From cocoa comes chocolate, a confection that needs no introduction. Approximately “70% of the world’s cocoa comes from” West African countries, namely, the “Ivory Coast, Ghana, Nigeria and Cameroon.” Of these countries, Ghana and the Ivory Coast produce the most cocoa, together accounting for more than 50% of the global cocoa output. However, projections indicate that an unstable cocoa market can cause a loss of roughly 20% of income for these West African farmers. These impacts of fluctuating cocoa prices require prompt action from companies within the cocoa industry to prevent farmers from falling into poverty.
Reasons for Unstable Cocoa Prices
According to a report by the International Cocoa Organization (ICCO) in February 2021, “anticipations of a production surplus compounded with low levels of demand” drove down cocoa prices “on the London and New York futures markets.” To take New York’s statistics, predictions determined that cocoa purchases in the form of future contracts would close at $2,438 per ton by the end of 2021 in comparison to the $2,587 price tag per ton on February 5, 2021.
The COVID-19 pandemic has a role in this outcome, with waning demand a byproduct of sudden ruptures in the hospitality sector. This, along with the decline in “out-of-home consumption” that arose from COVID-19 restrictions and the closure of businesses, led to a 10% decrease in cocoa output compared to the previous year. Even as the economy saw some restimulation, excess cocoa stocks due to the economic stall brought on by COVID-19 are not reducing dramatically, according to 12 experts that Reuters polled. Supply continues to exceed demand, impacting cocoa prices, and therefore, the income of West African farmers.
Attempting to Offset Decreases in Cocoa Prices
Lower cocoa prices exacerbate poverty, perpetuate illegal child labor and encourage a lack of proper compensation for labor that hinges on modern slavery. Deforestation also plays a hand, where a bid to sell more cocoa produce drives people to expand their land. To avoid these sorts of conditions, the Ivory Coast and Ghana introduced a $400 per ton Living Income Differential (LID) in 2019 to protect farmers from price decreases and secure a higher income for farmers. As a result, consumers became “more conservative in their buying, helping to boost stocks at origins.”
Companies such as Hershey’s and Mondelez International are accused of attempting to circumnavigate the LID, the former through as many futures exchanges as possible before contract expiration. The latter denied the allegations entirely. Mondelez International, to its credit, however, told CNBC about its commitment to investing “$400 million in sustainable cocoa sourcing program Cocoa Life.”
Other companies such as Tony’s Chocolonely notes that it pays a premium in addition to “farmgate price” when buying cocoa. To continue alleviating the impacts of fluctuating cocoa prices on farmers, in November 2021, the company vowed to increase its cocoa premium payment even further from the initial “$462 per metric ton” (26% higher than farmgate price) “to $793 per metric ton” — a staggering 54% higher than farmgate price for the 2021-2022 period.
Head of impact at Tony’s Chocolonely, Paul Schoenmakers, accuses major chocolate companies of “turning a blind eye” to the circumstances of cocoa farmers in developing countries. Because the sector derives massive amounts of wealth from cocoa, “they’d still make massive profits every year,” Schoenmakers told CNBC, elaborating on the insignificance of the sum of premium payments in comparison to the massive profit generation.
Putting Cocoa Farmers First
Chocolate giant Mars Wrigley, the parent company of household chocolate delights such as Snickers and Twix, established the Cocoa for Generations program. The initiative actively works toward sustainability by focusing on the well-being of individuals across its entire supply chain, especially those at the grassroots, while alleviating environmental burden.
Launched in 2018, Cocoa for Generations has the support of $1 billion worth of funding from its start year of 2018 to its close in 2028. Highlights of the initiative, according to a 2020 report, include a $5 million collaborative donation with the CARE organization to help farmers facing the impacts of COVID-19.
Cocoa for Generations also helped more than 153,000 farms map their boundaries to prevent land ownership conflicts. Mars also sourced more than 50% of its cocoa from farmer groups that have Child Labor Monitoring and Remediation Systems in place within at-risk regions in Ghana and Ivory Coast. Furthermore, the program distributed about 2.4 million cocoa seeds to cocoa “farmers in 2019.”
The forces of supply and demand will reign supreme in determining cocoa prices, however, chocolate companies can show their support for impoverished West African cocoa farmers by adhering to the LID and opting to pay higher premiums in exchange for cocoa, as is this case with Tony’s Chocolonely. With more companies stepping up to support cocoa farmers amid a fluctuating market, cocoa farmers can remain out of the grips of poverty.
– Mohamed Makalou