The High Cost of Certification

Clay Gordon
@clay
06/17/11 03:54:22PM
1,680 posts

I was sent an interesting thesis analyzing Fairtrade (i.e., FLO) in coffee in Laos.

The chapter titled Economic Sustainability contains the following information:

In addition to the overload of work the farmers must invest to gain 34 cents per pound extra, they also have to pay the Fairtrade Certification fee of US$3,460 per co-op (Euro2,378) per year and the administration fee and other fees of around US$5,000 per co-op which is not paid for by buyers (Wilson, 2006; Fridell, 2007B). Moreover, to gain the 15 cents per pound extra for organic coffee, they have to pay the Organic Certification fee of US$3,000 plus other administration fees of US$6,000. There are only 500 farmers in the co-op (JCFC, 2008), hence, it costs each farmer about US$35 to keep the certifications up to date.
This indicates that regardless of the higher gross incomes that result from higher Fairtrade prices, there is no guarantee of a positive net household income for these farmers who are charged the high costs of foreign inspectors and certification.

If these figures are correct, it costs this co-op (JCFC) over US$17,000/year to maintain both Fairtrade and organic certification. At a combined premium of US$0.20/lb it means the co-op must sell about 42 tons of coffee just to recoup the cost of certification out of the premiums paid.

The thesis also reports that the per-capita annual income in the region is US$580. This means that co-op members spend the equivalent of about 7% of their annual income to pay for certification. Many farmers report that they won't join, or have dropped out of, the co-op because the amount of work involved to meet Fairtrade standards for quality is not worth the extra effort involved.

Can anyone tell me how this is "Fair" trade?




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clay - http://www.thechocolatelife.com/clay/

updated by @clay: 04/13/15 11:39:53PM
antonino allegra
@antonino-allegra
06/17/11 04:49:10PM
143 posts
why such high costs? lobbying did arrive to the farming? we have a plan....
Clay Gordon
@clay
06/17/11 04:57:32PM
1,680 posts

Antonino:

I am not sure what you mean by your response. The first part I get (and I don't really know the answer to it) ... the other two parts I don't know what you're saying.

:: Clay




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clay - http://www.thechocolatelife.com/clay/
Clay Gordon
@clay
06/17/11 06:02:00PM
1,680 posts

Also from this thesis:

In addition, organic and Fairtrade certifiers also need to examine how to make certification more affordable and more culturally appropriate to small producer organisations [emphasis added], as well as to non co-op members



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clay - http://www.thechocolatelife.com/clay/
Ice Blocks!
@ice-blocks
06/18/11 03:08:55AM
81 posts

Who is providing the organic and fair trade certifications? Are the actual costs cited being picked up by the co-op directly or is it being picked up by some NGO?

Rodney Nikkels
@rodney-nikkels
06/18/11 08:06:57AM
24 posts

Dear Clay,

I think the calculation is quite correct. It is even worse when multi certifications are involved. During the times of low commodity prices as we have seen during the period 1998-2008 Fair Trade purchasing conditions offered farmers a guaranteed minimum price of USD 1750,- /MT of beans and a fixed premium for organic. So, when markets were at USD 1000,- an additional 750,- was received by the coops. The last 3 years commodity prices (in coffee and cocoa) went up to far above the Fair Trade minimum price, so the benefit is the "premium",, which is small as can be seen in your example. So the "fairness" is designed around the minimum price and social and environmental premiums. But when markets go up, the price effect evaporates. In my opinion the minimum price has beenimportant for many small holder coops to remain in business, but with the current markets the premiums should be adapted and the costs of external verification and internal control be reduced to the max.

I hope this clarifies a bit about the background of the Fair Trade principles.

Best regards

Rodney Nikkels

Clay Gordon
@clay
06/18/11 08:45:54AM
1,680 posts

IB:

The Fairtrade certifications in Laos are likely handled by FLO-CERT (www.flo-cert.net). According to their web site, "FLO-CERT GmbH is an independent International Certification company offering Fairtrade Certification services to clients in more than 70 countries." They may be independent but they are located at the same address as FLO. (GmbH stands for "Gesellschaft mit beschrnkter Haftung" which is similar to an LLC (limited liability company) here in the US - they are not a non-profit company.)

There is a list of fees FLO-CERT charges to producers in PDF documents linked to from this page.There is a Scope of Certification page, but it is missing a link to the scope for cocoa. It should be noted that Transfair USA (the FLO licensee that handles Fairtrade business in the the Americas) is far less transparent when it comes to making it's fee structure available to the general public.

When it comes to organic certification, the are many different organizations that offer the service. Organic certification is something of a racket in that not all countries recognize all certifications equally. In the US, companies really want the USDA organic certification so they can use the USDA organic symbol on their packaging. If you have a different certifier, you cannot use the USDA logoeven though some other organic certifier certifies your product as being organic. You have to pay separately for USDA organic certification.

This can have some serious unintended consequences on producer organizations as I outlined in a post about some implications for the TCGA in Belize about Kraft buying Cadbury and shifting some production from Italy to Canada, requiring a shift in organic certifiers. The new organic certifier had much stricter standards for handling "transitional" cocoa and the TCGA lost their buyer for cocoa from farms in the process of attaining their organic certification.

You ask a very interesting question about who is picking up the costs of certification. In a small number of cases, someone other than the co-op is paying for the certifications. Even then, often the companies are picking up the costs in the short run with the intent of turning over responsibility for picking up the ongoing fees ASAP. (This is common with NGOs who tend to have very short time spans - two years is typical - for their programs.)In the case of the thesis cited, the members of the co-op in Laos are picking up all the costs of certification.




