00:00:00: Due diligence laws are coming into fashion they aim to hold companies more accountable for their products across the entire supply chain.

00:00:10: Today we will look at the agricultural sector and ask due diligence regulations in Supply chains well-intentioned but also a risk for sustainability.

00:00:21: I'm Nicholas Martin thank you for joining the 5th episode of our podcast shaping sustainable Supply chains.

00:00:29: Music.

00:00:40: Many European countries have passed due diligence laws they are supposed to tackle human rights violations like child labor or poor working conditions along the entire supply chain

00:00:54: the European Union is also working on such a law which will also focus on environmental risks such as deforestation in Supply chains but the new legislations also carry risks

00:01:08: this is what we want to highlight today and we want to focus on the agricultural sector and specifically on smallholder farmers

00:01:17: my guest is dr. Bettina root LA from the German Institute for international and security Affairs as WP

00:01:24: she specializes in European trade and development issues and she advises stakeholders who negotiate or are affected by trade agreements

00:01:34: so she will bring the bigger picture to our show hello Bettina great to have you with us hello Nicholas happy to be here.

00:01:43: And for the local perspective we have dr. Michele bun top with us

00:01:47: he is an agricultural Economist and expert on Rural Development and food security at the German development institute's gie he has been doing research on the ground for more than 30 years with a focus on West Africa cotton producers

00:02:03: but he's also been researching other smallholder farmers and agricultural workers and their labor conditions good to talk to you Michelle.

00:02:11: Hello Germany and other countries have long relied on voluntary corporate due diligence or

00:02:21: trade and investment agreements to ensure a level of sustainability in Supply chains

00:02:27: but now we are seeing more and more countries adopting National due diligence laws.

00:02:33: France the Netherlands and most recently Germany have all passed such laws.

00:02:39: You both told me earlier that you are critical of the moves so in a few words was it a mistake to pass such a legislation in Germany

00:02:48: I think the diagnosis of many serious infringement of human rights law and of course also environmental problems is right also the intention of the value chain law is right we

00:03:00: wants to have better conditions but I think a value chain law is not the right instruments it has more risks and negative consequences

00:03:09: and for this reason I would in summary say no I don't think it's a good idea to establish such laws what do you think patina.

00:03:17: I think especially it's important not to rely let's say completely alone on such due diligence acts it's just one instrument within a

00:03:30: huge orchestral let's say playing about sustainability development issues and it's important to see how these Arrangement all together fits with each other

00:03:41: where are all these specific strengths and limitations we are into linkages so to use really

00:03:48: best of all these single instruments instead of now relying so much on these new idea these new measure

00:03:55: so we're going to talk about the orchestra later on but let's take a.

00:03:59: Step back just looking at one instrument which is the due diligence law actually there are many of them right now in Europe especially what do they all have in common

00:04:11: Michelle I will

00:04:13: concentrate here on the human rights perspective of these due diligence laws and you mentioned already several of the issues which are child labor for example there are some people talking about up to

00:04:23: 100 million children working under extremely sometimes extremely bad conditions and many of them in agriculture no doubt about that.

00:04:33: Another issue is slavery or forced labor and we have heard in the news for example about these issues in China very recently

00:04:41: but also in a speaker stand and India is a case which is very renowned for red conditions

00:04:47: labor unions and free negotiation of Labor conditions is another fundamental right is one of the ILO International Labour Organization core conditions

00:04:56: and I think finally the working conditions more in general and also

00:05:00: sometimes you hear about wages incomes of laborers and of molars are also subject to intended laws it is not always in the laws but there are

00:05:11: strong intentions and pressures to bring living wages living in comes into such legislation and make importing Enterprises responsible.

00:05:21: For respecting all these laws throughout the value chain not only for the first tire companies

00:05:28: in the direct delivering countries but also over many sometimes 67 countries and stages down to producers in poor countries.

00:05:38: And now there's also another layer coming upon all these due diligence laws and that are already have been adopted which is the European due diligence law alright Betina.

00:05:49: Yes mihael talked about the first Tire.

00:05:52: Approach the European idea is a bit more risk-based they want to limit it to certain already known specific risk.

