Wednesday, September 22, 2010

3. Ten Factors That Have Contributed to the Impoverishment of the Ivorian Cocoa Farmer

Most Ivorian cocoa farmers know little of the world that consumes their product. They don’t know why the prices are low, why they can no longer afford a car, why their communities are crumbling, or why they can no longer send their children to school. They are extremely susceptible to manipulation by ambitious politicians who, knowing of the outside world, are experts at attaching blame, gleaning money from well-meaning programs, while depriving the farmers themselves of their just desserts. Like any situation in a complex world, no effect is without its multiple causes. Certainly, the poverty of the Ivorian cocoa farmer is no exception. Listed and discussed on the following pages are ten factors proposed to contribute to the cocoa farmer’s poverty. If each factor were regarded as an independent variable, and the poverty of the farmer were assigned the status of dependent variable, factor number one, taxes, is not only an historical but also a continuing contributor to the Ivoirian cocoa farmer’s impoverishment that clearly out-paces all other factors. In August, 2006, the farmgate price for cocoa beans in the Issia area was 125 FCFA per Kg, amounting to less than 12¢ per pound. In August, 2006, farmers in the Cape Coast region of Ghana were receiving 9,000 cedis per Kg, amounting to 51¢ per pound.

Factor 1: Taxes
A trip to five villages in August, 2006, convinced this author that Ivorian farmers receive approximately 125 CFA per Kg, which is just under one-third what the government itself receives. Imagine an American crop where the tax on that crop is almost three times the farmgate price!

Nine different taxes are leveled on a Kg of fermented, dried cocoa beans. Percentage rates are calculated on an FOB price of 800 FCFA (Franc Communautaire Financiere Africaine) per Kg. These are listed below (Coulibaly & Bouabre, 2006):

1. Droit Unique de Sortie (export tax): 220 FCFA
2. Taxe d’Enregistrement: 5% of the price 40 FCFA
3. ARCC (Autorité de Régulation de Café et Cacao): 6.65 FCFA
4. BCC (Bourse de Café et Cacao): 4.50 FCFA
5. FRC (Fond de Régulation du Cacao): 2.00 FCFA
6. FDPCCF (Fond des Producteurs de Café et Cacao) 6.25 FCFA
7. FDPCCI (Fond des Producteurs de Café et Cacao 18.75 FCFA
8. Réserve de Prudence 10.00 FCFA
9. Sacherie-Brousse 5.00 FCFA

FDPCCF refers to FDPCC—Fonctionnement
FDPCCI refers to FDPCC--Investissement

It is beyond the capabilities of this author to state how these funds are used. It is also common knowledge that journalist Guy-André Kieffer disappeared and probably died trying to find out (Reporters Without Borders, 2006). Suffice it to say, both the World Bank and the International Monetary Fund consider the current system non-transparent. In fact, monies deposited from these taxes are to be found in the BNI (Banque Nationale d’Investissement), but no one in the Ministre de l”Economie et des Finances is able to get a report on the FDPCCI account (Airault, P., 2006.)

In addition, according to a personal interview with people at the director level of a a major buyer doing business in Côte d’Ivoire, the burlap bags purchased with the Sacherie-Brousse fund find their ways to other purposes, rarely for transporting cocoa from the farms (brousse) to the buyers. According to the anonymous report, burlap bags with the FDPCC logo are often found at plants bagging cashews.

In another anonymous report, monies collected from taxes were used to purchase the old Nestlé plant in Fulton, NY—for a reported $40,000,000, a very good price indeed. However, since that purchase, the plant remains shut and not one ounce of Ivorian chocolate has been produced.

Clearly, the government of the current President Laurent Gbagbo has to explain to Ivoirian cocoa farmers and to international lending institutions why the taxes are so many and so much and the purposes to which funds are put.

Factor 2: Structured Adjustments
After the Second World War and with the proclaimed independence of one African country after another, many fledgling African states were left with colonial institutions such as price stabilization accounts or marketing boards but without the appropriate personnel or knowledge to maintain them. This was not the case of Ivory Coast, whose president (Houphouët Boigny) effectively maintained a positive relationship with the mother country, France, while employing French nationals to run the colonial insitutions. The CAISTAB, or caisse de stabilization, a bank account established to pay farmers when the currency was weak or the international cocoa prices had fallen, functioned effectively to maintain a reasonable standard of living for the farmers.

