Should the cocoa OPEC believe in Nestlé’s bonuses?

Has Nestlé found a miracle solution that will help improve the incomes of Ivorian cocoa farmers? That’s the question people are asking after the Swiss-based multinational introduced an ambitious bonus scheme on January 27. The program is expected to benefit some 10,000 farming families in Côte d’Ivoire this year and then expand to Ghana from 2024.

The two African countries account for approximately 70% of global bean production: Abidjan produces about 2 million tons per year and Accra about 1 million tons. Nestlé achieved sales of CHF 84.3 billion in 2020 ($91 billion at the exchange rate prevailing at the time of publication), of which 8.3% came from sales of confectionery (brands Nestlé, KitKat , Smarties, Aero…).

Speaking at a virtual conference attended by Ivorian Prime Minister Patrick Achi, Nestlé CEO Mark Schneider said the new system was part of a wider plan to “address workplace risks of children” and “achieve full cocoa traceability”. Chocolatiers continue to be criticized for their use of underage workers and their lack of transparency in cocoa sourcing.

More than $1.1 billion by 2030

Nestlé has established four virtuous practices that it wishes to encourage: the education of children, the use of efficient agricultural techniques (including pruning), agroforestry (including the planting of shade trees) and the diversification of crops. (combining cocoa production with cassava and/or livestock, poultry and beekeeping). Activities). For each, the group plans to pay CHF100 ($109) a year to farmers who adopt them and a bonus of CHF100 if all four are implemented.

The maximum premium, which amounts to CHF 500 per year, will first be paid over two years, then divided by two in the following years. This represents a total commitment of “1.3 billion CHF by 2030”, i.e. three times its “current annual investment”, specifies the group, whose the goal is to reach a total of 160,000 families.

« Farmers who are members of the Nestlé Cocoa Plan [the group’s sustainable development plan launched in 2009] have an annual income of around CHF 3,000 per year, which is already higher than the average income of a farmer, which is around CHF 2,000,” said a Nestlé spokesperson. The Africa Report.

“The CHF 500 bonus, which represents an increase of almost 20% in annual income, is an accelerator of change”, he says, recalling that this financial package is added to the certification bonuses and the decent income differential – This premium of $400 per ton has been in place since the 2020-2021 season under pressure from the Ivorian and Ghanaian authorities.

Mobile payment as a guarantee of transparency

On paper, Nestlé’s plan ticks many boxes. Presented with great fanfare, it adopts a global and responsible approach and is in line with the efforts made in recent years by players in the cocoa sector – chocolate makers, buyers and processors of beans, certifiers and governments – to rebalance the relationship in favor of the farmers. Farmers receive only 6% of the 100 billion dollars generated each year worldwide from chocolate sales, according to the NGO Public Eye.

Hosted by Côte d’Ivoire and Ghana, the Swiss group’s project is also supported by several international partners, including the KIT Royal Tropical Institute, the International Cocoa Initiative, the Sustainable Trade Initiative and the NGO Rainforest Alliance. In addition, the proposed system was tested with 1,000 Ivorian farmers in 2020.

“The opinions and suggestions of farmers and agricultural cooperatives, along with ongoing data collection and third-party evaluation, will be used to inform, readjust and improve the program as it is expanded to other communities,” says Nestlé.

All premiums and benefits granted to producers currently go through cooperatives and exporters…

A player in the sector praised the “good foundations” of the project which “intends to create a new agricultural model based on the diversification of the producer’s income, both in terms of sources of income and crops”. The Nestlé spokesperson cites another benefit of the project as the fact that mobile payment can be used to pay the premium, which will help ensure transparency.

According to him, the financial transaction will be through an electronic telephone transfer from the Nestlé supplier account to the farmers and their wives so that women’s empowerment can also be encouraged. This way, “it is easy to verify and trace all payments from provider to recipients,” he says.

A system still too opaque

However, several actors in the field remain concerned about the real impact of the system. Although the Coffee-Cocoa Advice welcome any initiative to improve farmers’ incomes, they are waiting to see how it will be implemented. The organization points out that Nestlé does not buy the beans directly from cocoa farmers, but rather obtains them from intermediaries, including grinders. This complicates the traceability of beans and the payment of premiums.

“All bonuses and benefits granted to producers are currently channeled through cooperatives and exporters. However, the studies carried out on this system show that it generates significant cost losses, up to 70%”, specifies François Ruf, economist at the Center for International Cooperation in Agronomic Research for Development (CIRAD) based in Côte d’Ivoire, which works with a team of around ten researchers.

He believes that only a direct payment to producers can improve transparency in the sector, as this would put pressure on cooperatives to clarify their practices. However, this is not the path chosen by Nestlé which, by entrusting its suppliers with the task of paying, take the risk of maintaining current opaque practices that external controls find it difficult to combat.

Tracing the origin of the beans remains a challenge. Since the demand for chocolate is cyclical and concentrated at the end of the calendar year, the cooperatives are forced to supply a large volume of beans over a short period. This means that they often turn to the “pisteurs” (intermediaries who buy the beans at the edge of the field from the farmers and resell them to the cooperatives) in order to respect the quotas that the buyers have imposed, without any guarantee on the origin of brown gold. . Multinationals have been aware of this problem for a long time, but have done nothing to address it.