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March 09, 2005
Taco Bell Agrees to Pay Florida Tomato Pickers A Penny More Per Pound to End Boycott
    by William Baue

Shareowner activists will also withdraw their resolution if parent company Yum! Brands agrees to join agricultural supply chain working group to address industry-wide reform.


A penny a pound. That's the increase in Florida tomato pickers' piece rate achieved yesterday in a landmark settlement between Yum! Brands (ticker: YUM) and the Coalition of Immokolee Workers (CIW), who agreed to call off their four-year boycott of Yum subsidiary Taco Bell restaurant. It may not sound like much, but it almost doubles the price paid by tomato farms for each 32-pound bucket harvested, from about 40 cents (a rate that has not changed significantly in over a quarter century) to at least 72 cents.

Why did it take so long to attain such a seemingly small raise? Yum claimed two reasons, primarily. First, Yum does not own the tomato farms, so the company contended it could not control farmworker pay. Second, Yum noted that it purchases only a fraction of Florida's tomatoes (the 10 million pounds it bought in 2004 represents less than one percent of the Florida tomato crop), so any change would have to happen industry-wide or else Yum would lose competitive advantage.

Taco Bell solved the first problem by agreeing to fund the penny-per-pound "pass-through" or surcharge to its Florida tomato suppliers, and pledged to buy only from growers who pass the payment entirely to farmworkers. Furthermore, Taco Bell agreed to collaborate with CIW to monitor supplier compliance with the pass-through.

The settlement acknowledges the competitiveness problem for Yum but does not solve it directly.

"We have indicated that any solution must be industry-wide, as our company simply does not have the clout alone to solve the issues raised by the CIW, but we are willing to play a leadership role within our industry to be part of the solution," said Emil Brolick, president of Taco Bell.

Negotiations between Yum and the Center for Reflection, Education and Action (CREA), which filed a shareowner resolution asking the company to report on the social, environmental, and economic sustainability of its business and supply chain, seek to tackle the industry-wide issue.

"Separate from the settlement, we have asked Yum to become part of an agricultural supply chain working group along with a number of other companies to try to create an agricultural supply chain code of conduct and suggested compliance system, both domestically and internationally," said Sister Ruth Rosenbaum, executive director of CREA. "We're looking for 12 companies--we have yeses from a couple, and we're close to agreement with a couple of others."

"When I was talking with the people at Yum on Monday, I told them that if they agree to join the working group--and we have every expectation they will because it addresses Yum's concerns about an industry-wide effort--we will withdraw the resolution," Sr. Rosenbaum told SocialFunds.com.

In 2003, the first year the resolution was filed, it received 39 percent support from voting shareowners (first-year resolutions need to receive three percent of the vote to qualify for re-filing the next year). The resolution (which does not specifically reference the boycott although "the penny-a-pound issue was always part of our dialogue with the company," according to Sr. Rosenbaum) received 33 percent support last year.

The resolution specifically frames its request in the context of action in other industries, where companies have recognized their responsibility to address supply chain issues. For example, the Gap (GPS) issued its first Social Responsibility Report last year, boldly identifying human rights problems in some of the developing nation factories it sources from. The Gap also committed to be a first-mover in addressing industry-wide supply chain problems, a decision it acknowledges as exposing itself to risk of losing competitive advantage to late-movers.

However, first-movers are often not only punished but also rewarded, for example by reducing reputational risk or exposure to litigation threats. CIW has identified the existence of slavery in the Florida agricultural industry, and has aided the US Department of Justice (DOJ) in prosecuting five slavery operations in the state. Prudent risk management would seek to distance a company from links to slavery, a step Yum took as part of the settlement.

"We have already added language to our Supplier Code of Conduct to ensure that indentured servitude by suppliers is strictly forbidden, and we will require strict compliance with all existing laws," said Jonathan Blum, senior vice president of YUM.

 

 
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