By the 1980s, however, Houphouët Boigny was old, he had overspent the nation’s budget, the currency was weak and the world price for cocoa was greatly diminished. The CAISTAB had become unable to support the Ivorian cocoa farmer. In addition to its non-functionality, accountability for the use of the funds had diminished, although nowhere near the level currently seen. To use a World Bank term, the system was “not transparent.” Furthermore, the ratio of farmgate price (price paid the farmer) to f.o.b. price (“free on board” or cost of commodity after all taxes and duties had been paid) was the lowest of 7 major cocoa-producing nations (p. 43, Varangis and Schreiber, 2001)

Varangis and Schreiber (2001) give the World Bank’s somewhat sanguine view of the reforms of the CAISTAB. They claim that the reforms reduced the role of the state in marketing cocoa, opening this up to the private sector. Furthermore, they claim, restrictions to competition in domestic marketing were lifted. And finally, the elimination of certain CAISTAB powers improved transparency.

A view counter to the World Bank’s can be seen in an article written by the International Labor Rights Fund (ILRF, 2005). They cite negative consequences of the liberalization policies, somewhat opaquely termed Structured Adjustment Program (SAP). Among the consequences cited: in exchange for greater transparency in Abidjan and Yamassoukro, the farmer became more vulnerable to international cocoa price decreases and instability; the Ivorian currency was devalued by 50% and consequently teachers’ salaries were cut in half; “user fees” were incorporated into the nation’s health system; there was a radical upsurge in rural poverty, leading to the current practices of child bondage and slavery. During this time, neighboring Ghana was not forced to disband its COCOBOD, and Ghana now has a much lower incidence of child bondage and forced labor.

Ul Haque (2004) faults neoliberal policies for failing to target fundamental problems such as low primary goods prices, lack of investment by the international community in infrastructure and delivery systems that would raise productive efficiency. Furthermore, he states that neoliberalism seems to focus on improving productive efficiency and producers’ share in the price but essentially does not accomplish this.

And finally, a cursory perusal of the nine taxes listed previously speaks volumes for the view that the current system is far worse than the old CAISTAB system which the World Bank decried.

Factor 3: Governmental Instability

The current unsettled situation with a country split in two, with little progress made because of the racist ideology known as Ivoirité promoted by certain elements in and out of government, it is extremely difficult to make progress toward economic accountability, toward transparency in the use of funds. Until Côte d’Ivoire is united once again, funds collected from the cocoa farmers are probably going to be misused on both sides of the no-man’s-land established by the French forces and the U.N.

In the south, it is very difficult to move on the nation’s highways without paying a wide range of fees whose levels are determined at the moment. For example, the author was charged $50 simply to return to Abidjan after a day in Grand Bassam. The fees charged to drive down main arteries are arbitrary and capricious, and one is not particularly inclined to argue with someone carrying a machine gun. This seriously cuts into the farmer’s profits, as middlemen are needed who specialize in playing the various games (e.g., sitting for hours in line at a police checkpoint, driving one 1 Km and repeating the performance.)

Factor 4: Mother Nature
In the early 80s, a prolonged drought led to the desiccation of rainforests, which caught fire throughout West Africa. Many cocoa farms in Ivory Coast burned, and with them were destroyed the savings of many farmers (Georges, 2005) and their abilities to move the product to market. The Ivorian cocoa farmer was much more successful in the 50s and 60s (Rosenblum, 2005).

Factor 5: Depressed World Cocoa Prices; Price Volatility
World cocoa prices impact the farmer both directly and indirectly. Depressed prices spread through the value chain, depressing farmgate prices. Indirectly, depressed world prices and volatile prices can bankrupt governmental price stabilization schemes such as the CAISTAB. International prices of cocoa have dropped from $2.40 per Kg in 1970 to $1.47 per Kg in 2004 (Nyambal, 2006.)

Today, one of the biggest threats facing farmers is the risk of falling crop prices. Since the beginning of the 1990s, the liberalisation of commodity trading and pricing in developing countries has shifted the burden of risk from governments to farmers. In many ACP countries [African Caribbean Pacific], producers previously insulated from the day-to-day vagaries of the world market now bear the full brunt. As bad luck would have it, price volatility is greatest for commodities traded by poorer countries. FAO figures show a 27% variation from the trend for exports from developing countries between 1961 and 2001, compared with 14% for developed countries. (Anonymous, February, 2005)

One method of reducing price volatility is to remove product from the market, storing it until prices rise. This can be done with cocoa beans, but only if they are kept in adequate facilities. Cocoa farmers certainly do not have the capital to do this, nor do cooperatives.

