Summary
Expanding value added cocoa processing in Ghana, alongside the promotion of cocoa farmer ownership in value added processing enterprises, offers real potential for alleviating poverty in the cocoa farming sector and supporting intergenerational renewal of the cocoa farming community. A no deal Brexit could offer substantial opportunities for expanding Ghanaian value added cocoa product exports to the UK if existing duty free-quota free access can be extended, in a context where a no-deal Brexit would see a re-imposition of standard MFN duties on imports of value added cocoa products from EU27 cocoa processing enterprises.
Encouraging value added processing in countries where cocoa is grown is seen as the key to sustainable development in the cocoa sector according to Julia Gause head of sales at ‘Fairafric, the producer of the first organic chocolate bar that is manufactured and packed in Ghana’ (1). Currently although ‘70% of the world’s cocoa is grown in West Africa…less than 1% of the world’s chocolate is produced in West Africa’ (1). Promoting more local value added processing in West African cocoa producing countries is seen as critical to poverty eradication in the cocoa sector.
Julia Gause claims producing organic chocolate in the West African country generates five times higher income for producers than sourcing cocoa alone’. She noted how ‘if we bought the cocoa beans from Ghana the market price is around $2,000 per tonne. Instead, we deliver an income worth $10,000 per tonne so we multiply the local income for the country of origin’ (1). According to Gause the only work undertaken in Germany by Fairafric is ‘sales and marketing, packaging and the planning of production’ (1).
Significantly in 2018 Fairafric ‘started making its cocoa farmers in the country brand co-owners by buying them shares in the company’ (1). According to Fairafric the 1,400 small-scale farmers in the Suhum and Volta Region growing areas who belong to the Yayra Glover cooperative, produce mostly certified organic cocoa beans, with the training programmes underway leading to higher yields and better quality beans.
The farmers involved in supplying Fairafric ‘are paid a premium of US$600 compared to Fairtrade and UTZ’s premium of US$200 and US$102 respectively’ (1). The resulting chocolate bar is more expensive at €3/100 grams, with the company being dependent upon consumers literally buying into the story behind the product. In this context the company seeks to stress to consumers how as a result of their purchasing choices it is possible to establish a fair value chain which pays a fair wage, offers training, preserves the environment and promotes biodiversity through the organic farming practices.
Fairafric is not the only initiative underway to promote more equitable cocoa/chocolate supply chains involving ensuring producers get a greater share of the final sale price. The Lidl supermarket chain has introduced its ‘Way to Go’ product range of chocolate bars selling at €1.99 per bar, with Lidl committing to ensuring more of the money consumers pay for the chocolate bar goes directly cocoa farmers (2).
In launching the initiative Lidl has teamed up with the Kuapa Kokoo a Ghanaian farmers’ cooperative (3), and the Belgian development NGO Rikolto (formerly Vredeseilanden). However unlike Fairafric’s product the chocolate range is manufactured in Germany by the chocolate maker Ludwig Weinrich (2).
Lidl argues the initiative not only gives farmers more money but also assists in improving yields through the introduction of enhanced harvesting and soil management techniques which enable producers to attain higher yields. The commercial contacts being developed also open up opportunities for crop diversification (2).
Meanwhile in August 2019 the international commodities trader Olam International announced ‘a stellar year’ for cocoa; with revenues up almost 20% (4). In August 2019 cocoa price at US$2,190/tonne were 30% below the level of the monthly average price in August 2015. Since August 2018 the monthly average cocoa price has hovered around US $2 170 per tonne, but with occasional increases to a maximum average monthly price of US$2,410/tonne (5). This needs to be seen against the background of continued efforts by the Government of Ghana to raise the cocoa farmgate price to US$ 1,523.8/tonne for the coming season (starting in October) up from $1,410 in the past season (6).
In June 2019 the Governments of Ghana and Cote d’Ivoire had sought to impose a floor price for cocoa of $2,600/tonne and a live income differential of $400 per tonne. This initiative however met opposition from cocoa processors (6), despite their repeated a longstanding commitments to promoting greater sustainability in their cocoa supply chain (see companion epamonitoring.com article ‘Minimum cocoa price initiative faces challenges’, 8 August 2019).
