LONGITUDINAL IMPACT ASSESSMENT STUDY OF FAIRTRADE CERTIFIED TEA PRODUCERS AND WORKERS IN MALAWI. Main report

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1 LONGITUDINAL IMPACT ASSESSMENT STUDY OF FAIRTRADE CERTIFIED TEA PRODUCERS AND WORKERS IN MALAWI Main report Commissioned by the Fairtrade Foundation Barry Pound and Alexander Phiri Natural Resources Institute, University of Greenwich August 2009

2 ACKNOWLEDGEMENTS The authors extend their thanks to all those met during the course of the study for their time graciously given and for the information provided. Particular thanks are firstly due to Mr. Harrison Mandindi for providing us with the initial insights on trade and Fairtrade issues in Malawi. Secondly, we would like to acknowledge the hospitality and support accorded to us by the Tea Estates Management, particularly: Mr. Jim Melrose, and Mr. Austin Changazi ; Mr. Richard Tilley and Mr Rick Illingworth ; and Mr. Rob Emmott, Mr. Alexander Kay, and Mr. F. Mandala. Thirdly, field data collection from the zones, blocks, or the workforce would not have been possible without the time and guidance from the leadership of Sukambizi Association Trust, Eastern Outgrowers Trust and the Satemwa Joint Body. In this regard, we would like to thank in a special way the following: Mr. Fredrick Mkwapatira and the whole SAT main committee, Mr. Duncan Kulisewa and the EOT Executive Board; Mr. Robson Kalowa and Mr Michael Shaw, along with the whole JB in Satemwa. We received very good feedback on our findings and draft report from all three organisations, which has made this document a more accurate reflection of the present situation. Special thanks are due to Ms. Nita Pillai, who commissioned this study, for her support and encouragement throughout. Finally, we appreciate the warm welcome and contribution made to this study by all the smallholder tea farmers and workforce members. Disclaimer The opinions expressed in this report are those of the authors, and do not necessarily represent the views of the parties with whom we interacted, nor do they represent the views of the Fairtrade Foundation. 2

3 EXECUTIVE SUMMARY The authors of this report: Barry Pound (Natural Resources Institute, UK) and Alexander Phiri (Bunda College, Malawi) conducted this study as independent researchers with no affiliations to the Fairtrade Foundation - the client. The main objective of the study was to understand the Fairtrade certification context and process as well as to assess the impacts of certification on Producer Organizations and workers in the tea industry in Malawi. The detailed Terms of Reference (TOR) are contained in Annex 1. Methodology This study is a longitudinal impact assessment of Fairtrade tea in Malawi, with specific reference to three FLO-certified tea producing organisations in Malawi: Sukambizi Association Trust (a smallholder tea producer organisation); Eastern Outgrowers Trust (a smallholder tea producer organisation) and Satemwa Tea Estates Ltd (a family run business with up to 2600 permanent workers). The approach used is a participatory livelihoods approach in which Producer and Worker Organisations, their members, their families, their communities and the stakeholders who influence or interact with them are studied across organisational, economic, social, political, institutional and technical dimensions. The process used had 4 components: review of relevant information; review of the perspectives of local, District and national-level stakeholders; exploration of impact on the three organisations through meetings, workshops, focus group discussions, case studies and data collection; feedback meetings with the three organisations and with the Fairtrade Foundation. Gender perspectives were addressed through the inclusion of both men and women members in FGDs and case studies, while diversity was addressed by designing the sample of Blocks and case studies to cut across ecological and socio-economic conditions. Triangulation was assured by the range of stakeholders consulted, and the different levels of the Producer Organisations surveyed. A range of simple and measureable indicators was identified that can be used to monitor the progress of economic, social, environmental and organisational impacts attributable to Fairtrade certification and the use of the Premium. Main findings Organisational capacity: All three organizations continue to have considerable capacity strengthening needs (human capacity, facilities, linkages, networks). Useful progress towards empowerment has been made through capacity development events arranged by FLO and FF, but the office bearers are still a long way off having the professional capability to run large organizations, and there are no Development Plans in place for SAT or EOT to date. Democracy: SAT and EOT memberships conform to the definition of smallholder producers. Membership is voluntary and open. Democratic structures are now in place, and regular meetings take place which the majority of members attend. The administration of all three organisations is transparent and there is some cross learning between the three organisations. Decisions on the use of Premium are taken democratically, with priorities reflecting Block-level priorities of members in the case of SAT. There is a well- balanced division of Premium-funded social development projects between those that benefit individual members, and those that benefit the wider community. At the present time, the smallholders of SAT and EOT lose control over the trading process once they sell their green tea to their respective estates, and further control of the value chain is some way in the future. Environment: Well grown tea is an environmentally benign crop with good ground coverage against soil erosion and, in Malawi, little pesticide usage. Smallholders do 3

