Cocoa prices and income of farmers

Share in the global added value

Chocolate manufacturing is a thriving business, in which big companies make high profits. While these companies are competing for ever higher market shares and higher profits, millions of cocoa farmers bear the costs  by getting less and less share from the revenues. By 2012, the global chocolate confectionery market made net sales of approx. 80 billion dollars, which is estimated to increase to 88 billion dollars in 2014.

Within the global value chain, most of the money is made after the beans have reached the Global North.  At the same time many cocoa farmers and workers in the Global South have to get by on less than 1.25 US dollars a day, below the threshold of absolute poverty.

Cocoa growers today receive about 6% of the price that consumers in rich countries pay for chocolate. In the 1980s their share was almost three times as great: 16%.

 

Low and insecure cocoa prices

While the profits of multinational chocolate companies have increased since the 1980s, the world market price for cocoa beans has declined by half (inflation-adjusted).

Another part of the problem is that cocoa farmers receive only a part of the world market price for beans, due to local trading structures, taxes and also the quality of the beans. For example, over the last ten years farmers in Ivory Coast attained only between 40 to 50 % of the world market price for their beans. Farmers are rarely organised and lack insight into market trends for cocoa prices. They have to sell their cocoa at prices dictated by the intermediaries.

Volatility of cocoa prices

Additionally, farmers’ income insecurity is affected by volatile cocoa prices. Volatility in prices often stems from changing supply volumes caused by crop diseases, pest infestation, extreme weather such as drought, or political instability and turmoil in the producing countries.

While good seasons which produce good crops in the main cocoa producing countries lead to a high supply and can bring about a fall in prices, poor crops caused by crop disease or bad weather conditions in some major regions lead to a low supply and can increase the price. Prices changes can also be triggered by factors like food speculation. For speculators volatile prices are lucrative as speculative trading on futures markets can bring about big profits.

Cocoa traders are able to mitigate these volatile prices by storing beans and controlling the sales volume on the market. Farmers in the Global South however are often forced to sell their beans immediately due to poor living conditions, the immediate need for money and a lack of storage facilities. 

Low income - crucial consequences

The consequences of price volatility, together with increasing production costs, are economic insecurity and impoverishment for millions of cocoa farmers. Despite forecasts that the demand for cocoa will rise by nearly 20 % in the coming years and the increasing revenues for chocolate companies, many farmers can now not cover their living costs anymore. With limited income and lack of information on market developments, the cocoa farmers and their families are the losers in a lucrative cocoa and chocolate industry.

Low and insecure income of farmers leads to serious social and environmental problems. Farmers stop investing in their farms, they cut salaries, cannot provide workers with proper working conditions, and in the worst cases are prone to use child labour. Hoping to increase their revenues, they put more land under cocoa production, often at the expense of sustainable, ecological and diversified farming.