Many cocoa farmers do not earn enough money to live. Rainforest Alliance reports that only 13,% of cocoa-farming households in Côte d’Ivoire earn enough money to live. Oxfam America reports that this percentage is even lower in Ghana.
Nestlé, for example, has launched a number of corporate initiatives. Revenue Acceleration ProgramCocoa farmers have also been helped. Agricultural cooperatives have also been created to increase the bargaining power of farmers. Several brands are able to offer a wide range of products. Tony's ChocolonelyAim to pay farmers more
The industry is plagued by a persistently low rate of farmers earning enough to live on. What are the main causes of these inequalities and what can be done to alleviate them?
What is a living wage?
A cocoa farmer's living income is the amount of money he earns that allows him to support his family.
The living income of cocoa farmers can be calculated using a LIRP (Living Income Reference Price). Fairtrade has calculated that by October 2022, the producer price for Ghana will be $2.12 per kilogram (€1.94) and for Ivory Coast, $2.39. Fairtrade assumes that the yield is 800 kg/ha and this is not always true. Tony's Chocolonely is one of the chocolate manufacturers that has adopted the LIRP.
The concept of a living wage is not well known among farmers. Stefan Petrutiu is an advisor to the Dutch KIT Institute. He told FoodNavigator that farmers are not familiar with the concept of a living wage. It is a “top-down” construct. According to Petrutiu’s statement, Tony’s Chocolonely is working to raise awareness among farmers about the existence of this benchmark.
Cooperatives: their role
The cocoa industry in Ghana and Ivory Coast is dominated by its farmer members CooperativesCooperatives, which represent their members and negotiate prices at the farm gate rather than with individual farmers, are more likely to succeed.
Cooperatives are also used by large companies, such as commodities major OFI, to teach farmers new farming practices.
How can farmers make a living?
The low income level of farmers has several causes. Cedric Stijn, advisor to the KIT Institute, tells FoodNavigator that low producer prices always affect the industry and do not reflect the production costs or the living expenses of farmers.
The average farm size in Ghana and Côte d'Ivoire is 3.65 ha and 4.17 ha respectively. Cocoa yields are too low to provide a decent living. Those who earn a living often own more land and can sell higher yields. They also have the resources to reinvest in their farms.
The low incomes are mainly about yields. Steijn told FoodNavigator that yields are typically 400-500 kg/ha. That is well below Fairtrade’s LIRP of 800 kg/ha. Steijn says it could be as high as 1,000 kg/ha.
This could be due to several factors. There are several reasons for this.
Lack of funds to invest in farms to improve yields is another key factor. When cocoa trees age and no longer produce as much, it is difficult for farmers to replace them with new ones (it would take another three to five years before they are productive). They often lack income during this period. They cling to older trees.
Costs are another major limitation. Farmers cannot afford to pay for labour, do all the tasks like weeding or pruning, and they cannot afford inputs like fertilisers and chemicals. Steijn explained that older farmers and female-headed households are disproportionately affected. Failure to invest in these items will lead to reduced yields and, as a result, lower incomes. This cycle is not broken.
The cost of living crisis has made it harder for farmers to meet their basic needs. Petrutiu explained that local costs such as housing, food, education and healthcare are not linked to the price of cocoa and can therefore increase without increasing income.
Illegal gold mining in Ghana can also encroach on cocoa fields, reducing farmers' ability to grow the crop.
What are the main obstacles preventing the industry from achieving this?
In recent years, the industry has developed several programs to increase its revenues, as sustainability, which includes both human and environmental concerns, becomes increasingly important, as it has gained prominence as a legislative term as well as a topic of conversation. The issues are complicated.
There is a limit to the impact that a single company or government could have in tackling an issue as complex as living income. FoodNavigator spoke to Yves Pascal Suter of OFI’s global social sustainability team. “It takes time to build consensus on a methodology that is globally acceptable, but specific methods and standards may differ from region to region.” Collaboration is key.
He told us that legislation such as the recently adopted Corporate Sustainability Due Diligence Directive (CSDDD) could create an environment in which industry can adopt measures to close the income gap and help farmers earn a living wage.
Although living income has been discussed for some time, there are still obstacles to its implementation.
Petrutiu of KIT said: “Unfortunately, despite the fact that a LI conference took place ten or more years ago, cocoa buyers and sellers are still learning how to implement effective interventions to reach out to the households that produce the most.
