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Supply Chain Resilience and Renewal: Part IV

We are pleased to share this piece as part of a series exploring resilient supply chains for a post-COVID-19 world, and welcome readers’ insights and perspective as they conduct business across regions and industries. Ashish Gadnis, Cofounder and CEO of BanQu, shares a perspective on the urgency to act on inequality that has only been exacerbated by the global pandemic.


 

Inequality in global value chains: Building back equitably

While the world continues to reel under the COVID menace and global supply chains continue to be disrupted, dark consequences typically overlooked in the mainstream have arisen — forced child labor in agriculture and mining; smallholder farmers (especially women) losing their livelihoods, waste-pickers shunned and mistreated, life-saving vaccinations missed for babies in developing countries; and millions pushed into extreme poverty.

Here are some sobering statistics since COVID took a chokehold on our lives:

  • 2 million children have been added to the already deepening child-labor crisis in cocoa, coffee, cobalt, garment, and other sourcing industries
  • Over 2 million children have missed their immunizations in Asia and Africa
  • At least 1 million smallholder farmers have lost their livelihood with severely decreased demand for their harvest
  • Over 5 million have slipped back into extreme poverty
  • While there is no COVID refugee (like climate refugees or conflict refugees) category today, it’s estimated that this crisis has added 1 million to the current refugee count worldwide
  • At least 3 million mSME/ SMEs have gone under

See: The effects of COVID-19 on trade and global supply chains [ILO June 2020-PDF]; COVID-19 pandemic threatens progress on child labor [HRW June 2020]

 

 

Supply chains globally are at the epicenter of these sobering stats, but they can also be the solution. Why?

Before the COVID pandemic kicked in, global supply chains (in emerging markets) – both sourcing and distribution side –  had millions of smallholder farmers, miners, workers, mSMEs, recyclers, waste-pickers, refugees, and children working tirelessly, yet, in terms of formal records, completely invisibly. They were invisible because these supply chains are fragmented and those in poverty cannot prove their existence in a traditional way. For example:

  • A dairy farmer in Algeria cannot prove that the milk he sells to big brands is predictable and sustainable. On the other hand brands can publicly claim being “fair trade.”
  • A farmer in Mexico is subjected to predatory lending because she cannot prove her crop history, even though her corn shows up at retail outlets in the US. (An average smallholder farmer is at the mercy of at least 3 predatory lenders, often disguised as micro-lenders.)
  • A family of 8 in the DRC is forced to push their 5 year old into the horrors of cobalt mining because demand for better, faster high-powered mobile devices and for EVs keeps growing, and child labor is an option for criminals seeking to exploit opportunity. A cellphone company can genuinely believe it is fulfilling its CSR goals by opening a school near the cobalt mine, but does not necessarily seek to further understand the mining family and its livelihood situation. Responsible mining means more than meets the eye.
  • A Venezuelan refugee in Brazil can tirelessly pick up plastic yogurt cups for recycling, barely making ends meet, while the brands can boast about “circular economy” packaging.
  • Rohingya garment factory workers in Bangladesh suffer grueling, abusive shifts, but during fashion week we Westerners Instagram about “ethical fashion.”

See: Supply Chain Lessons from Covid-19: Time to Refocus on Resilience [Bain April 2020]; Economic impact of COVID-19: Protecting Africa’s food systems from farm to fork [Brookings June 2020]; COVID-19 threatens to shutter Latin America’s small businesses [BCG April 2020]

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What is the root cause of these “blind/ opaque” supply chains? It’s quite simple. Profitable supply chains can, unfortunately, benefit from poverty – a controversial but true realization. Saying we know our coffee farmers because we have an “app” or knowing where the tuna came from because we use “blockchain” is not enough. Can that coffee farmer prove her crop history, crop quality, and livelihood data, and own that information to get better access to credit and get out of subsistence farming permanently? Data shows coffee farmers in Africa and Latin America are among the poorest in the world. Can the fisherman being held on a prison boat prove that his family back home got paid? If not, then all we have done is bring technology to those in poverty without enabling them to get out of extreme poverty.

How do we solve this, especially now, amid COVID, when companies and citizens alike are hunkering down and cutting budgets? There could not be a better time than now! Now is the time to secure those emerging market supply chains with full transparency and traceability in a way that you know your individual supplier on the ground by name, in a way that you have proof that children are actually in school and not digging in a mine, in a way that you can guarantee that the waste-picker gets a fair price for every yogurt pack he picks up off the streets of São Paulo.

 

 

Technology is never the solution. It is an enabler. It is a catalyst to democratizing data, not to creating data dictatorships. And brands will profit because truly knowing who works in their supply chains will enable a more efficient, resilient, and predictable flow of goods and services.

Three key steps, difficult but doable, for brands that truly believe in – and act on – “profit-with-purpose” are:

  1. Pick a pilot region where you are sourcing (or distributing in the case of recycling), map the steps in your supply chain from seed to sip, and consider whether you know every player in this value chain, especially the absolute last-mile. Where and how is data collected, and what does the last-mile farmer actually own in regards to data? Can the farmers prove that they are your suppliers? If so, do they have easy access to that information? This is your compass to get started.
  2. Deploy a data democracy model. Tech like blockchain/ distributed ledger allows for that. A simple example, going back to the dairy farmer in Algeria: via blockchain he will own a copy of every liter of milk (with quality parameters) receipt sold, all delivered in local language via SMS. No smartphone is needed. This allows your last-mile to own, access, monetize, and permission their data without compromising security.
  3. Enable an ecosystem partner like mobile money, bank, or agriculture inputs seller to interact with the farmer. This allows the mobile money company to be the payment gateway while validating the farmer’s crop history, or the seed/ fertilizer company can sell inputs because they “know” they farmer. This step is key, because this is the network effect supply chains can and should enable. This what “shared KYC” is all about. And, most importantly, it empowers the last-mile to prove their existence in the global supply chain.

Similarly these simple steps apply to waste-pickers, to ending child labor, or to giving factory workers their rights in your supply chains.

If not now, when?


 

We’re grateful to our collaborators for this perspective, and welcome readers to learn more about unlocking inclusive trade.