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Cocoa Prices Impact West African Farmers

Cocoa prices
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.”

Looking Ahead

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
Photo: Flickr

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Fighting Poverty in the Cocoa Industry

Poverty in the Cocoa Industry
Tony’s Chocolonely, a chocolate company in the Netherlands, emerged in 2005. When police arrested a journalist by the name of Teun van de Keuken, he asked to go to prison. He hired a lawyer to help send him to prison and asked a judge to convict him of driving child slavery. However, the judge would not convict him, stating that his crime was simply eating a bar of chocolate. Keuken was not satisfied with this decision and ventured to create a chocolate company that would both combat child labor and poverty in the cocoa industry.

A Better Idea

Instead, Keuken decided to try to stop child slavery from the inside. He wanted to do this by setting up a chocolate company with the mission of ending child slavery in general by fighting poverty in the cocoa industry. Since 2005, the company has grown, and with it, so have its missions. The brand is now the Netherlands’ favorite chocolate company and it has an international reach as many supermarkets in Europe sell its products. Additionally, it is inspiring cooperatives and chocolate companies across the world. Here are Tony’s Chocolonely’s five guiding principles.

Tony’s 5 Guiding Principles

  1. Traceable Cocoa Beans: The company does not buy large quantities of anonymous beans, but rather trades directly with farmers and cooperatives so that it knows the environmental and social conditions in which the beans grew. The company has implemented Tony’s Beantracker so that it knows exactly where the cocoa for its chocolate comes from. This is part of its transparency to ensure conscious consumption.
  2. A Higher Price: The company pays a higher price for its cocoa to ensure that cocoa farmers earn a living wage, which is enough to feed their families and run their farms. This has involved paying a premium; as the cocoa market can be so volatile, Tony’s pays farmers the same amount, even when prices drop. This helps ensure that farmers have enough funds to maintain their livelihoods. In 2019, cocoa prices fell and Tony’s increased its premium from $375 to $600 per tonne to ensure the security of farmers’ income.
  3. Strengthening Farmers: Tony’s Chocolonely is working to professionalize farming cooperatives. If farmers work together, they will be more empowered to structurally challenge the inequality in the value chain. When working together, farmers can stand up to middlemen in the production chain, negotiate better prices when buying production resources as a collection and raise concerns. Tony’s facilitates meetings where farmers can engage and raise concerns, empowering farmers to speak up.
  4. The Long Term: Normally in the cocoa industry, a buyer seeks out the cheapest price. However, Tony’s has committed itself to sign five-year contracts to tie it into longer deals. The longevity of these deals allows the company to build relationships with the farmers. It also ensures farmers a stable income for five years so that they have a steady source of income and can feed their children and pay the bills.
  5. Improved Quality and Productivity: Tony’s invests in agricultural knowledge and skills related to growing cocoa and other crops. The company wants to help farmers increase their crop productivity to give them more stability in sales, but also in subsistence agriculture so they have the crops they need to survive nutritionally. To help here, Tony’s works with Soil & More to help farmers develop and source compost and organic fertilizer.

Walk the Walk, Talk the Talk

Tony’s Chocolonely leads by example in how it is fighting poverty in the cocoa industry. However, it has extended its mission to raise awareness and inspire others to act in the same way. It is spreading its message to more people every day in an effort to acknowledge the problems of slavery and poverty in the cocoa industry so that citizens can be more conscious consumers. Such awareness promotion is having an effect; in the Netherlands, where the company is based, 75% of people now know about the problems of child slavery and poverty in the cocoa industry and say they will try to be more ethical consumers.

Advocacy

Tony’s Chocolonely’s advocacy aims to inspire others. This is evident in its partnership with the Netherlands’ largest supermarket Albert Heijn, which has worked to make the chocolate it sells slave-free. In 2019, Tony’s Chocolonely also broke into the markets of the U.K. and Germany.

The company is aiming to pressure big chocolate producers like Nestle and Cadburys to eliminate child slavery from their practices. Tony’s Chocolonely wants to get to that tipping point where ethical practice becomes necessary for business and would like this to occur either through law or by requirement. In fact, it would like it to be necessary for businesses to have a license to operate in the cocoa industry.

– Lizzie Alexander
Photo: Flickr