Contributions of Fairtrade to the cocoa industry in Ghana

A report published by Reuters Television revealed Ghana produces 14% of the total production of the world’s cocoa. In spite of this glowing achievement cocoa farmers receive a very little percentage of the revenue generated by chocolate manufacturing companies across the globe through the sales of chocolate bars (Reuters 2009). An International Cocoa Organisation (ICO) reports also revealed that West African farmers, supply 70 percent of all cocoa to feed the chocolate industry worldwide. While these companies create wealth for their shareholders the farmers in West Africa live in abject poverty.  According to the International Institute of Tropical only half of the international cocoa price on the world market goes to farmers in West Africa while in other countries farmers receive up to 90 percent of that price.

Statistics such as the above one could argue prompted well meaning organisations such as Comic Relief, Oxfam, Christian Aid, Bill & Melinda Gates Foundation etc to throw in their weight in support of the farmers in West Africa. For instance the World Cocoa Foundation started a five-year project aimed at doubling incomes of farmers by 2013. The project plans to reach about 200,000 small cocoa farming households in Cameroon, Cote d’Ivoire, Ghana, Liberia, and Nigeria (http://seattletimes.nwsource.com)

Supply chain of cocoa

Prior to the advent of fair trade in the country the industry was very fragmented. The cocoa trade was controlled by middlemen who created so much inefficiency in the supply chain. Many of the farmers were excluded from mainstream world markets because they access these markets through long trading chains. These middlemen exploited the poor farmers leaving them with very little income. In addition to this prices paid for farm produce from these countries on the world market were not quite encouraging. Fairtrade in conjunction with other organizations contributed tremendously in increasing the income level of cocoa farmers in the country by eliminating middlemen in the supply chain of the cocoa industry.

Fairtrade organisations achieved this feat by helping the farmers to form co-ops known as Kuapa. This coop which started with just a few members currently has about 48,854 farmers from 1,124 village-level farmer societies. Kuapa members produced 63,000 tons of cocoa beans in 2004, representing 8% of Ghana’s total production of 736,000 tons. The farmers became empowered and gained bargaining power after becoming one unit. The coop buys cocoa beans directly from the farmers at a very fair price compared to what they were receiving from the middlemen. (www.fairtrade.org.uk).

Cocoa price fluctuation

Cocoa price on the world market has been unstable over the years. The instability of cocoa price on the market poses a great challenge to farmers as well as the producing countries. According to the ICO report in 2000 cocoa price was $714 per ton. This price somewhat increased to $1,280 per ton in 2002. In 2003/04 prices went high at an average of around $1,600. The report went on to reveal that the second and third quarters of the 2005/06 cocoa season were characterized by high volatility in cocoa prices. (www.fairtrade.org.uk).

The cause of this was attributed to arbitrage trading due to the depreciation of the US dollar and the interruption of supplies due to some problems in Ghana and Côte d’Ivoire. In Ghana there was a dispute between licensed buyers and COCOBOD over logistical problems and a shortage of jute sacks. The problem in Côte d’Ivoire was in relation to the political situation in the country. Average international cocoa prices, as measured by the ICO daily price, was US$1,854 per ton in 2006/2007. (ICO reports 2005/06)

One most important Fairtrade contribution to cocoa farmers in Ghana is that in spite of fluctuation of cocoa in the world market farmers are guaranteed a maximum price for their cocoa. In addition to that the farmers receive premium through Kuapa and invest in the needs of the farmers. For instance in 2004 when the world cocoa price was $1600 per ton Kuapa received the world price plus $150 per ton premium for investment in commercial, social or environmental projects. It provides higher prices to farmers than Ghana government’s guaranteed price. It also provides end of year bonus and other extra incomes to increase the income level of farmers (www.fairtrade.org.uk).

Fairtrade certified products

The Fairtrade certification system has contributed significantly to promoting Ghana’s cocoa and other Fairtrade certified crops across the globe. The certification is an independent consumer label which appears on products. The label guarantees that disadvantaged producers are paid a better deal for their products. A report by Fair Trade Foundation UK revealed sales of Fairtrade cocoa products for the quarter April to June 2008 increased from £5m to £6m for the same period last year. At the same time volume sales, the real indicator of the amount of Fairtrade premiums that go back to producer groups to spend on community development projects such as schools and clinics, have increased by 17%.

Fair Trade Foundation UK reports that total sales of Fairtrade products for the quarter April to June 2008 grew from an estimated retail value of £113m to £176m. The growth is very significant because it is estimated that more than 7.5 million people involved in agricultural sector (farmers, workers and their families) in 59 developing countries will benefit from the international Fairtrade system.

Apart from the above Fair Trade Foundation, UK report indicates sales of Fairtrade goods in the UK are on high increase. Since 2001, sales volumes have grown by 40-50% on average, with one million households buying Fairtrade goods between December 2007 and December 2008, the foundation said. The value of these goods was £500m in 2007 and £700m in 2008, it added. The report went on to say that the economic recession across the globe has not affected purchases of Fairtrade goods – the rate of growth is still increasing. (Fairtrade Foundation UK).

Finally a survey conducted by CAPI OmniBus shows that consumers’ appetite for products carrying the Fairtrade mark has increased in all areas. The survey went on to say demand for Fairtrade in schools, colleges and universities has nearly tripled from 10% to 29% and demand in other sectors such as hotels and B&Bs, cafes, restaurants, pubs, supermarkets and smaller stores continues to flourish. In the workplace the number of people wanting Fairtrade has more than doubled from 9% to 21% (Fair Trade Foundation UK).

Conclusion

Fairtrade is becoming a world phenomenon and the organisations involved in promoting it have genuine concerns in improving the lot of farmers in the developing countries. It is up to the farmers to take up the challenge and embrace Fairtrade for their own good. Farmers who are not yet members of Kuapa Kokoo or any Fairtrade group should do the noble thing by joining in order to reap the benefit of premium payments. The market for Fairtrade products is rapidly expanding with more supermarkets as well as companies and organisations getting involved.
 
Francis Kwaku Egu, UK

kwakuhull@yahoo.com

www.francisbusinessviews.blogspot.com

2 comments

  1. fusheini Abdul Ganiwu

    to what extent is the cocoa industry of Ghana perfectly competetive

  2. Alistair Leadbetter

    That’s an excellent article Francis – thank you.

    There is one important correction that I would like to make. You write that “One most important Fairtrade contribution to cocoa farmers in Ghana is that in spite of fluctuation of cocoa in the world market farmers are guaranteed a maximum price for their cocoa.” Fairtrade guarantees farmers a _minimum_ price, not a maximum price. There is no maximum price since the Fairtrade cocoa price follows the market price when it rises above the Fairtrade minimum price

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