Much of the recent attention on falling cocoa prices is focused on the responsibility of the farmer to diversify and find additional ways to solve an industry-wide problem.
Prices of most agricultural products have experienced a downward surge coupled with high volatility. Lower prices imply lower incomes for farmers, creating a causal effect for higher farm gate prices and price premium as key short-term measures and providing an opportunity for the sector to discuss price.
Paying a higher price to the farmer (I daresay) will be the most efficient and simplest way to addressing the falling cocoa prices and abject poverty on the short term. But will the industry dare to care enough for its farmers? Will it be willing to take responsibility for its greatest constituents or will it continue to play the proverbial ostrich? Cocoa farmers require a willing industry that will look beyond the “business as usual” approach. Any caring cocoa company would start immediately!
In the Easter season, Christians continue to reflect on the suffering Christ and his role in the salvation and establishment of Christianity. During these moments of deep reflection and penance, this cousin of mine kept questioning me if the cocoa industry truly cared about the plight of suffering farmers, their lives, and livelihoods? As an Easter people, the risen Lord encourages us to be bold and courageous, responsible and accountable and to share in the truth and the power of the resurrected Christ. So, we decided to refocus our series on the suffering farmers and why we think the cocoa industry is ruining years of investment in sustainable supply by failing to take responsibility to tackle the price issue, once and for all.
The truth is simply this; that companies who manufacture chocolate, or process cocoa or buy cocoa beans from farmers should pay more to ensure a raise in farm gate prices. Any other way is a medium to long-term measure. Sydney J. Harris, a journalist, observes, that a realist believes that what is done or left undone in the short run determines the long run. The future of the cocoa supply depends on how the industry tackles the price issue upfront today.
To refresh our minds, cocoa prices on the London and New York markets hit a 10-year low in December 2017 of $1,917, according to the ICCO’s monthly average of daily prices. That was the lowest level after October 2007 and the price has since not recovered. Unfortunately, prices are not expected to pick up any time soon. In its latest Agri Commodities report, Rabobank reduced its cocoa price forecast. It expects cocoa prices to rise only marginally, but even then, it will remain lower than 2016 levels. So why should the cocoa industry pay more when it is profiting from the lower prices? My cousin liked very much the recent SEO research quotes from Nienke Oomes, Bert Tieben, and others, that “the main reason for the persistent poverty among cocoa farmers is the fact that most of them are price takers, with little or no market power.” If there is any short-term measure to cushion the farmers, it is price. The rhetoric about income diversification, productivity and consumption are all medium to long-term measures. These measures do not count in the mix of finding short-term solutions to a crisis.
What will be the implications of these low prices for farmers and shouldn’t they (farmers) increase productivity to leverage on price? asked my cousin. Lower cocoa prices mean lower incomes per unit of produce for farmers. Lower prices also reduce farmers’ capacity to invest in sustaining or improving productivity – which only makes business sense if the investment can pay off. Lower cocoa price is thus a threat to future cocoa production, and to the long-term profitability of the large cocoa companies. I have seen recent arguments going in the direction of proposing to farmers to offset their income loss by increasing the volume of cocoa produced – to enhance productivity. Unfortunately, greater volume at a lower price means more effort from labour per unit of income. Is this not equivalent to being asked to work longer hours at lower wages? That will be unfair and a possible violation of the right of the cocoa farmer to equal pay for equal work.
The other unfair development in the sector is that farmers are unable to find space to discuss and negotiate farm gate prices. The industry does not want to have any discussion on viable options to raise farm gate prices to the level that would allow farmers to attain a higher income and meet their Sustainable Development Goals (SDGs). The World Cocoa Foundation (WCF) and its member companies have been reluctant to discuss prices due to concerns around anti-trust laws. However, recent research by the Cocoa Barometer Consortium and reliable intelligence show that there are strong signals in Europe that competition authorities may allow conversations to take place, once they are meant to protect human rights and combat poverty of these farmers. Cocoa farmers have chosen their right to work and they deserve just and favourable conditions of work and protection against unemployment. In line with the universal declaration of human rights, cocoa farmers who toil and till the land should enjoy their right to just and favourable remuneration, ensuring for themselves and their families, an existence worth of human dignity. This is a fundamental human right issue and any industry that cares enough for its supply base will act, and do something worthwhile to this effect. This is indeed a clarion call on CocoaAction member companies to put price as a pre-competitive and holistic approach to tackle poverty of farmers. It is price or nothing; and if we fail to discuss price at the ICCO world cocoa conference in Berlin next week, the industry will be deemed to have failed.
