Transcription
Dark chocolate. White chocolate. Biscuits. Hot chocolate. Pralines, bonbons, chocolate cake, chocolate bars... From sweets to cosmetics, cocoa is everywhere, and 60-70% of it comes from just two countries, Ivory Coast and Ghana.
When you get to farmer households, you'll find that some may never even have tasted chocolate. Cocoa farmers largely live under the poverty line of $1.25 a day. They really can't even afford the finished product. The $100 billion chocolate industry is plagued by child labor and has historically been a leading cause of deforestation in both West African nations that receive a pittance for selling their beans. The two countries alone represent less than 6% of the global value, including the taxes that the country is taking from exports. The farmer is probably getting less than 2%.
But soon, even these small percentages may be lost completely, as the main importer of West African beans, the European Union, gears up to ban cocoa with a harmful impact on the environment and human rights. If there was a legislation there that prevented West Africans from selling their cocoa, there would really be an issue for the economies, for the farmers, for the governments. And so, that has added to, I think, what was initially more of a moral issue and made it very much an economic issue. And these attempts by developed nations to force a cleanup of the cocoa supply chain, while potentially hurting the livelihoods of West African farmers, might not even achieve their desired goals. Cocoa and chocolate worlds are stuck in colonialism, making the poor nations poorer and the rich nations richer. And that has not changed at all.
Cocoa, a tree crop native to Central and South America, was introduced to Africa over a hundred years ago. Colonial powers like France and Britain compelled some of their colonies in Africa to cultivate crops that they don't want to cultivate because of the ecological costs. After independence, these countries just keep on producing this raw material, which they export to Europe and America. It's almost a classic colonial division of labor. Cocoa has remained intertwined with the economies of Ghana and Ivory Coast, their fortunes often rising and falling with the price of the crop.
After Ivory Coast, or Côte d'Ivoire, gained independence in 1960, its first president and the political elites were cocoa growers who encouraged production. In Côte d'Ivoire, in the 1950s, 1960s, '70s, some of the richest men were actually cocoa farmers. And there was a speech by the first president saying, if you want to be rich, plant cocoa. But the global price of cocoa continued to reduce in the early '60s to the point that in 1965, some cocoa planters in Ghana judged that it makes no sense for them to harvest their cocoa. The first president of Ghana, Kwame Nkrumah, had seen his country's economic reliance on a crop with such volatile prices as perilous. He stopped funding new cocoa farms and then tried to diversify. Also tried to create a situation whereby Ghana would be processing its cocoa. Unfortunately, that didn't come to fruition because of the 1966 coup against him. The volatility of cocoa prices continued to destabilize the Ghanaian currency. And after a second coup in the '80s, the government of Ghana made a pledge to its cocoa farmers to never let the farmgate—the price it would pay farmers for their cocoa—slide below a certain threshold. So there are two prices. One is fixed by the government, and one is determined by the markets. The price of cocoa on the international markets is essentially affected by supply and demand, with most of the supply coming from West Africa and most of the demand coming from the EU and also North America. Cocoa is the main export revenue for Ivory Coast and the third biggest for Ghana. About 60% of this exported cocoa ends up in the European Union, mainly in the form of unprocessed beans.
While we talk about the price of cocoa, the world is changing. Supply and demand is probably not the market of tomorrow, because we have another element, which is sustainability. So we see in Europe, there are even right now regulation proposals to ban cocoa linked to deforestation. Cocoa's connection to deforestation dates back decades, a direct link to the traditional method of cultivation used in Ivory Coast and Ghana called slash and burn. Farmers just cut down these trees, and you burn the entire land. Then you plant, harvest, and then move to another forest, plant, harvest. So after slash and burn planting, you tend to harvest quickly, and you tend to use less labor. The problem with this is that the amount of forest is finite. So in Côte d'Ivoire, there's almost complete deforestation. There's no new land for cocoa farmers to move to. To try and reduce this deforestation, Ivory Coast and Ghana have been forcing farmers to replant cocoa on the same land, even as the soil's nutrients get depleted. But replanting on the same spot requires more workers and more input to grow the crop, shrinking farmers' already tight margins. You now have to weed. You now have to buy fertilizers, pesticides. Second, third replanting, you need to increase your use of fertilizers. So if your cost of production keeps going up and you have no control over the price, then you have to look for a way of deflating these extra costs, which is one of the causes of increases in child labor and child trafficking. This is a way of deflating the cost of labor.
