Global Distribution of Labor in the Coffee Global Production Networks - Coursework Example

Coffee Global Production Networks (GPNs) Name: Tutor: Course: Date: Introduction Global Production Networks (GPNs) are collaboration and contestation among multiple actors who include industry associations, non-governmental organizations, international and state agencies and firms each with their own agendas and interests. Ethical sourcing has, in the recent past, drawn increased attention to work conditions, prices and corporate practices regarding coffee supply chain. The ideological, political and economic systems of GPN are related to social responsibility and ethical perspectives of coffee buyers and farmers (Levy, 2008). Moreover, contentious social concerns arise from consumption patterns, labor practices and different incomes linking GPNs throughout the disparate regions. This essay analyses the Global Production Network (GPN) of coffee and examines the beneficiaries of this structure of GPN. The analysis of the GPN comprised the types of labor that go into creating coffee at the different points in the GPN, and how it is distributed globally. Finally, the essay describes the institutional arrangements that best explain the structure of coffee GPN. Specifically, it assessed the distribution of coffee value chain throughout the GPN, and identified the beneficiaries of its structure. Global distribution of labor in the coffee Global Production Network Globalization of production has engendered ethnic, gender and class inequalities through international division of labor. Although Fair Trade and organic coffee highlights the worst forms of corporate practices in the coffee GPN, it still fails to address the used of banned pesticides, lack of access to portable water among workers, peasant eviction and forced or bonded labor (Newman, 2009). Similarly, use of labor saving technologies, high competition from off-shore sourcing and weakened unions has steepened inequalities in the coffee GPN. Coffee consumed around the world comes mostly from sub-Saharan Africa, Latin America and Asia. The industrialized economies happen to be the largest consumers of the coffee is produced largely in developing countries. Coffee requires labor-intensive manual work especially during growing and harvesting (Neilson & Pritchard, 2007). Farmers have been struggling to pay school fees, medical bills and feed their families because coffee prices have fallen below the costs of production. As a result, most coffee growers tend to involve their school going children in coffee production to increase family income by taking on casual farm jobs or as by working on their family farm. Labor exploitation has been an imminent situation caused by lack of price stability for coffee (Newman, 2009). To earn a small income, workers and their families have limited choices but to work in dangerous or exploitative conditions. In the global coffee industry, child labor is common phenomena. For example, in Guatemala, coffee pickers are children who earn the minimum wage and pick a daily quota of 45 kilograms. To receive a minimum wage of less than $3/day, the coffee pickers are required to pick a 100-pound quota. Plantations in Guatemala violate the labor laws because half of all coffee pickers do not get the minimum wage. Often, workers are not legally-mandated to enjoy employee benefits and are subjected to forced overtime without compensation. Child labor is prevalent in most of these developing countries where coffee is produced (Neilson & Pritchard, 2007). Since families fail to meet this quota, majority of the coffee workers get help from their children. These child workers do not receive labor protections as they are not officially employed. The children, at a young age, are exposed to the hazards of laboring and kept out of school (Mutersbaugh & Lyon, 2009). Adults who are not paid a decent wage use child labor to make ends meet. Consequently, the children work with sharp tools and pesticides, carry heavy loads and work in intense heat which are hazardous working conditions (Krivonos, 2004). Coffee workers, especially in Sub-Saharan Africa and Asia, endure poor living conditions. Accommodation is temporary and crowded and many times has no electricity or drinking water. Families earn below the minimum wage while working hours are commonly exceed the legal limits. Similarly, forced labor is common in many coffee growing regions of Cote d’Ivoire and Guatemala. According to Mutersbaugh and Lyon (2009), failure to perform to a certain unrealistic standards mean that workers are subjected to physical or verbal abuse or threats of loss of food, wages or work. For migrant workers, their identification papers are confiscated, thus getting trapped in the location. Latin America and Africa exploit forced labor in the coffee GPN (Baffes, 2004). In Latin America, exploitation of labor is common in Honduras, Guatemala, El