…An in-depth look at Fairtrade’s minimum price policy
Fairtrade, an organisation that advocates for fair and equitable access to international markets, has been a longstanding player in the cocoa-chocolate industry. However, questions have been raised about the effectiveness of Fairtrade’s policies, particularly its minimum price policy, for smallholder cocoa farmers in Ghana. In this email-based interview with Fairtrade Africa-West Africa Network, we explore the flaws in Fairtrade’s minimum price policy and whether Fairtrade has outlived its usefulness in the Ghanaian cocoa sector.
Initially, Fairtrade focused on granting fair and equitable access to international markets for all smallholder producers and advocating with governments for better policies that allow for international trade. This approach did not involve “certification,” and all producers had equal market access. However, in 1988, Fairtrade began a certification label with the intent of helping consumers and distributors track how products with the Fairtrade label were benefitting producers.
Fairtrade’s entry into the cocoa sector occurred in the 1990s with the introduction of the Fairtrade label. Unlike its initial market access advocacy, the cocoa sector did not have issues with market access since it was a supplier market. The value proposition offered to the cocoa sector was an assurance of a minimum price per metric ton and a Fairtrade premium for cocoa farmers. However, farmers interested in benefiting from these incentives had to pay to join the Fairtrade label via a cooperative society and incur extra costs to meet the Fairtrade label without any assurance of their own Fairtrade-labelled cocoa being purchased on Fairtrade terms.
The minimum Fairtrade price also assumed that, for over 20 years until 2020/21, a world market price of $2000 per metric of cocoa beans was enough revenue for farmers to fund their farming operations according to Fairtrade label’s standards and meet their livelihood needs and those of their households. However, it is well-known that Ghanaian cocoa farmers received only a percentage of the world market price, with the remaining amount being retained by the national cocoa marketing board.
When asked whether Fairtrade’s minimum price is compared with the world market price or the producer price, Fairtrade answered that “The [US$] 2,000 [minimum price until 2019/20] is compared to the world price, but practically, it is compared to the price the regulator sold to [the] buyer[.] we look at the price sold to the buyer. [The] difference on the differential. 100% goes to the individual farmer. FMP is 100% disbursed to [the] individual farmer.”
It is unclear why Fairtrade did not link its Fairtrade minimum price to the “producer price” that Ghanaian cocoa farmers received. Additionally, Fairtrade’s minimum price is connected to the world market price rather than the producer price Ghanaian farmers receive, raising questions about whom Fairtrade is negotiating for, i.e., the “Ghanaian Fairtrade farmer” or “Ghana Cocoa Board.”
Furthermore, even if Fairtrade is negotiating better prices for the “Government” through a minimum price arrangement, why did they set a minimum price of $2000 per metric ton for over 20 years until 2020/21? Workers’ incomes in chocolate companies did not stagnate in the past 20 years, so why should farmers? Also, if the world market price for cocoa does not fall below Fairtrade’s minimum price, which graph one below shows it never did for the past ten years, how do Fairtrade farmers gain from the minimum price standpoint? According to Fairtrade, “The minimum price in Ghana has never been triggered because, for all these years, the market price has been above the Minimum Price (which is determined by Fairtrade in consultation with stakeholders, based on the cost of sustainable production).”.
So, Fairtrade has confirmed that Ghanaian Fairtrade farmers have not benefited from their “Fairtrade Minimum Price.”
During the interview, Fairtrade tried to defend its process, stating that they set and reviewed the Fairtrade Minimum Price through a transparent process that involves consultation with various stakeholders, including producers, buyers, marketers, member organisations, and external experts. However, the fact remains that the Fairtrade Minimum Price has remained stagnant at US$2000 from 1995 until the 2019/20 crop year, despite inflation and increases in the cost of living. This raises questions about the effectiveness of their consultation process.
Fairtrade claims that the market price for cocoa in Ghana has always been above the Minimum Price, but this means that farmers who comply with Fairtrade standards do not receive any price-related compensation. Fairtrade former CEO Harriet Lamb has even stated that the market price for cocoa needs to be doubled for farmers to earn a living income. It begs the question, why hasn’t Fairtrade increased the Fairtrade Minimum Price annually to ensure that farmers benefit from it?
Graph 1 shows a comparison between the World Market Price of cocoa and the Producer Price of cocoa in Ghana from 2008/09 to 2020/21. The graph clearly shows that the World Market Price is significantly higher than the Producer Price, indicating that Ghanaian cocoa farmers are not getting their fair share of the profits.
Fairtrade has provided a rejoinder to explain their position, claiming that the author did not request the most factual data from them. The author conducted an email-based interview with Fairtrade Africa to solicit the most updated data/information, and we leave it to the readers to judge Fairtrade’s moral and professional justification.
For a detailed analysis of Fairtrade’s business model and its impact on Ghanaian Fairtrade, cocoa farmers, readers can refer to the “is Fairtrade Fair to Ghanaian Fairtrade cocoa farmers.”
Fairtrade reacted with a rejoinder to explain their side of the story and asserted that I did not request the most factual data from them. So, I conducted an email-based interview with Fairtrade Africa to solicit the most updated data/information Fairtrade felt they had that I never requested. Hopefully, this email-based interview makes Fairtrade morally and professionally justified. But we will leave that for readers to judge.
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