Fairness-Enabling Practices in Agro-Food Chain

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This entry is adapted from the peer-reviewed paper 10.3390/su14116391

Fairness in the agro-food system is an increasingly important issue. Ensuring fair and ethical practices in the agro-food chain is essential for sustainable, effective, and resilient agro-food systems. Identifying and understanding fairness-enabling practices and existing business applications in the agro-food chain is crucial to create a sustainable system. There are three key types of fairness: distributive, procedural, interactional. These can be achieved applying fairness-enabling practices in agro-food chain relationships.

fairness ethics business model agro-food chain food system

1. Introduction

Fairness in the agro-food system has been an increasingly important issue in recent years. In particular, it has become a cutting-edge topic with the Declaration of 17 Sustainable Development Goals (SDGs) by the United Nations ^[1]. In particular, the fairness-focused debate in the agro-food chain has become a multidimensional issue relating to many United Nations sustainability goals. This research approach allows to touch on the following sustainable development goals, while explaining fairness and fairness-enabling practices in agro-food chains: Goal 1 (No Poverty); Goal 8 (Decent Work and Economic Growth); Goal 10 (Reduced Inequalities); Goal 12 (Responsible Consumption and Production); Goal 16 (Peace, Justice and Strong Institutions).

Establishing a fair and ethical agro-food chain is crucial for sustainable, effective, and resilient agro-food systems, all in all, sustainable development ^[2]. Conceptualizing fairness-enabling practices in agro-food systems and identifying the business applications applied in the agro-food chain play a vital role for building such a sustainable system. Therefore, exploring the enabling practices is essential to achieve fairness in the upstream and downstream operational stages of the agro-food chain and sustainable development.

Fairness is a growing issue in the food systems for all agro-food chain actors, from farmers to consumers ^[3]. Especially for farmers, who pose as the first stage of the agro-food chain, there is the risk of unstable food chain relationships and low prices paid to them. Low prices mainly affect farmers with low bargaining power. Furthermore, farmers’ shares of consumer prices remain fairly unknown because of the lack of transparency in the system. These fairness issues may be tackled with fairness-oriented practices and business applications ^[4].

Then, it presents the fairness-enabling practices which contribute to achieving a sustainable agro-food system upstream and downstream in the agro-food chain. Finally, it aims to explore existing agro-food chain management practices and business models relevant to achieving a sustainable and fair agro-food chain. Within the agro-food chain, there are four key actors: farmer, processor, retailer, and consumer. Farmer, processor, and retailer may operationalize fairness upstream in the agro-food chain, whereas consumers, through the role of gatekeepers of retailers, may contribute to value fairness downstream in the agro-food chain. Upstream refers to the material inputs needed for production, processing, and distribution, while downstream focuses on production, distribution, and purchasing ^[5]. Within upstream operation, fairness can be provided through business applications and models able to create, propose, capture, and deliver fairness value. In the downstream process, fairness is a value to be delivered to and appreciated by consumers. Agro-food chain actors have to ensure that consumers value fairness, adopting fairness-oriented food choices.

2. Main Types of Fairness

2.1. Distributive Fairness

Distributive fairness focuses on the fairness of outcome distributions and partner contributions. Its origin dates to the equity theory of Adams (1965) ^[6]^[7]. This theory includes the “norm of distributive justice” or the aspiration of all members involved to have a fair and just distribution of outcomes. It identifies and measures fairness as the ratio of inputs to outputs. If this ratio is balanced, an outcome is deemed fair. The perception of the fairness of outcomes received is known as distributive fairness ^[8]. This type of fairness seeks to determine whether the distribution of outcomes is perceived as fair. In this context, the fairness of an outcome is linked to equity and equality ^[9]. Thus, distributive fairness refers to the perceived fairness of outcomes or resource allocations and includes consumer evaluation of whether the price is a deal or saving the consumer money ^[6]. Within the exchange framework, equity is considered as the equivalence of the outcome/input ratios of all parties involved in the exchange ^[10].