4 not use those chemicals prohibited in the standards. While the processing of tea uses large volumes of wood, this is grown sustainably on the estates. Estates are collaborating with conservation programmes to maintain biodiversity and habitat. However, the Districts of Mulanje - and more especially Thyolo - have seen widespread reduction in forest cover outside the estates, which could lead to natural resource degradation and impacts on rainfall patterns (possibly exacerbated by Climate Change). The further expansion of smallholder tea gardens (which is the present trend) could further encroach on forest land or displace food crops. Labour issues: Smallholder producers use mainly family labour on their tea gardens. Thus the main issues around labour are for workers of different types at Satemwa. Satemwa had a good record on its treatment of labour even before certification, but a combination of the need to comply to Fairtrade standards, and funding from the Premium have combined to improve conditions further. Thus for example regulations on spraying, overtime and maternity leave have all improved due to certification standard compliance, while education (for children and adults) and health care have been improved due to the use of the Fairtrade Premium. However, some of the labour standards are held by Satemwa management to be inflexible and inappropriate, with a high compliance cost. Tea price: Tea is enjoying a period of favourable world prices, and it is not unreasonable for the Fairtrade price to be below the market price at this time. However, many (specifically the Estate managers who are purchasing tea from smallholders) feel confused by the Fairtrade minimum price, stating that it is not a fair price in that it does not cover the cost of production and processing. Use of Premium: The three organisations studied are at different stages with their use of Premium. In Satemwa, the Joint Body was formed to oversee the use of the Premium, and a VSO has helped to facilitate the decision-making between different groups of workers. At EOT, there is a Premium Committee answerable to the Executive Committee and overseen by the Advisory Board. At SAT, the first Premium had been received just before our visit. A process of prioritisation of the use of Premium had been conducted at Block level, and most individual members we spoke to had taken part in this process. The amounts of Premium received have been substantial - US$375,000 for SAT, US$376,000 for EOT and US$654,417 for Satemwa to June However, this only represents a proportion of the total tea produced (in 2008 this was 37.5% for SAT, 84% for EOT and 60% for Satemwa). Premium has been used, or is envisaged to be used, for a range of projects, as shown in the summary tables below. SAT proposed use of Premium MEMBER S BENEFIT Fertiliser subsidy, tea plant provision, subsidised food maize, revolving fund for credit, renovation or construction of leaf buying points, farm inputs, tractors, coffins. COMMUNITY BENEFIT Piped water and boreholes, Hospital, maternity wing, ambulance and guardian shelter, Road maintenance & bridges, Rural electrification, School block and teachers houses, Football ground, Community hall, Maize mill 4

5 EOT Premium use to date Health Education Environment Agricultural production Organisational development Muloza Maternity wing Muloza Ambulance garage Thyolo Ambulance garage Nansongole school block Konzaalendo school block Nangwengwe Headmasters house Phwera Tree planting Mawoonga Tree planting 34 Weighing sheds; offices in 6 blocks Fertilizer subsidy for members Likanga tea Nursery Makwasa tea Nursery Administration and meeting expenses Training of Board and Premium members EOT Office and House maintenance Use of Premium to date by Satemwa Roads and bridges 6 Desks 135 Bursaries 60 Boreholes 11 Maize 50% subsidy Solar panels 600 Mosquito nets 2300 Adult literacy 500 workers Sports Equipment Boots, uniforms, balls Health Malaria drugs etc Sustainability: A major concern voiced during the feedback meeting was that the Premium is variable between years, and appears to be diminishing. Some feel that this is partly due to the proportionally large Premium (0.50 cents on a minimum price of US$0.95) that puts off potential buyers. These concerns raise the broader concern about the sustainability of FLO-Fairtrade as a development approach. Some estates are looking at alternative certification schemes to see if they give a more reliable return enabling better strategic planning, even if their Premium is not as good. Trading relationships: In the case of SAT and EOT, the direct trading relationship is between the Producer Organisation and their respective estates. The relationship is a good one, borne of mutual benefit (assured market and source of credit/inputs for the smallholder, and source of green leaf for the estate factories). SAT members have a 5-year contract with a buyer (a local tea processing company), while EOT have a 3- year contract with a buyer (a large private African tea producer). The situation is less clear cut at Satemwa Tea Estates Ltd, where agreements do not last for more than one year. The good relationship between the Estates and the smallholder Trusts is a welcome feature. In part it is a commercial symbiosis, as the Estates are keen to retain their smallholders to boost their overall processed output, while the smallholders have a guaranteed outlet for their production supported by a long-term contract (5-years in the case of SAT and 3-years in the case of EOT). However, the effort put in by the Estates goes beyond hard-nosed capitalism, and also represents a genuine commitment to the social and economic development of the smallholder sector. The only aspect that sours this relationship is that within the general membership of SAT and EOT there is a perception that the tea price paid to them is lower than it should be. However, that price is set by the Tea Association of Malawi, 5

