Tea industry tests new living wage model with pilot results
Ensuring workers in agricultural supply chains receive a living wage is one of the most pressing challenges of our time. The tea industry, deeply connected to the livelihoods of millions, is no exception.
To tackle this, IDH and its partners came together to pilot the jointly developed Collection & Distribution mechanism to address the significant gap in wages that exists across tea producing regions.
Five key global tea brands, namely Ahmad Tea, LIPTON Teas and Infusions, Taylors of Harrogate and Twinings - alongside producers Bogawantalawa (in Sri Lanka), Lujeri, Satemwa (in Malawi), Nandi Tea, and Sasini (in Kenya) - made this pilot a reality. Through this approach, tea workers at these producers, currently earning below a living wage, will receive an additional financial contribution to improve their remuneration.
The mechanism aligns closely with the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD), which emphasises the need to address human rights, including among other things, the right to fair remuneration. The pilot sets an example for how sectors can meet upcoming regulatory standards while fostering equitable economic growth.
Why the C&D mechanism pilot matters?
The Collection & Distribution mechanism pilot initially launched in May 2024 with three tea brands in selected tea estates in Kenya, Sri Lanka and Malawi. Now, analysing the initial results, we are seeing promising results.
- Financial support for producers: the five brands account for 26% of the aggregated producer volumes, for which a differential has been committed and paid for by participating tea brands, resulting in an additional financial value transfer of €715K, across the producers in the pilot.
- Worker bonuses: 12,787workers currently earning below living wage received an end-of year bonus, paid as a cash top-up on the wages paid in December and early January. The payments were carefully planned through consultations with producers, buyers and workers, ensuring that workers with the largest living wage gaps receive a bigger share of the differential contributions.
- Addressing the living wage gap: living wage gaps in the key origins are ranging between 28 to 50%, the cash transfer from the pilot, on average, contributed to reducing the overall living wage gap about 10% for participating producers. Depending on the origin, and sourcing by the different buyers, the highest living wage gap reduction was achieved in Kenya, where about 17% of the producer living wage gap was covered. In absolute terms, the bonus payments across origins ranged from $6 for those with the smallest living wage gaps, to more than $400 for the workers with the highest gaps. Whilst this is a positive start, it highlights the need for greater scale. Increasing the volumes covered by differential commitments will be key to achieving a more significant impact for producers and workers.
These achievements are a testament to the power of collaboration. However, as often with each new approach, we have also seen some challenges emerge.
- Sub-contracted and seasonal workers: capturing sub-contracted and season workers in in the IDH Salary Matrix can be challenging. The pilot required exploring how to disburse funds to temporary workers hired via sub-contractors.
- Managing currency fluctuations: exchange rates can significantly impact funds for producers and workers. While local currencies were used as benchmarks, buyers typically trade in different currencies, requiring careful planning for conversions. To mitigate this, buyers and producers should align on conversion strategies, such as agreeing on an invoicing date - or average conversion rate.
- Timing fund distribution: seasonal workforce changes, for example during tea plucking, affect payout timing. Choosing the right moment ensures the most workers benefit from bonuses.
Case study: a tea estate’s perspective
The chosen Collection & Distribution mechanism is a ‘jointly agreed, pro-rata based Living Wage Differential’. The mechanism is based on a ‘differential’, a € / kg value, which is determined based on the living wage gap calculated by the IDH Salary Matrix.
Brands are paying this differential in proportion to the tea volumes sourced from a given producer, and the contributions transferred as ring-fenced funds to be paid out to workers. The mechanism also includes robust assurance to ensure that the financial contributions reach the workers.
Tea is often mistakenly treated as a commodity yet its inherent variability is what makes it special, and what makes improving workers' pay difficult. The majority of tea is sold at auction, so this is an important pilot to test how to identify and proportionately reimburse people for their labour afterwards. We want to crack the complexity that has held back progress to date by working together with as many tea buyers as possible.
Group discussions between buyers and producers have ensured transparency and alignment on fund distribution, fostering mutual understanding. Worker consultations revealed the bonus enhances financial well-being, productivity, and morale. This pilot strengthened buyer relationships and sparked vital discussions on sustainability, fair compensation, and worker well-being, highlighting the value of collaborative decision-making.
The learnings from this pilot have been invaluable. This, brought up context-specific challenges that were nuanced and complex to overcome but by doing so, the quality and depth of our supplier relationships have been forever enhanced. Our conversations have evolved to an even more collaborative level. As a buyer, this depth of relationship leads us to a place where we can begin to truly co-create a sourcing model fit for future: building in our expectations and charting a new course of business
The progress achieved so far is a huge win for both, showcasing proof of concept and for demonstrating the impact the industry can have through working together. Additionally, I think this work shows commitment to shared buyer-supplier responsibility and the next steps toward effective human rights due diligence. I hope that this milestone can encourage others to join the initiatives and build on our achievements in 2025.
IDH is currently evaluating the results of the pilot with our partners. To build on the successes and learning, we are looking to scale the (improved) C&D mechanism approach this year, with key steps including:
- Expanding participation: Encouraging more producers, buyers, and retailers to join the initiative, in both the current and new origins.
- Sharing insights: Disseminating learnings from the pilot to refine the approach.
- Advocating for industry-wide adoption: Collaborating with industry bodies to make living wage a standard across the industry and a collective responsibility. Ultimately, the supply chain must reflect sustainable production costs to ensure a decent standard of living for tea workers.
To drive meaningful change across the industry, more companies need to step forward. By participating in the C&D mechanism, organisations can contribute to a sustainable future for tea workers while advancing their own corporate sustainability goals.
Interested in learning more? Please contact Marlies Huijssoon: huijssoon@idhtrade.org and Marlene Hoekstra: hoekstra@idhtrade.org.