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clay - http://www.thechocolatelife.com/clay/
Clay Gordon
@clay
06/18/11 08:57:55AM
1,680 posts

Rodney:

You are right - one of the most-cited benefits of the Fairtrade system is the pricing floor. That was really helpful when commodity prices were below that level. Now that prices are far above the floor, that argument is not as valid as it does not currently apply.

It should be pointed out that, in most instances, the $750,-/MT differential still did not cover actual production costs, especially if you're looking to promote environmentally responsible, sustainable, methods.

I agree with you that different models of pricing need to be developed but I don't think that this can be done within the existing Fairtrade system as they would have to publicly acknowledge the flaws in the system to date which I have doubts can be sustained politically.

The only long term fix for the inequities inherent in the Fairtrade model are to implement a system that has, as one of its primary focuses, improving quality all the way around. This may be a part of the Fairtrade system for coffee, but it is not a part of the system for cocoa. To avoid dependence on world market pricing you have to get out of the trap of producing commodity product and move to specialty product.

Fairtrade (i.e., FLO Fairtrade, not "'Fair' Trade" - there is a very important difference) is A part of AN answer. It is not THE answer. One of the profound ironies of the Fairtrade system is that there are tens of thousands of people around the world who owe their own livelihoods to the system being broken and seeing Fairtrade as a fix. They don't want to "fix" Fairtrade because it might mean losing their jobs. It's kind of perverse, actually. Their jobs depend on perpetuating, to some extent, the existing inequitable system (making the "best of a bad situation").




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clay - http://www.thechocolatelife.com/clay/
antonino allegra
@antonino-allegra
06/18/11 11:45:21AM
143 posts

Hi Gordon,

it was a quick, let say irrational question. As chocolatiers/chocolate maker we all try to change a bit this situation with the farmers kept poor and the others making the big bucks.

My understanding is that if high fees payment are requested from the farmer, most of them will not be able to benefit from the organic/fairtrade market that is growing around the world.

So, who set those certification prices? does have something to do that (maybe) BIG corp. don't want the farmer to uplift their life standard to keep buying power-low cost/high profit system?

We have started an action plan (in our little) that i will be able to talk about when the first lines are finally drawn.

But thanks to bring such hidden issue up, so that we are all aware on what happen around the cocoa tree.

Ps: Although i try to write in english as best i can, when i get upset my italian grammar kicks in...So if it sounds a bit confusing, with some mistakes you know why...

Ciao!

Rodney Nikkels
@rodney-nikkels
06/18/11 01:56:41PM
24 posts

Dear Clay,

I think you're right, Fair Trade will not adapt itself to the new reality of higher commodity prices, and indeed it is even questionable if the FT minimum price level covers the real cost of production. This level was set in the beginning of the 90s and has not been corrected for inflation f.e. In the coffee sector a interesting approach has emerged, partly caused by a need to compensate farmers for investments in quality improvements. Within cocoa the situation is even more critical, the criollo farms on average produce much less per Ha than the so called hybrids or improved varieties. In order to really protect this genetic resource the market must compensate for the lower output levels. Perhaps for Venezuela this is happening but many farmers with interesting bean varieties on their plots actually receive market rate or a little bit in addition. They than incline to shift to "improved varieties".

In coffee the system implemented is the "Cup of Excellence", whereby per country the best coffees are selected by the industry (internal process). In addition, an international expert panel will rate the samples and the lots will become available for an international auction. The consequence is that this triggers a quality focus from the ground up. The prices paid are upto ten times the world market price. The beans are not treated as a simple commodity but as a crucial material to develop a superior product.

For fine flavour cocoa beans this could be a very, very interesting path. Buyer can compete for specific lots and the one willing to pay the highest price will get it. Does this sound as a fair practice for both sides? I won't solve the bulk cocoa market issues in terms of cost and benefit, but at least it can start a process to valuate cocoa differently. The commodity market make a small cocoa farmer in Ghana compete with one in f.e. Papua New Guinea, which in my opinion will never result in a fair price level, but into a race to the bottom.

Actually in coffee Fair Trade has not done much to improve quality, although the fat premiums were partly invested in small infrastructure to improve product quality (the same actually has happened in cocoa small holder coops in Peru, they have been able to develop themselves into a new origin of interetsing cocoa beans, partly because of the gains from their participation in the Fair Trade market. An interesting example of this is Cepicafe, a coffee organisation that started to develop the cocoa sector in Piura some years back.

In former days Fair Trade certification was free for producers, the costs were covered by fees higher up the chain. Some six years ago this system was changed because of pressure from outside, that wanted FT to comply with ISO 65 criteria (standard for certifying bodies). This introduced additional costs for external validation for certification holders.

Best regards

Rodney Nikkels

Ice Blocks!
@ice-blocks
06/18/11 07:00:36PM
81 posts

Certainly in my limited experience it's often NGO's / Aid agencies who set up these co-ops and certification systems, but it looks like someone has stuffed up big time. IMO those charges on farmers are probititive to useful outcomes.

Ice Blocks!
@ice-blocks
06/19/11 06:24:43PM
81 posts

Clay have you tried directing your question / concerns to FLO-CERT to find if it's them and what's going on? If you can provide a copy of the paper I'll be happy to contact them if your not interested. I expect there is some simple explanation or that there is a problem that needs it's public profile raising.