In the agro-food chain, the price every partner in the chain receives for their products is described as an outcome. Therefore, price fairness, in the form of price and revenue distribution along the chain, is the main issue of distributive fairness. Many researchers link distributive fairness to distribution of remuneration among actors ^[11]^[12]. Price fairness, in particular, is a relatively young concept that is mainly derived from justice and equity theories ^[13]. Yeoman and Santos (2016) define the dimensions of outcome fairness, which is linked to distributive fairness, as fair price and payment terms, and creating conditions for fair treatment of employees ^[14].

There are three different perspectives on price fairness in food chains that need to be distinguished. The first is the price fairness from a consumer’s perspective, which deals with the fairness of prices that consumers pay for commodities ^[13]^[15]. The second is the price fairness from a producer’s perspective, which evaluates fair prices that producers obtain for their products ^[16]. This perspective is often also evaluated as a price-plus paid by the end consumers for additional value, which requires more input (effort) from the producer (e.g., for organic and Fairtrade products ^[17]^[18]^[19]). The third is price fairness as fair distribution among supply chain partners, which investigates the fairness of the distribution of total revenues allocated to every single supply chain partner ^[20].

Gielessen and Graafland (2009) interpret the compensatory fairness concept within the framework of distributive fairness. Compensatory justice is the way of compensating people for what they lose ^[21]. In this context, a fair price can be deemed as compensation, which is equal to the loss suffered by the person being compensated.

Bush and Spiller (2015) indicate that a fair distribution of revenues is influenced by distributive considerations ^[22]. In addition, they indicate that farmers are compensated unfairly and should earn more of the food dollar from a consumer perspective, while processors and food retailers should lose shares. Perceptions of price fairness often include distributive concerns beyond mere compensatory concerns. Starting from this point, remuneration for farmers and how price is distributed among chain actors are important elements for deciding whether distributive fairness is in question. A fair price is a purchasing and selling price which is fair for both sides. The seller gains some margin, which is not excessively high. Therefore, both sides of the transaction should be glad about that price ^[23].

In this context, Gielissen and Graafland (2009) find that price increases are judged to be fairer when they benefit poor or small agents than when they benefit rich or large agents, other things being equal. Therefore, they investigate several concepts of distributive justice rather than merely compensatory justice in price fairness perceptions ^[21]. Distributive justice is concerned with the fair distribution of society’s benefits and burdens. Compensatory justice can be interpreted as one particular form of distributive justice. In particular, one way of defining a just distribution is by relating one’s share to one’s contribution. The concept of distributive justice is, therefore, more general than the concept of compensatory justice. To sum up, previous investigations support that people are interested in food that is fairer in terms of revenue, with fair prices for farmers ^[7]^[17]^[20]^[24]^[25].

2.2. Procedural Fairness

The second approach to fairness is procedural fairness, a concept introduced by ^[26]. Procedural fairness describes how outcomes are achieved. It focuses on aspects of the day-to-day communication and interaction processes, referring to the degree to which value chain authors perceive equality and fairness ^[27]. This approach analyzes how outcomes are obtained. It deals with the procedures used by the price decision maker rather than the actual outcome achieved. The pricing process manages the revenue distribution in each stage of the agro-food chain. In this context, Skarlicki and Folger (1997) indicate that people who can control a procedure and influence the decision-making process are more satisfied compared to a process that people cannot control. Food chain actors may meet higher freedom of price setting at the expense of lower revenues ^[28].

Procedural fairness is related to the perceived fairness of the procedures used to determine outcome distributions or allocations ^[8]^[29]. The question is whether the process that is used to come to a solution is fair and whether this process is perceived to be fair ^[30]. In the literature, procedural fairness is commonly linked to agreements, negotiations process, and bargaining power. Zitzmann and Dobhan (2010) ^[9] point out that procedural fairness is relevant in price negotiations. In particular, they highlight the importance of agreement in procedural fairness. If there is no agreement, the participants included in negotiation processes do not receive payment. In addition, they also emphasize that the amount of payment to be received by participants is highly dependent on the bargaining power, which means success in the negotiation process.

