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Hard Labor: Lower supermarket food prices tighten squeeze on migrant workers

In the summer of 2018, Finland's biggest grocery retailer, the S Group, asked Oxfam to conduct an unusually rigorous examination — to scrutinize the supply chain through which it sources Italian tomatoes to assess its impact on human rights.

The study, which was prompted by growing reports of the widespread exploitation of migrant workers in Italy's agricultural sector, took six months to complete. Among the findings: S Group, which runs 1,800 retail outlets and reported 2018 revenue of €11.5 billion, routinely used its market clout to negotiate lower prices for canned tomatoes from its Italian suppliers. A more uncomfortable discovery was an indirect link between those low supermarket prices and the exploitation of migrant workers at the end of the supply chain in the sun-baked fields of southern Italy.

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Read the first article here and the third article here.

The data showed that the prices paid by S Group to private-label suppliers of tomato products in Italy between 2014 and 2018 fell 15% to 25% in real terms, and the prices paid for branded tomato products fell 10% to 20% in real terms. Over the same period, Italy's big tomato processors paid 10% less for raw tomatoes purchased from farmers. Those price declines occurred at a time when trade unions had negotiated an 8% wage increase for tomato farmhands, but which never got paid, according to Oxfam. The reason: the price declines had squeezed farmers' tight margins, providing them with an incentive to avoid paying workers the higher negotiated wage.

"The price-setting power of supermarkets is a key contributor that drives human rights violations" across major food supply chains, said Tim Gore, a policy adviser on food justice at Oxfam International who led the S Group analysis. "To meet declining prices, actors with the least power usually get hit the hardest when the squeeze comes on. In this case, it's migrants."

The S Group's scrutiny of its supply chain for Italian tomatoes is one of the most comprehensive human-rights appraisals done by any supermarket group. It illuminates a global problem: how the low prices of hundreds of common grocery items, from peaches and pears to zucchinis and tomatoes, have become increasingly disconnected from the true cost of labor used to produce them, and indirectly contribute to the exploitation of migrants working in agriculture.

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A study published in 2017 by the Center for Research on Multinational Corporations, a Dutch nonprofit group, found that six of Europe's biggest supermarket buying groups supplied products to more than 230,000 stores, run by supermarket chains with combined annual revenue of more than €700 billion.

Supermarket chains, under pressure from discounters and competing for cost-conscious customers, have boosted that bargaining power via a spate of mergers and joint purchasing agreements. In March 2018, Tesco PLC, the U.K.'s largest food retailer, bought Booker Group PLC, the country's largest wholesaler. Soon after, Tesco and France's Carrefour SA, with combined annual sales equivalent to $170 billion, formed a global purchasing alliance designed to cut prices on scores of food products.

In the U.S., Inc. in 2017 sent ripples through the grocery market when it swallowed Whole Foods Market Inc. It has lowered grocery prices several times since then.

Wielding clout

Amazon didn't respond to requests for comment. In an email, a Tesco spokesman said the company "has been recognized by Oxfam as doing most of all major supermarkets globally to ensure human rights are respected in food supply chains. We work closely with suppliers, [nongovernmental organizations] and others to improve working conditions, and promote decent wages and fair working hours for agricultural workers."

The S Group may operate in a small northern enclave of Europe, but it still wields plenty of clout. It is owned by 2.4 million Finnish residents, or the majority of the country's households, via their ownership of 19 regional cooperatives that make up S Group. Those cooperatives, in turn, own S Group's central purchasing arm, SOK Corp., the focus of Oxfam's assessment. S Group not only buys premium branded products via SOK, but it also acquires private-label products via Coop Trading, a sourcing company for the biggest retailers in Denmark, Norway, Sweden and Finland.

SOK said the findings of the Oxfam investigation have persuaded it to seek a more ethical price for tomatoes based on the true cost of labor. In addition, it is pushing big Italian tomato suppliers to take tougher steps to improve labor conditions. The Finnish company also plans to apply its findings from Italy to its procurement practices for other foods in other countries. "There are a lot of vulnerable workers" linked to various food products, said Sanni Martikainen, corporate responsibility manager at SOK. "We see similar trends in other European countries" where migrant labor is common.