Ice Blocks!
@ice-blocks
06/19/11 07:00:38PM
81 posts

Looks like this is in my neck of the woods and organic certification appears to have been paid for by NZ Aid.

http://cafelao.blogspot.com/ the coffee is bought by http://www.obscura.net.au/origin.html. I wonder if problems have stemmed from being spun off from http://jhai.org/successes/ http://www.cnntraveller.com/2009/11/12/laos-how-to-make-a-better-cup-of-coffee/"The JCFC now involves 550 households in 12 Bolaven villages, and revenues in 2008 stood at $260,000, 10 times more than in 2004. The vast majority of this money goes back to the farmers, who are able to invest in new homes, tractors and education for their children."

Clay Gordon
@clay
06/19/11 07:28:02PM
1,680 posts

IB -

Thank you for asking. I am already in touch with FLO about a far more fundamental issue. One of the supposed "advantages" of Fairtrade is traceability up the supply chain. If that's the case, it should be a simple matter of putting together a report on how much cocoa was purchased, by country, and therefore how much was paid in the way of the social premium.

I asked for this information over a month ago and am still waiting for an answer. True, I was told that they were in the process of preparing their annual report and that took precedence. However, figures like this should be readily available, IMO.

Contrary to your belief, there is no simple explanation. The issues are far more complex than most people ever stop to consider.




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clay - http://www.thechocolatelife.com/clay/
Clay Gordon
@clay
06/19/11 08:02:46PM
1,680 posts

IB -

The problems are not from having been spun off. The challenges are inherent in the Fairtrade model.

You quote one pervasive misunderstanding of the Fairtrade process, "The vast majority of the money goes back to the farmers ... " While it is true that the co-op purchases the coffee from the farmers, paying them the Fairtrade minimum, the premium that gets paid goes to the co-op and is typically used to cover overhead and invest in infrastructure to increase production.

There are far more subtle forces at play here that rarely get looked at or reported. One thing that most people don't understand is that the amount of labor, water, and energy required to produce coffee to the Fairtrade quality standard is significantly greater than that which the farmers are normally used to.

In fact, the labor demands (as reported in the thesis) are so much greater that coffee farmers now spend a significant portion of their income on food, whereas before they would grow it themselves and hunt and fish for it. Apparently, the price of rice has trebled in the last few years. Thus, while there has been a rise in income, an unintended consequence is that now the farmers are dependent on the world food market. Whereas now they might be making more than the per capita income, they are working far harder for it and many find themselves with expenses they never faced before - and are, in actual fact, poorer for it.

There are other trade-offs - while the farming practices may be organic, the associated production practices may not be sustainable because of the increases in water usage and energy. I am sure these figures are not properly accounted for in the the ASEAN figures you link. Another way in which they are an example of poor statistics is that they don't indicate how many farmers are involved from year to year and don't include the number of dependents. So, we don't know anything about how much of the growth in sales is due to an increase in the number of farmers.

These are just a few examples of why the situation is not simple: there are no simple answers, no simple fixes. The blindness is built into the system, which is a lot about forcing western consumer culture values on to farmers in producing countries. Furthermore, the social and economic contract is essentially the same worldwide: it is culturally insensitive and therefore cannot be equitable.

The real issue is that most consumers don't take the time to go an look for themselves in any depth or examine the situation with any critical facility. We want to believe that by spending a few extra bucks at the grocery store that we can make a difference in the lives of farmers. Sometimes it works that way - but many times it does not. Who benefits most from Fairtrade (in coffee)? The companies near the top of the supply chain who, between them account for more than 80% of the increase in value of the commodity once it is exported.

I maintain that while "Fair Trade" as it is currently constituted by FLO/Fairtrade, Rainforest Alliance, et al, may A part of AN answer, it is not THE answer. However, the institution of Fairtrade has garnered so much weight and prestige from unthinking adherents that other legitimate attempts to address the very real issues at stake are not given a chance in the market because of the suasion of an informal "moral mafia" that has arisen around Fairtrade and organic certification.




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clay - http://www.thechocolatelife.com/clay/
Ice Blocks!
@ice-blocks
06/20/11 02:16:28AM
81 posts

By "simple explanation" I'm referring to the set of calculations you quote and the inherent assumptions. In the public JCFC accounts 2004-2008 there is no mention of certification costs and the simple explanation looks like they have or had grants to cover those costs with no costs to farmers whatsoever. It looks extremely likely, from public documents, that NZ Aid has provided a grant for the organic certification, which appears ongoing and another unspecified US? NGO provides or provided fair trade certification. http://www.adb.org/Documents/Reports/Consultant/40105-LAO/40105-LAO-TACR.pdf initiated by Oxfam Australia.

http://www.die-gdi.de/CMS-Homepage/openwebcms3.nsf/(ynDK_contentByKey)/ANES-7YUGRA/$FILE/Studies%2051.pdf

Ice Blocks!
@ice-blocks
06/20/11 02:32:57AM
81 posts

"I maintain that while 'Fair Trade' as it is currently constituted by FLO/Fairtrade, Rainforest Alliance, et al, may A part of AN answer, it is not THE answer." So what you going to do Clay be part of an answer, invent a new answer or not be part of an or the answer?

Clay Gordon
@clay
06/20/11 11:33:46AM
1,680 posts

IB -

Please take a look around at my work and writings here and other places and you will know the answer to that question. But - the answer is very clearly that I am working to find alternative solutions to ethical supply chain certification in cocoa that address what I perceive to be the drawbacks in the existing Fairtrade model. I recently registered the domain name www.cocoassure.com in support of my efforts in this regard.

One of the necessary steps I see is to shake people out of bland complacency and acceptance. Most people (if you asked them) will think that "the problem has been solved" and Fairtrade is the solution.

