Fair Trade And Large Scale Producers In Gold Mining : An Incompatible Couple
Introduction : Patrick Shein is an authority on fair trade gold issues. He is the founding director of the Ethical Bullion Company and a member of the board of the Association of Responsible Mining. Here, he writes about scalability issues in other fair trade products, creating a context for his belief that small scale and large scale gold mining are not compatible. ~ Marc Choyt, Managing Editor
Based on the success of Fair Trade (FT) bananas (55% of Swiss market) or tea (5% of British market) , FT might be tempted to certify Large Scale Gold Mines using hired labor situation standards.
If we have a look at the current FT large scale producers in agriculture commodities, we note for example that a large scale tea producer entering the FT market enables a triple win situation:
1)- FT market share of tea in an emblematic market like the UK can rise instantaneously without any supply tension.
2)- large producers benefit from a positive FT image.
3)- large numbers of low-income workers get better living conditions quickly by matching hired labor situation standards and thus getting the benefit of the FT premium generated.
We find a similar situation in the FT banana market where high penetration scores were realized thanks to the certification of the large growers allowing for example, more than 50% market share in Switzerland.
Yet FT was initiated on the factual statement that international trade was unfair for the small producers in developing countries and given the objective to assure those disadvantaged small producers a fair compensation for their work in order to regain dignity.
This objective was confirmed by the Fairtrade Labelling Organization (FLO), the world leading FT organization, who expanded beneficiaries of its certification standards to workers employed by companies.
Therefore, FLO defines in its standards for FT as: “a strategy for poverty alleviation and sustainable development. Its purpose is to create opportunities for producers and workers who have been economically disadvantaged or marginalized by the conventional trading system.”
“If fair access to markets under better trade conditions would help them to overcome barriers to development, they can join Fairtrade.”
If we have a closer look at the FT tea producers, we notice very large companies that employ a consequent number of workers. Tea plantations are labor intensive and we find for instance in the list of FT certified producers CHAMONG TEA producing in 2007 3,000 tons of tea per year and employing 10,000 people (300kg/employee/year) or McLEOD RUSSEL producing 70,000 tons of tea per year with 104,063 employees (673kg/employee/year).
As the average price of tea for the same year was 1.95US$/kg , we can estimate that a worker of those two companies generates between 585 US$ and 1,312 US$ per year turnover which implies a very low income for those plantation workers.
FT premiums for tea are ranging between 0.50 US$ and 1.10 US$ per kilogram which represents 25 to more than 50% of the commodity price and go directly to the benefit of the plantation workers having a considerable effect on their low revenues.
In conclusion, tea requires intensive labor, generates low income for the plantation workers and has a high local human value index . Introducing FT in this commodity permits a large number of low-income disadvantaged workers to increase significantly their revenues. It is a balanced winning situation for the company and for their workers and FT values are met: “a fair compensation for the disadvantaged workers”.
Fair Trade Gold
Let’s have a look at the gold sector now and imagine what would be the impact of FT labeling on a Large Scale Gold Mining house (LSM) and their workers.
The Gold industry is very concentrated and labor is not the major part of its production costs. In 2007, the Top 5 Mining Companies produced almost one third of the world’s total mine output.
Taking AngloGold Ashanti numbers (the #2 gold producer in the world; #1 Barrick does not disclose employees costs on the company website):
5.5 million ounces (oz) of gold was produced in 2007 from 22 mines (mostly in South Africa) employing 61,522 persons,
costing (salaries, wages and other benefits) $998 Million US.
This means that, on average, an AngloGold Ashanti worker costs $16,200 US/year and generates in the same time period 89 oz of gold (at 2007 average market value this represents $62,000 US, roughly 65 times more than in a tea plantation!).
The third world producer, Newmont Mining announces that the average male wage for lowest grade level of employees is $34,377 US/man/year.
Also, a company like Barrick gold (#1 producer in the world), produced 8.06 million ounces of gold in 2007 employing 20,000 persons meaning that one Barrick employee on average produces more than 400 oz/year (almost $280,000 US per employee, 300 times more than for tea!) and the company can supply alone almost 60% of the gold content of all the jewelry sold in 2007 in the US, Japan and the 4 biggest Western Europe gold consumer countries (Italy, UK & Ireland, Germany and France) .
So a LSM gold producer generates high income for their workers, employs a relatively small number of workers and has a low local human value index. The local social economic impact of one ounce of gold produced on the end of the chain worker is much lower than for the ASM sector.
Introduction of FT in this segment would benefit more to the Mining House itself through the image gain and poorly to the non-disadvantaged workers who in fact are not marginalized nor disadvantaged by the existing system.
There are two comparisons I made in the field:
First, in April, I visited an ASM site in Cotopata – Bolivia . 75 people working producing 113 oz of gold per month, which makes 1.5oz/man/month vs. 34oz at Barrick: 23 times more! Average annual wage in Cotopata is just above $2,500US per year 13 times less than average Newmont lowest grade worker one.
Second, in April 2006 I visited Upper Guinea, where one counts 200 to 300,000 ASM miners digging for 225,000 ounces of gold; when in the same region for the same year you find a LSM producing 301,000 oz and employing 2,708 workers .
On one side 1.1 to 1.7 oz of gold/miner/year and on the other 111oz/miner/year, 100 times more! On the local value impact side, the ASM gives work to a lot of people and as there is no mechanization, almost 90% of the gold value stays in the country.
On the LSM side, the cash cost was $399US/oz in 2006 with energy, technology, cyanide and part of the work-force being imported.
What is the value share of a gold ounce staying in the country? I do not have the answer to that question but I assume that it is much less than for one ounce of ASM gold.
So if FT has to help disadvantaged and marginalized producers and workers to gain better living conditions and regain dignity, I would vote 100% yes to apply the model to ASM and not to LSM. If FT label hallmarks any LSM gold, it would be a misappropriation of the values this new trade conveys and therefore it would loose its main interest: being a tool and incentive to serve the ASM gold miners allowing them to make a step towards better living conditions and most of all, gain dignity and be proud of being a miner.
This situation would jeopardize the opportunity FT offers to ASM by flooding the market with high quantity of gold when LSM has already begun organizing its industry through initiatives like the CYANIDE CODE or the ICMM or by joining the CRJP for example.
This situation regarding FT and LSM does not mean that FT has to be focused exclusively on ASM. The concept can go beyond and once FT Gold would be established in the market, one could consider the extension of its labeling to medium mines production that would meet a high degree of local human value index, thereby creating a positive impact on working conditions, environmental management and social responsibility of this particular sector for a large number of miners.
This does not mean that there should be no LSM. LSM is good for a country when its shares fairly the value of its gold production between the different stakeholders and as long as it does not chase the ASM miners from their mines and does impact the environment with a sense of responsibility. It is time for Fair Trade Gold but for ASM.
Patrick Schein,
President S&P Trading (France)
Founding Director of The Ethical Bullion Company (UK)
Board Member of the Association for Responsible Mining (ARM)
