Summary
A June 2019 initiative to establish a minimum price for cocoa beans launched by the Governments of Ghana and Cote d’Ivoire faced a set-back in July when no agreement could be reached with chocolate sector representatives on how the new minimum price should be applied in practice. Cocoa farmer’s representatives have stressed the importance of ensuring any such initiative translates into higher farm gate prices for cocoa farmers. Consumer pressure on chocolate companies to fully integrate a living wage for cocoa farmers into the prices paid for cocoa beans and cocoa products is needed if the current impasse is to be overcome.
On 12th June 2019 the governments of Ghana and Cote d’Ivoire announced a joint initiative to establish a minimum sales price of $2,600 per tonne for cocoa beans. To back this up the two governments announced suspension of forward sales of cocoa beans for the 2020/21 season, in a context where jointly Ghana and Cote d’Ivoire account for 2/3 of global cocoa production (1).
The initiative needs to be seen against the background of current price for cocoa beans of around $2,124 per tonne. Cocoa bean prices have fallen 30% in recent months, with this nominally being attributed to over production (1) The initiative also needs to be seen against the background of the long term decline in cocoa prices from around $15,000 per tonne in 1972 (2).
Ghana’s President described the initiative as addressing a ‘manifest injustice’ which saw cocoa farmers earn less than 5.75% of the revenues generated by the $100 billion chocolate industry and left the vast majority of cocoa farmers in extreme poverty (2) (for details of the profitability of chocolate sector companies see companion epamonitoring.net article, ‘Fairtrade Premium and Minimum Price for Cocoa to be Raised but Broader Industry Initiative Needed’, 7 March 2019).
The price increase proposed, if achieved, would take the basic price paid for cocoa above the Fairtrade Minimum Price of $2,400 per tonne (1). Fairtrade International has welcomed the joint inter-governmental initiative, placing it in the context of the Fairtrade movements’ efforts to raise prices for cocoa paid across all supply chains (1). However press reports suggest cocoa producers and cocoa buyers have given a mixed response. The Executive Director of the International Cocoa Organisation (ICCO) which represents both consuming and producing countries has welcomed efforts to boost farmers’ incomes given the level of extreme poverty amongst cocoa farmers.
However the Secretary General of the World Cocoa Farmer’s Organisation (WCFO), Sako Warren, who represents cocoa producers, has sounded a note of caution. He pointed out how in 2018 the farm gate price of cocoa in Cote d’Ivoire was $1,281 and in Ghana $1,407, only 58% and 64% respectively of the average sales price of cocoa. He stressed the importance of ensuring an improvement of the farm gate price for cocoa and not just an increase in international sales prices. Against this background he stressed the importance of direct communications between farmers and their partners over the prices to be paid farmers for their cocoa beans (2).
However in July 2019 it became apparent the minimum price initiative was facing problems, despite declarations of support from the chocolate manufacturer Mars (3). A technical meeting on the 3rd July to develop operational arrangements for the implementation of the announced minimum price saw the chocolate industry and the cocoa boards of Ghana and Cote d’Ivoire failing to reach an agreement on the application of the new floor price (4).
This saw the Ghanaian and Ivorian authorities proposing the introduction of a $400 per tonne ‘Living Income Differential’ which would be ‘written into export contracts’ and would be applied ‘if market prices fall below $2,600’. However chocolate industry representatives said this proposal still lacked clarity, with further discussions being required (4).