Part of what I am trying to do is to get people to acknowledge is that there is still more work to do in finding ways to approach the issues at hand.

-- Clay

PS. Also, I find it frustrating that you know my name and I don't know yours. It's not listed on your web site that I can find and none of the articles linked to mention your name. Care to share?




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clay - http://www.thechocolatelife.com/clay/
Clay Gordon
@clay
06/20/11 11:51:54AM
1,680 posts

IB -

The first link is to a 223 page document. Please let me know which page(s) you refer to in this document. Likewise, the second document is 210 pages long. Please provide the direct references.

I don't think that it is necessarily a good thing that an NGO pays for certification ... even when there is a commitment to cover the cost of certification in perpetuity. This is rarely the case (in my personal experience) as most NGOs project time horizons are very short, often only two years, with the stated goal of improving things to the point where the co-op gets to the point where it can cover those costs on its own. Then the NGO leaves, usually taking the market/buyer with them along with the $$ and technical support necessary to sustain progress. To be truly effective, program support has to last at least a decade and preferably longer - not just "appear" to be ongoing.

What the short term commitment to pay for certification does is create artificial, unsupportable, conditions. At the end of the commitment period the co-op must either be in a position to cover the costs themselves, lose their certification, or go begging for further subsidies.

I can also argue that having NGOs cover the cost of certification is anti-competitive because the certification bodies see no need to lower costs.Creating a culture where the answer is NGO support is not a good solution, IMO.




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clay - http://www.thechocolatelife.com/clay/
Rodney Nikkels
@rodney-nikkels
06/20/11 04:51:08PM
24 posts

Hi Clay,

Having been involved in coffee certification for quite some years (various schemes) and not having found THE solution yet, I was wondering if you could share some of the concept you're developing under the cocoassure domain. In coffee, companies also have developed their own approaches, Starbucks, Nespresso, Intelligentsia coffee etc. Some have blended existing systems (like Fair Trade) with personal believes and arrangements with suppliers (Dean Bean, Uncommon Grounds, George Howell and many others). All off them have developed specific relationships with their suppliers. This relationship building in cocoa seems to be more complicated, perhaps because traders don't want to disclose the exact origin of the cocoa bean? What have you identified as the core elements to make the cocoa market more fair for farmers and their families?

Best regards

Rodney Nikkels


updated by @rodney-nikkels: 06/15/15 05:51:19AM
Ice Blocks!
@ice-blocks
06/20/11 06:14:24PM
81 posts

Sounds like a really cool idea.

From what I've seen bland complacency is all that most people can manage, unfortunately. :-( Yet they are empathetic and in my experience do want to know their products, especially premium products, where they can afford to invest time and choose, and may wish to appear generous or altruistic, are sourced in an ethical, healthier and or sustainable manner.

One thing we are quite keen on is optimising labelling. Fair trade, etc. in its current guise is great for advertising raw materials. Yet for us, none of our products consist of a single certified raw material which either leads to a huge very detailed ingredients list which can be economically unfeasable due to package printing limitations (and unwieldy and failure) or failure to get leverage for a cost.

What we know is that if ingredients are presented well consumers are very interested in local sourcing, and interested in organics and fair trade. This is tempered by quality and price considerations. Local produce is usually cheaper, fair trade more expensive, and organics of variable quality, supply and more expensive.

I've found Jhai Coffee Farmers Cooperative's email address, I'll flick them and email asking a few questions and see if we get a reply on funding sources and their opinion on fair trade etc.

Sunita de Tourreil
@sunita-de-tourreil
06/23/11 02:38:49AM
19 posts

Hi Rodney,

Many would argue that cacao is lagging behind coffee in many ways... certainly the kinds of specific relationships you are talking about with coffee suppliers/farmers is also happening with cacao. Shawn Askinosie of Askinosie Chocolate is a great example. He works directly with the farmers, profit shares with them and has other associated projects and commitments to farming communities from whom he buys. Taza is also using Direct Trade as are many other artisan makers.

My hope is that in ten years, these kinds of models and others are taking up more space and accounting for the purchasing of more and more cacao. Unfortunately right now, the makers who are doing the right thing for the farmer and the farming communities are barely a drop in the bucket when it comes to overall chocolate production, but the trend is hopefully in the right direction. This is where education comes in and this is where people who understand some of the complexities and difficulties inherent to Fair Trade *must* speak up and explain what Fair Trade does and does not do.

This kind of education is something I am passionate about doing and currently am doing in Silicon Valley. People are ready for it, and those who are adamant about Fair Trade and third party certification (this was me five years ago) will slowly start to see that there are other ways to address the very real problems they are concerned with and that there are many other models that are doing a better job than Fair Trade (IMHO).

Tip for effective chocolate education: People are more receptive to chocolate education when you also feed them (what I call) "Happy Chocolate". I start with the theoretical and move into the applied in the same session, this keeps people's attention and really has a positive and lasting impact. ;)

Rodney Nikkels
@rodney-nikkels
06/23/11 08:42:23AM
24 posts

Hi Sunita,

Thanks for sharing your vision, you're right, interesting things are happening in cocoa as well. To be clear, I'm not against Fair Trade, I think the principles are great, but it lacks a quality focus and a pricing mechanism. With all solution built in the "systems" world, you'll start to loose the human connection, and perhaps that is the biggest problem, when trying to solve social and invironmental issue. A value chain so be a chain of values, broader than only financial value.

I've been organizing tastings in the past and sure, people are more "open" with a piece of chocolate. It seems to affect the brain function!

Best regards and success with the tastings (I really like the name: chocolate garage!)

