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I was sent an interesting thesis analyzing Fairtrade (i.e., FLO) in coffee in Laos.

The chapter titled Economic Sustainability contains the following information:

In addition to the overload of work the farmers must invest to gain 34 cents per pound extra, they also have to pay the Fairtrade Certification fee of US$3,460 per co-op (Euro2,378) per year and the administration fee and other fees of around US$5,000 per co-op which is not paid for by buyers (Wilson, 2006; Fridell, 2007B). Moreover, to gain the 15 cents per pound extra for organic coffee, they have to pay the Organic Certification fee of US$3,000 plus other administration fees of US$6,000. There are only 500 farmers in the co-op (JCFC, 2008), hence, it costs each farmer about US$35 to keep the certifications up to date.
This indicates that regardless of the higher gross incomes that result from higher Fairtrade prices, there is no guarantee of a positive net household income for these farmers who are charged the high costs of foreign inspectors and certification.

If these figures are correct, it costs this co-op (JCFC) over US$17,000/year to maintain both Fairtrade and organic certification. At a combined premium of US$0.20/lb it means the co-op must sell about 42 tons of coffee just to recoup the cost of certification out of the premiums paid

The thesis also reports that the per-capita annual income in the region is US$580. This means that co-op members spend the equivalent of about 7% of their annual income to pay for certification. Many farmers report that they won't join, or have dropped out of, the co-op because the amount of work involved to meet Fairtrade standards for quality is not worth the extra effort involved.

Can anyone tell me how this is "Fair" trade?

Tags: FLO, Fairtrade

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Hi Clay,

I found similar data when I was planning a discussion on Fair Trade/Organic with a group of food students.  Reading about FLO showed how little if anything farmers actually end up with once license fees are paid.  Your analysis of unFair Trade is spot on.  Probably the same is true for most certification programs by ngos-organic, kosher etc.

It certainly would be interesting to come up with a grower friendly alternative.

Michael

 

I live in Guatemala, and have a very small company.  We make hot chocolate only.  (http://www.junajpu.com/)
Impossible to get through all the paper work for exporting....much less for organic certification-

hence, we only sell locally.  I don't know ANY Cacao farms here that have Organic certification.  (Although there may be a co-op or 2 run by ngo's)

As for Fair trade coffee-  The farms here that DO have certification meet the standards, sure, but the problem is that they buy a great deal of their export coffee at ridiculously low prices from farms that really are not fair at all.
Whata system.

Here is the thesis in English by Lao honors student Bounthavivanh Mixap (aka Vanh) that Clay mentioned for you to read in its entirety. Vanh has requested that people email her at miznui <at> yahoo <dot> com if they have any questions about her thesis.

 

I think Vanh's excellent thesis this brings a really important light to the issues with fair trade that Clay, Sunita and others have brought up on these forums. In helping with some plantings of cacao in Lao, I am hoping to assist in setting up a more equitable direct trade model, or a model where people in Lao are making their own chocolate right there where it grows.

 

-Nat

____________________

Nat Bletter, PhD

Chocolate Flavormeister

Madre Chocolate

http://madrechocolate.com

Attachments:

Nat, many thanks for posting this, I devoured it, it's a very nice piece of academic research, I'll be in touch with Vanh.

I often teach and write about fair trade (my doctoral work was on the cocoa-chocolate trade, part of it on the FLO system), and I find that I run increasingly thin on ways to justify Fairtrade to my university students, or anyone who sincerely desires a way to direct their purchasing power ethically.

I am intrigued by Clay's use of the term "moral mafia" to describe the FLO system -- the suggestion being that to be considered "fair," producer co-ops are beholden to this particular model. Of course they are not -- there are plenty of artisan makers trying to circumvent it -- but the fair trade model remains by far the most visible to consumers, even if they don't fully understand how it works. So in that way, yes, it does have a stranglehold.

I did some research this summer for an article on FLO, and below are the figures I came up with. Note that I quote ONLY the FLO price floor for cocoa, which was $1600 per metric ton until January 2011. The more common protocol is to combine the social premium of $150 (now $200) with the price floor, which in my opinion artificially inflates the reported price for cocoa beans; the social premium almost never reaches farmers as cash for their crop, and goes almost exclusively to development projects, which is NOT a direct form of compensation. Here is my analysis:

 

For most of its existence, FLO has set the Fairtrade Minimum Price for conventional (non-organic, bulk) cocoa at $1600 per metric ton; in January 2011, it raised the price floor by 25%, to $2000. Taking into account this recent increase, between January 2006 and May 2011, the Fairtrade Minimum Price was higher than the world market price during eight months, at an average of $38.50 per metric ton. For fifty-seven months, the FLO price floor was lower, by an average of $987.51. That is, for all but eight months of the last five and a half years, certified cooperatives have received the world market price for their cocoa. To compare the two pricing schemes in a different way, FLO raised its price floor for cocoa to $2000 per metric ton in January 2011. For the twelve months preceding this raise, the average world market price for cocoa was $3,132.99.

