Cocoa farmers in Africa and Latin America bear the cost of keeping chocolate cheap

Canadian consumers, seeing labels that boast of “100-per-cent sustainably sourced cocoa” on many of the most popular chocolate products in Canada’s supermarkets, might never imagine that hunger and poverty are the grim daily reality for millions of cocoa farmers in Africa and Latin America.

Sustainable cocoa – a promise of all the major cocoa and chocolate companies – is vaguely defined and can include anything from training and education programs to a variety of supply certification schemes that pay premiums and attempt to trace cocoa origins. But at the heart of the sustainability concept is a pledge by the major manufacturers to help farmers gain a decent income. The promise is crucial to their marketing: a reassuring signal to consumers that a chocolate purchase is an ethical one.

The companies that use this type of marketing have been enormously successful. Oxfam estimated this week that four of the world’s biggest chocolate manufacturers – Hershey, Lindt, Mondelez and Nestlé – have collectively made nearly US$15-billion in profits from their confectionary divisions in the past three years, an average increase of 16 per cent since 2020.

Yet the promise of a decent income for farmers is still unfulfilled. West African officials say that the sustainability labels on chocolate products are misleading, since most of the world’s cocoa farmers today are still struggling to make a living.

More than half of cocoa farmers in Ivory Coast – the world’s biggest cocoa producer – earn less than the national poverty line of about US$3 per day. A survey in 2021 by Fairtrade International, one of the major certification programs, found that 88 per cent of certified farmers in Ivory Coast were still earning less than a “living income,” based on its calculation of basic living costs.

Another survey, released this week by Oxfam, found an average decline of 16 per cent in the net incomes of cocoa farmers in Ghana since 2020, with the vast majority reporting that their income has deteriorated and they cannot afford the cost of food or other basics.

Adequate pay would not only alleviate poverty on cocoa farms but would also reduce the risk of child labour – one of the most notorious social problems in the cocoa industry for decades. Yet there is strong evidence that child labour remains as widespread as ever.

A study by the European Commission in 2021 quoted farmers as saying that the cocoa price will need to triple or quadruple in order to provide enough income to ensure they won’t rely on child labour. The overall prevalence of the practice, the study found, has remained roughly the same over the past decade, with around 1.5 million children working in the cocoa sector in those two West African countries.

Cocoa incomes remain low, and poverty remains high, because most farmers are obliged to be price-takers in a ruthlessly efficient industry with a global cocoa surplus. Corporate buyers continue to hold ultimate power, and they continue to squeeze the price as low as possible. In a chocolate industry with a worldwide value of about US$140-billion a year, less than 7 per cent of total revenue goes back to the farmers. Soaring costs have made inputs such as fertilizer difficult for many to afford, leading to a decline in their harvests.

“For cocoa farmers, these are dire times,” said a report last year by the Cocoa Barometer Consortium, a group of civil-society organizations. “Decades of calls for higher prices have so far not been answered. Without significantly higher farm gate prices, sustainability in the cocoa sector is a pipe dream.”

The battle over cocoa prices is increasingly fierce. Ivory Coast, with about 40 per cent of global production, has responded to the price squeeze by forming a coalition with the second-biggest producer, Ghana, which has about 15 per cent of world production. Together they used their clout to push the major corporations to promise a price premium, known as the “Living Income Differential,” to add US$400 per tonne to the cocoa price, with the extra revenue to be allocated solely for farmers.

The higher price was intended to improve incomes by 20 to 30 per cent – but this was still far below the increase needed to escape poverty. And some of the corporations found loopholes to keep their costs down. When the price differential was introduced in 2019, they were temporarily able to reduce other parts of the price calculation, so that the net practice was almost as low as before. Some buyers have simply refused to pay the official price.

“This agreement was not respected by the big manufacturers,” Ivory Coast’s economy minister Adama Coulibaly told The Globe and Mail in an interview.

“It’s not normal that farmers get only 6 per cent of the revenue,” he said. “It’s really too low. We’re not happy that our farmers aren’t living a decent life. And consumers in the West also expect that the farmers should be fairly paid.”

