5 Percent 4 Farmers

Making meaningful differences in farmers' lives around the world

One of the issues I can see a need to address is that many buyers of beans - especially buyers of specialty beans - will not want to declare where they get their beans from in order to keep other buyers from poaching growers.

The problem of farmers agreeing to sell their crop to buyer "A" and then selling to buyer "B" because they come along and offer a better cash deal on the spot is well known. I can imagine an artisan bean-to-bar chocolate maker being reluctant to reveal some sources, especially if they have looked long and hard and worked hard with the farmers to get exactly the quality profile they look for.

There are other issues, such as manufacturers being reluctant to share sales data - which can be considered to be proprietary information - with third parties that plan to post that information for public scrutiny.

Am I overthinking this? Is it a problem and if it is what can be done to overcome it?

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It occurred to me that this happens all the time in the business world and the answer to the question is independent auditors whose business it is to keep some information confidential while certifying its integrity

One huge challenge with current certification programs is that the certifier is the auditor. While 5P4F is not a certification program, per se, there is still the need for independent verification. The use of an organization like Kiva as a proxy agent for delivery of funds to farmers takes advantage of existing trust relationships and transparency. We need to provide entities involved in the program the ability to participate in the program in a verifiable way without requiring them to divulge to the public proprietary information.

That would be done by hiring (an) independent auditing firm(s) - preferably one(s) with worldwide reach - to perform annual audits. Summary results of the audits would be made public, and those results would be made public. These audits would cover all entities in the program - including the program itself, which must adhere to the highest standards for transparency as a model of the process for everyone involved.

In addition, I would "interview" selected candidates for the position to explore the mechanisms of accomplishing this task in the most efficient, cost-effective, least disruptive manner.
Actually, it's not necessarily true that the certifier is the auditor. There is a separate organization, FLO-CERT that does certification for FLO. I don't know if the Rainforest Alliance has a separate auditor.
This is a trap that I really think we have to avoid. As soon as you involve auditing you are going to take a very big chunk of money out of the system. I would rather develop the overall system in such a way that it doesn't need to be audited. Therein lies the challenge and if we can get it right, the benefit of lower operating costs.
Okay, I like this suggestion, in part because it represents an innovation over the current model. What this says is that the companies who are involved pay the costs of compliance auditing. The organization contacts each auditor to verify that the documents that are submitted represent the actual numbers.

There is responsibility and accountability while preserving confidentiality - where it is wanted.
Spot on :-)
Clay, the first thing to assess here: does the manufacturer have to reveal who they buy from in this system and how much they sell? I think that the answer is no. If they are worried about poaching of supply, or sharing market data, then they shouldn't be compelled to. They don't get the marketing benefits of promoting "their" growers, but that's the trade off that they make.

The system itself will know who buys what from whom (and be able to direct the money accordingly), but that information doesn't have to be made public.
If the approach we adopt is that each member needs to have an outside accounting firm audit their numbers (which they would have to do anyway for any form of tax-deductible contribution), then I think the decision about how open they want to be about who they are buying from, how much they are buying, and how much 5% adds up to should be up to each individual member.

We should do what we can to encourage maximum disclosure but we should not require it as that will hinder adoption.

From a systems design point of view, if the system is built around self-reporting, a company joins and has contact information. They will have to nominate someone at their accounting firm to be the person who is responsible for entering the numbers and, by digitally signing, attest that the numbers are accurate and failure to comply by the rules may mean revocation of their membership and being added to a "non-compliance" list.
Yup, sounds good to me. My only suggestion is I think that the member should be able to enter their own numbers, but the accountant confirms the submitted data matches what the accounts show. I think that this better fits the model that accountants are used to working under.

Langdon
Okay, but we still need to find a way for the accountant to verify the numbers, report that they are correct, and digitally "sign off" that they are correct.
True, I would suggest something like:

- Upon registration (or change of accountant) a 5P4F admin has to verify the accountant exists and that the contact details are correct (combination of phone book, Google, phone call perhaps?)
- Each year when the member submits their yearly figures 5P4F automatically sends (by email) a link to the accountant with instructions to login and confirm the data
- Accountant does so including signifying confirmation of the numbers in the same way that we agree to a website's terms and conditions: check the box and include identifying information for the accounting firm like a business number or accountant registration number

I don't think we need to get as sophisticated as generating and maintaining digital signatures.

Ultimately we need to be confident that the person confirming the numbers is genuine, so if we validate the identity of the accountant then we should be ok. How does that sound?

Langdon

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