There appear to be two camps regarding the price disconnect between First and Third Worlds. These are the Free Marketers or the Neoliberals and the anti-Free Marketers. The Free Marketers assume that government methods of control are almost always non-transparent and subject to corruption. They look into other methods of combatting dropping commodity prices. For example, the World Bank’s Commodity Risk Management group (CRM) currently studies institutional models that combat the price disconnect by combining price risks from many small farmers and hedging them in international markets. World bank-sponsored research into feasibility of this approach is taking place in Cameroon, Costa Rica, Côte d’Ivoire, Dominican Republic, Ghana and Kenya, in the coffee, cocoa and cotton sectors. (Anonymous, February, 2005.)

The anti-Free Market forces include UNCTAD, the U.N. Commision on Trade and Development. They point to European and American government subsidies (decidedly anti-Free Market institutions) that allow First World farmers to dump other commodities on the international market, effectively exerting a downward pressure on prices. Two recent examples that have been given some attention by the press were the dumping of American cotton and French powdered milk in Sub-Saharan Africa, causing thousands of farmers to lose their farms. As Mali’s Finance Minister, Bassary Toure pointedly says, “You’re hypocrites. You tell us to play the rules of the open market at the same time you subsidize your farmers.” (Baxter, 2003.)

Cocoa prices are not affected by dumping, as neither Europe nor the United States grow cocoa. Nevertheless, until recently, prices have remained stagnant for close to 20 years, and West African cocoa farmers have had to accept diminished income from growing, fermenting, and drying cocoa. One reason for the diminished prices is the increased production of cocoa during this period of time. The four largest cocoa producers of West Africa—Cameroon, Nigeria, Ghana, and Côte d’Ivoire—all increased their total outputs during the 90’s. For example, Ghana averaged 192,000 tons in the mid-80s and it increased that to 361,000 tons annually by 1999 (Varangis & Schreiber, 2001.)

Factor 6: Lebanese Diaspora of the 1970s and 1980s
Beginning in 1975 and lasting 16 years, a savage civil war between Shi’ites, Druze, Maronite Christians, Palestinians, and Syrians, with periodic Israeli and American self-serving interventions created a hell on earth for many residents of Beirut. The disorder and conflict of this period caused billions of dollars in damage and led to a diaspora of approximately a half million Southern Lebanese (Shi’a), many of them to West Africa. Today, small businesses in Côte d’Ivoire are largely Lebanese-owned. Bread sold throughout Ivory Coast is manufactured in Lebanese bakeries. The tools used by cocoa farmers are purchased from Lebanese wholesalers in Abidjan. The plastic shoes that West Africans wear in their villages are manufactured and sold by Lebanese.

West Africa, already home to relatives or friends who had moved earlier (Afife, 2005), beckoned with the possibilities of an easy life. Ivory Coast under Houphouët Boigny was a can-do country; everyone was welcome to seek their fortune, whether they were Malian, Burkinabe, Liberian, French, Chinese, or Lebanese. Many Lebanese started bakeries. Many purchased trucks and began to act as intermediaries between acheteurs (buyers such as Cargill) and fermiers, the farmers.

Two intermediaries arose. The Lebanese traitant was generally paid by the buyers in cash. The traitant, having a white skin, required an African intermediary, called the pisteur to bargain directly with the villages. The name comes from the necessity of following pistes or paths to reach villages where the cocoa beans were accumulated and dried additionally if necessary. The pisteur was usually an Ivorian, Burkinabe, or Malian, usually Muslim, whose race allowed him to bargain effectively at the village level. The Lebanese traitant specified the quality of bean required, the amount needed, and paid the pisteur, who bargained with the village representative and purchased the required amount of cocoa beans.

For an excellent account of the Lebanese experience in Abidjan and Côte d’Ivoire and how modern technology fosters a transnational community, see Lebanese in Motion: Gender and the Making of a Translocal Village (Peleikis, A., 2003.)

Factor 7: Degradation of the Ivorian Bean’s Reputation
During the period of the immigration of the Lebanese, the quality of shipments of the Ivorian bean began to decline. Varangis & Schreiber (2001) lay this squarely at the feet of the traitants and acheteurs who, they claim, took to mixing low-quality beans into high-quality beans in order to increase shipment volumes and revenues.