6 which has representation from the National Smallholder Tea Development Committee to which both Trusts belong. It may be that in the future, the NSTDC will become more able to present a strong case on behalf of smallholders. Capacity strengthening: Although, ideally, external capacity strengthening support should come from the FLO Liaison officer, members believe it is impossible for one person to ensure that all organisations receive the level of administrative and technical support that is required. In practice, the Estate sector has to provide professional staff working full time to ensure that the producer/worker organisations comply with Fairtrade Standards wherever possible. This creates significant expense to the sector and causes friction between estates and FLO/FLO-Cert over the operational management of Premium funds. Furthermore, the JB and Smallholder Executive Committees are becoming de-motivated at being told by FLO staff that their structures and procedures do not meet Fairtrade standards. Even if rigorous capacity building activities need to be initiated, the question still remains of how long it would take before the requisite capacity is attained within these bodies, and what model could be adopted to fast track capacity building in these organizations? Additionally, despite their social responsibility, estates as commercial entities have to balance the benefits of supporting certification against the costs borne by them. The capacity building given to date by the Fairtrade labelling system has helped, but should be seen as a start towards assisting office bearers to understand their functions, rather than having fully trained them to be able to conduct their duties in a professional manner. Almost all office bearers are also unpaid and their full time job is as tea producers/workers. EOT has employed an administrator using Premium funds, and some members of the Satemwa Joint Body are drawn from Estate staff. The limited technical, administrative and managerial capacity of the Main Committee of SAT, the Executive and Premium Committees of EOT and the Joint Body/General Assembly of Satemwa is also reflected by the limitations of their own facilities (offices, computers, transport and communications facilities), and their continued dependence on their respective Estates. Technical capacity of smallholder producers is also recognised by members as needing more intensive support to improve area planted, yields per unit area and quality. The Estates are working towards this through the expansion of the outgrower technical staff. At the same time some Premium is being used to grow and to purchase tea bushes and agricultural inputs. Opening new markets: It is premature for the two producer organisations to be involved in selling their tea direct to buyers other than the tea estates (with whom they have medium term contracts). However, it would be useful for members of those organisations to have a good knowledge of world markets and trading processes. In addition, the smallholders also grow other cash crops such as pineapple. At least some members should be able to compute gross margins for these enterprises so as to be able to decide which are the most viable as candidates for a diversified income generation/food security strategy. Assistance to smaller organisations seeking certification: Whilst we did not meet any other organisations seeking certification, the feedback from the study organisations was that they had been fortunate in having the support of their estates (and VSO in one instance) in steering a path towards and through certification. This is much more difficult for those without such patronage. They felt that the FLO Liaison Officer should provide more hands on assistance in helping them prepare for their initial audit. The majority of associations do not have computers or adequate financial reserves to meet FLO requirements initially. Therefore, without assistance, FLO Standards actively exclude the most disadvantaged from participating in Fairtrade markets - and yet these should be seen as priority beneficiaries of Fairtrade. 6

7 Networking within Malawi: Within Malawi, smallholder tea producers are linked through the National Smallholder Tea Development Committee. This represents their interests at the Tea Association of Malawi Ltd (e.g. in negotiation on prices), and provides some advocacy at government level (e.g. their case for receiving subsidized fertilizer). There are also less formal linkages between organizations that enable some sharing of experiences, including those arising from Fairtrade certification. As yet there are weak linkages with another smallholder representative body, NASFAM (National Smallholder Farmers Association of Malawi), which is closely involved with the processing and marketing of Fairtrade groundnuts. Other networks, particularly COFTA (Cooperation for Fair Trade in Africa) are active in Malawi, and looking to extend their influence in the Region. International Networking: Given the recent restructuring of organizations to meet certification requirements, the modest education levels of the office holders, and the lack of communication equipment (e.g. ) access for executives of the three study organizations, it is not surprising that there has been little contact as yet with international networks such as the African Fair Trade Network (or specifically its Southern Africa branch, the Southern Africa Fair Trade Network). Indeed that organisation is itself young (established October 2007) and still developing its mandate and reach. To date there has been no contact that we are aware of between SAFN and the three study organizations. It is our understanding that while SAFN has a regional mandate and is Malawi s legitimate conduit to the Fairtrade Foundation and FLO, it is in fact concentrating mainly on delivering Fairtrade labels into the South African consumer market. In theory, communication should be from the Malawi Fair Trade Network (postulated but not yet formally established) to SAFN, and then through AFN to FLO and the Fairtrade Foundation. A second avenue for communication is through the FLO Liaison Officers, but this is apparently not working well. One organization cited poor listening/facilitation skills and little delegated authority on the part of the FLO Liaison Officer as the main reasons for the poor performance of this potentially valuable communication channel. Currently the liaison officers are overstretched and do not seem to have any local decision making power, especially when it comes to consideration of local contextual problems and coordination with FLO-CERT to create the flexibility needed to support Malawian producers. In this way it would play a more positive and active role, rather than just reacting to FLO-CERT non-compliances. The organisations expressed their frustration to us that the current situation does not allow the producers to give their point of view on issues suspension being the only solution on the part of FLO- CERT if they do not comply. Overall conclusions It is clear that Fairtrade has raised hopes in the communities and within the workforce concerning socio-economic development. Although still at an early stage, benefits of Fairtrade in the tea sector are beginning to emerge. However: The three organisations studied are still fragile, and dependent on their respective Estates. The smallholder producers will require considerable additional support and capacity strengthening before they are able to operate independently. Further professional support in administration, financial management, information management, communications and technical project management is recommended. Standards are too restrictive and the cost of certification too high for new members without the sort of external support and funding that SAT, EOT and Satemwa have enjoyed from their respective Estates. It is therefore difficult to see how Fairtrade can assist the most disadvantaged except through the intervention of an ATO. 7

