Building supply chain collaboration to strive towards living incomes

Farmers earning a decent living for the fruits of their efforts. That’s the foundation upon which Fairtrade was built more than 30 years ago.

A clear enough goal. But we all know that progress towards it has been very slow.

Case in point: the 2016–2017 collapse in world cocoa prices. Despite years of talk about improving farmers’ livelihoods, cocoa prices dropped about 40 percent over one season.

The dramatic drop devastated farmers in Côte d’Ivoire and Ghana who produce more than 60 percent of the world’s cocoa. Already before the collapse, Ivorian cocoa farmers and their family members each lived, on average, on less than one euro per day, when the living income was 2.5 euros a day.

“The cocoa sector has to ask itself whether the sustainability efforts made in the past decade have led to actual impact,” implored the 2018 Cocoa Barometer report in response to the price collapse.

Fairtrade seeks lasting changes by supporting farmers and addressing disparities of economic power in supply chains. The network works on multiple fronts that include:

• Strengthening farmer cooperatives,

• Developing data-supported Living Income References Prices,

• Increasing cocoa traders’ accountability and

• Advocating for living income as a human right.

Living income in the human rights declaration

The Universal Declaration of Human Rights clearly states individuals’ rights to a decent standard of living and just remuneration for work.

Article 23: (3) Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.

Article 25: (1) Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.

There is power in numbers, but there is also power in knowledge. Farmers in cooperatives have a greater bargaining advantage compared to individual farmers.

— Lilian Maina, Social Compliance and Risk manager at Fairtrade Africa

Focus on Producer Power

Like trade unions and associations, strong farmer cooperatives and organisations support their members in multiple ways.

They offer farmers training and advice. They bring economies of scale, where farm inputs and services are jointly acquired for all members. They also strengthen members’ power by speaking with a louder, collective voice – to buyers and government, and within Fairtrade as well.

Fairtrade Standards guide and require coops to operate in a democratic, non-discriminatory and transparent fashion. The development of farmer organisations is also assisted by local Fairtrade staff and financially supported by Fairtrade Premium.

Further, several Fairtrade programmes, like the West Africa Cocoa Programme (WACP) in Côte d’Ivoire and Ghana, aim to strengthen farmer coops to better serve their members – and make progress toward living incomes.

Implemented by Fairtrade Africa, the WACP programme gathered more than 34,000 training attendances in 2019. Training topics included financial tracking and bookkeeping, women’s leadership, income diversification, crop productivity, combatting child labour, and other topical issues.

This all seems worthwhile. Compared to other farmer organisations, those with more training had higher audit scores in social compliance, child rights’ awareness, and avoiding damage to conservation lands.

Nevertheless, poverty persists. In 2016, just 7 percent of Fairtrade’s Ivorian cocoa farmers were making a living, and progress is slow.

Driven by data

And what is meant by a “living income?” It’s an income that covers the costs of basic but humane housing, clothing, food, healthcare, education, transport and insurance for a farmer and her or his family. The exact level depends on local prices and conditions, but also the typical number of breadwinners and other household members.

So, living income varies by country and region, often with notable differences between rural and urban areas.

Fairtrade started a process in 2017 to estimate Living Income Benchmarks – and then prices that could provide such incomes to farmers.

“Living wages and incomes sound great. But without detailed calculations of what they mean in practice for product prices, this is barely more than a philanthropic catchphrase,” said Birgitta Tazelaar, Deputy Director-General for International Cooperation at the Netherlands Ministry of Foreign Affairs at “The Only Way is Up,” a living wage and living income conference co-hosted by Fairtrade in 2019.

“Living wages and incomes are a human right – and this means they have to be quantified,” she added.

The quantification is a research-intensive process. Once the local level of living is known, Fairtrade calculates the Living Income Reference Prices on the basis of local productivity, other household income and viable farm size.

Fairtrade has so far published such prices for cocoa in Côte d’Ivoire and Ghana, and vanilla in Uganda and Madagascar. Research has also started for coffee in several regions.

Armed with these numbers, as a first step, Fairtrade raised the minimum cocoa price in 2019 and started raising awareness around the idea of Living Income Reference Prices.

Since then, the governments of Ghana and Côte d’Ivoire have established a Living Income Differential. It’s an additional sum that buyers must pay for each ton of cocoa beans.

Nevertheless, the minimum farmgate prices still don’t meet a living income, and the coronavirus pandemic has created a new level of uncertainty for farmers, who have reported difficulties selling their cocoa at the set price.

Downstream Accountability

International cocoa trade and processing is controlled by a handful of large multinational corporations. Their purchasing power and influence on prices is strong.

“If a farmer is required to change most of his/her business practices to be able to sell their product, why shouldn’t the same be asked from large multinational corporations?” asks the 2020 Cocoa Barometer.

Fairtrade does work with traders and brands – the intermediaries between farmers and retailers. Traders that deal with Fairtrade certified commodities must abide by several clear requirements and, for example, maintain timely payments, transparent contract terms, adequate record-keeping, and clear pre-financing terms.

These basic practices are important as part of traders’ contribution to living incomes. Adherence is monitored through independent FLOCERT audits, and corrective action expected when violations are uncovered.

Violations indeed are frequently uncovered. Among Fairtrade certified cocoa traders in Côte d’Ivoire, just 26 percent had no major non-compliances with the Fairtrade standard in 2018 – down from 57 percent in 2017. 90 percent of these violations were nevertheless corrected within two months from the audit.

Fairtrade Standards also encourage long-term business relationships, to help farmers plan and invest in increasingly responsible and sustainable production. But progress isn’t fast.

“It’s hard work, finding corporate partners who recognize that while farmers build productivity and product quality, fair pricing and stable business relationships are also needed” says Carla Veldhuyzen van Zanten, Fairtrade’s Senior Advisor focused on the living income strategy.

“When brands and retailers want more data and higher human rights and environmental performance from farmers in their supply chains, they need to share the responsibility”, she adds.

Luckily, some brands are ready for tangible collaboration with farmers. Tony’s Chocolonely has committed to purchasing all cocoa at the Living Income Reference Price. And ice cream maker Ben & Jerry’s has agreed to pay the prices set by the Ivorian government, Fairtrade Premiums and an additional $600,000 over the next year to 5,000 Ivorian cocoa farmers.

Fairtrade calls for an explicit reference to living incomes in HREDD regulation

Living income as a human right

Still, target prices remain just targets. Companies and governments are very seldom held to account for living income violations. Commodity price volatility continues.

The Universal Declaration of Human Rights addresses the right to earn a living wage in Article 23 and the right to a decent standard of living in Article 25.

Yet this is clearly insufficient. Living income should be explicitly recognized as a human right. It is crucial for a decent standard of living in countries where social security is very weak. In addition, lack of living income fuels several other human rights breaches like poor nutrition, poor health, child labour and environmental degradation.

Fairtrade calls for regulation on Human Rights and Environmental Due Diligence to make an explicit reference to living incomes, and to make companies responsible for operationalizing responsible purchasing practices that address poverty pricing.

“The basic benefits of decent incomes and sustainable communities must not be seen as additional cost, only for those who care about farmers’ rights, but rather as the normal cost of business,” reminds Jon Walker, Fairtrade’s Senior Advisor for Cocoa.