Fair Price is a tool that facilitates fact-based costing and shared responsibility between buyers and suppliers to ensure prices sufficiently cover all labour expenses, including when wages are raised.
While we encourage transparency in costing and pricing, it is the factories’ prerogative to decide what information to share with which customer. Fair Price helps factories to carefully calculate the labour costs for a product style based on current wage (e.g. current legal minimum wage) and/or projected higher ‘target wage’ levels such as future legal minimum wage, CBA wage or living wage.
Fostering a more equal power balance
It is common knowledge that the garment industry is facing two main power imbalances, between factory management and workers, fuelled by the lack of proper functioning social dialogue, and between brands and factories, the sourcing dialogue. It is also a known fact that the industry is notoriously competitive in terms of delivery time and price. Across the global supply chain, margins and buffers have consistently been too low. At the heart of this problem lies the tremendous power imbalance between brands and suppliers, which, in many cases, resulted in a crude bargaining approach in cost price negotiation whereby actual manufacturing costs are disregarded in the interest of concluding an order.
Concrete mechanisms for addressing this power imbalance and allocating financial responsibility for increased wages in sprawling global supply chains have long been missing on the ground. Shared factories pose significant complications to efforts to increase wages in the globalised garment industry. In response, Fair Wear developed the labour-minute costing (LMC) methodology. This methodology uses payroll data to calculate the total cost of increasing wages to a living wage level. This total annual cost is measured against data about the time (in minutes) required to make each garment to calculate a brand’s share of higher labour costs. This methodology has been transformed into the Fair Price app.
The Fair Price App
Fair Price is a pragmatic, replicable and scalable tool intended for suppliers of both Fair Wear members and non-members. The tool captures all elements of labour costs. As such, it empowers factories and brands with the information they need to determine fair (fact-based & bottom-up) prices that are calculated with the actual prevailing labour costs in a factory.
Fair Wear wants to realise a world where the garment industry supports workers in realising their rights to safe, dignified, properly paid employment, the ‘new normal’. Due diligence on wages is at the core of reaching this goal. As the first step towards due diligence on wages, actual knowledge of the labour costs of garments is critical. Fair Wear, therefore, expects its members to demonstrate how their prices relate to wages. This insight is necessary to quantify the required increase in the unit price of a garment that is required for the brand to assert that it has contributed its share to enable the factory to pay at least the legal minimum wage as a first step towards a living wage.
Low prices are a primary cause of labour violations and unsustainable low wages. Fair Price is a tool to address this, by strengthening suppliers’ bargaining power, and consequently their financial sustainability and their ability to (discuss with workers and trade unions the need and way to) raise wages. A lack of (financial) resources or trust between brands and factories negatively affects social dialogue. As such, Fair Price can contribute to strengthening the enabling environment needed for social dialogue, which in turn is needed to realise sustainable wage increases for the workers.
Fair Price is in itself not a verification tool to verify wage levels at the factory and users should under no circumstance claim the payment of living wage is achieved purely because of the use of Fair Price. Fair Price is a means to an end, namely more transparent costing and shared responsibility between buyers and suppliers to raise wages. The use of Fair Price is not a goal in itself.
Fair Price, try it out yourself on www.fair-price.org or reach out to [email protected].