The story of chocolate amid COVID-19
Though the COVID-19 pandemic has not affected all countries equally where some have managed to avoid large-scale infection, as the word ‘pandemic’ suggests it remains a global problem and calls for global solutions to be developed together. The health crisis has exposed the true fragility at the heart of an interconnected food system impacting the entire supply chain from seed to the final product. Where farming is recognised almost worldwide as an ‘essential activity’ by national public authorities, producers are asked to continue supplying in spite of each bottle neck occurring somewhere on the supply chain. The pandemic has had visible implications for the effective functioning of agribusiness with countries lockdown, border closures and trade disruptions restricting farmers’ access to inputs such as seeds and fertilisers. Cocoa farmers are no exception.
Read on to find out about the cocoa value chain and how the pandemic is affecting cocoa farmers in West Africa.
Cocoa production in West Africa
Seventy per cent of the global cocoa production is grown by smallholder farmers in West Africa. Côte d’Ivoire and Ghana are the top suppliers totalling two thirds of the world cocoa supply with Côte d’Ivoire alone producing 42 per cent. Other cocoa growing countries to follow are Nigeria, Cameroon and Togo. That being said, it is highly likely the chocolate selection gift box stacked on European and Western supermarket shelves comes from a production chain that began in West Africa.
The Chocolate Giants
Global heavy weights Mondelēz International, Mars, Nestlé and Barry Callebaut govern the entire market for cocoa from production to distribution. Port of Amsterdam is the world’s largest logistics harbour for cocoa beans imports, owing to its strategic and central location within Europe that assures accessible connections to intracontinental markets. Other than being home to the trade hub for cocoa bean imports (of which 92% come from West Africa), the Netherlands houses the world’s top cocoa grinding industry. As such, the Dutch market for cocoa holds massive potential benefitting from high value added in re-exports of semi-finished products to European destinations. However, the production of the cocoa beans is not as sweet for the African farmers.
Cocoa value chain
Cocoa is grown mostly by smallholder farmers. The production process is labour-intensive and is broken down into stages. The actors along the cocoa value chain are smallholder farmers, intermediaries, national exporters, processors and retailers.
It begins on the cocoa plantation where farmers remove the pods from the tree and open them to extract the wet beans using machetes. It requires one year for a tree to produce 1 kilogram of cocoa beans. Each pod contains 20 to 30 seeds however not all pods ripen at once. For that matter, cocoa beans necessitate ongoing supervisory activities also for preventive measures against pest disease and the effects of adverse weather jeopardising tree health.
Once the beans are fermented for two weeks and left to dry in the sunlight, the beans are then cleaned, packed and bulked into junk sacks. Farmers sell their beans to intermediaries at €1 per kilogram who in turn trade with national exporters at an inflated price of €2.50 per kilogram. Processing industry purchase the merchandise from national exporters and transform the beans into cocoa powder or butter ready for chocolate making. A kilogram of cocoa beans from the farmers makes about 14 chocolate bars with a cost ranging between €2.50 to €22.91 per bar.
Europese Kampagne handles the production of ethically-sourced cocoa breaks down the profit margins of one chocolate bar as illustrated in the diagram below.
The bitter aftertaste in the cocoa value chain
- Bearing in mind the high labour intensity of production, what is the ‘fair’ price for cocoa and its by-product?
- Should the price of chocolate be higher than the current market price?
- How can the price gap between cocoa production price for farmers and sales price of chocolate be justified?
- How can farmers gain from the inflated market prices of cocoa? What measures must be taken to increase the profit margins of cocoa for smallholder farmers?
In Ghana, the cocoa sector is state-regulated, meaning that all prices are fixed by the Ghana Cocoa Board (Cocobod). Farmers receive approximately US$1400 per ton of cocoa. Although, Fairtrade estimates they require US$2200 to breakeven that is far beyond a farmer’s average profit. The difference is explained given that world market prices take into account transportation and packaging costs. Therefore, a fair price would total US$3,411.41 per ton.
On another note, power differentials in the cocoa value chain translates into price imbalance between the costs of cocoa from the farm and the market prices of finished products in stores. In view of this, the chocolate giants mentioned earlier dominate the market and these powers are unregulated. On the other, cocoa farmers with lacked of accountability in official discussion have no influence on price and have little space to foster discussions on the standards initiatives and whose interest it serves.
Food for thought: What now?
As the health crisis develops, it is important to trace how the cocoa sector is behaving. As top world suppliers of cocoa, any disruptions in Côte d’Ivoire and Ghana will impact major cocoa shortages. The efforts at the origin of the value chain to keep cocoa supplies flowing and to enforce operations to contain the virus have been prioritised. The collective action from cocoa and chocolate companies has been fundamental in implementing guidelines on sanitation and health from governments and health authorities. It has also helped optimise local networks and introduce digital tools to deliver technical help, provide funding for emergency responses and honour long-term relationships with farmers. For example, Ghanaian organisation Farmerline that works to transform rural smallholder farmers into successful entrepreneurs is presently running a campaign to inform farmers on COVID-19 causes, symptoms and preventive measures against the virus in fourteen local languages. On a larger scale, The Coalition of Farmers-Ghana (COFAG) has newly launched the programme ‘Farmer Resilience’ to assist its member farmers manage the challenges of the COVID-19 pandemic.
After the shock, we are certain the agribusiness will eventually retreat but it is unclear how fast this will happen. In the coming months, EuroAfri Link will continue to offer much-needed support to farmers, a most vulnerable social group in trade. If you would like to learn more about EAL’s story of positive action in the face of COVID-19 in Africa please visit our blog.
Authors: Claudia Zaccari, Project officer @ EAl in charge of EU-Africa cooperation and Patience Chindong, co-founder, EAL