Summary
The Fair Trade cocoa price will be increased 20% from October 2019, with this being described as good news by West African cocoa farmers’ representatives. However large numbers of African cocoa farmers continue to live in poverty despite 10 years of corporate efforts to promote greater sustainability in the cocoa sector. For poverty levels to be sustainably reduced price volatility will need to be addressed. Ways need to be found to integrate a sustained increase in the net real value of retained income of cocoa farmers within sustainability schemes, whilst at the same time avoiding the poorest cocoa farmers simply being excluded from individual corporate sustainability initiatives. Moving beyond ‘box-ticking’ when it comes to poverty levels in the cocoa farming sector, will need to recognise the structural link between the ‘lower raw material prices’ which boosted the Barry Callebaut Group’s profits by 31% and the continued high levels of poverty amongst African cocoa farmers.
An early Christmas present arrived in December for cocoa farmers in West Africa when Fairtrade International announced an increase of 20% in the guaranteed price and Fairtrade premium paid to cocoa farmers from October 2019. The Fairtrade Minimum Price for conventional cocoa will be increased ‘from $2,000 to $2,400 per metric tonne at the point of export (FOB)’, while the ‘Fairtrade Premium, an additional payment made directly to a communal fund for workers and farmers’, will increase ‘from $200 to $240 per metric tonne, the highest fixed premium of any certification scheme’. In addition ‘for organic cocoa, the Fairtrade price will be $300 above the market price or the Fairtrade Minimum Price, whichever is higher at the time of sale’ (1).
According to press reports the decision follows a ‘lengthy consultation process across the cocoa supply chain with Fairtrade farmers, traders, manufacturers, and chocolate brands’. The chairperson of Fairtrade Africa’s West African Network, Fortin Bley described the announcement as ‘good news for West Africa’s cocoa growing communities’, arguing ‘farmers have been badly squeezed by low world prices, so the higher Fairtrade Minimum Price and Fairtrade Premium helped to level the playing field for a sustainable future’ (1).
The price increase is based on a calculation of the ‘Living Income Reference Price for cocoa in Cote d’Ivoire and Ghana’, which is based on a ‘living income benchmarks of $4,230 and $6,700 for Ghana and Cote d’Ivoire respectively’. The aim of the LIRP is to ‘enable full-time cocoa farmers to earn a living income’ (1). This is calculated on the basis of what ‘would be needed in each country to support the average cocoa farming household’s basic costs for food, housing, clothing, health care, education plus a small provision for emergencies, and then factors in productivity benchmarks and the cost of sustainable production’ (1).
Meanwhile as cocoa farmers in West and Central Africa continue to struggle to secure a living wage which ensures their families are lifted out of poverty, in November 2018 the worlds’ largest manufacturer of high quality chocolate and cocoa products the Barry Callebaut Group (BCG) announced a 31% rise in net profit. Significantly this increase in profits was achieved on the back of almost flat sales volumes (+0.1%), with the increased profits being attributed to ‘lower raw material prices’ (4).
Alongside these announcements BCG highlighted ‘pilot projects in five cocoa sourcing countries, Cote d’Ivoire, Ghana, Cameroon, Brazil and Indonesia as a model for sustainable cocoa farmers’. BCG has also recently announced ‘further extensions of its cocoa processing capacities in Cote d’Ivoire and Cameroon’ (4)
December 2018 meanwhile saw Cargil announce ‘plans for future investment and farmer support’ in ‘improving livelihoods of farmers and communities in a holistic way that will secure a thriving cocoa sector for generations to come’ . Its’ 2022 roadmap in Ghana for example includes the targets of:
* the provision of support and improved access to 80,000 farmers through Farmer Field Schools;
* the distribution of 1 million new cocoa seedlings and 200,000 shade trees to improve biodiversity;
* improving access to crop protection products for 30,000 farmers;
* the extension of farm mapping to achieve 100% coverage and enhance monitoring of deforestation;
* the development of a 9,000 ha agroforestry system within the Cocoa & Forest Initiative (5).
Cargil has also recently introduced an e-payment system to ensure payments get swiftly and directly to cocoa farmers. This, it is felt, will improve both the livelihoods of farmers and communities and ensure full traceability of cocoa beans along the whole of the supply chain.
