Has a new price premium on cocoa really helped struggling African farmers?


Farmers are now getting lower prices for their crop, even though a living wage premium has been introduced. Keystone / Legnan Koula

Farmers in Côte d’Ivoire – the largest cocoa producing country in the world – receive less for their cocoa despite the introduction of a payment aimed at guaranteeing them a living wage.

This content was published on July 20, 2021 – 09:00

The West African nation of Côte d’Ivoire accounts for around 45% of global cocoa production which generates export revenues of $ 3.5 billion (3.2 billion Swiss francs) per year. But the country’s cocoa farmers earn just $ 0.78 a day, a third less than what the Fair Trade International organization calls a living wage – $ 2.51 a day.

To solve this problem, in 2019, Côte d’Ivoire (along with Ghana) decided to charge an additional $ 400 per tonne of cocoa exported to countries like Switzerland as a so-called Living Income Differential (LID) intended increase the profit share of producers and protect them from volatile prices. The new policy came into effect during the 2020/2021 cocoa harvest season.

The Ivory Coast Cocoa Board (Le Conseil du Café-Cacao) has set the minimum farm gate price for cocoa for its main harvest (October-March harvest) at CFAF 1,000 per kg, or nearly 20 % more than the previous year. This brought in an additional 500 billion CFA francs (around 826.5 million Swiss francs) to farmers during the campaign.

A bigger picture

At first, Ivorian cocoa farmers obtained more money through the introduction of LID. But the move was not without negative consequences. Last November, the cocoa board lambasted alleged attempts by large international buyers to cut back on purchases to avoid paying the LID. For example, he accused commodity company Olam of reducing its share of Ivorian and Ghanaian cocoa, chocolate company Mars of doubling cocoa butter in its products, and confectioner Hershey of buying cocoa beans on the market. futures market instead of physical sellers at the current price – all to avoid paying the additional tax.

Swiss companies, on the other hand, seem to be in the game. Chocolatier Lindt & Sprüngli confirmed that it “had already purchased cocoa with the full LID price and would continue to do so”, but declined to reveal details. Chocolatier Barry Callebaut, who buys around one million tonnes of cocoa beans a year, said his share of cocoa from Côte d’Ivoire has remained stable since the pricing system was introduced.

Food giant Nestlé was the only one to disclose both its share and its volumes. Its share in West African cocoa has remained stable (just under half of total direct cocoa purchases) over the past four years and it plans to purchase an additional 40,000 tonnes from Côte d’Ivoire over the course of of the 2021/2022 campaign.

Declining demand mitigates the effects

Nevertheless, despite the LID, a drop in global demand for cocoa beans at the end of 2020 put Côte d’Ivoire in a difficult position. The higher price of cocoa has dissuaded buyers from signing purchase contracts. In February, to increase his purchases, he was forced to reduce a quality premium (known as the country differential) resulting in a discount that neutralized the surplus earned from the LID.

In addition, the Covid pandemic has prompted the Ivorian cocoa board to reimburse just over 10.5 billion CFA francs (around 17.5 million Swiss francs) to 80 exporting companies, including international ones, on payments. LID for farmers. This has been justified as necessary due to the impact of the Covid-19 pandemic on export markets like Switzerland. The move sparked controversy because people believed foreign companies were being bailed out while the margins of local supply chain players were squeezed.

The situation became so untenable that cocoa farmers, who were just starting to profit from the fruits of LID, could no longer be shielded from what was happening in the world market. The minimum farm gate price for mid-harvest from April to September has been lowered to 750 FCFA per kg. This price was even lower than the pre-LID price of 825 FCFA per kg for the 2019/2020 harvest.

Due to many factors, including the pandemic, LID appears to have resulted in only a short-term price hike for West African farmers. But without it, they would probably be in an even more precarious situation now, according to the Ivorian Cocoa Office, which admitted that without the LID, the farm gate price would have fallen to 500 CFA francs per kg, a historic low.

And now?

LID experience shows that the instrument can best act as a buffer during welding periods. The price a farmer gets is always strongly linked to global supply and demand, and producing countries like Ghana and Cote d’Ivoire can do little but join forces to reduce the price. offer. Proof of this was the announcement of the latest cocoa price by the Cocoa Council in April.

“Mr. Yves Brahima Koné [chair of the cocoa board] called on cocoa farmers to limit production if they want better prices in the future, ”the announcement said.

Sadly, LID may have encouraged farmers to plant more cocoa, which could mean even lower prices this year, unless international demand depressed by Covid picks up. Is there a way out of this boom and bust cycle?

“Fairtrade believes it is time for governments in consuming countries to show solidarity with governments and farmers in producing countries,” said Jon Walker, Senior Cocoa Advisor at Fairtrade.

According to him, the due diligence rules for companies – currently under discussion in the European Union and recently put to the vote (and narrowly rejected) in the form of the “Responsible Business Initiative” in Switzerland – offer a window of opportunity. to charge a mandatory living income.

“If the human right to a living income cannot be recognized, then how will all other human rights of cocoa farming families be upheld in a sustainable manner? He said.


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