The Fairtrade Minimum Price for cocoa seems to run much more in parallel with, rather than as alternative to, the price set on the world market. In the absence of derivation specifics (which are not given in either the Fairtrade Standards for Cocoa, which detail the commodity-specific price floor and premium, nor the global Minimum Price and Premium Table), the Fairtrade Minimum Price seems to be a sort of average of world market prices, moving irregularly upwards as market prices also rise. Of course, because agricultural commodities are subject to large price fluctuations, from year to year or even over the course of a single growing season, by guaranteeing a minimum price over the long term, Fairtrade does introduce a degree of security into a volatile system, smoothing budgetary forecasts and guaranteeing a certain amount of revenue. If the market price should fall below $2000 in the coming months, Fairtrade certification would protect participating cooperatives. Yet in practice, the Fairtrade Minimum Price has not, at least in recent years, demonstrated a meaningful alternative to the trade terms set on the world market.

Note: I calculated world market prices using the ICCO Monthly Averages of Daily Prices, available on the ICCO website, http://www.icco.org/statistics/monthly.aspx


Clay, if IMO does ever provide justification to you for its pricing scheme, or make known how much was paid out in the social premium last year, I'd love to hear about it. It seems to me a stagnant model that lacks a true vision for change.
--Kristy Leissle, PhD

Kristy:

The moral mafia I am referring to is not FLO, it's supporters of "Fair" trade who have not actually spent any time to learn what is really going on.

It's the general consuming public that assumes that "Fair" trade MUST BE FAIR just because there is a certificate and who demands that products/ingredients must be FT & Organic without really understanding what that means. Like many minorities, they can be very vocal and tend to be passionate, so they garner a lot of attention and can exert outsize influence. 

Chocolate Life Nat Bletter posted a link to a very interesting thesis on FT coffee in Laos that clearly reveals some of the potential (and real) flaws in certificate programs as well as some of the unintended consequences of such programs. ChocolateLife member Cristian Melo has posted a link to a fabulous thesis he did on cocoa in Ecuador.

Your numbers above clearly show that the direct economic benefits are hard to justify. My contention has always been that if FT was so great why aren't there many, many, many more co-ops who are FT certified? Could it be that the value - delivered to the grower - is not as rosy as the picture painted to the consumer? Could it be that it's so expensive that a significant percentage of certification fees is paid by third parties (including NGOs and taxpayer-funded aid programs)? Perhaps more importantly, the finances of these certification organizations is far from transparent. Given their demand for traceability up the supply chain you'd think that delivering reliable numbers for quantities of product moved and the value of the social premium paid would be easy to publish (and would be something they would be proud to publish). Yet, getting such figures is NOT an easy task. I have been waiting since May for "reliable" numbers from FLO's press office and have been politely stonewalled every time I have asked.

I think that FT (as practiced by FLO, RA, and others) is a part of an answer, but not the answer. Critical examination of the value these programs actually deliver - relative to the value reaped by the program itself and upstream actors in the supply chain - needs much closer examination. At the moment, it costs a company like Kraft almost nothing to gain FT certification. However, they can charge a premium for FT certified product (the market will pay for the perceived social benefit), so in the end, Kraft makes millions more than the producers do.

Is that "fair?"

Clay, I could not agree more. Certification fees are a real issue for cooperatives, as is the gargantuan reporting responsibility they must undertake to prove they meet FLO producer standards. I do not see how either one is germane to fairness -- especially in a system (ethical trade in general) that was instituted to redress ECONOMIC imbalances between producers and the people who manufacture and consume their products.

 

I have spent time thinking this issue through in a different way, asking how distinct Fairtrade really is from the predominant economic and ideological system of neoliberalism. Too often Fairtrade is presented as a separate and alternative system, when in fact (as the numbers I offered above show), it can be indistinguishable from the world market. I just made the full article excerpted above available on my blog, and here is the direct link to the article for anyone who is interested in these issues. Though I deal with FLO in general, my case study is the cocoa-chocolate trade, particularly in Ghana and Britain.

