World Cocoa Foundation Announces Sustainability Principles

The World Cocoa Foundation, an entity created by the chocolate industry and cocoa trading companies, announced today its sustainability principles and goals. The foundation was created in 2000 to address farming practices in cocoa producing countries. But I can’t shake the suspicion that its creation was also part of the industry response to the reports of child labor and child slavery on cocoa farms in West Africa. Its practice bears out that suspicion. The WCF does more publicity when it comes to child labor than the International Cocoa Initiative, which was mandated by the Harkin-Engel protocol.

These are the sustainability principles and goals:

  • Profit: Improved and more equitable economic returns for farmers, built upon expanding entrepreneurial skills, stronger and more effective farmer associations, and more productive, profitable farming practices.
  • People: Healthy and thriving cocoa-framing households and communities, where children can enjoy childhood and attend school, international labor standards are followed, and farming practices are safe; and,
  • Planet: Responsible, sound environmental stewardship in cocoa-farming communities where soil and water are conserved, Integrated Pest Management approaches are followed to limit the use of agricultural chemicals, and the fragile tropical ecosystem is protected.

On the face of it, these are laudable standards and it is clear that there is some common ground between farmers, cocoa producing countries and industry. Each is interested in maintaining cocoa production into the long-term future. Farmers because they have invested an extraordinary amount of labor and capital into their farms. Producer countries because they depend on the export revenue and taxes for their budgets. The chocolate industry because that’s what they sell and they don’t want their business model to go down the tubes because cocoa has become scarce.

At the same time, there is a fundamental contradiction between farmers and the industry. The latter wants to ensure a steady or increasing supply of cocoa beans at the lowest price possible. Farmers, on the other hand, are primarily interested in income–not quantity.

A quick review of the programs supported by the WCF shows that its main emphasis is on increasing quantity (and, to some extent, quality). The term “more productive, profitable framing practices” in the first bullet point highlights that objective.

I have pointed out before that while it it in the interest of an individual farmer to increase output, the collective impact, given the concentration of cocoa production in West Africa, is not beneficial to farmers, as it will increase supply and thus exert downward pressure on prices.

The experience in the Côte d’Ivoire over the past several months has highlighted how decreasing supply has resulted in higher farm gate prices. Clearly, the opposite holds true as well.

The only scenario that supports both increased supply and stable or increasing prices is a significant and sustained increase in the demand for chocolate world-wide. Yes, we’ve all heard about the Chinese and Indian middle class developing a taste for chocolate, but it is not at all clear how this demand will materialize.

International Cocoa Organization, in its annual market forcasts of March 2008, predicted an annual growth rate of 2.8% in cocoa grindings, an indicator of demand. That’s hardly a dramatic level of growth. The further deterioration of the global economy since then will likely reduce that level for the next few years.

The sustainability principles and goals, laudable as they are, do not address this contradiction.

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5 thoughts on “World Cocoa Foundation Announces Sustainability Principles

  1. STCP Communications

    We would like to take this opportunity to provide some additional perspective on a key concern raised. The blog reads: “At the same time, there is a fundamental contradiction between farmers and the industry. The latter wants to ensure a steady or increasing supply of cocoa beans at the lowest price possible. Farmers, on the other hand are primarily interested in income–not quantity.”

    Cocoa income which the blog correctly states is the farmer’s principal interest, is equal to total cocoa revenue less total cost. Total revenue is a function of the farmer’s cocoa output (i.e. quantity) multiplied by the farm gate price. Increasing output therefore will increase farmer income ceteris paribus. But price will be negatively affected as the blog indicates if the supply increases is significant relative to global stocks and demand remains unchanged. But even in a pessimistic scenario for demand and supply elasticities, for the farmers adopting new production technology, output increases normally trump the decline in price and the farm income will increase. Farmers who do not adopt new technology witness no change in output and a fall in income. They will lose while the innovators and early adopters will win. This is a fundamental process of rural transformation which will ultimately lead to a more efficient sector.

    The blog seems to suggest that cocoa farmers can be made better off by not doing anything to increase productive efficiency. This sad notion first espoused by Prebisch and the dependency theorists of the 1950s has in part led to a bias against much needed investment in productivity-enhancing agricultural research. The failure to build an agricultural sector founded on science-led innovations in the cocoa belt of West Africa and the continued reliance on traditional extensive production technologies for cocoa, plantains and cassava is chiefly responsible for continued widespread poverty in the region and the deforestation of the West African Guinea Rainforest.

    What we observe in the field is that, firstly, farmers are very keen on improving the productivity of their farms. Secondly, farmers do not only grow cocoa, and if input or product prices do not warrant adequate profitability to the cocoa enterprise, they will start looking for other options to invest their time and resources. And thirdly, inefficiences in marketing in a smallholder environment can also reduce the farm gate price due to higher transaction and transportation costs. It is thus important to address productivity, income diversification, and marketing efficiency issues in parallel towrads generating greater rural income (see for example http://www.treecrops.org)

    Thanks!!

  2. Jim Gockowski

    The commentator exhibits a certain ignorance concerning the micro, meso, and macro effects of productivity growth in agriculture.

    As agricultural producers become more productive, their individual outputs and profits increase. They are clearly better off. However as more producers adopt productivity enhancing technologies supply will increase and prices will fall if demand is constant. The fall in price reduces profit margins and leads to an exodus out of the sector of the inefficient producers who for various reasons chose not to adopt.

    At the meso level the overall number of producers in the sector will decrease and indeed total income might decrease but the average income of the remaining producers will have increase. When the next innovation comes along the process repeats itself. Innovation is the driver of the secular decline in commodity prices that has generally been the norm over the last 90 years of progress in the agricultural sciences.

    At the macro level, this transformation of the rural economy stimulates economic development in several ways: by maintaining food prices at affordable levels, the wage rate in the manufacturing sector can be kept at a globally competitive level; also, the surplus labor shed by the agricultural sector will permit the development of manufacturing where economic growth is more rapid.

    Most importantly, the lack of productivity growth in West Africa and the expansion of extensive agricultural practices over the last 30 years has resulted in the near complete destruction of the Guinea Rainforest (identified as a global biodiversity hotspot 20 years ago).

    Enough is enough! Give African farmers the tools and knowledge they need to lift themselves out of poverty.

  3. Michael Post author

    Both comments warranted responses that go further than a single comment. So check my posts on Science, Agriculture and Progress.