Summary
The Conseil du Cafe-Cacao (CCC) in Cote d’Ivoire and COCOBOD in Ghana are proposing to withdraw support from cocoa sustainability certification schemes unless companies commit to payment of the ‘living income differential’ designed to deliver to farmers 70% of a $2,600 a ton (Freight On Board) target price. The governments of Nigeria, Cameroon and Peru are also exploring the introduction of similar minimum prices for cocoa producers. Ethical trading companies have meanwhile endorsed the producer government’s calls for higher prices within the framework of a five principles approach to enhanced supply chain management.
In the face of mounting frustration over the reluctance of cocoa sector multinationals to take on board the need to pay cocoa farmers a living wage through the payment of a ‘living income differential (LID)’ to farmers (see epamonitoring.net article ‘Minimum cocoa price initiative faces challenges’, 8 August 2019) the cocoa sector authorities in Ghana and Côte d’Ivoire have ‘threatened to suspend sustainability schemes that companies including Mars Wrigley, Mondelez, Barry Callebaut, Hershey’s and Nestlé have invested heavily in as a response to pressure from consumers for ethically sourced chocolate’ (1).
It was argued these internationally known chocolate brands have been ‘focusing on their sustainability programs at the expense of the LID’, which requires the payment of an addition $400 per tonne directly to farmers. Against this background the Conseil du Cafe-Cacao (CCC) in Cote d’Ivoire and COCOBOD in Ghana are ‘re-examining all sustainability and certification programs for the 2019/20 season’. Currently it is held ‘the sustainability programs only serve a small number of farmers, while the new price mechanism will benefit all growers’ (1).
CCC Managing Director Yves Kone argued ‘we cannot pretend that we are working with the farmers, investing in sustainability and refusing to pay the farmer’, adding ‘sustainability is paying the farmers and working together’ (1).
The CCC and the COCBOD are looking to ‘use the LID to guarantee farmers get 70% of a $2,600 a ton (Freight On Board) target price’. According to reports carried by Bloomberg ‘New York cocoa futures for delivery in December have averaged $2,373 per ton so far this year’. This needs to be seen against the background of heavy rains in growing areas undermining the drying process, increasing the chances of mould and threatening bean quality (1).
Meanwhile, drawing inspiration from the joint Ivorian/Ghanaian initiative the governments of Nigeria and Cameroon are looking at a similar initiative ‘to agree a premium price for their cocoa with buyers’. Press reports suggest Peru is also ‘looking to propose a minimum price of $3,200 per ton to its growers’ (2).
Closer coordination with Cote d’Ivoire and Ghana however is being hindered in Nigeria by the absence of a central cocoa authority. The four African producers considering a minimum cocoa bean price accounted for 89% of the total volume of EU cocoa bean imports in 2018.
The ethical Dutch chocolate brand Tony’s Chocolonely has backed calls from the Ivorian and Ghanaian governments for an increase in the export price of cocoa to a level which takes on board the ‘living income differential’. While Tony’s Chocolonely already delivers the Living Income Reference Price advocated by Fairtrade organisations (2,20/kg in Cote d’Ivoire and 2,10 in Ghana), it sees a higher price as only one component of the solution to poverty in the cocoa sector.
Tony’s Chocolonely has also called for the full implementation of five sourcing principles:
- paying ‘a higher price (enabling a living income)’;
- ensuring ‘traceability of supply chain (full physical, social, environmental and financial transparency)’;
- concluding ‘long term contracts with farmers’, thereby enabling them to securely invest;
- ‘improving productivity and quality (increasing the productivity per hectare to a minimum of 800kgs a year)’ and
- ‘investing in strong farmers (organized groups providing services to its farmer members and negotiating power)’ (4).
