Ghana and Cote d'Ivoire cocoa farmers lose out on fixed farmgate pricing
According to the International Cocoa Organization’s (ICCO) September 2024 Market Report, cocoa prices continue to make headlines.
On the London futures market, the price of the DEC-2024 contract increased by nearly threefold from £2,741 ($3,545.76) per tonne at market close on 2 October 2023 to £8,218 per tonne on 19 April 2024.
Subsequently, after a period of significant volatility, the price of this contract moved sideways between £5,000 and £5,700 per tonne.
While some farmers enjoyed higher revenues, the ICCO states, those who operated in regulated markets could not do so, as farmgate prices were fixed for the entire season.
On 11 September 2024, Ghana officially opened the 2024-25 season, announcing a fixed farmgate price of 48,000 cedis per tonne. Later, on 1 October, Cote d’Ivoire opened the new season, setting a fixed farmgate price of 1,800,000 CFA per tonne. These fixed producer prices were equivalent to $3,034 and $3,060 per tonne in Ghana and Côte d’Ivoire, respectively. As of the beginning of October, that figure translates roughly to GH¢2,070 ($128,17) per bag.
However, cocoa bean buyers in Colombia, including Luker and Nacional de Chocolates, pay their farmers the market price for cocoa, which is set on a daily basis: roughly 2,7000 Colombian pesos ($680 per bag), depending on currency exchange and market rates. This means South American farmers can earn almost five times as much as their counterparts in West Africa.
As the ICCO states, some observers will be confused by these discrepancies and expect them to be higher and more aligned with prevailing market conditions.
To shed some light on why the two regulatory bodies - Conseil du Café-Cacao (CCC) In Cote d’Ivoire and the Ghana Cocoa Board (Cocobod) - set these specific prices, the ICCO says it is essential to take a step back and remember that these institutions regulate their domestic market system with a self-financing price stabilisation policy, i.e., at no cost to the taxpayers.
This method's objectives are twofold: to protect farmers from intra-season price volatility (i.e., establish a fixed farmgate price) and to give farmers a fair share of the price buyers will pay to source beans from Cote d’Ivoire and Ghana (i.e., enforce the fixed farmgate price).
To achieve these goals, the CCC and Cococbod sell one year in advance export licences and forward contracts for the current season. Then, each institution announces the fixed farmgate price at the new season's opening.
According to the ICCO, this price consists of two components: (i) approximately 60% of the average price paid for these export licenses and forward contracts— referred to as 'instruments'—for the upcoming season; and (ii) the Living Income Differential of $400 per tonne, which was established by the Cote d’Ivoire and Ghana Cocoa Initiative to pay their farmers more, but even with this supplement, the price they receive for their beans is still way below the market price.
The pricing mechanism negotiated by Ghana and Cote d'Ivoire during the previous season but executed in the current one is due to several factors that make it impractical to negotiate and execute these instruments during the respective seasons.
First, Cote d’Ivoire and Ghana produce over half of the world’s production. Therefore, it would be a formidable challenge for the CCC and the Cocobod to negotiate, sell, and complete the due diligence process on these instruments in a very short period of time.
Secondly, the industry establishes production plans well in advance to cope with consumption peaks (for example, Halloween, Christmas, Valentine’s Day, and the Easter period).
Therefore, securing the physical supply just before the opening of the season is very risky and probably not logistically feasible, considering that the first consumption peak is expected within one month of the opening of the season (Halloween) and the next peak is only two months after that (Christmas).
Hershey’s ‘Cocoa For Good’
Hershey has announced a five-year agreement with nine cocoa-producing cooperatives in Cote d'Ivoire. The company said the move is part of its ‘Cocoa For Good’ strategy, a 10-year, $500 million investment to ‘address the complex challenges facing cocoa farmers.’
The announcement coincided with the annual National Cocoa and Chocolate Days held in Abidjan, Cote d'Ivoire. The heart of the agreement is a memorandum of understanding between Hershey, trading house Sucden, and the nine cooperatives, which aims to:
- Partner with farmers to professionalize cocoa farming and improve their profitability
- Invests in community-based resources that improve household wellbeing
- Preserve the environment and strengthen farm resilience.
According to Hershey, the long-term collaboration among the three entities provides stability for farmers and allows them to engage more directly in addressing on-the-farm challenges.
"Improving farmer incomes requires a holistic approach and collaboration across public and private sectors," said Tricia Brannigan, vice president chief procurement officer for Hershey. "Collaboration happens best when you have trust. Trust is built over time through strong, long-lasting relationships."
‘Hands off the EU deforestation regulation!’
As environmental news website Mongabay reported, 225 global NGOs from more than 40 countries have issued a statement urging the European Parliament and EU governments to reject a proposal that would delay the implementation of the EU’s anti-deforestation law (EUDR) by a year.
The statement was issued as the European Council agreed to back the European Commission’s proposal to postpone the EUDR implementation by 12 months.
“This postponement will allow third countries, member states, operators, and traders to be fully prepared in their due diligence obligations, which is to ensure that certain commodities and products sold in the EU or exported from the EU are deforestation-free,” the European Council said in a statement.
The Council will now inform the European Parliament, which is expected to vote on the Commission’s proposal in a plenary session on 13 to 14 November.
After the Parliament vote, the Council will also have to vote on formally adopting the regulation, but this is considered a formality.
“The aim is to have the regulation formally adopted by both co-legislators and published in the Official Journal of the EU so that it can enter into force by the end of the year,” the Council said.
The collective statement from the NGOs, ‘Hands off the EU deforestation regulation!’ noted that the law was adopted democratically “with a record level of public engagement and support.”
It added that delaying its implementation would undermine “the EU’s credibility as a global leader in the fight against climate change, biodiversity loss and human rights violations.”
The Greens also criticised the Commission and asked for assurances that there would be no further delay after the proposed twelve-month postponement. “We must now ensure that the postponement does not open Pandora’s box and that the law is not weakened,” the Greens MEP Anna Cavazzini said in a statement.
The Cocoa Coalition—which includes food companies and organisations including FairTrade International—said: "We note the Commission’s proposal to delay implementation by twelve months and call for this to be adopted as speedily as possible, without amendment, in order to give companies as much certainty as possible on the revised timetable."
The alliance also said it "strongly opposes reopening the substance of the EUDR for new negotiations and urges policymakers to resist any such suggestion. This would serve only to impede the smooth passage of the proposal, increase uncertainty and jeopardise the significant investments our member companies have made in preparing for its application.”