Côte d’Ivoire-Ghana: Should the ‘cocoa OPEC’ believe in Nestlé’s premiums?

By Estelle Maussion
Posted on Tuesday, 8 February 2022 12:26

A man looks at small cocoa trees in Ghana © Mile 91/robert harding/ANDBZ/ABACA

Nestlé is proposing a new system, which aims to increase cocoa farmers’ incomes, fight against child labour and improve bean traceability. Welcomed by Abidjan and Accra, the system must prove that it works not only in theory, but also in practice.

Has Nestlé found a miracle solution that will help improve incomes for Ivorian cocoa farmers? This is the question on people’s minds after the Swiss-based multinational presented an ambitious bonus scheme on 27 January. The programme is expected to benefit some 10,000 farming families in Côte d’Ivoire this year and then be extended to Ghana from 2024.

The two African countries account for about 70% of the world’s bean production: Abidjan produces about 2m tonnes per year and Accra about 1m tonnes. Nestlé achieved sales of 84.3bn CHF in 2020 ($91bn at the exchange rate in effect at the time of publication), of which 8.3% came from confectionery sales (Nestlé brands, KitKat, Smarties, Aero…).

Speaking at a virtual conference attended by Côte d’Ivoire’s prime minister Patrick Achi, Nestlé CEO Mark Schneider said the new system is part of a wider plan to “combat the risks of child labour” and “achieve full traceability of cocoa”. Chocolate makers continue to be criticised for their use of underage labourers and a lack of transparency when it comes to sourcing for cocoa.

Over $1.1bn by 2030

Nestlé has established four virtuous practices that it wants to encourage: children’s education, using efficient agricultural techniques (including pruning), agroforestry (including planting shade trees) and crop diversification (combining cocoa production with that of cassava and/or livestock, poultry and beekeeping activities). For each of these, the group plans to pay 100 CHF ($109) per year to farmers who adopt them and a 100 CHF bonus if all four are implemented.

The maximum premium, which amounts to 500 CHF per year, will first be paid over two years and then halved in subsequent years. This represents a total commitment of “1.3bn CHF by 2030”, or three times its “current annual investment”, says the group, whose aim is to reach a total of 160,000 families.

“Farmers who are members of the Nestlé Cocoa Plan [the group’s sustainable development plan launched in 2009] have an annual income of around 3,000 CHF per year, which is already higher than the average income of a farmer, which is around 2,000 CHF,” a Nestlé spokesperson tells The Africa Report.

“The 500 CHF bonus, which represents an almost 20% increase in annual income, is an accelerator of change,” he says, reiterating that this financial package is in addition to the certification premiums and the decent income differential – this $400 bonus per tonne has been in place since the 2020-2021 season due to pressure from the Ivorian and Ghanaian authorities.

Mobile payment as a guarantee of transparency

On paper, Nestlé’s plan ticks many boxes. Presented with great fanfare, it adopts a global and responsible approach and is in line with the efforts made in recent years by the actors in the cocoa chain – chocolate makers, bean buyers and processors, certifiers and governments – to rebalance the relationship in favour of the farmers. Farmers receive only 6% of the $100bn generated each year worldwide by chocolate sales, according to the NGO Public Eye.

Welcomed by Côte d’Ivoire and Ghana, the Swiss group’s project is also supported by several international partners, including the KIT Royal Tropical Institute, the International Cocoa Initiative, the Sustainable Trade Initiative and the NGO Rainforest Alliance. In addition, the proposed system was tested with 1,000 Ivorian farmers in 2020.

“The opinions and suggestions of farmers and farming cooperatives, as well as ongoing data collection and third-party evaluation, will be used to inform, readjust and improve the programme as it is extended to other communities,” says Nestlé.

All the premiums and benefits granted to producers are currently channelled through cooperatives and exporters…

One sector player praised the “good foundations” of the project, which “intends to create a new agricultural model based on the diversification of the producer’s income, both in terms of sources of income and crops”. Nestlé’s spokesperson cites another advantage of the project as the fact that mobile payment can be used to pay the premium, which will help guarantee transparency.

According to him, the financial transaction will be done via an electronic phone transfer from the Nestlé supplier’s account to the farmers and their wives so that women’s empowerment can also be encouraged. This way, “it is easy to verify and trace all payments from the supplier to the beneficiaries”, he says.

A system that is still too opaque

However, several actors in the field remain concerned about the system’s real impact. Although the Conseil Café-Cacao welcomes any initiative aimed at improving farmers’ income, they are waiting to see how it will be implemented. The organisation points out that Nestlé does not buy beans directly from cocoa farmers, but instead obtains them from intermediaries, including grinders. This makes tracing the beans and paying premiums more complicated.

“All the premiums and benefits granted to producers are currently channelled through cooperatives and exporters. However, studies conducted on this system show that it gives rise to significant cost losses, as much as 70%,” says François Ruf, an economist at the Centre de Coopération Internationale en Recherche Agronomique pour le Développement (CIRAD) based in Côte d’Ivoire, who works with a team made up of around 10 researchers.

He believes that only a direct payment to the growers can improve the sector’s transparency, as it would put pressure on the cooperatives to clarify their practices. However, this is not the path chosen by Nestlé, which, by entrusting its suppliers with the task of paying, is taking the risk of maintaining the current opaque practices that external controls find difficult to combat.

Tracing the origin of the beans remains a challenge. As the demand for chocolate is cyclical and concentrated at the end of the calendar year, cooperatives are forced to supply a large volume of beans over a short period. This means that they often turn to ‘pisteurs’ (intermediaries who buy the beans at the edge of the field from farmers and resell them to the cooperatives) in order to meet the quotas that buyers have imposed, without any guarantee of the brown gold’s origin. Multinationals have been aware of this problem for a long time, but have done nothing to address it.

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