8 The reduction in sales to Fairtrade reported by all three Estates raises questions about the sustainability of FT, its cost effectiveness as a marketing strategy, and its efficacy as a development tool. FLO agents are not empowered to make decisions at a local level. This appears ironical given the rigour by which the steps toward empowerment are enforced by FLO on producers. As one stakeholder pointed out: The spirit of the relationship (between FLO and the Estates) is not healthy, because instead of having a dialogue with the owner of the Standard (FLO) we only get to listen to our weaknesses, over and over again, from FLO-CERT who are not allowed to facilitate change. This is unhealthy and de-motivating for the smallholder farmers, workers and the Estate sector management. While these are all real concerns, there are also considerable benefits from Fairtrade: Significant Premium payments are starting to translate into projects that benefit individual members short and longer-term livelihoods, their organisations and their communities Considerable organisational change (structural and procedural), has led to greater democracy, transparency and accountability giving greater voice to smallholder tea producers and tea estate workers within their organisations and through them to the national level. Capacity development has started the empowerment process for office holders Certification has led to access to markets previously unavailable The improvement in tea workers conditions and voice at Satemwa has resulted in improved workforce motivation, increased demand for work at Satemwa and increased gender equality (e.g. 50% of the Joint Body is female) Fairtrade is increasingly a popular term among tea producers in Malawi. Several other crops are joining the list of Fairtrade products such as groundnuts and sugar, and the number of producers seeking Fairtrade certification is increasing as the benefits to those already accredited become more tangible. As a result, the need to establish a Malawi Fairtrade Network has arisen so that members speak with one voice and learn from each other. 8

9 ACRONYMS ADMARC AGM ATO BCA CDC CILIC COFTA CUMO DFID EOT EP EPM ESCOM ETP FF FGD FLO-Cert FT GA GVH Ha HAS HRM IFTA JB Kg M&E MATECO MD MEPC MFI MK MMCT MuREA N.A. NASFAM NBM NBS NGO NRI NSTDC OIBM PO PROBEC RFA SACCOS SAT SME SSI STA STECO STGT Agric. Development & Marketing Corporation Annual General Meeting Alternative Trading Organisation Business Consult Africa Commonwealth Development Corporation Civil Liberties Committee Cooperation for Fair Trade in Africa Concern Universal Microfinance Organization Department for International Development Eastern Out growers Trust Eastern Produce Eastern Produce Malawi Electricity Supply Company Ethical Trading Partnership Fairtrade Foundation Focus Group Discussion Fairtrade Labelling Organisation Fairtrade General Assembly Group Village Headman Hectare Health Surveillance Assistant Human Resources Manager International Fair Trade Association (now replaced by WFTO) Joint Body Kilogram Monitoring and Evaluation Malawi Tea Company Managing Director Malawi Export Promotion Council Micro-Finance Institution Malawi Kwacha (140 = US$) Mulanje Mountain Conservation Trust Mulanje Renewable Energy Agency Not available National Smallholder Farmers Association of Malawi National Bank of Malawi New Building Society Non-Governmental Organisation Natural Resources Institute National Smallholder Tea Development Committee Opportunity International Bank of Malawi Producer Organization Programme for Biomass Energy Conservation in Southern Africa Rainforest Alliance Savings and Credit Cooperative Societies Sukambizi Association Trust Small and Medium-sized Enterprise Semi-Structured Interview Smallholder Tea Authority Smallholder Tea Company Smallholder Tea Growers Trust 9

10 TA TAML TRF USAID VCT VDC VSO WFTO WTO Traditional Authority Tea Association of Malawi Limited Tea Research Foundation United States Agency for International Development Voluntary Counselling and Testing Village Development Committee Voluntary Service Overseas World Fair Trade Organisation World Trade Organisation 10

11 CONTENTS Page 1. INTRODUCTION TO THE STUDY METHODOLOGY OF THE STUDY CONTEXT IN WHICH FAIRTRADE CERTIFICATION IS OPERATING IN MALAWI FINDINGS OF THE STUDY (2009) Sukambizi Association Trust History The FLO certification process The growth of SAT The smallholder tea farming situation in Sukambizi Summary of SAT position in Eastern Outgrowers Trust History EOT management structure Production and sales from EOT Projects implemented from Premium funds EOT stakeholders Current situation of EOT Hoped for situation (2013) Key challenges and solutions Suggestions for the future The farming environment for EOT Satemwa Tea Estates Ltd History The Joint Body and General Assembly Stakeholders Current situation of Satemwa workers and community Hoped-for situation in Challenges and solutions Flow and use of Premium Impact of FT on general working conditions Areas for further improvement PLAN FOR MONITORING THE IMPACT OF FAIRTRADE TO CONCLUSIONS Producer standards Trader standards Organisational support and Business Development Networking Overall conclusions 78 11

