Price Crisis Response Initiative Part 6
PART 6: LANDSCAPE ASSESSMENT
(these are my personal notes from reading through the SCA price crisis response initiative to be used for a summary for my clients and coffee friends)
Breaking the cycle of poverty and improving efficiency of small holder farming is essential for short term outcomes. HOWEVER it doesn’t change the economic system that led to erosion of their livelihoods and resilience in the first place.
It is a buyer problem, not a producer problem.
INTERVENTIONS EXPLORED
Each of the interventions below were thoroughly analysed
- India minimum support price
- World banana forum distribution of value working group
- Tea 2030 tea swap pilot
- Malawi tea 2020 work to close living wage gap
- FT international coffee minimum pricing and premiums
- Partially liberalised cocoa sectors in Ghana- minimum pricing
FAIRTRADE
Owned 50% by producers represented in all decisions regarding governance, standards and certifications.
Fairtrade – tries to upend traditional buying by establishing a price floor and additional community managed premium for all fairtrade producers.
This gives a safety net for producers in downswings in the volatile markets.
The price floor for washed arabica is : $1.40 per lb since 2011.
If the coffee is certified organic, you get an extra $0.30 per lb
Fair trade certified farmers get $0.20 per lb premium into communal fund for farmers and workers to spend on community projects. They decide democratically what to spend it on.
These act as a base line price and farmers can negotiate higher prices based on quality etc…
FAIR TRADE CRITICISMS:
1. Minimum price is too low and doesn’t cover dignified livelihood, cost of production, contribution to household income
2. Limited sales: fairtrade coffee only takes up 6% of the coffee market, and only 30% of Fairtrade Certified coffee is actually sold as Certified in the end.
PARTIALLY LIBERATED GHANAIAN COCOA MARKET
Ghana is second largest cocoa producer accounting for 1/5 of global cocoa supply.
It has also suffered from low and volatile prices after a decline of cocoa in 1980s with ageing and diseased trees. It was worsened by a poor enabling environment characterized by high inflation rates and export taxes
Country wide reforms:
- Increase in producer price
- Increase in producer proportion of FOB price
- Stabilization of supply of cocoa
COCOBOD:
- Provides extentions services, conducts research and subsidizes inputs
- Offers educational and social services to improve household welfare
- Reduce export taxes
- Implement country-wide price minimum.
SO FAR IT HAS BEEN SUCCESSFUL BUT IT CURRENTLY OPERATES AT A NET LOSS SO THE LONG TERM SUSTAINABILITY IS QUESTIONABLE.
Also some believe liberalisation has had a negative effect on the quality of cocoa due to reduction of incentives.
KEY LEARNINGS
- Develop personal and trusted relationships (e.g. anonymous score card between buyers and sellers & regular in person meetings that build trust and transparency)
- Develop shared vision and understanding (it will take time, and we need to show the reality of living below living wage and at living wage to create empathy, and do a value chain assignement that shows responsibilities and define future vision together)
- Provide opportunity for a level playing field- this will include calculating living wage for all major production companies and involve them in the response early on
- Identify leaders and key influencers early on
- Work collectives to address price within antitrust law- minimum price should be allowed if voluntary and overseen by independent body
- Focus goals around decent standard of living
- Develop tracking and accountability mechanism
- Many approaches are expensive to maintain which is especially problematic when the cost is to the producer
- Collaboration is key
- Alignment around methodology is essential
- Need a welcoming legal and institutional context
- Taking a multipronged and iterative approach can be powerful
- Consider the business case for involvement
KEY LEARNINGS ABOUT EFFECTIVENESS
- Limited solutions currently seek to change the buyers practices- and if they do, there is always the underlying structure of raising productivity or quality of producers
- Where they do focus on buyers they highlight power of individual businesses or supply chains to help raise people out of poverty, but don’t look at changing the overarching system to create mainstream shift
1. Minimum pricing doesn’t take into account productivity or contribution to household incomes
2. Minimum pricing doesn’t necessarily change income of farmer unless it is a minimum price at farm gate
3. Buyers are nervous about affordability of paying living wage/incomes
4. Most initiatives focussed on the current risk or cost of production rather than cost of sustainable production
5. Producers are concerned about minimum pricing when its not a level playing field
6. Scope for calculation of COP is key to keep with pace of changing COP in line with minimum costs
7. Swaps mechanism: help protect against volatility but not long term downward pressure on pricing
8. Minimum pricing or risk-based tools don’t address any oversupply in market on their own
9. Still a tendency for mechanisms that aren’t market wide to benefit those that already have more wealth and power
10. When minimum pricing is combined with restricted no of players, competition is over market share and not price
11. Voluntary schemes like FT are only small proportion of the market
12. In some places, even if everything is operating at a maximum efficiency it is not enough for people to make a living income
13. Minimum prices may reduce incentive for quality
14. Setting minimum price may artificially depress market price in periods of higher prices
15. Self-assessment cost of production tools may put power back in the hands of the producer
Read the full SCA Research document here