The Realities of Fair Trade on Cocoa Production in Ghana

Elena AnemogiannisSarah Edlen

Elin MarcsdottirGreg Smith

• Population: 24 million (2011)

• Former British colony– Independence in 1957– Parliamentary democracy

• Continuous economic development– Main industries: agriculture

(cocoa, coffee), mining (gold, diamonds), manufacturing, lumbering, oil

Ghana

History of Cocoa Production in Ghana

• Introduced from Americas in 1878• Cash crop displaced indigenous industries• Investment in infrastructure after

independence• Collapse of the commodity market in the

1960s

LARGEST PRODUCERS OF COCOA AS % OF WORLD TOTAL

Fairtrade Foundation

Cocoa Marketing BoardCOCOBOD

• Determines fixed price• Akuafo Check System • Quality Control Division• Cocoa Marketing Company Ghana Ltd• Cocoa Research Institute of Ghana (CRIG)• Seed Production Unit

Issues with Cocoa Tradeo Black market– Due to low farm gate prices, cocoa is smuggled to Cote

d’Ivoire o Child Labor– More than one million children are employed in cocoa

farming sector in West Africao Unsustainable practices– Negative impact on the environment and long-term

productiono Quality– Lag time between being sealed by the QDC and

exportation

FAIR-TRADE Cocoa Productiono 1990s: Emerged as a reaction to exploitative nature

of the free-trade cocoa industryo 1993: Partial liberalization of the Ghanaian cocoa

market– created opportunity for licensed private companies to enter the

market by allowing them to purchase cocoa beans from farmers and sell them to the Cocoa Marketing Company (CMC)

o Farmers realized that coming together in a larger unit would increase bargaining power and help protect their interests

o 1993: foundation of Kuapa Kokoo

Kuapa Kokoo

• Cocoa-growing co-op run by farmers for the member farmers’ own benefit

• Represents 50,000 farmers across 1,300 communities• Fair-trade certified in 1995

- Most important actor in Ghanaian market for fair-trade cocoa- 1995-2011 sales to the fair-trade market rose from 3% to 27

% of co-op’s total production• “Good cocoa farming”

- Aims to improve social, economic and political wellbeing

MOTIVATION

Is fair-trade really fair?

OBJECTIVES:To gain a better understanding of the differences

between fair-trade and free trade cocoa production

To determine if fair-trade corrects the issues associated with free trade cocoa production

To gain insights into who benefits from fair-trade cocoa production

LITERATURE REVIEW

Historical Background– Kuapa Kokoo, COCOBOD, Fairtrade Foundation

Labor Conditions– BBC, CNN, World Cocoa Foundation

Environment– François Olivier Ruf, 2011

Economic Significance – Tyler Cowen, 2005; Tom qiao, 2011

Acknowledgements:Elizabeth Becker, Ten Thousand Villages, Ashville, NC

Fair-Trade Standards• Environmental standards promote sound

agricultural practices and environmental stewardship focusing on minimized and safe use of agrochemicals, proper and safe management of waste, maintenance of soil fertility and water resources, no use of genetically modified organisms

• Forced labor and child labor are prohibited

Advantages• Guaranteed minimum price which helps farmers plan

their farm and household budgets for the coming year • Extra Income from premiums has helped build wells,

toilets, day-care, fund a health program, construction of a school and set up training programs

• Women’s participation in Kuapa actively promoted, women empowerment

• Farmers have an increase sense of controlhttp://www.youtube.com/watch?v=orDjyNBmkj4

DisadvantagesUnsafe Work Environments• Even in fair-trade certified farms, working

conditions have often proven to be dangerous and strenuous

• Problems for workers include:- Using dangerous tools (often of undesirable quality), such as

machetes- Handling pesticides- Lack of protective gear/equipment - Carrying heavy loads- Long working days

CHILD LABOR

SCOPE OF THE PROBLEMChild Labor• An estimated 218 million children are involved in

work around the world• Between 200,000 and 800,000 children under the

age of 18 are trafficked each year in West Africa alone

Slavery:• Young boys tricked into slavery in Ivory Coast• Ages 12-14, manual labor 80-100 hours a week• Currently enslaved people are bought and sold in the

world’s most destitute nations for only $50 or $100

Action of Fair TradeAt present, no one person or system can provide a 100% guarantee that chocolate is free of child labor. What the Fair trade system guarantees is that if they find breaches of their standards, they will take immediate action.

What has been done?• Audit tools have been sharpened• Child labor task force has been started• Child protection policy has been devleoped• Local NGOs for partnerships on joint projects have

been engaged• Extra visits to train and support producers are

being provided• Training on child labor and child protection in FLO

and FLO-CERT has commenced

WHAT IS BEING DONE• Kuapa Kokoo has set up Child Labour Programme.• it includes a taskforce to carry out internal checks

on farms and train members to identify children at risk, as well as organising Kids’ Camps to teach children about their rights.

• In January 2011, the co-operative launched a two-year joint programme with the International Labour Organization (ILO) to monitor and combat child labour.

The Cocoa Planto Cocoa trees:

– Start producing beans at 5 years old, peak at 10 years old, live for 30 years

o Types of cocoa cultivation:– Rustic cacao,

planted shade, technified cacao

Cocoa trees have a relatively benign effect on the environment if sustainably planted

PROBLEMS WITH MONOCULTURE

• Tearing down rainforests abruptly changes the ecosystems and microclimate– Air and ground temperature rise– Water purification is disrupted– Production comes to rely on fertilizers and

pesticides

• Cocoa production food production• Deflated cocoa bean prices deforestation

HOW GLOBAL SALES OF FAIRTRADE COCOA HAVE GROWN (TONNES)

Fairtrade Foundation

Cocoa Prices are Volatile• Changes in supply and demand • Weather conditions (good crop, fall in

prices)• Poor crop maintenance (cost and

availability/lack of pesticides and fertilizers)• Political instability in producing countries

PRICE INSTABILITY

THE FINAL SALE

• Offers opportunity for price discrimination– Regular product at market equilibrium price– Similar Fair trade product at price premium

• Who benefits the most from the price premium?– The vendor– “more than 90% of profits did not reach the farmer”

PROFIT MAXIMIZATION AND PRICE DISCRIMINATION

• Split market: – low cost, free traded coffee – higher cost, fair traded coffee

• Consumer tradeoff• coffee industry sees higher earnings

while institutionalizing poor treatment of workers

Article• American branch of Fair-trade movement cut

ties• Lowered threshold for what constitutes as

“fair-trade”• Incorporation of products large plantations• “Fair trade for all”

ConclusionsTo gain a better understanding of the

differences between fair-trade and free trade cocoa production

To determine if fair-trade corrects the issues associated with free trade cocoa production

To gain insights into who benefits from fair-trade cocoa production