EARNING A DECENT LIVING THROUGH COCOA - WHY IS IT SO HARD?
Carolyn Kitto
Carolyn Kitto is Co-Director of Be Slavery Free, a coalition of organisations seeking to end modern slavery through engagement with business, government and consumers. She believes we can end slavery in our generation.
People earning a decent living from the work they do is a basic human right.
On the surface this looks simple.
FACT 1 - FARMERS WHO GROW COCOA IN WEST AFRICA ARE IN EXTREME POVERTY
Farmers are poor because of a combination of small farm size, low productivity, high costs, low diversification of income, and low prices of cocoa on the futures market. Farmers only earn about half of what they need in order to earn a living income. A living income is:
The net annual income required for a household in a particular place to afford a decent standard of living for all members of that household.
Elements of a decent standard of living include: food, water, housing, education, healthcare, transportation, clothing, and other essential needs including provisions for unexpected events.
To reach a living income from cocoa, small hold farmers need to be paid 4–5 times the amount they are currently paid for their cocoa. (These are estimations.)
FACT 2 - A SMALL NUMBER OF BUSINESS AND PEOPLE EARN A LOT OF MONEY FROM CHOCOLATE
The list of companies in the scorecard include:
The company owned by the third richest family dynasty in the USA
The company owned by the fifth richest man in Germany
The company owned by the richest man in Italy
The company owned by the richest man in Austria
One of the largest privately owned companies in the USA
We acknowledge that many companies are investing large amounts of money in addressing these issues, however the differences are stark.
In other words, we have a problem in the value chain. Cocoa farmers earn only 6% of the retail price of a standard milk chocolate bar.
Oh, if it was only as simple as billionaire’s not earning so much and people paying more for chocolate and farmers being paid fairly. What a wonderful world that would be.
SO WHY IS THIS SO HARD?
We agree with the range of studies which have articulated the complexity of factors needed to address living income and recommend their reading. Try Balancing the Living Income Challenge and The Cocoa Barometer for those who want to go deeper.
In the 2022 Chocolate Scorecard, we address this issue by ensuring a few basic foundations and acknowledgements are in place. They are the beginning, and not the destination, from where a policy and strategy can be developed and real change can occur.
1. COMPANIES NEED TO KNOW THE INCOME OF FARMERS
First, in order to know where to begin on this issue we need to know where we currently are – that is companies need to know the income of farmers in their supply chains. Only five companies (or 13%) who participated in the 2022 Chocolate Scorecard have this information for their farmers. This is a major step forward as previously we were told that it was not possible to gather that information.
A further three (8%) know the income of 50% or more of the farmers in their supply chain. 21 companies (55%) have some data. The remainder do not know. The good news is that the majority of companies do know something about the income of farmers they source from. It is a good but basic start and an improvement on previous years.
2. COMPANIES NEED TO KNOW WHAT FARMERS NEED TO EARN FROM THEIR COCOA
Second, the industry needs to know where to head. We asked the company ‘Has the company calculated a living income reference price?’ A living income reference price being the price a farmer would need to receive per tonne for their beans in order to receive a living income. In other words, do they know what a farmer would need to earn from their cocoa to reach a living income? 20 companies indicated that they do know and can verify they do. A further three stated they do know but did not verify this. This is also progress. It means that companies are at least putting effort into understanding the reality of pricing. We hope this is an acknowledgement that price is a part of the solution. In future years we will be interrogating these price calculations further.
3. COMPANIES NEED TO ADDRESS THE COMPLEXITY OF POVERTY
Current interventions by companies include:
Increasing price of cocoa through premiums and systems such as the Living Income Differential (LID) program introduced by the governments of Côte d’Ivoire and Ghana
Increasing crop yield by improving farmer methods
Diversifying income sources for farmers
Community development interventions
Building financial resilience through savings and loan schemes and other practices.
The Chocolate Scorecard shows that these interventions are common in the programs of the larger chocolate companies and those serious about addressing living income and poverty. Medium and smaller companies often rely on their certifier, trader or processor to provide these programs. Regrettably, these companies are sometimes making assumptions about the contributions being made by these programs and we recommend they research more fully what is actually being provided.
Reading through all the various reports on these programs, most are reporting on participation - number of farmers trained, new trees distributed and so on. They are not reporting impact in terms of actually addressing poverty. They do not establish clear baselines from which impact could be accessed and overall there is little evidence of change on the ground for farmers and their communities and families.
The highest estimates on the proportion of farmers receiving a living income is about 25% and the lowest estimates are 10-15%. Fairtrade estimates that 15% of their farmers are earning a living income. The strategies and approaches being used (as outlined above) have been in place for some time. In some cases for in excess of a decade. It is clear that continuing to do what has always been done will not solve farmer poverty.
WHO CAN WE LEARN FROM?
Sometimes when something seems extremely complex we keep studying it and coming up with more data in the hope the solution will emerge and/or we keep doing what we have always done in the hope it will start to work. That is Einstein’s definition of insanity!
Tony’s Chocolonely has been using the Mulit-dimensional Poverty Index of the United Nations Development Program (UNDP) since 2018 to develop its strategy for addressing poverty. Whilst acknowledging that it is not just about the money – they do increase the income of farmers through paying more for their cocoa in two sets of premiums. They also seek to address the true drivers of poverty. Tony’s approach is showing small successes and we can seek to learn from their experience.
Nestlé, recently announced a program to tackle child labour, farmer income, traceability and associated drivers. The program incentivises farmers to send their children to school, engage in good agricultural practices including agroforestry and to diversify their income. Farmers in the program receive a financial reward for their participation and the communities involved are provided with the resources and strategies to design and implement the programs. It has received some criticism for being “aid with strings attached,” but we welcome its innovation and vision.
Any system with the inequalities that exist in the chocolate industry has a serious systemic problem. It will not be solved with the same kind of thinking which perpetuates its existence. Consumers have a role to play in rewarding companies that are doing better and are on ‘the road to the best’. Companies must conclude that addressing poverty and the income farmers earn from cocoa is simply good business practice that will future-proof their profitability and continuity of supply.