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Migrants make up about 16% of the agricultural workforce of high-income countries, typically in low-wage, physically demanding jobs, according to the International Labor Organization. They gather blueberries in Australia, harvest oranges in Florida and pick strawberries in Spain. In the U.S., the share of hired farmworkers not legally authorized to work has jumped from 14% in 1989-91 to about 50% today, according to the U.S. Department of Agriculture. Migrant workers also are a mainstay of global seafood production and meat processing.

In Italy, most of the tomato field workers are migrants from Africa and Eastern Europe. Their numbers in recent years have increased with the arrival of war refugees and asylum seekers. The United Nations estimates that more than 400,000 agricultural workers in Italy are at risk of exploitation, and almost 100,000 likely face inhumane conditions.

In October 2018, the U.N. dispatched Urmila Bhoola, a South African human rights lawyer, to get a first-hand view from Italy. Bhoola said she saw "conditions amounting to slavery" imposed on many migrant farmhands, including paltry wages, 17-hour working days and slum-like housing settlements that lacked sanitation or running water, and access to medical care. Bhoola encountered the case of a young Bangladeshi man who was recruited in his home country, promised work in the Gulf region, but was trafficked instead to the fields of Italy, where he was forced to pick watermelons and live in a caravan. Bhoola also pointed out that some workers were forced to take performance-enhancing drugs to boost their stamina.

"I had a romantic notion about the fruits and vegetables that come from the idyllic, verdant fields of Italy," Bhoola said in an interview. "But the reality is so brutal. Someone buying tomatoes in a western supermarket wouldn't understand how much blood and sweat has gone into producing them." Bhoola presented her findings to the U.N.'s Human Rights Council in September.

Tackling migrant exploitation

In response, the Italian government in a Sept. 9 statement said that it took Bhoola's concerns and recommendations "very seriously." The government added that in December 2018, it had set up a committee, chaired by the labor minister, to tackle labor exploitation comprehensively, and that the labor ministry had spent €85 million to address the problem since the beginning of 2019.

In the fall of 2018, ESG research firm Sustainalytics organized a week-long trip to give investors a ground-level appreciation of forced labor in Italy's tomato sector. Representatives from several Swedish institutions, including life insurance company Skandia and two large state-run pension funds, AP3 and AP7, visited tomato farms and processing factories, as well as Italy's ministry of labor and local food cooperatives.

"It was a trip to understand the root causes of exploitation," said Flora Gaber, a sustainability expert at AP7. Gaber said that she and other visitors were struck by two issues that contributed to labor exploitation: the pricing pressure from supermarket chains, and a local bureaucracy that makes the labor-recruitment process inefficient. AP7 now plans to team up with other investors and to see if they can persuade Swedish retailers to push for changes. "The question is, what can I do as an investor to influence the situation on the ground?" said Gaber.

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Despite the growing concern of investors, large supermarket chains have made only modest headway in tackling human-rights problems in their supply chains. Some companies such as Walmart Inc., Kroger Co. and SOK, occasionally use third-party "social audits" to assess labor violations. However, those audits rarely go deep enough and often fail to identify many incidents. Walmart and Kroger didn't respond to requests for comment.

Aware of the limitations, SOK in June 2018 asked Oxfam to undertake a more detailed "human rights impact assessment." Oxfam's team pored over SOK's commercial data, analyzed the pricing dynamics of big tomato processors and interviewed migrant workers.

Tomatoes aren't only a centerpiece of Italian cuisine — they are big business. With 5.2 million tons of tomatoes processed annually, Italy is the second-biggest processor after the U.S. and represents 14% of global production, according to a 2018 study in the journal Sustainability. Italy sells €3.1 billion-worth of tomato products each year, about 60% in overseas markets.

SOK spends more than €5 million annually to buy about 5,000 tons of Italian tomatoes as canned, paste or puree. Each year, it negotiates prices with its suppliers, including two of the biggest, La Doria SpA and Mutti SpA. The processors set their prices with tomato farmers, while trade unions separately negotiate the wage rate for workers. That is where a key problem emerges: under constant pressure to keep costs down, farm owners routinely undercut the legal wage.

