Africa’s Fair Share of Fair Trade  REMIX 

Action Plan-

Expand Africa's Fair Share of Fair Trade

* This idea is not endorsed by the World Cocoa Foundation, the Sustainable Tree Crops Program (STCP) of the International Institute of Tropical Agriculture (IITA), or any other organization.

Summary

Cocoa production is a multi-billion dollar industry. Africa is the largest cocoa producing region in the world, accounting for more than 70% of the world's cocoa production, including top producers Côte d'Ivoire, Ghana, Nigeria, and Cameroon (International Cocoa Organization 2008).  Yet despite being the world's top producer, Africa only consumes 2% of the cocoa produced, an illustration of the huge disparity between smallholder farmer incomes and the chocolate industry where profits are monopolized (Oxfam 2002).

An estimated 90% or more of cocoa is produced by smallholder farmers, with typical sizes of a smallholder farms being less than 5 hectares (International Cocoa Initiative 2009). In addition to unpredictable weather patterns, small-scale family cocoa farmers also face price volatility due to speculation on cocoa in international exchanges.  Farmers are often forced to sell their harvest to local middlemen who may misrepresent world prices. Media reports of child slavery on West African cocoa estates show the stark contrast between the delicious treat enjoyed in the developed world and the often difficult working conditions of the people who produce it.

Fair Trade certification is a market-based model of international trade that enables consumers to vote for a better world with their dollars, by looking for the Fair Trade Certified label on the products they buy.  Fair Trade certification ensures that cocoa farmers receive a fair price for their harvest, creates direct trade links between farmer-owned cooperatives and buyers, and provides access to affordable credit. On Fair Trade farms, slave labor is prohibited and farms are inspected to ensure that Fair Trade standards are being met.

Currently, less than 1% of world cocoa production is certified fair trade (Oxfam 2002). Working through the Sustainable Tree Crops Program (STCP) of the International Institute of Tropical Agriculture (IITA), at least two new fair trade farmer cooperatives will be created in each of their project countries (Côte d'Ivoire, Cameroon, Ghana, Nigeria, and Liberia), as a means of piloting cocoa farmer cooperatives and the fair trade certification process. Additionally, this project seeks to engage the largest chocolate companies, including Mars Inc., The Hershey Company, Nestlé, and Cadbury to commit to a minimum of 5% fair trade cocoa from cocoa producers in West Africa by 2015.  

Needs Assessment

Poverty

Africa is the largest cocoa producing region in the world, accounting for more than 70% of the world's cocoa production, including top producers Côte d'Ivoire, Ghana, Nigeria, and Cameroon (International Cocoa Organization 2008).  Yet despite being the world's top producer, Africa only consumes 2% of the cocoa produced. More than 14 million workers produce cocoa, of which 10.5 million are in Africa. The livelihoods of an estimated 14 million rural workers involved in cocoa picking on big plantations and cocoa processing factories also directly depend on cocoa (Oxfam 2002). 90%-95% of all cocoa is produced by smallholder farmers, and the typical size of a smallholder farm is less than 5 hectares. An average of 8 people live off of an average cocoa farm.

World prices, and the proportion of export price captured by smallholders, and the wages paid to laborers on cocoa farms, have a critical bearing on poverty and vulnerability, including the ability of rural households to meet health and education costs. The price of cocoa reached a 30-year low in October 2000, selling for only US 41 cents per lb (90 cents/kg). By comparison, the fair trade price for cocoa, which would ensure a decent living for farmers, is $1.75 per kg. A farmer from Ghana with 2 hectares would make only $240 a year (65 US cents per day - just over half of the extreme poverty threshold) at current prices. If the farmer received fair trade prices, he or she would have made $460, doubling his income.

Labor Conditions

Most of the children who work on cocoa farms do so within their family structure and may be exposed to hazards. However illegal and exploitative practices exist. Indeed, when children are taken from their families, even with their consent, for the purpose of exploitation in cocoa farming this is considered human trafficking and is illegal. Forced child labor is strictly prohibited.

Additionally, workers on Fair Trade farms enjoy freedom of association, safe working conditions, and living wages. Fair Trade farmers and farm workers decide democratically how to use their Fair Trade premiums. They can invest Fair Trade premiums into social and business development projects like health care, new schools, quality improvement trainings, and organic certification.

Environment

By keeping small-scale cocoa farmers in business, Fair Trade helps to maintain diverse forest ecosystems over monoculture alternatives. More than 60% of fair trade cocoa and coffee also carry additional certifications such as organic and shade-grown. The Fair Trade certification system strictly prohibits the use of genetically modified organisms (GMOs), promotes integrated farm management systems that improve soil fertility, and limits the use of harmful agrochemicals in favor of environmentally sustainable farming methods that protect farmers' health and preserve valuable ecosystems for future generations.

Required Resources

Costs are with initial information dissemination and farmer cooperative start-up costs. Annual producer certification fees generally range from $2,500 to $10,000, based on the size of the producer group and length of time the inspections take. Some Fair Trade cooperatives have fewer than 100 members, others have thousands. Some cooperatives are more established and organized than others, thus reducing the time required to complete the inspection (TransFair USA 2009).