Yeoman and Santos (2016) define procedural fairness as fair decision making and awareness of agro-food chain conditions, including understanding, capacity building, and explanation of standards ^[14]. Druckman and Wagner (2017) indicate that better agreements can be obtained when representatives in negotiations adhere to principles of procedural fairness ^[31]. They highlight that procedural fairness consists of four parts during the negotiations: fair play, fair representation, transparency, and voluntary decisions. In line with bargaining power, Folger et al. (1996) find that people who can control a procedure (who have a ‘voice’ in the decision-making process) are more satisfied with a process than people without control ^[32]. Thal (1988) indicates the importance of bargaining power for procedural justice ^[33]. The absence or unfairness of a fair bargain removes the guarantee of procedural fairness, which would be present had there been fair bargaining. When there is no bargaining in a given transaction, a presumption of procedural unfairness is raised.

In the agro-food chain, the approaches shaping procedural fairness are effective instruments because they may build procedures that manage revenue distribution in each stage of the agro-food chain. Lewicki and Bunker (1995) describe four elements that characterize procedural justice. First, a fair procedure emphasizes consistency. Second, those carrying out the procedure must be impartial and neutral ^[34]. Third, those directly affected by the decisions should have a voice in representing themselves in the process. Lastly, the processes that are implemented should be transparent. In addition, while interpreting procedural fairness linked to the process, Bolton, Brandts, and Ockenfel (2005) discovered that credibility is the key factor for procedures to be considered fair ^[35].

2.3. Interactional Fairness

Interactional fairness is addressed through honesty, respect, and quality of information, which is closely related to transparency ^[36]. This criterion deals with the trading partners’ behaviors in terms of honestly, respect (interpersonal fairness), and quantity and quality of information (informational fairness) ^[22].

That is to say that it is much more about ethical behaviors. Interpersonal fairness reflects the degree to which people are treated with politeness, dignity, and respect by those executing procedures. Informational fairness focuses on the quality of the information provided to people, which conveys information regarding the reason why procedures were used in a certain way or why outcomes were distributed in a particular fashion. The interactional fairness concept was proposed by Bies and Moag (1986) ^[36]. They address the quality of people’s interpersonal treatment when procedures are implemented. This concept does not clear up whether interactional fairness must be assumed as an autonomous fairness dimension or as an aspect of procedural components. Rabin (1993) mentions that the intention behind an action also influences people’s evaluation of fairness and forms their (re)actions ^[37].

Yeoman and Santos (2016) define four dimensions of interactional fairness: conflict resolution, mutual respect, consistent and bilateral communication, and sustainable relationships ^[14]. According to Greenberg (1990), interactional fairness can be grouped into two concepts: interpersonal fairness, such as perceived politeness and respect, and informational fairness, which describes explanations that are given for decisions ^[38]^[39]. Greenberg (1990) points out that interpersonal fairness focuses on the degree to which people are treated with dignity, politeness, and concern. It usually plays an important role in an organization that has specific superior and subordinate relationships ^[38]. In contrast, again, Greenberg (1990) found that informational fairness refers to conveying information, including why procedures are formulated in a certain way and why profits are distributed in a specific way. Informational fairness is always prominent in a relatively equal relationship. Liu et al. (2012) argued that informational justice provides for a collaborative environment by reducing information asymmetry and mutual uncertainty ^[40].

Some studies in the literature define interactional fairness as a third dimension, as discussed above. However, several studies consider interactional fairness as the social aspect of procedural fairness ^[41]. Under this framework, distributive and procedural fairness are based on structural components of fairness, while interactional fairness is assumed as a social aspect of fairness.

2.4. Interrelations between the Types of Fairness

There is a need to integrate them in order to fully conceptualize fairness. Distributive fairness is often the key goal to be achieved. It refers to the tangible and fair allocation of outcomes among actors within the agro-food chain. Procedural fairness is one of the primary tools to provide distributive fairness. It is about strengthening negotiations and providing bargaining power platforms to ensure fair distribution in the agro-food chain. The concept of interactional fairness includes honesty, respect, and quality of information, which are closely related to transparency, and it is an important enabler of procedural fairness. Interactional fairness can be a key contributor that creates favorable conditions for procedural fairness.

Figure 1. Interrelations between the types of fairness.

