Responsible Business Conduct in Peruvian Agro-export Companies

The recent agricultural strike in Peru has exposed some bad practices regarding Responsible Business Conduct (RBC) by some Peruvian agro-export companies. The accusations of farm workers highlight a number of problems that should be addressed and which – in the framework of Corporate Social Responsibility - ask for  due care and diligence by Dutch importing companies when seeking business partners in the South American country.

Peru arbeiders

Recent agrarian events have pointed to the recently repealed Agricultural Promotion Law (LPA) as the main culprit responsible for the latent malaise among agricultural workers. According to them, the LPA led to lower wages and inferior treatment, such as lower benefits. Agricultural workers only had access to 5% of the profits generated by agricultural companies for distribution amongst them compared to other industries; such as 8% in the mining sector  and 10% in fishing and industrial companies.

The law had already undergone an update in 2019 that brought the conditions offered in line with the general regime; however, two important points were maintained, a lower tax payment, which meant a tax benefit for agro-exporting companies and a lower contribution to the national health system, both direct benefits on the companies without negative effects on the workers.

Despite the economic prosperity, the discontent among workers and the political and social situation quickly evolved into protests that led to the repeal of the law and exposed some malpractices by some agro-exporting companies, being the procurement to third party-companies for the hiring of personnel - “Service” - as the most notorious of them.

Service - a dubious practice

Agricultural companies rely heavily on labour. The employment rate of the economically active population maintained a growth of 1.8% and 2.1% in Ica and La Libertad, two prominent agro-exporting regions, well above the national average 2007-2018 of -0.9% in rural areas. At harvest time, finding labour can be a difficult task, and the most skilled and talented agricultural workers can earn well above the established wage rate. Labour becomes a scarce resource and competition is evident among companies to secure their quota of workers enabling them to carry out their work without setbacks. It is in this context that the service companies made their entry into the industry.

The service companies or “jaladores”, as they are known among field workers, are usually a person registered as a legal company that provides agro-exporting companies with labour. Its job is to get workers from the neighbouring towns each day for the field work. The practice is very common or even a “standard” among agro-exporting companies. They delegate this task to the jaladores in order to be continuously supplied with labour and whose work requires close community relations that are sometimes weak or non-existent between the companies and the nearby communities. The jaladores, on the other hand, are intermediary actors generally from the area, who maintain relations with the local community and usually are part of it.

In the midst of the events, a relevant question that came to light was the use of service companies by agro-exporting companies, an issue that was called into question by public opinion and which cast doubt on the formality and legality of the practices in the field. Workers had complained that the practice meant lower economic remuneration for them, as well as a mechanism to avoid direct hiring. According to Peruvian law, agro-exporting companies must put all farm workers on the payroll; however, a group of companies were identified as failing to comply. With the new law in place, labour intermediation and outsourcing of services in the hiring of personnel has been prohibited, leaving service companies ineligible.

In addition to service use, workers' testimonies accused various forms of mistreatment, such as verbal abuse by field managers, overtime without additional pay, lack of support from human resources departments, lack of food and transport (which they said should be provided by the companies), and poor working conditions in general.

RBC and its stakeholders in the Peruvian agro-export sector

The National Superintendence of Labour Inspection (SUNAFIL) is the entity responsible for ensuring compliance with the social and labour laws as well as occupational safety and health. It carries out its work by performing inspections of agricultural companies for the different industries,  checking the conditions under which employees work.

Once the strike began, the agro-export companies, accused of being responsible for the unrest created by the workers, pointed out the poor supervisory work carried out by SUNAFIL, which according to them, performed few inspections thus giving rise to a few bad apples among them, giving a bad name to an entire industry. In its defense, SUNAFIL for its part denounced its limited national presence and lack of personnel; however, it intensified enforcement and promoted its work, declaring the inspection of 110 agro-industrial companies in La Libertad, setting up a working group in the Lambayeque region, creating a mobile guidance module on labour rights for agricultural workers, issuing guidelines for the inspection of agro-industrial companies, among others.

SUNAFIL then stated that between January and November 2020, 470 agricultural enterprises were inspected and 44,035 agrarian workers, out of the 800 thousand agricultural workers nationwide, were formalised. This would mean an inspection rate of 5.5% of the total number of agricultural workers in Peru, a small rate for a big industry prone to informality. They also reported that in Ica during the inspections 543 illegal workers were found to be hiding in agricultural companies. None of them were declared as part of the payroll. It is a small number compared to the macro figures, but, should not be happening. Is is not clear whether it concerns just a few bad apples in the industry or whether  this  is just the tip of the iceberg.  As reaction to this, The Association of Agricultural Producers' Organizations (AGAP), which gathers most of the agro-exporting companies,  pointed out that there were informal businesses in the industry that used illegal practices, giving a bad name to a thriving industry that has been an engine of development in the country.

In the midst of the agricultural strike the government accepted the repeal of the law and on the 31st of December 2020 published the new agrarian law, which is still under review and is expected to be regulated in March. An important point regarding RBC is that the new law prohibits labour intermediation and the outsourcing of services involving the transfer of personnel. It also encourages collective bargaining of the agricultural workers with their respective companies as well as the creation of unions, which is minimal in the Peruvian agro-export sector.

Dutch policy on RBC

As part of the Dutch government's commitment to sustainable development, the Dutch government's policy promotes the principles of Responsible Business Conduct (RBC) and expects Dutch companies to comply with the OECD guidelines for Multinational Enterprises. Among the sectors identified as being at risk in terms of RBC in Peru are agriculture and horticulture, timber and paper and food and beverage. Through this policy, it is expected that by 2023 90% of large companies will comply with and disclose information about their companies in terms of RBC. The guidelines established by the OECD set out the principles for carrying out risks identification as well as the development of due diligence according to the specific sector or industry. As part of this assessment, verification of the supply chain is required for which Dutch companies are required to verify their supply chain including their business partners.

RBC is based on formality; it is imperative to have formality in the sector in order to carry out it properly. Without a doubt, the problem of informality seriously affects many Latin American nations, and Peru is no stranger to it. It is estimated that in Peru 3 out of 4 workers are informal and in rural areas only 3.8% are formal, according to figures from the National Institute of Statistics and Information (INEI). The agro-export sector is the least informal within the agricultural industry; and compared to other industries it also has positive indicators; Due to specialisation in the agro-export sector and compliance with international standards, the coast has taken the lead in the formalisation of agricultural workers; however, informality does exist also in this sector and one should be aware of that. It is hoped that the new actions by SUNAFIL will allow for the expansion of formality and the dissemination of labour rights to more regions of the country.

Agro-export companies in Peru have certifications that cover different issues from product quality to RBC. It is important to ensure that this information is accurate and to carry out a proper due diligence to verify the working conditions under which the company operates. Issues such as labour formality or working conditions are of high importance when doing business with Peruvian partners. Ensuring that you are working with the right partner is not only important for the business, but also in the interests of a fairer and more equitable society that offers equal opportunities and sustainable development for all.

Author: Salvador Orrego de la Borda