In early 2007, FLO-Cert revised its producer fee schedule. A new fee category for very small producer organizations (< 50 members) was created, enabling them to receive a discount of up to 35% on certification fees. FLO also implemented a discounted fee structure of up to 10% for organizations that are certified by an accredited organic certification body. It is preferable that the purchasing company fund at least the first year of certifications, so that Fair Trade premiums can be used to fund these fees in the following years.

TransFair USA also charges licensed companies a $0.10 per-pound certification fee for Fair Trade Certified products. TransFair uses its license fee revenue for five primary activities:

• Verifying that product supply chains meet Fair Trade standards;
• Developing the Fair Trade market through relationships with retailers and other business partners;
• Raising awareness of the FTC label and building consumer demand. For example, TransFair provides marketing brochures, posters and other consumer-facing materials to licensed company partners, retailers and advocates at no cost;
• Working with our partners in the international Fair Trade Labeling network to develop standards for new products; and
• Connecting producer groups to international markets.

Business Case

Core requirements for chocolate importers or processors:

• Sign Fair Trade's License/Certification agreement to become a licensed importer or processor.
• Purchase cocoa beans from licensed Fair Trade cooperatives, or chocolate/cocoa powder from manufacturers certified by TransFair's umbrella organization, Fairtrade Labeling Organizations International (FLO).
• Pay at least the Fair Trade minimum price to cooperatives. This is an internationally standard minimum price set by FLO at US$1750/ metric ton, or US$1950/ metric ton if the cocoa is also certified organic. If the world price (New York Board of Trade price) rises above US$1600/mt, the Fair Trade price is equal to the world price plus a US$150 premium for conventional cocoa and a US$200 premium for organic. For example, if the world market price is US$2000/mt, the Fair Trade price is US$2150/mt (US$2350/mt for certified organic).
• Pay a certification fee to Trans Fair of US$0.10/lb. on Fair Trade Certified chocolate/cocoa product purchases.
• On request of the producer organization, make available up to 60% of the value of the contract in pre-financing or other credit facilities

Plan and Execution

The project would be catalyzed through the Sustainable Tree Crops Program (STCP) of the International Institute of Tropical Agriculture (IITA), which is a public-private partnership and innovation platform that seeks to generate growth in rural income among tree crop farmers in an environmentally and socially responsible manner in West/Central Africa. http://www.treecrops.org/index.asp

Currently, STCP has a number of pilot projects in West Africa; including three pilot project in Côte d'Ivoire, and one in each of the other four countries (Cameroon, Ghana, Nigeria, and Liberia). The objective of these pilot activities is to compare, test, and validate different approaches and interventions to develop sustainable and integrated cocoa production systems, and to concurrently address child labor concerns in a coherent and systematic way.

Fair trade certification is one more tool to be tested in this program. The World Cocoa Foundation is a 501(c)(3) non-profit organization founded in 2000 for the purpose of promoting social and economic development as well as environmental stewardship in cocoa-growing communities. The foundation is a membership-based organization with approximately 70 member companies involved in the cocoa and chocolate industries around the world, representing over 80% of the global market.  The World Cocoa Foundation supports STCP, and both are additionally supported in part by members of the cocoa industry. Therefore, successful introduction of fair trade through these organizations will raise awareness and put on the pressure for wider adoption.

Real World Impact

Research to date has focused on fair trade in coffee, which is a more developed certification market.  But among a number of independent studies measuring the impact of fair trade on small-scale farmers, results are encouraging:

• A Michigan State University study in Mexico as shown that "Fair trade's higher prices increase gross household income; participation in fair trade reduces households' debt and enhances their economic options, affording them the possibility of better feeding and educating their children. Fair trade affords peasant farmers partial protection from some of the worst aspects of commodity crises and in many cases allows them the breathing room needed to engage in more sustainable agricultural practices. Furthermore, the extra capital from fair trade can generate important economic ripple effects within communities, providing additional employment even for nonparticipating families." - Dr. Daniel Jaffee, MSU
• In 2003, the Fair Trade Research Group at Colorado State University conducted seven case studies of Latin American Fair trade coffee producers and concluded that Fair Trade has "in a short time greatly improved the well-being of small-scale coffee farmers and their families". The various case studies most notably found that producers had under Fair Trade greater access to credit and external development funding. The studies also found that Fair Trade producers had, compared to conventional coffee producers, greater access to training and enhanced ability to improve the quality of their coffee. Families of Fair Trade producers were also said to be more stable and children had better access to education than in families growing conventional coffee.

STCP anticipates that through 2015 it will:

Enhance productivity of cocoa farms through productivity enhancing innovations, increasing gross margins by 25-30%:

• 125,000 farmers participate in innovations to increase productivity, and safety/efficiency of labor
• Increase the capacity of 2 local production service providers per country
• Establish 1 new institutional arrangement to facilitate access to inputs and services per country
• Regional production research network functions

Enhance marketing efficiency in the cocoa sector: reduce marketing margins by 5-15% between farmgate and retail pricing among farmers and the local private sector participating in market efficiency enhancing innovations.

• 40 marketing firms, such as cooperatives and licensed buying companies, participate in marketing efficiency enhancing innovations, including fair trade.