00:06:02: Products or risk companies in the value chain so not for

00:06:07: each step before your own company so you see that are some relevant differences what is all in common is it's mandatory for the companies so.

00:06:20: Instead of the now or prior existing voluntary issues there's a kind of

00:06:26: penalty for sin which could be really a monetary fine which could be as well and exclusion from public tendering for instance

00:06:35: and in the you to act upon that maybe as well it will be relevant that there should be an European right approach

00:06:43: otherwise you will end up in intro European competition which could be disadvantage for certain National companies which could be as well a problem for the consumer in the end all these products

00:06:54: affected Maybe by different legal acts are sold in one and the same European market and you can't really different say that

00:07:02: good enough as a consumer and finally as well for the delivery countries for instance developing countries facing them.

00:07:09: A lot of different legal acts which will end up to larger costs.

00:07:15: So it's more or less already a fact that the European law will replace the other National loss or this is still to negotiate usually that's the idea.

00:07:24: But it will last a bit the adaption phase is more than one year once the commission started the formal legal decision process so an in these time in between

00:07:36: there will be this different National initiatives Michelle you talked at the beginning about.

00:07:45: Unintended consequences.

00:07:48: And Michelle you have good contacts on the ground and you have asked the managing director of the African cotton Foundation Belinda Edmonds for her opinion

00:07:56: just information that African cotton Foundation has the AIM

00:08:01: I'm quoting from their homepage to provide the critical link between smallholder farmers and the market

00:08:07: so let's hear what spill in the atmospheres are in general terms based on average yields and acreages

00:08:16: about 1140 African smallholder Farmers produce the equivalent amount of cotton fiber as one commercial Farm of 500 ha.

00:08:28: Considering that in some cotton producing countries Farm sizes in excess of 10,000 hectares.

00:08:35: The economic implications are clear loss of access to these markets would likely result in a steep increase in poverty levels.

00:08:44: Reduced food production and a negative impact on the GDP and foreign reserves of several African countries Michelle that sounds quite

00:08:53: drastic why is she so convinced that these economic implications will come true you told me earlier that you fear so called leakage effects in particular is.

00:09:05: That what Belinda at months is addressing here

00:09:07: she sees the risks he is not very sure about it because she also proposes measures to counter Valdez effects but yes there are real points let us stop a while with child labor which I think is the very basic risk in problem in Cotton Farmers we know that

00:09:25: children both from the Family Farms but also from other Farms are working particularly during the Harvest of cotton.

00:09:32: But for smallholder Farmers it's extremely difficult to prove for example that these children they have a sufficient education it's cool so that the accepted level of child labor which also exists

00:09:45: that it is not exceeded and that is the risk then that for a German buyer of textile from Bangladesh

00:09:52: which has traveled the whole world and finally we know that there are some African cotton Farmers behind it who have produced The Cotton it can be

00:10:02: hundred thousand of smallholder farmers for which you do not know the conditions for the children which are working on these Farms so what would we do what with the Enterprise do if the risk is important and if there are high fines.

00:10:16: You go to a larger firm for which the supervision costs and also the ease of supervising are smaller so there is a shift from small to medium and large Farmers you would also go to a country where you know that the government supervision and maybe also the typical level of wages

00:10:33: if high high enough for a family to live on so you would go from a very poor country to a medium.

00:10:39: Income countries to ensure that you're fine with the due diligence that you are due diligence that you don't have to invest too much and that you can be relatively sure that the risk protocols that you have established our really reproduce on the ground.

00:10:51: These are the fears and third fear is certainly also that you go for example to do reduce those works for example we have talked to you about Harvest of cotton you can mechanize it

00:11:02: so you would also try maybe to substitute capital for labor which is good for your balance in the human rights

00:11:11: conditions but of course with that doesn't have the poor families who have to make a living out of that you already touched it due diligence regulations have an impact on trade relations Bettina what could be the implications if we look at the international trade of agricultural products the European or the German companies maybe they feel it to be too risky to make business with certain

00:11:35: companies and delivery regions that is one international possible trade deviation that one is doing business with other

00:11:44: delivery regions which is in the end not sustainable because then there will be no income generated there there will be no technology transfer there will be no Investments that's as well not a sustainable development goal actually the other type of

00:11:58: leakage effect deviation effect is very much known from the climate policy areas so that's the other perspective that's more from the

00:12:10: delivering region so if you can decide what is your expertise your nation and then you face an expert installation with.