12 1. INTRODUCTION TO THE STUDY Over the last decade, Fairtrade sales have increased dramatically, reaching 2.3 billion in retail value in As the volume and value of Fairtrade sales has grown across the world, there is increasing demand to measure and demonstrate the impact that engagement with Fairtrade has had on Producer Organisations, producers and workers, their families, their communities and the trading, policy and working environment. This demand comes from consumers, the media, political authorities, funding donors and supply chain actors (licensees and retailers) who have a legitimate interest in learning whether the Fairtrade labelling system is meeting its aims and objectives and improving the situation of smallholder producers and plantation workers. There is also a need to promote ongoing learning and accountability amongst the organisations involved in Fairtrade the Producer Organisations (PO), Fairtrade Foundation (FF) and other Labelling Initiatives, Fairtrade Labelling Organisations (FLO), commercial actors and Non-Governmental Organisations - about the effectiveness of the tools and processes used to achieve the objectives of Fairtrade labelling. The overall objectives of this tea impact assessment study are to: Understand the context and environment in which Fairtrade certification in the Malawian tea industry is operating Understand the aims and objectives of the POs and workers in terms of their sustainable development and empowerment Assess the extent to which Fairtrade certification and engagement with the Fairtrade labelling system has already assisted POs in achieving their objectives Compile baseline information against which to monitor progress and impact in the future. The initial study that is the subject of this report will be followed up in successive years to provide a longitudinal assessment of: The longer-term impact, both positive and negative, that being part of Fairtrade has had on producers/workers, their organisations and the wider community The longer-term impact that Fairtrade certification has had on the local economy How Fairtrade organisations (especially the Fairtrade Foundation and FLO) can support producers and workers more effectively to achieve their goals in the future. 12

13 2. METHODOLOGY OF THE STUDY This study is a longitudinal impact assessment of Fairtrade tea in Malawi, with specific reference to three FLO-certified tea producing organisations in Malawi. This report presents the findings of the first of three visits, the others being scheduled for 2010 and The study was conducted by the Natural Resources Institute (NRI) over a 6-week period between May and July 2009, with two weeks being spent in field work at each of three recently Fairtrade-certified organisations. NRI is independent of the Fairtrade Foundation which commissioned the study. The approach used is a participatory livelihoods approach in which Producer and Worker Organisations, their members, their families, their communities and the stakeholders who influence or interact with them are studied across organisational, economic, social, political, institutional and technical dimensions. The process used had 4 components: 1) A review of relevant information on: the tea sector, agrarian systems, labour issues, sustainable development in Malawi, alternative livelihood opportunities, and the certification process. 2) A range of stakeholders at national, district and local levels was identified and visited to understand the different perspectives of the organisations that shape the context to the tea industry in Malawi. The synthesis of these two stages of the study is presented in Section 3 of this report. 3) Three Producer Organisations (POs selected by the Fairtrade Foundation) were studied through: a) Meetings with their Main and Block Committees; b) Focus Group Discussions (FGD) with men and women members, and with non-tea producing farmers in the same localities; c) Case-study semi-structured interviews (SSI) with individual member families, and d) Production, income and membership data requested from relevant organisations. The check-lists used in the FGDs and Case study interviews are given in Annex 4. Tools used during the meetings with the PO Main Committees included Stakeholder Analysis to map and understand the influence and activities of main stakeholders, and Force Field Analysis to understand where the organisations are now and where they hope to be in four years time. The results of the field work with the three organisations are presented in Section 4 of this report. 4) A feedback meeting on 31 st July 2009 together with smallholder/worker association officers and members, tea estate staff and other stakeholders was held, in which the results of the survey were presented and discussed and the next steps explained. 5) A further feedback meeting was held at the Fairtrade Foundation on August 27 th. Following this, comments were made on the draft report by the Fairtrade Foundation and by the three study organisations, most of which have been incorporated into this final report. Those attending the meeting are given in Annex 2. 13

