Yahoo Finance Cocoa Farmers Earn More in KitKat Program, But Fall Far Short of Living Income
(Bloomberg) -- Nestle SA is expanding a program that boosts the income of poor African farmers supplying cocoa for its KitKat bars, but which still leaves pay well short of growers’ needs.
Most Read from Bloomberg
The Swiss food giant has enrolled 11,000 farming households in top grower Ivory Coast in a program that pays a bonus of up to €500 ($535) a year to families which fulfill obligations such as putting their children in school and adopting high-quality pruning. While it covers just a fraction of Ivorian farms, Nestle plans to roll it out further, including in neighboring Ghana.
Yet those in the program still earn almost $3,000 a year below the amount of just over $7,500 that’s needed to live a decent life — a gap highlighting a systemic challenge for the cocoa industry. A legacy of low farmer pay has hindered West African growers from investing in plantations. That’s making it harder to cope with extreme weather and crop disease, risking supply crunches like the one that has sent prices soaring to a record high this year.
Companies like Nestle, which is one of the world’s top cocoa buyers, are facing more scrutiny to improve supply chains, including through better pay for farmers. But at the same time, they’re under pressure to keep costs in check as inflation makes it more expensive to make chocolate — something that’s filtering through to supermarkets and curbing demand for some products.
The cocoa in Nestle’s income accelerator program is separated from the rest of production and sent to factories like one in Hamburg, where about 4 million KitKat bars a day are produced. Those beans will eventually cover 95% of KitKats made in Europe.
A survey of 1,500 of these families by the KIT Royal Tropical Institute found that the program improved school enrollment rates and cocoa productivity in 2023, when compared to other Ivorian farmers supplying Nestle in the previous year, according to a report released Tuesday. Increased pruning raised cocoa production further.
Still, farmer pay was $2,780 a year shy of the living income level. For growers not in the program, the gap was almost $4,000.
An issue is that farmers in Ivory Coast and Ghana miss out on most of the benefits of surging cocoa prices. Pay in those countries is set by the government — and farmgate prices there are well below what futures are trading at.
Read More: Biggest Cocoa Rally in Decades Is Leaving Top Producers Behind
Nestle’s income accelerator program — which has been in place for two years — is expanding to Ghana this year, to include a total of 30,000 families. The company wants the program to reach 160,000 households across its global supply chain by 2030, and hopes that access to loans will also help growers diversify into other crops to be less reliant on cocoa.
Rolling out at scale will be a big undertaking, with every farm needing assessment and every spouse being enrolled into a savings association.
“This kind of intensity we haven’t had before,” said Darrell High, manager of the Nestle cocoa plan. “It takes a lot of gearing up for our suppliers to get to the sort of speed and capacity to do this.”
--With assistance from Megan Durisin, Mumbi Gitau and Thomas Hall.
Most Read from Bloomberg Businessweek
Modi Is $20 Trillion Short on His Grand Plan for India’s Economy
Biden Strategy to Tame Gas Prices Is in Peril as Iran Sanctions Pressure Mounts
©2024 Bloomberg L.P.
