Four of the largest retailers in the world -- Costco (NASDAQ:COST), Wal-Mart (NYSE:WMT), Carrefour, and Tesco -- have just been implicated in selling shrimp linked to slave labor, according to a report from The Guardian.
The Guardian's investigation discovered that Thailand-based CP Foods, the world's largest shrimp and prawn farmer, purchases fishmeal (inedible "trash fish") from fishing boats manned by slaves to feed its farm-raised shrimps. CP Foods' shrimps are then sold to Costco, Wal-Mart, Carrefour, Tesco, and many other major supermarkets across the world in frozen or pre-cooked form.
Many of the enslaved men, from Myanmar and Cambodia, were lured to the slave ships by brokers who had promised to help them find work in Thailand's factories or construction sites. Instead, they were sold for as little as £250 ($424) each to boat captains. The slaves were reportedly chained, beaten, dosed with methamphetamines to keep going, and even executed at sea, according to the investigation.
What's even more horrifying is that CP Foods potentially acknowledged that slave labor was part of its supply chain. CP Foods' managing UK director, Bob Miller, admitted that the company knew that there were "issues with regard to the [raw] material that comes in."
The business of slave labor
Although the UN's Universal Declaration of Human Rights in 1948 officially outlawed slavery worldwide, approximately 30 million people remain slaves today, according to the Australia-based Walk Free Foundation. These include people enslaved by debt bondage, child labor, human trafficking, forced marriage, and forced labor.
Thailand currently ranks 24th on the list of top offenders worldwide (calculated by percentage of population), with an estimated 473,000 slaves within its borders. India ranks fourth on that list, with nearly 14 million slaves -- considerably more than China, which still has nearly 3 million. But slavery is not restricted to developing and emerging markets -- there are actually 60,000 slaves in the U.S. and another 80,000 in Japan.
CP Foods is hardly the first company to be implicated in using slave labor. In 2001, it was revealed that the cocoa in Nestlé's (NASDAQOTH: NSRGY) chocolate came from farms in the war-torn Ivory Coast. In 2012, an internal audit by the Fair Labor Association (FLA) revealed that those farms regularly forced entire families, including children, into slavery.
In 2010, tobacco giant Philip Morris International (NYSE: PM) admitted that some of the tobacco plantations that it had purchased in Kazakhstan were using child slaves. Meanwhile, the government of Uzbekistan forcibly removes children from school to pick cotton, which is then sold to large companies like South Korean conglomerate Daewoo.
The human cost of cheap goods
It's easy to notice a similar theme in each of these cases -- large companies expand into countries with lax or corrupt governments that either aid or turn a blind eye to these practices.
The case of CP Foods is no different -- the Thai government (which was recently overtaken by the military) has acknowledged that it has difficulty combating human trafficking within its borders, which is facilitated by organized crime and corrupt officials. It certainly doesn't help that Thailand is the world's largest shrimp and prawn exporter, with nearly 10% of its annual exports coming from CP Foods.
But companies and corrupt governments are only half of the problem. Consumer demand for cheap products in developed nations has driven large companies overseas in a never-ending quest for low-cost labor. That "Wal-Mart mentality" lowers marketwide price expectations for goods and forces retailers to sell their products at the lowest possible margins. Although consumers benefit from this practice, it's unsustainable without the use of extensive outsourcing to politically unstable regions.
To understand how troubling this trend is, we should take a look at Wal-Mart itself. In addition to the stigma that many of its cheap products come from Southeast Asia, Wal-Mart has also changed the very definition of "Made in America" with its use of prison labor.
Despite a long-standing policy restricting its vendors from using prison labor, one of Wal-Mart's main produce vendors, Scottsdale, Ariz.-based Martori Farms, was found to be using female prisoners at its farms in 2011. In 2012, The Huffington Post reported that Wal-Mart was using prison laborers to strip serial numbers and UPC bar codes from returned and excess goods, which were then sold to after-market retailers.
Companies react, but will anything change?
Wal-Mart, Costco, Carrefour, and Tesco have all since issued statements to The Guardian in response to the allegations regarding CP Foods.
Wal-Mart promised to "bring together stakeholders and eradicate human trafficking," Costco vowed to "take corrective action," Carrefour admitted that it failed to thoroughly check its complex supply chains, and Tesco stated that it was "working with CP Foods to ensure the supply chain is slavery-free."
But considering the rising consumer demand for cheap goods, corrupt companies and governments eager to meet those demands, the history of modern slave labor, and incredibly complex supply chains, is it possible to eliminate these kind of abuses at all? Or will the CP Foods scandal eventually fade away and be forgotten, just like the scandals that temporarily affected Nestlé, Philip Morris, and Daewoo in the past?
Leo Sun owns shares of Philip Morris International. The Motley Fool recommends Costco Wholesale. The Motley Fool owns shares of Costco Wholesale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.