The coalition with Ghana might be expanded to include other big producers such as Nigeria and Cameroon, he said. Already the coalition is trying to put pressure on the industry. Last October, the two West African countries boycotted a key meeting of the cocoa industry in Belgium. “It was an effective message, because all of the major companies were there,” Mr. Coulibaly said.

“We want to show them that they cannot just impose the price on us. Our people do the production and they need to live a decent life.”

How cocoa is produced

Cocoa is a jungle crop that thrives in only a handful of equatorial countries. The Dominican Republic is one of them. Here on the Cooproagro fair-trade farms near San Francisco de Macoris, pods are harvested from the trees on a rotating schedule based on the growth of individual pods. Then, it takes careful timing and effort to turn the beans inside into cocoa powder and other products chocolatiers depend on.

In the back of a cavernous warehouse in the Dominican Republic’s agriculture belt, thousands of 70-kilo bags of cocoa beans sit piled nearly two storeys high.

This is all left over from a harvest last July. Cooproagro, one of the region’s farmer-owned co-operatives, can’t find any buyers willing to pay enough for the co-op to break even. So they are holding onto it for now, hoping market conditions improve.

“We are praying now to find a client,” says Joan Manuel Heredio, the warehouse manager.

Cooproagro’s farmers are comparatively well-off: most of the cocoa they produce is certified fair trade and organic, which fetches a higher price. But there aren’t always enough companies willing to pay the fair-trade premium. The surplus has to be sold as conventional cocoa at prices that follow the international commodities markets, where – as in West Africa – global chocolate giants ensure as little money as possible makes its way to the farmers.

Hence the pile of unsold beans in Cooproagro’s warehouse in San Francisco de Macoris, a city of 200,000 in cocoa-producing Duarte province.

“When the stock market price is really high, there are no buyers. When the price goes down, then we have buyers. It’s really bad right now,” says Ramon Emilio Perez Duarte, Cooproagro’s general manager. “Business, business, business. They’re trying to add, add, add to their own pockets.”

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The volatility has been exacerbated by climate change. Longer droughts have killed trees or led to smaller and drier cocoa pods, while increasingly intense hurricanes have damaged farms. Pandemic-related inflation has also hurt.

“Over the last three years, we’ve seen a tripling of the cost of living in the DR but really low cocoa prices. It doesn’t match any more,” says Leonardo Hernandez, the co-op’s vice-president.

In Ivory Coast, too, climate change is a further pressure for the impoverished farmers. “In my father’s time, there was plenty of rain,” says Mr. Angui, who inherited his small farm after his father’s death in 1993. “Now it’s dry. Without fertilizer or rain, you can’t have a good harvest.”

It all means an unpredictable life for cocoa farmers.

“There are years when the crop is bad and I have to ask for help from family. But sometimes it’s the opposite where, if I have a good year, I can help others in my family,” says Eusebio Lopez, 72, as he stands on his farm east of San Francisco de Macoris.

Mr. Lopez estimates he takes in about 110,000 Dominican pesos annually from the cocoa he grows on his three-hectare plot, of which about 40 per cent has to be spent covering farming costs. Most years, the remainder is just enough to cover water, electricity and telephone bills for him and his wife. They live in a bungalow made of a single layer of green planks nailed together, with curtains dividing the kitchen and living room.

Mr. Lopez supplements his income by growing breadfruit. He also grows oranges, plantains, yams, bananas and lipote, partly for sustenance and sometimes to sell.

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Miguilina Santos, meanwhile, gets by thanks to a large, multigenerational family. She and her husband live with their son, who works in construction, and five grandchildren, including one who recently opened a convenience store.

Ms. Santos, a 71-year-old former civil servant, started farming in retirement because her annual pension of 29,000 pesos – about $720 – wasn’t enough to live on. Even now, some years can be lean.

“We eliminate everything that’s not absolutely necessary – we buy no new clothes and if something has to be fixed around the house, we put it off. We just pay for food and school, the minimum just to survive,” she says. “And sometimes we go to the co-op for help, ask for a small loan as backup.”