00:12:19: Imposes very complicated and in the end expensive requirements

00:12:24: on the value chain you may decide oh that's too expensive for us it's too complicated really to do all these monitoring issues we actually go for another destination and that means okay the European companies are not guilty anymore they are not responsible for certain kind of sustainable development problems but they still remain

00:12:46: because it's a country still is doing the problematic things but for another destination market and that as well is actually

00:12:53: should not be the idea of supporting sustainable development you have no mentioned some of the risk of these laws but

00:13:03: I mean we all agree that from a German perspective and you touched it right now Bettina the outcome of such a law is that German companies will no longer be significantly involved in human rights violations.

00:13:15: Some help putting the question to you isn't that great news.

00:13:19: That's very great news for the German companies and the German producers because he has a good Consciousness he can consume with good Consciousness his products

00:13:28: but the state of the world and of the poor Farmers is not better and that is my argument it is maybe worse and very often we will not even know about it because we lose these poor farmers who drop out of the value chains or who are not integrated in them because we do not take account of them we don't monitor it

00:13:46: and that is my complaint is that yes for us it is greenwashing of our value chains if you want to

00:13:54: but it is not improving the state of the world but isn't it worth a try we have it is may be worth a trial I'm not getting that I think

00:14:02: as more formal evaluation is and more you have fixed relations between the partners better this this kind of law will work because then the Enterprises are ready

00:14:15: invest but trial means that you also test and as a scientist I would then say take the disadvantages and the risks

00:14:24: the supposed risks very serious and have a accompanying research and be ready also to withdraw and try other things out.

00:14:33: If I can add to pain that one should remind what is one origin actually one political or strategic origin of this whole approach of due diligence

00:14:44: even if there are unintended risk and even if there are issues on deficits on implementation.

00:14:52: The other approach is to

00:14:55: have the state as being responsible and not the company and that exists as well of course we have trade agreements there the partner State like for instance thinking about the you Max ooh agreement recently nearly finalized negotiated still not adopted or ratify

00:15:15: and they are the partner side so the mecha-suits states would be the responsible ones

00:15:20: to fulfill certain sustainable development chapters in this agreement and critical voices say that is the

00:15:27: better way because anyhow such essential issues like human rights should not be just thrown to private actors and companies responsible for that that is really an original state and public task

00:15:42: Bots now there comes about this is not so easy to be enforced thinking about a sovereign.

00:15:50: Trade Partners sovereign state

00:15:53: what are you going to do as a state is simply not fulfilling these requirements how could you enforce it and that's easier to be enforced

00:16:03: VR the companies in your own territory because you can force them you can really do a legal act and then throughout the value chain

00:16:11: app to the delivery region that will be fulfilled so that

00:16:15: is one of the Strategic thinking use this type of key entry points to support the Fulfillment of Human Rights if it's more difficult to do that with in trade agreements for instance with the sovereign

00:16:31: trade partner.

00:16:32: Germany has passed such a law the European law is in the making and you touched it already Michelle what should be changed so that the negative effects you have mentioned do not happen as you have painted them.

00:16:46: We know already from smaller labels from voluntary standards

00:16:50: did very often a higher quality in processes and products are accompanied by training

00:16:57: research and Technology development input subsidies strengthening of the value Chain by either Enterprises but also by for example very strongly development cooperation so that should be certainly accompanying measure in such trials that you have.

00:17:13: The rules are that you also accompanied not only the companies the whole value chains all the actors it is multi-stakeholder approach which is needed here

00:17:22: to help them Implement these requirements and care that this Dropout effects do not happen

00:17:29: so that's in Porous are included and not excluded.

00:17:33: Michelle you also ask Bill in the Edmonds from the African continent Foundation to send us her expectations let's have a listen.

00:17:41: We need to provide culturally sensitive training on our human rights expectations and the provision of practical Solutions.

00:17:49: For example improving the accessibility to and affordability of education for Rural children has been shown to significantly reduce child labor.

