Cocoa Buyers, Consider the Farmer

Equitable Price and Risk Distribution is Good for the Farmer and Good for Your Business

Kim Beevers, Katinka Harsanyi

Over the last two seasons, GROW has collaborated with buyers and exporters to rethink approaches to supplier engagement in Liberia. Our work and research suggest that cocoa investors, exporters, and buyers can integrate sustainable farmer engagement strategies in ways that support more equitable and attractive returns for farmers – while continuing to benefit themselves.

Offering value-added services such as agricultural training and financing has helped our buyer partners to establish new trade relationships with cooperatives and their farmers in Nimba and Lofa Counties. We have found that though cocoa pricing is important, other services and allowances also attract cooperative and farmer loyalty.

These services are in turn opening new and better trade opportunities for farmers. Training, in particular, has helped farmers to increase the volume and quality of cocoa that they produce and trade. For example, farmers that received cooperative-led good agricultural practices training saw a 66% increase in yield from one year to the next. This resulted in more and better quality cocoa supply for buyers and additional income for farmers.

Increasing the types of support provided to farmers through supplier development schemes as well as the number of exporters that offer these schemes to their cocoa suppliers, is one of GROW’s main goals over the next few years. There are many considerations with respect to these schemes. When it comes to pricing, we advise our partners to consider the following:

1. Share price benefits. If the world market price for cocoa goes up, how will the extra profit be spread? If some payments for cocoa will be made in-kind rather than with cash (e.g. inputs), is there a business case to demonstrate that farmers are benefiting?
2. Spread risk equitably. If the world market price for cocoa falls, will each party absorb this drop equally? What is the ability of farmers to hedge (protect) against this risk when compared with a buyers or exporters.
3. Offer value-added services to cooperatives and farmers that boost productivity. Is the trading relationship mutually beneficial, with each party contributing clear value in line with the investments they are making and the risks they are taking? Is the added value provided commensurate with the benefit received?
4. Consider the profitability of cooperative and farmer partners. Can cooperatives cover their costs and turn a profit based on the price and/or commission they are offered for cocoa? Can farmers cover their costs and live off the price they are receiving for their cocoa?

Interested in learning more? Check out GROW Liberia’s cocoa sector guides and cooperative development materials in our Resources library.

Cocoa buyers and their new cooperative partners in Liberia are working toward specialty certification with the objective of unlocking higher price premiums. Specialty certifications also typically require transparent pricing.

Read more about the pathway to certification for Liberian farmers and buyers.