Rodney Nikkels

Michael3
@michael3
06/30/11 05:58:57PM
2 posts

Hi Clay,

I found similar data when I was planning a discussion on Fair Trade/Organic with a group of food students. Reading about FLO showed how little if anything farmers actually end up with once license fees are paid. Your analysis of unFair Trade is spot on. Probably the same is true for most certification programs by ngos-organic, kosher etc.

It certainly would be interesting to come up with a grower friendly alternative.

Michael

Gg
@gg
07/01/11 09:08:47AM
1 posts

I live in Guatemala, and have a very small company. We make hot chocolate only. (http://www.junajpu.com/)
Impossible to get through all the paper work for exporting....much less for organic certification-

hence, we only sell locally. I don't know ANY Cacao farms here that have Organic certification. (Although there may be a co-op or 2 run by ngo's)

As for Fair trade coffee- The farms here that DO have certification meet the standards, sure, but the problem is that they buy a great deal of their export coffee at ridiculously low prices from farms that really are not fair at all.
Whata system.

Samuel Maruta
@samuel-maruta
07/05/11 01:34:01PM
19 posts
Same thing we're seeing here: going organic is a huge leap into the unknown for farmers in Vietnam. Local farms average < 1 ha of cocoa / farm. The only project in place here has its (huge) bill paid by a foreign aid agency. It's great that they are doing this but once they're done with the project I am somewhat dubious of the farmers' capacity in perpetuating the scheme. At the end of the day certification is by definition a bureaucratic exercise: a/ set norms, b/put in place standards to verify the norms are being upheld, c/ bury any query under a ton of paper... When you're dealing with a family on a farm that is just a couple acres, has a few hundred cocoa trees, some other marketable crops, a pond for raising fish, a pig or two and some chickens running around the vegetable patch, the whole thing seems a bit absurd. On the other hand I like the fact that I know the guys who sell us cocoa by their first name and that when we finish weighing the bags the money goes directly in their pocket.
Nat
@nat
09/16/11 06:10:56AM
75 posts

Here is the thesis in English by Lao honors studentBounthavivanh Mixap (aka Vanh) that Clay mentioned foryou to read in its entirety. Vanh has requested thatpeople email her atmiznui <at> yahoo <dot> com if they have any questions about her thesis.

I think Vanh's excellent thesis this brings a reallyimportant light to the issues with fair trade that Clay, Sunita and others have brought up on these forums. In helping with some plantings of cacao in Lao, I am hoping to assist in setting up a more equitable direct trade model, or a model wherepeople in Lao are making their ownchocolate right there where it grows.

-Nat

____________________

Nat Bletter, PhD

Chocolate Flavormeister

Madre Chocolate

http://madrechocolate.com

Samuel Maruta
@samuel-maruta
09/16/11 01:37:53PM
19 posts

Nat, many thanks for posting this, I devoured it, it's a very nice piece of academic research, I'll be in touch with Vanh.

Kristy Leissle
@kristy-leissle
10/03/11 09:16:40PM
3 posts

I often teach and write about fair trade (my doctoral work was on the cocoa-chocolate trade, part of it on the FLO system), and I find that I run increasingly thin on ways to justify Fairtrade to my university students, or anyone who sincerely desires a way to direct their purchasing power ethically.

I am intrigued by Clay's use of the term "moral mafia" to describe the FLO system -- the suggestion being that to be considered "fair," producer co-ops are beholden to this particular model. Of course they are not -- there are plenty of artisan makers trying to circumvent it -- but the fair trade model remains by far the most visible to consumers, even if they don't fully understand how it works. So in that way, yes, it does have a stranglehold.

I did some research this summer for an article on FLO, and below are the figures I came up with. Note that I quote ONLY the FLO price floor for cocoa, which was $1600 per metric ton until January 2011. The more common protocol is to combine the social premium of $150 (now $200) with the price floor, which in my opinion artificially inflates the reported price for cocoa beans; the social premium almost never reaches farmers as cash for their crop, and goes almost exclusively to development projects, which is NOT a direct form of compensation. Here is my analysis:

For most of its existence, FLO has set the Fairtrade Minimum Price for conventional (non-organic, bulk) cocoa at $1600 per metric ton; in January 2011, it raised the price floor by 25%, to $2000. Taking into account this recent increase, between January 2006 and May 2011, the Fairtrade Minimum Price was higher than the world market price during eight months, at an average of $38.50 per metric ton. For fifty-seven months, the FLO price floor was lower, by an average of $987.51. That is, for all but eight months of the last five and a half years, certified cooperatives have received the world market price for their cocoa. To compare the two pricing schemes in a different way, FLO raised its price floor for cocoa to $2000 per metric ton in January 2011. For the twelve months preceding this raise, the average world market price for cocoa was $3,132.99.

The Fairtrade Minimum Price for cocoa seems to run much more in parallel with, rather than as alternative to, the price set on the world market. In the absence of derivation specifics (which are not given in either the Fairtrade Standards for Cocoa, which detail the commodity-specific price floor and premium, nor the global Minimum Price and Premium Table), the Fairtrade Minimum Price seems to be a sort of average of world market prices, moving irregularly upwards as market prices also rise. Of course, because agricultural commodities are subject to large price fluctuations, from year to year or even over the course of a single growing season, by guaranteeing a minimum price over the long term, Fairtrade does introduce a degree of security into a volatile system, smoothing budgetary forecasts and guaranteeing a certain amount of revenue. If the market price should fall below $2000 in the coming months, Fairtrade certification would protect participating cooperatives. Yet in practice, the Fairtrade Minimum Price has not, at least in recent years, demonstrated a meaningful alternative to the trade terms set on the world market.