00:18:00: A real value must be placed on environmentally sustainable production including the potential carbon sequestration opportunities.

00:18:09: And we must ensure a trade-related Level Playing Field and fair consistent application of penalties for non conformance.

00:18:19: It sounds a little bit like Belinda is calling for more Western support for small farmers right.

00:18:26: Exactly that is her conclusion and not to rely on regulations without support and I think that is really the key we cannot accept let's say now we can of course we can accept the risk and we do it but we shouldn't do it so that means for example

00:18:41: that we should really invest more directly into companies

00:18:45: and a company private Enterprises in creating this better conditions

00:18:51: we do it already for some for example for small companies for fair trade for special Niche products

00:18:59: but we very rarely do it for larger value chains in these cases we

00:19:04: often explicitly exclude any profit or support for the company in its Core Business activities and that of course is not what Belinda is asking for she asks directly

00:19:15: intervene into the value chains and try to bring these Partners better together and for example if she asked for support in children education that is means for example we should also take in.

00:19:27: Into account that these countries are not industrialized countries and children are

00:19:32: supposed to work on the farms what is important is it that in the end they have a better education in this kind of producer families then in non producer families so again a much better harmonization

00:19:44: of trade regulations and development support and that may fit to an anyhow new

00:19:52: strategy of the you on trade policy the you developed a new trade policy strategy just in February and there's one huge new objective to.

00:20:06: Support enforcement and they have again two new measures how to do that and one

00:20:13: is together with the local actors to find out where are the hindering factors to make sure that sustainable development chapters in trade agreements could be

00:20:26: perfectly and forced in this country so this is a bit of a not so lucky term how they name that which is called Handbook of implementation and the first one is now developed for the you Ecuador trade agreement and there they really discussed with the local actors in Ecuador has so that's something one could use another issue is that I have a new complain platform where States and companies and

00:20:55: any natural person and ngos if they face a certain non fulfillment of Human Rights environmental legislation in another country they can complain

00:21:07: there.

00:21:08: That is not ending their then there will be a kind of Investigation okay what is the reason for that so these issues May support the enforcement actually.

00:21:19: Mmm so is this what you were mentioning before hand calling it the concept of a smart mix of the instruments yes if one combines

00:21:27: in this example the use of local expertise regarding trade agreements and

00:21:33: use them as well of course regarding due diligence acts but they are some more measures one could use and there are these trade agreements to improve the enforcement of the chapters on sustainable development

00:21:48: there's another issue of the EU is offering kind of tariff preferences meaning lower tariffs for imports coming from developing countries

00:21:58: and especially if they fulfill human rights and environmental legislation you can.

00:22:04: Put it the other way around once they are not fulfilling these requirements you can again increased errors for instance this is a kind of measure another often forgotten instruments would be bilateral investment agreements

00:22:19: their companies can complain against.

00:22:23: The country where they do an investment already for compensation in case there's expropriation and what does expropriation means not only the very simple idea too.

00:22:36: Take away land from the ownership but for instance to make domestic legislations stronger

00:22:44: for instance on sustainability objectives so then.

00:22:48: In principle a company can complain all that's more expensive now for me and it has been changed

00:22:55: compared to the date when I decided to do my investment here that's expropriation you have to compensate me

00:23:02: what I wanted to say as a result of this type of agreements May undermine all the other frames for use to support sustainable development so one could think about to make a better use of these agreements

00:23:14: however the US appeared sensible about that because exactly this type of investment rules

00:23:22: we're very problematic in the recent past and some agreements like ttip with the us or Sita was Canada.

00:23:29: So get your point you say not to rely too much on due diligence also take into account everything that has been also established so far

00:23:47: again looking at experience can we draw

00:23:51: some implications or effects of due diligence laws already from history the existing this new generation of supply chain laws is very recent so we don't have

00:24:02: much evidence on it and unfortunately it is not foreseen that there is a real

00:24:07: systematic monitoring review of IT what we know from economics for example very good is that high standards are always favoring.

00:24:16: The large players and this favoring the small players and the informal one so that is relatively well

00:24:22: assured observation both in our own economies and across the world by the way that is the reason why most developing countries for

00:24:31: up to now have refused to have for example social and ecologic regulations if you impose.

