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FAIR TRADE AND ORGANIC CERTIFICATION FROM THE EYES OF A PRODUCER

In 1995 I closed a profitable business in the USA, sold a very nice house, packed some shipping containers and moved to Brazil to become a cacau farmer. The radical change of lifestyle was taken because my Brazilian born wife, youngest of a family of nine, was the last hope for saving a 2500 acre cacau farm that had been abandoned by other family members.

Our new enterprise consisted of +-60 workers, 26 living with families in free farm residences. There was no residence for the owners since it was customary to live in a distant city and rely on the farm administrator to deal with the disorganized mess. We moved into an 800 sq foot house intended for the guy that milked cows. Since all the cows had "vanished" due to disease, theft and slaughter, there was no cowboy.

There were no written documents that listed workers, water was taken from a river that passes through the farm, telephone service was unheard of and hand tools consisted of one broken point screwdriver. The administrator, 60 years old, born in the farm property, had been feuding with family members for more than 20 years.. A real mess.

Today, the farm operates with 26 workers, has water and indoor sanitation in each house, has been completely mapped using GPS and Autocad, maintains a repair shop that is not equaled for 500km and electrical power has been installed in every residence, shop and work area. With no exception, each farm residence has parabolic antennas, color television, refrigerators and in some cases washing machines. In 2000, I designed and constructed a farm owners residence, installed radio link telephone and satellite internet. We have begun to feel like it is a true home. We are in residence at the farm and have been since 1995.

The workers are by Brazilian law, registered and receive all the benefits legislated by the Federal Government. Includer are:
* 44 hour work week
* 1-1/2 premium for extra hours
* double time for hours worked Sunday
* 30 days per year vacation with 33% bonus for the month
* 1 additional month salary called 13th month salary each year
* each child under 14 years receives a monthly salary equal to 5% of the worker
* each worker has government retirement plan which is paid monthly by the farm valued at
10% of gross salary
* each year the worker receives an additional month salary deposited for severance, if and
when it occurs
* a primary grade school is maintained in the farm at farm owner expense
* government managed medical care is paid for from a 5% salary deduction

The current salary is R$480.00 which equates to USD 220.00. Considering all the legislated benefits and the fact that the worker has 30 days vacation, 10 legal holidays and 1-1/2 days per week off....the hourly salary comes to something in the order of USD 1.80 or USD$ 15.00 per day worked. Failure to meet these obligations result in legal actions which can result in the farm being auctioned to meet the "AGRICULTURAL REFORM LAWS".

I was fortunate enough to have timed my arrival in the farm with that of "Witches Broom". The devastation caused by the disease is almost incalculable. In 1980 our farm produced 270 tons of beans. The year of 2000 closed with 30 tons. The application of technology, planning and very hard work, we closed 2008 with 60 tons and prospects of a similar harvest in 2009. Our farms are considered to be a model for management, social awareness and ecology...BUT...not a single cent of profit has been recognized and personal out of pocket prop up loans have mounted to something on the order of USD$300K.

Is there someone with more need for FAIR TRADE, I would like to meet them. I;ve had untold meetings and proposals from organizations SELLING certificates for FAIR TRADE, ORGANIC, RAIN FOREST ALLIANCE. Each has been turned away because it provides absolutely nothing towards the production of cacau, welfare of workers or ecological stability of our 500 acre Atlantic rain forest.

In an attempt to more fully understand the world of cacau, I made a trip to Ghana, Nigeria and Ivory Coast. The squalor and poverty I witnessed certainly did not substantiate the claims made by third party certification agents. Most of the small farms were hand to mouth existence and the only prosperity was achieved by 3rd party buyers that collected rural production. This production ultimately settled in the warehouses of multinational giants and finally on to the shelves of shops across Europe and the USA.

The web is filled with discussions regarding FAIR TRADE but most of the authors have not an inkling of the issues that prohibit FAIR TRADE. As long as commodity buyers in London and New York and Chicago control cacau prices and movement....FAIR TRADE ARE ONLY TWO WORDS!!!

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Jim:

This is a phenomenally valuable and interesting post and I am looking forward to a spirited discussion here not just about the issues involved, but of ways to address the issues in meaningful ways.

For several years, I have been trying to let people know just how unfair "Fair" trade can be.

One of the reasons I like to lead groups to cocoa growing regions and give them first-hand experience is so that they can experience personally the conditions that farmers live and work in, just how much work it is to grow cacao and process it into cocoa - and just how little the farmers receive in return.