Note: I calculated world market prices using the ICCO Monthly Averages of Daily Prices, available on the ICCO website, http://www.icco.org/statistics/monthly.aspx



Clay, if IMO does ever provide justification to you for its pricing scheme, or make known how much was paid out in the social premium last year, I'd love to hear about it. It seems to me a stagnant model that lacks a true vision for change.

--Kristy Leissle, PhD

Clay Gordon
@clay
10/04/11 08:03:22AM
1,680 posts

Kristy:

The moral mafia I am referring to is not FLO, it's supporters of "Fair" trade who have not actually spent any time to learn what is really going on.

It's the general consuming public that assumes that "Fair" trade MUST BE FAIR just because there is a certificate and who demands that products/ingredients must be FT & Organic without really understanding what that means. Like many minorities, they can be very vocal and tend to be passionate, so they garner a lot of attention and can exert outsize influence.

Chocolate Life Nat Bletter posted a link to a very interesting thesis on FT coffee in Laos that clearly reveals some of the potential (and real) flaws in certificate programs as well as some of the unintended consequences of such programs. ChocolateLife member Cristian Melo has posted a link to a fabulous thesis he did on cocoa in Ecuador.

Your numbers above clearly show that the direct economic benefits are hard to justify. My contention has always been that if FT was so great why aren't there many, many, many more co-ops who are FT certified? Could it be that the value - delivered to the grower - is not as rosy as the picture painted to the consumer? Could it be that it's so expensive that a significant percentage of certification fees is paid by third parties (including NGOs and taxpayer-funded aid programs)? Perhaps more importantly, the finances of these certification organizations is far from transparent. Given their demand for traceability up the supply chain you'd think that delivering reliable numbers for quantities of product moved and the value of the social premium paid would be easy to publish (and would be something they would be proud to publish). Yet, getting such figures is NOT an easy task. I have been waiting since May for "reliable" numbers from FLO's press office and have been politely stonewalled every time I have asked.

I think that FT (as practiced by FLO, RA, and others) is a part of an answer, but not the answer. Critical examination of the value these programs actually deliver - relative to the value reaped by the program itself and upstream actors in the supply chain - needs much closer examination. At the moment, it costs a company like Kraft almost nothing to gain FT certification. However, they can charge a premium for FT certified product (the market will pay for the perceived social benefit), so in the end, Kraft makes millions more than the producers do.

Is that "fair?"




--
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
clay - http://www.thechocolatelife.com/clay/
Kristy Leissle
@kristy-leissle
10/04/11 04:37:12PM
3 posts

Clay, I could not agree more. Certification fees are a real issue for cooperatives, as is the gargantuan reporting responsibility they must undertake to prove they meet FLO producer standards. I do not see how either one is germane to fairness -- especially in a system (ethical trade in general) that was instituted to redress ECONOMIC imbalances between producers and the people who manufacture and consume their products.

I have spent time thinking this issue through in a different way, asking how distinct Fairtrade really is from the predominant economic and ideological system of neoliberalism. Too often Fairtrade is presented as a separate and alternative system, when in fact (as the numbers I offered above show), it can be indistinguishable from the world market. I just made the full article excerpted above available on my blog, and here is the direct link to the article for anyone who is interested in these issues. Though I deal with FLO in general, my case study is the cocoa-chocolate trade, particularly in Ghana and Britain.

Rodney Nikkels
@rodney-nikkels
10/04/11 05:23:45PM
24 posts

Well, we live since a couple of years in a period of relative better cocoa world market prices and people seem to forget that in the period 1994-1999 and 2002-2007 commodity prices were (very) low. FT system guaranteed a minimum price for the cocoa beans and made it feasible for farmers and coops to survive. Origins like Peru where fine quality cocoa beans are exported by producers coops have benefited from this (Naranjillo, Acopagro, Cepicafe) and I must say that without the price protection from FT it would have been much more difficult. The basic problem is the demand side combined with a too low premium in times of cocoa world market prices above the fair trade minimum price. Fair Trade is not the solution for all issues, but a guaranteed minimum price for a tree crop is a helpfull tool to maintain your farm and not uproot and shift to annual crops.

The yearly cost of $ 2500 for FT certification (my estimation for a producer organisation) is in my opinion not the issue to be honest (for exports you would normally need at least 1 container, being 18 MT of cocoa beans, with a FOB value of $ 54.000)

From a farmer perspective, the small size of the farms combined with low yields is much more an issue. If you have a 1 hectare farm with a yield of 500 kg of beans, it is impossible to earn a decent income. In addition, for fine flavour beans, the relative small mark-up for precious beans is a crucial bottleneck, espcially considering the lower yields of the criollo cocoa (nacional at 350 kg/Ha in Esmeraldas, Ecuador compared with a 1,2 MT when using CCN51).

Best regards

Rodney Nikkels

Ice Blocks!
@ice-blocks
10/04/11 05:36:24PM
81 posts

I'm finding this discussion very interesting.

Kristy Leissle
@kristy-leissle
10/04/11 06:03:19PM
3 posts

Rodney, your comment about the farmer perspective -- on small farm size and low yields -- really brought me back to what was one of the more powerful moments of my fieldwork in Ghana. I had been working with farmers who sold to Kuapa Kokoo, the fair-trade cooperative, and with farmers who sold to Akuafo Adamfo, a licensed buying company that did not have FLO certification, but that was nevertheless doing plenty of social development work.

