West African countries' surcharge on chocolate prices shows difficulties farmers face in making money

Farmers earning between $980-$2,600 a year sometimes rely on child labour to make a living, non-profit body says

FILE PHOTO: A farmer works on a cocoa farm in Bobia, Gagnoa, Ivory Coast, December 6, 2019. REUTERS/Thierry Gouegnon/File Photo
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More than two million West African farmers toil daily to produce precious cocoa beans, but few will ever taste the fine chocolate it eventually produces.

The trees that produce these butter-rich pods do not grow outside the steamy tropics, thriving instead on the bulge of Africa. As such, the region produces the bulk of the world's cocoa. Yet, Belgian, Swiss, Italian and other European brands dominate consumer tastes.

As a result, producing countries benefit the least from chocolate selling prices. The African Development Bank (AfDB) estimates that only 5 per cent of the world’s chocolate income reaches farmers. The imbalance is so vast that some development specialists say it compares to illicit money being smuggled out of the continent.

"Yes, there are many pipelines of illicit financial flows out of Africa," says Banji Oyeyinka, a special adviser on Industrialisation at the AfDB. "Africa produces over 70 per cent of global cocoa in a $100 billion (Dh367bn) worldwide chocolate market, and Africa gets only $6bn: that is illicit flow," Mr Oyeyinka says. Western Europe, meanwhile, exports around $20bn in chocolate products a year.

African countries have struggled for years to maximise their take from the commodities they produce. In a bid to increase this share, Ghana and the Ivory Coast declared a fixed premium of $400 a tonne over the benchmark futures price from October last year. The ‘living income differential’ (LID) is intended, as the name suggests, to put more money in the pockets of farmers.

Ghana's president Nana Akufo-Addo told an investment forum in Johannesburg in November that the two countries had co-operated to raise incomes for farmers.

"We now have the ability to pay our farmers a $400 'bonus', so they may also get more value out of this $100bn industry," he says.

“The end result of this, is going to be a considerable enhancement of the fortunes of our farmers.”

The main consumers of cocoa such as Belgian confection company Barry Callebaut, US chocolate giant Mars and Swiss food maker Nestle have all said they support the surcharge. However, it remains to be seen whether the extra $400 will reflect in prices paid by consumers.

Cocoa is one of the last commodities to still trade primarily in UK pounds, rather than the US dollar, and London remains the centre of the trade. Cocoa moved into the new year at around £1,820 (Dh8,745) a tonne, below the £1,970 it touched in October when the surcharge went into effect.

"The surcharge is priced in and discounted for anyway so it makes little difference for the ultimate spot price," a commodities trader in London said. "There's not much chance it will filter through to the actual price customers are willing to pay."

Increasing farmers' income is important to industry stakeholders if they want to stave off other challenges – such as farmers turning to other lucrative crops, or giving up agriculture altogether. Buyers are aware of this and are collectively spending hundreds of millions of dollars a year on direct assistance programmes that include farm training, soft loans, fertiliser inputs and more.

For instance, Nestle said in December it will now spend 45 million Swiss francs (Dh170m) a year on efforts to source cocoa sustainably. The company, which says it has already spent about 220 million francs over the past 10 years on sustainability efforts, now aims to have 100 per cent sustainable cocoa sourcing for its confectionery products by 2025.

"We now have the ability to pay our farmers a $400 'bonus', so they may also get more value out of this $100bn industry,"

Rather than doubling down on sustainability, farmers are better off seeking other products to grow, says Michael Odijie, a postdoctoral researcher at the University of Cambridge.

“To sustain their livelihoods, the cocoa farmers of Cote d’Ivoire and Ghana need to diversify away from cocoa production, but multinational chocolate companies need farmers to keep producing cocoa.”

Currently, cocoa farmers need to spend what little profits they make on fertilisers since cocoa farming can drain nutrients from the soil. Crop rotation can replenish the soil, and farmers should be encouraged to plant other foods, Mr Odijie says. “They do not need to grow cocoa for its own sake.”

He said a collapse in the price of cocoa in the 1970s led to a great deal of diversification in Ghana. Cereal output increased from 388,000 tonnes in the mid-1960s to over a million tonnes only 20 years later. However, as cocoa prices recovered farmers again abandoned staples.

“Multinationals that depend on cocoa as a raw material – openly and rightly — regard diversification as a risk to their business. So, they keep spending on cocoa farming inputs.”

To sustain cocoa production, some companies are setting up processing facilities in-country rather than simply exporting raw cocoa. Cargill, the US based food maker and one of the world’s largest cocoa buyers, said in December it planned to spend $113m expanding its production facilities in Ivory Coast and Ghana.

“We aim to shift a greater share of our global grinding activities to the countries of origin, so we can support the establishment of a broader, local agri-food industry, says Lionel Soulard, managing director of Cargill West-Africa.

In the meantime, the chocolate industry must also concern itself with growing public awareness around the ethical dilemmas related to growing cocoa. Poor returns for farmers and use of child labour in producing cocoa have dented the industry’s image among conscious customers, experts say.

“Scrutiny is sharpening,” says Nick Weatherill, executive director of the International Cocoa Initiative (ICI), a non-profit based in Switzerland.

“Recent exposures in the media are likely to continue to shine an intense spotlight on the sector. In turn, this will undermine the confidence of consumers and regulators in those importing markets, on which cocoa farmers actually depend.”

ICI research showed farmers earned between $980 and $2,600 annually from their produce. Farms were small — about 2-5 hectares produced a tonne or two of cocoa. Only a third of the farmers could afford basic inputs such as fertilisers that can potentially boost productivity.

As a result, extreme poverty was common among farmers, which is why many relied on child labour — often employing their own children. Only a few of these farmers could either afford adult labour or to send their children to school.

Mr Weatherall notes, however, that political pressure was mounting in consumer markets to eliminate or block the trade of products acquired unethically. Most chocolate consumers wanted the assurance that the treat they consume was produced at a fair price without children doing the labour. This is especially true in the US, EU and countries where corporations were operating under increasingly strict due diligence laws.

Much has been done to improve the lives of farmers, but efforts have tended to be piecemeal projects rather than industry-wide initiatives, Mr Weatherill adds. To reach all farmers, upliftment schemes have to be scaled up. To this end the ICI, chocolate makers and governments such as those of the Ivory Coast and Ghana are working together. “The eyes of the world are upon us,”