Ultimately, both procedural and interactional fairness dimensions can be considered as the driving forces to achieve distributive fairness. Interactional fairness eases overall agro-food system fairness, and in particular it contributes to ensuring procedural fairness. It contributes to the key role of procedural fairness in attaining distributive fairness. Procedural fairness focuses on the fairness of transaction processes, which are used to determine the distribution outcomes of resources and incomes.

3. Upstream Fairness-Enabling Practices

Upstream operations are those in which the materials flow into an agro-food actor. Thus, it includes farmers’ suppliers, farmers, and food processors. In the agro-food chain, it may include retailers, as they increasingly play a key role in the farmer and processor relationship.

The study identifies twelve key upstream fairness-enabling practices (Figure 2). Each upstream fairness-enabling practice is related to different types of fairness. Providing fairness practices enables achievement of a fairer business relationship in the upstream operational stage of the chain. Fairness-enabling practices have mutual interactions and influence.

Figure 2. Agro-food chain upstream dimension and fairness-enabling practices.

The first upstream fairness-enabling practice is the “ban on unfair trading practices”. The food supply chain is vulnerable to unfair trading practices because of stark instability between small and large operators ^[42]^[43]^[44]. In particular, past studies show that small-scale farmers do not have sufficient bargaining power to defend their rights in the food chain ^[45]. A ban on unfair trading practices contributes to achieving both procedural fairness and interactional fairness. It promotes procedural fairness as it protects weaker suppliers against stronger buyers, namely, it addresses the parties’ negotiation power, and interactional fairness through price transparency and accurate information sharing, networking, and trust among chain actors (EU Regulation 2019/633) ^[42].

The second upstream fairness-enabling practice is “increased price transparency”. This practice means openly sharing among agro-food chain actors how the price is distributed by including information on food production costs of each chain actor. The aim is to show that all agro-food chain actors cover their own production costs, thus suggesting that the price is fair.

Calculating food cost provides detailed information to the company, as well as to the other agro-food chain actors, including the consumers, on how the price is defined. Cost-based pricing is a pricing method based on the cost of production, manufacturing, and distribution of product. Essentially, the price of a product is defined by adding a percentage of the manufacturing costs to the selling price to make a profit. In this context, the cost-price method is related to both interactional fairness due to its transparency, and distributive fairness due to its relevance to economic output.

Past literature shows that cost-plus pricing, also known as mark-up pricing, is an effective way for sellers interested in conveying that their prices are fair and building customer trust. It is inherently fair and non-discriminatory. This pricing method says that a fixed percentage is added on top of the cost to produce one unit of a product (unit cost), which comprises all functions involved in making and bringing a product to market and its estimation ^[46]. Finally, the resulting number is the selling price of the product.

To most consumers, fair means the seller’s actual costs plus a reasonable premium. Thus, increasing price transparency enables clarification of the seller’s costs. The seller’s costs include fixed and variable costs incurred in manufacturing the product, and then a mark-up percentage is applied to these costs to estimate the final price.

Implementing mark-up pricing is quite simple, easy to communicate or to justify, and inherently fair. However, there are also several handicaps. For instance, cost-plus pricing discourages efficiency and cost containment. In addition, sales forecasts on the basis of expected costs may be wrong, and cost-plus prices may not guarantee covering the cost or earning a profit; finally, the cost-plus pricing calculation ignores both the customer’s willingness to pay and competitors’ prices. Furthermore, the literature suggests, as mentioned above, that consumers may not have or be perceived not to have the competence to assess a fair mark-up or cost-plus pricing management practice. This practice directly links with interactional fairness because it is about transparent information sharing ^[36].

Similarly, the third upstream enabling practice, “lower asymmetry of information”, and fourth enabling practice, “trust in chain relationship and fair dealing”, are related to interactional fairness. Lower information asymmetry is about effective information sharing among the chain actors and contributes to achieving interactional fairness ^[40]. In addition, since trust in chain relationships and fair dealing is about mutual respect, consistent and bilateral communication and sustainable relationships are linked with interactional fairness ^[14]^[38].

