January 8, 2020
CRIMINAL COCOA BUYERS
At more than $100 billion a year (1), the chocolate industry & cocoa farming is incredibly lucrative for the market makers. For small to medium sized cocoa farmers however, the industry simply presents the relentless debt and poverty cycle. With an industry in the billions why are most cocoa farmers living on $2 a day?
Cocoa farmers in West Africa are poorer now than they were in the 1980s bringing into question the pressure to supply market makers in the cocoa industry. In at least once study (2), the futility of multinational initiatives provide limited solutions to poverty and in fact create new problems.
These initiatives promote the continuation of the cocoa industry under ever deteriorating conditions. Most alarmingly, multinationals divert attention form diversified farming which would allow farmers to secure their own future. These same multinationals depend on cocoa as a raw material and instead promote spending on Cocoa farming inputs in order to protect their supply interests.
For any true meaning, initiatives aimed at helping farmers need to be measured against state and transparent KPIs – This could include, increase in price paid for harvest, distinct decreases in costs to farmers and education to better farming practices and ultimately, nationally supported statistics to show a reduction in farmer poverty rates.
These KPIs should be applied to all initiatives which claim to help farmers including the fair trade initiatives.
The case for clear & transparent KPIs
Several businesses, multinational or not cite ‘fair trade’ labels as their contribution to bettering business and supply chain processes. (7)The problem here though is that promotors of the fair trade label like the Rainforest Alliance have no living income reference price. At all. This renders the label redundant and meaningless simply because most cocoa supply chain players have no living income reference price.
The current reference prices detailed below are not only too low to provide a living wage but also lack transparency as different initiatives use their own methodologies for their calculations. By changing the goals posts with data, marketing the idea of a living wage becomes subjective while achieving very little at all.
This segways neatly to the ‘Fair trade’ label. The ‘Fair trade’ labelling lacks any rigorous enforcement and relies on third-party inspectors who visit fewer than 10 percent of cocoa farms. Few if any cocoa farmers in West African cocoa production earn a living income, raising serious questions of the impact if any of the ‘Fair trade’ label.
The Fair trade Living Income Reference Price, per metric ton, in Cote d’Ivoire and in Ghana has been reduced from $2,200 to $2,100. According to research done by the watchdog Voice Network EU (8), Tony’s Chocolonely work with the Fair trade system & pay the same per metric ton as does the Dutch retailer Albert Hijn.
The pertinent difference with Tony’s is that they use the Fair trade premium as part of the living income reference price instead of farm gate prices.
These premiums are part of a communal fund are not fully paid out to farmers and instead distort upwardly the amount received by farmers.
Necessary Farm Gate Price (per metric ton) – $3,166
Difference to Oxfam Fair Trade Living Income Price – $498
Difference to Fairtrade Living Income Reference Price- $966
Difference to Tony’s Chocolonely Living Income Reference Price – $1,206
A much more thorough analysis is required to approach the situation. Initiatives, largely do little more than pay lip service to ideals – higher prices paid for harvest mean little when taken in context with rising input prices.
On a national scale, Ghana has attempted to alleviate cocoa farmers of their burdens with limited success. The cocoa marketing board, COCOBOD, has subsidised fertiliser for cocoa farmers thus applying an indirect price subsidy financed by the government.
While this subsidy prevented input costs from rising in Ghana, it has resulted in an eye watering debt for COCOBOD, increasing by Ghanaian Cedi 2.07 billion in 2018 alone. (3)
The failure to promote diversification with cocoa farmers is worrying. The benefits of diversification to farmers are clear and measurable. This study (4) demonstrates how farmers in Côte d’Ivoire have broken the poverty cycle of cocoa farming simply by diversifying into other crops such as rubber.
This diversification while of benefit to the actual farmers, is not part of the multinational business plan. In fact diversification away from cocoa farming presents a major threat to the supply chain of raw material to multinationals. Notably the rubber industry presents the biggest risk to chocolate manufacturers.
The adverse impacts of the cocoa farming debt cycle lead to cumulatively more detrimental consequences. The rapidly increasing costs of farm inputs in both Ghana and Côte d’Ivoire is tragically fuelling child labour & trafficking. This is brought on by the farmers looking to secure cheaper sources of labour for replanting. (6)
Cocoa farmers earn less than $2 per day, an income below the poverty line encouraging the use of child labour to keep costs down (8).
After more than 2 decades of pledging to eradicate child labour in the cocoa farming industry few if any companies are able to trace their supply chain back to farms.
Mars, Nestle, & Hershey can trace less than half their cocoa back to farms.
Between 2008-13, the known number of child labourers in the Côte d’Ivoire cocoa industry increased by approximately 400,000.
A damning hypocrisy of the reality of the fair trade label.
1 – https://www.zionmarketresearch.com/market-analysis/chocolate-market
2 – https://www.academia.edu/36081141/Sustainability_winners_and_losers_in_business-_biased_cocoa_sustainability_programmes_in_West_Africa
3 – https://goldstreetbusiness.com/2019/business/cocobod-looking-to-refinance-ghc6-bn-debt/
4 – https://link.springer.com/chapter/10.1007/978-94-017-7294-5_2
5 – https://www.washingtonpost.com/graphics/2019/business/hershey-nestle-mars-chocolate-child-labor-west-africa/
7 – https://www.voicenetwork.eu/wp-content/uploads/2020/01/200113-Necessary-Farm-Gate-Prices-for-a-Living-Income-Definitive.pdf