Max Havelaar Lecture

Toespraak | 11-11-2009

Ladies and gentlemen, distinguished guests,

It’s a pleasure to be here today. I’d like to begin by thanking the organisers of this lecture – the Erasmus University, the Max Havelaar Foundation, Triodos Bank and the Expert Centre for Sustainable Business and Development Cooperation – for the invitation.

I would also like to congratulate the other speakers – Louk [de la Rive Box], Koert [Jansen], Peter [d’Angremond], Cornelius [Lynch], Gary [Gereffi] and Hans [Van Bochove] – on what I heard excellent presentations. They touched on many important issues. I’m afraid I won’t have time to address them all this afternoon. But perhaps we could look at some of them in more detail during the panel discussion.

When Prof. Rob [Van Tulder] asked me to give you a government perspective on sustainable supply chain management, my first reaction was, ‘Why me? Has Rob never seen the British comedy series ‘Yes Minister’? Because then he would know who you need to talk to to get a real government perspective on things. Unfortunately my highest ranking civil servant, Joke Brandt, who was first invited, has a very busy schedule and could not be here today. So you’ll have to make do with me instead.

Seriously, though, I am very happy to be able to talk to you today about this very important subject. Rob, thank you; we have been classmates and I highly appreciate your knowledge, insights, scientific professionalism and also the advice to my ministry. The paper for this conference gave me a lot of insights. Global value chains are very close to my heart. I truly believe that they present many opportunities for entrepreneurs in developing countries to become competitive actors in world markets. And if local power relationships are seriously taken into account – and they should be – then value chain development is likely to reduce poverty. My slogan today is not ‘Trade for Aid’, but ‘Aid and Trade’, or even ‘Aid for Trade’. Basically, modern development cooperation relates sustainable growth to jobs as major instruments for development. Jobs help people help themselves and therefore stimulate growth and equity. So stimulating inclusive value chains is a priority of my policy.

Only this weekend I returned from a trip to Ethiopia and Egypt. In both countries, I talked with small farmers and the authorities about the important role of value chain development as a catalyst and mobilising strategy. Tareq in El Fayoum felt for the first time that he was being taken seriously in his profession. Aged thirty five, he is now able to grow sorghum for beer and display his newly acquired professionalism. He feels part of a larger world and can finally care for his family's education. Ultimately, that, for me, is what ‘chains for change’ are all about. In Egypt I spoke just the day before yesterday that builds a wholesale chain for distribution on food, cutting the middleman and increasing the power of dispersed farmers.

Which brings me to the question: what can governments do to develop global value chains? To my mind there are three things.

• First, they should set a good example.
• Second, they should work with other governments to ensure a free and fair trading environment.
• And third, they should encourage the private sector to play its part.

Let me elaborate on these points.

First of all, I firmly believe in leadership by example. Governments, after all, are not only governing bodies, they are also major consumers. In this country alone government agencies buy over 50 billion euros’ worth of goods and services every year. Central government is the country’s main purchaser of office supplies, road and construction works, means of transport and energy. In 2006, the decision was taken to make government procurement more sustainable. Parliament recently approved criteria to be met by all public tenders worth more than 133,000 €s for 45 product groups ranging from audiovisual equipment to vending machines and workwear. These criteria focus on compliance with international labour and human rights standards in the international supply chain. Specific criteria have also been formulated for specific products. They relate to occupational health and safety, decent working hours, living wage or living income and fair trade standards (like pre-finance and minimum guaranteed price). It is this government’s stated goal to achieve 100 per cent sustainable procurement by 2010. If we succeed, we will be the first government in the world to do so, thereby sending an important signal to others.

The second way governments can stimulate global value chains is by working with other governments to ensure a free and fair trading environment. Value chains relate to the complex issue of fair trade. The most logical starting point is the World Trade Organisation. As you know trade negotiations in the WTO’s Doha Development Round have been dragging on for years. This is a real shame, because a successful conclusion of the round would not only curb the increasing protectionism which is detrimental to poor nations, but it would also greatly stimulate global value chains.

What constitutes a successful outcome? As far as the Dutch government is concerned, it is important from the perspective of development that an asymmetrical trading regime should be guaranteed for poorer nations, to ensure them a level playing field. Furthermore, they should have the flexibility and policy space needed to take the measures they deem necessary to support their economic development.

