[...] Andy Harner, global cocoa vice president at Mars Chocolate “I would disagree with any naive thought of just passing through price increases to farmers. It's unfortunately more complicated than that.” He said while the industry agreed that farmers needed higher incomes, It was more sustainable to empower farmers to negotiate a fairer price and to lobby producing countries to award farmers a greater percentage of the global cocoa price. This strategy has been employed by Cocoa Action, an industry initiative by manufacturers and processors including Mondelēz, Barry Callebaut and Cargill that aims to improve farmer yields through fertilizer use and training. [...] Mars’ Andy Harner said it was a naive assumption to add 3% for the price and then try to add that 3% to a cocoa farmers’ price. “The supply chain really isn't that direct and transparent,”​ he said.

Current efforts focus on technical solutions such as increasing productivity and diversifying production. Though these are necessary steps, these technical solutions alone will not suffice. Additionally, technical approaches also have their own challenges, and require available and affordable inputs, labour and financing.[...] Farm gate prices are a key missing ingredient, and are a short term solution that every company can engage in almost immediately. The Living Income Differential - a $400 per tonne premium - has been implemented by the main cocoa growing countries Côte d'Ivoire and Ghana, thereby raising farm gate prices by 21% and 28% respectively. This is an important step, although is far from sufficient to provide farmers a living income, despite its name. Additionally, concerns remain at the lack of inclusion of other stakeholders in the development of these plans, including farmer organisations, civil society, and other cocoa producing governments.

Other benefits are less obvious but just as valuable. The world market for cacao is marked by high price volatility. Small-scale producers end up at the mercy of market forces entirely outside their control, resulting in boom and bust cycles that at best discourage farmers from investing in growing more cacao, and at worst, bankrupt them entirely. Some of our partners offer farmers much needed stability by paying a fixed price for their beans, well above the world market price, which is set at the start of the harvest and guaranteed through the season.

Until the Ivorian and Ghanaian governments combined forces to introduce the Living Income Differential, farmers were almost entirely dependent on the world market for the setting of the farm gate price. Though markets can work well to set proper price levels when all actors have countervailing power, this is not the case in the cocoa sector. One of the key determinants for a farmers income is therefore imposed on him. This asymmetrical power balance doesn’t just lead to low farm gate prices, it also leads to a very skewed distribution of value in the supply chain; farmers live in extreme poverty in a multi-billion dollar industry.

One of the arguments that companies must follow the world market price, is that the chocolate sector is a competitive one, and that companies cannot afford to unilaterally pay higher prices. However, in the past decade, Nestlé has bought back around $46 billion USD (Nestlé Global 2020) in stockholder shares. In early 2020, the Ferrero family paid itself an annual dividend of €642 million (Neate 2020). A rough calculation shows that a chocolate company like Ferrero, sourcing 135,000 metric tonnes of cocoa per year could give every single cocoa farming household it sources from (circa 90,000 farmers producing 1.5 tonnes per household) a living income for the year ($5,500 per household for Côte d’Ivoire), leading to a cost of at most $450 million. This would still leave the company around €192 million it could pay out to its owning family - the richest family in Italy. If chocolate companies are able to spend that kind of money on their stockholders and owners, there is simply no excuse for companies not to pay prices that ensure a living income.