Salvador, Dominican Republic, Colombia, Mexico and Panama. In Africa, countries that are under exploitation are Uganda, Tanzania, Kenya, Guinea, Cote d’Ivoire, and Sierra Leone. Working conditions are harsh on plantations for migrant farm workers (Fafchamps & Vargas, 2008). Many workers sleep in rows of bunk beds under temporary shelters. They use the same water source for bathing, washing and cooking. In the coffee plantations of Honduras, El Salvador and Guatemala, more than 20 percent of the coffee workers have no legally-mandated adequate health care and have not completed their primary education. Like many agricultural workers globally, most coffee workers have no right to organize as they are not guaranteed the basic labor rights. Plantation owners use threats and coercion, given the rural nature of farm work, to control over the workforce from demanding their rights or getting organized into unions (Henderson et al., 2002). Although a number of these countries have adequate labor laws, the rights of workers experience weak enforcement in relation to freedom to form a union, mandated safety and health requirements and the minimum wage. According to Herod (2012) the reasons behind forced and child labor, which had a mixed outcome at best, can be linked to the coffee market reforms of the 1990s. The entry of the private sector, on the aggregate level, diversified the market. Nevertheless, a robustly competitive market is not a reflection of the price transmission patterns. Fundamental changes to the structure of the market led to the decline in the coffee quality that had persisted through time (Oro & Pritchard, 2010). The quality of labor force and other incentive mechanisms did not seem to succeed with the liberalization reforms of the 1990s. The result is a market did not meet the desired micro level impact as it underwent macro level reforms. As a result, the reforms failed to meet the expected improvement in overall livelihoods of coffee growers, incomes and productivity. Moreover, some of the biggest coffee trading firms are not publically listed and thus not subjected business governance and ethical audit required of any listed companies. With minimal adherence to social responsibility and ethics, they represent dismal shareholder value imperatives of listed companies (Baffes, 2004). With increases in financial investment, Oro and Pritchard (2010) argue that off-shoring activities of ‘productive’ firms in the United States have strengthened the arms-length contractual arrangements. Forced labor and child labor is prevalent where firms attempt to reduce the operating and input costs by transferring production risks to subcontractors (Cattaneo et al., 2010). In the event, productive investments necessary for in-house production are drastically reduced. While the organization of production and the acquisition of financial assets has freed up financial resources, proceeds to labor has not been influenced by the share buybacks and the increases in financial profits without production (Chester & Newman, 2014). Coffee trading companies, to any great extent, have not invested directly in production and do not directly check on the externalities of child labor and forced labor involved in the production of coffee. However, the use limited machine labor for packaging and branding which is technology intensive and less on physical labor. Institutional arrangements of coffee GPN Value chain dynamics shape the coffee producing regions. From global production network (GPN) theory, the value chain and the examination of territorial embeddedness are improved by adding elements through value distribution, capture, enhancement and creation at settlement level (Levy, 2008). The coffee sector players in private and public such as trade unions, consumer groups, and NGOs are distinct at international, national, regional and local levels. The new institutional arrangements in this sector are connected to a range of geographical scales (Oro & Pritchard, 2010). Secondly, the jurisdiction of different forms of standards defines the various territories or networks covered. For example, the scheme applying to coffee brands such as Dormants or Nescafè retailers who sell in their home market. Thirdly, as observed by Kostova and Roth (2002), the geographically disparate points of production networks can impact on the standards initiatives often felt by ‘distant others’. The production networks are not always in the ‘progressive’ manner (Hess, 2004). Hence, the coffee GPNs in their precise nature and articulation are deeply influenced by cultural, institutional and the concrete socio-political ‘places’ in which they are reproduced, produced and embedded (Bair, 2008). Dicken and Malmberg (2001) showed that the relationships between territories and firms are exceedingly complex. The strong processes of path-dependency mutually constitute the processes of embeddedness and not determinacy (Hess, 2004). Coffee GPNs can be described as the processes of ‘placing’ firms and ‘firming’ places (Bair, 2008). With increasing complexity of GPNs and geographical extensiveness, it becomes far more complex for the nature of this embeddedness. On the contrary, the institutional theorists have sought to explain stability and convergence in fields in terms of normative, cognitive and regulative and isomorphic forces. Maguire and Hardy (2006) and Levy (2008) observe that institutional theorists, in the recent past, have increasingly laid emphasis on the conflicting nature of contestation among field structures and process actors. Moreover, GPNs facilitate the flow of tacit knowledge and fosters technical coordination of spatially dispersed activities under various modes of governance (Levy, 2008). The GPN framework among economic geographers examines the institutionalized power relations and dynamic linkages where these networks create social, economic and institutional space at sub-national, regional and national levels (Newman, 2009). The regulative and cognitive forces in the coffee GPNs are seen from the Fair Trade movement that began in the late 1950s. First, there was need to promote grassroots development through equitable and direct trade in coffee through alternative trade organizations (ATOs). Earlier, the United States and Europe had sought to eliminate middlemen by using ATOs to buy directly from Third World producers (Kolk, 2005). While providing market contacts and assistance in developing trading experience, they paid the producers a fair price. The result was reduced dependency on commercial middlemen and greater experience among producers to raise their incomes (Giovannucci & Ponte, 2005). In the later decades, the Fair Trade system established the Fair Trade Labeling Organizations (FLO) which became an international umbrella group that set a criterion on Fair Trade for coffee and a number of other products such as orange juice, bananas, honey, sugar, cocoa and tea (Fair Trade UK, 2012). For coffee, the International Fair Trade Registry of farmers is approved to sell to the Fair Trade market and entails a formal application process (Levy, 2008). FLO maintains the certification and monitoring systems in which they make annual visits all of the producer cooperatives in coffee producing countries or field monitors in each producer region. International monitoring costs are met by each member of FLO. While favoring unions and cooperative societies, the coffee regulatory environment is still heavily skewed against private buyers. At the local and national level, the outcome of union and cooperative influence remains traditionally high. They operated as a monopolistic buyer at the height of their power (Chester & Newman, 2008). The power base of most coffee producing countries is politically and socially embedded. For example, Tanzanian politics of the time embraced the socialist ideology and represented the small producers’ interests who traditionally used the cooperative movement to voice their interests and concerns. The capitalist development and economic growth over time is seen through the distinctive trajectories and dimensions under the regulation theory (Mahdi, 2008). In a capitalist economy, structural change is explained through the mode of regulation which secures and supports capital accumulation. Institutional forms are expressed in terms of form of the state, international relations, form of competition, monetary regime and wage-labor nexus (Levy, 2008). On the contrary, these institutional dimensions and forms are not limited to economic factors but comprise far wider technological, historical, and spatial factors. In the course of time, the cooperative movement collapsed due to financial mismanagement and operational inefficiency. Mahdi (2008) admits that during the liberalization period, the cooperatives influenced the path of institutional reforms by maintaining an advantage over the private buyers. Nonetheless, private buyers reflect the difficulty of accumulating political capital that is socially embedded and a relatively low level of influence within the regulatory environment (Posthuma & Nathan, 2010). For example, a strong industry association, like cooperatives, was established in Tanzania and currently has a high level of access to regulators. These associations facilitate business operations and provide a direct channel for influence and advocacy. In the Tanzanian case, the Tanzania Coffee Board, the main regulatory body, meets with coffee cooperative representatives on monthly basis to discuss and lobby industry issues. On the contrary, the major power deficit is the poor and small coffee growers whose voice is not yet heard. Access to regulators and influence coupled with the lowest levels of information has been dimmed by the lack organized and effective representation (Mahdi, 2008). Agricultural markets of many developing