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Cocoa certification: Pros, cons and costs

By Oliver Nieburg+

22-Nov-2012

Is cocoa certification beneficial for farmers and manufacturers? Photo credit: Flickr cstrom
Is cocoa certification beneficial for farmers and manufacturers? Photo credit: Flickr cstrom

Cocoa certification brings more advantages than disadvantages for farmers and communities as improved yields and pay outweigh rule differences among certifiers and potentially unequal payments, a study has found.

Three certification organizations, Fairtrade, UTZ Certified and Rainforest Alliance were assessed in the two principal cocoa growing countries, Ivory Coast and Ghana.

The report from KMPG, commissioned by the International Cocoa Organization and the Association of the German Confectionery Industry, BDSI, found significant variations in schemes, but concluded that farmers ultimately benefited from certification.

Many chocolate makers have acknowledged a social responsibility to ensure farmers supplying their factories get a fair deal.

Mars , Ferrero and Hershey have committed to 100% certified cocoa, while others such as Nestlé and Mondelez have launched their own sustainable cocoa plans that don’t rely on certification.

Costs

Manufacturers must pay a premium on top of the regular cocoa price to obtain a certified supply.

KPMG's study found that Fairtrade premiums were the priciest, while UTZ Certified were the cheapest.

Fairtrade is seen as the only certification that adequately addreses the worst forms of child labor by some NGOs such as Green America and the International Labor Rights Forum (ILRF).

It may cost manufactures less, but it also means farmer cooperatives get less.

Premiums for certified cocoa. Source: KPMG

The cost of premiums vary depending on the country – however the average costs are around the same in Ghana and the Ivory Coast, said the report.

Percentage of certified cocoa in final product for use of organization’s label

Fairtrade – 100%
Rainforest – 30%, but must pledge to scale up to 100% (no fixed time limit)
UTZ – 40%, but must increase 60% in first year and 95% in two years

N.B. – Fairtrade and UTZ beans can be segregated, so the actual percentage in final products may be lower, even none. Rainforest Alliance prohibits segregation.

UTZ is cheapest in the Ivory Coast, while Rainforest Alliance is the lowest priced in Ghana, it found.

Pros

Ultimately, farmers and communities profit from certification due to increases in yields, concluded KMPG.

Yield increases are important to chocolate makers as it can increase available global cocoa stocks and bring down prices, making input costs lower.

Certification in Ghana has brought a 89% yield increase and a 101% rise in the Ivory Coast, found the study.

Farmers also seem to be better-paid. An archetypal farmer cooperative with 375 members receives $1m in the Ivory Coast over six years and $1.9m in Ghana, found the report. The difference is mainly because fertilizers are subsidized in Ghana and gate prices differ, it said.

Cons

However, the report added that there were some drawbacks for cocoa farmers.

KMPG said that some farmers, typically small-scale farmers, leave cooperatives due to high costs of certification in the first few years.

Small plot farmers are less likely to gain from certification but farmers with over 1 hectare will generally benefit, said the report.

All schemes prohibit child labor, but data is lacking on its effectiveness, found KMPG.

50% of children in agriculture households in the Ivory Coast and Ghana work on farms, 25% in cocoa, according to a 2011 study from Tulane University. Photo credit:ILRF

The researchers added that it was unclear how cooperatives distributed premiums to farmers, which could mean unequal payments. It found no public data available on distribution of payments.

Chocolate manufacturers are also faced with differences in the rules of various certifiers. KPMG found that some certifiers allow certified beans to be mixed with uncertified ones throughout the supply chain, while others require full segregation and minimum certified cocoa levels in the final product.

Fairtrade and UTZ currently allow bean mixing, while segregation is necessary under Rainforest Alliance rules.

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