Chocolate Makers Face Sustainability Dilemma Over Farmers’ Pay

(Bloomberg) -- Chocolate makers are facing an ultimatum -- either support a contentious plan to raise the pay of impoverished farmers, or risk a halt to programs that sustainability-conscious consumers increasingly demand.

West African neighbors Ivory Coast and Ghana, where more than 60% of the world’s cocoa is grown, are becoming frustrated by the slow uptake of a strategy adopted in July to levy a $400-a-ton premium to help improve growers’ pay. This week, they threatened to suspend programs that chocolate makers rely on to certify that their beans are not grown in protected forests or with the forced labor of children.

Chocolate makers cannot claim that they’re sourcing cocoa sustainably and at the same time hold back their support for a plan that will considerably improve the livelihoods of small-scale producers, said Yves Kone, the managing director of Ivory Coast’s industry regulator, Le Conseil du Cafe-Cacao, known as the CCC. The sustainability programs only serve a small number of farmers, while the new price mechanism will benefit all growers, according to the CCC.

“We cannot pretend that we are working with the farmers, investing in sustainability and refusing to pay the farmer,” Kone told reporters Friday in the commercial hub of Abidjan. “Sustainability is also paying farmers and working together.”

Income Guarantee

Ivory Coast and Ghana’s price plan is designed to raise the average price for their cocoa from next October to at least $2,600 per ton, of which farmers will be paid about 70% after deducting costs. New York cocoa futures for delivery in December have averaged $2,373 per ton so far this year.

Analysts are questioning whether the plan will work because companies aren’t able to hedge the premium. The incentive of higher income will also entice farmers to grow more than what the market may need, often on land cleared in protected areas, and destabilize prices further.

Ivory Coast had 16 million hectares (40 million acres) of forests in 1960, but this has fallen to 3 million hectares in 2018. Ghana is losing its forests at a faster pace than any other country in the world, according to Global Forest Watch.

“The problem here is they’re going to encourage more production of the bad kind,” said Edward George, an independent cocoa expert. “There’s a real danger of overproduction and also unsustainable and damaging production.”

Without the sustainability programs, chocolate brands cannot guarantee that the cocoa they buy is not impacting protected areas and grown without child labor, said Sergey Chetvertakov, an analyst at IHS Markit’s Agribusiness Intelligence. “Such statements are demanded by consumers.”

Some chocolate makers have already pledged to buy cocoa at the premium rates.

“We are absolutely committed to both buy with the living-income differential and to invest in our sustainability projects,” Mars Inc. said by email. “We will comply with the new programs put in place,” according to Hershey Co.

The cocoa regulators are reviewing all certification and sustainability projects for the current season and make an announcement on their “continuation or discontinuation” at a World Cocoa Foundation Partnership meeting scheduled later this month in Berlin.

Such programs continue to be successful in helping farmers to improve their income “without political interference,” said Eric Bergman, a commodities broker at Jenkins Sugar Group Inc. Their suspension as a way to enforce the new price plan “is a short-sighted way of attempting to help farmers.”

--With assistance from Marvin G. Perez and Isis Almeida.

To contact the reporters on this story: Leanne de Bassompierre in Abidjan at ldebassompie@bloomberg.net;Manisha Jha in London at mjha13@bloomberg.net

To contact the editors responsible for this story: Andre Janse van Vuuren at ajansevanvuu@bloomberg.net, Paul Richardson

©2019 Bloomberg L.P.