Opinion | Chocolate prices have skyrocketed. Why are cocoa farmers still so poor?

deleciousfood | July 2, 2024 | Chocolate | No Comments

Emmanuel Frimpong, 32, is a cocoa farmer in Ghana, mostly by default. He went to university but couldn’t find another job, so he works on his family’s farm. “Why not?” he told me. “I’m willing to do this work.” His reading and English skills allow him to act as a liaison between his fellow farmers and the government, which is the main player in setting prices for cocoa beans in Ghana.

The exorbitant prices paid for cocoa beans and chocolate products in the United States and other countries have little impact on the lives of Frimpong and those around him. “The living conditions are very bad,” he told me. “The water system is very bad.” The government’s payments for cocoa beans are “a little low,” and its support for farmers—for example, a pesticide sprayer that must be shared by more than 100 families—is “woefully inadequate,” he said.

Cocoa farmers’ poverty is sometimes seen as a moral failing on the part of chocolate buyers or sellers, but it is primarily a market failure. In a healthy market, price increases are self-correcting: when the price rises, production increases to take advantage of the extra profit opportunity. But farmers in Ghana and neighboring Côte d’Ivoire, the world’s second and largest cocoa-producing countries, are not doing well. Most live in poverty. They lack the funds to make long-term investments in new cocoa trees, the source of cocoa beans, or to buy adequate fertilizers, pesticides, irrigation, and labor-intensive pruning.

Some farmers are cultivating more land to compensate for the decline in yields, which means cutting down primary forests. Many are using their children to work. Some are abandoning cocoa farming to grow corn or rubber, or selling their land for illegal and environmentally destructive open-pit mining.

The poorer cocoa farmers become, the higher the prices of cocoa and chocolate on the world market, as undercapitalized farmers produce fewer beans or give up altogether. It’s a destructive dynamic, or a “low-income trap,” as the International Food Policy Research Institute calls it.

Ivorian and Ghanaian producers are not benefiting fully from rising global prices because of a 2018 agreement called the Côte d’Ivoire-Ghana Cocoa Initiative. Designed to protect producers from price volatility, it allows governments to set floor prices by auctioning off purchasing rights to major international buyers, who have the option to pay premiums to individual producers in exchange for reliability and environmental sustainability.

The government-run system benefits farmers when global prices are low, but it acts as a drag when prices are high. Despite increases in government-set floor prices (particularly for the 2023-24 mid-season), cocoa farmers in Ghana and Côte d’Ivoire receive only about 25 to 30 percent of the global price of cocoa beans, “well below the 60 percent provided for under the guaranteed price mechanism,” Jean Paul Aka, a cocoa expert with the United Nations Development Programme in Côte d’Ivoire, wrote to me by email.

Governments are setting aside some of the profits from current high prices to compensate producers the next time prices are low, which Aka says is prudent. The stated goal of the Côte d’Ivoire-Ghana Cocoa Initiative is to “provide decent wages for cocoa farmers, contribute to the protection of forests and biodiversity, and be exemplary in terms of basic social and human rights.” It is trying to “harmonize” production, which amounts to behaving like an OPEC for chocolate.

Global cocoa prices are volatile, as this chart shows. Small changes in supply and demand lead to large price swings. Prices, while still high, are well off their April peak. Complaints about government-set prices fade quickly during periods when they are above market prices.

Farmers’ difficulties are compounded by climate change, which has worsened regional droughts and outbreaks of swollen shoot and black pod diseases that reduce crop yields.

There are pilot programs to help farmers with cash transfers, farm maintenance subsidies, income diversification, and payments for “ecosystem services” – mainly reforestation. “These initiatives, while promising, are not yet widespread,” Aka wrote to me.

Major chocolate companies are involved in efforts to help smallholders through the World Cocoa Foundation, which is working with a German federal enterprise, GIZ, and two Dutch scientific institutions, KIT and Wageningen, to develop a standard for measuring cocoa farmers’ incomes to evaluate interventions.

The lack of reliable measurement and tracking has hampered efforts to help farmers, said Jane Grob, senior director of strategic initiatives at TechnoServe, a nonprofit that seeks business solutions to poverty. “It’s a top-down approach,” she said. “No one is looking at the impacts on individual farmers.”

Grob says he met a farmer in Ghana who had received sometimes conflicting instructions on how to prune cocoa trees from five different organizations. “Just doing basic practices correctly can almost double yields,” Daniel Hamos, a Grob associate (and, to be fair, a family friend), told me.

There is clearly something wrong when people in New York, Paris and Tokyo are paying exorbitant prices for chocolate at the same time that those who grow the beans can’t make a living from it. I hope that the multi-pronged efforts to fix the market will finally start to pay off for people like Frimpong and his family.

Elsewhere: Lithium price collapses

Lithium is a key ingredient in electric vehicle batteries, but its price has collapsed even as electric vehicle sales have continued to rise. What’s causing this? First, electric vehicle sales have grown more slowly than speculators had expected. Second, high prices in 2022 have spurred investment in lithium production, from hard-rock mines in Australia as well as brine in Chile and China.

Current low lithium prices make electric vehicles cheaper, but they also discourage the expansion of production capacity, which could eventually lead to shortages. Major producers say long-term fundamentals remain strong. “We’re not scared by low prices, and we’re not attracted to high prices,” Patrick Howarth, head of ExxonMobil’s lithium division, said, according to Reuters.