Ethical Sourcing

Features - Supply Management

Consumers Demand It … and Will Pay for It

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March 31, 2015

Maintaining an ethical supply chain generally results in a higher cost for supplies and labor and higher prices for the consumer. However, the increasing consumer awareness of and demand for ethical sourcing is increasing the need for manufacturers to consider ethics in sourcing. “Consumers are having increasing influence and higher demands on food producers,” said SQFI Senior Manager of Marketing and Sales Sarah Malenich. Consumers want safe, quality products, but they also want to know that every step of the supply chain is focusing on employee welfare and environmental conditions.

As such, she said, consumers are putting pressure on retailers, and retailers on manufacturers to implement ethical sourcing and be transparent about their supply chains. Whether due to consumer demand or internal ethics, a number of retailers—both grocery and foodservice—incorporate strong ethical practices into their internal programs and those of their suppliers, make these practices known, and retain a solid customer base while charging a premium price. And they hold to their ethics despite challenges to the contrary. One example is Chipotle’s recent halt in serving of pork at some of its restaurants because a supplier failed to meet its ethical standards. (See below for more on Chipotle’s standards.)

At Ben & Jerry’s local and Fair Trade sourcing of ingredients is integral to its sustainable corporate concept of linked prosperity. As featured in QA’s January/February 2014 Cover Profile, the Fairtrade Mark on the Ben & Jerry’s label not only shows evidence that the supplying farmers are following good agricultural practices, it also certifies that the farmers are paid a fair price for their harvest. 
 

Consumers Will Pay.

According to a report on the Key Priorities of Ethical Supply Chains from Software Advice, a company that analyzes and recommends SCM software, a majority of consumers are willing to pay more for such ethical sourcing practices. The surveys, with approximately 1,140 survey respondents, were conducted to determine which link in the chain consumers claim to care about most and, understanding that attitudes don’t always match behavior, where they were actually willing to put their money. Key findings of the surveys were:

  • 65% would pay more for a product produced under good working conditions, carbon emissions offset, or ethically sourced materials.
  • Consumers were split on whether improved working conditions, community involvement, or environmental efforts would most convince them to buy from a firm.
  • Consumer environmental preferences were relatively evenly split. The efforts most likely to convince consumers to pay more were an effort to reduce water usage (28%), the use of biodegradable packing materials (26%), increased use of solar panels (22%), and an effort to minimize carbon emissions (18%).
  • When focused on specific links in the supply chain, the strongest preference was shown toward the manufacturing link where products were ethically manufactured, had their carbon emissions offset, and were made with ethically sourced raw materials.
  • Where labor is concerned, 45% said fair wages and overtime compensation would most convince them to pay more for a product.
  • The other labor efforts receiving the greatest approval ratings were ensuring greater workplace safety, providing educational opportunities to workers, and ensuring an eight-hour work day—with each receiving 15% to 20% percent of the vote.
  • When asked about community efforts, the highest number (43%) cited expanding a company’s factory operations in areas with high unemployment as the greatest incentive for willingness to pay more.

     

Ethical Sourcing Standard.

Ethical sourcing today is where food safety was 15 years ago, Malenich said. Consumers want assurance that their food has been grown and processed in a manner that meets their own standards of social and environmental responsibility. So, she said, “It is important to support and acknowledge when sourcing companies are taking proper steps to treat employees and the environment properly.”

It was to help support just such initiatives that SQFI developed a voluntary Ethical Sourcing Standard as an addendum to the certification program. The standard is not designed to replace other standards or regulations (such as those of OSHA, federal laws, etc.), but rather, she said, it goes beyond regulatory requirements in providing a step-by-step standard for setting up and documenting an ethical sourcing program, outlining labor practices, and providing training guidance. As an internationally accredited program to a certifying body, it provides third-party certification of compliance “to ensure responsible sourcing up and down the supply chain,” she said.

Companies like Ben & Jerry’s don’t just focus on ethical sourcing to appease consumers, and they don’t push social values to be controversial. Rather, the founders say they went into business to make an ice cream that they’d want to eat, and they voice the values in which they believe. But regardless of the reasons for doing so, today it is just such ethics that can attract consumers to one’s product—even when it drives the product to a higher price.


 

Chipotle: Retailing Food with Integrity

In January, Chipotle Mexican Restaurant stopped serving pork at some of its restaurants because it had suspended a pork supplier when a routine audit exposed violations of its ethical standards in animal welfare. Although Chipotle declined to discuss its ethical sourcing, the company’s website includes information on its “Food with Integrity” sourcing program and supplier standards. Food with integrity is Chipotle’s “commitment to finding the very best ingredients raised with respect for the animals, the environment, and the farmer.” It includes a focus on supply chain areas such as:

  • Animals. Chipotle sources its pork and beef from producers who follow its “naturally raised” criteria, including raising the animals outside or in deeply bedded pens, never giving antibiotics, and feeding them a vegetarian diet. A majority of the cheese and sour cream served at Chipotle comes from pasture-raised cows—those that have daily access to outdoor pastures, are never given added hormones, and are fed an all-vegetarian, plant-based diet; sourced chickens must be raised without added growth hormones or antibiotics, and additives (such as arsenic) should not be used in their feed. For both beef and chicken, Chipotle qualifies its naturally raised supply with the statement that it occasionally experiences supply shortages, but “we’ll let you know at the restaurants if that happens.”
  • Farming. Because Chipotle believes family farmers take great care to respect their farmland, rotating crops, planting multiple crops, avoiding pesticides, and generally farming in a sustainable way, it states that it prefers to work with farms that are family owned and operated, meeting with each to ensure standards are met. Additionally Chipotle sources local ingredients when possible and practical, defining local farms defined as those within 350 miles of participating restaurants. Chipotle also has policies in place to ensure that all its products are grown, made, and shipped without exploiting people, and the company states that it “works hard to source our ingredients in ways that protect the planet.”
  • Organic. While noting that organic produce can be smaller in size and look less appetizing, the company states that it believes food raised organically benefits people and the environment and tastes better. Thus, it has been increasing its use of organically grown beans over the last few years. In general, the decision to purchase organic or not is made on an individual basis, as “it’s not always appropriate for the food we serve,” and a farmer who focuses on responsible or sustainable practices but isn’t certified organic can sometimes be the better option.
     

Additionally, in Chipotle’s disclosure under the California Transparency in Supply Chain Act of 2010, the company lists its supply management practices relevant to specific requirements of the Act, which include:

  1. Chipotle supplier standards require compliance with applicable laws and prohibit forced labor, child labor, violation of applicable standards for working hours and conditions, and other subjects related to human trafficking and slavery.
  2. Periodic assessments of the supply chain, on such areas as risks of human trafficking and slavery, are conducted through evaluations by the internal audit team or a third party.
  3. Through routine visits to suppliers’ facilities, foreign produce suppliers are vetted by their respective importers and/or Chipotle’s produce procurement partner. Suppliers are subject to announced and unannounced Chipotle and third-party inspections to ensure compliance with supplier standards.
  4. All food suppliers must certify their compliance with the terms of the applicable supplier standards on an annual basis, subject to audit by Chipotle’s internal audit team.
  5. The supplier standards contain a detailed process for handling of non-compliance. Failure to comply is sufficient cause for revocation of a supplier’s approved status and, at Chipotle’s option, to terminate any agreements.
  6. The supplier standards serve as a training tool for Chipotle purchasing agents; and the areas (as listed in #1) receive the continued attention of its supply chain management personnel.


 

The author is Editor of QA magazine. She can be reached at llupo@gie.net.