In response to these crises and high cocoa prices on commodities markets, the Ghanaian government has announced a 45% increase in the farm gate price for the upcoming season. The Ivorian government has announced a 20% increase. Both countries prices are well above the Fairtrade Living Income Reference Price (LIRP) for each country[1], which is good news for farmers.

The global price of cocoa has been too low for too long with many farmers living in poverty or extreme poverty. These higher prices have started to trickle down to farmers in regulated markets, of Ghana and Côte d’Ivoire. Sadly, many of these farmers will likely be producing less cocoa because of the factors above, meaning although the current prices are high the low production makes it difficult for many farmers to earn a decent income.

[1] The Fairtrade Living Income Reference Prices for cocoa are currently under review, taking into account relevant factors and recent developments, and revised reference prices are expected by the end of 2024.

High Prices: A partial relief

Farmgate prices at or preferably above the LIRP are a critical component of Fairtrade’s holistic approach to living income, as it allows farmers to make the necessary investments in their farms to increase yields, take measures to become more resilient against the effects of climate change, and/or diversify their sources of income. It also allows them to pay hired workers a living wage and mitigate the labour scarcity issues in cocoa growing regions due to illegal but highly remunerated gold mining activities in Ghana. It is therefore very encouraging to see the farmgate price announced on the 11 September 2024 by the Ghanaian government and the 1 October 2024 by the Ivorian government. However, high prices combined with lower yields do not necessarily translate into better livelihoods for farmers:

• Underlying causes of price increases. The recent price surge is driven by reduced cocoa supply from West Africa due to climate-related crop losses and diseases. These factors demonstrate the fragility of the cocoa sector. In spite of the welcome higher farmgate prices, farmer household incomes are also impacted by lower yields and higher production and living costs.

• Price insecurity caused by boom-and-bust cycles. The uncertainty of knowing if future prices obtained will cover the cost of production during harvest can make farmers risk averse and therefore, they are often unable to make the necessary longer-term investments to improve productivity. Fairtrade has long argued that the cyclical nature of price spikes and collapses is fundamentally unsustainable for smallholder farmers. In fact, the volatility of market prices traps farmers in poverty and threatens the future of cocoa. The Fairtrade Minimum Price provides a floor price when prices collapse, while the LIRP aims to provide a more stable and predictable income, allowing farmers to invest in their farms, adapt to climate change, and break free from the boom-and-bust cycle.

• Uncertainty about future supply and regulation. It is still unclear whether the current price trend will continue or if, in time, supply will recover, leading to oversupply pushing down prices. Moreover, new regulations in Europe, such as those on deforestation and corporate due diligence, while necessary for sustainability, will increase costs for producers and companies in ways that are not yet fully known/predictable.

The voluntary Living Income Reference Prices (LIRP) alongside the mandatory Fairtrade Minimum Price safety net remain in place if global prices drop.

Why a comprehensive Fairtrade package is indispensable

Fairtrade’s Living Income Reference Price, Premium, and Minimum Price interventions remain crucial and are most effective when combined with other Fairtrade initiatives:

• Providing stability in uncertain times: In cases where the LIRP is adopted as a guaranteed floor price that farmers can count on regardless of market volatility, it provides the security that allows them to plan for the future, invest in their farms, and implement sustainable practices.

• Fairtrade Premium: The Fairtrade Premium provides vital funds directly to farmer cooperatives, so they can provide adequate service to their members, for instance by reinvesting in productivity improvements, diversification initiatives, and community projects. This non-negotiable premium helps farmers invest in long-term development. Fairtrade understands the 25% increase of the operating costs for Ivorian cooperatives in the Ivorian government defined price structure.

• Fairtrade Minimum Price: It provides a safety net when the market crashes and is a mandatory minimum price for cocoa sold on Fairtrade terms.

• Fairtrade Standards: Fairtrade Standards play a critical role in ensuring that cocoa is produced and traded under ethical and sustainable conditions. These standards promote good agricultural practices, decent labour conditions, environmental stewardship, and responsible purchasing practices, all of which are essential for achieving a sustainable and equitable cocoa sector.

• Producer support: Fairtrade provides targeted support to farmers and their cooperatives through capacity-building programs, training, and access to resources. The Fairtrade West Africa Cocoa Programme builds strong and resilient cooperatives by assisting them in assessing risks connected to deforestation and human rights and environmental due diligence among others. Fairtrade working with cooperatives helps farmers improve productivity, enhance quality, and adopt climate-resilient practices, positioning them to better face current and future challenges.

• Committing to long-term resilience: Beyond temporary price increases, farmers need a broader commitment from the cocoa sector. This includes a guarantee that buyers will continue to pay at least the LIRP even when market prices plummet, alongside support for measures that boost resilience, including improving productivity, diversifying crops, and adapting to climate change.

• Facilitating long-term contracts and partnerships: Stable minimum prices, coupled with long-term sourcing commitments, create stronger relationships between buyers and cocoa producers. This approach encourages co-investment and shared risk, which are essential to building a resilient cocoa sector.

• Mitigating the impact of rising costs and new regulations: As new regulations increase costs, the Fairtrade Premium combined with Fairtrade Standards that mandate sharing the burden of regulations are designed to assist farmers and their cooperatives ensuring that the burden does not fall disproportionately on those least able to bear it.

• Supporting environmental and social goals: By providing a more predictable income, the LIRP enables farmers to invest in climate-resilient practices and sustainable production methods, aligning economic stability with environmental sustainability.

Fairtrade Recommendations

To achieve more sustainable and equitable outcomes in the cocoa sector, stakeholders should:

• Promote broader adoption of the Fairtrade package: Encourage the industry, including governments, chocolate manufacturers, and traders, to source cocoa under Fairtrade terms and adopt the Fairtrade LIRP as a base price.
• Support long-term contracts and co-investment: Strengthen partnerships between cocoa producers and buyers through long-term contracts and co-investment, ensuring stability and shared responsibility.
• Prepare for regulatory changes: Collaborate on adapting to new regulations in a way that minimizes the financial burden on smallholder farmers. Farmers and their cooperatives cannot be left to absorb increased costs as a result of regulation without that cost being included in the price they receive.
• Invest in climate resilience and diversification: Support initiatives that help farmers improve productivity, adapt to climate change, and diversify their income sources to reduce dependency on cocoa alone.

Conclusion

While the current high cocoa prices are welcome, they do not fully solve the underlying issues of price volatility, low productivity, and income insecurity. Farmers are facing multiple crises, and they need more than higher prices alone.

Fairtrade financial interventions - the Fairtrade Minimum Price, Fairtrade Premium and Fairtrade Living Income Reference Price combined with Fairtrade Standards and producer support -are indispensable when it comes to ensuring a fair, stable, and sustainable income for cocoa farmers in the long run. It must be coupled with commitments to long-term resilience, support for adaptation, and investments in diversification to build a robust cocoa sector capable of withstanding future challenges.

[1] The Fairtrade Living Income Reference Prices for cocoa are currently under review, taking into account relevant factors and recent developments, and revised reference prices are expected by the end of 2024.

For more information contact: press@fairtrade.net