:: Clay
Jim- thank you for posting your perspective. I have been trying to read everything I can about the issues of FT and Organics related to chocolate and thank you for your voice in the discussion.
What I see in my shop is that people are really trying to do the right thing when they seek out "Fair trade" because there is much talk about the ills of the chocolate growing industry, fear about child labor violations, slave labor etc. and not a lot of information available about the subject. You can't fault people for trying to be ethical in their purchasing and it really is hard for a general consumer to "know", so they rely on certification labels, I think.
So, I appreciate the discussion and look forward to more information as I try to get a clearer picture about the "fair trade" and organic certification processes. I appreciate the original intent behind trying to establish some guidelines for "fairness" and also understand the potential for certifying boards to be corrupt or irrelevant. What I look forward to is more discussion on the subject so that I can get the big picture and I am very appreciative of what you have added to the conversation, Jim.
Sarah,
Thanks for the feedback. I launched the subject to have persons as yourself look at the "business end" of FT.

The majority of FT advertisement is coming out of co-ops which are normally 3rd party managers of produce gained from small farmers. In my visit to Africa, the small producers had no idea what the world market price was and were receiving very low percentages of current prices. I view co-ops with a very jaundice eye until it can be established that they are in fact a group of farmers that have banded together to improve their lot. For the greater part, Small farm holders normally operate day to day and cash flow calculations are made by counting what they have in the pocket. This is the primary reason for "trash" cacau flooding the market. If the farmer has 100kg of cacau on hand, his urgency is to get it to some market as soon as possible. Fermentation, drying and packaging are not even on the radar.

I hope many opinions surface as a result from this attempt to shed some light on the FT subject.

Best regards
Jim Lucas
Jim,

Firstly, thank you for sharing your story. Taking what you have said at face value, what you have achieved is nothing short of astounding. Your social equity development is impressive and your dedication to your workers and their families is outstanding.

What you have witnessed first hand in Africa supports the things that we have read about cacao growing in Africa and is worse than what we have seen ourselves in the South Pacific and Ecuador.

Regarding certification standards, Samantha is on record regarding the Rainforest Alliance (RA). RA in particular seem utterly cynical (it is little surprise that big corporations like McDonalds are so keen to support them). Other certifications (in my opinion) have their merits, but as I said in Clay's thread (see link below) on this subject: they often fail (through exclusion) the people who need them most.

http://www.thechocolatelife.com/group/givingback/forum/topics/19789...

Also as I mentioned in a post here the other day, I believe that possibly the best way for growers to get enough money for their crop is for a percentage to be taken off the top (at the wholesale, or retail of chocolate) and paid back to them, rather than adding a percentage at the bottom, which just inflates the retail price (this is essentially compound interest at work) thereby putting more downward pressure on the cocoa price.


Here is a simplified example to illustrate the point:

Certification based premium of 20% to grower:
-----------------------------------
Grower sells cocoa for $1.20 per kg including 20% certification premium
Buyer adds 50% and sells cocoa for $1.80 per kg
Exporter adds his handling fees and profit 50%, sells cocoa for $2.70 per kg
Manufacturer value adds cocoa beans (cleans, packages etc) and sells it to wholesaler (200% increase) for $8.10 per kg
Wholesaler adds 50% and sells it to retailer for $12.15 per kg
Retailer adds 30% and sells it to customer for $15.80 per kg


Grower gets a total of $1.20 per kg
Finished price to consumer is: $15.80


Top down premium of 20% from retailer:
-------------------------------------------------
Grower sells cocoa for $1 per kg
Buyer adds 50% and sells cocoa for $1.50 per kg
Exporter adds his handling fees and profit 50%, sells cocoa for $2.25 per kg
Manufacturer value adds cocoa beans (cleans, packages etc) and sells it to wholesaler (200% increase) for $6.75 per kg
Wholesaler adds 50% and sells it to retailer for $10.13 per kg
Retailer adds 30% for themselves plus 20% premium for the grower and sells it to customer for $15.19 per kg (that's

Grower gets a total of $3.03 per kg
Finished price to consumer is: $15.19

The grower gets almost three times the price for their cocoa, consumer pays less as well.

The advantage of this system is further magnified when significant value adding is involved (like manufacturing chocolate, rather than just selling beans). A friend of ours here in Australia is working to build just such a system for cocoa growers in the South Pacific.

I agree with Jim that commodity trading of cacao can not deliver reliable fair returns for growers. Given that the system exists and is so entrenched, I think that we need to look for other ways (like the idea above) to fix the problem. As artisanal and small scale manufacturers of cocoa products we are in a position to do this (just look at Shawn Askinosie, he is out there doing it right now).


The poorest farmers need support (in the form of education, information and reliable markets) and compassion from the people like us who buy and process their cocoa. "Free market" economics is clearly failing them.

Thank you once again for your post Jim and I hope that the effort and investment that you have put into your farm leads your family and workers to a bright future.
Heh if only the numbers were like that... in my experience every stop in the system adds ~100%. This doesn't change the fact that a top down system is superior for the farmers, though inferior for every other link in the chain.

I've upset more than a few people over the years by stating my belief that organic and fair trade chocolate tends to be little more than marketing gimmick to sell chocolate that won't move under its own merits... but I'm a cynic.