14 The organisations that form the basis of this study are: Sukambizi Association Trust is the largest smallholder tea association in Malawi. It was Fairtrade certified in 2008 and sells green leaf to a local tea processing company, who processes the leaf to made tea. Sukambizi Association has approximately 5700 members and produces approximately 8 million kg of green leaf which produces 1,800 metric tonnes of made tea per year. Eastern Outgrowers Trust was certified under the Fairtrade small farmer standard in Its 3370 members produce up to 3,200 metric tonnes of green leaf/year, processed by a large private tea producer which markets the tea on their behalf. Satemwa Tea Estates Ltd, a family run business which has been certified under Fairtrade hired labour standards since The estates grow 900 hectares of tea and 45 hectares of coffee. There is a factory with a permanent workforce of up to 2600 who are the principal beneficiaries of Fairtrade in this instance. Leaf tea is also purchased from more than 170 smallholder farmers. Satemwa produced Malawi s first Fairtrade tea. The study aimed to capture impact information in the following areas: 1. Changes in social structure 2. Changes in the socio-economic situation of participating producers/workers and their households including their income, working conditions, living conditions and access to basic services 3. Changes in the organisation of rural areas / workers organisations / trade unions 4. Changes in local, regional and national development 5. Changes in the management of natural resources Gender perspectives were specifically addressed through the inclusion of both men and women members in FGDs and case studies, while diversity was addressed by designing the sample of Blocks and case studies to cut across ecological and socioeconomic conditions. Thus for the Sukumbizi Association Trust, smallholder producer Blocks were chosen that represented high, medium and lower rainfall locations, and case study farmers were chosen to be small, medium and larger (but still below 2ha) smallholder tea producers. In EOT, the selection criteria of the blocks were different. Chanunkha was selected because this is where there is a large concentration of tea farmers at the bottom of Mulanje Mountain. Tea is an important crop (together with pineapple and sugar cane) for income and therefore food security. Nakadangwa block was selected as that is where only about one third of the farmers grow tea. The area is the relatively flat to the south of Mulanje boma. Lastly, Mianga block was selected because it is a dominantly maize and banana area with tea taking a third position. The selection criteria in Satemwa focused on capturing a representative sample of the workforce. Hence besides focusing on two divisions of the company, the various categories of workers from Division managers, Capitaos, Supervisors, factory workers, down to the tea pluckers were targeted for interviews. Triangulation was assured by the range of stakeholders consulted, and the different levels of the Producer Organisations surveyed. In Section 5, simple and measureable indicators are identified that can be used to monitor the progress of economic, social, environmental and organisational impacts attributable to Fairtrade certification and the use of the Premium. These were presented to the stakeholders during the feedback meeting, but have not been formally incorporated into the monitoring processes of the Producer or Worker Organisations concerned. 14

15 3. CONTEXT IN WHICH FAIRTRADE CERTIFICATION IS OPERATING IN MALAWI The tea industry in Malawi dates from 1891, when plants were first brought to the country from Kew Gardens. Malawi is now, after Kenya, the second largest tea producer in Africa with production situated in the southern districts of Mulanje and Thyolo and the northern district of Nkhata Bay. Total production is currently estimated at 46,000 metric tonnes per year from 21 factories (16 owned by UK-based companies and 5 by locally-owned enterprises). Tea is of considerable importance to Malawi. After tobacco, it is the second (sometimes third to sugar) biggest export earner for Malawi, accounting for 8% of export earnings. It is also important as an employer, with an estate labour force of 40-50,000 at peak season. The growth potential of the sector is recognised by government, but, according to Chirwa et al (2006), there has been no clear government policy since Our own interviews with senior staff at the Ministry of Trade indicated that the Ministry is aware of fair trade and its significant potential for increasing foreign exchange earnings. They want to encourage smallholder production and its share of ownership of the tea sector. In line with a general policy to increase value in-country, they would like to see further tea processing in Malawi. They would also like to improve government s contribution to the promotion, marketing and packaging of Malawian products such as tea through the Malawi Export Promotion Council (MEPC). Senior management of the SAT buyer & tea processing company believes that Malawi is well placed to compete on the world market due to low pest incidence (pesticide free), good margins (better than Kenya) and a characteristic orange tea colour, which is in demand from buyers/blenders. We were informed that a cess of 1.35 cents US is deducted by the Tea Association of Malawi (TAML) 1. This is split between the Tea Research Foundation (1.0 cents) and the TAML (0.35 cents) for its operations. The agenda of the TRF is therefore determined by the private companies from Zimbabwe and Malawi (shortly to be joined by Mozambique). The base price for green leaf is now set at 11.5 cents US. In addition there is a transparently and independently calculated (and web-published) bonus an additional payment per kg that depends on the actual price that the tea is sold for at auction over a six-month period. At present, according to management of the SAT buyer & tea processing company, there is no incentive for smallholders to produce high quality leaf. Management would like to see two grades, with a financial incentive for the best tea to bring smallholder tea consistently up to the level of estate tea. This would encourage more plucking rounds (and would actually increase tea yield as well as quality). Such a two-tier payment 1 Founded in 1934, the Tea Association of Malawi Limited (TAML) was established with the aim of representing the entire tea industry both nationally and internationally on matters of interest to tea growers and producers. Its Mission Statement is to : Promote a sustainable Tea industry in Malawi through the provision of quality service to its members in partnership with government and other stakeholders with prime focus of meeting ethical international standards. The Tea Association is governed by a Board of Directors. The Board of Directors is presided over by the Chairman and the Chief Executive serves as Secretary. (see: 15