00:24:39: Extremely high loss that means that we keep all the labor within the own country and that is exactly something which is also happening these laws

00:24:48: a playing field for lobbyists they are very much trying to influence these laws because they know higher we put on the barriers for external

00:24:57: play off and Deliver us better it is for our own labor conditions for our labor laws for our labor markets for our Enterprises

00:25:07: and so on and that is another area which we should really have a good look at.

00:25:13: Following your argumentation I mean you say the higher the standards the better for the company's but why was it that the large company has a large community

00:25:21: but why was it that actually from the company side there was a lot of lobbying against these laws actually as far as I read from the media it was both.

00:25:30: It was posts that 20% from German companies already applied to the voluntary standards and that were the 20% Which were very much lobbying in favor of a legal act why.

00:25:44: I mean maybe because of sustainability reasons but as well because of own come

00:25:49: competitiveness reasons because they feared if we are the only ones fulfilling these high standards which is maybe noise and the consumers will go for that however then they are 80% which are not fulfilling it and they gain a

00:26:02: pecha toughness effect so you find bows so I would support the argument of media there.

00:26:11: So let's look forward I think we all agree that Supply chains should be more sustainable in an ecological sense and in a social sense.

00:26:20: You both argue that due diligence laws are not the ideal solution but you know you also set

00:26:27: it's a mix of many many different mechanisms is needed the orchestra needs a lot of instruments that's what you said.

00:26:36: But now if we look at an Ideal World how would such an agreement look like what do you think Betina.

00:26:44: It's difficult because there is never an idea of hurt but I try I mean

00:26:52: a perfect world would mean the w2l level is the level why it's a multilateral level which can avoid these.

00:27:02: International leakage effects if we have a joint understanding of what are the

00:27:08: standard level we all want to achieve then you could impose based on these consensus a kind of trade barrier related to that

00:27:18: another perfect B would be to use better and more modern investment agreements

00:27:26: and we already said that to have a partner style dialog to understand really the local effects and the local hindering factors and maybe as a final word to think about as well

00:27:39: not only in One Direction.

00:27:41: Due diligence approaches assume a certain kind of trade Direction and that's always the flow from a delivery region like a developing countries.

00:27:52: To us and the processing and all the value-added thing is then done here which is maybe not a sustainable way because on the other side we

00:28:02: always try to Target to gain more added value in developing countries and in the future maybe middle-income countries or now developing countries May

00:28:14: import from us and process our products and how are we fulfilling actually all these environmental and human rights application.

00:28:22: It's a changing perspectives Michelle.

00:28:24: The ideal solutions from a rather local point of view what would it be I would just want to reiterate these laws are there because we

00:28:33: I'm not living in a perfect world unfortunately because if not they this law wouldn't be necessary I think we can first increase our support to smallholder Farmers

00:28:42: and to rule development more generally because many of these smallholder Farmers shouldn't stay smallholder Farmers they should have the opportunity to step out

00:28:51: do something else and let other Farmers grow like it has also happened in Europe

00:28:56: the second one and I have already briefly mentioned I think we should open our Development Corporation to a broader public private partnership idea where we.

00:29:06: Except that if we support for example a certain value chain of course it will also profit

00:29:14: private Enterprises but what is even more important and we haven't talked about local value chains and most smallholder farmers in the world are supplying their own countries and their own consumers and they

00:29:25: also need support and these value chains will for a long time being will not be as that's a high-level regulated like our ones

00:29:34: but they can of course be improved within the possibilities of the local markets of consumer willingness and ability to pay for food.

00:29:44: Thank you Michelle and thank you but Tina rude love from the German Institute for international and security Affairs for this discussion thank you for being here Bettina

00:29:53: welcome voice of pleasure.

00:29:56: And Michelle blind Hope from the German development Institute thank you very much for joining us today Michelle yeah thank you for the interview

00:30:08: the podcast is brought to you by the research Network sustainable Global Supply chains which brings together leading researchers from around the globe I'm Nicholas Martin thank you for joining us.

00:30:19: Stay safe and stay tuned for our next.

00:30:21: Music.