But even if the negotiations drag on for a bit longer, there are ways in which governments can work towards removing the obstacles poorer nations face in their struggle to access world markets. They can, for example, help people in poorer nations upgrade their skills through training; they can help producers organise. They can simplify access to finance, improve business climates and invest in infrastructure.

In 2005 the WTO launched the Aid-for-Trade initiative. The Netherlands has been very active in this field. We have, for example, been able to help Mali increase its exports of mangoes by advising farmers on product certification and marketing their product in Europe. And – together with private partners – we have funded a cooling station near the international airport of Ouagadougou. This enables farmers to store their perishable products for longer periods, making them more suitable for export. All in all, the export of Malian mangoes has risen by 400 per cent within three years. This has not only meant more income for many farmers and their families, but has also benefited the logistics, transport and storage sectors. As the previous speaker said: “Quality comes first, and that also goes for logistics transport and storage sectors. Through increased tax revenues, Malian society as a whole benefits from the economic growth generated by projects like these. This money funds the construction of schools and hospitals, bridges and roads; it even pays the salaries of civil servants.

The positive effects of projects like the one in Mali are sorely needed at a time when we are increasingly facing the cumulative impact of the economic, food and climate crises. The economic crisis in particular has underscored the need for a more inclusive growth model. Developing countries had little or no part in causing the crisis, but they are some of the hardest hit. Fragile states; landlocked, resource-poor countries; LDCs with low productivity and a poor business climate; workers who toil away in unhealthy conditions in factories and sweatshops; small farms that cannot meet strict safety and quality standards – this is where suffering is most acute. Many people in the Netherlands and abroad are rightly concerned about this.

They are also concerned about issues like child labour, deforestation and climate change. Right after taking office, I made sustainable international trade and production one of the central themes of my policy priority of ‘growth and equity’. I did this in the conviction that we cannot close our eyes to the negative aspects of globalisation. And let’s make no mistake about it, we still do. We do not see the billion people in developing countries who experience these problems in their daily lives.

Which brings me to my third point: governments should stimulate the private sector to do its share. Last weekend, reports in the newspapers told us that 70 per cent of the largest Dutch companies are not yet doing enough for sustainability: transparency and chain management are simply not enough. Although information on labor regulations, standards and sustainability is important and thus implementation is key. There is a lot to be done. With this in mind, exactly a year ago, we launched the Sustainable Trade Initiative, the IDH. This initiative unites trade unions, NGOs, the business community and government, drawing on expertise from multiple parties for the purpose of improving working and environmental conditions in international trade. Within the IDH, NGOs like Solidaridad, ICCO and Oxfam-Novib work together with companies like Ahold, Nestlé, Unilever, Mars and Cargill in programmes to come up with solutions for problems in the value chain. These programmes are aimed at improving value chains, creating synergy and making the value chain more sustainable on both the supply and demand side.

Initially we chose to launch the IDH in six sectors: cacao, tropical timber, tourism, natural stone, soy and tea. Last week the balance sheet of the IDH’s first year was released, based on the outcome of a quick scan in three of these sectors. The results are very encouraging. Within one year our efforts in these sectors have led to higher incomes for farmers, a substantial rise in productivity, better prices for products and greater involvement by the leading players in the world market.

The cacao programme, for example, works with the three largest processors and the two largest chocolate companies in the world. Together they control a market share of 40% of global cacao processing and 30% of global chocolate production. The largest chocolate producer in the world, Mars, has set the ambitious goal of purchasing nothing but fully certified, sustainable cacao by 2020. This is the attitude shift, the multiplier effect we need. This is the path that leads to results! The programme has already trained over 2,800 farmers in Côte d’Ivoire and certified 180 of them.

This process of fostering sustainable business practices has been given an enormous boost, thanks to an integrated value chain approach. The major challenge now is to reach even more local producers. 30,000 farmers in Ghana and Côte d’Ivoire are likely to be certified by 2012. In the coming period, the programme will be expanded to embrace Indonesia as well. This shows that setting our sights high can yield impressive results, with high expectations for the future.

In the cacao sector we do run the risk that only a few larger or more innovative farmers will be able to continue producing cacao for the world markets of the future. We also will have to work with smaller farmers and ensure that rural entrepreneurs get power in the value chain; in its management, and its agreement. The essential is to upgrade possibilities for firms and farmers at the bottom. They too should have the power to agree on the functioning of the value chain. I welcome the pre-competitive cooperation that is so crucial for the work of IDH, since consumers, businesses and workers have a common interest in the economic and environmentally sustainability of supply: you don't want to buy chocolate based on child labour or from farms that are not ecologically viable in the long run.

