Persistence despite challenges and learning at every stage
International retailer Lidl has ambitious living wage goals in their supply chain which lead them to incredible improvements in wages. Although their efforts were not without challenges, they persisted and conquered each challenge, keeping the goal in mind: Ensuring Lidl does their part to contribute to the payment of living wages for workers that help to produce bananas sold in Lidl stores in Germany.
How did Lidl's efforts begin?
Since the beginning, fair remuneration was a key pillar in German retailer Lidl’s Human Rights strategy due to its strong ability to alleviate other concerns such as child labour and forced labour based on the findings from their annual risk assessment, it was revealed that tropical fruits were among the major product groups carrying potential human rights risks. Bananas being the product with the highest volume, made it the product Lidl choose to tackle first. At that time, bananas were one of the focus commodities for other retailers in Germany as well.
Taking a deeper dive into bananas, Lidl in Germany completed a human rights impact assessment specifically on bananas from Colombia, where they collaborated with several producers in the country to assess the context through desk and field research. With this solid understanding, Lidl in Germany made the commitment to close the living wage gap at their producers for the proportion sourced by Lidl for the German market.
To realise their commitment, Lidl in Germany first did an onboarding with their suppliers to explain the project and train them to understand the concept of living wage. Further, all producers were asked to fill in the salary matrix. Once ready, trained Salary Matrix auditors from Flocert checked the data of the Salary Matrix. Following this, Lidl asked them to calculate the exact voluntary contribution needed to close the living wage gap for their volumes. And subsequently to ensure distribution of this voluntary contribution to producer and workers.
During this process, Lidl in Germany realized that there was no tool available to calculate the voluntary contribution proportionate to their buying volumes nor to calculate how to distribute the voluntary contribution amongst workers. Therefore, Lidl pursued a new partner and a way to measure that the additional value truly reached the pockets of the workers.
Lidl began working with IDH to overcome this challenge.
A partnership was set up to jointly develop, test and roll-out a tool that enables the producer to calculate the voluntary contribution needed to close the living wage gap proportionate to their buying volumes using salary matrix data. The calculation module considers taxes and other social security contributions of a specific country and operational costs that may arise from the project such as additional staff costs.
Apart from calculating the voluntary contributions, the excel module also gives the user the ability to experiment with different ways of distributing the voluntary contribution among job categories and employees. Additionally, the tool helps identify potential payment mechanisms.
Diving into Dominican Republic
After testing the tool with a couple of suppliers, Lidl rolled out the calculation tool to all their banana producers supplying the German market —more than 200 suppliers across four countries – Guatemala, Colombia, Dominican Republic and Ecuador.
All suppliers completed the calculations and established concrete action plans to begin closing the Lidl-related living wage gap. During the pilot, a supplier in the Dominican Republic introduced monthly food vouchers for employees to use in local supermarkets. Following this, several producers chose to duplicate this method. However, some also chose to increase in-kind benefits and cash bonuses as payment mechanisms to workers.
When starting to implement living wages, producers can have many hesitations. Directly increasing wages is one of them. Due to the sticking effect of wages – wages are unlikely to go down over time – producers may look to other avenues to support workers, such as gift cards. Lidl is in contact with the suppliers and producers to discuss solutions proposed and check how they can be further improved towards the future to ensure that these become structural over time.
The big future of Lidl’s living wage plans
Although Lidl’s work represents the largest documented Living Wage project to date, they plan to grow these efforts. Lidl plans to annually sustain these payments for producers within the German banana supply chain and aims to expand coverage to additional countries supplying to other markets in the near future. While payments alone may only close living wage gaps proportional to the volumes Lidl buys, they send a strong signal to the market and give producers the tools and data to engage with other buyers who may have similar commitments in the European markets.
As a next step, Lidl will also support the further improvement of the calculation tool as well as the integration in existing tools like the GIZ costing tool. In 2024, they will also focus on how to further verify the distribution to workers and will start rolling out their commitment to other markets where they operate.
Read more about the Lidl project in their report.
Disclaimer: this report is owned by Lidl and has been written by them.
Living Wage Action Guide
To explore how you can take action with your supply chain partners to close living wage gaps, please check the Living Wage Action Guide. In this free, online resource you can find more case studies, inspiring examples and practical tips.
