Civil society perspectives on the living income differential for cocoa producers

First things first: what is the living income differential (LID)? The world’s oversupply of cocoa is one of a number of factors leading to cocoa producers receiving a woefully low share of cocoa revenues. Most producers live in extreme poverty with few alternative income generating activities.

The cocoa sectors in Ghana and Côte d’Ivoire are both heavily managed by government – from controlling extension service provision to producers, to marketing all cocoa to international buyers. The respective agencies (the Ghana Cocoa Board and Côte d’Ivoire’s Conseil du Café-Cacao) have collaborated to establish a pricing mechanism to help producers earn a living wage – the so-called LID.

Both governments, at the start of the cocoa harvesting season, set the prices producers will receive for their cocoa. Prices usually span the entire year and offer producers a guaranteed (‘floor’) price. The floor price is fixed: producers cannot negotiate for higher prices.

For the 2020-21 growing season, the governments of Ghana and Côte d’Ivoire introduced the LID on all cocoa sales. By applying a ‘differential’ of US$400/tonne above the floor price, the LID seeks to increase income for cocoa producers to help them achieve a living income.

Panellists at a webinar discussed whether the LID is achieving this aim, examined the challenges of implementing the LID and explored ways to get producers' voices heard in the LID’s implementation.

The speakers included Evelyn Bahn, policy advisor on human rights and business at INKOTA; Pauline Zei, director of Inades-Formation Côte d'Ivoire; Sandra Kwabea Sarkwah, project coordinator at SEND-Ghana and coordinator from the Ghana Civil-Society Cocoa Platform (GCCP); and Ismaila Pomasi, chairperson for the Cocoa Abrabopa Association (CAA) in Ghana and a member of the GCCP.

LID: falling short

As reported by the Cocoa Barometer, by October 2020 the LID had increased Ghana’s guaranteed cocoa farm gate price by 28% to $1,837 per tonne, and Côte d’Ivoire’s by 21% to $1,840.

But according to Pomasi, these prices are still too low: to earn enough money to live on, producers in Ghana and Côte d’Ivoire need to bring in at least $3,166 per metric tonne. Pomasi suggested a possible solution would be a fixed price at the global level that would give cocoa buyers less incentive to try to source cheaper produce in other parts of the world.

A bumper harvest in the last growing season deepened problems of oversupply and the same is predicted for the coming season. Meanwhile, COVID-19 depressed global demand for cocoa.

The government of Côte d’Ivoire had little choice but to lower the farm gate price to ensure producers can sell their remaining cocoa. These reductions largely cancelled out the LID’s income benefits; meanwhile, cooperatives and producers are having huge problems selling cocoa that could not be pre-sold. In Ghana, producers are still waiting for the payment of the LID.

A vital part of the original LID agreement was to implement plans that would avoid excessive output so as not to exacerbate global oversupply. These plans have not been implemented.

Multinationals dodging the LID

While most companies have publicly stated support for the LID, others have tried to reject or circumvent the relevant markets to avoid paying the premiums. Others have tried to negotiate with governments to bring the producer floor price down.

A major chocolate manufacturer, for example, bought significant volumes of cocoa through the futures market. This market is typically used for buyer hedging or hedge fund speculation, rather than actually procuring beans. This move allowed the chocolate maker to buy less cocoa from Côte d'Ivoire and Ghana and avoid paying the LID.

Ghana and Côte d’Ivoire are considering naming and shaming those who are undermining the LID and cancelling their sustainability schemes in the respective countries. Kwabea Sarkwah emphasised the fact that companies must fulfil their commitment to the LID, and therefore there is a need to increase pressure on these companies to ensure they pay the LID.

Opportunities: securing producer voice in LID design, implementation, and beyond

The LID has the potential to enhance livelihoods, but despite producers being at the heart of the living income debate, development and management of the LID – as the panellists discussed − has been government-led with little producer or civil society involvement.

More work is needed to address power imbalances in the cocoa sector. This begins by genuinely including local civil society organisations (CSOs), producers and their communities in discussions regarding implementation of the LID and living income.

Bahn highlighted the need for logistical, technical and financial support to enable meaningful participation in decision-making processes and shared details of the training INKOTA provides to CSOs, cooperatives and producers.

Zei flagged that for producer representatives to be legitimate, they should be able to reflect the views from all producers, not just those from a few cooperatives. According to Zei and Kwabea Sarkwah, platforms set up in Côte d’Ivoire and Ghana for producer representatives to lobby their respective states and influence cocoa-related policies, including the LID, are crucial.

To enhance producer agency, the panel emphasised the importance of strong and informed producer voices − able to make choices and effect change according to producer priorities. This goes beyond the LID, to engaging with and influencing policy and corporate practice more broadly or make other livelihood choices.

Some producers are seeking or benefiting from support (for example from Inades Formation and Inkota) to better access data on the cocoa value chain (key actors, production costs, living income calculations and so on), and the GCCP is collectively (farmers, CSOs, NGOs, workers’ union, media) working to influence policies to improve production, environmental management and farmer incomes as well as explore alternatives to growing cocoa.

Other key issues affecting the cocoa sector and producers that need to be resolved include deforestation, sustainability, child labour and respect for human rights. Countries have begun to adopt due diligence regulations to try to address these issues and the EU is currently working on a proposal for a mandatory due diligence framework at the EU level.

But, as Kwabea Sarkwah pointed out, cocoa producers and their communities must be fully involved in these reform processes. For Pomasi, once producers have been guaranteed a living income, addressing these issues will be easier.

• Watch a recording of the webinar on IIED’s YouTube channel
• Pauline Zei’s presentation is available on IIED's SlideShare site (slides in French)

The webinar was part of IIED’s Empowering Producers in Commercial agriculture (EPIC) initiative, funded by the  UK Foreign, Commonwealth & Development Office (FCDO) through its Commercial Agriculture for Smallholders and Agribusiness (CASA) programme.  EPIC aims to empower rural producers and wider communities to influence public decisions and private sector conduct for locally beneficial and more sustainable investments in commercial agriculture.