My inquisitive cousin pulled out the vision of the WCF to try to understand why it would not provide space for anything price, as she thinks this concerns the poverty of farmers. The vision of the WCF is a sustainable and thriving cocoa sector – where farmers prosper, cocoa-growing communities are empowered, human rights are respected, and the environment is conserved. To help farmers prosper, the WCF claim that it promotes sustainable livelihoods to raise farmers out of poverty. Quite ironically, at the current price level, cocoa farmers cannot exercise their right to a standard of living adequate for the health and well-being of themselves and their family, including their lack of access to food, clothing, housing and medical care. Women and children in cocoa families have no entitlement to care and social protection. The last two years of lower cocoa prices have brought misery to cocoa communities and cocoa farmers feel enslaved to a supply chain that is worth over hundred billion dollars. Where is the social and international order to which these rights and freedoms of cocoa farmers are enshrined?
On our ‘way of the cross procession’ on Good Friday, my cousin pulled up another surprise. In 1993, the ICCO funded a massive industry-wide project in Japan to promote cocoa consumption. Who would think Japan is a pre-competitive space for chocolate? The overall objective of that project was to expand the market for cocoa and chocolate through an aggressive promotion campaign. The industry collectively invested in Japan to increase annual consumption of cocoa products by some 20,000 tonnes in bean equivalent. I will return to this subject in my next series but it is worth noting that there is historical antecedent to the fact that the industry can act together even in a competitive space. The ICCO event in Berlin, therefore, presents a fine opportunity and great platform to act together; if the industry really cares for the farmers and the origin countries that are suffering the brunt of the lower stock prices.
My cousin had other ideas. She borrowed a phrase from famous Kweku Baako’s ‘Assuming without admitting’ that the industry will not pay higher prices across the sector; to curiously ask why the industry will not push more value to sustainable producers through price premiums. Even if there might be concerns around collusion on collective pricing, as the WCF claims, is there any reason why individual companies cannot decide to unilaterally pay their farmers more?
Also, unlike some sector programs and brands that feel that a premium is only a small tool, my cousin thinks that recent cocoa price declines have meant that the cushioning effect of price premium might have a bigger role to play in maintaining livelihoods for cocoa farmers. Despite myriad projects aimed at improving education, increasing productivity, and implementing sustainable production, the collective impact has been limited and the industry has been unable to solve the root cause of the problem: the low prices paid to farmers. The price decline is erasing all the sustainability gains that have been achieved in the last twelve years. It is harming current efforts to combat child labour, exacerbate gender inequality, and fostering deforestation.
That notwithstanding, any cocoa company that is preparing to pay price premium should also not approach it in a business as the usual framework. This is a crisis moment and we should pay higher premium prices to offset the lower market prices and encourage continuity of responsible production. I think the Cocoa Marketing Company of the COCOBOD should consider including price premium in its contract and future sales…but I will leave the details to another series.
If price premium is already a tool in the market, and producers certified to the Organic, Fairtrade, UTZ and Rainforest Alliance standards have access to this tool, shouldn’t this push more companies to make commitments to sustainable sourcing? I bet we are missing the opportunity to see more commitment towards sourcing certified beans. This is where my cousin has her greatest worry. If cocoa companies cannot commit to sustainable sourcing and pay higher prices in the short term, then where is our commitment to such bigger issue as halting deforestation? Therefore, I asked the question in my last series: where is price in the joint framework of action against deforestation? For the first time, my uncle interrupted our conversation to remark; “unless the welfare of the farmer is put at the centre of your discussion, every initiative in the cocoa will fail or at best register limited success.” Regrettably, there are even companies which have stepped away from third-party certification and running their own label programs. If third-party certifiers like Rainforest Alliance/ UTZ would play no role in such company programs, how are those programs ensuring that premiums are high on the agenda and that farmers are not losing out of the bargain?
My cousin just reminded me that in as much as cocoa prices fall, the prices of chocolate bars have either remained the same or kept rising. So, where are the profits going? She lamented. Is the farmer shortchanged? With the ICCO world cocoa conference just around the corner, I leave the industry with the question: Is the farmer truly first in your supply chain? A higher price and price premium might be a small change to your company approach, but you’ll be helping to provide certainty to those who can really benefit from it.
As Nelson Mandela would say in his Long Walk To Freedom: “I always knew that deep down in every human heart, there was mercy and generosity.” Let us listen to the cry of our suffering cocoa farmers; because whether they live or die, they belong to the Lord.