Due diligence challenges and opportunities in agricultural supply chains

Companies operating in the agricultural sector have made significant steps towards the adoption of responsible business principles. However, gaps remain with regards to how such principles are being implemented in practice. These are the overarching conclusions of a baseline survey undertaken by Kumi for the OECD-FAO Pilot Project on Responsible Agricultural Supply Chains.

Over 30 leading enterprises and industry initiatives participating in the pilot took part in the baseline study. Participants include multinational corporations, local producers, and financial enterprises, as well as cooperatives and industry programmes and associations setting standards for companies operating along selected agricultural commodity supply chains.

The findings of this analysis are published in full in the survey report (available here) and can be summarised as follows:

Strong corporate commitments do not always translate into implementation actions

All participant companies reported that they have adopted formal policies outlining their responsible business conduct commitments, with the majority addressing the issues recommended by the OECD-FAO Guidance. Companies also established management systems and processes to implement these commitments. However, only half the participating companies reported translating their policy commitments into practical risk assessment and risk mitigation actions.

Complex supply chains create challenges in implementing commitments to responsible business conduct

Agricultural supply chains are highly complex and many are structured around a wide range of production and purchasing practices – often relying on hundreds or even thousands of producers. This poses significant challenges when seeking to establish product traceability and map the supply chain. For many companies, it is not always feasible to map the entire supply chain and assess all potential risks associated with each individual supplier. Nevertheless, the OECD-FAO Guidance recommends that companies progressively work towards the identification and assessment of all risks within the supply chain. Companies may rely on various approaches to do so. One example presented in the report is the ‘landscape approach’, which can yield important information about the risks characterising a certain area or region, without necessarily requiring site-by-site assessments upfront to determine the scope of the due diligence.

There is heavy reliance on third parties to carry out due diligence actions

Companies widely reported that, where risks are identified, there is a preference for working with suppliers to implement corrective measures rather than disengaging. However, several companies reported that their approach to identifying, assessing and managing risks is driven primarily by the information provided to them by third-party services providers that provide third-party audits or industry schemes, such as certification standards. One of the main challenges with such approach is that risk-related information obtained by companies is often limited to whether a producer or supplier has passed or failed an audit or certification, as opposed to why they may have failed or what risks were observed that require monitoring. Whilst the OECD-FAO Guidance recognises that the information provided by third parties can provide valuable insight throughout the due diligence process, it also emphasises the importance of companies retaining individual responsibility for their due diligence.

One of the objectives of the pilot will be to explore opportunities for closer collaboration between companies and third-party initiatives. The aim is to promote greater information-sharing and strengthening of the standards and frameworks used for assessing and managing supply chain risks.

Most companies report publicly to their stakeholders, however details about due diligence activities are seldom reported

Many companies report publicly on their materiality analyses and on specific metrics, such the number of suppliers audited each year or how many and which products are subject to certification requirements. However, many also stated that the information reported on the actual risks identified and how these are managed is limited. One challenge is that the level of detail companies disclose often depends on the extent of the information they receive from external sources, including stakeholders affected by company operations. To address this, the report recommends that companies explore opportunities to expand the scope of their reporting to stakeholders by more actively engaging in ongoing conversations with third-parties providing due diligence support and stakeholders, such as communities, affected by the adverse impacts of company operations.

Working together to address due diligence gaps

Over the coming months, the OECD, FAO and Kumi are leading a series of peer learning sessions for pilot participants focused on the key findings of the baseline analysis. These sessions provide a ‘safe space’ for participants to discuss challenges and good practices to implementing the recommendations of the OECD-FAO recommendations. They will also provide an opportunity to identify gaps in tools and frameworks used within the industry and explore ways in which these can be addressed, for example by engaging civil society and other stakeholders in the process.

A progress analysis will be undertaken in spring 2019 to evaluate participants’ progress towards integrating the five-step framework of the OECD-FAO Guidance in their due diligence practices.

If you wish to learn more about the OECD-FAO Pilot Project, the baseline study or the support we provide to companies on developing and implementing responsible sourcing practices in the agricultural sector, please do not hesitate in getting in touch.