Ms. Santos hopes that someone will keep the operation going when she retires for good, but she isn’t sure. “We keep encouraging our family to continue in this, but the honey isn’t always sweet,” she says.

Still, she says, Conacado and Cooproagro, the two fair trade co-ops, have helped improve conditions here. Fair trade and organic certifications – which the co-ops maintain by adhering to labour and environmental rules, such as not using either child labour or pesticides – earn higher rates of return. Standards are set by Fairtrade International, a consortium of non-profits, ensuring third-party verification that not all internal corporate sustainability programs have.

Selling through the co-ops also gives the farmers at least some market power to negotiate prices. Most farmers, by contrast, have to go through middlemen and have little guarantee they are getting a best price.

“We’re more aware what a kilo of cocoa is worth. They don’t cheat us, because we have our eyes open – we agree collectively on the price,” says Juan Tomas Brito, 63, a farmer and president of Conacado.

At Cooproagro, cocoa is fermented and dried before being sold to wholesalers. Conacado, meanwhile, runs its own factory, turning out cocoa powder, butter, nibs and liquor. These facilities have tracing systems meant to allow Fairtrade International and chocolate companies to track where the cocoa came from.

“Of a final product, the return to the farmer is five or 10 per cent of its value. So the more we go up the chain, the more of the value goes to farmers and the more sustainable it is financially,” says Basilio Almonte, a Fairtrade official in the Dominican.

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For Antonio Ortiz-Ventura, the benefits have been tangible. Cooproagro uses the additional funds from selling through the fair trade system to pay his daughter’s school fees and buy her textbooks, and paid for Mr. Ortiz-Ventura to install doors and windows on his house.

“It’s been 100-per-cent change, joining the co-op, when you compare the two situations and the types of benefits and supports we get,” Mr. Ortiz-Ventura, 39, says. “Day-to-day, we manage to make a living.”

For now, the biggest hurdle for the co-operative model is that it represents just a small minority of farmers. Only about 30 per cent of the country’s cocoa is sold as fair trade, Mr. Almonte estimates. It relies largely on ethically-minded consumers in wealthier countries willing to pay a higher price for their chocolate, usually from niche companies.

It can also be difficult for farmers to comply with organic and fair trade standards. A new proposal from the European Union, for instance, would strip organic certification from co-ops that have more than 2,000 members and farms that have more than a few hectares.

The intent is to prevent larger farms and conglomerates from benefiting from higher prices meant to go directly to farmers. But Mr. Heredio, the Cooproagro warehouse manager, says it would actually mean diluting the market power that farmers have been trying steadily to build.

“There are more and more expectations on farmers, but not more commitment to buy our products,” Mr. Heredio says. “How do I tell a farmer they have to leave the co-op because Europe thinks they have too many hectares?”

In West Africa, the cocoa industry has slowly introduced a patchwork of sustainability and certification programs, which provide small premiums to some farmers. But ordinary farmers such as Mr. Angui are unenthusiastic about these programs, saying they have not benefited from them.

Surveys support his complaint. The 2021 report by Fairtrade International, for example, shows that the fair trade premium has provided an income boost of less than 2 per cent for most farmers in the program in Ivory Coast – and many farmers did not even receive the promised payments.

At a warehouse in Akoupé, cocoa buyer Makki Saif talks about the high cost of his business – including security, since bandits armed with Kalashnikovs have begun hijacking his cocoa trucks and stealing cash from drivers on their way back from the sea port.

He complains that the certification schemes are too complicated and their administrative burden is too expensive, forcing him to abandon schemes in search of cheaper ones. He feels squeezed by rising costs, climate change and smaller harvests. “The taste of chocolate is sweet, but behind it is a lot of bitterness,” Mr. Saif says.

Analysts warn of the risk that certification schemes such as fair trade will be increasingly replaced by the corporate in-house sustainability programs of the multinational companies. “The companies’ own programmes are much less transparent than Fairtrade and Rainforest Alliance, potentially leading to a race to the bottom,” said the report by the Cocoa Barometer Consortium.

