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Fairtrade to review cocoa premium against farmer income study

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Fairtrade International plans next year to review its minimum price and premium for certified cocoa against a study measuring the drivers of income for farmers.

The organization is conducting a baseline study in Côte d’Ivoire and Ghana on conditions for farmers and a separate farmer income study in Côte d’Ivoire only.

“We will use these learnings to understand which kind of change we’ll have to do to the minimum price and premium and this review is due to be published next year,” Fairtrade global cocoa director Marina Vanina told ConfectioneryNews.

Fairtrade facts

- 129 small producer organizations in 20 countries hold a Fairtrade certification for cocoa, representing 179,800 small-scale farmers (end 2014)

 - Almost 5% of global cocoa production is produced as Fairtrade

- UTZ Certified is the main certification body in cocoa, accounting for 20% of the global crop

- 14% of total cocoa retail sales are organic.

Sources: Fairtrade/ICCO/UTZ

Will premiums rise?

However, she was tight-lipped on whether premiums were expected to increase.

“In general, we think cocoa prices should be significantly higher. However, we think prices are one of the elements … but we need to work on several interventions to make them really work.”

Fairtrade's farmer income study will not set living income benchmarks. The organization says it is trying to understand the drivers of a living income and says a secondary income, outside cocoa, could be key.

Price and premium rates

The organization reviews its minimum price and premium every five to six years. Rates were last set in October 2012.

The Fairtrade Minimum Price is currently $2,000 per metric ton (MT) of cocoa beans, plus $300 per MT for organic.

The Fairtrade Premium, paid on top of the selling price, is fixed at $200 per MT.

Other certifications bodies such as UTZ Certified, Rainforest Alliance and Fair Trade USA, have no minimum price or fixed premium. The price and premium is negotiated.

Under Fairtrade, producer organizations – usually cooperatives – invest the premium in projects of their choice and will typically give some funds to its members.

Studies that will determine Fairtrade price and premium

Baseline study in Ghana and Côte d’Ivoire - Fairtrade has collaborated with the Agroforestry Centre (ICRAF) and Bioversity International collaborated to analyze social, natural and physical conditions for four Fairtrade cooperatives in West Africa with a total of 322 households. This will be compared to 77 randomly selected non-Fairtrade cocoa producing households within the four communities. Results will be published in 2017.

Farmer income study – Fairtrade research in Côte d’Ivoire aims to understand the factors contributing to farmer income and the most effective way for Fairtrade to raise farmers’ incomes. It is based on data from 3,200 Ivorian cocoa farming households and management interviews the 23 small producer organizations. Results will be published next year.

Are premiums making a difference?

Fairtrade premium’s generated an additional $36 of income per year for individual members in 2013/14, which the organization’s latest impact report called “a small amount”.

Pressure group Cacao for Change says certification premiums “perpetuate poverty” and need to be 30 times higher.

It alleges chocolate companies using Fairtrade’s logo may risk litigation as the premiums are not always bringing farmers above the poverty line.

Fairtrade’s Vanin said: “…The use of the premium is really in the hands of the farmers on how best they can fulfill their need and drive an impact.

“We are still learning some of the dynamics and the links between the premium and the income and how we can further leverage our premium in order to address the living income,” she said.

Certified cocoa sold as uncertified

Only 33% of total volumes produced by Fairtrade certified farmer groups were sold on Fairtrade terms in 2013/2014  (70,600 MT).

The certification body sold around 40% on its terms the prior year.

“The cocoa industry is becoming complex and some players decided to combine certification with other kinds of schemes, [i.e. company-own sustainability programs],” said Vanin.

However, the certifier expects around 36% of Fairtrade cocoa produced in 2014/2015 has been sold as Fairtrade, but the final figure will be communicated in its next Monitoring Report, due February 2017.

Audits twice every three years

Fairtrade’s partner FLOCERT conducts announced and unannounced audits at the Fairtrade certified farming organization twice every three years after a farming group becomes fully certified.

The audits are intended to stamp out questionable practices, such as unlawful child labor and deforestation.

Asked if two times every three years was sufficient, Vanin said:“…No certification system can give a 100% guarantee. The system is geared towards the best we can do.”

She added: “... More audits also implies higher costs for the producers … there’s a balance that we need to strike between charging the producers a higher cost and having more audits.”

Vanin said the regularity of audits would not be reviewed with the pricing next year.

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