| Shortcomings of Cocoa Sustainability Certification Schemes from a Farmers Income Perspective
There has been a growing level of criticism of cocoa sustainability certification schemes in terms of their net effects on the net income of cocoa farmers. A blog post from Wageningen University and Research maintains ‘certification premiums paid to farmers for mainstream certified produce are often either very low or non-existent, and thus offer low or no direct financial benefits to farmers. Evidence of indirect financial benefits of sustainability certification for instance through improved yields or through a decrease in cost of production, is scarce’ (5). This has led the VOICE network, an association of NGOS and Trade Unions working on sustainability in the cocoa industry, to express concern over the ‘danger if a race to the bottom on pricing’ in the cocoa sector. It has called on the ‘Rainforest Alliance to put in place minimum pricing and premium systems’. It is forcefully argued that in the cocoa sector ‘increasing market share by paying the farmer less should not be a strategy for any sustainability standard’. Currently the Rainforest Alliance/UTZ country cocoa certification scheme, which is the largest such scheme in existence, does not include minimum pricing or a premium system (5). Fairtrade International has called on Rainforest Alliance/UTZ to immediately adopt both a minimum pricing and premium system. The Rainforest Alliance has indicated that it plans to establish a mandatory premium as part of its 2020 standard (5). It has been suggested that in the face of chocolate sector companies developing their own sustainability schemes within their own supply chains, generic sustainability certification programmes are ‘fighting to stay relevant’ by demonstrating an additional value added to their own programmes. What is recognised is that certification standards are ‘far from close to eradicating extreme poverty in cocoa – let alone providing a living income’ (5). |
The position of the Ghanaian cocoa board is becoming somewhat entrenched, with its CEO maintaining cocoa processors and chocolate companies ‘aren’t obliged to accept, because it’s a free market’, but pointing out that ‘if they don’t want to pay the price…they can go elsewhere’. Indeed this is precisely what analysts at Lumina Intelligence are suggesting could happen with West African initiatives to establish a minimum sales price potentially shifting buyers’ attention to cocoa suppliers in Latin America (1). This view is supported by analysts at Marek Spectron’s London office who argue that while in the short term cocoa processors will have little choice but to pay the price demanded; in the long term it could encourage processors to develop other sources of cocoa supply (6).
The whole discussions needs to be seen against the background of the pervasive nature of extreme poverty in the cocoa sector in West Africa and the shortcomings of existing sustainability certification schemes in terms of its impact on raising farmers income levels (see boxed text above).
In terms of the EU dimension fully 94.5% of all cocoa beans imported into the EU come from ACP countries with fully 70% coming from Cote d’Ivoire and Ghana alone. Cote d’Ivoire and Ghana also account for 60.4% of extra-EU imports of cocoa butter, 85.7% of cocoa paste and 81.7% of Cocoa powder sourced from beyond the EU’s borders.