The consortium estimates that at least a third – perhaps even half – of all the global cocoa production is grown under some kind of certification label or corporate sustainability scheme. But this “has not led to the bar being raised,” it said. “Chocolate companies and retailers tend to look for the cheapest label.”

Because of the lack of transparency, most ordinary farmers are in the dark about how their payments are calculated. Ivory Coast farmers recall how their cocoa prices mysteriously improved during an election campaign in 2020, and then – equally mysteriously – declined when the election was over.

“I don’t know where the price is decided,” says Gilbert Yapo, a cocoa farmer near Akoupé. “Even if we ask, we won’t get an answer.”

The occasional price increases that they receive, he says, are quickly outweighed by their rising costs. The price of a 50-kilogram bag of fertilizer, for example, has increased by about 30 per cent in the past year, mainly because of the disruptions caused by the war in Ukraine. The farmers in Ivory Coast buy fertilizer only when they can afford it. For some, this might be only once every three years.

Their poverty, too, is perpetuating the chronic problem of child labour. Unable to afford the cost of adult workers, many farmers send their children into the bush to work with cocoa. In Ivory Coast, near the town of Akoupé where Mr. Yapo has his farm, it doesn’t take long to see the evidence. On a weekday morning, when they should be in school, two small children sit on the forest floor, gathering cocoa pods into a pile for their father to split open for the beans inside.

Mr. Yapo, like his neighbour Mr. Angui, has had to cut back on rice meals as his living costs soared in recent months. “We’re not happy with our living conditions,” he says. “But we can’t do anything about it.”

To ease the harsh poverty of most cocoa farmers, West African governments and civil society groups are working on several ideas. One is to strengthen the network of cocoa co-operatives and reduce the proliferating number of intermediaries, each of whom takes a slice of the money between the buyers and the farmers.

“We’re struggling to reorganize the co-ops, to make them the main channel between farmers and exporters,” said Bakary Traore, executive director of an Ivory Coast community group that works with the farmers.

He estimates that fewer than 200 of the 3,800 cocoa co-ops in the country are actively working to help farmers. Many of the rest are businesses seeking profits, which takes money away from the farmers, he said.

Another goal is to expand the processing of cocoa within West Africa, partly by establishing chocolate production in the region. The French chocolate company Cémoi set up a factory in Ivory Coast’s capital, Abidjan, in 2015. After several years of losses, the company finally made a profit last year, according to its general manager, Lona Ouali. If his factory can help create an African market for chocolate, this in turn could benefit the country’s farmers.

But so far, most of the factory’s output are semi-finished products, which are exported to Europe for use by chocolate factories there. Only a small percentage of its revenue – about 15 per cent – is from the sale of its own chocolate products, because the African market for chocolate remains tiny.

In the end, the biggest key to fighting poverty among cocoa farmers is to improve the price.

Here, too, the options are limited. African countries, with their hot climates, cannot afford to stockpile their cocoa in climate-controlled warehouses to control supply and drive up the price. Stockpiles are held mainly in Europe, and the global price of cocoa, as a commodity, is heavily influenced by speculators and global traders who acquire supplies and sell to the manufacturers.

“The reality is that the farmer has no connection to the end user,” said Alex Assanvo, executive secretary of the Ivory Coast-Ghana Cocoa Initiative (CIGCI), the governmental body that had earlier developed the US$400 living-income price premium.

“The traders are speculators who stockpile and play with the system,” he said. “The multinationals shift their buying strategy, based on the price. They buy wherever it is cheaper.”

The problem with the chocolate labels, with their claims of 100-per-cent sustainable cocoa, is that the manufacturers often cannot trace their cocoa back to an individual farmer, since their cocoa can be blended from many sources, he said.

“If the consumer believes that the companies know where the cocoa is coming from, they’re wrong,” Mr. Assanvo told The Globe in an interview. “Sustainability programs represent a very small amount of the global supply of cocoa. But the companies spotlight it, so everyone thinks it’s okay.”

Mr. Traore, the community group leader, is spearheading an initiative to boost transparency in the cocoa sector. “The labels on chocolate bars don’t reflect the reality of the situation,” he said.