This also applies to the other IDH programmes. The stone mining programme, for example, has led to a broader dialogue with stakeholders on exactly these issues. And within the soy sector, the number of members of the Round Table on Responsible Soy has grown significantly, due in part to the IDH. That is in itself not enough. Outsiders play a large role, like the Chinese markets. And the building up trust and confidence in the chain plays an important role.

In short, we are seeing mounting enthusiasm for sustainable practices within the sectors we’ve examined. And when a substantial proportion of market players are willing to make the transition to sustainability, as we’ve seen in the cacao sector, we can transform entire markets. Core firms and suppliers organisations can both play a large role. That’s when we can really make a difference. In this light – as part of my effort to use modern development cooperation as a catalyst for development – on Monday I announced an extension of the IDH programme until 2015 and an additional grant of €20 million in 2011. As has been agreed with the IDH partners, I expect this amount to be matched by at least a similar contribution from them, thereby creating a multiplier effect: more value for money for both the private and the public sector.

Ladies and gentlemen,

I have sketched three ways in which I believe governments can help build more equitable global value chains. As you have heard, the Dutch government is actively engaged in all three of them. But before I close I would like to make one more quick point: we should not limit our discussion to entrepreneurs in developing countries that are active in international commodity chains. For, in spite of globalisation, only a very small percentage – varying between 3 and 10 per cent per country – of entrepreneurs in developing countries fall into this category. The vast majority produce solely for the local market. Of these, 80 percent are farmers. If we are to combat worldwide poverty effectively, we will need a way to reach these people.

This is why together with agriculture minister Gerda Verburg I am investing an additional 50 million euros in strengthening developing countries’ agriculture sector. This money, we hope, will promote economic growth, improve the productivity and sustainability of the agriculture sector, reduce rural poverty and increase food security in developing countries. Projects we are supporting include strengthening international research in the light of climate change and globalization, supporting the development of agriculture in fragile states like Afghanistan, and creating public-private partnerships for market access. We also support the development of financial services that benefit the rural poor, making international trade chains more sustainable and strengthening farmers’ organizations and cooperatives. We also have a policy dialogue with countries to ensure transparency, this was one of the urgent questions before the break. Checks and balances are key.

As you might know farmers associations in this country are very active. In recent year thirty of these organisations – including Agriterra, KIT, WUR, SNV, Oikocredit and ICCO - have joined forces in the platform Agri ProFocus. Together they aim to improve the performance of the agricultural sector in developing countries by strengthening the organisations of farmers there. In 7 African countries they encourage local partners to join forces and cooperate, yielding encouraging results.

An example of one of the programmes my ministry finances to support local farmers organisations, is Agriterra’s Farmers Fighting Poverty. The idea behind this programme is that strong producers’ organisations can negotiate with the stakeholders in their value chain, with local governments and other market players. This way, they can set a fairer price and introduce better working conditions. They can then become their own advocates for their own actions, and make a better living. I am very enthusiastic about this programme. In Northern Uganda, for example, it supports the Uganda Oilseed Producers and Processors Association. This association has some 18 thousand members, half of which are women. By advising them how to cultivate, process and market their crops, their incomes have increased substantially enabling them to invest in more cattle and in the education of their children. Crucial results on the way to defeating poverty.

Ladies and gentleman,

Let me conclude by saying that there is no doubt in my mind that it is imperative to make the international chains of trade and production more sustainable. That is also crucial in combatting speculation in raw materials and establish long term sustainable financing in the chain.The welfare of our children and the future of our planet depend on it. Making the transition to an economy of sustainability is one of the major challenges of the 21st century. At a time of global economic crisis we should ensure that we do not return to business as usual, but make the link between the food, climate and financial crises. This is particularly important at a time when many countries in Asia, Africa and Latin America want to keep growing in order to lift their peoples out of poverty. Meeting all these needs demands political vision and leadership. More and more people are aware of this. This is a positive sign. One month before the start of negotiations on a new climate agreement in Copenhagen we need to seize this momentum and ramp it up. I’m willing to do whatever I can to make this happen. We need companies, students, consumers and academics to make it happen, and therefore I appreciate the opportunity to discuss with this afternoon.

Thank you very much.