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Cocoa prices and income for cocoa farmers
A few companies dominate the processing of cocoa and the production of chocolate. The companies Mars, Mondelez, Nestlé, Ferrero and Hershey’s alone control around 60 percent of the global chocolate market. The annual net sales of the chocolate industry are around 100 billion US dollars. The few large supermarket chains also play a role that should not be underestimated. The market share of own brands in retail is around 30% in Germany.
This market power contrasts with 5.5 million smallholders. For most of them, cocoa cultivation is by far the most important source of income. Of the price that consumers in Germany pay for a bar of chocolate, only about 6% goes to cocoa farmers.
Conversely, this means that if farmers' incomes doubled, the price of chocolate would not necessarily have to double as well.
Low and fluctuating cocoa prices
For a long time, the cultivation of cocoa in West Africa was seen as a guarantee for a secure income. But since 1980 the cocoa price has fallen by almost half, adjusted for inflation. Strong price fluctuations lead to poor planning and income security for cocoa farmers. Between mid-2015 and the end of 2017 alone, the cocoa price fell by 40%. Due to a bumper crop in Ivory Coast, the supply of cocoa beans exceeded demand and the price plummeted.
The falling cocoa price had dramatic consequences in the growing countries. The farmers suffered massive income losses. In the Ivory Coast, government spending even had to be cut by almost ten percent because of the lost export income.
Abrupt price fluctuations can have many reasons: crop failures due to disease or pests, adverse weather conditions or political unrest in the growing areas. But speculators and numerous hedge funds are also involved in the cocoa trade and deliberately do business with fluctuating cocoa prices. While the fluctuating prices mean an existential disaster for small farmers, companies can better protect themselves against price fluctuations.
What's a fair price?
The price for cocoa beans is only fair if it enables the cocoa farmers to earn a living. A living income must cover the basic needs of cocoa farming families. This includes adequate accommodation, a healthy diet, clean drinking water, adequate health care, money for education, mobility and reserves for crop failures and illnesses. But the investment costs in the cocoa plantation must also be covered.
How high a living income and a corresponding living price must be, differs depending on the growing region and is influenced by many factors. Both the size of the acreage, the number of family members and the degree of cocoa dependence play a role.
The certification organization Fairtrade has calculated a reference price for living income. Cocoa farming families in Ivory Coast who have sufficiently large areas and produce adequate yields would have to get a farm-gate price of 2,200 US dollars per ton of cocoa. In fact, the ex-farm price in the Ivory Coast is currently around 1,250 US dollars per ton (as of October 2019).
Most cocoa farming families live below the poverty line
A typical cocoa farmer family in Ghana with six members and up to four hectares of land earns an average of 191 US dollars a month. On the other hand, an income of around 395 US dollars would secure a livelihood - a little more than twice as much.
The situation is even more dramatic in Ivory Coast: Here, income would have to almost triple on average in order to be able to secure a living.
Even with certified cocoa, the situation does not look much better: Although the cocoa farmers receive additional premiums, the majority of them live below the poverty line.
Growing countries regulate cocoa prices
In the two main cocoa-producing countries, Ivory Coast and Ghana, the cocoa price is set by the state. At the beginning of the harvest season, the relevant marketing platforms set the guaranteed price that must be paid to the cocoa farmers. One of the strengths of this model is that it offers farmers more stability and enables planning security. However, the process of setting the price is not transparent, as is government spending on cocoa policy. So far, the cocoa farmers have practically no influence on either.
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