Well, we live since a couple of years in a period of relative better cocoa world market prices and people seem to forget that in the period 1994-1999 and 2002-2007 commodity prices were (very) low. FT system guaranteed a minimum price for the cocoa beans and made it feasible for farmers and coops to survive. Origins like Peru where fine quality cocoa beans are exported by producers coops have benefited from this (Naranjillo, Acopagro, Cepicafe) and I must say that without the price protection from FT it would have been much more difficult. The basic problem is the demand side combined with a too low premium in times of cocoa world market prices above the fair trade minimum price. Fair Trade is not the solution for all issues, but a guaranteed minimum price for a tree crop is a helpfull tool to maintain your farm and not uproot and shift to annual crops. 

The yearly cost of $ 2500 for FT certification (my estimation for a producer organisation) is in my opinion not the issue to be honest (for exports you would normally need at least 1 container, being 18 MT of cocoa beans, with a FOB value of $ 54.000)

From a farmer perspective, the small size of the farms combined with low yields is much more an issue. If you have a 1 hectare farm with a yield of 500 kg of beans, it is impossible to earn a decent income. In addition, for fine flavour beans, the relative small mark-up for precious beans is a crucial bottleneck, espcially considering the lower yields of the criollo cocoa (nacional at 350 kg/Ha in Esmeraldas, Ecuador compared with a 1,2 MT when using CCN51). 

 

Best regards

Rodney Nikkels

 

 

I'm finding this discussion very interesting.

Rodney, your comment about the farmer perspective -- on small farm size and low yields -- really brought me back to what was one of the more powerful moments of my fieldwork in Ghana. I had been working with farmers who sold to Kuapa Kokoo, the fair-trade cooperative, and with farmers who sold to Akuafo Adamfo, a licensed buying company that did not have FLO certification, but that was nevertheless doing plenty of social development work.

 

I was talking one day with a farmer who sold to Akuafo Adamfo, her name is Mercy, and when I mentioned fair trade to her, she had never heard of such a thing before and asked me to explain (this was common among farmers in Ghana - hardly any of them knew what fair trade was). I told her that consumers in the US and Europe pay a little more for a chocolate bar, so that farmers in Ghana could earn a little more for their cocoa beans.

 

Mercy looked at me as if I had six heads. I'll paraphrase her response: "Why would I want to earn a little more for my cocoa?" she said. "If I want to make more money, I must work harder to grow more cocoa."

 

Her response stopped me in my tracks. I had always thought first about price -- raising cocoa's price was paramount for me (and in many ways, still is). I had never thought before that simply growing more cocoa was a solution.

 

But I think you have hit the nail on the head with the low yields/small farm size issue, Rodney. I forget sometimes, thinking and writing about fair trade, that what appears most important to me, a white Western woman who has the privilege to sit around and think philosophically about trade issues, does not necessarily resonate with cocoa farmers. At the heart of Mercy's material poverty was the fact that she grew a tiny amount of cocoa, which she sold for a tiny price. The small addition of a few more cedis from an unknown entity called "Fairtrade" meant nothing to her. What was of much greater interest to Mercy, as well as most of the farmers I worked with in Ghana, was the national spraying program, in which the government supplied pesticides and spraying machines. This did increase yields, sometimes significantly.

 

We in the West never, ever sit around and think, "If only we could spray more pesticides on the cocoa trees, farmers' lives would be so much better!" But living as she did on the margins, Mercy did think that, along with plenty of other farmers. I realize that this is hardly a solution and I am not advocating that we all champion pesticide application now. This post probably raises more questions than answers. But I did want to share what was, for me, an enlightening moment, when I first realized that what *I* believed to be fair was not what a farmer believed to be fair -- that realization started me down a long road of critical thinking, the end of which I am nowhere near as yet.

Hi Kristy, 

Thanks for your feedback! Cocoa farmers in Ghana have yields from 280 kg/Ha (eastern region) upto more than 1 MT in the Western regions (recently converted forest lands). The difference is mainly caused by the availabilty of soil nutrients (cocoa requires P & K mainly) and pest and disease control (25% is lost due to pest and diseases). The relative poor soils in West Africa needs some sort of replenishment, otherwise after 15 years you'll end up with an exhausted system. 

Moderate yields of 800 kg/Ha would for the average farmer result in a doubling of their income. An expansion from 1.8 to 3.6 Hectare combined with a bettter yield would have an serious impact! 

Many of these issues cannot be solved from a supply chain perspective, but actually have to do with how you build a healthy commodity sector. After de de-colonisation in Africa ('60-'70) and structural adjustment programs from World Bank and IMF, followed by a collapse of international trade agreements that resulted in a oversupply and low commodity prices we end up with so called orphan commodities like cocoa, meaning little investment in farmer training, research, extenson services, availability of planting material, fertilizer availability, timely finance (for harvest, but also plantation renovation). 

Within that context still the Ghanian cocoa farmer is pretty well served, compared to many other cocoa farmers! 

