By: Staff Writer
December 28, Colombo (LNW): Sri Lanka’s tea and apparel industries, known for their strong ethical reputation, have yet to experience significant shifts in demand or pricing following the implementation of Germany’s Supply Chain Act in 2023, according to a policy paper by the Friedrich Naumann Foundation.
While this landmark legislation mandates compliance with human rights and environmental sustainability standards among large German companies and their suppliers, its impact on Sri Lankan exports has been minimal so far.
However, challenges loom, particularly for smaller exporters and vulnerable supply chain segments, potentially jeopardizing these key industries.
The Supply Chain Act applies to German companies with over 1,000 employees from 2024 and aims to enhance ethical standards across global supply chains. In theory, such legislation should benefit ethically robust sectors like Sri Lanka’s tea and apparel industries.
Yet, the policy paper attributes the limited immediate impact to the unique characteristics of these industries and the short time since the law’s enactment, which has not allowed German companies to adjust sourcing patterns significantly.
Sri Lankan apparel companies reliant on the German market have proactively embraced the associated compliance costs, including audits.
However, the tea industry, where Germany constitutes a less critical market, has expressed dissatisfaction with the new regulations.
Panelists at a discussion organized by the Friedrich Naumann Foundation noted that compliance increases costs for exporters, such as auditing and due diligence, making the German market less attractive.
In 2023, Germany ranked as the twelfth-largest destination for Ceylon tea, but exporters may pivot to markets with less stringent regulations, undermining the law’s intent to improve global ethical standards.
The policy paper highlights vulnerabilities within informal segments of Sri Lanka’s supply chains, such as child labor, ethical sourcing issues, and labor rights violations.
These risks pose significant challenges, especially given the Supply Chain Act’s reporting requirements for indirect suppliers. Failure to address these issues could lead to long-term repercussions for Sri Lanka’s exports.
To mitigate these risks, the report recommends several measures, including tightening compliance requirements for indirect suppliers, offering economic incentives for adherence, and raising awareness about the law among vulnerable communities.
For instance, incorporating financial incentives—such as higher premiums for compliant suppliers—could encourage adherence.
The Rainforest Alliance’s Sustainability Differential model, which rewards certified suppliers with payments above market prices, is cited as a potential framework for such incentives.
Another critical issue is the lack of awareness among key stakeholders, such as plantation workers and employees of smallholder farms. These groups, whom the Act aims to protect, remain largely unaware of the law and its complaint mechanisms.
This limits the effectiveness of the reporting channels established under the Act. The paper calls for awareness programs led by German government institutions, civil society organizations, and other stakeholders to ensure these communities can fully benefit from the law’s protections.
while Germany’s Supply Chain Act has not yet significantly impacted Sri Lanka’s tea and apparel industries, its long-term implications are substantial.
Addressing supply chain vulnerabilities and improving compliance mechanisms will be critical for these industries to remain competitive in ethical and regulated markets like Germany.