I was talking one day with a farmer who sold to Akuafo Adamfo, her name is Mercy, and when I mentioned fair trade to her, she had never heard of such a thing before and asked me to explain (this was common among farmers in Ghana - hardly any of them knew what fair trade was). I told her that consumers in the US and Europe pay a little more for a chocolate bar, so that farmers in Ghana could earn a little more for their cocoa beans.

Mercy looked at me as if I had six heads. I'll paraphrase her response: "Why would I want to earn a little more for my cocoa?" she said. "If I want to make more money, I must work harder to grow more cocoa."

Her response stopped me in my tracks. I had always thought first about price -- raising cocoa's price was paramount for me (and in many ways, still is). I had never thought before that simply growing more cocoa was a solution.

But I think you have hit the nail on the head with the low yields/small farm size issue, Rodney. I forget sometimes, thinking and writing about fair trade, that what appears most important to me, a white Western woman who has the privilege to sit around and think philosophically about trade issues, does not necessarily resonate with cocoa farmers. At the heart of Mercy's material poverty was the fact that she grew a tiny amount of cocoa, which she sold for a tiny price. The small addition of a few more cedis from an unknown entity called "Fairtrade" meant nothing to her. What was of much greater interest to Mercy, as well as most of the farmers I worked with in Ghana, was the national spraying program, in which the government supplied pesticides and spraying machines. This did increase yields, sometimes significantly.

We in the West never, ever sit around and think, "If only we could spray more pesticides on the cocoa trees, farmers' lives would be so much better!" But living as she did on the margins, Mercy did think that, along with plenty of other farmers. I realize that this is hardly a solution and I am not advocating that we all champion pesticide application now. This post probably raises more questions than answers. But I did want to share what was, for me, an enlightening moment, when I first realized that what *I* believed to be fair was not what a farmer believed to be fair -- that realization started me down a long road of critical thinking, the end of which I am nowhere near as yet.

Rodney Nikkels
@rodney-nikkels
10/05/11 07:30:02AM
24 posts

Hi Kristy,

Thanks for your feedback! Cocoa farmers in Ghana have yields from 280 kg/Ha (eastern region) upto more than 1 MT in the Western regions (recently converted forest lands). The difference is mainly caused by the availabilty of soil nutrients (cocoa requires P & K mainly) and pest and disease control (25% is lost due to pest and diseases). The relative poor soils in West Africa needs some sort of replenishment, otherwise after 15 years you'll end up with an exhausted system.

Moderate yields of 800 kg/Ha would for the average farmer result in a doubling of their income. An expansion from 1.8 to 3.6 Hectare combined with a bettter yield would have an serious impact!

Many of these issues cannot be solved from a supply chain perspective, but actually have to do with how you build a healthy commodity sector. After de de-colonisation in Africa ('60-'70) and structural adjustment programs from World Bank and IMF, followed by a collapse of international trade agreements that resulted in a oversupply and low commodity prices we end up with so called orphan commodities like cocoa, meaning little investment in farmer training, research, extenson services, availability of planting material, fertilizer availability, timely finance (for harvest, but also plantation renovation).

Within that context still the Ghanian cocoa farmer is pretty well served, compared to many other cocoa farmers!

Don't want to make the issue more complex, but this in my opinion is the situation the cocoa sector needs to deal with. In the end, we as consumers have had 50 years of declining chocolate prices (Lidl sells chocolate at Euro 0,35/100 gram), and it is time to really invest in order to make cocoa farming a decent business.

All the best

Rodney Nikkels

Mark J Sciscenti
@mark-j-sciscenti
10/05/11 11:44:48PM
33 posts

I've been following this discussion with great interest. As a chocolate educator I try to involve people in the complex issues surrounding cacao and chocolate, including the "fair-trade" and ecological issues.

Rodney, You've brought up a really good point of issue concerning the ecological sustainability of growing cacao. Most, if not all tropical ecologists/agronomists, and especially those working with commodities "cash" crops, have always spoken about the viability of growing these crops in the long term. How does one maintain the fertility of the soils given rainforest ecology while also sustaining whole ecosystems along with balancing the needs of both human living systems and providing a living? What do you do to increase these while being sustainable in the short and long term?

By cutting the rainforest down just to grow cash crops will, maybe, in the short term provide an income for those on the ground, but as you stated, the system will become exhausted and more rainforest gets cut down. Once those soils have lost their fertility it does not come back. It takes a long time for the rainforest to grow back - if it does. Given the variables of the climate and the expansion of desertification this may not happen at all.

I would suggest that investment needs to include the overall perspective of where in the world these 'cash' crops are being grown, i.e. the rainforest. The simple answer is to apply (N)-P-K. But that stuff is expensive - surely the growers can't afford it, nor can the governments of the respective countries. And I don't think NGO's or the other advocates of 'fair-trade' will pay for it either. And if you add the cost of shipping these into the equation... well.. you get my drift.

Also, just adding n-p-k is really not enough to support the viability of soil microorganisms. There are a lot of macro and micro nutrients that are made available through the actions of microorganisms that are needed for a healthy ecosystem - especially in agriculture crops. There is already enough evidence here in the Western world that the practice (of just adding n-p-k) has a couple detrimental costs and effects upon the environment - those petrochemical fertilizers consume a lot of energy in producing them, they have been shown to decrease the soil microorganisms and they leach out of the system in large quantities and pollute water sources and the larger environment, in essence poisoning the ecosystem and human drinking water.