| Comment and Analysis Despite numerous sustainability commitments from cocoa sector companies, there remains continued resistance from major cocoa traders, processors and end-users to the Ghanaian/Ivorian proposal for a cocoa floor price linked to guarantying cocoa farmers a living wage. Against this background addressing poverty eradication challenges in the cocoa sector through a combination of greater local value added processing in cocoa producing countries and the promotion of forms of ownership of value added processing enterprises which delivers increased incomes to cocoa producers looks like a necessary way forward. Promoting greater retained value for cocoa producers can take many forms from minimum price guarantees or price premiums to the promotion of producer cooperatives in value added processing activities or producer shareholdings in value added processing enterprises. The first stage however is increased local value added processing. This is already underway in Ghana. Following the granting of full duty free-quota free (DFQF) access to the EU market for all value added cocoa products in 2008, Ghana’s exports of cocoa butter and cocoa paste to the EU increased 353%, 440% respectively between 2007 and 2018, while exports of cocoa powder emerged, increasing from €33,544 to €37,839,836. While in 2007 Ghanaian exports of cocoa butter, cocoa paste and cocoa powder to the EU accounted for only 13.6% of total cocoa sector revenues, by 2018 they accounted for fully 42% of cocoa sector revenues. In 2007 the average price per tonne of Ghanaian exports to the EU for cocoa butter and cocoa paste was €3,531/tonne and €1,510/tonne respectively, while for cocoa beans the price was €1,465 tonne. By 2018 the average price per tonne of Ghanaian exports to the EU for cocoa butter and cocoa paste were €4,657/tonne, €2,084/tonne, while for cocoa beans the price was €1,807 tonne. Between 2007 and 2018 the average value of Ghanaian cocoa butter exports increased 31% and for cocoa paste 28%. This growth in Ghanaian exports of value added products to the EU could be undermined or enhanced in the coming months and years depending on the policy choices made by the UK government within the Brexit process. In its 2017 White Paper the UK government made a commitment to ‘maintain the preferential access of other (non-LDC) developing countries’. This policy paper recognised the importance of the UK being ‘ready to put in place a trade preferences scheme, which will, as a minimum, provide the same level of access as the current EU trade preference scheme’, thereby ensuring ‘the world’s poorest countries can still benefit from duty-free access to UK markets, and that other developing countries across the globe can continue to export to the UK accordingly’. The white paper went so far as to emphasise the importance of delivering certainty for businesses (2). This is something which in the past year the UK governments has singularly failed to do, with the date at which current duty free-quota free access to the UK market will lapse changing no less than five times. This means that as contract negotiations get underway for supplying the UK market with value added cocoa products in 2020 there is still no certainty as to whether Ghana will continue to enjoy duty free access to the UK market throughout 2020. Against this background if in the coming weeks the UK government still fails to establish a mechanism acceptable to the Ghanaian government which prevents a no-deal Brexit from leading to a loss of the current duty free-quota free access enjoyed to the UK market, then the move over to increased exports of cocoa butter and cocoa paste along current supply chains could be undermined. This is particularly the case since only 1.9% of Ghanaian cocoa paste exports only 5.2% of Ghanaian cocoa butter exports go directly to the UK market, the bulk of these exports are routed through the Netherlands, Germany and France, with these then being exported onward to the UK. These triangular supply chains would be undermined by the imposition of tariffs on EU27-UK trade and the emergence of serious disruptions of cross channel supply chains arising from a no-deal Brexit. However if existing DFQF access to the UK market can be retained despite an no-deal Brexit occurring, then the imposition of standard MFN duties on UK imports of value added cocoa products from EU27 cocoa processors could create significant opportunities for the expansion of direct exports of Ghanaian cocoa paste and cocoa butter to the UK market. Currently UK imports of value added cocoa products (excluding chocolate) from EU27 suppliers are valued at over US $ 420 million per annum. Against this background, if in addition the UK government were to provide investment support for the development of value added cocoa products in Ghana which facilitated cocoa producer share ownership in the enterprises concerned then substantial gains could be made in addressing poverty in the Ghanaian cocoa sector. Facilitating increased chocolate production in Ghana could in addition be facilitated by granting full pan-African cumulation under the rules of origin to be applied under any future Ghana-UK trade agreement. The scope for the expansion of chocolate exports to the EU is illustrated by developments in Ivorian bulk chocolate exports to the EU since 2007, which increased 136% by volume and 251% in value (from €32.2 million to €113.2 million) between 2007 and 2018. This could further assist in the expansion of local value added processing along the cocoa value chain in Ghana, generating an expansion of overall cocoa revenues from which producers could then seek to organise themselves to retain a larger share. This could in turn help facilitate more efficient and environmentally sustainable farming practices and promote a much needed inter-generational renewal of the cocoa farming community. |
Sources:
(1) foodnavigator.com, ‘Decolonising-the-chocolate-supply-chain’, 21 October 2019
https://www.foodnavigator.com/Article/2019/08/21/Decolonising-the-chocolate-supply-chain
(2) confectionerynews.com, ‘Lidl pays Ghana farmers extra premium with new ‘super fair’ bars’, 19 September 2019
https://www.confectionerynews.com/Article/2019/09/19/Lidl-pays-Ghana-farmers-extra-premium-with-new-super-fair-bars
(3) Kuapa Kokoo
https://www.kuapakokoo.com/
(4) confectionerynews.com, ‘Olam International reports ‘stellar year for cocoa’ in its latest financial results call’, 15 August 2019
https://www.confectionerynews.com/Article/2019/08/15/Olam-International-reports-stellar-year-for-cocoa-in-its-latest-financial-results-call
(5) Indexmundi, Cocoa beans Monthly Price – US Dollars per Kilogram – 5 years
https://www.indexmundi.com/commodities/?commodity=cocoa-beans&months=60
(6) confectionerynews.com, ‘Ghana, Cote d’Ivoire set to raise cocoa farmgate price in October’, 7 August 2019
https://www.confectionerynews.com/Article/2019/08/07/Ghana-Cote-d-Ivoire-set-to-raise-cocoa-farmgate-price-in-October