The fifth enabling practice is “ethical treatment to farmers”. Establishing an ethical relationship in the chain is fundamental to achieve a fair agriculture system. Although acting ethically has links with all three types of fairness, it has a direct relationship with interactional fairness. To sum up, this upstream enabling practice is related to behavioral ethics ^[36]^[47].

The sixth enabling practice includes “no gangmastering, child labor, discrimination”. There are various reports from associations and organizations that denounce such phenomena in the agricultural sector. They clarify what is the dynamic of the gangmastering system (i.e., workers being illegally employed in the agricultural sector at very low wages) ^[48]^[49]. The workforce exploited by the farms often include migrants that face appalling working conditions. These issues have a direct link with interactional fairness as they are related to ethics and protecting labor rights. Nevertheless, it also indirectly helps to achieve distributive fairness, by rebalancing the cost-cutting practices of gangmastering, child labor, and discrimination, and thus achieve better economic outcome distribution.

The seventh fairness-enabling practice is “procedural information”, and it is related to whether food processors or retailers provide information about the adopted procedures resulting in agro-food chain price distribution (e.g., predefined contract, contract farming) ^[30]^[50]. Contract farming is important in terms of transparency. It involves production by farmers under agreement with buyers for their outputs. The contractual arrangement enables small-scale farmers to integrate into modern agricultural value chains, providing them with inputs, technical assistance, and assured markets ^[51]. These agreements can work well for both parties, but only if they are fair and have been properly set up.

The eighth enabling practice is “improved producer cooperation”. Strengthening producer cooperation has a direct effect on procedural fairness as it leads to stronger farmers’ negotiating power. Ultimately, this also influences distributive fairness. Producers’ higher power can increase the prices paid to farmers and improve price distribution.

The ninth enabling practice is “long-term contract with fixed prices and volumes”. The provision of agreed long-term contractual conditions within the chain contributes to fairness for farmers and other actors ^[8]. This practice has an evident link with procedural fairness. Nevertheless, providing a long-term contract contributes to interactional fairness because it helps to increase transparency and builds trustful relationships within the chain. In addition, since it increases negotiation power for price distribution, it also promotes distributive fairness ^[20].

The tenth upstream fairness-enabling practice is “transparency through technology innovation”, and it is related to achieving interactional fairness. Food processors or retailers adopt agro-food chain technology innovation initiatives to favor transparency and trust among chain actors, including farmers (e.g., blockchain, digital platform, etc.). These technologies have the potential to provide significant benefits to chain partners through increased visibility and transparency, which will ensure the equal and unbiased distribution of outcomes ^[52]^[53]. In addition, when food processors or retailers specify the price paid to farmers, information sharing refers to informational fairness.

The eleventh practice is “strengthening farmers’ positions” in the chain. While providing reliability and transparency is not enough on its own, they are essential triggers for the consolidation of farmers’ positions and protection of their rights. Actually, “strengthening farmers’ positions” has links with all types of fairness. This practice has a nexus to distributive fairness in terms of outcomes ^[8]. If the food processors or retailers provide information on the price distribution among the chain actors and pay a fair price to farmers, it means that they attempt to strengthen farmers’ positions economically. If the product has a Fairtrade certification, it relates to procedural fairness as this kind of certifications supports farmers’ positions.

The twelfth upstream fairness-enabling practice is “ensuring farmers’ remuneration”. This practice has a direct link with distributive fairness ^[11]^[12]^[13]. Paying the farmers fairly is one of the most important factors for the improvement and stabilization of the living standards of the farmers. The dimensions of outcome fairness, which is linked to distributive fairness, are generally defined as fair price and payment terms, and creating conditions for fair treatment of employees ^[12]^[14].

4. Upstream-Focused Business Applications

Investigating the nexus between the three types of fairness, the fairness-enabling practices upstream in the agro-food chain, and business applications is crucial to understanding the dynamics in the agro-food system. There are limited studies that directly address the issue of fairness in business models. However, the extensive review identified existent applications that highlight one or more of the fairness-enabling practices upstream in the agro-food chain. These are: blockchain, cooperatives, interbranch organizations (IBO), business models for small-scale farmers, and Fairtrade (Figure 3).

Figure 3. Fairness-enabling applications and business models.

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