I believe that in order to increase the sustainability and address all these needs, one needs to look at not cutting down the rainforest wholesale but leaving about 30%, with most being over-story. Intermixing other cash crops (food sources, lumber, etc...) into the growth pattern will provide for several things - more varied income for the growers, stabilizing the ecosystem in general which introduces a better habitat for wildlife, increasing the ground soil viability by introducing organic material through natural processes along with adding small amounts of both organic matter and fertilizers.

This will obviously impact cacao growing patterns,usually by lessening the amounts of cocoa beans coming out of the regions (not the point I understand for us chocolate loving westerners).

However, though cacao originated in the understory of the rainforest, which is a better habitat for it, growing in full sun or 1% shade is detrimental to the plant in the long term. In the full rainforest there were historically less incidents of disease attacking cacao - simply because the tress were too widely spaced for disease to wipe out whole stands. I am not suggesting this as an alternative to the current agricultural growing systems in place now as it does not address the issues and needs of all concerned.

By increasing to 30% and adding these other things growers could actually expand their holdings and increase the cacao groves, in essence creating managed growing environments while sustaining the viability of the whole ecosystem.

There is evidence that in pre-Columbian times humans in the Americas created managed agricultural environments over large tracts of land, which sustained peoples for long periods of time. I'm not really suggesting anything new here. This is just like modern "permaculture'.

I think I remember the that there are a few models of this happening on a smaller scale, in South America and in the DRC.

I also appreciate your brining into the discussion the political issues, i.e. the instituted SAPs, IMF/Word Bank, instability of governments... etc...

Kristy, thank you for your speaking about your experiences on the ground and your frank honesty. It is very nice for me to hear from professionals who study these issues in depth. Thanks for your link - will read it.

These really are large and complicated issues. I think that most of the large agricultural/commodity/chocolate companies just have their heads in the sand and do not want to address these larger issues (although to be fair, some are trying) - even though combined they could make a big difference, imo. Governments are not going to, neither is the answer in the large political organizations (again some are trying, but with little funding).

We do live on One world, we just can't seem to get outside our little minds/heads/egos/greed to be able to see the bigger picture and work together. On a small scale quite a lot of us 'see' and are doing this, but...

kwim?

Looking forward to learning more on this discussion - I like the intelligent and thoughtfulness put forward by everyone and thanks for the links.

Rodney Nikkels
@rodney-nikkels
10/06/11 10:23:25AM
24 posts

Dear Mark,

Thanks for the observations, and you are right, applying P & K is not the most environmental sustainable solution (although the N is normally causing the most harm in terms of soil acidification and related N2o emissions. The basic issue is that crop removal (cocoa beans to be consumed in the West) equals nutrient removal. In a closed system (amazon rainforest) cocoa pulp is eaten by animals and the beans end up on the soil to regenerate. When humans start to harvest and remove the beans the nutrients should be replenished to be able to produce cocoa on the long run. The other option could be to accept relative low yields (250 kg), but more hectares are needed to grow cocoa (world demand is growing with 2% per year).

These extra hectares needed are just the remaining forest patches with high biodiversity value (and enormous carbon content in the biomass and soil!). So that's basically why a better management of what already has been cut down would make sense, first by applying all nutrient recylcing measures, and supply the missing nutrients in sufficient cuantities to maintain a healthy balance. The Soil Organic Matter content should be maximized and soil life be supported as much as possible, but where nutrient reservoirs are low, some sort of replenishment should take place (organic or in-organic). The basic reason is that low yields will push farmers in the end towards the remaining forest borders in order to start cocoa farming in these buffer zones (high prices have the same effect!).

I think you are right with your suggestion to maintain a 30% in tact, but farm preparation has been (sometimes) done by timber companies. As free service they offer to remove the trees so farmers can plant cocoa. As extra service they also take away the trees, so the farmers don't need to worry about them anymore. That is the reality of the world we live in.

Perhaps we should consume less chocolate, or chocolate made from beans that can only grow combined with other trees (like the criollo's)?

In terms of envirmental impact the fine flavour beans are much much better that the full sun cocoas! But we should be prepared to pay a decent price for these cocoa beans (at least to compensate for the lower yields).

The current limited premium for fine flavour actually is perhaps not and incentive for farmers to grow more fine flavour beans.

Best regards

Rodney

Clay Gordon
@clay
10/06/11 06:50:02PM
1,680 posts

Is being "smug" a part of the challenge that needs to be overcome?

Earlier today, Equal Exchange posted the following table on their Facebook page:

and then bragged about the fact that their pay ratio (the ratio between the highest-paid and lowest-paid workers in the company) was only 4:1.

I asked them if their computation of the pay ratio included what growers got paid.

They poasted no, but then tried to justify their position in a very long reply by saying that, when they included an estimated annual income for an average grower at US$3000 that their pay ratio was still "only" 33:1 - a much more "egalitarian" figure than companies whose CEOs would have pay ratios of thousands:1 or more if the wages of foreign farmers were considered in the mix.

Is "egalitarian" "fair?" Is that the measure of the success of these programs?

For me, trumpeting the pay ratio is a symptom of an attitude that is prevalent in programs like FLO, and reminds me of a shell game where our attention is deliberately distracted so we can't see what's actually going on.




--
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
clay - http://www.thechocolatelife.com/clay/
Samuel Maruta
@samuel-maruta
10/25/11 09:23:18AM
19 posts

On the same topic you may also want to check this short but well written opinion piece:

[Edited to add: The study, "which followed hundreds of Nicaraguan coffee farmers over a decade, concluded that farmers producing for the fair-trade market are more often found below the absolute poverty line than conventional producers.

Over a period of 10 years, our analysis shows that organic and organic-fair trade farmers have become poorer relative to conventional producers.]

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