“It’s marketing. I meet European friends who tell me they’re happy that the chocolate products are sustainable now. I tell them, ‘If I tell you the real situation, you will cry.’ We’re working in the field and we see the gap between the rhetoric and the reality.”

Yves Brahima Koné, director general of the Coffee and Cocoa Council, the state regulator in Ivory Coast, says the sustainability labels have concealed a lot of market manipulation on prices, including buyers who pay the farmers less than the officially agreed minimum.

“They make a lot of money from these sustainability programs,” he told The Globe. “Of course the consumers are deceived.”

The Globe sent a series of questions about cocoa prices and sustainability programs to several of the major manufacturers and the major industry group, the World Cocoa Foundation. The foundation did not respond.

When asked why their sustainability programs have failed to provide a living income for cocoa farmers, the major chocolate companies did not answer directly, instead pointing out what they are currently doing to support farmers, including educational programs and some direct payments. Hershey replied by saying it has a new “income accelerator” program in Ivory Coast and a long-term commitment to supporting higher incomes. Lindt, in its reply, said it spent $28-million on cocoa sustainability programs in 2021 and is also paying premiums of US$60 per tonne in Ghana on top of the US$400 “living income differential.” Addressing the poverty of farmers “needs the concerted, continued, compliant and honest efforts of untold numbers of stakeholders,” the company told The Globe.

Nestlé, in its response, cited an “income accelerator” program that it introduced last year, providing cash incentives of the equivalent of up to $750 per year for farmers to improve their productivity and to keep their children enrolled in school. The program began with 10,000 farmers in Ivory Coast and aims to reach 160,000 farmers by the end of the decade.

Nestlé also says that all of the cocoa in its chocolate products in Canada is sourced through its sustainability and certification programs, allowing the cocoa to be traced back to its origins in the supply chain. It acknowledged, however, that the tracing goes back only to co-ops, rather than individual farmers. And the company confirms that it still uses a blend of cocoa from various sources in many of its products worldwide. It says it is aiming to achieve full traceability, without blended sources, at some point in the future.

An academic study, published in January, found that 55 per cent of Ivory Coast’s cocoa exports are untraced and only 44 per cent can be traced back to a specific co-op or other supplier.

Faced with the realities of the global trading system, Ivory Coast and Ghana have been trying some tough new tactics – which eventually forced the chocolate manufacturers to the bargaining table.

The goal, according to Mr. Kone, is to increase the share of global cocoa revenue that reaches the producing countries, so that they get 13 per cent of the value, instead of the current share of less than 7 per cent.

Mr. Assanvo was one of the strategists behind the West African boycott of last October’s industry meeting in Belgium. The boycott caused “discomfort and confusion” for the industry, and helped bring them to negotiations, he told The Globe.

After the boycott, Ivory Coast and Ghana launched a dialogue with the chocolate manufacturers, seeking an agreement on pricing. But they also threatened to ban the companies from visiting cocoa farms to gather harvest data. And they hinted that they might stop participating in corporate sustainability schemes. This, in turn, would make it difficult for the chocolate companies to keep labelling their products as sustainable.

“What we said was very clear: any companies associated with discounts, or playing the market to make our countries suffer, will be suspended and they won’t be able to mention Cote d’Ivoire or Ghana in their communications,” Mr. Assanvo said.

“If they use the market against us, the only power we have is not at the market level, it’s at the physical level.”

Confronted by the threat of losing access to cocoa farms, and by a parallel effort at the European Union to consider new rules to improve the African cocoa supply chain, the industry agreed to join a task force with governments to talk about improved prices. Dialogue is well under way, and the talks are expected to reach decisions within the next several months, officials say.

“It was a good tactic,” Mr. Traore said. “Two years ago, a task force like this on market prices could not be imagined. But if there’s any change by the companies, it’s not because of their kindness. It’s because they don’t want to lose their markets and their public image.”

With a report from Luke Dyment.

The trip to the Dominican Republic was partly funded by Bigger than Our Borders, an NGO-supported initiative urging the Canadian government to increase foreign-aid programs. They did not review or approve the article.