Cocoa is not an easy crop to grow, and it competes for labor with other activities in the area, like small-scale gold mining, which is often illegal and known locally in Ghana as galamsey. Cocoa farmers often run farms as a family, which is why cocoa poverty is such a big issue because a farmer would support a family of six or eight people. Usually, it's small-scale farmers. So they plant in the farm, and then they come home and dry the beans before packaging them and selling it to, in Ghana's case, the Cocoa Board through licensed buyers. The problem with this is that most of the benefits, it's mainly in the manufactured aspect of it, while most of the costs—for example, ecological costs—is mainly in the raw material aspect of it. Most cocoa beans are processed once they reach their final destination in the factories of chocolate-making companies. A study of the chocolate value chain by Oxfam showed that the grinding and production of chocolate amounts to more than 25% of the price of a bar. While in the '70s, when cocoa prices hit record highs, the farmers' share was nearly 50%, today it's down to around 6%, and that's likely to include taxes and fees of middlemen. Today there are more middlemen. They are basically squeezing out the profit for cocoa farmers. That's one way of explaining it. Another way would be to say that there's more consolidation of market power in the chocolate production, as well as the retail part of the value chain. One other way of doing it is to look at the cost of production. So the cost of producing cocoa now and the cost of producing cocoa in the 1960s and 1970s, it's not even close. A new cocoa is demanded in the market. Cocoa produced sustainably. And we need to ensure that anyone that feels that sustainability is just about deforestation, it's not the case. Deforestation or any human rights abuse seen in the cocoa sector are the consequence of poverty. And we need to tackle the root cause.
To tackle farmer poverty, the government of Ivory Coast and Ghana introduced an initiative in 2019 called a Living Income Differential, or LID, which requires confectionary companies to pay a premium of 400 US dollars on each tonne of cocoa they buy. This money is then incorporated into the farmgate price to bring a bigger slice of the bar to the farmer. In the first year of the LID, the farmgate price in both countries increased nearly 20%. The World Cocoa Foundation that brings together companies representing 80% of the global cocoa market has welcomed the change. This new tool is really effective in getting farmers out of poverty. We think that it is not possible to sustain the cocoa industry at the detriment of the farmers. So it's not a nice thing to do, actually, it is the right thing to do if we want to sustain the cocoa industry for the benefits of all the members of the supply chain. If you're a cocoa farmer, your income increases by 20%. You are now happy, and yes, there's more money in cocoa. So if you are thinking of leaving cocoa, there's no point leaving now. The inevitable outcome of this would be an increase in outputs. So an increase in outputs would mean a further reduction in market price. And in fact, in the last cocoa season, within Ghana's case, it had a record production actually. So there was actually oversupply. And so, that also gave less negotiation room in terms of fixing pricing with their main buyers. So this is actually good for cocoa buyers, for multinationals who want more cocoa. But I think it will be bad for Côte d'Ivoire and Ghana in the long run.
In an effort to clean up the supply chain, governments have also been trying to create mechanisms to ensure the traceability of beans to the farm where they were grown. Ultimately, that would be the first step. If we can trace the cocoa, that would help make for a cleaner cocoa industry and cleaner cocoa supply chain where all the stakeholders along that supply chain can be held responsible. So that will be really the quickest fix, to put it that way, even though it's taken a while, but the bigger opportunity really is to improve industrialization and manufacturing. That would be a way of breaking the neo-colonial patterns of trade. So to break that chain would be to process the raw materials in Africa before you export. African economies have been locked in similar trading patterns with other commodities, like crude oil or cotton; exporting raw materials for a low cost and then importing finished goods. But a growing taste for chocolate and a rising middle class provides an opportunity to keep more of the value of cocoa within Africa.
