Living income in cocoa

Wageningen University & Research and Mondelēz International pooled data and resources to contribute to a shared understanding of the magnitude and nature of the living income challenge. The insights deriving from their report can be used for vision and policy development and designing interventions.

The majority of smallholder cocoa producers, in Ghana and Ivory Coast, do not earn a living income. One third of them is not expected to be able to climb out of the poverty trap by him or herself. This situation must be changed drastically as earning a living income is a human right. It is defined as an income that allows people to minimally have a basic standard of living. This means being able to afford food for a model diet and a decent house. Other essential needs, such as education, transport, clothing and medical care should also be within financial reach. Earning a living income also means that families can build up a financial buffer for unexpected events such as illness or harvest failures because of climate change.

The living income challenge

More than a million smallholder cocoa farmers in Ghana and Ivory Coast cannot afford all these basic needs. Their current incomes are respectively 1.42 Dollar and 1.23 Dollar per person per day, while the living income benchmarks are 2.08 Dollar and 2.55 Dollar. On average, Ghanaian cocoa farmers should therefore earn 0.66 Dollar more per person per day to earn a living income (46% more), while Ivorian cocoa farmers should earn 1.32 Dollar more per person per day (more than double their income). Additional incomes of about 10 billion $USD per year is required for all farmers to earn a living income[i]. This amount is more than three times the total 2018 cocoa export earnings for Ghana and Côte d’Ivoire.

Because this gap between incomes is large for many people, there is a great necessity for all stakeholders in the cocoa sector to do their part. This includes the local governments, the private sector, NGOs, farmer organisations and financial institutions who should play a role by working together to address the living income challenge and transform the cocoa sector responsibly.

Problems for smallholder farmers

Many farmers have small farms. Their incomes are therefore low and many of them have little access to services that allow for large income increases. They often cannot invest enough to improve their often low yields. Diversification into other farm products is also hampered by farm size and the ability to invest, and therefore not an option for the majority of farmers to increase incomes substantially. Cocoa generally is the best option for farmers to earn an income.

In addition, farmers have low negotiation power and are therefore generally price-takers; prices are volatile and show a decreasing trend throughout history. There is limited possibility for niche market sales in cocoa with higher prices and scaling these models is challenging; cocoa from West Africa is generally sold in bulk without a quality premium while sustainability premiums are often low.  

Few alternative income opportunities exist for farmers, leading to cocoa production to offer the best opportunities for rural families to earn an income. People do not easily move elsewhere because they would leave their social networks for uncertain incomes. And even if there are jobs, wages are generally lower than a living wage. Therefore, farming families are very dependent on cocoa income.

Finally, government policies do not adequately ensure good conditions for farming families to thrive. Farms are decreasing in size because the plots are divided amongst the children after the farmer’s death and therefore shrink over time. At the same time social protection systems are lacking and if present, few families benefit from them. Market dynamics are not counteracted through supply management, leading to unstable and often low prices. This can also affect government budgets when farm gate prices are set by the government and world market prices are lower than such farm gate prices.

Root causes need to be addressed simultaneously

All these aspects together result in a situation in which many farmers produce low cocoa volumes resulting in low incomes as families are highly dependent on income from cocoa. Because of the different poverty drivers at play, this problem must be solved by several parties in coordination with each other. Everyone who plays a part must commit to tackle the poverty issue. At the same time the sector must integrate its work better within the cocoa community and tailor support programs to fit the needs of the farmers and their households.

What different parties can do

Tailor made services can be developed and implemented based on already existing data and information to more effectively support different types of farmers to achieve better incomes. Such services could focus on improving cocoa production or on-farm diversification, for farmers earning a living income or with the potential to do so, depending on for instance, farm size, financial and labour availability and market linkages can be created for other farm produce.

Farmers without the potential to earn a living income can best be supported on the short term with resilience measures and cash transfers and with finding off-farm income. For all farmers, raising prices and reducing price volatility is important. An important opportunity we see to achieve better incomes and preserve the environment is payments for environmental services. It is very important that governments improve the conditions for farmers to achieve a living income, through supply management, land governance, policies that facilitate employment creation, and social protection. 

Coordination required for achieving living incomes

Effective support strategies will require coordinated action from multiple types of actors in parallel to ensure that activities work at scale and do not have unintended negative consequences on market balance and rural opportunities. Proper stakeholder involvement is an important element of a responsible transition process in which the ecological carrying capacity is not surpassed, while social needs are addressed. This includes the time during the transition period.

We hope that these research results contribute to a shared understanding of the challenge and inspire the creation and implementation of better policies and interventions, by individual organisations and importantly through improved collaboration with others.