 

Don't want to make the issue more complex, but this in my opinion is the situation the cocoa sector needs to deal with. In the end, we as consumers have had 50 years of declining chocolate prices (Lidl sells chocolate at Euro 0,35/100 gram), and it is time to really invest in order to make cocoa farming a decent business. 

 

All the best

Rodney Nikkels

 

 

 

 

I've been following this discussion with great interest. As a chocolate educator I try to involve people in the complex issues surrounding cacao and chocolate, including the "fair-trade" and ecological issues.

 

Rodney, You've brought up a really good point of issue concerning the ecological sustainability of growing cacao. Most, if not all tropical ecologists/agronomists, and especially those working with commodities "cash" crops, have always spoken about the viability of growing these crops in the long term. How does one maintain the fertility of the soils given rainforest ecology while also sustaining whole ecosystems along with balancing the needs of both human living systems and providing a living? What do you do to increase these while being sustainable in the short and long term?

 

By cutting the rainforest down just to grow cash crops will, maybe, in the short term provide an income for those on the ground, but as you stated, the system will become exhausted and more rainforest gets cut down. Once those soils have lost their fertility it does not come back. It takes a long time for the rainforest to grow back - if it does. Given the variables of the climate and the expansion of desertification this may not happen at all.

 

I would suggest that investment needs to include the overall perspective of where in the world these 'cash' crops are being grown, i.e. the rainforest. The simple answer is to apply (N)-P-K. But that stuff is expensive - surely the growers can't afford it, nor can the governments of the respective countries. And I don't think NGO's or the other advocates of 'fair-trade' will pay for it either. And if you add the cost of shipping these into the equation... well.. you get my drift.

 

Also, just adding n-p-k is really not enough to support the viability of soil microorganisms. There are a lot of macro and micro nutrients that are made available through the actions of microorganisms that are needed for a healthy ecosystem - especially in agriculture crops. There is already enough evidence here in the Western world that the practice (of just adding n-p-k) has a couple detrimental costs and effects upon the environment - those petrochemical fertilizers consume a lot of energy in producing them, they have been shown to decrease the soil microorganisms and they leach out of the system in large quantities and pollute water sources and the larger environment, in essence poisoning the ecosystem and human drinking water.

 

I believe that in order to increase the sustainability and address all these needs, one needs to look at not cutting down the rainforest wholesale but leaving about 30%, with most being over-story. Intermixing other cash crops (food sources, lumber, etc...) into the growth pattern will provide for several things - more varied income for the growers, stabilizing the ecosystem in general which introduces a better habitat for wildlife, increasing the ground soil viability by introducing organic material through natural processes along with adding small amounts of both organic matter and fertilizers.

 

This will obviously impact cacao growing patterns, usually by lessening the amounts of cocoa beans coming out of the regions (not the point I understand for us chocolate loving westerners).

 

However, though cacao originated in the understory of the rainforest, which is a better habitat for it, growing in full sun or 1%  shade is detrimental to the plant in the long term. In the full rainforest there were historically less incidents of disease attacking cacao - simply because the tress were too widely spaced for disease to wipe out whole stands. I am not suggesting this as an alternative to the current agricultural growing systems in place now as it does not address the issues and needs of all concerned.

 

By increasing to 30% and adding these other things growers could actually expand their holdings and increase the cacao groves, in essence creating managed growing environments while sustaining the viability of the whole ecosystem.

 

There is evidence that in pre-Columbian times humans in the Americas created managed agricultural environments over large tracts of land, which sustained peoples for long periods of time. I'm not really suggesting anything new here. This is just like modern "permaculture'.

 

I think I remember the that there are a few models of this happening on a smaller scale, in South America and in the DRC.

 

I also appreciate your brining into the discussion the political issues, i.e. the instituted SAPs, IMF/Word Bank, instability of governments... etc...

 

Kristy, thank you for your speaking about your experiences on the ground and your frank honesty. It is very nice for me to hear from professionals who study these issues in depth. Thanks for your link - will read it.

 

These really are large and complicated issues. I think that most of the large agricultural/commodity/chocolate companies just have their heads in the sand and do not want to address these larger issues (although to be fair, some are trying) - even though combined they could make a big difference, imo. Governments are not going to, neither is the answer in the large political organizations (again some are trying, but with little funding).

 

We do live on One world, we just can't seem to get outside our little minds/heads/egos/greed to be able to see the bigger picture and work together. On a small scale quite a lot of us 'see' and are doing this, but...

 

kwim?

 

Looking forward to learning more on this discussion - I like the intelligent and thoughtfulness put forward by everyone and thanks for the links.

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