16 system would echo the differential between auction prices for main grade (1.50/kg) and second grade (1.10/kg). There is, for the moment, excess processing capacity (particularly with the rehabilitation of a national Tea processing Company factory). This makes it good policy for estates and the company to attract outgrower farmers to them. However, with ongoing expansion of area under tea, increasing smallholder yields and estate re-planting, the excess capacity may be used up over the next few years. The tea, which is of good quality and has a sought-after red colour for blending, is exported to the UK (35%), to South Africa (26%) and also to Kenya, the USA and Canada, Japan, Pakistan and other countries in Europe. The prospects for the sector have improved through the consolidation of the industry, progressive development of superior cultivar teas, selective investment in irrigation, efficiency improvements, three relatively good production years since 2004 and the development of mutually beneficial relationships between the estates and smallholder producers. The sector is well organised through the Tea Association of Malawi. TAM has evolved a set of practices and mechanisms for review relating to Hired Labour and Smallholders that have significantly improved the terms and conditions on which the estate sector engages with both groups. The drive for higher standards in employment, contracting, environmental, social and other areas has been underway for several years and Fairtrade labelling is now adding to that impetus, with four relatively newly FLO certified producers. Smallholder farmers are also represented by the National Smallholder Tea Development Committee, which formed in The NSTDC has 12 committee members (2 women and 10 men). They meet in each others houses or other convenient place. Communication is through the Secretary and mobile phone. Meetings are quarterly or when problems arise. They represent all the smallholder tea producers in Mulanje and Thyolo, and are financed by smallholder Associations. Key issues identified by the Chairman in May 2009 were: a) Inclusion of tea in government fertiliser subsidies b) Expansion of tea gardens c) Price of tea paid by estates d) Improved provision of extension advice e) Development of complementary sources of income. Smallholder tea is part of a farming system, as demonstrated in the following photograph (Sukamphisi Block, Bondo GV of Sukambizi Association Trust). It is grown as a monocrop on mainly ferralitic soils under rainfed conditions. Fertiliser is necessary to maintain reasonable yields, and the majority of labour is from the family. In addition to tea, farmers grow variable amounts of a range of other crops, including sugar cane and pineapple (cash crops), cassava, maize, pigeon pea, sweet potatoes. Tree crops include bananas, citrus, macadamia (being promoted by the Mulanje Mountain Conservation Trust - MMCT 2 ) and eucalyptus (for poles and firewood). Some sheep, goats and chickens are also kept. 2 Mulanje Mountain Conservation Trust (MMCT) is an environmental endowment trust funded by the World Bank through the Global Environmental Facility (GEF) and aims at providing long-term reliable support for biodiversity research and conservation of biological diversity and sustainable utilization of natural resources of the Mulanje Mountain Forest Reserve. Mulanje Mountain has a very rich and stunning forest reserve, which is a home to a rich and diverse endemic plant and animal species. It is also a catchment of headwaters and a source 16

17 SMALLHOLDER TEA FT impact feedback: Mulanje, 31 July At present the NSTDC have little contact with the National Smallholder Farmers Association of Malawi (NASFAM) 3. Improved contacts could be beneficial, as NASFAM are well organised with impressive offices and connections in Lilongwe. Through a network of smallholder-owned business organisations, NASFAM promotes farming as a business to develop the commercial capacity of its members and deliver programmes that enhance their production and innovation. Members of NASFAM sell Fairtrade groundnuts (FLO-certified after a hard struggle to get quality right) via Twin Trading to UK supermarkets. They sold 432 tonnes to UK last year and 120 tonnes to South Africa. NASFAM has invested MK120m in processing equipment for different grains/pulses and is building huge warehouse for smallholder produce. Other Fairtrade products in Malawi are sugar and coffee (just started). Oliva and Agar s (2006) study of credit demand and supply in the tea sector in Malawi found that 95% of estate borrowing is in the form of short-term commercial bank financing (via 12-month overdraft facilities). Estates find it more difficult to finance longer term development projects using local commercial financing with: Facilities that match with the tea agricultural cycle of nine sturdy perennial rivers and tens of streams. The Government gazetted Mulanje Mountain and its Forest Reserve as a protected area in 1927 primarily to safeguard the water catchment and to control the extraction of endemic tree species, Mulanje Cedar, which is Malawi's national tree. The Trust is working in collaboration with the Department of Forestry through the district forestry offices in Mulanje and Phalombe. The main objective is to manage the resources in the forest reserve by bringing in community participation and maximising benefits among resource users. 3 Founded in 1997, NASFAM is a farmer-directed business system based on the individual participation of close to 100,000 Malawian smallholders, most of them farming on less than a hectare of land ( ) 17

