Fair Trade Cocoa: North and South

In a remote area of Peru, where the far western reaches of the Amazon jungle wash up against the eastern slopes of the Andes, lies the isolated and poor, but beautiful and fertile, Rio Apurímac Valley. There is only one way out, a stomach-turning and dangerous dirt road that hugs sheer cliffs, wraps around narrow blind curves, and slowly climbs the 13,000-foot-high mountain passes that separate the valley residents from the rest of Peru.

Last summer, three of us from Equal Exchange took this road to visit our newest suppliers: the organic cocoa farmers of C.A.C.V.R.A. and El Quinacho cooperatives. These organic cocoa farmers were the latest to join a small group of co-ops worldwide that are certified to export Fair Trade cocoa. During the previous spring, the road out of their valley began to carry some of the organic cocoa that later went into Fair Trade Certified™ chocolate bars that consumer co-ops nationwide have started to stock.

Fair Trade shipments still make up only a small portion of the sales of these two cooperatives, but this is a beginning that mirrors positive changes in the cocoa trade that are just now taking hold more widely. And as happened in the 1980s with Fair Trade coffee, consumer cooperatives are already at the forefront in helping to bring Fair Trade cocoa and chocolate products to American consumers.

The core requirements for cocoa to qualify for Fair Trade certification are similar to those in the coffee sector:
• The cocoa must be produced and exported by democratically organized co-ops of small farmers;
• The importer must pay a floor price of $1,600 per metric ton (MT) or the world market price, whichever is higher;
• The importer must pay an additional “social premium of $200 per MT; and
• For certified organic cocoa the importer must pay an additional $200 per MT.

Why cocoa farmers need Fair Trade

Consumer co-op managers and purchasers are familiar with how international commodity trading often works very badly for the very poor. In the case of cocoa production, the status quo normally provides only a poverty-level income for the approximately 2,000,000 small-scale farmers (each cultivating less than 12 acres) who grow 90 percent of the world’s cocoa. Even in a better year, such as 2004, the world market price still averaged 15 percent below the Fair Trade floor price.

As in the coffee trade, these small farmers typically lack any better economic alternatives to cocoa, and they do not have the market leverage necessary to secure decent pricing for their harvests. For most of them, growing cocoa is either a livelihood they have inherited from their parents or it is the best of the meager economic options available to them.

For example, most of the families that now farm along the Rio Apurímac migrated to the valley in last 60 years to escape the even more hard-scrabble lives their families led in the Andean highlands. There, they were subsistence potato farmers and laborers entrapped by local elites.

The lack of viable choices is also driven home by one of the valley’s other major crops—coca leaf, the base ingredient for cocaine. Half of Peru’s coca crop is grown in the Rio Apurímac Valley, and a central cause is the low price paid for legal crops. Despite coca’s presence in their midst, it seemed to be accepted reluctantly, in part due to the violence that seems to always accompany the narcotics trade. Farmers told us that legitimate crops were always preferred so long as they could provide at least a basic standard of living, even if it yielded only a small fraction of what narco-traffickers would pay for coca leaf.

In other parts of the world where small farmers rely on cocoa production—West Africa, Indonesia, the Caribbean basin—this paucity of economic alternatives seems to be the pattern as well.
There are further parallels between the coffee and cocoa trades. With both commodities the profitability generally increases with each link in the supply chain. The local intermediaries are better off than the farmers. The export houses fare better still. International bulk cocoa traders and processors like Cargill and Archer Daniel Midland might enjoy annual profits in the tens or hundreds of millions of dollars (estimates—since these private corporations reveal very little about their finances), and multinational chocolate manufacturers like Hershey, Mars, and Nestlé do at least as well.

On the other hand, it is also true that for both coffee and cocoa, the nature of the crops supports the formation of farmer cooperatives owned and run by the producers themselves. This allows the farmers the opportunity to take upon themselves the in-country, value-added links in the supply chain, such as cocoa collection, sorting, warehousing, and exportation, thereby increasing the farmers’ income, their economic control, and their options.

Working together in a co-op also allows for the provision of services that are viable for a group but out of reach for an individual small farmer. For example, in the Dominican Republic the CONACADO co-op, on behalf of its 9,000 members, has invested in extensive quality control training and in organic certification. Both measures have opened up new, more profitable markets.

The most ambitious example yet of co-op’s taking greater control is from Ghana. There, the 30,000-member-strong Kuapa Koko (meaning “good cocoa”) cooperative is one-third owner of the Day Chocolate company, a British Fair Trade firm that in turn markets the Divine line of Fair Trade chocolates.