countries as is the case of export commodities such as coffee continue to suffer from similar institutional and regulatory impediments which are severe to the plight of poor coffee farmers and workers. Coffee value chain and beneficiaries Product value capture and creation is a managerial imperative that is inextricably connected to the shareholder value. Since 1980s, the financial markets have emphasized mode of corporate objectives and governance to appease mutual fund managers and to meet the expectations of capital markets (Posthuma & Nathan, 2010). On the other hand, the difficulty in demarcating value creation and the development of instant coffee points out to the political nature of value capture and market positioning. The major beneficiaries of value are companies that have innovated their processes and products. Swiss MNC Nestle produced instant coffee and has captured value through massive capital and technology intensive. Compared to regular coffee from developing countries, the multinational corporations have created entry barriers for smaller companies (Talbot, 2004). Despite attractive prices, the Brazilian companies found resistance among traditional multinational companies of instant coffee market. Western coffee MNCs objected to the increase in bulk coffee exports and value added coffee from Brazil. Talbot (2004) argues that the major coffee producers understood this as a struggle for control over the industry and power. In several ways, the institutional fields are enriched by the concept of hegemony. In institutional theory, Fold (2014) obtains that the notion of hegemony is a discursive formation and an interwoven material that provide a healthy antidote to the neglected roles of the technological and economic realms. The political nature of a field is shaped by the struggles intended to shape organizational, discursive and the economic dimensions (Sawyer, 2013). The concept of hegemony obtains that weaker groups do not enjoy a ‘fair share’ of the benefits where they consent to get involved in a GPN because of their little influence over the ‘rules of the game’ (Levy, 2008). The legitimate outcome of a system is hegemony that conveys a subtle balance of ideology. As such, the degree of political and economic coercion works to their disadvantage as substantive concessions to weaker groups. While weaker groups suffer from a form of ‘false consciousness’ the consent does not make them dupes as noted by the dominant ideology thesis. According to Talbot (2004), Fair Trade in organic coffee constitutes utmost 1 percent of the global market. This highlights the limitations of strategies and offers a few niche market opportunities for growers. Nevertheless, the affluent Western consumers still rely on socially motivated purchasing decisions (Oro & Pritchard, 2010). In the intervening time, coffee MNCs participating in coffee trade are rewarded with greater legitimacy and stronger brand images. For example, Starbucks over the following eighteen months after announcing their 2001 commitment to buy Fair Trade coffee with one million pounds has benefited them in terms of publicity and brand image. To make matters worse, their buy was less than 2 percent of its total coffee buys. Meanwhile, growers in developing countries become weaker than ever as they get excluded from the premium coffee segment and the overall position in commodity coffee. The supply of coffee from consumption to production follows an international coffee system that has horizontal and vertical structures, processes and relations (Newman, 2009). While made up of a number of coffee chains, the coffee supply system structure constitutes a relationship throughout the value chains. They are made up of intersections at specific levels in both horizontal context and the vertical supply system. The coffee system components involve various market actors throughout processing, marketing and production of physical coffee. The financial intermediaries are private and institutional investors who operate under regulatory environments and on international commodity exchanges (Levy, 2008). At different levels of the supply chains, there are different actors operating as international exchanges within a defined regulatory environment. The modes of financialization and the interaction between distribution productions are sector and heterogeneous specific. Through speculative hedging under financialised accumulation, international coffee trading houses reorient their business strategies (Newman, 2009). From trading in financial instruments, hedging on derivatives markets is directly intended to make profits. The erosion of profit margins in coffee trading has exposed trading firms to seek profit imperatives from financial activities. Again, the International Coffee Agreement collapse resulted from the profit opportunities of increased futures trading. Conclusion The coffee industry relies on cheap labor