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New cocoa floor price is step towards more equal trade – Solidaridad

On June 12, 2019, the governments of Ghana and Côte d’Ivoire announced a floor price of $2,600 per ton of cocoa beans for the 2019/2020 cocoa season. They also announced a suspension of forward sales of beans for the 2020/2021 season. This is a historic move and is seen as a “show of power” by the two countries that jointly produce roughly 65 per cent of all cocoa beans and who have, up to now, predominantly accepted buyers’ prices.

Following the global price crash of 2016/2017, the two governments have been discussing how to stem the impact of the price decline on farmers. The implementation mechanism is being discussed at a technical meeting in early July. This follows on from global discussions on living income for farmers, in which floor price determination has been highlighted as an immediate step towards increasing farmers’ incomes. Whether this action is sustainable, and the best approach is yet to be seen.

Interventions on price alone are not sustainable

Solidaridad welcomes the prospect of the new floor price improving farmers’ income but contends that it will not be sufficient to achieve a living income for farmers. The extent to which farmers will benefit from the floor price is unclear because farmers do not directly enjoy full market prices for their produce due to the existing pricing mechanism. Whether, and how, farm gate prices will change is unclear. Solidaridad believes that an increased share of cocoa market prices should be transferred to farmers in the government-regulated farm gate pricing. At the same time, the huge margins made by the industry along the supply chain is redistributed to improve farmers’ current share from 4 per cent-6 per cent to appreciable levels.

Cocoa prices are an important element to achieve sustainable cocoa but should not be looked at in isolation. Intervening on prices without looking at supply measures and enabling policies to develop a healthy cocoa sector may not have the desired positive impact. We urge the governments of Ghana and Côte d’Ivoire, in their bold effort, to also look at enabling policies that secure land tenure, promote access to finance through strategic partnerships, and create a long-term holistic agricultural policy for sustainable development. It is unclear at this moment how the governments will invest the extra income.

In welcoming this landmark announcement, Solidaridad is encouraging the governments of Ghana and Cote d’Ivoire to set up solid supply chain management systems and structures.

We recommend the implementation of a holistic strategy on cocoa rehabilitation and intensification (more cocoa on less land) as the higher prices can become a driver for deforestation. Solidaridad is ready to support the two governments in creating robust policies and future-proofing cocoa farming practices.

By Isaac Kwadwo Gyamfi

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