And so, in Ghana's capital, Accra, an industry of artisanal chocolate makers has taken root. It's a work of passion. I've fallen so much in love with cocoa and chocolate. When I started, it was very difficult to get information on cocoa processing and chocolate production. I had to go to the U.K. to learn how to use the chocolate. However, in the last six years, there's a growing small industry. I think it's important that now the current administration is pushing the eating of chocolate and cocoa products. Bioko Treats is a boutique chocolate brand that caters to emerging local appetites, but it hasn't always been a smooth ride. Access to affordable funding, you know, it's just about non-existent. So the company cannot grow maybe as quickly as it should. To have an impact on the wider chocolate industry, change needs to happen on a larger scale. Hendrik Reimers is the founder of Ghana-based chocolate maker, Fairafric. With no bank willing to fund what was perceived as a risky project, his company went online to crowdfund a factory. It was built in less than half a year and has the capacity to produce 4 million bars of chocolate a month.
Currently, the advantages of producing chocolate in West Africa are not all that many, rather to the contrary, we do face a lot of infrastructure challenges. Where we are producing here, we had to bring our own internet, we have to supply our own water, own electricity most of the time, we depend on our own wastewater management. So technically speaking, it will be much easier to produce chocolate in Europe where all that infrastructure is already set up. The choice of producing in rural Ghana is one to make a statement and to show the world that we can make world-class chocolate here where the cocoa grows as well. Fairafric is the only large-scale factory in Ghana producing chocolate for export, but the company's ambition is to grow the domestic industry so it can compete in the international market. We set up a chocolaterie school where we train local talents in the art of praline making. We exported the first shipment of pralines, which the students have made after a year of training. And one of the trainers said, this is the same quality that we have made in Belgium. So that was one of the proudest moments I've ever seen, you know, people seeing that they're getting that kind of comparison, having made like the same quality that is produced in Switzerland and in Belgium here in rural Ghana. I think that's a significant game-changer. The company aims to source everything within the African continent. And the reasonably long shelf-life of commercial chocolate has allowed Fairafric to overcome supply chain issues. But despite the appeal of this model, none of the multinational companies have followed suit.
The real reason that we see very, very little infrastructure in terms of adding value to resources are the tariff kind of policies of Europe that have always said you can bring in your commodities without any duties paid, but if you've made something out of it—be it semi-finished products, like cocoa mass or cocoa butter, or even chocolate finished products—then duties have applied. So you've immediately been at a cost disadvantage, and it forced all the value addition to commodities towards or into Europe. And only since around like 20 years, that has been changed, and the playing field was leveled. If you consider this very issue of local processing, it is reflective of the set of regulations that have been put in place. Depending on the way the government is adjusting the regulation, maybe tomorrow's picture would be different. Government, for example, is pushing to having national investors in it, but is considering to reach out first to the private sector and try to reach a win-win agreement. I think politically, in the spirit of African self-sufficiency, Africa rising, the idea is one that anyone can really easily embrace, but the practice of it is one that's difficult to implement. The more components there are in your products, the more standards you have to meet. The fact that you can just export raw beans and get your dollars, the quickness and ease with which you can do that, is really hard to overlook. Because of the export revenue component, it means that there's always going to be a trade-off. It's not just a matter of transforming the beans, but getting it to a point where you can export and earn.
And alongside economic incentives and regulations, the role of consumers in shifting the whole industry shouldn't be underestimated, as history shows. Consumers, as far back as a hundred years, have forced Cadbury to source their cocoa from Ghana where slavery was already abolished. The consumer is not used to the idea of 'Made in Africa' yet, or 'Made in Ghana'. If you tell someone 'Made in Germany', that really rings a bell, that resonates, and it has a certain message. And although it kind of looks simple to say, look, we are adding a lot of value, we create meaningful, well-paid jobs producing chocolate here, you only have that split second when a consumer decides to buy chocolate. It's been a major challenge, but we've done a lot in terms of explaining that. Almost everyone loves chocolate, but it's important to ensure that it's cleaner, less heavy on the environment, but also fairer on the people that actually toil the land.