However representatives of Tony’s Chocolonely warned against putting all sustainability programmes on hold, calling instead for a differentiation to be made between schemes which improve the functioning of the overall supply chains to the benefit of cocoa farmers and those which o not clearly do so (4). This follows on from earlier tentative public statements of support from the major chocolate manufacturer Mars for the living income differential initiative (5).
| Comment and Analysis
Ironically the heavy rains which are threatening bean quality could aid with the achievement of the living income differential (LID) scheme, since it is affecting production levels, a development which could enhance the bargaining position of the major cocoa producing countries. This needs to be seen in a context where at the end of August the International Cocoa Organization forecast for the 2018/19 season put global production up some 4.3% (+198,000 tonnes), cocoa grindings up some 4.1% and stock levels up 1% (+18,000 tonnes) (3). The production surplus over grinding needs is put at 18,000 tonnes up from 8,000 tonnes in 2017/18. However damage to the cocoa crop during the drying process could tip the cocoa market into deficit. This could then make cocoa buyers more amenable to the LID scheme since it would be introduced against the background of rising prices for cocoa beans. According to the indexmundi.com cocoa commodity page, by 18 October 2019 the daily price for cocoa beans was almost 7% above the monthly average for September, which in turn was 5% above the monthly average for August. This contrasts with the falling prices for cocoa beans in the corresponding period in 2018 and the much smaller price rise for cocoa beans in the corresponding period in 2017 (6). However this needs to be seen against the background of the wider trend of a decline in cocoa prices since mid-2016. In June 2016 cocoa prices peaked at US $ 3,122 per tonne, with the corresponding price in June 2019 being only US $ 2,140 per tonne, some 31.5% lower. Specifically in regard to the EU market, between the peak annual unit price level in 2016 and 2018 the average unit price of EU cocoa bean imports from Cote d’Ivoire, Ghana, Nigeria and Cameroon fell 32%, 31%, 33% and 67% respectively. A price trend which has no doubt contributed substantially to the high profit levels enjoyed by cocoa traders and cocoa product manufacturers in the EU and the financial costs of the sustainability commitments entered into by these companies over the past five years (see companion epamonitoring.net article ‘Fairtrade Premium and Minimum Price for Cocoa to be Raised but Broader Industry Initiative Needed’, 7 March 2019) There is thus still considerable ground for the cocoa price to make up before farm income levels can attain the highs prevailing in mid-2016. Indeed, these price trends would appear to confirm the need for a wider approach to sustainability which embraces the living income differential, greater traceability, binding long term contracts, productivity improvements and support for stronger cocoa farmer organisations to improve service delivery to farmers and strengthen their negotiating position within the supply chain. This being noted the introduction of the LID scheme would go a considerable way towards meeting cocoa farmer’s needs and supporting intergenerational renewal of the cocoa farming community in major West African cocoa producing countries (6). Average annual price of EU cocoa bean imports from the Four Main African cocoa bean exporter (2014-18)
Source: EC Market Access Data Base |
Sources:
(1) confectionerynews.com, ‘Ghana and Côte d’Ivoire threaten cocoa sustainability schemes if producers don’t pay more for beans’, 14 October 2019
https://www.confectionerynews.com/Article/2019/10/14/Ghana-and-Cote-d-Ivoire-threaten-cocoa-sustainability-schemes-if-producers-don-t-pay-more-for-beans
(2) confectionerynews.com, ‘Nigeria and Cameroon to discuss joint plan for cocoa premium price’, 16 October 2019
https://www.confectionerynews.com/Article/2019/10/16/Nigeria-and-Cameroon-to-discuss-joint-plan-for-cocoa-premium-price
(3) ICCO, ‘August 2019 Quarterly Bulletin of Cocoa Statistics’, 1 September 2019
https://www.icco.org/home/latest-news.html
(4) confectionerynews.com ‘Tony’s Chocolonely backs cocoa growers in row with chocolate makers’, 21 October 2019
https://www.confectionerynews.com/Article/2019/10/21/Tony-s-Chocolonely-backs-cocoa-growers-in-row-with-chocolate-makers
(5) Reuters, ‘Chocolate maker Mars backs Ivory Coast, Ghana cocoa floor price’, 3 July 2019
https://af.reuters.com/article/investingNews/idAFKCN1TY1R5-OZABS
(6) indexmundi.com, ‘Cocoa beans daily price’, 18 October 2019
https://www.indexmundi.com/commodities/?commodity=cocoa-beans