for its production which means that farmers receive disproportionally low wages compared to the final selling prices to consumers. Many of these producer countries are in Asia, Latin America and Africa. Types of labor in the coffee GPN system exploit child labor and forced labor with consequent poor working conditions and violation of labor laws. In most cases, the workers are denied proper medical care, protective clothing, regular payment or a contract of work. The coffee GPNs are deeply influenced by cultural, institutional and the concrete socio-political ‘places’ in the form of cooperatives and multinational companies with massive capital base. The liberalization of coffee marketing systems and restructuring of the sector leads to greater concentration of markets in western countries and production in developing countries. Major beneficiaries of the disproportionate prices of coffee in the value chain are multinational companies like Starbucks and Nestle who have massive capital and greater brand image. As contractual arrangements change, redistribution of surplus tends to favor of international traders and coffee consumers who redistribute price risks at the expense of producers. References Baffes, J. (2004). Tanzania's coffee sector: constraints and challenges in a global environment, World Bank Brief 31050, Washington. Bair, J. (2008). Analyzing economic organization: Embedded networks and global chains compared, Economy and Society, 37: 339-364. Cattaneo, O., Gereffi, G. & Staritz, C. (2010). Global Value Chains in a Post-crisis World: A Development Perspective. Washington, DC: World Bank. Chester, L. & Newman, S. (2014). Analyzing finance and production in the contemporary capitalist era. The 5th Annual Conference of the International Initiative for the Promotion of Political Economy (IIPPE), 16-18 September 2014. Dicken, P. & Malmberg, A. (2001). Firms in territories: a relational perspective. Economic Geography, 77: 345-363. Fafchamps, M. & Vargas, H. (2008). Price Transmission and Trader Entry in Domestic Commodity Markets, Economic Development and Cultural Change. John Wiley & Sons. Fairtrade UK (May 2012). Fair trade and Coffee: Commodity briefing. Available from: http://www.fairtrade.org.uk/includes/documents/cm_ docs/2012/F/FT_Coffee_Report_May2012.pdf Fold, N. (2014). Value chain dynamics, settlement trajectories and regional development, Regional Studies, 7(2):54-65. Giovannucci, D. & Ponte, S. (2005). Standards as a new form of social contract? Sustainability initiatives in the coffee industry. Food Policy, 30: 284-301. Henderson, J., Dicken, P., Hess, M., Coe, N.M. & Yeung, H.W-C. (2002). Global production networks and the analysis of economic development. Review of International Political Economy, 9: 436-464. Herod, A. (2012). Labor geographies: Workers and the landscape of capitalism. New York Guilford. Hess, M. (2004). Spatial relationships? Towards re-conceptualization of embeddedness, Progress in Human Geography, 28(2): 165-186. Kolk, A. (2005). Corporate social responsibility in the coffee sector: The dynamics of MNC responses and code development. European Management Journal, 23: 228-236. Kostova, T. & Roth, K. (2002). Adoption of an organizational practice by the subsidiaries of the MNC: Institutional and relational effects. Academy of Management Journal, 45: 215- 233. Krivonos, E. (2004). The impact of coffee market reforms on producer prices and price transmission, Policy Research Working Paper Series 3358, The World Bank. Levy, D.L. (2008). Political contestation in Global Production Networks. Academy of Management Review, 33(4): 943-963. Maguire, S., & Hardy, C. (2006). The emergence of new global institutions: A discursive perspective. Organization Studies, 27: 7-29. Mahdi, S. (2008). The impacts of regulatory and institutional arrangements on Agricultural markets and poverty-A case study of Tanzania’s coffee market. World Bank. Mutersbaugh, T. & Lyon, S. (2009). Transparency and democracy in certified ethical commodity networks. Geoforum 41: 27-129. Neilson, J. & Pritchard, B. (2007). Green coffee? The contradictions of global sustainability initiatives from an Indian perspective. Development Policy Review, 25: 311-331. Newman, S. (2009). Financialization and changes in the social relations along commodity chains: The case of coffee. Review of Radical Political Economics, 41(4): 539-59. Oro, K. & Pritchard, B. (2010). The evolution of global value chains: Displacement of captive upstream investment in the Australia-Japan beef trade. Journal of Economic Geography, 10(3):109-113. Posthuma, A. & Nathan, D. (2010). Labor in Global Production Networks in India. Delhi: Oxford University Press. Sawyer, M. (2013). What is financialization?, International Journal of Political Economy, 42(4): 5-18. Talbot, J. M. (2004). Grounds for agreement: The political economy of the coffee commodity chain. Lanham, MD: Rowman and Littlefield. Read More