Three main types of industry efforts are used to increase farmers' incomes: improving yields by diversifying and changing farming practices, price intervention, and cash transfers.
Steijn says that partnerships with the private sector. for good agricultural practices often fail because they do not take responsibility and make specific commitments to diversify farmers, or to move them into other jobs or businesses. This is especially important for families whose farms do not produce enough to qualify for a LI, even. with a LIRP.
Most tariff interventions consist of an additional premium on top of producer prices. This is rarely enough to close the gap between living income and producer price. It can be calculated based on Fairtrade’s Living Income Replacement Programme (LIRP). Tony’s Chocolonely and Aldi, as well as Unilever’s Ben and Jerry’s are among the companies that do this.
Steijn says this approach is limited by the fact that it relies on a level of production that is not always achieved, either because of small areas or low yields.
What role do commodity markets play?
Commodity exchangesAndrew Moriarty, Expana (formerly Mintec Global), says the exchange rates on which commodities such as cocoa are traded do not have a direct impact on the actual price. They can, however, influence the price. Farmers can negotiate better if they have access to commodity prices.
KIT's Stefan Petrutiu, who interviewed several key industry players, said the industry has different views on how commodity prices influence the industry.
"The LIRP and other price interventions made on the LI are perceived as obstacles by purchasing stakeholders. On the other hand, sustainability managers in the same companies, or small sustainability-oriented companies that only use commodity market prices as a reference, see the commodity market as an obstacle," he told us.
Nestlé, for example, offers cash rewards in exchange for specific actions. Darrell High, Nestlé’s cocoa sector director, told FoodNavigator that the program aims to “close living income gaps and reduce the risk of child labor by incentivizing cocoa farmer behaviors and rewarding positive practices – both at home and on the farm.”
According to Petrutiu, however, it is far from clear to what extent similar initiatives will result in a living wage. It is not clear what proportion of farmers involved in this supply chain can expect to earn a living wage as a result. Initial results indicate that the intervention is having a significant impact on farmers' income.
Several industry players are working to assess the living income gap in order to understand how to improve it.
OFI, for example, has developed a “living income calculator,” Suter told us. It aims to identify hotspots of living income gaps in the cocoa (as well as coffee and chili) supply chain. OFI has collaborated with the Sustainable Food Lab and the Living Income Community of Practice to make this tool available to the industry. It has created a “farmer income tool” focused on cocoa that aims to estimate farmer incomes.
What role do national governments play in cocoa-producing countries?
The national government sets the farm gate price in Ghana and Ivory Coast. The Ghana Cocoa Board and the Conseil Café Cacao in Ivory Coast regulate their cocoa industries.
KIT’s Petrutiu explained that these agencies determine the price by selling 70 to 80 % of cocoa forward, at a rate based on the export price linked to price forecasts and world prices. It offers cocoa farmers a “guaranteed and stable price,” but it is heavily taxed in Ghana and Ivory Coast. Ghana pays 70 % and Ivory Coast 60 % of the export prices to farmers.
He suggested, however, that such regulation does not always lead to better incomes for farmers. There is no evidence that pricing policy has led to higher cocoa prices than producers in unregulated markets. This is mainly due to high taxes and inefficient reinvestment in the cocoa industry. The reinvestment of taxes has not resulted in a visible increase in farmer productivity.
What would happen if all cocoa farmers had enough income to live on?
How much chocolate would consumers be willing to pay for in an ideal world if cocoa farmers all earned enough money to live? This would lead to higher prices.
First, Petrutiu said that not all cocoa producers would be entitled to a "living income", because that would imply that farmers - those who produce very little would get a decent income by planting a small number of trees (this is the problem that the LIRP measures, based on a production of 800 kg/ha, aim to solve).
He predicts that if all workers did this to earn a decent living, industry would not be as inclined to raise consumer prices, because the price differentials would simply be spread across other links in the value chain.
Companies located in lesser-known countries, such as those located in. Emerging economies would only adopt IL targets if they were required to do so by law. The financial impact of adopting IL targets on a large scale can be offset by effective interventions funded by sustainability budgets or by profits generated by downstream value chain actors.
Steijn said manufacturers and brands would compensate for price increases by using lower-cost alternatives. In 2023, when prices rose, manufacturers and brands reduced the cocoa content of their products by adding cheaper alternatives such as hazelnut powder and whey.
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