A good, strong start

As recently as 2000, there were very few fairly traded cocoa products available in the U.S. or any country. But since then the Fair Trade cocoa category has really come to life. Now, there are a range of products available on the U.S. market, with a steadily growing number of participating companies and distributors, making continued growth of the category almost assured. As was true with Fair Trade coffee, small firms are leading the way. So far, no firm with more than $10 million in cocoa/chocolate sales is involved, though we should hope that will change.

The new array of Fair Trade cocoa/chocolate products are mostly certified organic and mostly in the premium or gourmet segment. The variety of products available include at least the following, and possibly more: cocoa baking powder, hot cocoa mix (packaged and bulk, some with milk, some without), “Chocodrops,” chocolate syrup, chocolate-covered coffee beans, and chocolate bars (1.4–3.5 ounces, assorted flavors).

For now, most of the Fair Trade sales volume is in chocolate bars, which are available in milk chocolate and differing shades of dark chocolate, with or without nuts, and in single-origin bars (i.e., all the cocoa is from one country).

Retailers and consumers should remember that in the Fair Trade system, it is the individual product, not the company or brand, that is certified. A few companies that have a relatively small product line (eight SKUs or less) offer only Fair Trade cocoa products—including Divine, Ithaca Art Bar, Omanhene Chocolates, and Equal Exchange. Other participating companies offer from one to a dozen Fair Trade Certified™ SKUs.

A relevant aside is that sugar is, of course, a major ingredient in most cocoa-based products and even outweighs the cocoa in many products. Fortunately, Fair Trade Certified™ sugar is now available from both Fair Trade importers and at least one large conventional corporation, Wholesome Sweeteners. At Equal Exchange, we have been using only fairly traded, organic sugar in our cocoa products since 2002, and we hope others will consider using Fair Trade sugar as well.

Much to be done

Despite this auspicious beginning, there remains much to be done at every link of the cocoa supply chain from farmer to consumer. While U.S. sales of Fair Trade Certified™ cocoa products have grown rapidly in the last three years, they still represent less than one-tenth of 1 percent of the cocoa consumed in the country each year. Likewise, only a small fraction of the world’s cocoa farmers belong to the 20 or so Fair Trade registered cooperatives, and even those cooperatives are selling less than a third of their crop to the fledgling Fair Trade market.

Further, this year, the growing Fair Trade market could play a pivotal role in larger developments in the international cocoa trade. This is because there continues to be pressure on the world’s largest cocoa exporters, importers, and manufacturers to deal with the problem of forced child labor on some West African cocoa farms. In 2001, various media outlets around the world, including the BBC and Knight-Ridder, drew attention to the use of forced child labor on some African farms. Since West Africa produces 70 percent of the world’s cocoa this meant that a huge portion of the supply might be tainted. In response, and under threat of legislation from the U.S. Congress, the large corporations pledged to create a monitoring system (albeit voluntary) that was to address the problem. That system was to be up and running by July 2005.

However, according to a scathing Valentine’s Day op-ed in the L.A. Times by the two legislators most involved, Sen. Harkin (Iowa), and Rep. Engel (N.Y.), it appears the industry will not meet its obligations and has made disappointing progress in the four years since the forced child labor scandal erupted. Further, other critics have pointed out that even if implemented, the industry’s system would do nothing to address the chronically low prices that breed poverty among cocoa farmers. They have been pushing the cocoa industry to at least adopt Fair Trade policies for a portion of their imports as a good-faith gesture.

The Fair Trade monitoring and certification system already addresses the issues of forced and child labor and requires adherence to all relevant International Labour Office conventions. The industry, however, has made it clear that they have no interest in utilizing the Fair Trade system, even though it already offers an up-and-running, monitored source of “clean” cocoa and addresses the crucial underlying problem of low incomes. Co-op retailers and other supporters of Fair Trade could help by lending their voices to the debate.

All told, the Fair Trade community, including importers, manufacturers, and participating retailers, are making available a growing array of Fair Trade Certified™ cocoa and chocolate products for sale here in the U.S., Canada and Europe. The results so far include small but encouraging changes at co-ops at both ends of the supply chain. Cocoa farmers like Señor Aylas (see photo above) tell us that the higher, more reliable, income they earn through Fair Trade exports is giving them hope that their children might have a few more opportunities in life than they did.
 

Resources

For a list of farmer co-ops supplying Fair Trade cocoa and sugar: http://www.fairtradeusa.org/products-partners/cocoa

For a list of manufacturers offering at least one Fair Trade Certified cocoa product: www.transfairusa.org/content/certification/licensees2.php#cocoa

To learn more about the chocolate industry’s proposals: www.cocoaverification.org

*** Rodney North is a member of Equal Exchange, a worker-owned cooperative, where he also serves on the board of directors (rnorth@equalexchange.com).