These corporate initiatives to promote increased sustainability in the cocoa sector need to be seen against the background of warnings from the former economic director of ICCO Laurent Pipitone that the cocoa market is still ‘unethical and unfair’ despite 10 years of efforts to try and make the sector more sustainable. He argues there is no clear evidence that private sector investments in training, knowledge transfer and improved farming techniques ‘results in improved farmers’ income and livelihood’. Despite this harsh reality he argue including ‘a poverty indicator within sustainability standards as a prerequisite for cocoa sustainability would be…counterproductive’, since it would simply exclude the poorest from sustainability certification schemes (2).
| Comment and Analysis It seems as if the concept of sustainability being applied by cocoa sector corporations does not fully extend to ensuring livelihoods for cocoa farmers which lift them out of poverty. According to an April 2018 Fairtrade International review of cocoa supply chains only ‘42% of Fairtrade cocoa farmers lived above the extreme poverty line, which is $1.90 per person per day, and 23% above the poverty line, which is set at $3.10 per person per day’. As a consequence only ‘12% of cocoa households earned a living income’, as determined by the Living Income Reference Price (3).This is somewhat surprising since the debate on sustainability is held to be driven by consumers ‘concerns over the high poverty prevalence among farmers, deforestation, and child labour and perceive risks of structural supply deficits’ (2). Indeed it seems as if the engagement of large scale corporate players in the cocoa sector in sustainability efforts is driven primarily by concerns over reputational risks links to the use of child labour and deforestation as well as the commercial dangers of a structural deficit emerging, rather than poverty eradication concerns. Against this background Darío Soto Abril, global CEO of Fairtrade International has argued the current situation where ‘most cocoa farmers in West Africa are living in poverty’ will persist unless industry wide changes to pricing policy can be brought about. Price volatility is a major problem, with between May 2018 and January 2019 international cocoa prices falling around 17% and over 1/3 between December 2015 and December 2018. This suggests that if sustainability schemes are to have any long term effects on poverty levels in the cocoa farming sector, such initiatives will need to address price volatility issues, which sees periodic dramatic declines in cocoa prices. However this needs to be achieved in ways which avoid excluding the poorest cocoa farmers from sustainability initiatives. There is furthermore a need to recognised the link between the ‘lower raw material prices’ which contributed to the 31% increase in the profits of the BCG and the sustained levels of poverty amongst cocoa farmers which threatens the inter-generational renewal of the cocoa farming sector in West and Central Africa. The further extension of BCG’s cocoa processing capacities in Cote d’Ivoire and Cameroon could potentially take on some significance if the UK were to leave the EU on 29th March 2019 without a transitional trade arrangement being in place. Under a no-deal Brexit scenario were the UK to apply the inherited EU MFN tariffs on cocoa products this would see a 9.6% and 7.7% tariff being introduced on imports from EU27 suppliers of cocoa paste and cocoa butter respectively. This needs to be seen in a context where in recent years the majority of UK cocoa paste (around 61%), cocoa butter (around 53%) and cocoa powder (around 95%) imports have been sourced from fellow EU member states. This has been matched by a decline in the UK’s share of total EU cocoa bean imports from around 10% to 2.5% over the past decade. Against this background the re-imposition by the UK of import tariffs on cocoa products from EU27 suppliers could give rise to opportunities for increased direct exports of cocoa paste and cocoa butter from Cote d’Ivoire and Cameroon, particularly if this was manufactured by the BCG. There could also be opportunities for increased direct exports of cocoa paste and cocoa butter from Ghana to the UK market given recent developments in patterns of cocoa product exports to the UK. A critical question however would remain: how would this benefit cocoa farmers given the current functioning of supply chains, which despite the focus on sustainability leaves the vast majority of farmers without a decent living wage? Exports of Cocoa Paste (1803) and Cocoa Butter (1804) to the EU and UK 2013-2017 (tonnes)
Source: EC Market Access Data Base: http://madb.europa.eu/madb/indexPubli.htm |
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Sources
(1) Foodnavigator.com, ‘Fairtrade to increase its Minimum Price for cocoa and farmers’ Premium payments’, 03-Dec-2018
https://www.foodnavigator.com/Article/2018/12/03/Fairtrade-to-increase-its-Minimum-Price-for-cocoa-and-farmers-Premium-payments
(2) Confectionerynews.com, ‘Cocoa market still ‘unethical, unfair’ despite 10 years of sustainability in the industry’, 13 November 2018
https://www.confectionerynews.com/Article/2018/11/13/Guest-article-Cocoa-market-still-unethical-unfair-despite-10-years-of-sustainability-in-the-industry
(3) Foodnavigator.com, , ‘West African cocoa farmers yet to earn a living income despite sales growth of Fairtrade certified cocoa beans’, 19-Oct-2018
https://www.foodnavigator.com/Article/2018/10/19/West-African-cocoa-farmers-yet-to-earn-a-living-income-says-Fairtrade
(4) Confectionerynews.com, ‘Barry Callebaut announces 31% rise in net profit after posting strong growth, FY results revealed’, 6 November 2018
https://www.confectionerynews.com/Article/2018/11/07/Barry-Callebaut-announces-31-rise-in-net-profit-2017-18