens?

 

This kind of law could drive out very small enterprises if they simply cannot meet certain standards and do not have any local political protection. In this respect, the state is not out.  Standards are generally documented with certificates that have to be achieved. For small-scale farmers in Africa, this can quickly become too much. Even compliance with the standards costs money - this can be easier and more cost-effective for larger companies than for small-scale farmers. And ultimately, compliance is also easier to check if only a few large companies are inspected instead of many small companies that are spread out.

 

Are there any ideas on how to deal with this?

 

This can be supported by development programmes. But more than anything, the supply countries have to want it. The corona crisis has shown how closely interwoven trade chains are with each other. It is possible that a producer can no longer deliver to Germany but to countries that do not have supply chain laws - which can be cheaper. This would also not help human rights or sustainability.

 

And what about the responsibilities of the producers in Germany, what are the consequences of a cow in a German stable on African agriculture?

 

It is important that many small political elements complement each other. When products cross the border, trade policy rules are required. Certifications at the borders could be made easier or tariffs could be reduced if they are attached to conditions such as sustainability. Domestically, products that could pose a risk to sustainability should be looked at more carefully. Animal farming needs feed, for example. Particularly the protein content is imported into the EU in the form of soya. How sustainably is this soya produced? Agricultural policy could also increasingly include indirect consequences for the environment and climate in the costs so that less animals are kept. To eliminate the risks of soybean cultivation, support could be given to farmers in the supply countries that sustainably cultivate soybeans. For German farmers, that would be more expensive; these costs would have to be offset with higher prices as is the case with organic products or with subsidies. It is also important to prevent cheaper competitor products replacing the expensive products at the border. Then nothing would change for the human rights and sustainability aims in the production regions. In addition, trade regulations that support sustainable imports would be required.

 

Do such trade regulations have to be on a voluntary basis?

 

This makes it easier because the World Trade Organisation does not like certain rules binding that discriminate against other states. This includes procedural rules, as there often is for sustainability and that do not lead to difference physical product properties.

 

Is there any leverage for example when trading agricultural products with African countries? The tariffs are already low, if not non-existent.

 

That’s true, the options to use tariffs as an incentive are relatively limited - particularly for raw products. This is different for processed products: It must usually be ensured that all components come from the country with which a certain tariff rate has been agreed. But this hinders processing. Africans would only be able to deliver chocolate to Europe at a zero tariff rate if they only process sugar and milk from Europe - and not, for example, from Brazil, even through the prices would be better. In these cases, conditional rules on origin could be useful, similar to conditional tariff incentives: So if I can prove that I produce a product sustainably, I can also use other components from other countries. This would also broaden the value added chain in African countries.

 

Zambia, Chipata, COMACO Processing of peanuts from contract farmers, sorting of roasted peanuts. © Jörg Böthling, GIZ
Zambia, Chipata, COMACO Processing of peanuts from contract farmers, sorting of roasted peanuts. © Jörg Böthling, GIZ

How exactly would this be implemented? There has been talk about it for years but we are still trying to get rid of our own products.

 

And that is not a bad thing. The demand that the EU should no longer export anything to developing countries because it is ruining everything there does not go far enough. While there is this risk in some countries with some products, there are other countries that, for example, have never had their own substantial milk sector.  So milk products from the EU are useful in this case. Exports also generally lead to cheaper prices, which poor African countries urgently need. But if local production is being pushed out due to exports from the EU, the reasons for this have to be analysed: It is often the costs for feed, energy, hygiene and particularly for logistics and packaging that are unbelievably high. These domestic competitive disadvantages can be offset with development measures, but also have to be a political priority in the countries affected.

 

Could such measures be taken?

 

These measures already exist. For example, Ghana has its own programmes to support chicken farmers. It is important that these countries choose and implement these programmes.  Development policy can then support them.

 

Can we really expect an EU-wide initiative on supply chain responsibility soon?

 

The first proposals are to be put on the table this autumn. The European Parliament is currently preparing them for a big parliamentary debate in autumn. Then there has to be the official proposal from the Commission - and ultimately it goes the typical route of the European legislative initiatives that generally take longer. As with the German supply chain law, there are still some questions to be answered: Is the focus only on human rights or also on other sustainability dimensions? It must also be clarified what company sizes are to be covered and how strict liability and sanctions are to be regulated. Ultimately, this EU-wide approach is the right thing to tackle domestic competitive disadvantages for individual companies and industries and certain EU countries and to have more of an effect.

 

There are currently so many initiatives: Is this a clear sign that comprehensive supply chain regulations are coming?

 

The problem with predictions is that they are always about the future. There is a trend towards more sustainability and includes entire supply chains. It is also important to highlight that this can only be one building block. It is not a cure-all and can even distract from other problems. It is always about the import side – i.e. ensuring human rights and sustainability in a country that delivers goods to us; we then process the imported goods. Maybe the situation will be reversed in the future: Maybe we will be large suppliers to regions in Asia. This would not be covered by our supply chain law, it would be up to the Asian countries to ensure compliance.

 

Is our thinking too one-dimensional?

 

It is certainly important to also consider the other direction. For raw products, the supply relationships are often very typically from developing countries to developed countries. This is why it is important to also see Germany and the EU as exporters - and the consequences this has for human rights and sustainability. In that respect, trade policy and investment protection policy play a bigger role.

 

Do you have any examples?

 

An example would be the human right to food, which could be at risk due to trade bans that are often used and permitted by the WTO and could quickly be seen during the corona crisis. These can be used with no further criteria or deadlines if there are worries about supply shortages. If large exporters do this, they not only limit the range of products, but cause prices to rise so high that economically weak food importers often have to pay exploding prices. Here, the EU and other like-minded countries are attempting to demand stricter rules at the WTO in order to prevent a frivolous rise in prices.

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