The two major cocoa producers are stepping up their efforts to pressure the global chocolate industry to pay more to help support poor farmers.
In recent years, Côte d’Ivoire and Ghana have charged a cocoa surcharge of $400 a ton in an effort to better control the market and improve the livelihoods of their farmers, many of whom live in below the poverty line. The so-called Living Income Differential (Lid) came on top of a separate quality premium for beans from the two countries that has been in place for a long time.
The problem is that it didn’t really work.
The LID came just as Covid-19 hurt demand in the chocolate sector by $100 billion. Buyers responded by trading the country’s premium down – and even up to a discount – which rendered the LID surcharge ineffective. But even as the world gets back on track, chocolate companies are still not paying. This prompted Ivory Coast and Ghana to start publishing the country’s premium on a monthly basis this week in a bid to encourage greater compliance.
“The country differential is played to compensate for the LID,” said Alex Assanvo, executive secretary of the Ivory Coast-Ghana Cocoa Initiative. “Anyone who drops below the published premium can be named and humiliated.”
Cocoa discount
The Ivorian regulator sold around 1.4 million tonnes of cocoa for the upcoming season in mid-May at discounts ranging from $158 to $177 a tonne, according to people familiar with the matter who asked not to be named . The volume represents more than half of its planned production. For the month of June, the differential will represent a discount of 125 pounds (157 dollars) on market prices for Ivorian beans and a discount of 60 pounds on supplies from Ghana. The discount is applied before the LID.
Ivory Coast and Ghana have in the past threatened to call companies that compromise premiums, for example by paying the LID but not paying the country differential. In 2020, when some buyers were accused of trying to avoid paying, growers canceled sustainability programs they were involved in.
Nestlé SA said it pays a fair price for cocoa and has paid LID since its inception, believes farmers should earn enough to live well and has launched a direct cash incentive program for producers . The company also said it would find a transparent and sustainable solution for cocoa pricing.
Lindt & Spruengli AG said it would continue to buy cocoa at the full LID price and was supporting farmers through its own program. Hershey Co said it continues to support and pay LID and has programs to support farmers. Last year, Mars Inc urged support for LID.
For now, it looks like the cocoa growing giants will continue to struggle to receive the full combined bounties.
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