Some buying companies in Côte d’Ivoire are endeavouring to change this situation. Cargill, reportedly, maintains high buying standards (Soulard, L & Winters, L., 2006). It has published and distributed information on quality maintenance (Cargill, 2006) and has donated over 100 small trucks to villages. Currently, it has established a partnership with several transporters to help farmers get their beans from their farms and villages to the transporters. (Soulard, L & Winters, L., 2006) Barry-Callebaut (Willems, 2006) established two years ago a program, Partenaire de Qualité, to bring leaders of participating cooperatives to Abidjan for classes and to have them sign a binding agreeement regarding work conditions, commercial practices, quality conditions, and buying conditions.

Ghana, whose beans now command a higher price (3%) on the international market, had two advantages: one, it had the COCOBOD, which continued to act as a buyer and therefore exerted authority over the grading and quality of the beans. Ghana also had Cadbury, which has since the beginning of the 20th century promoted the Ghanaian bean to the outside world while visiting villages and conferring with local officials on how to induce a steady increase in bean quality. The Ghanaian beans are considered to be larger and fattier than Ivorian beans. and has alre Ghanaian beans are supposedly larger and therefore higher in the highly desirable cocoa butter (Willems, 2005.)

In an effort to promote the Ivoirian cocoa bean and to reverse the erosion of its reputation, the BCC (Bourse de Café Cacao) launched the Le Chocolat du Planteur program, using Didier Drogba, the famous Ivoirian soccer star to promote a line of chocolate bars whose beans come from specified regions. Information about this program is available at Barry-Callebaut is producing the bars in one of its plants in Germany, and the bars are being distributed at Monoprix and Lafayette Gourmet (France), Kaufland (Germany), and Prosuma (Côte d’Ivoire). Advertising for the bars began in June, 2006.

Factor 8: Multinational Corporations
How the large chocolate corporations have impacted the cocoa farmer is difficult to ascertain—given the deficit of information. In the early 1980s, with a confluence of profligate government spending, reliance on the French for financial support, and bush fires, Houphouët-Boigny blamed the multinational corporations and the speculators on the London markets for the precipitous drop in the price of cocoa. In an attempt to control world prices, he held 300,000 MT of cocoa off the market. This had no effect on world price, as buying companies simply purchased more from Malaysia and Indonesia, but it did mean that almost a year’s production of cocoa was wasted. (Hofnung, T., 2005)

This author has been fortunate to be able to interview the plant manager (Willems, B., 2005, 2006) of SACO, a subsidiary of Barry Callebaut, one of the largest European chocolate companies and two directors of Cargill (Soulard, L. & Winters, L., 2006). He has yet to successfully land an interview with ADM, the third multinational that controls the Ivoirian bean market.

The plant manager (Willems, 2005) was kind enough to provide several examples of how a large cocoa buying company can help the cocoa farmer. In Ivory Coast, Barry Callebaut employs several individuals to travel to the farmers and discuss with them issues related to the growing and handling of cacao beans; part of the conversation focuses on methods of quality and yield improvement. In addition, Barry Callebaut maintains a storage and drying facility in Sinfra and shares profits with the local cooperatives. See “Factor 7” for a description of Barry-Callebaut’s Partenaire de Qualité program.

Cargill, in an effort to shorten the supply lines, built two collecting stations, one in Daloa, and the other in Gagnoa. This increases the farmgate price by reducing shipping costs assessed the cocoa farmer. In addition, Cargill has distributed over 100 small trucks to villages and cooperatives. This program did not work so well, because many of the trucks were destroyed in a short period through neglect and others disappeared, ending up hauling other products. To find an alternate way of reducing shipping costs for the farmers, Cargill has set up partnerships with certain of their haulers, who are responsible for distributing and maintaining small trucks (Soulard, L. & Winters, L., 2006.)

Conversations with middle level management employed by Cadbury and Nestlé in Ghana revealed similar attempts to increase farmers’ awareness of quality and yield issues. For example, Cadbury has worked with village chiefs since 1908 to improve cocoa quality. The price of Ghanaian cocoa is 3% higher than the price of Ivorian cocoa. And since 2000, Cadbury has paid for the building of 250 water wells in Ghanaian villages.

Nestlé is building a grinding plant in Takoradi, Ghana, the second deepwater port from which cocoa is exported. This kind of action is commendable, as it means that a Third World country is actually producing semi-finished product, chocolate liquor and cocoa butter. It keeps more labor dollars in the country. This sort of action is only possible if the semi-finished products are exported to a country that has low tariffs on semi-finished products.

Cargill is also building a grinding plant in Takoradi, Ghana. Depending on the company to which it ships, it exports either beans or semi-finished product (liquor and butter.)