18 Loans in US dollars ranging from $0.5 to $4 million Loan terms of five to eight years with payments that coincide with the peak of sales Oliva and Agar (2006) maintain that estates are the only value-chain actors currently extending credit to existing smallholder tea growers for fertiliser and other inputs. The provision of credit by the estates is closely interlinked with the provision of extension services and the purchase of green leaf, enabling the estate to deduct loan payments from smallholder green leaf monthly proceeds. On an aggregate level, a total of MK 39.6 million was extended as in-kind credit to approximately 8,500 smallholder tea growers during the 2005/6 season. All estates consistently achieve high repayment rates (greater than 95%), as repayment is deducted monthly from green leaf purchases. However, as the estates are not financial service providers 4 there is a limit to the amount of credit they can extend to the smallholders and as a result, there is an unmet credit demand from the majority of existing smallholder tea growers. There is therefore a role for micro-finance institutions/banks to extend and even replace the credit provided by estates to smallholders, but it would involve recovering the full cost of the inputs, including the cost of financing that is not being recovered at present. An alternative would be savings and credit groups. Financing for new growers was identified as a critical need by the smallholder representatives interviewed by Oliva and Agar (2006). New growers face additional financing needs, in particular with regard to planting material, land preparation and fertiliser, with repayment to be scheduled over several seasons. Similarly, the establishment of sustainable nurseries providing a reliable, quality supply of seedlings is critical to meeting the planting material needs for both existing and new growers, and longer-term finance would be welcome for this area of intervention. The smallholder sub-sector began after Independence in the 1960s with strong support from government. Now it accounts for c.15% of the tea industry by area and some 7% by volume, with some 8-10,000 smallholder farmers growing around 4500 ha of tea in ha plots. Earnings by the smallholder sector were MK158 million in Smallholder yields are about 1000 kg of made tea per ha per year against 2500 kg produced by the private estates. Poor smallholder yields 5 are due to: o low investment by smallholders o low plant population (50% of optimum) o little replanting However, most smallholder tea uses good quality clonal bushes, while the estate sector is mostly seedling bushes although the latter are now re-planting with clonal material. There is potential for further expansion of smallholder tea into land that is now used suboptimally for other crops. 4 The buyer/tea processing company for SAT feel that it would be unwise to offer credit over 40% of disposable income as this would make smallholders unduly vulnerable to possible indebtedness (personal communication) 5 According to a past Chairperson of NSTDC 18

19 From: USAID, Credit demand and supply study of Malawi s tea sector. USAID, Washington. Limitations recognised by the New Strategy for Development produced by the National Smallholder Tea Development Committee and the Tea Association of Malawi in 2005 were: - Lack of a transparent, committed and efficient organization to manage and coordinate activities of the sub-sector - Acute need for a reliable supply of tea planting materials - Need for a revolving fund for a production input support programme - Lack of extension 6 services to tea growers - Lack of training and capacity building for growers, their associations and committees 7 - Need for infrastructural development in smallholder tea areas, especially the road network - Lack of attention to HIV/Aids and environmental conservation Chirwa and Kydd (2005) studied a sample of smallholder tea growers. They were able to characterise them into small and larger smallholders: small growers (the majority) were characterised by land holdings of <0.5ha, diversified production of a range of crops, little use of bought fertiliser, less experience of tea farming and the hiring of their labour (ganyu) to estates. The larger smallholders held >0.5ha, were more specialised tea growers, use bought in fertiliser and provided less ganyu (casual) labour to estates. They found that the average household size was 5-6 persons, and that some 37% of households are female-headed. Nearly 25% of growers had no formal schooling and 6 According to a past NSTDC chairperson, there is no government extension to tea smallholders, and that supplied by estates is insufficient (1 agent for up to 2000 growers). 7 Capacity is most urgently needed in administration, business management, agronomy, production economics and post-harvest handling 19

20 87.9% only attended primary school, while 12% went on to secondary school although most did not complete to Form 4. 95% of growers generate income from crop sales, followed by 23.7% from small businesses and 10% from ganyu labour. Mean incomes were MK46,228 gross and MK23,161 net of loan deductions across Mulanje and Thyolo, while main items of expenditure were food, farm inputs and labour. While tea is an environmentally benign crop with minimal use of pesticides, the locations in which it is grown are subject to great pressure from local inhabitants. Thus both Thyolo and Mulanje mountains are subject to de-forestation and encroachment. This has been most damaging in Thyolo, with consequent siltation of rivers and dams. Mulanje mountain (opposite) is the focus of a regional environmental Conservation organisation, who work closely with tea estates and smallholders to reduce deforestation, reverse encroachment, encourage the planting of perennial tree crops and promote fuel efficient stoves. The Government of Malawi formed the Smallholder Tea Authority in 1964/5. This encouraged smallholders to grow tea. To start with smallholders sold their tea to Companies, but after some years there was sufficient for a factory, and a national tea processing factory was formed in 1974 under a joint venture between the Smallholder Tea Authority (STA) and the Agricultural Development and Marketing Corporation (ADMARC) to process all smallholder green leaf from Mulanje and Thyolo districts. The Commonwealth Development Corporation (CDC) financed the factory but the loan was eventually paid for by smallholder growers through a capital development levy on sales of green leaf. The factory was then owned by smallholder tea growers in Mulanje and Thyolo. The factory had a monopoly to purchase all smallholder green leaf in the two districts through the STA. In 1997 the government bought a Tea Estate in Mulanje for smallholder tea growers. The plan was to sub-divide the tea fields into hectares for allocation to smallholder farmers on the pattern of the very successful smallholder tea development in Kenya. This plan was not implemented. Instead ADMARC was given management responsibility for the estate which accumulated huge debts, and in 2002 the government eventually had to privatise both STA and the factory. The two organizations were disbanded and replaced by a separate smallholder trust and tea processing company. 20

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