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COMMENT: The Parmalat fallout

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As the true scale of Italy's largest corporate scandal becomes apparent, farmers and cooperatives in Brazil are paying the price for Parmalat's inability to pay its bills. This highlights a growing realisation that many Latin American countries are over-dependent on foreign multinationals. Consumer concern over such issues is driving increased demand for Fairtrade goods.

One month after the Italian dairy giant Parmalat went into administration, PriceWaterhouseCoopers has announced that the company's debts amount to €14 billion, a figure eight times larger than its former executives had admitted. Parmalat employs 36,000 people in 30 different countries - one major reason why the government-appointed administrators will be hoping to salvage the company. The company remains an important player in the dairy products market.

Thousands of miles away in Brazil, Parmalat's 6,000 employees have cause for concern. Parmalat set up a subsidiary in Brazil in the 1970s and became the country's second largest milk buyer after the Swiss behemoth Nestle. The company buys most of its milk from local dairy cooperatives such as Coopersul. The cooperatives operate as a reseller for dairy farmers.

Brazilian dairy farms are very often relatively small family-run operations with very little financial resilience. As a result of Parmalat's fiscal collapse, many are not being paid and are justifiably concerned about the security of their jobs. Many worry that profits from the healthy Brazilian business are being siphoned back to the Italian parent company to help pay off the company's colossal debts.

The precarious position of Parmalat's Brazilian workers has once again brought to the fore concerns that the country's agricultural producers, cooperatives and related industries may be too dependent on large foreign multinationals such as Nestle and Parmalat, leaving them vulnerable to the sort of debacle that has affected the latter.

Consumers' growing awareness of the precarious position of many workers in developing countries - especially in agriculture and related activities - has gradually led to the emergence of schemes such as the Fairtrade initiative. This ensures that producers receive a decent wage and acceptable working conditions. The Body Shop has pioneered a similar approach for its range of natural personal care products and this commitment to ethical business practices has been central to its ongoing success.


Sectors: Beer & cider, Soft drinks, Spirits, Water, Wine

Companies: Nestle

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