How do large chocolate corporations damage the cocoa farmer? One obvious way they damage the farmer is by neglect. Given the current sensitivity in Europe and the United States around Third World labor issues, the multinationals are beginning to enact programs such as those listed above. Another motivation may have to do with competitiveness. Word gets around the cocoa farming community that some buyers are a lot easier to work with than others, that some buyers actually visit the villages and try to help the farmers. In the long run, visiting farmers, giving them tools, and providing workshops develops a feeling of respect that transcends the old colonial order.

Factor 9: Low Productivity
If cocoa farmers are to improve their prospects, the productivity of the West African cocoa farm has to change. Compared to Indonesia, West African productivity is far lower. This is because the Indonesians have established cocoa plantations, allowing them to afford inputs such as fertilizers and pesticides. West African cocoa remains competitive on the world market because the farmers continue to endure extremely low standards of living.

The picture that emerges is of a sector with stagnant technology, low yields, and an increasing demand for unskilled workers trapped in a circle of poverty (IITA, 2002.)

Productivity is partly reflected in the yield of cocoa per farm. The fact that in Ivory Coast and Ghana the average farm size is 2.5 hectares means that the yield per family is necessarily low. In Ivory Coast, there are approximately 3 million farmers (ICCO, 2006b) producing 43% of the world’s crop (IITA, 2002) and in Ghana, there are approximately 1.6 million farmers producing 15% of the world’s crop (Norde & van Duursen, 2003.)

Productivity is also a function of horticultural methods. Water, fertilizer, pesticides and fungicides are employed to increase yields. Such practices diminish, however, when the price of cocoa drops and the farmer cannot afford the inputs.

Essentially (and ironically), much of West African cocoa is de facto organic, simply because the vast majority of farmers cannot afford the inputs. As the American saying goes, “If life deals you lemons, make lemonade.” West African farmers could become organically certified. The cost, however, is prohibitive: approximately $10,000 .

At this point in time, there are no organically certified cooperatives or farmers in West Africa. It would be smart for cooperatives to seek organic certification because they conceivably have the capital and because this would add 200 dollars to the price per metric ton. The amount of organically certified chocolate sold in the U.S. greatly exceeds the market for Fair Trade chocolate. Organic certification would be possible in all of West Africa except Ghana, where the COCOBOD controls all aspects of cocoa growing, harvesting, and trading. The COCOBOD has already once killed a research project investigating the control of pests such as the mirid using tea tree oil.

Several organizations supported by large chocolate companies are attempting to encourage higher productivity. The World Cocoa Foundation ( and the International Cocoa Initiative ( conduct farmers’ field schools in Ghana and Ivory Coast in order to promote higher productivity. Cadbury is also involved in increase in quality and yields in Ghana, and Barry-Callebaut is doing the same in Ivory Coast.

Factor 10: Developed Nations Ignore Needs of Developing Nations
Since the Second World War, the developed world has ignored the developing world in terms of establishing trade terms that are equitable. The GATT, or Generalized Agreement on Terms and Tariffs, has consistently focused on industrial products, much less on agricultural commodities. Frustrated with this situation, the Third World established UNCTAD.

To date, the developed world purposely discourages cocoa from being processed in its country of origin by establishing import duties. For example, the European Union ‘s import duties on unprocessed cocoa beans is 0.5%, rises to 9.7% for semi-finished products such as liquor and butter, and still further to 30.6% for finished chocolate. Similarly, the U.S. puts 0% import duties on beans, 0.2% on liquor and butter, and 15.3% on finished chocolate (ul Haque, 2004, Table 9.) A visit of the chocolate processing plant in Tema, Ghana, revealed large containers of panned peanuts “on their way to Singapore” because there was no import duty levied by that country on a finished product.

Sub-Saharan Africa needs a combination of trade and aid in order to make serious inroads on poverty and instability. Currently, trade conditions are unfavorable—as discussed previously. And aid is simply too little to effect change.

Some of the greatest development success stories of the last 40 years have relied on a combination of trade and aid. South Korea created millions of jobs by exporting its products around the world while receiving nearly $100 per person (in today’s dollars) in annual aid between 1955 and1972. Botswana’s rapid expansion of diamond exports and exceptionally good governance made it the world’s fastest growing economy between 1965 and 1995, during which time it received annual aid flows averaging $127 per person. By contrast, annual assistance to sub-Saharan Africa today averages about $28 per person—not nearly enough to build a foundation for sustained growth and development. (Radelet, S., 2005)

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