Many of the workers interviewed by Oxfam said they earned between €3.50 and €4.50 per 300-kilogram crate of tomatoes picked, which translates to about €4.20 per hour, well below the threshold of about €7.35 set by wage agreements. La Doria, which reported revenue of €688 million in 2018, said wages below the minimum legal level were paid in about one-third of the assessed farms from which it buys tomatoes, according to the Oxfam report. La Doria did not respond to several requests for comment.

Disputing the findings

Mutti, a closely held company with annual sales of about €300 million, disputes the finding on prices. "I cannot accept it because Oxfam's investigation was not done with our suppliers," said Ugo Peruch, agriculture director for Mutti, adding that the company always paid above-market prices to ensure high-quality fruit. Peruch said the problem of exploited migrant labor in the tomato industry "is still there, though it is being reduced."

The challenge is made all the harder because of caporali, organized criminals who control the hiring process of migrants from recruitment in their home countries to employment in Italy. They house workers in makeshift camps, charge hefty fees for transporting them to the fields and often confiscate their passports and identity papers, according to a 2018 assessment by Australia's Minderoo Foundation, publisher of the Global Slavery Index. "Illegal recruitment practices were widespread, and there were few methods to combat [them]," said Martikainen, of SOK's own findings.

Such practices are also common in the farming of produce in Italy such as peaches, oranges, asparagus and grapes. Of the approximately 400,000 migrant workers in Italy, 16% work on an informal basis and 38% earn less than the official wage, according to the FLAI CGIL trade union. A 2017 study published by risk analysis firm Verisk Maplecroft concluded that the influx of migrants had increased the risk of "slavery incidents" appearing in corporate supply chains across Europe and that Italy was one the top five high-risk countries.

In 2016, Italy passed a law criminalizing the exploitation of migrants and other laborers by caporali. It made employers liable and included sanctions such as the seizure of assets. The government sent out inspectors to perform spot checks on farms. But observers say that the enforcement of the law is weak and the exploitation continues.

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In its Sept. 9 statement, Italy's government said its labor inspectorate had "significantly improved the results of its actions against illegal recruitment in agriculture, and this good trend has been further improved in the first five months of 2019." The inspectorate plans to recruit about 1,000 new officials, mainly labor inspectors, in the 2019-2021 period, the government added.

In a March article published on the website of medical journal BMJ, a team of public health experts documented some of the hardships farmhands in Italy face. "Over the past six years, the number of agricultural workers who have died as a result of their work is more than 1,500," they wrote. "Some have died in fires in ghettos, one hit by a train while returning from work, others dying from exhaustion or killed by intense manual labor. Others have been killed by 'gang-masters' — the so-called caporali, who are modern slave masters."

In the high-profile tomato sector, such incidents have provoked an outcry and spurred some change. Before 2019, for example, Mutti bought a portion of its tomatoes from farms that used a migrant workforce. In response to pressure from SOK, Mutti said it now buys tomatoes only from farms that use machine harvesting, thereby distancing itself from migrant labor. In another response to SOK, Mutti in June introduced a whistle-blowing system allowing anyone in its supply chain to lodge complaints related to human rights violations. Mutti also agrees to the purchase price of tomatoes before the annual planting, so that farmers — and perhaps laborers — are not at the mercy of price fluctuations at harvest time.

'Pushing suppliers to act'

"We are pushing as much as possible to get our suppliers to work in the proper way, to get the ethical aspects under control," said Mutti's Peruch.

Oxfam, meanwhile, is urging more supermarket chains to enact their own human rights impact assessments, or HRIAs, similar to the one done by SOK. In 2019, four food retail giants, including Koninklijke Ahold Delhaize NV, owner of Food Lion, Stop & Shop and Hannaford, and Jumbo Groep Holding BV of the Netherlands, ALDI GmbH & Co. KG Essen of Germany and Tesco of the U.K. committed to conduct and publish the results of at least three HRIAs that focus on workers, farmers and women. Still, the problem could take years to fix.

"Whether you're talking about women who peel shrimps in Thailand, people who pick fruit in northern Brazil, or those who pick tomatoes in Italy, the working conditions in different parts of the world are very similar," said Gore of Oxfam. "Supermarkets need to realize what a minimum price would look like, to ensure that laborers get a fair wage and have their human rights respected."