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 from the British public, as well as some questions. We have also seen questions on social media, so we would like to answer as many as we can.
Note: This page was updated on 1 October based on new information received
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?
Farmers will no longer be selling on Fairtrade terms, or receiving the benefits summarised above. Nestlé are now sourcing sugar beet from Europe in place of sugar cane, so sugar farmers will no longer sell their sugar to go into KitKats, or receive the Fairtrade Premium. Nestlé will continue to purchase cocoa from the same cooperatives, but on different terms, certified by Rainforest Alliance, and announced some short-term measures Nestlé to mitigate the impact of the move. Since the announcement in June, more detail has been released on the nature of the alternative payments in place of Fairtrade Premium, and the mitigation fund:
- Nestlé announced a one-off £500,000 transitional fund to support cocoa farmers mitigate the impact of the move over the next two years. They later confirmed that the majority (£440,000) has been allocated to cooperatives to be spent in the next year. To put in context with other payments and loss of Fairtrade Premium, the £500,000 fund amounts to a total of roughly $90 per tonne of cocoa, paid to cooperatives, This will largely be spent in the next year, and isn’t a continuous commitment unlike the Fairtrade Premium.
- Nestlé also announced publicly that they will invest £1 million over two years in a new living income initiative. It will provide cash bonuses to cocoa farmers who meet specific criteria agreed with Nestlé. But there has not yet been further detail to understand how, or how much of this amount will reach farmers.
- Shortly after the news was released, Nestlé announced they would pay a premium of $180 per tonne of cocoa, of which $60 will go directly to farmers, $60 to cooperatives, and the final $60 made up of in-kind support for sustainability projects that ‘ensure and enhance their Rainforest Alliance certification’. Therefore, $120 of the $180 will be under full control of farmers and their cooperatives. In response to questions, Nestlé have since guaranteed the $180 amount won’t be reduced in the future.
- Cocoa farmers will lose the safety net offered by the Fairtrade Minimum Price, although in response to feedback, Nestlé have recently committed to match the Fairtrade Minimum Price guarantee for the next two years.
The further details and commitments from Nestlé that have been released since the initial announcement provide a degree of additional financial security to cocoa farmers than was initially announced. However, we remain concerned that cocoa farmers and their cooperatives will have less ability to decide for themselves how to invest payments made for their cocoa as they would have received selling on Fairtrade terms, particularly after the short-term transitional payments are spent over the next two years.
What is the Living Income Differential?
The Living Income Differential has been used in some of our communications. This is an additional amount of $400 per tonne to be added to the price of cocoa as required by the Ivorian & Ghanaian governments. The Living Income Differential is mandatory for all companies that buy cocoa from Côte d’Ivoire and Ghana as of 1 Oct 2020. Any company that pays this is not an exception but complies with legal requirements. It is independent of the Fairtrade Premium which is paid in addition for cocoa bought on Fairtrade terms.
Does Rainforest Alliance pay farmers a premium?
Under the Rainforest Alliance (RA) 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.
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.