17 Jan 2020

Response to VOICE Network's position paper on cocoa farm gate prices for a living income

The VOICE Network recently published a paper on living income prices for cocoa, entitled “Necessary farm gate prices for a living income.” We appreciate this paper as an important part of the dialogue on making living incomes for cocoa farmers a reality. Indeed, we agree that it is essential for all companies to make clear commitments to living income policies and prices, ideally converging on prices based on tested assumptions and making data publicly available.

Transparency and accountability are essential in moving from discussion to implementation, and we are committed to working with partners – farmers, businesses, NGOs, consumers and governments – on this path to living incomes.

Fairtrade was founded in part to support farmers and workers in achieving sustainable livelihoods through trade. We believe earning a living income is essential to sustainable livelihoods, which drove the launch of our holistic Living Income Strategy in 2017.

We have invested significantly in primary research to inform the implementation of our living income strategy for cocoa. This has included a 3,000-household income study in Côte d’Ivoire published in 2018. In addition, we commissioned complementary research to establish realistic target productivity levels and the associated cost of production to attain those yields, followed by an industry-wide consultation on the same, as well as on viable farm size and other factors. This consultation involved civil society, traders, brands and – importantly – cocoa farmers in Ghana and Côte d’Ivoire.

This led to the publication of our voluntary Living Income Reference Prices for Côte d’Ivoire and Ghana in 2018, at the same time as we announced a 20 percent increase in our mandatory Fairtrade Minimum Price and Premium for cocoa. The Living Income Reference Prices were revised in 2019 based on updated data and new insights. The calculations and assumptions behind these prices are explained and publicly available.

The next stage of Fairtrade’s work on living income is to test our strategy, including the assumptions underlying the reference price, through pilot projects. Currently we are developing a number of projects with commitment from commercial partners and donors. As with all of our work our intention is to publish learnings and data on the impact of these pilot projects.

The VOICE Network raised a number of important arguments in their paper, which we respond to below.

1. Living Income Reference Prices should be based on current average yields as opposed to target yields, since the VOICE Network argues that target yields are questionable.

Based on consultation with industry experts and producers, we have defined a productivity benchmark of 800 kg per hectare as a realistic target yield in the midterm. 800kg per hectare is also in line with the productivity target of the Ghanaian industry regulator COCOBOD. This is a key assumption for calculating the Living Income Reference Price, to be validated through the implementation of pilot projects.

2. The VOICE Network argues that the average cocoa farming household should be able to earn a living income as a human right from their current farming activity and yield.

We agree fully that the average cocoa farming household should be able to earn a living income. We consider that a living income should be possible from farm revenues in case of full-time farmers – or in other words, when the farm provides full-time work to the available adults in the household.

If the farm is not large enough to absorb all of the available adult labour in the household, then the Fairtrade model expects cocoa (and by extension the Fairtrade Living Income Reference Price paid for that cocoa) to contribute a corresponding proportion towards a living income with the remaining labour being employed in other income generating activities, whether on or off farm.

We are conscious that in reality, especially in Ghana, the average farm size is smaller than a ‘full-employment’ farm size and that the lack of adequate alternative off-farm income sources constitutes another interlinked challenge. However, we do not believe it is feasible for this issue to be addressed via the cocoa price.

3. Higher productivity requires more labour and more inputs, which are not always available or affordable.

Fairtrade agrees with this, which is why the Fairtrade Living Income Reference Prices account for the higher input costs and increased labour needs to achieve the target productivity level.

Like the VOICE Network, we faced a lack of reliable data on actual production costs and labour occupation in cocoa farming. Our calculations are based on the best available data, cross-checked through various consultations, but we acknowledge the need for more reliable data to validate the values used.

This is why we plan to implement farm record-keeping tools as part of the pilot projects, in order to monitor the actual expenditures and labour inputs of participating farms, and at the same time build farmers’ capacity to use these data for farm management.

4. Increasing the overall productivity to the target yields of 800kg per hectare would lead to a serious overproduction.

Fairtrade acknowledges that if all farmers reached 800kg per hectare on their current cocoa land, supply would exceed demand. While this is a challenge in terms of price pressure, the solution can’t be to rely on inefficient production or low prices which keep farmers in poverty. This is why Fairtrade promotes farm diversification in combination with productivity improvement, so that the same volumes of cocoa can be produced on less land and additional income from other crops can be generated on the remaining land. This will also reduce farmers’ dependence on cocoa and enhance their resilience against price or climate shocks.

In an ideal world we will collectively be able to find a mix of diversified income and cocoa bought at a living income price through long-term sourcing relationships that benefit farmers and companies alike. All industry actors need to take responsibility for managing this shift, which should ultimately result in a sustainable cocoa supply that meets the demand of companies and consumers, and supports a living income for farmers.

5. Premiums should not be included in the contribution a company makes towards living income reference prices, since premiums do not always go directly to the farmers themselves and should not be counted as income.

We agree with this principle, and we consider the Fairtrade Premium to be an additional sum on top of the Living Income Reference Price for cooperatives to invest as they choose, including in ways that support farmers to improve productivity and crop diversification. Additional funding streams to cooperatives are another way to support farmers in covering these costs. Cooperatives can also invest their Fairtrade Premium to support progress to living incomes if agreed at their general assemblies.

Typically small producer organizations do spend a proportion of their premiums on cash payments to members, and distribution of other direct benefits which members would otherwise need to pay for themselves.

In the case of Fairtrade certified cocoa cooperatives, 22% of the Fairtrade Premium earned in 2017 was paid as cash distribution to members. An additional 12% was spent on agricultural tools and inputs for members.

Fairtrade strongly believes in the importance of the Fairtrade Premium, and in the ability of cooperatives to democratically choose how to invest it. We publish data annually in our monitoring reports on how Fairtrade Premium is spent, and its impact.