TNRC Blog Commodity supply chain traceability initiatives and their anti-corruption potential

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Targeting Natural Resource Corruption

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Commodity supply chain traceability initiatives and their anti-corruption potential

This blog post captures key learning from a TNRC Learning Series Webinar on 18 June 2021 on commodity supply chain traceability initiatives and their anti-corruption potential. This webinar addressed the following learning questions: 1. Which forms of corruption and associated crimes in the wildlife, timber and/or seafood sectors could traceability systems address, and which forms might they not? 2. What are the strengths and weaknesses of traceability systems at their current stage of evolution, and what are their major limitations for addressing corruption? 3. How could traceability systems, and supporting approaches, mature to better accomplish anti-corruption objectives? 4. What actions could NRM practitioners and others take to help traceability initiatives become more effective as anti-corruption tools in the future? This virtual learning event was attended by practitioners based in 25 countries. A TNRC publication on this topic is forthcoming, a recording of the webinar is above, and a PDF of slides can be downloaded here.

Key Takeaways

  • Commodity supply chain traceability initiatives are not designed to be anti-corruption interventions, but may have anti-corruption potential under certain conditions.
  • Traceability should not be equated with transparency, and linking them is a crucial aspect for improving the anti-corruption potential of traceability initiaties.
  • A number of practical challenges need to be overcome for traceability initiatives to have anti-corruption effects, including establishment of common goals between public and private actors and meeting high costs for such initiatives in typically under-resourced contexts.
  • Commodity supply chain traceability initiatives are not a substitute for the general effectiveness of natural resource management and governance.

Traceability initiatives focused on resource commodity supply chains are sometimes assumed to have anti-corruption effects and to focus on improving transparency and accountability. However, there are many reasons why existing initiatives may not lead to reduced corruption. This webinar unpacked these issues, shared lessons from research and experience, and identified opportunities for improving the anti-corruption potential of traceability initiatives.

What is traceability and why is it important?

Traceability is the ability to access any or all information about a product throughout its life cycle by using a system of recorded information. It also relates to the ability to track and trace along the supply chain and is typically associated with some type of quality assurance mechanism that imposes standards, procedures and types of data to be recorded. Traceability should enable private sector actors to prove responsible sourcing practices. It may provide some level of transparency around associations among actors in the supply chain, and between these actors and specific places. CITES or national Timber Legality Assurance Systems (TLAS) as in Ghana or Indonesia can be viewed as examples of mandatory traceability systems, while examples of voluntary systems include Wilmar´s Open Palm and Responsible Timber Exchange.

How does corruption affect commodity supply chains and what is the anti-corruption potential of traceability?

Corruption can affect commodity supply chains at any and all points of the chain, from access of the resource, through hiring of staff and management of extraction/harvesting, through to transportation of materials, to processing and the point of export. For example, bribery may be used to falsify documentation or to enforce silence on the part of potential whistleblowers. It may also be used to change documentation on the volumes and/or origin of products. Or it could be used to encourage customs or cargo inspectors to look the other way.

In theory, traceability initiatives hold anti-corruption potential through facilitating the development of monitoring systems, allowing access to data, and enabling greater scrutiny from civil society, law enforcement and from the public. At the same time, actual evidence for the efficacy of traceability in curbing natural resource corruption is generally lacking, with a number of obstacles standing in the way of traceability´s anti-corruption potential. These obstacles include often conflicting goals of stakeholders in traceability initiatives, as well as the high costs associated with their establishment and maintenance.

What can we learn about the anti-corruption potential of traceability initiatives from the timber sector?

There are two main types of digital traceability system in the timber sector: mandatory systems whose use is legally required by governments, mostly in producer countries; and voluntary systems operated by private businesses whose users are often located toward the end of supply chains in consumer countries. Both types are designed to deter the introduction of unauthorized material into wood product supply chains by flagging anomalies in data – mainly related to species and volumes – and thereby alerting businesses or governments to possible incidences of lawbreaking, including corruption. Where an anomaly is detected at some point, the system raises a red flag that can provide the basis for an investigation into possible wrongdoing at that or any previous point in the supply chain.

There are currently vulnerabilities in both types of system that reduce their effectiveness in preventing laundering and combating illegality and corruption, though of the two, mandatory systems hold more promise. They can be, and often are, fortified through audits and a variety of other means, including, for example, transparency systems and technologies, monitoring tools, and timber testing technologies. But even if strengthened, the efficacy of timber traceability systems as anti-crime/corruption tools will always be conditional upon the will and capacity of authorities to act upon the information they provide.

How should traceability and transparency be linked to improve the anti-corruption potential of traceability intitiatives?

The more transparency that can be brought to traceability systems, the more effective they will be at rooting out corruption. This holds true in particular for mandatory traceability systems, which are designed to cover all inputs and are therefore less subject to leakage. The more eyes that are able to see what permits have been authorized, for which forests, and how much natural resource extraction is taking place, the harder it is for fraud and corruption to contaminate commodity supply chains.

Transparency of data from traceability systems can allow local forest communities and civil society to engage as more equal partners in the allocation of natural resources. In addition, civil society organizations and the public at large can use transparent traceability systems to conduct more effective independent monitoring efforts, which can support law enforcement.

Given the sensitive commercial nature of commodity supply chains, not all data can be made fully transparent to the public. For this reason, it is important for governments to establish an independent auditing agency with the funding, expertise, and authority needed to conduct effective oversight over the activities of other agencies and companies. The activities of this agency, including control actions and fines levied, should be transparently communicated to the public.

Further Reading

  • Amengual, M., 2010. Complementary labor regulation: The uncoordinated combination of state and private regulators in the Dominican Republic. World Development, 38(3), pp.405-414.
  • Gardner, Toby A., Magnus Benzie, Jan Borner, Elena Dawkins, Stephen Fick, Rachael Garrett, Javier Godar et al. "Transparency and sustainability in global commodity supply chains." World Development 121 (2019): 163-177.
  • Kickler, Karoline, and Gudrun Franken. Sustainability schemes for mineral resources: a comparative overview. DERA, 2017.
  • Lambin, Eric F., Holly K. Gibbs, Robert Heilmayr, Kimberly M. Carlson, Leonardo C. Fleck, Rachael D. Garrett, Yann le Polain de Waroux et al. "The role of supply-chain initiatives in reducing deforestation." Nature Climate Change 8, no. 2 (2018): 109-116.
  • Norton, T., J. Beier, L. Shields, A. Househam, E. Bombis, and D. Liew. "A guide to traceability: A practical approach to advance sustainability in global supply chains." The United Nations Global Compact and BSR Report (2014).
  • Rueda, Ximena, Rachael D. Garrett, and Eric F. Lambin. "Corporate investments in supply chain sustainability: Selecting instruments in the agri-food industry." Journal of cleaner production 142 (2017): 2480-2492.
  • Wohlrab, Rebekka, Eric Knauss, Jan-Philipp Steghofer, Salome Maro, Anthony Anjorin, and Patrizio Pelliccione. "Collaborative traceability management: a multiple case study from the perspectives of organization, process, and culture." Requirements Engineering 25, no. 1 (2020): 21-45.

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