| Comment and Analysis An improvement in farmers’ incomes in the West African cocoa sector is long overdue. As the Wageningen University and Research report points out: to date sustainability certification schemes have singularly failed to provide a living wage to cocoa farmers in West Africa. In this context an industry wide initiative to guarantee farmers a higher minimum farm-gate price for cocoa beans at a level which provides a living wage for cocoa farming families is essential.Chocolate and cocoa sector processing companies need to be pressured by consumers particularly in Europe to fully integrate a living wage into their sustainability claims. This would appear to be particularly relevant for West Africa given the problems of inter-generational renewal which are being face din the cocoa farming sector. It would appear to be a commercially practical option given the growth in consumer demand for chocolate and the extra revenues being generated by chocolate companies through the development and marketing of single origin chocolate offerings. Offerings which commonly carry a price premium and have a high cocoa content based on the health benefits of this form of chocolate consumption. Against this background increasing prices paid to cocoa farmers to guarantee a living wage could easily be absorbed along the cocoa/chocolate supply chain (for details of the exceptional profits generated for chocolate companies by low cocoa prices see companion epamonitoring.net article, ‘Fairtrade Premium and Minimum Price for Cocoa to be Raised but Broader Industry Initiative Needed’, 7 March 2019). |
Sources:
(1) confectionerynews.com, ‘Ghana and Cote d’Ivoire halt sales of cocoa beans, both demand new minimum price for farmers’, 13 June 2019
https://www.confectionerynews.com/Article/2019/06/13/Ghana-and-Cote-d-Ivoire-halt-sales-of-cocoa-beans-both-demand-new-minimum-price-for-farmers
(2) confectionerynews.com, ‘What do farmers and the ICCO think of Ghana and Cote d’Ivoire’s minimum cocoa price’, 19 June 2019
https://www.confectionerynews.com/Article/2019/06/19/Cocoa-farmers-question-Ghana-and-Cote-d-Ivoire-s-minimum-cocoa-price
(3) Reuters, ‘Chocolate maker Mars backs Ivory Coast, Ghana cocoa floor price’, 3rd July 2019
https://af.reuters.com/article/investingNews/idAFKCN1TY1R5-OZABS
(4) Confectionerynews.com, ‘Agreement-by-Cote-d-Ivoire-and-Ghana-to-introduce-new-minimum-floor-price-for-cocoa-fails’, 4 July 2019
https://www.confectionerynews.com/Article/2019/07/04/Agreement-by-Cote-d-Ivoire-and-Ghana-to-introduce-new-minimum-floor-price-for-cocoa-fails
(5) Confectionerynews.com, ‘Cocoa sustainability watchdog The VOICE Network calls on civil society to take stock on certification’, 20 June 2019
https://www.confectionerynews.com/Article/2019/06/20/Cocoa-sustainability-watchdog-The-VOICE-Network-calls-on-civil-society-to-take-stock-on-certification
(6) confectionerynews.com, ‘Cocoa-analyst-warns-Cote-d-Ivoire-and-Ghana-risk-creating-a-surplus-with-proposed-minimum-price-rise’, 26 June 2019
https://www.confectionerynews.com/Article/2019/06/26/Cocoa-analyst-warns-Cote-d-Ivoire-and-Ghana-risk-creating-a-surplus-with-proposed-minimum-price-rise
Annex 1
Total Extra- EU Cocoa Product Imports and ACP Cocoa Product Exports to the EU 2018 (tonnes)
| Cocoa Beans (1801) | Cocoa Butter (1804) | Cocoa Paste (1803) | Cocoa Powder (1805) | |
| Total EU Imports | 1,963,063 | 224,773 | 352,868 | 58,883 |
| Ivory Coast | 1,031,315 | 79,724 | 204,119 | 24,746 |
| Ghana | 338,039 | 55,984 | 98,248 | 23,364 |
| Nigeria | 227,025 | 11,427 | 8,835 | 287 |
| Cameroon | 150,568 | 17,410 | 13,736 | 1 |
| Dominican Republic | 34,038 | 888 | 80 | 5 |
| Sierra Leone | 14,477 | 0 | ||
| Liberia | 9,309 | 0 | ||
| Uganda | 8,138 | 0 | ||
| Togo | 8,001 | 0 | ||
| Guinea | 6,656 | 0 | ||
| Madagascar | 5,855 | 2 | 0 | |
| DRC | 4,594 | 0 | ||
| PNG | 4,558 | 5 | 11 | |
| Tanzania | 4,147 | 0 | ||
| Congo | 2,428 | 0 | ||
| Soa Tome | 1,424 | 0 | ||
| Equa. Guinea | 960 | 0 | ||
| Kenya | 791 | 0 | ||
| Haiti | 762 | 0 | ||
| Grenada | 655 | 0 | ||
| Trinidad & Tob | 118 | 0 | ||
| Vanuatu | 82 | 0 | ||
| Belize | 65 | 0 | ||
| Dominica | 50 | 0 | ||
| Jamaica | 24 | 0 | ||
| Solomon Islands | 23 | 0 | ||
| St Vincent & Gren. | 11 | 0 | ||
| St Lucia | 5 | 0 | ||
| South Africa | 0 | 0 | 0 | 9 |
| – Sub-total ACP | 1,854,129 | 165,433 | 325,018 | 48,412 |
| – % share ACP | 94.5% | 73.6% | 92.1% | 82.2% |
Source: EC market Access Data Base