Nestlé’s KitKat will stop being Fairtrade – FAQ

Nestlé’s KitKat will stop being Fairtrade – FAQ

by Claire Liboureau

Since our statement about cocoa farmers’ concerns regarding KitKat moving away from Fairtrade, we have received many messages of support for farmers, as well as some questions. We have also seen questions on social media, so we would like to answer as many as we can.

What earnings were farmers making selling their cocoa and sugar on Fairtrade terms for KitKat?

  • The Fairtrade Minimum Price is a price safety net for farmers that kicks in when the market crashes. This is currently active in cocoa and has been protecting Fairtrade farmers for the last two years. The Fairtrade Minimum Price is $2,400 per tonne of cocoa (i.e. £1,944 per tonne).
  • The Fairtrade Premium is a transparent, clear, additional amount of money. 100% of the Fairtrade Premium goes to the co-operatives whose members – the farmers – decide democratically for themselves how to spend it. The Fairtrade Premium is $240 (i.e. £194) per tonne for cocoa and $60 (i.e. £49) per tonne for sugar.
  • Given the number of KitKats sold in the UK and their cocoa and sugar content, this represents respectively £1.37 million and £583,000 in Fairtrade Premium. This means that, with KitKat Fairtrade, each year cocoa and sugar farmers receive a total of £1.95 million in Fairtrade Premium.

As Nestlé moves away from Fairtrade, what is the impact on farmers?

  • Cocoa and sugar farmers will lose the Fairtrade Premium of £1.95m per year (£1.37m for cocoa and £583k for sugar). The Premium is a transparent, clear, additional amount of money that is paid to Fairtrade co-operatives whose members – the farmers – decide democratically for themselves how it is spent.
  • Nestlé have announced publicly that they will invest ‘in a series of initiatives to support farmers and communities, including £1 million to improve incomes and a further £500,000 on community projects’, totalling £1.5 million over two years (equivalent to £750K each year). It is not clear how that will be delivered, whether it will go directly to farmers’ co-operatives and the amount of control they will have over how they spend that money.
  • As it stands and as per the information now available, after taking into account the above £1.5m investment over two years, cocoa and sugar farmers still stand to lose £2.4m over the first two years after the KitKat move, or £1.2m per year. It is not clear what happens after the first two years, there is not yet public commitment to any further investment.
  • Beyond the financial loss of the Fairtrade Premium, producers will also lose the safety net offered by the Fairtrade Minimum Price and the ability to decide for themselves how to spend their Premium and develop their communities.

What is the Living Income Differential?

The Living Income Differential has been used in some of our communications. This is an additional amount to be added to the market price of cocoa as requested by Ivorian & Ghanaian governments. The Living Income Differential is mandatory for all companies that buy cocoa from Côte d’Ivoire and Ghana. Any company that pays this is not an exception but complies with legal requirements. It is new and only applies from the October 2020 harvest. It is independent of the Fairtrade Premium which is paid in addition.

Does Rainforest Alliance pay farmers a premium?

Rainforest Alliance (RA) payments have been mentioned too. Under the Rainforest Alliance scheme to date, financial benefits on top of the normal price of cocoa are not fixed but negotiated between buyers and smallholder farming cooperatives when they negotiate cocoa contracts, within some guidelines. Recently updated RA standards will require buyers to pay a negotiated ‘sustainability differential’ to farmers in cash via their cooperative. It’s not fixed, but from July 2022, there will be a minimum of $70/tonne introduced in cocoa. A second component, a ‘sustainability investment’ is made up of in kind investments or finance, also negotiated with buyers, with the final value of the investments reported retrospectively. Under the new RA standard there is a requirement to work towards consulting members on the contents of the sustainability investment plan after year 3.

Under Fairtrade standards, the non-negotiable Premium for cocoa is set at $240 / tonne. All the expenditure is allocated following a democratic decision making process at cooperative level, typically including a significant direct cash distribution to farmers alongside investment in communities, services for members and strengthening their cooperatives.

Nestlé say they will pay a “Rainforest Alliance Premium of $180/tonne” and contrast it to the Fairtrade Premium of $240/tonne. Since this figure isn’t set by RA in their standards we would encourage Nestle to clarify in detail how it was negotiated with farmers, how it breaks down to different types of investment, and how much will be spent on projects democratically decided by farmers.

Traceability in Fairtrade sugar supply chains

Commodity supply chains are often long and complex, which can make them opaque. This means that farmers don’t necessarily know where their crop ends up in the global food industry and who the end buyer is.

Keeping Fairtrade sugar physically separate from non-certified sugar throughout a supply chain can be difficult and extremely costly, due to complex manufacturing processes in local mills, factories or at the point of shipping. This can limit sales for Fairtrade farmers. In order to be sure that disadvantaged sugar producers have maximum opportunities to sell as much of their certified crops as possible on fairer terms, Fairtrade operates a traceability programme known as ‘mass balance’. Under mass balance, companies may mix Fairtrade and non-Fairtrade products during the manufacturing process as long as the actual volumes of Fairtrade sales are traced through this journey, so that farmers reap the benefits of the sales. 

FLOCERT tracks and audits actual volumes of sales on Fairtrade terms through the supply chain and Fairtrade Premium paid to the farmers. This process ensures that the amount of ingredients in the final Fairtrade labelled product matches the amount sold by the farmers and the full Fairtrade Premium has been paid. Physical separation and traceability is still guaranteed for organic ingredients and some sugar products. 

Read more about mass balance here 

Read the full statement and letter from the Ivorian Fair Trade Network

Read more…