Voice Network calls on confectionery sector to engage with cocoa supply contracts

Cocoa industry NGO, the Voice Network, has called on major confectionery groups to engage with purchase crops for the latest season, amid farmers expressing concern over slow take-up from global buyers facing higher overall market prices, writes Neill Barston.

The organisation has asserted that the sector has displayed ‘double standards’ amid reports of major companies attempting to drive down cocoa prices, while previously stating that they could not influence prices upwards during significant previous periods of low prices that negatively impacted farming communities.

In response, the Ghana Ivory Coast Cocoa Initiative (CIGCI) has confirmed that it does not intend to lower its differential premiums for the industry, believing that standing firm on prices is a core pillar of delivering a living income for those working within the cocoa sector – many of whom have been earning below UN-defined poverty levels.

While there has been recent movement in higher pay announced by both Ghana’s government (where a 64% farm gate pay increase was announced, and in Ivory Coast, an 11% pay deal was delivered), the rises are against a backdrop of major inflation of fertiliser costs, and weather-affected harvests impacting yields, resulting in a shortfall of crops for the confectionery sector. The region accounts for two thirds of all cocoa trade.

For its part, the Voice Network has called on major companies operating in West Africa, which include the likes of Hershey, Mars, Mondelez International, Nestle, Cargill, and Barry Callebaut to ensure that they fully engage with buying cocoa contracts for the 2023/24 harvest season.

As Confectionery Production has previously reported, all the above businesses have put in place their own sustainability strategies, which include wider support for cocoa farming communities as well as moving towards a living income – but the issue of farmer pay remains of fundamental importance. It led to African nations boycotting key industry events last year in the wake of a similar price dispute.

Furthermore, the Voice Network also issued a plea to the sector’s core players to adapt its cocoa buying practices and switch to a long-term model of extended contracts with smallholder farmers, providing them with greater security.

The organisation’s view was shared by the African Platform for Sustainable Cocoa, which urged action on companies meeting the present prices of global cocoa.

“We call on the industry to buy cocoa now, and put an end to the practice of forcing prices down, which goes totally against their commitments to sustainability and the fight against extreme poverty among producers.”

Voice Network assessment
As for its own concerns, the Voice Network, which is led by managing director Antonie Fountain, released an extended statement on its position in light of cocoa prices being at an all-time high due to poor harvests.

It read:  “Over recent years, chocolate manufacturers have enjoyed record profits, whilst the vast majority of the farmers at the base of their cocoa supply chains have been unable to meet the basic needs of their families due to low cocoa prices and unfair contract terms. During recent weeks, supply shortages caused by a low harvest have seen cocoa prices climb steadily upwards, offering some hope that small-scale growers in West Africa, where most of the world’s cocoa originates, could begin to reap greater rewards for their labour.

“Instead, the companies supplying major chocolate brands have refused to buy cocoa at the increased market prices, claiming that doing so would “create too much risk” for them, if the chocolate companies refuse to pay the asking price down the line.

“Clearly, there is a double standard at play. When prices are low, cocoa companies claim “you can’t interfere with the market”. But suddenly, when prices are high, they want intervention in the market. This position is untenable.

“Though higher farm gate prices are only part of what’s required to ensure cocoa growers earn a living income, they are a key prerequisite. There is not a business case for higher productivity if prices for farmers are too low and their risks too high. But that has been the stark reality for a very long time now. Farmers cannot simply grow their way out of poverty. But that has been the industry’s flawed approach to poverty alleviation.

“Smallholder cocoa farmers do not have the capacity to avoid risk – risks of prices falling due to windfall harvests, or risks of crops failing due to weather or pests and diseases. They absorb the full brunt when prices are low. And even when prices are high, they hardly benefit, as prices are only high when harvests are bad.

“Furthermore, in the two major cocoa producing countries of Ghana and Côte d’Ivoire, the forward sales system means that farmers are not receiving the currently high market prices in any case. Most of the cocoa harvested at the start of the new season on 1 October 2023 was sold already last winter/spring when prices were much lower.

“Meanwhile, the large cocoa and chocolate companies continue to make hundreds of millions in profits every year. Companies can do so precisely because they can push risk further upwards in the supply chain – basically saying that the risk is not their problem, but the problem of their supplier – and because they can hedge their risks on the terminal markets.

“It is clear who ‘can’t afford’ low prices: cocoa farming households, the vast majority of which live far below a living income line. The same families bear almost all of the risk in the sector.

“This current market dynamic should be a wake-up call to everyone about the current system of ‘price discovery’, which benefits the most powerful actors in the supply chain and makes the weakest actors compete with each other. Farmers cannot win in the current situation.

“Virtually all large cocoa and chocolate companies either individually or collectively have committed to ensuring the farmers in their supply chain earn a living income. Yet just when the price is getting closer to what would be necessary for this to be possible, these same companies turn around and try to push the prices back down again.

“These companies are not just the traders – who are directly engaged in the present standoff – but also the chocolate manufacturers and supermarkets, who make the vast majority of the profits in the supply chain and who are also refusing to buy cocoa unless the price is discounted. Companies engaging in this behaviour are guilty of hypocrisy of the highest order.”

The Voice Network also called on the governments of Ivory Coast and Ghana to pursue greater transparency over sales pricing, namely regarding differential costs, including on Living Income.

Furthermore, the organisation is also seeking the implementation of the Deforestation Regulation (EUDR) and Corporate Sustainability Due Diligence Directive (CSDDD) ensures a living income for producers and requires companies to adjust their purchasing practices.

 

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