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Are Fair Trade Cocoa & Sugar Prices Really Fair? (Analysis)

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Back in 2014, before starting my chocolate blog, I wrote a long paper on the pros and cons of Fair Trade chocolate. There were several points on either side, and while the consensus was that fair trade certified chocolate was better than generic supermarket chocolate, it wasn’t having nearly the positive impact that consumers believe it does.

Not much has changed in the eight years since. So to illustrate the impact Fair Trade chocolate does have, this article digs into the Fair Trade prices, standards, and costs for cocoa farmers and consumers alike.

Is Fair Trade Chocolate Fair?

At their core, Fair Trade labels have been used for decades to distinguish products that provide above-market income to the farmers producing the raw materials. General critique is that fair trade products remain an insignificant portion of the market at large, even decades after the movement began. Further statements argue that offering products at higher prices, without regards to quality, leads to market inefficiencies that consumers end up paying for.

They are also quick to note that the smallest of farmers participating in these programs are still unable to earn a living wage. These concerns are valid. Fair Trade continues to advocate for policy changes in how markets operate, primarily to benefit small-scale producers. However, their programs base compensation rates for the producers closely with the world market price, the majority of which caters to mass consumer products.

Prices are volatile in the open market, and a base rate is paid regardless of the quality. This is true for cocoa, coffee, sugar, and almost any other commodity crop, Fair Trade certified, or not.

In a capitalistic market that looks to gain the most value for the least amount of money, producers will end up on the losing end. That is, unless they themselves have access to the final market, which we’re seeing more frequently post-pandemic. But for farmers who don’t have that access, some are finding it difficult to sell all of what they grow under increased fair trade rates, and this limits Fair Trade’s impact.

Despite criticisms, Fairtrade International (FLO) has been able to establish itself as a recognizable and reputable institution. People still associate it with its original aim: to normalize ethical trade worldwide. The organization’s longevity is proof that the market is responding positively to fair trade products. More and more consumers are showing interest in how and where the ingredients in their chocolate are sourced.

Meanwhile, some chocolate makers are going even further, sourcing single origin and direct trade cocoas from the likes of fermentaries & single intermediaries like Uncommon Cacao. Cutting out all or most of the middlemen traditionally involved in the cocoa trade (including fair trade, to an extent) means offering farmers a higher price at the farm to produce good quality cocoa. This approach covers the shortcomings of fair trade, however, the terminology is not standardized nor regulated, bringing about issues of brand trust.

cacao beans drying at a rural chocolate factory in Myanmar

Fair Trade Cocoa

According to Fairtrade standards documentation, their program covers the sale of cocoa in its primary form (raw beans), as well as cocoa butter, chocolate liquor, and cocoa powder. However, their premium only applies to products processed in their country of origin.

The standards overall focus on cocoa’s traceability, as well as ethical and sustainable production. Business development is also part of Fairtrade’s scope, aiming to lay foundations for empowerment and the future development of co-operatives.

Benefits of Fair Trade Cocoa

The Fair Trade model allows certified buyers to purchase products from small producers at a Fair Trade designated minimum price. FLO even publishes a pricing table that can be used as a guide. It includes harder-to-find information on the Fairtrade Premium, which is paid by certified buyers to certified producers.

Part of the requirements attached to this ‘bonus’ is that it must be used as an investment into the local community, with the use decided upon by vote. In June 2022, FLO’s Fairtrade Minimum Price for cocoa beans was $2400USD, with an additional $250USD per ton paid out as Fairtrade Premium. Through auditing, FLOCERT demands that transaction records are traceable, and systems are in place to equitably distribute the Fairtrade Minimum Price and Premium.

crushed cacao pod on a farm in northern Thailand

Process & Costs of Fair Trade Cocoa

The fair trade movement has similar roots to NGOs. Such groups were initially founded in an effort to mobilize voiceless individuals into structured cooperatives. The development of organizational structures gives farmers both a voice and some of the leverage needed to bargain.

Fairtrade International built coops into their formal requirements, necessitating that farmers join or form cooperatives, and get familiar with program standards before applying. However, there are costs to the farmer regardless of whether they join or form their own cooperatives. The exact cost to the individual farmer is at the discretion of the producer organization they join, or the cost of organizing one themselves.

In the case of FLO certification, these organizations must be democratically governed, and adhere to environmentally-sustainable practices and ethical use of labor. This is aimed at preventing the exploitation of children and refugees, which remains a particular problem in rural areas.

the farm manager at GoGround inspecting cocoa beans at their fermentary in Kerala, India

Becoming Fair Trade Certified Cacao

To become fairtrade certified, the coop must request an audit assessment by contacting FLOCERT regional offices or completing a form on the website. They then receive an application ID and application package which includes details on the FLO standards, contract details, and costs involved with their type of organization.

Next is the payment of a nonrefundable application fee. There may be additional fees involved, as well, depending on the type of application and relevant categories.

Once FLOCERT receives the completed forms and fee, they process the application. In the event of acceptance, the applicant will receive a permanent FLO ID and gain access to the FLOCERT certification web portal (ECERT) that helps monitor standards compliance. FLOCERT will then send an invoice for the initial certification fees, the estimate of which can be obtained in advance by request through the FLOCERT website.

When transacting, member producers and buyers will need to agree on the reference market price through a contract. Therein, the Fairtrade Minimum Price and Premium for cocoa beans must be guaranteed— but when the market price is higher than the Fairtrade minimum price, the market price is paid.

farmers from KamKav Cacao in Cambodia holding out a cacao pod

Once the contract is agreed upon, the buyer of Fairtrade cocoa must also make up to 60% of the value of the contract available to producers at any time. This serves as a form of pre-finance for the cocoa’s production, if it is requested. In a 2020 Cocoa Impact Report by Fairtrade International, they estimated that 80% of Fairtrade cocoa that year came from Côte d’Ivoire.

During that year sales jumped 31%, making it the fastest growing Fairtrade product. Despite this, their own report states that the average male farmer earns just $1 a day and only $0.30 for women, well below living wage standards. From the 2017 cocoa price crash to 2021, in a report, Fairtrade found that there was an 85% increase in the average income of an Ivorian farmer, but that this required them to diversify their income sources.

Sales of cocoa were rising but not all cacao was sold at fair trade prices. The study found that if all the cocoa the farmers produced could be purchased at the Fairtrade Minimum Price, it would increase the average earnings by an additional 9%.

Fair Trade Sugar

The other heavily used ingredient to make chocolate is sugar. The process of getting Fair Trade certified for cane sugar is similar to that of other products, but with a few key differences. Like with cocoa, Fair Trade sugar farmers need to be part of a compliant co-operative. However, individual cane sugar producers tend to be members of more than one organization.

Comprehensive membership lists are made available detailing information on labor and yield to track strategic use of resources and manage sustainable cane sugar production. The certification also requires annual reporting to sugar[[@]] regarding volumes and yields, kill/mill interval, use of inputs, and water management.

Cane sugar has no Fairtrade Minimum Price, however. The same 2022 table indicates that the price paid for sugar is whatever the commercial price is. Fairtrade states that the reason for the lack of a fairtrade minimum price for sugar is due to the price setting mechanisms being complex and distorted.

Instead, Fairtrade provides market access to buyers, support to improve and maximize their yields, and the added Fairtrade Premium to help build out their infrastructure. On top of whatever the negotiated price for the sugar contract is, the Fairtrade Premium is indicated to be $60USD per metric ton and $80USD per metric ton of organic sugar.

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