I believe the only real change is going to be through more companies controlling their product from crop to wholesale. I think it'll happen, just a matter of time... oops I almost sounded optimistic there. ;)
Devil,

You may well be right about the 100%, in which case top down becomes even better for the farmer.

I have to disagree though on your last point about vertical integration. In my experience first world companies who own or control the means of production in third world countries rarely put the welfare of their workforce before their own profits (think Nike, Union Carbide etc).

I will say again that what I think will produce the best outcome for growers is compassion and partnership (like Askinosie chocolate).
Hi All,

We are the ones who may be able to change things - probably only in a small way but hey it might work. We are the people who buy/eat/make chocolate, we are the people who use this forum and make calls based partly on what we read here.
Could we start our own system? If someone "we" trust had been to see Jim and noted that his workforce seemed well-treated, his methods looked good and that quality was a prime concern then told the rest of us we could use that judgement when making purchasing decisions.
The problem isn't at the consumers' end as they are just trying to do a little bit to help the welfare of the farm workers. It sounds like the issue is partly caised by intermediate parties doing whatever they can to increase their share.
Of course I'm being impractical but if everyone who'd visited a farm listed the good points and points of concern then maybe we could start something. It's surely in all our interests that we pay a fair price and that quality starts to take a more important role. The risk is that eloquent English-speaking people will shout louder than anyone else but if we started a database then maybe we might help. A little.
I'll sit back and wait to be shot down now!
Duffy
Hi Duffy,

This idea of "incidental" assessment of cocoa farms is an interesting one. Sam and I spent some time talking it over on our walk this morning. I am not about to shoot you down in flames, I think that the idea has merit. There are plenty of stumbling blocks and issues with a system like this, but the fundamental concept is sound in my opinion.

Ultimately, what you are talking about is transparency. If farmers and co-ops are prepared to allow people to see what they do (and photograph it), then there is pressure on them to do the right thing (i.e. not employ child labour, ferment and dry cocoa fully etc). Jim is already doing this off his own bat by posting photos here. The same applies to manufacturers. As manufacturers we (Tava) try to be transparent. If people want to know where our cocoa comes from, then we tell them. If they want to know that our factory is nut free, then we are happy to show them.

Ultimately certification systems are about trust. The logo on a product tells you something about its origin. The big downfall of this though is that you have to be able to trust the label (and know what it really stands for!). Sadly that trust isn't always warranted as big corporations want weak standards (so that they don't have to pay more) and there are people out there who see the opportunity to make money from setting up certification systems with nice logos, but no substance to their standards.

So, I think that it is definitely possible to set up a system like you suggest to register farms (that will allow visits), then allow visitors to report on what they saw. The key issue here will be that the visitor has to understand what they see and know what to look out for (not easy, but not impossible). Frankly, I think that it would be as good a system as any and be better than some.

The same system could (should) also be applied to manufacturers ...

Langdon
I didn't mean that just because companies own all the steps they'll find it in the goodness of their heart to reward the farmers... just that all the middle people are less likely to want to accept less money as is involved in the top down approach.

Compassion is definately required, but tends to be at odds with "good business," I'd hope the current economic situation would be a lesson on shortsighted greed, but then my cynic side kicks in again.
Hi Devil,

The nice thing about the top down system is that the middlemen don't actually loose any money, it's just that they don't get more as a result of the certification. This is a big benefit as middlemen who feel threatened can do some unpleasant things (usually economically) to growers (which we have heard tell of in Vanuatu).

It's a sad day when compassion is at odds with good business (or profit). I look at this situation and think that a manufacturer who looks after growers (his/her supplier) is working to ensure the companies long term success even if it costs some profit initially. But then the current economic situation really does show how little most companies think about the long term.
Hi Devil, I just re-read my last reply and think it may sound a bit abrupt. Just wanted to clarify that I think you are raising good points and am not trying to shut you down or anything. Keep it coming :-)

Langdon
Landon,
I would appreciate having an elaboration on the various players in the models. I am particularly interested in the role of the "manufacturer" that cleans, packages.....Do they turn the bean into chocolate mass or other form beside beans? Same question for the "wholesaler".

Our business model is to produce a product that will be delivered directly into the hands of the bean-bar chocolate facility. To this end, we have obtained import/export credentials and are able to move cacau to any location. To make the model work, it is probable that the beans will move by container to a central distribution point. The beans will leave here in a state that does not require additional manipulation prior to use. depending on legislation of the point of origin and point of receipt, there could be requirements for an "offical" clearing agent.

If the model is successful, we will have managed to remove many of the "50%" "200%" stones in the road. The resultant direct sales and purchase activity should increase the producers income and reduce the cost to bean-bar parties. I've already made shipments using this method and feel very confident it works.

Although the system works only for medium and large scale producers, it provides an example for small farmers that wish to form co-ops and duplicate the model. I'm of the opinion, we need to help small farmers understand the effectiveness and power of unity.

Best regards
Jim Lucas

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